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Fit Boxx Holdings Ltd – IPO: ‘F-1’ on 12/26/18

On:  Wednesday, 12/26/18, at 6:35pm ET   ·   As of:  12/27/18   ·   Accession #:  1213900-18-17885   ·   File #:  333-229028

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

12/27/18  Fit Boxx Holdings Ltd             F-1        12/26/18    7:2.4M                                   Edgar Agents LLC/FA

Document/Exhibit                   Description                      Pages   Size 

 1: F-1         Registration Statement by a Foreign Private Issuer  HTML    991K 
 2: EX-23.1     Consent of Zh CPA, LLC                              HTML      6K 
 3: EX-23.4     Consent of Iresearch                                HTML      8K 
 4: EX-23.5     Consent of Poi Lam William Yuen                     HTML      6K 
 5: EX-23.6     Consent of William Mirecki                          HTML      6K 
 6: EX-23.7     Consent of Catherine Lee                            HTML      6K 
 7: EX-99.1     Registrant's Application for Waiver of              HTML     14K 
                          Requirements of Form 20-F, Item 8.A.4                  

As filed with the Securities and Exchange Commission on December 26, 2018

Registration No. 333-          

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FIT BOXX HOLDINGS LIMITED

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

13/F, Le Diamant

703 Nathan Road

Mongkok, Kowloon

Hong Kong

Tel: +852.2944.6856

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Yiu Kwong Chan

Chief Executive Officer

13/F, Le Diamant

703 Nathan Road

Mongkok, Kowloon

Hong Kong

Tel: +852.2944.6856

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Calculation of Registration Fee

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

FIT BOXX HOLDINGS LIMITED

2,500,000 Ordinary Shares

This is the initial public offering of our ordinary shares. It is currently estimated that the initial public offering price per ordinary share will be between US$7.50 and US$8.50. Currently, no public market exists for our ordinary shares. We have applied for our ordinary shares to be listed on the NASDAQ Capital Market (“NASDAQ”) under the symbol “FBOX”. There is no guarantee or assurance that our ordinary shares will be approved for listing on NASDAQ.

We are an “emerging growth company”, as that term is used in the Jumpstart Our Business Startups Act of 2012, and will be subject to reduced public company reporting requirements.

Investing in our ordinary shares is highly speculative and involves a significant degree of risk.  See “Risk Factors” beginning on page 7 of this prospectus for a discussion of information that should be considered before making a decision to purchase our ordinary shares.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

PRICE US$        PER ORDINARY SHARE

(1) See “Underwriting” for additional disclosure regarding underwriting compensation payable by us.

We have granted the underwriters the right to purchase up to an additional 375,000 ordinary shares to cover over-allotments.

Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ordinary shares against payment in U.S. dollars in New York, New York on or about          , 2019.

WestPark Capital, Inc.

The date of this prospectus is            

TABLE OF CONTENTS

You should rely only on the information contained in this prospectus or in any related free-writing prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus or any free-writing prospectus. We are offering to sell, and seeking offers to buy, the ordinary shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the ordinary shares.

We have not taken any action to permit a public offering of the ordinary shares outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the ordinary shares and the distribution of the prospectus outside the United States.

RISK FACTORS

An investment in our ordinary shares involves significant risks. You should carefully consider all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in our ordinary shares. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our ordinary shares could decline, and you may lose all or part of your investment.

Risks Related to Our Business

We rely on the supply of products by a few major suppliers

For each of the two years ended December 31, 2017 and December 31, 2016, our top five suppliers accounted for approximately 93% and 83% of our total purchases, respectively. We cannot assure you that we will successfully maintain our business relationship with our top five suppliers or diversify our supplier portfolio, and there is no assurance that our suppliers will continue to supply their products to us in the future at all or maintain a stable source of supply of products to us. If any of our top five suppliers cease doing business with us or reduces its business volume or any of our top five suppliers suffers a decline, there is also no assurance that we would be able to source similar products from alternative channels at all, or at commercially reasonable prices, or in a timely manner or at favorable terms, our business and financial results would be adversely affected.

The success of our business depends, to a large extent, on our ability to secure distribution rights with certain major brand owners

Currently, we have entered into distribution agreements with 6 brand owners, which accounted for approximately 94% and 83% of our purchases for the two years ended December 31, 2017 and December 31, 2016, respectively. Pursuant to the agreements, they have granted distribution rights to us for distribution of certain beauty devices and fitness and health care products in Hong Kong, the PRC and/or Macau. If we cannot fulfil our obligations under the distribution agreements, the brand owners are entitled to revoke the distribution rights or terminate the distribution agreements with us.

Furthermore, the duration of each of these distribution agreements with brand owners is generally from one to three years. We cannot assure that such distribution agreements can be renewed, or can be renewed on commercially reasonable terms in the future. If we fail to renew the distribution agreements with the major brand owners, our business and financial results would be materially and adversely affected.

If we are unable to rely on the services and connections of our key personnel, or retain the current key personnel, our business could be adversely affected

Our growth has been heavily dependent on the services provided by our management team, in particular our founders, Mr. Yiu Kwong Chan and Mr. Hon Ming Li. They manage our business operation, develop and execute our business strategies and manage the relationship with our key product suppliers and corporate customers. Therefore, our future success relies on our ability to retain the services of these key management personnel. If any of these key personnel are unable or unwilling to continue to provide services to us in his or her original position, and we are unable to find suitable replacements, we may not be able to continue our operations effectively and efficiently, and our business and financial conditions could be adversely affected.

We are exposed to risks of obsolete and slow-moving inventory which may adversely impact our cash flow and liquidity

The total amount of our inventories were approximately $6.5 million and $3.2 million as of December 31, 2017 and 2016, and accounted for approximately 45% and 36% of our total assets, respectively. The demand for our beauty device products and fitness and health care products is highly dependent on customers’ preferences, which are beyond our control. Any increase in inventory may adversely affect our working capital. If we cannot manage our inventory level efficiently in the future, our liquidity and cash flow may be adversely affected. Further, if we fail to source appropriate products to suit consumer preferences in the future, the volume of obsolete and slow-moving inventory may increase and we may need to either sell off such inventory at a lower price or write off such inventory, in the event of which our financial position and results of operations may be materially and adversely affected.

We have not entered into long-term agreements with the customers and there is no assurance that our current relationship with any customer can be continued in the future

During the two years ended December 31, 2017 and December 31, 2016, approximately 30%, and 48% respectively of our sales were direct sales to general public consumers. They generally place a single purchase order with us for each purchase. The remainder of our sales of 70% and 52% are sales to our corporate customers, such as chain retailers and other distributors and retailers. None of them have entered into any long-term purchase agreements with us. The volume of the customers’ purchase orders and the product mix may vary significantly subject to trends and needs, and we may be difficult to forecast the number of future orders. As a result, our business, results of operations and financial condition may vary from period to period, depending on the volume of purchase orders from the customers, whether existing or new. Moreover, as there is no long-term agreement with us, there is no assurance that our relationship with any customer will continue on the same or similar terms, and the customers are free to terminate their respective relationship with us at any time in the future.

Our business and sales are subject to the business strategies of the brand owners

For the two years ended December 31, 2017 and December 31, 2016, approximately 97% and 97% of our revenue were attributed to sales of branded products sourced from brand owners around the world. Our business and sales are heavily dependent on the market receptiveness of, and demand for, the products being provided by various brand owners. The overall business strategies and product development plans adopted by these brand owners and their ability to maintain and develop the brands are therefore essential to our business.

As we have limited or no influence on the decisions made by the brand owners in relation to their business strategies, in particular, the production of their existing products and development of new products, we cannot assure that the brand owners will be able to maintain and further develop their brands and/or products, or that our customers will continue to show preferences to their brands and/or products. If the strategies of the brand owners turn out to be unsuccessful or due to any other reasons the marketability of the brands falls substantially, the profitability of our business would be materially and adversely affected.

We cannot assure that our products can meet consumer preferences and needs, and will continue to gain market acceptance and secure market share

We sell and distribute a variety of beauty device products and fitness and health care products to the general public through our distribution network, which includes chain retailers, third party e-commerce platforms, online group buying platforms, other distributors and retailers and our own retail outlets and websites. The general acceptance by consumers of the brands and products marketed by us is of vital importance to our success and it hinges on a number of factors such as brand image, product quality and customer loyalty. Our success also depends, to a large extent, on our ability to offer a diversified portfolio of products that can meet the changing consumer preferences and needs. There is no assurance that the existing products distributed and sold by us will be able to satisfy changes in consumer preferences and needs.

We may also fail to anticipate, identify or respond to the constant changes in relation to consumer preferences and needs on a timely basis, nor can we assure that we will be able to gain or increase market receptiveness and market share for our products.

Consumer preferences and needs for products and brands can change from time to time for various reasons, including negative publicity regarding our products, emergence of competitive products and brands, or a general decrease in demand for the beauty device  products and fitness and health care products distributed and sold us. Any of these events could adversely affect our competitive advantage and market share, which in turn could materially and adversely affect our business, financial condition and results of operation.

We may not be able to renew our existing leases for our retail outlets when they expire, or if they are terminated, on terms acceptable to us

We enter into leases in order to obtain retail space for our retail outlets. Generally, the terms of our leases of retail outlets are for a period of six months to three years. We typically negotiate with the landlords three to six months prior to the expiration of the leases for their renewal. We cannot assure that we will be able to renew any of our leases on favorable or otherwise acceptable terms and conditions, in particular, those regarding rental amount. If existing leases cannot be renewed, we will have to find alternative premises that may not be located in areas that offer similar business environments and competitive advantage or similar pricing. In addition, failure to renew such leases will provide an opportunity for competitors to move into such retail spaces previously identified and occupied by us as strategically favorable point of sale. Accordingly, failure to secure such retail spaces on terms that are acceptable to us may materially and adversely affect our business, financial condition and results of operations.

Our marketing activities are essential to maintain and enhance the brand images of our products and the success of our business

Our success depends considerably on our ability to develop, maintain and enhance the brand image of both the branded products sold by us and our own-brand products. The ability to maintain and enhance our brand recognition and reputation depends primarily on the success of our marketing and promotional efforts. We have put substantial resources into promoting the products by various media advertisements and sponsorships of events in order to enhance the brand recognition of our products. However, there is no assurance that our marketing and promotional efforts will achieve the expected results. If we fail to successfully market and promote the carried brands, the brand recognition of the products distributed and sold by us may be adversely affected and there may be a possible decline in demand.

Further, our advertising activities are subject to the relevant laws and regulations of the jurisdictions where we operate. For instance, the Trade Description Ordinance (Cap. 362, Laws of Hong Kong) provides that no person shall publish any advertisements that contain misleading information and/or a false trade description of the goods. If our marketing materials or advertisements contain anything contrary to the relevant laws and regulations, we would be liable for breach of the relevant laws and regulations. Our reputation would also be adversely affected.

We conduct our business in the PRC through e-commerce platforms. Risks associated with e-commerce platforms may adversely affect our business and reputation

We sell our beauty device products to the PRC market significantly via a third party e-commerce platform, namely, Tmall. We cannot assure that technical error, system failure, computer virus, loss of data or other electronic related system failures would not occur when a transaction is made via the trading platform. As it is normally a term of use that these e-commerce platforms will not be liable for any losses or damages caused by technical error, system failure, computer virus or such, we may have to bear the loss of any business due to the interruption to the transaction.

Furthermore, if any e-commerce platform is found or perceived to be associated with selling of counterfeit products, our brand image and reputation may be tarnished and our business may be adversely affected accordingly.

We rely on external manufacturers for production of our own-brand products

We do not have any production facilities or production lines of our own. Our major own-brand products are fitness and health care products sourced from independent external manufacturers in the PRC. For the two years ended December 31, 2017 and December 31, 2016, sales of own-brand products both accounted for approximately 3% of our revenue, respectively. Thus, our control over these external manufacturers in respect of their production process and quality of products is limited. The Company cannot assure that (i) there will not be any unexpected interruption of supply of products by these external manufacturers due to any reason beyond our control or expectation, such as introduction of new regulatory requirements, import restrictions, revocation of business licenses, power interruptions, fires or other force majeure; or (ii) the products provided to us by these external manufacturers can meet our quality requirements. Any such problems in relation to the supply of our own-brand products by external manufacturers could have a material adverse impact on our business.

We are exposed to credit risks of our corporate customers. If any of our major corporate customer experiences any financial difficulty, our business with such corporate customers and the settlement process of their outstanding amounts owing to us may be adversely affected which may in turn adversely affect our liquidity, results of operations and profitability

Aside from the business generated from the general public consumers, we also rely on the business generated from our corporate customers. We normally grant corporate customers a credit period of 30 to 60 days. We do not have access to all information of our corporate customers to determine their creditworthiness. The complete financial and operational conditions of the corporate customers are not always available to us, and we may not be in any position to obtain such information. As a result, if any of our major corporate customers experience any financial difficulty, our business with such corporate customers and the settlement process of their outstanding amounts owing to us may be adversely affected, which may in turn adversely affect our liquidity, the results of operations and profitability.

Our products may cause unexpected or undesirable side effects unknown to us that may result in costly product returns or recalls, or even legal actions against us

Our own-brand products are assembled with various mechanical parts and are produced by external manufacturers, who may have inconsistencies in relation to the product quality. Although we believe that there are measures in place to control the quality of the finished products, we cannot assure that we will be able to detect defective products in every circumstance.

In relation to the branded products distributed by us, we have no control of the manufacturing process of the brand owners and can only rely on the product warranty, quality control report and/or clinical study certificates/reports provided by them.

However, if any side effects occur or if our products are perceived to have certain side effects, we may have to recall the products sold to the market. Substantial amount of product returns or recalls could materially and adversely affect our business, financial condition and results of operations.

In addition, we may be exposed to the risk of product liability claims, litigation, complaints or adverse publicity under the circumstance. Currently, we do not maintain any product liability insurance and the product liability insurance policies maintained by the brand owners may not be able to be extended to cover us in a legally effective way. If we face any litigation proceedings and we are held liable for any product liability claim, we will have to bear the costs, damages and other legal and related expenses arising therefrom to the extent that we may not be able to recover them from the relevant brand owner or manufacturer. As a result, our business, financial condition and results of operations may be materially and adversely affected.

Our products may be subject to counterfeiting, imitation, and/or infringement by third parties

The Company cannot assure that counterfeiting or imitation of our products will not occur in the future or, if it does occur, that we will be able to detect or address the problem effectively. Any occurrence of counterfeiting or imitation of our products could negatively affect our reputation and brand image and the products that we sell, leading to a loss of consumer confidence in us and our products, and as a consequence, adversely affect our results of operations. Any litigation to prosecute counterfeiting and infringements of our rights and products will be expensive and will divert the management’s attention as well as other resources away from our business.

Furthermore, we have acquired intellectual property rights in our own-brand products. We rely on trademark registrations to protect our intellectual property rights. However, it may be possible for third parties to use our intellectual property without authorization. Any unauthorized use or infringement of our intellectual property rights may have an adverse impact on our business. If we have to resort to litigation to enforce our intellectual property rights, significant costs may be incurred.

Conversely, there can be no assurance that our own-brand products sourced from external manufacturers will not infringe any third parties’ alleged design right. Should any infringement claim be initiated against us, we may incur significant legal expenditure to defend our rights and interests or be required to pay substantial damages. As a result, our reputation and business can be materially and adversely affected.

Our operating results may fluctuate due to seasonality and other factors

Our sales is subject to certain degree of seasonal fluctuations. Generally, demand for our beauty device products is relatively higher during spring season in March and June. We also experienced higher sales during the “Double Eleven” sales when our third party e-commerce platforms, such as Tmall, launched special promotional activities to boost online shopping. Sales may also fluctuate during the course of a financial year for a number of other reasons, including the timing of launching new products and advertising and promotional campaigns. As a result, these seasonal consumption patterns may cause our operating results to fluctuate from period to period.

We may be unable to maintain rapid growth and implement our future plans

Our future business growth primarily depends on the successful implementation of our business objectives, business strategies and future plans. These business objectives are based on our existing plans and intentions, most of which are at initial stages and have not been proceeded to the stage of actual implementation and are therefore subject to high degree of risks and uncertainties. Furthermore, we may not be able to achieve the anticipated growth and expansion of our business due to factors which are beyond our control, such as changes in economic environment, market demands, government policies and relevant laws and regulations. As such, there is no assurance that our business objectives, business strategies and future plans will be accomplished, whether in whole or in part or be implemented within the estimated timeline. In the event that our future plans are not implemented and our business objectives are not accomplished, our business, profitability and financial positions in the future may be materially and adversely affected.

Furthermore, our future business plans may be hindered by other factors beyond our control, such as competition from other retailers and distributors selling similar products. Therefore, there is no assurance that our future business plans will materialize, or result in the conclusion or execution of any agreement within the planned time frame, or that our objectives will be fully or partially accomplished.

The Company operates in a highly competitive industry

We face keen competition in respect of, inter alia, pricing, product quality and brand identification. Some of our competitors may have greater financial, technological and informational resources than us, which may enable them to provide products superior to our products, or to adapt more quickly than we do to evolving industry trends and consumer preferences. Conversely, some of our competitors may, out of various commercial considerations, adopt low-margin sales strategies and compete against us based on lower prices to increase their market shares. We may be forced to lower the prices and profit margins of our products or our market share would drop.

There is no assurance that we will be able to compete successfully with our competitors in the future in view of the changing market environment. Increasing competition within the industry may have an adverse impact on our sales volume, market share, profit margin and financial result.

A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition.

Any prolonged slowdown in the Chinese or global economy may have a negative impact on our business, results of operations and financial condition. There is uncertainty over the global economic condition such as the trade war between the United States and China. There is uncertainty in financial markets over the decision by the United Kingdom to exit the European Union. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have also been concerns about the economic effect of the tensions in the relationship between China and surrounding Asian countries. Adverse economic conditions could also reduce the number of customers and interests in our services and products. Should any of these situations occur, our net revenues will decline, and our business and financial conditions will be negatively impacted. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs.

Our quarterly and annual results may fluctuate significantly and may not fully reflect the underlying performance of our business.

Our quarterly and annual results of operations, including the levels of our net revenues, expenses, net (loss)/income and other key metrics, may vary significantly in the future due to a variety of factors, some of which are outside of our control, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results for any one quarter or any one year are not necessarily an indication of future performance. Fluctuations in quarterly and/or annual results may adversely affect the price of our ordinary shares. Factors that may cause fluctuations in our quarterly and annual financial results include:

If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Ordinary Shares may decline.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. In addition, in the future, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We are in the process of designing, implementing, and testing the internal control over financial reporting required to comply with this obligation, which process is time consuming, costly, and complicated. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting beginning with our annual report on Form 20-F following the date on which we are no longer an “emerging growth company,” which may be up to five full years following the date of this offering. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Ordinary Shares could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the Securities and Exchange Commission, or the SEC, or other regulatory authorities, which could require additional financial and management resources.

We may need additional capital, and financing may not be available on terms acceptable to us, or at all.

There is no guarantee that in the future we will generate enough profits to support our business. Although we believe that our anticipated cash flows from operating activities, together with cash on hand and additional capital contributions we expect to receive from existing investors, will be sufficient to meet our anticipated working capital requirements and capital expenditures in the ordinary course of business for the next twelve months, we cannot assure you this will be the case. We may need additional cash resources in the future if we experience changes in business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

From time to time we may evaluate and potentially consummate strategic investments or acquisitions, which could require significant management attention, disrupt our business and adversely affect our financial results.

We may evaluate and consider strategic investments, combinations, acquisitions or alliances to further increase the value of our marketplace and better serve borrowers and investors. These transactions could be material to our financial condition and results of operations if consummated. If we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we do consummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction.

Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including:

We may not make any investments or acquisitions, or any future investments or acquisitions may not be successful, may not benefit our business strategy, may not generate sufficient revenues to offset the associated acquisition costs or may not otherwise result in the intended benefits. In addition, we cannot assure you that any future investment in or acquisition of new businesses or technology will lead to the successful development of new or enhanced products and services or that any new or enhanced products and services, if developed, will achieve market acceptance or prove to be profitable.

Our failure or the failure of third parties to protect our sites, networks and systems against security breaches, or otherwise to protect our confidential information, could damage our reputation and brand and substantially harm our business and operating results.

We collect, maintain, transmit and store data about our consumers, retailers and brands and others, including credit card information and personally identifiable information, as well as other confidential information.

We also engage third parties that store, process and transmit these types of information on our behalf. We rely on encryption and authentication technology licensed from third parties in an effort to securely transmit confidential and sensitive information, including credit card numbers. Advances in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of this technology to protect transaction data or other confidential and sensitive information from being breached or compromised. In addition, ecommerce websites are often attacked through compromised credentials, including those obtained through phishing and credential stuffing. Our security measures, and those of our third-party service providers, may not detect or prevent all attempts to breach our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by our websites, networks and systems or that we or such third parties otherwise maintain, including payment card systems, which may subject us to fines or higher transaction fees or limit or terminate our access to certain payment methods. We and such third parties may not anticipate or prevent all types of attacks until after they have already been launched. Further, techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers. In addition, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by third parties. These risks may increase over time as the complexity and number of technical systems and applications we use also increases.

Breaches of our security measures or those of our third-party service providers or cyber security incidents could result in unauthorized access to our sites, networks and systems; unauthorized access to and misappropriation of consumer information, including consumers’ personally identifiable information, or other confidential or proprietary information of ourselves or third parties; viruses, worms, spyware or other malware being served from our sites, networks or systems; deletion or modification of content or the display of unauthorized content on our sites; interruption, disruption or malfunction of operations; costs relating to breach remediation, deployment of additional personnel and protection technologies, response to governmental investigations and media inquiries and coverage; engagement of third-party experts and consultants; litigation, regulatory action and other potential liabilities. Such attacks could have a material adverse effect on our operations. If any of these breaches of security should occur, our reputation and brand could be damaged, our business may suffer, we could be required to expend significant capital and other resources to alleviate problems caused by such breaches, and we could be exposed to a risk of loss, litigation or regulatory action and possible liability. We cannot guarantee that recovery protocols and backup systems will be sufficient to prevent data loss. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants. In addition, any party who is able to illicitly obtain a subscriber’s password could access the subscriber’s transaction data or personal information, resulting in the perception that our systems are insecure.

Any compromise or breach of our security measures, or those of our third-party service providers, could violate applicable privacy, data protection, data security, network and information systems security and other laws and cause significant legal and financial exposure, adverse publicity and a loss of confidence in our security measures, which could have a material adverse effect on our business. 

Risks Related to Doing Business in China

Restrictions on the remittance of Renminbi into and out of China and governmental control of currency conversion may limit our ability to utilize our net revenues effectively and affect the value of your investment.

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive a substantial part of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company relies on dividend payments from our PRC subsidiary to fund cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements, including provision of relevant documentary evidence of such transactions and conducting such transactions at designated foreign exchange banks within the PRC that have the licenses to carry out foreign exchange business. For instance, our PRC subsidiary, Fit Boxx Shenzhen, purchases products from our Hong Kong subsidiary, Fit Boxx HK, on a daily basis, and currency settlements of RMB and HK dollars between these two entities are also occurring on regularly basis. As such payments are categorized as payments of current account items under PRC regulations, Fit Boxx Shenzhen has not encountered any restrictions. In addition, Fit Boxx Shenzhen has not encountered any restrictions in paying dividends to Fit Boxx HK because such payment is also categorized as payment of current account items.

However, approval from or registration or filing with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiary to pay off debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi. The PRC government may at its discretion restrict access to foreign currencies for current account transactions or capital account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders. Further, there is no assurance that new regulations will not be promulgated in the future that would have the effect of further restricting the remittance of Renminbi into or out of China.

Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.

The PRC legal system is based on written statutes and court decisions have limited precedential value. The PRC legal system is evolving rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC judicial and administrative authorities have discretion in interpreting and implementing statutory and contractual terms, it may be difficult to predict the outcome of a judicial or administrative proceeding. Furthermore, the PRC legal system is based, in part, on government policies and internal rules, some of which are not published in a timely manner, or at all, but which may have retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules. Such unpredictability towards our contractual, property (including intellectual property) and procedural rights could adversely affect our business and impede our ability to continue our operations.

Adverse changes in economic and political policies of the PRC government could have a material and adverse effect on overall economic growth in China, which could materially and adversely affect our business.

Our revenues are substantially sourced from China. Accordingly, our results of operations, financial condition and prospects are influenced by economic, political and legal developments in China. Economic reforms begun in the late 1970s have resulted in significant economic growth. However, any economic reform policies or measures in China may from time to time be modified or revised. China’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past 40 years, growth has been uneven across different regions and among different economic sectors.

The PRC government exercises significant control over China’s economic growth through strategically allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Any adverse changes in economic conditions in China, in the policies of the PRC government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our services and adversely affect our competitive position.

Under the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise, which could result in unfavorable tax consequences to us and our shareholders and have a material adverse effect on our results of operations and the value of your investment.

Under the PRC Enterprise Income Tax Law, as amended and effective in 2017, an enterprise established outside China with “de facto management bodies” within China is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income.

In 2009, the State Administration of Taxation, or the SAT, issued the Notice Regarding the Determination of PRC-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprise on the Basis of De Facto Management Bodies, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Further to SAT Circular 82, the SAT issued the Administrative Measures for Enterprise Income Tax of PRC-Controlled Offshore Incorporated Resident Enterprises (Trial), or SAT Bulletin 45, effective 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 clarified certain issues in the areas of resident status determination, post-determination administration and competent tax authorities’ procedures.

According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be considered as a PRC tax resident enterprise by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following conditions are met: (a) the senior management and core management departments in charge of its daily operations function have their presence mainly in China; (b) its financial and human resources decisions are subject to determination or approval by persons or bodies in China; (c) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in China; and (d) more than half of the enterprise’s directors or senior management with voting rights habitually reside in China. SAT Bulletin 45 specifies that when provided with a copy of a PRC tax resident determination certificate from a resident PRC controlled offshore incorporated enterprise, the payer should not withhold 10% income tax when paying the PRC-sourced dividends, interest and royalties to the PRC controlled offshore incorporated enterprise.

Although SAT Circular 82 and SAT Bulletin 45 only apply to offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups and not those controlled by PRC individuals or foreigners, the determination criteria set forth therein may reflect the SAT’s general position on how the term “de facto management body” could be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, individuals or foreigners.

In addition, the SAT issued the Announcement of the State Administration of Taxation on Issues concerning the Determination of Resident Enterprises Based on the Standards of Actual Management Institutions in January 2014 to provide more guidance on the implementation of SAT Circular 82. This bulletin further provides that, among other things, an entity that is classified as a “resident enterprise” in accordance with the circular shall file the application for classifying its status of residential enterprise with the local tax authorities where its main domestic investors are registered. From the year in which the entity is determined to be a “resident enterprise,” any dividend, profit and other equity investment gain shall be taxed in accordance with the enterprise income tax law and its implementing rules.

If the PRC tax authorities determine that we or any of our non-PRC subsidiaries is a PRC resident enterprise for PRC enterprise income tax purposes, then we or any such non-PRC subsidiary could be subject to PRC tax at a rate of 25% on its world-wide income, which could materially affect our financial performance. In addition, we will also be subject to PRC enterprise income tax reporting obligations.

If the PRC tax authorities determine that our company is a PRC resident enterprise for PRC enterprise income tax purposes, gains realized on the sale or other disposition of ordinary shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. Any such tax may reduce the returns on your investment in our shares.

There are significant uncertainties under the PRC Enterprise Income Tax Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.

Under the PRC Enterprise Income Tax Law and its implementation rules, the profits of a foreign-invested enterprise generated through operations, which are distributed to its immediate holding company outside China, will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong and China, such rate may be reduced to 5% if a Hong Kong resident enterprise owns more than 25% of the equity interest in the PRC company. Our current PRC subsidiary is wholly owned by our Hong Kong subsidiary, Fit Boxx HK. Accordingly, Fit Boxx HK may qualify for a 5% tax rate in respect of distributions from its PRC subsidiary. Under the Notice of the State Administration of Taxation on Issues regarding the Administration of the Dividend Provision in Tax Treaties promulgated in 2009, the taxpayer needs to satisfy certain conditions to enjoy the benefits under a tax treaty. These conditions include: (i) the taxpayer must be the beneficial owner of the relevant dividends, and (ii) the corporate shareholder to receive dividends from the PRC subsidiary must have met the direct ownership thresholds during the 12 consecutive months preceding the receipt of the dividends. Further, the SAT promulgated the Notice on Issues concerning “Beneficial Owner” in Tax Treaties in 2018, which limits the “beneficial owner” to a person who has the right to own and dispose of the income and the rights or properties generated from the said income, and sets forth certain detailed factors in determining “beneficial owner” status, such as being normally engaged in substantive operations.

Entitlement to a lower tax rate on dividends according to tax treaties or arrangements between the PRC central government and governments of other countries or regions is subject to the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties promulgated in 2015, which provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. As a result, we cannot assure you that we will be entitled to any preferential withholding tax rate under tax treaties for dividends received from our PRC subsidiary.

We face uncertainty with respect to indirect transfer of equity interests in PRC resident enterprises by their non-PRC holding companies.

We face uncertainties regarding the reporting on and consequences of previous private equity financing transactions involving the transfer and exchange of shares in our company by non-resident investors.

In February 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or SAT Bulletin 7, as amended in 2017. Pursuant to this bulletin, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. According to SAT Bulletin 7, “PRC taxable assets” include assets attributed to an establishment in China, immovable properties located in China, and equity investments in PRC resident enterprises, in respect of which gains from their transfer by a direct holder, being a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consist of direct or indirect investment in China or if its income mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; the income tax payable abroad on the income from the indirect transfer of Chinese taxable assets; the replicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In respect of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income tax filing of the PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to the immovable properties located in China or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. Where the payer fails to withhold any or sufficient tax, the transferor is required to declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. SAT Bulletin 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange.

There is uncertainty as to the application of SAT Bulletin 7. We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our company may be subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions under SAT Bulletin 7. For transfer of shares in our company by investors that are non-PRC resident enterprises, our PRC subsidiary may be requested to assist in the filing under SAT Bulletin 7. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

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

The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, and other recently adopted 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. 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 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 China, or (ii) the total turnover within China 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 MOFCOM 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 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.

In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions 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. It is unclear whether 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 China, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited.

Fluctuation in the value of the RMB may have a material adverse effect on the value of your investment.

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 China’s foreign exchange policies, among other things. In 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system and we cannot assure you that Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.

Substantially all of our revenues and costs are denominated in RMB, and substantially all of our financial assets are also denominated in RMB. Any significant depreciation of the RMB may materially adversely affect the value of and any dividends payable on our shares in U.S. dollars. To the extent that we need to convert U.S. dollars we receive from this offering into RMB for our operations, appreciation of the 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 our RMB into U.S. dollars for the purpose of paying dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have an adverse effect on the U.S. dollar amount available to us.

Risks Related to Our Ordinary Shares and This Offering

There has been no public market for our ordinary shares prior to this offering, and if an active trading market does not develop you may not be able to resell our shares at or above the price you paid, or at all. 

Prior to this public offering, there has been no public market for our ordinary shares. We intend to apply to have our ordinary shares listed on NASDAQ.  If an active trading market for our ordinary shares does not develop after this offering, the market price and liquidity of our ordinary shares will be materially adversely affected. The public offering price for our ordinary shares will be determined by negotiations between us and the underwriters and may bear little or no relationship to the market price for our ordinary shares after the public offering. You may not be able to sell any ordinary shares that you purchase in the offering at or above the public offering price.  Accordingly, investors should be prepared to face a complete loss of their investment. 

Our ordinary shares may be thinly traded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares. 

Assuming our ordinary shares begin trading on NASDAQ, our ordinary shares may be “thinly-traded”, meaning that the number of persons interested in purchasing our Ordinary shares at or near bid prices at any given time may be relatively small or non-existent.  This situation may be attributable to a number of factors, including the fact that we are relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned.  As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price.  Broad or active public trading market for our Ordinary shares may not develop or be sustained. 

The market price for our ordinary shares may be volatile. 

The market price for our ordinary shares may be volatile and subject to wide fluctuations due to factors such as: 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies.  These market fluctuations may also materially and adversely affect the market price of our ordinary shares. 

Volatility in our ordinary shares price may subject us to securities litigation.

The market for our ordinary shares may have, when compared to seasoned issuers, significant price volatility and we expect that our share price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources. 

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively. 

Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could harm our business.

In order to raise sufficient funds to enhance operations, we may have to issue additional securities at prices which may result in substantial dilution to our shareholders.

If we raise additional funds through the sale of equity or convertible debt, our current shareholders’ percentage ownership will be reduced. In addition, these transactions may dilute the value of ordinary shares outstanding. We may have to issue securities that may have rights, preferences and privileges senior to our ordinary shares. We cannot provide assurance that we will be able to raise additional funds on terms acceptable to us, if at all. If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would have a material adverse effect on our business plans, prospects, results of operations and financial condition.

We are not likely to pay cash dividends in the foreseeable future.

We currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any cash dividends in the foreseeable future.

You may face difficulties in protecting your interests as a shareholder, as Cayman Islands law provides substantially less protection when compared to the laws of the United States and it may be difficult for a shareholder to effect service of process or to enforce judgments obtained in the United States courts.

Our corporate affairs are governed by our memorandum and articles of association and by the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands and common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority 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. Decisions of the Privy Council (which is the final court of appeal for British overseas territories such as the Cayman Islands) are binding on a court in the Cayman Islands. Decisions of the English courts, and particularly the Supreme Court of the United Kingdom and the Court of Appeal are generally of persuasive authority but are not binding on the courts of 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 precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the United States federal courts.

Currently, substantially all of our operations are conducted outside the United States, and substantially all of our assets are located outside the United States. All of our officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

As a result of all of the above, our shareholders may have more difficulty in protecting their interests through actions against us or our officers, directors or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States. 

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 United States domestic public companies. 

We are a foreign private issuer within the meaning of the rules under the Exchange Act. As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:

We currently intend to file annual reports on Form 20-F and reports on Form 6-K as a foreign private issuer. Accordingly, our shareholders may not have access to certain information they may deem important. 

We are an “emerging growth company” within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make it more difficult to compare our performance with other public companies.

We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.

As an “emerging growth company” under applicable law, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our ordinary shares less attractive to investors. 

For as long as we remain an “emerging growth company”, as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.  Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile. 

If we are classified as a passive foreign investment company, United States taxpayers who own our ordinary shares may have adverse United States federal income tax consequences.

A non-U.S. corporation such as ourselves will be classified as a passive foreign investment company, which is known as a PFIC, for any taxable year if, for such year, either

Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.

If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our ordinary shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.

Depending on the amount of cash we raise in this offering, together with any other assets held for the production of passive income, it is possible that, for our 2018 taxable year or for any subsequent year, more than 50% of our assets may be assets which produce passive income. We will make this determination following the end of any particular tax year.

We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.”

Upon consummation of this offering, we will incur significant legal, accounting and other expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and NASDAQ Capital Market, impose various requirements on the corporate governance practices of public companies. We are an “emerging growth company,” as defined in the JOBS Act and will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. 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 exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.

Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company,” or until five years following the completion of our initial public offering, whichever is earlier, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

Mr. Yiu Kwong Chan, our Chairman of the Board and Chief Executive Officer, Mr. Kin Wai Ho, our Vice Chairman, and Mr. Hon Ming Li, our Chief Operating Officer have substantial influence over our company and their interests may not be aligned with the interests of our other shareholders.

Upon the completion of this offering, Mr. Yiu Kwong Chan, our Chairman of the Board and Chief Executive Officer, Mr. Kin Wai Ho, our Vice Chairman, and Mr. Hon Ming Li, our Chief Operating Officer, will own             % of the total voting power of our total issued and outstanding ordinary shares, assuming the underwriters do not exercise their option to purchase additional ordinary shares. As a result, they will have substantial influence over our business, including significant corporate actions such as mergers, consolidations, sales of all or substantially all of our assets, election of directors and other significant corporate actions.

Mr. Chan, Mr. Ho and Mr. Li may take actions that are not aligned with the interests of our other shareholders and may render new investors unable to influence significant corporate decisions. This concentration of ownership discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of the ordinary shares. These actions may be taken even if they are opposed by our other shareholders, including those who purchase ordinary shares in this offering. In addition, the significant concentration of share ownership may adversely affect the trading price of the ordinary due to investors’ perception that conflicts of interest may exist or arise.

As a “controlled company” under the rules of the NASDAQ, we may be exempt from certain corporate governance requirements that could adversely affect our public shareholders.

Since Mr. Yiu Kwong Chan, our Chairman of the Board and Chief Executive Officer, Mr. Kin Wai Ho, our Vice Chairman, and Mr. Hon Ming Li, our Chief Operating Officer, will be the beneficial owners of a majority of the voting power of our issued and outstanding share capital through their ownership interests in Faith Elite Limited following the completion of this offering, we will qualify as a “controlled company” under the rules of the NASDAQ. Under these rules a company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirement that a majority of our directors be independent, as defined in the NASDAQ rules, and the requirement that our compensation and nominating and corporate governance committees consist entirely of independent directors. Although we do not intend to rely upon any such exemptions, we could elect to rely on any or all of these exemptions in the future. Should we choose to do so, so long as we remain a controlled company relying on any of such exemptions and during any transition period following the time when we are no longer a controlled company, you would not have the same protections afforded to shareholders of companies that are subject to all of the NASDAQ corporate governance requirements.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that reflect our current expectations and views of future events. The forward looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Regulation” and other sections in this prospectus. You should thoroughly read this prospectus and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.

This prospectus contains certain data and information that we obtained from private publications. Statistical data in these publications also include projections based on a number of assumptions. Our industry may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of our ordinary shares. In addition, the rapidly changing nature of the home improvement industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we refer to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately US$ million, or approximately US$ million if the underwriter exercises its over-allotment option in full, after deducting underwriting discounts and the estimated offering expenses payable by us.

We plan to use the net proceeds of this offering primarily for general corporate purposes. The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus.

The table below shows how we intend to use the proceeds from offering and assumes the underwriter’s over-allotment has not been exercised.

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2018:

The adjusted information below is illustrative only and our capitalization following the completion of this offering is subject to adjustment based on the initial public offering price of our ordinary shares and other terms of this offering determined at pricing. In addition, except for the last column in the first table below, the tables below assumes that the underwriter’s over-subscription option has not been exercised. You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Offering (2,500,000 Ordinary Shares)

U.S. Dollars

September 30, 2018

(1) Gives effect to the sale of ordinary shares at a public offering price of $8.00 per share and to reflect the application of the proceeds after deducting our estimated offering expenses.

(2) Pro forma adjusted for IPO additional paid in capital reflects the net proceeds we expect to receive, after deducting the underwriter commission, underwriter expense allowance and other expenses. We expect to receive net proceeds of approximately $16,393,000 ($20,000,000 offering, less underwriting fee of $1,825,000 and offering expenses of approximately $1,782,000) with this offering. If the over-subscription option is exercised, we expect to receive net proceeds of approximately $19,153,000 ($23,000,000 offering, less underwriting fee of $2,065,000 and offering expenses of approximately $1,782,000). For an itemization of an estimation of the total offering expenses, see “Expenses Relating to this Offering” beginning on page 102 of this prospectus.

DILUTION

If you invest in our ordinary shares, your interest will be diluted to the extent of the difference between the initial public offering price per ordinary share and the pro forma net tangible book value per ordinary share after the offering. Dilution results from the fact that the per ordinary share offering price is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

Our net tangible book value attributable to shareholders at September 30, 2018 was $16.8 million, or approximately $1.87 per ordinary share outstanding as of September 30, 2018. Net tangible book value per ordinary share represents the amount of total assets less intangible assets and total liabilities, divided by the number of ordinary shares outstanding.

Upon completion of the offering, we will have 11,500,000 ordinary shares outstanding, with 2,500,000 ordinary shares, assuming no exercise of the over-subscription option, or approximately 22% upon completion of the offering in the public float. Our post offering pro forma net tangible book value, which gives effect to receipt of the net proceeds from the offering and issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after September 30, 2018, will be approximately $2.89 per ordinary share. This would result in dilution to investors in this offering of approximately $5.11 per ordinary share or approximately 63.9% from the assumed offering price of $8.00 per ordinary share, the midpoint of the estimated range of the initial public offering price. Net tangible book value per ordinary share would increase to the benefit of present shareholders by $1.02 per share attributable to the purchase of the ordinary shares by investors in this offering.

If the over-subscription option is exercised, we will have 11,875,000 ordinary shares outstanding, with 2,875,000 ordinary shares, or approximately 24% in the public float, upon completion of the offering. Our post offering pro forma net tangible book value, which gives effect to receipt of the net proceeds from the offering and issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after September 30, 2018, will be approximately $3.03 per ordinary share. This would result in dilution to investors in this offering of approximately $4.97 per ordinary share or approximately 62.1% from the assumed offering price of $8.00 per ordinary share. Net tangible book value per ordinary share would increase to the benefit of present shareholders by $1.16 per share attributable to the purchase of the ordinary shares by investors in this offering.

The following tables set forth the estimated net tangible book value per ordinary share after the offering and the dilution to persons purchasing ordinary shares based on the foregoing offering assumptions.

POST-OFFERING OWNERSHIP

The following chart illustrates our pro forma proportionate ownership, upon completion of the offering under the 2,500,000 ordinary shares and exercise of the over-subscription option, by present shareholders and investors in this offering, compared to the relative amounts paid by each. The charts reflect payment by present shareholders as of the date the consideration was received and by investors in this offering at the offering price without deduction of commissions or expenses. The charts further assume no changes in net tangible book value other than those resulting from the offering.

EXCHANGE RATE INFORMATION

Solely for your convenience, this prospectus contains translations of certain US dollar amounts into Hong Kong or Renminbi dollar amounts or vice versa at specified rates. You should not construe these translations as representations that the US dollar amounts could actually be converted into Hong Kong or Renminbi dollar amounts or vice versa at the rates indicated or at all. For the purpose in this prospectus, unless it indicates otherwise, (i) the translation of US dollar amounts into Hong Kong dollar amounts have been made at the rate of US$1.00 to HK$7.80 and (ii) the translation of US dollar amounts into Renminbi dollar amounts have been made at the following exchange rates:

ENFORCEABILITY OF CIVIL LIABILITIES

We were incorporated in the Cayman Islands in order to enjoy the following benefits:

However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include, but are not limited to, the following:

Our constitutional documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated. Currently, substantially all of our operations are conducted outside the United States, and substantially all of our assets are located outside the United States. All of our officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

We have appointed Cogency Global Inc., 10 E. 40th Street, 10th Floor, New York, NY 10016, as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

Conyers Dill & Pearman, our counsel as to Cayman Islands law, Loeb & Loeb LLP, our counsel as to Hong Kong law, and Jun He Law Offices, our counsel as to PRC law, have advised us, respectively, that there is uncertainty as to whether the courts of the Cayman Islands, Hong Kong and China, respectively, would:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.” All amounts in included in the fiscal years ended December 31, 2017 and 2016 (“Annual Financial Statements”) are derived from our audited consolidated financial statements included elsewhere in this prospectus. All amounts included herein with respect to the nine months ended September 30, 2018 and 2017 (“Interim Financial Statements”) are derived from our unaudited condensed consolidated financial statements for the nine months ended September 30, 2018 and 2017 included elsewhere in this prospectus.  These Annual Financial Statements and Interim Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or US GAAP.

Overview

We were founded in 2009 and are principally engaged in the sourcing, marketing, selling and distribution of a variety of beauty device products and fitness and health care products, as well as other products, which are mainly for home use, under various brands through our sales and distribution network in Hong Kong and the People’s Republic of China (PRC).

Our product segments can be categorized as (i) beauty device products; (ii) fitness and health care products; and (iii) other products. For the two years ended December 31, 2017 and 2016, we generated revenue of US$30.7 million and US$15.8 million respectively. The net income was US$3.6 million and US$1.9 million for the respective years. For the nine months ended September 30, 2018 and 2017, we generated revenue of US$32.0 million and US$24.7 million respectively. The net income was US$5.9 million and US$5.0 million for the respective periods.

The increase in revenue for the year ended December 31, 2017 by 94% as compared to that of the year ended December 31, 2016 was mainly attributable to increase in sale of our beauty device products resulted from the increase in sales of our flagship hair removal devices via our distributors and our storefronts on third-party e-commerce platforms. The revenue increased for the nine-month period ended September 30, 2018 by 30% as compared to the same period of 2017. It was mainly attributable to increase in sales of our beauty device products.

For the year ended December 31, 2017, our net income increased by 89% as compared to that of the year ended December 31, 2016. For the nine-month period ended September 30, 2018, our net income increased by 18%. These increase were all mainly due to the increase in our revenues year over year.

As of December 31, 2017, our cash and cash equivalents amounted to US$3.6 million, representing an increase of US$2.1 million from US$1.5 million as of December 31, 2016. As of September 30, 2018, our cash and cash equivalents amounted to US$4.9 million, representing an increase of US$1.3 million compared to the balance as of December 31, 2017. These increases are mainly due to the growth in our net income as discussed above.

General Factors Affecting Our Results of Operations

Our business and results of operations are affected by general factors affecting the PRC and Hong Kong’s beauty and lifestyle industry, which include, among other things:

Specific Factors Affecting Our Results of Operations

The results of operations and financial condition of the Company have been and will continue to be affected by a number of factors, many of which may be beyond control of the Company, including those factors set out in the section headed “Risk Factors” in this registration document and those set out below.

Market recognition of the branded products and own-brand products and the trade name

The growth of our historical sales was mainly driven by the increasing market recognition of the branded products managed by the Company in Hong Kong and the PRC. We expect our future sales growth to benefit from the expansion of public awareness of the home use beauty device products, and fitness health care products in Hong Kong and the PRC. The growth of these markets is affected by a number of factors, including the growth of GDP and disposable income level of households as well as consumer preferences.

Through distributing and marketing under the direct and indirect sales and distribution network, we offer a variety of beauty device products and fitness and health care products sourced from third party brand owners. We also offer certain products under our own brands. Our success depends substantially on the popularity of the branded products and our own-brand products, as well as the reputation of our trade name of “FitBoxx” and “CosmoBoxx”. All of our retails outlets are operated under the trade name of “FitBoxx” and “CosmoBoxx” to offer branded products and our own-brand products. We believe that brand and trade name recognition plays an important role in influencing consumers’ decisions in purchasing the products. We have been investing significant efforts to establish brand and trade name recognition through various media channels. We believe that the continued success of the Company will depend largely on our ability to enhance the recognition of the branded and own-brand products offered by us.

Coverage of the Company’s sales and distribution network

The revenue and profit growth of the Company will depend significantly our ability to successfully expand and manage our sales and distribution network. We may face challenges with finding suitable distribution channels in Hong Kong and the PRC. We will rely continuously on our direct sales channel, including our own retail outlets and websites and third-party e-commerce platforms, and our indirect sales channel including our chain retailers and our distributors to promote our products to our end consumers.

In the event that any of the major sales channels is found to be unsustainable, which may be due to the deteriorations of the businesses of our distributors and hence out of control of the Company, the sales and results of operations of the Company may be adversely affected.

The product portfolio

Our ability to introduce new products to the market that meet consumer preferences will have a significant influence on the future sales volume and financial performance of the Company. The success of our branded and own-brand products depends on a number of factors, including (i) the Company’s ability to accurately anticipate changes in market demand and consumer preferences; (ii) the Company’s ability to differentiate its products from those of the competitors; (iii) the Company’s ability to obtain distribution rights of branded products from brand owners; and (iv) intellectual property rights of competitors that may cause limitation in the Company’s product offerings.

Results of Operations

Years Ended December 31, 2017 and 2016

The following table presents an overview of our results of operations for the years ended December 31, 2017 and 2016:

(Amounts expressed in U.S. dollars)

Revenue by products

Revenue represents the net invoiced value of goods sold after deduction of allowances for returns, if any, and trade discounts provided to the Company’s consumers. Revenue was derived from three major types of product segments including: (i) beauty device products; (ii) fitness and health care product; and (iii) other products.

The following table sets forth the breakdown of the Company of revenue by types of product:

Total revenue of the Company increased by 94% from US$15.8 million for the year ended December 31, 2016 to US$30.7 million for the year ended December 31, 2017. The increase was mainly attributable to the increases in our beauty device product and fitness and health care product segments.

Beauty device products

Our beauty device product segment represented 80% and 74% of the Company’s revenues for the two years ended December 31, 2017 and 2016 respectively. Beauty device product segment mainly consists of branded beauty devices for hair removal, facial care (e.g. wrinkle reduction, skin tightening and skin rejuvenation), cellulite reduction and hair rejuvenation, and hair care products.

Revenue derived from this segment significantly increased by 110% from US$11.7 million in 2016 to US$24.6 million in 2017. The increase was mainly due to the following: (i) we entered into certain incentive programs with our top distributors to promote our beauty device products, and we lowered our wholesale price to these top distributors to incentivize their purchases of our beauty device products; (ii) we acquired more distributors and retailers through our marketing efforts resulting in the number of our distributors and retailers in total increasing from 50 in 2016 to 131 in 2017; and (iii) we launched some new beauty products in 2017.

Fitness and health care products

Our fitness and health care product segment include treadmills, exercise bikes, elliptical trainers, steppers and other fitness accessories such as trampolines, yoga gears, dumbbells, boxing gears, heart rate monitors, diagnostic scales and functional clothing and accessories.

Revenue derived from fitness and health care products increased by 51% from US$3.9 million in 2016 to US$5.8 million in 2017, mainly due to the increase in sales of functional clothing and accessories and the launch of more new models of exercise bikes and fitness accessories in 2017.

Revenue from fitness and health care product segment represented 19% and 24% of our revenue for the two years ended December 31, 2017 and 2016 respectively. The overall decrease in the percentage of the revenue derived from the fitness and health care product segment in 2017 was mainly due to the significant increase in the revenue of our beauty device product segment.

Other products

We also carries a wide variety of other health care products such as massage devices, inflatable bath tubs, electric blankets and limb-support compression wears as auxiliary products to cater for customer needs. This segment accounted for 1% and 2% of our revenue for the two years ended December 31, 2017 and 2016 respectively.

Revenue by branded products and own-brand products

Most of our products are branded products supplied by various vendors located worldwide, including Hong Kong. Our own-brand products are mainly fitness equipment supplied by manufacturers in the PRC and Taiwan.

The following table sets forth the breakdown of the Company of revenue sold under branded products and own-brand products:

Revenue from our own-brand products only accounted for a small percentage (3% for both of 2017 and 2016) of our total revenue. The significant increase in revenue from branded products are due to the reasons that have been discussed in various sections of this Management’s Discussion and Analysis (“MD&A”) regarding the increase of our revenue.

Revenue by distribution channels

Our diversified distribution channels contributed to the success of our growth in revenue during the years ended December 31, 2017 and 2016.

The following table sets forth a breakdown of the Company’s revenue by distribution channels:

We have established a multi-channel sales and distribution network, which can be broadly classified into seven major distribution channels as listed in the table above. As a result of the increasing marketing and promotion activities and the continued expansion of our sales and distribution network over the years, we have achieved remarkable growth in our overall revenue for the year ended December 31, 2017 as compared to that of 2016. The growth in 2017 was mainly contributed from sales derived from online third party e-commerce platforms such as Tmall (https://Tmall.com), one of the biggest e-commerce websites China and sales to our distributors and retailers.

Direct sales

Our direct sales are conducted through physical retail outlets, including our own retail shops, a department store counter, a shopping mall booth, and online channels including our own website, storefronts at third party e-commerce platforms and group buying platforms.

Own retail shops

Revenue derived from our retails shops slightly decreased in 2017 due to: (i) change of customers’ habit to purchase products through online platforms; and (ii) decrease in sales from sales promotion counters due to the decrease of our attendance in sales promotion counters in 2017. Revenue from this channel accounted for 9% and 20% of our total revenue for the years ended December 31, 2017 and 2016 respectively. The significant decrease in the percentage was due to the significant increase in revenue from our “Distributors and retailers” Channel, which is discussed in the “Distributors and retailers” section below.

We expect that there will be a declining trend year-over-year in revenue from our retail shops. However, we do not expect a significant decline to occur from this channel because: (i) we expect to maintain the same number of retail shops (8 retail shops) and all of our retail stores are situated at or close to high-traffic or populated locations such as shopping malls; and (ii) revenue from this channel is not the major source of our total revenue. One of our major objectives of operating these retail shops is also to provide a venue for our customers to test and experience our products; and we plan to renovate our retail shops to enhance our customers’ shopping experience.

Department store counter and shopping mall booth

We operated a department store counter in Kowloon Bay district and a shopping mall booth in Quarry Bay district for the sale of products. Revenue derived from this channel also remained relatively stable and it only accounted for a small percentage of our total revenue, being only 1% and 2% for the years ended December 31, 2017 and 2016 respectively.

Own retail websites

Revenue generated from our own retail websites, namely, http://www.fitboxx.com, accounted for 1% and 2% of our total revenue for the two years ended December 31, 2017 and 2016 respectively. We will keep updated of the design and layout of the storefront on our own website in order to maintain the informative and attractive features, which we believe would achieve efficacy for the Company’s sales in our retail outlets.

Third party e-commerce platforms

Revenue from third party e-commerce platforms mainly included sales generated from our storefronts operated on the Tmall e-commerce platform in the PRC.

For the two years ended December 31, 2017 and 2016, revenue from amounted to US$5.8 million and US$3.6 million respectively, representing an increase of US$2.2 million or 60%. The increase was mainly due to our marketing efforts through blogger marketing promotion strategy. We worked with multiple bloggers on the online media networks such as Facebook, Youtube, WeChat and Weibo¹ to promote our products. In 2017, we increased our promotion in this area. The number of bloggers that worked with us has increased from 59 in 2016 to 146 in 2017.

Group buying platforms

Our revenue from group buying platforms represents the online sales of goods redemption vouchers launched at periodic promotion time slots at various e-commerce platforms based in Hong Kong. Our sales of goods redemption vouchers at these group buying platforms are carried out at considerable discounted prices and at limited quantities, mainly for the purposes of product promotions and inventory clearances.

For the two years ended December 31, 2017 and 2016, revenue from this channel only accounted for a small percentage of the Company’s revenue, being 0.2% and 1% of the Company’s total revenue for the two years ended December 31, 2017 and 2016, respectively.

Indirect sales

Chain retailers

Our sales to chain retailer customers are all governed through contractual arrangements, including on a consignment basis and non-consignment basis. These chain retailers are all Hong Kong based and reputable companies of chain stores which operate extensive retail networks of cosmetic products, pharmaceutical and health care products, electronics products and home appliances. Our products sold to these chain retailers are mainly beauty device products.

For the two years ended December 31, 2017 and 2016, revenue from this channel amounted to US$1.6 million and US$1.1 million respectively, representing an increase of 45% mainly due to the increase in sales of the Company’s flagship beauty device products to chain retailers over the periods.

Distributors and retailers

For the two years ended December 31, 2017 and 2016, revenue from distributors and retailers amounted to US$19.9 million and US$7.2 million respectively, representing a significant increase of US$12.7 million, or growth of 178% in 2017, as compared to 2016. The increase was mainly due to: (i) incentive sales by lowering our wholesale prices to our top distributors, which contributed to US$8.2 million of our total revenue increase in 2017 from this channel; (ii) an increase of new distributors and retailers in 2017; the number of our distributors and retailers increased from 50 in 2016 to 131 in 2017; and (iii) our continuing marketing efforts especially through our blogger promotion strategy.

Revenue by geographic locations

The following table sets forth a breakdown of the Company’s revenue by geographical regions based on location of the Company’s customers:

¹ WeChat (http://.web.wechat.com) and Weibo (www.weibo.com) are two of the largest online social media platforms in the PRC.

Hong Kong

Revenue from Hong Kong mainly included (i) sales in self-operated retail shops in Hong Kong; (ii) sales through the Company’s own retail website and group buying platforms; (iii) sales to chain retailers which are all located in Hong Kong; and (iv) sales to distributors which received goods in Hong Kong for their resales in the PRC.

Revenue from Hong Kong increased by US$6.5 million or 60% mainly due to the two primary reasons discussed above in the MD&A, being (i) the acquisition of new distributors and retailers; the number of our distributors and retailers in Hong Kong increased from 19 in 2016 to 28 in 2017; and (ii) incentive sales to our top distributors in 2017.

PRC

Revenue from the PRC mainly included direct online sales through the Company’s online storefronts operated on Tmall and sales to certain PRC distributors which operate their own online storefronts on e-commerce platforms in the PRC.

Revenue from PRC increased by US$8.4 million or 171% mainly due to: (i) the acquisition of new distributors and retailers; the number of our distributors and retailers in PRC significantly increased from 33 in 2016 to 104 in 2017; and (ii) incentive sales to our top distributors in 2017.

For the two years ended December 31, 2017 and 2016, revenue from Hong Kong accounted for 57% and 69% of our total revenue respectively, while revenue from the PRC accounted for 43% and 31% of our total revenue. The increase in the percentage of revenue in PRC was due to the Company’s continued efforts to expand our business in the PRC market.

Cost of sales

The Company’s cost of sales were US$16.1 million and US$7.1 million for the two years ended December 31, 2017 and 2016, respectively, which mainly represented the cost of merchandise purchased from suppliers. Cost of sales also included other immaterial direct costs, which mainly comprised transportation costs.

The following table sets forth a breakdown of the component of cost of sales:

Costs of merchandise included in the Company’s cost of goods sold increased from US$6.9 million for the year ended December 31, 2016 to US$15.5 million for the year ended December 31, 2017, representing an increase of 125%. The increase was in line with the overall increase, an increase of 94%, of the Company’s revenue in 2017 compared to 2016.

The increase in other direct costs was 172% during the year ended December 31, 2017 compared to 2016 mainly due to the increase in transportation charges, which accounted for over 95% of other direct costs for both years. The increase was in line with the increase our revenue.

Gross profit margin

The following table sets forth the overall gross profit margin of the Company:

Our overall gross profit margin decreased from 55 % for the year ended December 31, 2016 to 48% for the year ended December 31, 2017, which was mainly due to the overall decreases of the wholesale prices we offered to our top distributors, in order to increase our sales in 2017.

The following table sets forth a summary of (i) gross profit and gross profit margin by product segment; and (ii) gross profit and gross profit margin by sales channels, respectively:

The gross profit margin of beauty device products decreased from 53% for the year ended December 31, 2016 to 45% for the year ended December 31, 2017. The gross profit margin of fitness and health care products decreased from 61% to 57%. These decreases in both of these two product segments were mainly due to the incentive sales we offered to our top distributors. As a result of yielding more margin through lowering our wholesale prices to our distributors, our gross profit margin has therefore decreased. These incentive programs, however, have helped us to increase our total sales significantly in 2017 compared to 2016.

The gross profit margin of other health care products increased from 61% for the year ended December 31, 2016 to 72% for the year ended December 31, 2017, mainly due to the decrease in sales of products with relatively thin product margins.

The gross profit margin of direct sales remained relatively stable in the two years. The small increase in 2017 was due to the fact that the gross profit margin of our beauty device products sold on third-party e-commerce platforms increased.

The gross profit margin of indirect sales decreased from 53% for the year ended December 31, 2016 to 42% for the year ended December 31, 2017 mainly due to the increase of our sales to our top distributors at relatively lower wholesale prices in 2017, which diluted our overall gross profit margin in 2017.

Operating expenses

Our operating expenses are consisted of selling and marketing expenses, and general and administrative expenses.

Selling expenses

The following table sets forth a breakdown of the selling expenses of the Company:

The Company’s selling and marketing expenses increased by US$1.1 million for the year ended December 31, 2017 as compared to that of the corresponding period in 2016, representing an increase of 26%. The increase was mainly attributable to the combined effects of the followings:

General and administrative expense

General and administrative expense consist primarily of the following expenses:

Our administrative expenses increased by US$2.0 million, representing an increase of 95%. The increase was mainly due to (i) increase in accounting and professional fees by US$1.8 million as a result of our IPO endeavors in 2017; and (ii) increase in salaries and benefits by US$0.2 million as a result of general increase in our administrative employee headcounts during the year ended December 31, 2017 to accommodate the increased administrative activities due to the expansions of our business; and (iii) a small net increase of US$0.2 million in the other expenses due to the expansion of our business activities. The above increases were offset by a decrease in our director’s remunerations mainly due to less bonus was granted to our directors in 2017.

Income Tax

The Company’s assessable profits in respect of its Hong Kong operations were subject to Hong Kong profits tax at the applicable income tax rate of 16.5%. The Company’s assessable profits in respect of the PRC operations were subject to the PRC enterprise income tax at the applicable income tax rate of 25%.

The following table sets forth a breakdown of the income tax expense for the Company.

The Company’s income tax expense increased by US$1.1 million in 2017, mainly due to the increase in profit before tax by US$2.8 million during the year.

Cayman Island and BVI do not levy corporate income tax and therefore no income tax incurred for the year ended December 31, 2017 and the year ended December 31, 2016.

Net income

As a result of the factors described above, our net income for the fiscal year ended December 31, 2017 was US$3.6 million, compared to the net income of US$1.9 million for the year ended December 31, 2016, representing an increase in net income of US$1.7 million. 

Foreign currency translation

The Company’s reporting currency is the United States dollar (“US$”). The US$ is the functional currency of the Company and its BVI subsidiary, Fit Boxx BVI. The Company’s operations are principally conducted through the Hong Kong and PRC subsidiaries where the local currency is the functional currency. Therefore, the functional currency Fit Boxx HK is the Hong Kong dollar and the functional currency of Fit Boxx Shenzhen is the Renminbi (“RMB”). 

Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currency at the prevailing rates of exchange at the balance date. The resulting exchange differences are reported in the consolidated statements of operations and comprehensive income.

The assets and liabilities of the Company’s subsidiary in the PRC, which is Fit Boxx Shenzhen, are translated at the exchange spot rate at the balance sheet date, stockholders’ equity is translated at the historical rates and the revenues and expenses are translated at the average exchange rates for the periods. The resulting translation adjustments are reported under other comprehensive income in the consolidated statements of income and comprehensive income in accordance with ASC 220. The following are the exchange rates that were used in translating Fix Boxx Shenzhen’s financial statements into the consolidated financial statements:

The exchanges rates used for translation from Hong Kong dollar to US$ was 7.8000, a pegged rate determined by the linked exchange rate system in Hong Kong. This pegged rate was used to translate Company’s Hong Kong subsidiary’s balance sheets, income statement items and cash flow items for both 2017 and 2016.

Nine Months Ended September 30, 2018 and 2017 

The following table presents an overview of our results of operations for the nine months ended September 30, 2018 and 2017:

(Amounts expressed in U.S. dollars)

Revenue by products

The following table sets forth the breakdown of the Company of revenue by types of product:

Total revenue of the Company increased by 30% from US$24.7 million for the nine months ended September 30, 2017 to US$32.0 million for the nine months ended September 30, 2018. The increase was mainly attributable to the increases in our beauty device product and fitness and health care product segments.

Beauty device products

Revenue derived from this segment significantly increased by US$6.3 million or 33%. The increase was mainly due to the launch of two major new products in late 2017.

Fitness and health care products

Revenue derived from fitness and health care products increased by US$0.9 million or 17%, mainly due to the increase in sales of functional clothing and accessories and the launch of more new fitness products (total number of fitness products increased from 563 to 704).

Revenue by branded products and own-brand products

The following table sets forth the breakdown of the Company of revenue sold under branded products and own-brand products:

Revenue from our own-brand products only accounted for a small percentage (2% for 2018 and 3% for 2017) of our total revenue. The significant increase in revenue from branded products are due to the reasons that have been discussed in various sections of this Management’s Discussion and Analysis regarding the increase of our revenue.

Revenue by distribution channels

The following table sets forth a breakdown of the Company’s revenue by distribution channels:

Direct sales

Own retail shops

Revenue derived from our retails shops remained relatively stable. The slight decrease in 2018 was due to the change of customers’ habits to purchase products through online platforms.

Department store counter and shopping mall booth

Revenue derived from department store counters and shopping mall booths remained relatively stable, only accounting for a small percentage of our total revenue, being 0.7% and 0.7% for the nine months ended September 30, 2018 and 2017, respectively.

Own retail websites

Revenue generated from our own retail websites, namely, http://www.fitboxx.com, remained relatively stable. It only accounted for a small percentage of our total revenue, being 0.5% and 1.3% for the nine months ended September 30, 2018 and 2017, respectively.

Third party e-commerce platforms

Revenue derived from this channel increased by US$4.1 million or 91%. The increase was mainly due to the launch of two new major products sold through the third-party e-commerce platforms.

Indirect sales

Chain retailers

Revenue from chain retailers amounted to US$1.5 million and US$1.3 million, respectively, representing an increase of 20% mainly due to the increase in sales of the Company’s flagship beauty device products to chain retailers over the period.

Distributors and retailers

Revenue from distributors and retailers increased by US$3.1 million or 19%. The increase was mainly due to increase in the number of our distributors and retailers. The number of our distributors and retailers increased from 118 as of September 30, 2017 to 155 as of September 30, 2018.

Revenue by geographic locations

The following table sets forth a breakdown of the Company’s revenue by geographical regions based on location of the Company’s customers:

Hong Kong

Revenue from Hong Kong decreased by US$6.6 million, or 42%, mainly due to the fact that one of our major distributors determined to purchase products directly from our PRC location due to a change of its business strategy.

PRC

Revenue from PRC increased by US$13.9 million, or 153%, mainly due to: (i) the acquisition of new distributors and retailers; the number of our distributors and retailers in PRC significantly increased from 94 as of September 30, 2017 to 131 as of September 30, 2018; and (ii) increase in the sales through third-party e-commerce platforms mainly due to the launch of two new beauty products in late 2017.

Cost of sales

The Company’s cost of sales were US$15.8 million and US$12.9 million for the nine months ended September 30, 2018 and 2017.

The following table sets forth a breakdown of the component of cost of sales:

Costs of merchandise included in the Company’s cost of goods sold increased by US$2.8 million, or 22%. The increase was in line with the overall increase, an increase of 30%, of the Company’s revenue in 2018 compared to 2017.

Other direct costs remained relatively consistent as a percentage of the total costs of goods sold. The percentage in the nine months ended September 30, 2018 was 4% compared to 4% for the same period of 2017. The costs increased in 2018 as a result of the increase in our revenue in 2018.

Gross profit margin

The following table sets forth the overall gross profit margin of the Company:

Our overall gross profit margin increased from 48 % to 51%, which was mainly due to: (i) we increased our gross margins to some of our distributors and retailers in 2018; and (ii) we increased our gross margins for products sold through third-party e-commerce platforms;

The following table sets forth a summary of (i) gross profit and gross profit margin by product segment; and (ii) gross profit and gross profit margin by sales channels, respectively: