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Qilian International Holding Group Limited (BGM)
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BGM
Qilian International Holding Group Limited
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Qilian International Holding Group Limited (BGM) Risk Analysis

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Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

Qilian International Holding Group Limited disclosed 58 risk factors in its most recent earnings report. Qilian International Holding Group Limited reported the most risks in the “Finance & Corporate” category.

Risk Overview Q3, 2024

Risk Distribution
58Risks
34% Finance & Corporate
31% Legal & Regulatory
10% Ability to Sell
10% Macro & Political
9% Production
5% Tech & Innovation
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Qilian International Holding Group Limited Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q3, 2024

Main Risk Category
Finance & Corporate
With 20 Risks
Finance & Corporate
With 20 Risks
Number of Disclosed Risks
58
-1
From last report
S&P 500 Average: 31
58
-1
From last report
S&P 500 Average: 31
Recent Changes
0Risks added
1Risks removed
15Risks changed
Since Sep 2024
0Risks added
1Risks removed
15Risks changed
Since Sep 2024
Number of Risk Changed
15
+14
From last report
S&P 500 Average: 3
15
+14
From last report
S&P 500 Average: 3
See the risk highlights of Qilian International Holding Group Limited in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 58

Finance & Corporate
Total Risks: 20/58 (34%)Below Sector Average
Share Price & Shareholder Rights14 | 24.1%
Share Price & Shareholder Rights - Risk 1
Changed
The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to BGM and its affiliated entities' performance.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets. On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in "Restrictive Market", (ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company's auditors. On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company's auditors for three consecutive years, the issuer's securities are prohibited to trade on a national securities exchange or in the over the counter trading market in the U.S. On December 2, 2020, the U.S. House of Representatives approved the Holding Foreign Companies Accountable Act. On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law. In June 2021, the Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if signed into law, would reduce the time period for the delisting under the HFCA Act to two years, instead of three years. On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements in the HFCA Act. On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate. We will be required to comply with these rules if the SEC identifies us as having a "non-inspection" year under a process to be subsequently established by the SEC. The final amendments require any identified registrant to submit documentation to the SEC establishing that the registrant is not owned or controlled by a government entity in the public accounting firm's foreign jurisdiction, and also require, among other things, disclosure in the registrant's annual report regarding the audit arrangements of, and government influence on, such registrants. Under the HFCA Act, our securities may be prohibited from trading on the Nasdaq or other U.S. stock exchanges if our auditor is not inspected by the PCAOB for three consecutive years, and this ultimately could result in our Ordinary Shares being delisted. If any such policies or deliberations were to materialize, the resulting legislation, if it were to apply to us, would likely have a material adverse impact on our and the VIE and its subsidiaries' business and the price of our ordinary shares. Should the PCAOB determine that it cannot inspect or fully investigate our auditor for three consecutive years, an exchange may determine to delist our securities. On December 16, 2021, the PCAOB issued a report on its determinations that it was unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in Mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions. The PCAOB made its determinations pursuant to PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its responsibilities under the HFCA Act. The report further listed in its Appendix A and Appendix B, Registered Public Accounting Firms Subject to the Mainland China Determination and Registered Public Accounting Firms Subject to the Hong Kong Determination, respectively. Our auditors, ZH CPA, LLC and Enrome LLP, as auditors of companies that are traded publicly in the United States and firms registered with the PCAOB, are subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess our auditors' compliance with the applicable professional standards. Our auditors did not appear as part of the determination and were not listed under its appendix A or appendix B.
Share Price & Shareholder Rights - Risk 2
Changed
BGM relies on contractual arrangements with the VIE and VIE's subsidiaries in China for its business operations, which may not be as effective in providing operational control or enabling us to derive economic benefits as through ownership of controlling equity interests, and the VIE's shareholders may fail to perform their obligations under the contractual arrangements.
BGM relies on and expects to continue to rely on its wholly owned PRC Subsidiary's contractual arrangements with Gansu QLS and Gansu QLS's shareholders to operate its business. These contractual arrangements may not be as effective in providing BGM with control over Gansu QLS as ownership of controlling equity interests would be in providing BGM with control over, or enabling BGM to derive economic benefits from the operations of Gansu QLS. Under the current contractual arrangements, as a legal matter, if Gansu QLS or any of its shareholders executing the VIE contractual arrangements fails to perform its, his or her respective obligations under these contractual arrangements, BGM may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which BGM cannot assure investors will be effective. For example, if shareholders of a variable interest entity were to refuse to transfer their equity interests in such variable interest entity to BGM or its designated persons when it exercises the purchase option pursuant to these contractual arrangements, BGM may have to take a legal action to compel them to fulfill their contractual obligations. If (i) the applicable PRC authorities invalidate these contractual arrangements for violation of PRC laws, rules and regulations, (ii) the VIE or its shareholders terminate the contractual arrangements or (iii) the VIE or its shareholders fail to perform their obligations under these contractual arrangements, BGM's business operations in China would be materially and adversely affected, and the value of BGM's shares would substantially decrease. Further, if BGM fails to renew these contractual arrangements upon their expiration, BGM would not be able to continue its business operations unless the then current PRC law allows BGM to directly operate businesses in China. In addition, if the VIE or all or part of its assets become subject to liens or rights of third-party creditors, BGM may be unable to continue some or all of its business activities, which could materially and adversely affect BGM and its affiliated entities' business, financial condition and results of operations. If the VIE undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering BGM's ability to operate its business, which could materially and adversely affect BGM and its affiliated entities' business and its ability to generate revenues. All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. The legal environment in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit BGM's ability to enforce these contractual arrangements. In the event BGM is unable to enforce these contractual arrangements, BGM may not be able to exert expected control over its operating entities and BGM may be precluded from operating its business, which would have a material adverse effect on its financial condition and results of operations.
Share Price & Shareholder Rights - Risk 3
Changed
Gansu QLS's shareholders may have potential conflicts of interest with us, which may materially and adversely affect BGM and its affiliated entities' business and financial condition and the value of your investment in our shares.
The equity interests of Gansu QLS are held by a total of 151 shareholders. Their interests in the VIE may differ from the interests of our Company as a whole. These shareholders may breach, or cause Gansu QLS to breach, or refuse to renew the existing contractual arrangements we have with Gansu QLS, which would have a material adverse effect on BGM's ability to control Gansu QLS and its subsidiaries and receive economic benefits from them. For example, the shareholders may be able to cause our agreements with Gansu QLS to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our Company or such conflicts will be resolved in our favor. Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our Company, except that we could exercise our purchase option under the exclusive option agreement with these shareholders to request them to transfer all of their equity interests in Gansu QLS to a PRC entity or individual designated by us, to the extent permitted by PRC laws. If we cannot resolve any conflict of interest or dispute between us and the shareholders of Gansu QLS, we would have to rely on legal proceedings, which could result in the disruption of the VIE and its subsidiaries' business and subject us and our affiliated entities to substantial uncertainty as to the outcome of any such legal proceedings.
Share Price & Shareholder Rights - Risk 4
Changed
Since our directors and executive officers hold approximately 23.7% of our Ordinary Shares, representing approximately 96.4% of the aggregate voting power, as of the date of this annual report, they have the ability to elect directors and approve matters requiring shareholder approval by way of resolution of members.
Mr. Zhanchang Xin, our chairman of the board of directors, is currently the beneficial owner of 2,767,800 Class A ordinary shares and 10,200,000 Class B ordinary shares, or approximately 13.3% of our outstanding Ordinary Shares, representing approximately 49.2% of the aggregate voting power, of which approximately 10.9% are directly held by Ahanzhai Development Limited, an entity 100% owned by Mr. Xin. Ms. Furong Cao, our director, is currently the beneficial owner of 9,800,000 Class B ordinary shares, or approximately 10.1% of our outstanding Ordinary Shares through LX Management Company Limited, an entity 100% owned by Ms. Cao, representing approximately 47.2% of the aggregate voting power of our total issued and outstanding shares. They have the power to elect all directors and approve all matters requiring shareholder approval without the votes of any other shareholder. They are expected to have significant influence over a decision to enter into any corporate transaction and have the ability to prevent any transaction that requires the approval of shareholders, regardless of whether or not our other shareholders believe that such transaction is in our best interests. Such concentration of voting power could have the effect of delaying, deterring, or preventing a change of control or other business combination, which could, in turn, have an adverse effect on the market price of our Ordinary Shares, or prevent our shareholders from realizing a premium over the then-prevailing market price for their Ordinary Shares.
Share Price & Shareholder Rights - Risk 5
If we exercise the option to acquire equity ownership of Gansu QLS, the ownership transfer may subject us to certain limitation and substantial costs.
Pursuant to the VIE contractual arrangements, WFOE has the exclusive right to purchase all or any part of the equity interests in Gansu QLS from Gansu QLS's shareholders for a nominal price, unless the relevant government authorities or then applicable PRC laws request that a minimum amount be used as the purchase price, in such case the purchase price shall be the lowest amount under such request. The shareholders of Gansu QLS will be subject to PRC individual income tax on the difference between the equity transfer price and the then current registered capital of Gansu QLS. Additionally, if such a transfer takes place, the competent tax authority may require WFOE to pay enterprise income tax for ownership transfer income with reference to the market value, in which case the amount of tax could be substantial.
Share Price & Shareholder Rights - Risk 6
Our Ordinary Shares may be delisted and prohibited from being traded under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect auditors who are located in China. The delisting and the cessation of trading of our Ordinary Shares, or the threat of their being delisted and prohibited from being traded, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefits of such inspections.
The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. The HFCA Act provides that if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the "over-the-counter" trading market in the U.S. Our auditors, the independent registered public accounting firms that issue the audit reports included elsewhere in this annual report, as auditors of companies that are traded publicly in the United States and firms registered with the PCAOB, are subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess their compliance with the applicable professional standards. ZH CPA, LLC and Enrome LLP are located in Denver, Colorado and Singapore, and have been inspected by the PCAOB on a regular basis. On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a "non-inspection" year under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCA Act, including the listing and trading prohibition requirements described above. In September 2021, the PCAOB adopted a rule related to the PCAOB's responsibilities under the HFCA Act, which establishes a framework for the PCAOB determine, as contemplated under the HFCA Act, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. The rule was approved by the SEC in November 2021 and has become effective. On September 22, 2021, the PCAOB adopted a new rule related to its responsibilities under the HFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. The new rule is subject to approval by the SEC. On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the Holding Foreign Companies Accountable Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. On December 16, 2021, the PCAOB issued a report on its determination that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in China and in Hong Kong because of positions taken by PRC and Hong Kong authorities in those jurisdictions. The PCAOB has made such determination as mandated under the Holding Foreign Companies Accountable Act. Pursuant to each annual determination by the PCAOB, the SEC will, on an annual basis, identify issuers that have used non-inspected audit firms and thus are at risk of such suspensions in the future. Our auditors, ZH CPA, LLC and Enrome LLP, the independent registered public accounting firms that issue the audit reports included elsewhere in this annual report, as auditors of companies that are traded publicly in the U.S. and a firm registered with the PCAOB, are subject to laws in the U.S., pursuant to which the PCAOB conducts regular inspections to assess their compliance with the applicable professional standards. Our auditors are located in Denver, Colorado and Singapore, and have been inspected by the PCAOB on a regular basis. Our auditors are not subject to the determination issued by the PCAOB on December 16, 2021. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, the Consolidated Appropriations Act was signed into law by President Biden, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and amended the HFCA Act by requiring the SEC to prohibit an issuer's securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading. On August 26, 2022, the CSRC, the MOF, and the PCAOB signed the Protocol governing inspections and investigations of audit firms based in mainland China and Hong Kong, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB's access in the future, the PCAOB Board will consider the need to issue a new determination. The recent developments would add uncertainties to our and the VIE and its subsidiaries' operations and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor's audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. In addition, any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information could create some uncertainty for investors, the market price of our ordinary shares could be adversely affected, and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement or being if we are required to engage a new audit firm, which would require significant expense and management time. Our Ordinary Shares may be delisted and prohibited from being traded under the HFCA Act if the PCAOB is unable to inspect auditors who are located in China in the furture. The delisting and the cessation of trading of our Ordinary Shares, or the threat of their being delisted and prohibited from being traded, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefits of such inspections.
Share Price & Shareholder Rights - Risk 7
You may face difficulties in protecting your interests and exercising your rights as a shareholder since we do not conduct any business and substantially all of the business operations are conducted by the WFOE and the VIE and its subsidiaries in China, and almost all of our officers and directors reside outside the U.S.
Although we are incorporated in the Cayman Islands, we do not conduct any business and substantially all of the business operations are conducted by the WFOE and the VIE and its subsidiaries in China. All of our current officers and almost all of our directors reside outside the U.S. and substantially all of the assets of those persons are located outside of the U.S. It may be difficult for you to conduct due diligence on the Company or such directors in your election of the directors and attend shareholders meeting if the meeting is held in China. We plan to have one shareholder meeting each year at a location to be determined, potentially in China. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation doing business entirely or predominantly within the U.S.
Share Price & Shareholder Rights - Risk 8
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: - At least 75% of our gross income for the year is passive income; or - The average percentage of our assets (determined at the end of each quarter) during the taxable year which produce passive income or which are held for the production of passive income is at least 50%. 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 our assets held for the production of passive income, it is possible that, for our 2022 taxable year or for any subsequent year, more than 50% of our assets may be assets which produce passive income, in which case we would be deemed a PFIC, which could have adverse US federal income tax consequences for US taxpayers who are shareholders. We will make this determination following the end of any particular tax year. Although the law in this regard is unclear, we treat our consolidated affiliated entities as being owned by us for United States federal income tax purposes, not only because we exercise certain level of control over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements. For purposes of the PFIC analysis, in general, a non-U.S. corporation is deemed to own its pro rata share of the gross income and assets of any entity in which it is considered to own at least 25% of the equity by value. See "Item 10. Additional Information-E. Taxation-United States Federal Income Tax Considerations-PFIC."
Share Price & Shareholder Rights - Risk 9
The trading price of our Ordinary Shares is likely to be volatile, which could result in substantial losses to our investors.
The trading price of our Ordinary Shares has been volatile and is likely to continue to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in their trading prices. The trading performances of other Chinese companies' securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States in general and consequently may impact the trading performance of our Ordinary Shares, regardless of our actual operating performance. In addition to market and industry factors, the price and trading volume for our Ordinary Shares may be highly volatile for factors specific to our own operations, including the following: - our operating and financial performance;- quarterly variations in the rate of growth of our financial indicators, such as net income per share, net income and revenues;- the public reaction to our press releases, our other public announcements and our filings with the SEC;- strategic actions by our competitors;- changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts;- speculation in the press or investment community;- the failure of research analysts to cover our Ordinary Shares;- sales of our Ordinary Shares by us or other shareholders, or the perception that such sales may occur;- changes in accounting principles, policies, guidance, interpretations or standards;- additions or departures of key management personnel;- actions by our shareholders;- domestic and international economic, legal and regulatory factors unrelated to our performance; and - the realization of any risks described under this "Risk Factors" section. Any of these factors may result in large and sudden changes in the volume and price at which our Ordinary Shares will trade. In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management's attention and other resources from the WFOE and the VIE and its subsidiaries' business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
Share Price & Shareholder Rights - Risk 10
For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.
In April 2012, President Obama signed into law the JOBS Act. We are classified as an "emerging growth company" under the JOBS Act. For as long as we are an emerging growth company, which may be up to five full fiscal years, unlike other public companies, we will not be required to, among other things, (i) provide an auditor's attestation report on management's assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, (ii) comply with any new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (iii) provide certain disclosure regarding executive compensation required of larger public companies or (iv) hold nonbinding advisory votes on executive compensation. We will remain an emerging growth company for up to five years, although we will lose that status sooner if we have more than $1.235 billion of revenues in a fiscal year, have more than $700 million in market value of our Ordinary Shares held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period. To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. If some investors find our Ordinary Shares to be less attractive as a result, there may be a less active trading market for our Ordinary Shares and our stock price may be more volatile.
Share Price & Shareholder Rights - Risk 11
As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including: - the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;- the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;- the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time;- the selective disclosure rules by issuers of material nonpublic information under Regulation FD; and - certain audit committee independence requirements in Rule 10A-3 of the Exchange Act. We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.
Share Price & Shareholder Rights - Risk 12
Because we are a foreign private issuer and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer.
The Nasdaq Listing Rules requires listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to follow home country practice in lieu of the above requirements, or we may choose to comply with the above requirement within one year of listing. The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our board to consist of independent directors. Thus, although a director must act in the best interests of the Company, it is possible that fewer board members will be exercising independent judgment and the level of board oversight on the management of our company may decrease as a result. In addition, the Nasdaq Listing Rules also requires U.S. domestic issuers to have a compensation committee, a nominating/corporate governance committee composed entirely of independent directors, and an audit committee with a minimum of three members. We, as a foreign private issuer, may not be subject to all these requirements. The Nasdaq Listing Rules may require shareholder approval for certain corporate matters, such as requiring that shareholders be given the opportunity to vote on all equity compensation plans and material revisions to those plans, certain ordinary share issuances. We intend to follow home country practice in lieu of the requirements under the Nasdaq Listing Rules with respect to certain corporate governance standards which may afford less protection to investors.
Share Price & Shareholder Rights - Risk 13
A sale or perceived sale of a substantial number of our Ordinary Shares may cause the price of our Ordinary Shares to decline.
Sales of our Ordinary Shares in the public market, or the perception that these sales could occur, could cause the market price of our Ordinary Shares to decline. Our Ordinary Shares outstanding are also available for sale subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act. To the extent these shares are sold into the market, the market price of our Ordinary Shares could decline. Certain holders of our Ordinary Shares may cause us to register under the Securities Act the sale of their shares. Registration of these shares under the Securities Act would result in Ordinary Shares representing these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the public market could cause the price of our Ordinary Shares to decline.
Share Price & Shareholder Rights - Risk 14
The laws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States. For instance, you may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.
Our corporate affairs are governed by our currently effective memorandum and articles of association, by the Companies Act (Revised) of the Cayman Islands and by the common law of the Cayman Islands. The rights of shareholders to take action against our directors, 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 in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary 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 relative to the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (other than copies of the memorandum and articles of association, the register of mortgages and charges, and any special resolutions passed by the shareholders) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest. Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. If we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
Accounting & Financial Operations4 | 6.9%
Accounting & Financial Operations - Risk 1
If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to file a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. The presence of material weaknesses in internal control over financial reporting could result in financial statement errors which, in turn, could lead to errors in our financial reports and/or delays in our financial reporting, which could require us to restate our operating results. We might not identify one or more material weaknesses in our internal controls in connection with evaluating our compliance with Section 404 of the Sarbanes-Oxley Act. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, we need to expend significant resources and provide significant management oversight. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors and employees, entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and divert management's attention from other business concerns. These changes may not, however, be effective in maintaining the adequacy of our internal control. If we are unable to conclude that we have effective internal controls over financial reporting, investors may lose confidence in our operating results, the price of the Ordinary Shares could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, the Ordinary Shares may not be able to remain listed on Nasdaq Global Market.
Accounting & Financial Operations - Risk 2
We do not intend to pay dividends for the foreseeable future.
We currently intend to retain any future earnings to finance the operation and expansion of the WFOE and the VIE and its subsidiaries' business. We do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Ordinary Shares if the market price of our Ordinary Shares increases.
Accounting & Financial Operations - Risk 3
The custodians or authorized users of our controlling non-tangible assets, including chops and seals, may fail to fulfill their responsibilities, or misappropriate or misuse these assets.
Under the PRC law, legal documents for corporate transactions, including agreements and contracts are executed using the chop or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed with relevant PRC market regulation administrative authorities. In order to secure the use of our chops and seals, we and our affiliated entities have established internal control procedures and rules for using these chops and seals. In any event that the chops and seals are intended to be used, the responsible personnel will submit an application and the application will be verified and approved by authorized employees in accordance with our internal control procedures and rules. In addition, in order to maintain the physical security of our chops, we and our affiliated entities generally have them stored in secured locations accessible only to authorized employees. Although we and our affiliated entities monitor such authorized employees, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk that our employees could abuse their authority, for example, by entering into a contract not approved by us or seeking to gain control of one of our affiliated entities or the VIE or its subsidiaries. If any employee obtains, misuses or misappropriates our chops and seals or other controlling non-tangible assets for whatever reason, we and our affiliated entities could experience disruption to our normal business operations. We and our affiliated entities may have to take corporate or legal action in such an event, which could involve significant time and resources to resolve and divert management from the WFOE and the VIE and its subsidiaries' operations.
Accounting & Financial Operations - Risk 4
Changed
BGM is a holding company and it relies for funding on dividend payments from its affiliated entities by contracts, which are subject to restrictions under PRC laws. Any limitation on the ability of BGM's affiliated entities to make payments to it could have a material adverse effect on BGM's ability to maintain its business.
BGM is a holding company incorporated in the Cayman Islands, and it operates its core businesses through the WFOE and the VIE and its subsidiaries in the PRC. Therefore, the availability of funds for BGM to pay dividends to its shareholders and to service its indebtedness depends upon dividends received from the WFOE, the VIE and its subsidiaries. If the WFOE and the VIE and its subsidiaries incur debt or losses, their ability to pay dividends or other distributions to BGM may be impaired. As a result, BGM's ability to pay dividends and to repay its indebtedness will be restricted. Under PRC laws and regulations, BGM's PRC Subsidiary, as a wholly foreign-owned enterprise in China, may pay dividends only out of its accumulated after-tax profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such funds reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to discretional funds. These reserve funds and discretional funds are not distributable as cash dividends. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the SAFE, by complying with certain procedural requirements. Therefore, our PRC Subsidiary is able to pay dividends in foreign currencies to its non-PRC shareholders without prior approval from the SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulation, such as the overseas investment registrations by the beneficial owners of our Company who are PRC residents. However, approval from, or registration with, appropriate government authorities is required where RMB 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. In response to the persistent capital outflow and RMB's depreciation against the U.S. dollar in the fourth quarter of 2016, the PBOC and the SAFE have implemented a series of capital control measures, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC Subsidiary's dividends and other distributions may be subjected to tighter scrutiny in the future. Any limitation on the ability of our PRC Subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to the VIE and its subsidiaries' business, pay dividends, or otherwise fund and conduct the VIE and its subsidiaries' business. See also "- Under the EIT Law, we may be classified as a ‘Resident Enterprise' of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders." Any limitation on the ability of BGM's affiliated entities in PRC to pay dividends or make other distributions to it could materially and adversely limit its ability to grow, make investments or acquisitions that could be beneficial to its business, pay dividends, or otherwise fund and conduct its business.
Debt & Financing1 | 1.7%
Debt & Financing - Risk 1
We and our affiliated entities have limited sources of working capital and will need substantial additional financing.
The working capital required to implement the business plan and build new facilities to expand the production capacity of the WFOE and the VIE and its subsidiaries will most likely be provided by funds obtained through offerings of our equity, debt, debt-linked securities, and/or equity-linked securities, and revenues generated by us. No assurance can be given that we and our affiliated entities will have revenues sufficient to sustain the operations of the WFOE and the VIE and its subsidiaries or that we would be able to obtain equity/debt financing in the current economic environment. If we do not have sufficient working capital and the WFOE and the VIE and its subsidiaries are unable to generate sufficient revenues or raise additional funds, the WFOE and the VIE and its subsidiaries may delay the completion of or significantly reduce the scope of their current business plan; delay some of their development and clinical or marketing efforts; postpone the hiring of new personnel; or, under certain dire financial circumstances, substantially curtail or cease their operations. The WFOE and the VIE and its subsidiaries need sufficient financing to implement their business plan, which includes expanding the marketing efforts for Gan Di Xin and increasing the manufacturing capacities for their oxytetracycline products, fertilizer products and Heparin Sodium Preparations. The WFOE and the VIE and its subsidiaries will also need sufficient financing to materialize their future plan of acquiring traditional Chinese medicine enterprises. We estimate that carrying out these business projects will require at least $21.5 million in the next 3 years. Our inability to obtain sufficient additional financing would have a material adverse effect on the ability of the WFOE and the VIE and its subsidiaries to implement their business plans. As of September 30, 2024, we had cash and cash equivalents of approximately $9.8 million, total current assets of $29.8 million, and total current liabilities of $8.8 million. We will need to engage in capital-raising transactions in the near future. Such financing transactions may well cause substantial dilution to our shareholders and could involve the issuance of securities with rights senior to the outstanding shares. Our ability to complete additional financings depends on, among other things, the state of the capital markets at the time of any proposed offering, market reception of the Company and the likelihood of the success of its business model and offering terms. There is no assurance that we will be able to obtain any such additional capital through asset sales, equity or debt financing, or any combination thereof, on satisfactory terms or at all. Additionally, no assurance can be given that any such financing, if obtained, will be adequate to meet our capital needs and to support the WFOE and the VIE and its subsidiaries' operations. If we do not obtain adequate capital on a timely basis and on satisfactory terms, our revenues and operations and the value of our Ordinary Shares and Ordinary Share equivalents would be materially negatively impacted and the WFOE and the VIE and its subsidiaries' operations may cease.
Corporate Activity and Growth1 | 1.7%
Corporate Activity and Growth - Risk 1
The requirements of being a public company may strain our resources and divert management's attention.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our legal, accounting, and financial compliance costs and investor relations and public relations costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an "emerging growth company." The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our and the VIE and its subsidiaries' business and operating results as well as proxy statements. As a result of disclosure of information in this Form 20-F and in filings required of a public company, our and the VIE and its subsidiaries' business and financial condition are more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our and the VIE and its subsidiaries' business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in BGM and its affiliated entities' favor, these claims, and the time and resources necessary to resolve them, could divert the resources of BGM and its affiliated entities' management and adversely affect BGM and its affiliated entities' business, brand and reputation and results of operations. Being a public company and being subject to these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members for our board of directors, particularly to serve on our audit committee and compensation committee, and to serve as qualified executive officers, generally.
Legal & Regulatory
Total Risks: 18/58 (31%)Above Sector Average
Regulation13 | 22.4%
Regulation - Risk 1
The approval and/or other requirements of the CSRC or other PRC governmental authorities may be required in connection with an offering under PRC rules, regulations or policies, and, if required, we and our affiliated entities cannot predict whether or how soon we will be able to obtain such approval.
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, purport to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear. If a governmental approval is required, it is uncertain how long it will take for us or our affiliated entities to obtain such approval, and, even if we or our affiliated entities obtain such approval, the approval could be rescinded. Any failure to obtain, or a delay in obtaining, the requisite governmental approval for an offering, or a rescission of such CSRC approval if obtained by us or our affiliated entities, may subject us or our affiliated entities to sanctions imposed by the relevant PRC regulatory authority, which could include fines and penalties on the operations of the WFOE and the VIE and its subsidiaries in China, restrictions or limitations on BGM's ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect BGM and its affiliates' business, financial condition, and results of operations. Our PRC counsel has advised us that, based on its understanding of the current PRC laws and regulations, we or our affiliated entities will not be required to submit an application to the CSRC for the approval under the M&A Rules for an offering, because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether any follow-on offerings are subject to this regulation; and (ii) we did not acquire any equity interests or assets of a "PRC domestic company," as such terms are defined under the M&A Rules. However, our PRC counsel has further advised us that there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering, and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC governmental authorities, including the CSRC, would reach the same conclusion as our PRC counsel, and hence, we or our affiliated entities may face regulatory actions or other sanctions from them. Furthermore, relevant PRC governmental authorities promulgated the Opinions on Strictly Cracking Down Illegal Securities Activities, which provided that the administration and supervision of overseas-listed China-based companies will be strengthened, and the special provisions of the State Council on overseas issuance and listing of shares by such companies will be revised, clarifying the responsibilities of domestic industry competent authorities and regulatory authorities. However, the Opinions on Strictly Cracking Down Illegal Securities Activities were only issued recently, leaving uncertainties regarding the interpretation and implementation of these opinions. It is possible that any new rules or regulations may impose additional requirements on us. In addition, on July 10, 2021 and November 14, 2021, the Cyberspace Administration of China, or the CAC, issued a revised draft of the Measures for Cybersecurity Review and a draft of the Regulations on the Network Data Security, respectively, for public comments, according to which, among other things, operators of "critical information infrastructure" or data processors holding over one million users' personal information shall apply to the Cybersecurity Review Office for a cybersecurity review before any listing on a foreign stock exchange. It is uncertain when the final measures will be issued and take effect, how they will be enacted, interpreted or implemented, and whether they will affect us. If it is determined in the future that CSRC approval or other procedural requirements are required to be met for, and prior to, an offering, it is uncertain whether we or our affiliated entities can or how long it will take us or our affiliated entities to obtain such approval or complete such procedures and any such approval could be rescinded. Any failure to obtain or delay in obtaining such approval or completing such procedures for an offering, or a rescission of any such approval, could subject us or our affiliated entities to sanctions by the relevant PRC governmental authorities. The governmental authorities may impose restrictions and penalties on the WFOE and the VIE and its subsidiaries' operations in China, such as the suspension of our apps and services, revocation of our licenses, or shutting down part or all of the VIE or its subsidiaries' operations, limit BGM's ability to pay dividends outside of China, delay or restrict the repatriation of the proceeds from an offering into China or take other actions that could have a material adverse effect on BGM and its affiliated entities' business, financial condition, results of operations and prospects, as well as the trading price of the Ordinary Shares. The PRC governmental authorities may also take actions requiring us, or making it advisable for us, to halt an offering before settlement and delivery of the Ordinary Shares. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur. In addition, if the PRC governmental authorities later promulgate new rules or explanations requiring that we or our affiliated entities obtain their approvals for filings, registrations or other kinds of authorizations for an offering, we cannot assure you that we or our affiliated entities can obtain the approval, authorizations, or complete required procedures or other requirements in a timely manner, or at all, or obtain a waiver of the requisite requirements if and when procedures are established to obtain such a waiver.
Regulation - Risk 2
PRC laws and regulations governing the VIE and its subsidiaries' businesses and the validity of certain of our contractual arrangements are uncertain. If we or our affiliated entities are found to be in violation, we could be subject to sanctions. In addition, changes in PRC laws and regulations or changes in interpretations thereof may materially and adversely affect the VIE and its subsidiaries' business.
Current PRC laws and regulations place certain restrictions and conditions on foreign ownership of certain areas of businesses. In accordance with the Special Administrative Measures on Access of Foreign Investment, promulgated in June 2020 and effective in July 2020, or the Negative List, foreign investors are not prohibited nor restricted from investing in our current operations and production. See "Item 4. Information on the Company-B. Business Overview-Regulation-PRC Laws and Regulations on Foreign Investment." The VIE and its subsidiaries conducts their business activities in China. We are a holding company and do not conduct any business activities. Qilian International Trading (Chengdu) Co., Ltd., or WFOE, has entered into contractual arrangements with the VIE and its shareholders, and such contractual arrangements enable us to exercise certain control over, receive substantially all of the economic benefits of, and have an exclusive option to purchase all or part of the equity interest and assets in the VIE when and to the extent permitted by PRC law. For a detailed description of these contractual arrangements, see "Item 4. Information on the Company-C. Organizational Structure-Contractual Arrangements between WFOE and Gansu QLS." We have evaluated the guidance in FASB ASC 810 and concluded that we are the primary beneficiary of the VIE and its subsidiaries because of these contractual arrangements. Accordingly, under U.S. GAAP, the financial statements of the VIE are consolidated as part of our financial statements. In fiscal years ended September 30, 2024, 2023, and 2022, the VIE and its subsidiaries contributed to 100% of our total revenues. However, BGM is a Cayman Islands holding company with no equity ownership in the VIE or its subsidiaries. We do not conduct any business. The business operations are instead conducted in China through the VIE and the VIE's subsidiaries with which we have maintained only contractual arrangements. Investors in our Ordinary Shares thus are not purchasing equity interest in our consolidated affiliated entities in China but instead are purchasing equity interest in a Cayman Islands holding company. If the PRC government deems that our contractual arrangements with the VIE do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we and the VIE could be subject to severe penalties or be forced to relinquish our interests in those operations. Our holding company in the Cayman Islands, the VIE, and investors of our Company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIE and, consequently, significantly affect the financial performance of the VIE and our Company as a group. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing the business operations of the VIE and its subsidiaries, or the enforcement and performance of our contractual arrangements with the VIE and its shareholders. These laws and regulations may be subject to change, and their official interpretation and enforcement may involve substantial uncertainty. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. Due to the uncertainty and complexity of the regulatory environment, we cannot assure you that we, the VIE and its subsidiaries would always be in full compliance with applicable laws and regulations, the violation of which may have adverse effect the business and reputation of the VIE and its subsidiaries. Our PRC counsel, Gansu Quanyi Law Firm, is of the opinion that (i) the ownership structure of WFOE and the VIE does not violate applicable PRC laws and regulations currently in effect, and (ii) the contractual arrangements are valid, binding and enforceable in accordance with the applicable PRC laws or regulations currently in effect. Although we believe we and the VIE and its subsidiaries are not in violation of current PRC laws and regulations, we cannot assure you that the PRC government would agree that our contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. The PRC government has broad discretion in determining rectifiable or punitive measures for non-compliance with or violations of PRC laws and regulations. If the PRC government determines that the VIE or any of the VIE's subsidiaries do not comply with applicable law, it could revoke their business and operating licenses, require them to discontinue or restrict their operations, restrict their right to collect revenues, block their websites, require them to restructure their operations, impose additional conditions or requirements with which they may not be able to comply, impose restrictions on their business operations or on their customers, or take other regulatory or enforcement actions against them that could be harmful to their business. Any of these or similar occurrences could significantly disrupt the business operations of the VIE and its subsidiaries or restrict the VIE and its subsidiaries from conducting a substantial portion of their business operations, which could materially and adversely affect the business, financial condition and results of operations of BGM and its affiliated entities. If any of these occurrences results in our inability to direct the activities of the VIE or its subsidiaries that most significantly impact its economic performance, and/or our failure to receive the economic benefits from the VIE or its subsidiaries, we may not be able to consolidate these entities in our consolidated financial statements in accordance with U.S. GAAP. In addition, our shares may decline in value or become worthless if we are unable to assert our contractual control rights over the assets of those entities that conduct a significant part of the VIE and its subsidiaries' operations.
Regulation - Risk 3
Changed
The PRC government has significant authority to intervene or influence the China operations of an offshore holding company, such as ours, at any time. The PRC government may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers. If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we or our affiliated entities were to be subject to such oversight and control, it may result in a material adverse change to BGM and its affiliated entities' business operations, significantly limit or completely hinder BGM's ability to offer or continue to offer securities to investors, and cause Ordinary Shares to significantly decline in value or become worthless.
BGM and its affiliated entities' business, prospects, financial condition, and results of operations may be influenced to a significant degree by political, economic, and social conditions in China generally. The PRC government has significant authority to intervene or influence the China operations of an offshore holding company at any time, which could result in a material adverse change to BGM and its affiliated entities' operations and the value of our Ordinary Shares. The PRC government has recently indicated an intent to exert more oversight and control over listings conducted overseas and/or foreign investment in China-based issuers. Any such action may hinder BGM's ability to offer or continue to offer its securities to investors, result in a material adverse change to BGM and its affiliated entities' business operations, and damage our reputation, which could cause Ordinary Shares to significantly decline in value or become worthless. See also "Failure to comply with cybersecurity, data privacy, data protection, or any other laws and regulations related to data may materially and adversely affect BGM and its affiliated entities' business, financial condition, and results of operations."
Regulation - Risk 4
Changed
The PRC government may intervene or influence the WFOE and the VIE and its subsidiaries' business operations at any time or may exert more control over offerings conducted overseas and foreign investment in China based issuers, which could result in a material change in the WFOE and the VIE and its subsidiaries' business operations or the value of BGM's securities. Additionally, the governmental and regulatory interference could significantly limit or completely hinder BGM's ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. We and our affiliated entities are also currently not required to obtain approval from Chinese authorities to list on U.S. exchanges. However, if we or our affiliated entities are required to obtain approval in the future and are denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors
We do not conduct any business operations. The business operations are conducted through our affiliated entities in PRC, which subject us and our affiliated entities to certain laws and regulations in China. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties. For example, the Chinese cybersecurity regulator announced on July 2, 2021 that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company's app be removed from smartphone app stores. On July 24, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly released the Guidelines for Further Easing the Burden of Excessive Homework and Off-campus Tutoring for Students at the Stage of Compulsory Education, pursuant to which foreign investment in such firms via mergers and acquisitions, franchise development, and variable interest entities are banned from this sector. As such, our, the VIE and its entities' business segments may be subject to various government and regulatory interference in the provinces in which they operate. We or our affiliated entities could be subject to regulations by various political and regulatory entities, including various local and municipal agencies and government sub-divisions, and these regulations may be interpreted and applied inconsistently by different agencies or authorities. We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply, and such compliance or any associated inquiries or investigations or any other government actions may: - delay or impede our development;- result in negative publicity or increase our operating costs;- require significant management time and attention; and - subject our Company to remedies, administrative penalties and even criminal liabilities that may harm the WFOE and the VIE and its subsidiaries' business, including fines assessed for our current or historical operations, or demands or orders that our affiliated entities modify or even cease their business practices. The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing of personal information and important data worldwide is rapidly evolving in PRC and is likely to remain uncertain for the foreseeable future. Regulatory authorities in China have implemented and are considering a number of legislative and regulatory proposals concerning data protection. For example, the PRC Cybersecurity Law, which became effective in June 2017, established China's first national-level data protection for "network operators," which may include all organizations in China that connect to or provide services over the internet or other information network. The PRC Data Security Law, which was promulgated by the Standing Committee of PRC National People's Congress, or the SCNPC, on June 10, 2021 and became effective on September 1, 2021, outlines the main system framework of data security protection. As of the date of this Annual Report on Form 20-F, we or our affiliated entities have not been involved in any investigations on data security compliance made in connection with the PRC Data Security Law, and we or our affiliated entities have not received any inquiry, notice, warning, or sanctions in such respect. Based on the foregoing, we do not expect that, as of the date of this annual report, the PRC Data Security Law would have a material adverse impact on our, the VIE or its subsidiaries' business. In August 2021, the Standing Committee of the National People's Congress of China promulgated the Personal Information Protection Law which became effective on November 1, 2021. The Personal Information Protection Law provides a comprehensive set of data privacy and protection requirements that apply to the processing of personal information and expands data protection compliance obligations to cover the processing of personal information of persons by organizations and individuals in China, and the processing of personal information of persons outside of China if such processing is for purposes of providing products and services to, or analyzing and evaluating the behavior of, persons in China. The Personal Information Protection Law also provides that critical information infrastructure operators and personal information processing entities who process personal information meeting a volume threshold to be set by Chinese cyberspace regulators are also required to store in China the personal information generated or collected in China, and to pass a security assessment administered by Chinese cyberspace regulators for any export of such personal information. Moreover, pursuant to the Personal Information Protection Law, persons who seriously violate this law may be fined for up to RMB50 million or 5% of annual revenues generated in the prior year and may also be ordered to suspend any related activity by competent authorities. Recent statements by the Chinese government have indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investments in China-based issuers. On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a document to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws. On December 24, 2021, the CSRC published the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (the "Administration Provisions"), and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (the "Measures"), which are now open for public comment. Furthermore, on July 10, 2021, the CAC issued a revised draft of the Measures for Cybersecurity Review for public comments, which required that, among others, in addition to "operator of critical information infrastructure", any "data processor" controlling personal information of no less than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review, and further elaborated the factors to be considered when assessing the national security risks of the relevant activities. On December 28, 2021, the CAC, the National Development and Reform Commission ("NDRC"), and several other administrations jointly issued the revised Measures for Cybersecurity Review, or the "Revised Review Measures", which became effective and replaced the existing Measures for Cybersecurity Review on February 15, 2022. According to the Revised Review Measures, if an "online platform operator" that is in possession of personal data of more than one million users intends to list in a foreign country, it must apply for a cybersecurity review. Based on a set of Q&A published on the official website of the State Cipher Code Administration in connection with the issuance of the Revised Review Measures, an official of the said administration indicated that an online platform operator should apply for a cybersecurity review prior to the submission of its listing application with non-PRC securities regulators. Moreover, the CAC released the draft of the Regulations on Network Data Security Management in November 2021 for public consultation, which among other things, stipulates that a data processor listed overseas must conduct an annual data security review by itself or by engaging a data security service provider and submit the annual data security review report for a given year to the municipal cybersecurity department before January 31 of the following year. Given the recency of the issuance of the Revised Review Measures and their pending effectiveness, there is a general lack of guidance and substantial uncertainties exist with respect to their interpretation and implementation. BGM has been advised by Gansu Quanyi Law Firm, our PRC counsel, that as of the date of this Annual Report, our listing in the U.S. is not subject to the review, permission or prior approval of any PRC authorities including the Cyberspace Administration of China ("CAC") or the China Securities Regulatory Commission ("CSRC") because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether our listing is subject to this regulation; and (ii) our operating entities affiliated to us were established and operate in PRC are not included in the categories of industries and companies whose foreign securities offerings are subject to review by the CSRC or the CAC. Uncertainties still exist, however, due to the possibility that laws, regulations, or policies in the PRC could change rapidly in the future. In the event that the PRC government expanded the categories of industries and companies whose foreign securities offerings are subject to review by the CSRC or the CAC, and we inadvertently concluded that relevant permissions or approvals were not required or that we or our affiliated entities did not receive or failed to maintain relevant permissions or approvals required and such permissions were subsequently rescinded, any action by the PRC government could significantly limit or completely hinder BGM's ability to offer or continue to offer securities to investors and could cause the value of such securities to significantly decline or be worthless. Further, the promulgation of new laws or regulations, or the new interpretation of existing laws and regulations, in each case that restrict or otherwise unfavorably may impact the ability or the way the VIE or its subsidiaries' may conduct their business and could require them to change certain aspects of their business to ensure compliance, which could decrease demand for their products or services, reduce revenues, increase costs, require them to obtain more licenses, permits, approvals or certificates, or subject it to additional liabilities. As such, the WFOE and the VIE and its subsidiaries' operations could be adversely affected, directly or indirectly, by existing or future PRC laws and regulations relating to its business or industry, which could result in a material adverse change in the value of BGM's securities, potentially rendering it worthless. As a result, both you and us face uncertainty about future actions by the PRC government that could significantly affect BGM's ability to offer or continue to offer securities to investors and cause the value of BGM's securities to significantly decline or be worthless.
Regulation - Risk 5
Changed
If the PRC government deems that BGM's contractual arrangements with the VIE do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, BGM could be subject to severe penalties or be forced to relinquish our interests in those operations.
BGM has entered into, through WFOE, a series of contractual arrangements with the VIE and its shareholders. These contractual arrangements enable BGM to (i) direct the activities that most significantly affect the economic performance of the VIE and its subsidiaries; (ii) receive substantially all of the economic benefits from the VIE and its subsidiaries in consideration for the services provided by the PRC Subsidiary; and (iii) have an exclusive option to purchase all or part of the equity interests in the VIE or to all or part of the assets of the VIE, when and to the extent permitted by PRC law, or request any existing shareholder of the VIE to transfer all or part of the equity interest in the VIE to another PRC person or entity designated by BGM at any time in its discretion. These agreements make BGM their "primary beneficiary" for accounting purposes under U.S. GAAP. For descriptions of these contractual arrangements, see "Item 4. Information on the Company-C. Organizational Structure-Contractual Agreements with the VIE and its Shareholders." BGM believes that its corporate structure and contractual arrangements comply with the current applicable PRC laws and regulations. BGM's PRC legal counsel, based on its understanding of the relevant laws and regulations, is of the opinion that each of the contracts among our wholly owned PRC Subsidiary, the consolidated VIE and their shareholders is valid, binding and enforceable in accordance with its terms. However, BGM's PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including the Foreign Investment Law (2019), Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules and the Telecommunications Regulations and the relevant regulatory measures concerning the telecommunications industry. Accordingly, the PRC regulatory authorities may take a view that is contrary to the opinion of the PRC legal counsel. There can be no assurance that the PRC government authorities, such as the Ministry of Commerce, or the MOFCOM, the MIIT, or other authorities that regulate BGM's business and/or other participants in the relevant industry, would agree that BGM's corporate structure or any of the above contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the relevant government authorities have broad discretion in interpreting these laws and regulations. If the PRC government determines that these contractual arrangements do not comply with its restrictions on foreign investment in the internet business, if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, or if the PRC government otherwise finds that BGM, the VIE, or any of its subsidiaries is in violation of PRC laws or regulations or lack the necessary permits or licenses to operate the VIE and its subsidiaries' business, the relevant PRC regulatory authorities, including but not limited to the MIIT, which regulates internet information service companies, would have broad discretion in dealing with such violations, including: - revoking Gansu QLS and its subsidiaries' business and operating licenses;- discontinuing or restricting the VIE and its subsidiaries' operations;- imposing fines or confiscating any of our income that they deem to have been obtained through illegal operations;- requiring us or our PRC affiliated entities to restructure the relevant ownership structure or operations;- placing restrictions on our right to collect revenues;- restricting or prohibiting BGM's use of the proceeds from its initial public offering to finance the business and operations of the VIE; and - taking other regulatory or enforcement actions that could be harmful to the VIE and its subsidiaries' business. The imposition of any of these penalties could have a material and adverse effect on BGM's business, financial condition and results of operations. If any of these penalties results in our inability to direct the activities of the VIE that most significantly impact its economic performance, and/or BGM's failure to receive the economic benefits from the VIE, BGM may not be able to consolidate the financial results of the VIE and its subsidiaries in its consolidated financial statements in accordance with U.S. GAAP. In addition, BGM's shares may decline in value or become worthless if it is unable to assert its contractual control rights over the assets of its affiliated entities in PRC that conduct all or substantially all of BGM's operations.
Regulation - Risk 6
Changed
Uncertainties with respect to the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us, hinder BGM's ability and the ability of any holder of BGM's securities to offer or continue to offer such securities, result in a material adverse change to the WFOE and the VIE and its subsidiaries' business operations, and damage BGM and its subsidiaries' reputation, which would materially and adversely affect BGM and its affiliates' financial condition and results of operations and cause the Ordinary Shares to significantly decline in value or become worthless.
The PRC legal system is based on written statutes, and court decisions have limited precedential value. The PRC legal system is evolving rapidly and PRC laws, regulations, and rules may change quickly with little or no advance notice. The interpretations of many PRC laws, regulations, and rules are done inconsistently, subjecting the enforcement of the same to a great deal of uncertainties. From time to time, we or our affiliated entities may have to resort to court and administrative proceedings to enforce legal rights. However, since the administrative authorities in China have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of a judicial or administrative proceeding in China than in more developed legal systems. Furthermore, the PRC legal system is, in part, based 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 or our affiliated entities may not always be aware of an instance of violation of these policies and rules even after its occurrence. Such unpredictability surrounding our contractual, property (including intellectual property), and procedural rights could adversely affect the WFOE and the VIE and its subsidiaries' business and impede BGM's ability to continue its operations through the WFOE and the VIE and its subsidiaries. Laws and regulations concerning our industries are also developing and evolving in China and the PRC governmental authorities may further promulgate new laws and regulations regulating our industries and other businesses we or our affiliated entities have already engaged in or may further expand into in the future. Although we and our affiliated entities have taken measures to comply with and to avoid violation of applicable laws and regulations, we cannot assure you that our, the VIE and its subsidiaries' business practices are and will remain in full compliance with applicable PRC laws and regulations. In addition, the PRC government may regulate or intervene in the WFOE and the VIE and its subsidiaries' operations at any time, or may exercise more oversight and control at any time over offerings conducted outside of China and foreign investment in China-based companies. For example, the recently issued Opinions on Strictly Scrutinizing Illegal Securities Activities emphasized the need to strengthen the management over illegal securities activities and the supervision on overseas listings by China-based companies. These opinions propose to take effective measures, such as promoting the establishment of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies, and fulfill the demand for cybersecurity and data privacy protection. These opinions and any future related implementation rules may subject us or our affiliated entities to additional compliance requirement in the future. As these opinions were recently issued, official guidance and interpretation of these opinions are absent in several material respects at this time. In addition, the Measures for Cybersecurity Censorship (Revised Draft for Comments) issued by the CAC on July 10, 2021, if enacted in the current form, extends the scope of cybersecurity review to cover data processing operators engaging in data processing activities that affect or may affect national security, including the listed in a foreign country. If the final version of the draft measures mandates clearance of cybersecurity review by companies like us, we may face uncertainties as to whether such clearance can be timely obtained, or at all. Therefore, we cannot assure you that we or our affiliated entities will remain fully compliant with any new regulatory requirements or any future implementation rules on a timely basis, or at all. Any failure of us or our affiliated entities to fully comply with applicable laws and regulations may significantly limit or completely hinder BGM's ability to offer or continue to offer such securities, cause significant disruption to the WFOE and the VIE and its subsidiaries' business operations, and severely damage our reputation, which would materially and adversely affect BGM and its affiliates' financial condition and results of operations and cause the Ordinary Shares to significantly decline in value or become worthless.
Regulation - Risk 7
Some of our shareholders are not in compliance with the PRC's regulations relating to offshore investment activities by PRC residents, and as a result, the shareholders may be subject to penalties if we are not able to remediate the non-compliance.
In July 2014, the SAFE promulgated the Circular on Issues Concerning Foreign Exchange Administration over the Overseas Investment and Financing and Roundtrip Investment by Domestic Residents via Special Purpose Vehicles, or "Circular 37". According to Circular 37, prior registration with the local SAFE branch is required for Chinese residents to contribute domestic assets or interests to offshore companies, known as special purpose vehicles, or SPVs. Circular 37 further requires amendment to a PRC resident's registration in the event of any significant changes with respect to the SPV, such as an increase or decrease in the capital contributed by PRC individuals, share transfer or exchange, merger, division, or other material event. Further, foreign investment enterprises established by way of round-tripping shall complete the relevant foreign exchange registration formalities pursuant to the prevailing foreign exchange control provisions for direct investments by foreign investors, and disclose the relevant information such as actual controlling party of the shareholders truthfully. There are a total of 151 Gansu QLS shareholders, who are PRC residents. Amongst them, 122 have signed the VIE Agreements, but only 82 have completed the Circular 37 Registration. The remaining 40 shareholders who have yet to complete the Circular 37 Registration hold a total of 4.5% of shares of Gansu QLS. We have asked our shareholders who are Chinese residents to make the necessary applications and filings as required by Circular 37. While we attempt to comply, and attempt to ensure that our shareholders who are subject to these rules comply, with the relevant requirements, we cannot, however, provide any assurances that all of our shareholders who are Chinese residents will comply with our request to make or obtain any applicable registration or comply with other requirements required by Circular 37 or other related rules. The Chinese resident shareholders' failure to comply with Circular 37 registration would not impose penalties on our Company, but it may result in restrictions being imposed on part of foreign exchange activities of the offshore special purpose vehicles, including restrictions on its ability to receive registered capital as well as additional capital from Chinese resident shareholders who fail to complete Circular 37 registration; and repatriation of profits and dividends derived from special purpose vehicles to China, by the Chinese resident shareholders who fail to complete Circular 37 registration, are also illegal. In addition, the failure of the Chinese resident shareholders to complete Circular 37 registration may subject each of the shareholders to fines less than RMB50,000. We cannot assure you that each of our Chinese resident shareholders will in the future complete the registration process as required by Circular 37.
Regulation - Risk 8
The VIE is not in compliance with the PRC's regulations relating to employee's social insurance and housing funds, and as a result, Gansu QLS and its subsidiaries may be subject to penalties if it is not able to remediate the non-compliance.
Pursuant to the Social Security Law of the PRC, or the Social Security Law, which was promulgated by the SCNPC on October 28, 2010 and amended on December 29, 2018, employers shall pay the basic pension insurance, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance for employees. Gansu QLS has not deposited social security premiums for some of the employees in accordance with the Social Security Law. Although Gansu QLS has failed to deposit social security premiums in full, we believe that no additional amount is required to be paid by Gansu QLS since (i) some of the employees of Gansu QLS are over the age limit to be paid social insurance fees, and some chose to waive receiving social insurance fees deposited by Gansu QLS and decided to participate in their own voluntary social insurance plans instead; and (ii) pursuant to the Emergency Notice on Practicing Principles of the State Council Executive Meeting and Stabilizing Work on Collecting Social Insurance Premiums promulgated by the Ministry of Human Resources and Social Security on September 21, 2018, local authorities are prohibited from recovering the unpaid social insurance premiums from enterprises. Thus, it is unlikely that the overdue social insurance premiums would be ordered to be repaid by Gansu QLS. In accordance with the Regulation on Management of Housing Provident Fund (the "Regulations of HPF"), which were promulgated by the PRC State Council on April 3, 1999, and last amended on March 24, 2019, employers must register at the designated administrative centers and open bank accounts for employees' housing fund deposits. Employers and employees are also required to pay and deposit housing funds in an amount no less than 5% of the monthly average salary of each of the employees in the preceding year in full and on time. Gansu QLS had not opened such bank accounts or deposited its employees' housing funds until August 2019. On the basis that (i) Gansu QLS has opened the account for housing funds and deposited housing funds for staff since August 2019, and (ii) the local authorities had not taken enforceable measures to collect housing funds from local enterprises, we believe it is unlikely that the overdue unpaid housing fund would be ordered to be recovered from Gansu QLS. However, Chengdu QLS has not opened bank accounts for its employees' housing fund deposits, nor has it deposited employees' housing funds in accordance with the Regulations of HPF. Thus, Chengdu QLS may be ordered by PRC authorities to open a housing funds account, make the payment, and deposit an amount required by the PRC authorities within a prescribed time limit. If Chengdu QLS fails to comply to PRC authorities' order within the prescribed time limit, a court ordered compulsory enforcement may be adopted and a fine of no less than RMB10,000 but no more than RMB50,000 shall be imposed. Since the VIE failed to make adequate social insurance and housing fund contributions, it may be subject to fines and legal sanctions, and BGM and its affiliated entities' business, financial condition and results of operations may be adversely affected.
Regulation - Risk 9
Substantial uncertainties exist with respect to the interpretation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.
The MOFCOM published a discussion draft of the proposed Foreign Investment Law in January 2015, or the 2015 FIL Draft, which expands the definition of foreign investment and introduces the principle of "actual control" in determining whether a company is considered a foreign-invested enterprise, or an FIE. Under the 2015 FIL Draft, VIEs that are controlled via contractual arrangement would also be deemed as foreign invested enterprises, if they are ultimately "controlled" by foreign investors. On March 15, 2019, the National People's Congress approved the Foreign Investment Law of the PRC, or the Foreign Investment Law, which came into effect on January 1, 2020, repealing simultaneously the Law of the PRC on Chinese-foreign Equity Joint Ventures, the Law of the PRC on Wholly Foreign-owned Enterprises and the Law of the PRC on Chinese-foreign Cooperative Joint Ventures, together with their implementation rules and ancillary regulations. Pursuant to the Foreign Investment Law, foreign investment refers to any investment activity within China directly or indirectly carried out by foreign natural persons, enterprises, or other organizations, including investment in new construction project, establishment of foreign funded enterprise or increase of investment within China alone or jointly with any other investor, merger and acquisition, and investment in any other way stipulated under laws, administrative regulations, or provisions of the State Council. Although the Foreign Investment Law has deleted the particular reference to the concept of "actual control" and contractual arrangements, as compared to the 2015 FIL Draft, there is no assurance that foreign investment via contractual arrangement would not be interpreted as a type of indirect foreign investment activity in the future. In addition, the definition of foreign investment activities contains a catch-all provision providing that investments made by foreign investors through other methods specified in laws or administrative regulations or other methods prescribed by the State Council, which leaves leeway for future laws, administrative regulations or provisions promulgated by the State Council to provide for contractual arrangements as a method of foreign investment. Given the foregoing, it is uncertain whether our contractual arrangements will be deemed to be in violation of the market entry clearance requirements for foreign investment under the PRC laws and regulations. Even if the VIE were to be identified as an FIE in the future, we believe that the WFOE and the VIE and its subsidiaries' current business would not be adversely affected. However, if they were to engage in any business conduct involving third parties identified as prohibited or restricted on the Negative List, we and our affiliated entities may be subject to laws and regulations on foreign investment. Such might be the case for Gansu QLS's proposed acquisition of enterprises manufacturing traditional Chinese medicine pieces. In addition, our shareholders would also be prohibited or restricted to invest in certain sectors on the Negative List. However, even if the VIE were to be identified as an FIE, the validity of our contractual arrangements with Gansu QLS and its shareholders, as well as our corporate structure, would not be adversely affected. We would still be able to receive benefits from the VIE in accordance with the contractual arrangements. In addition, as the Chinese government has been updating the Negative List in recent years and reducing the sectors prohibited or restricted for foreign investment, it is possible in the future that, even if the VIE is identified as an FIE, it is still allowed to acquire or hold equity of enterprises in sectors currently prohibited or restricted for foreign investment.
Regulation - Risk 10
It may be difficult for overseas regulators to conduct investigation or collect evidence within China.
Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the PRC territory. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase the difficulties you face in protecting your interests. See also "-Risks Related to Our Ordinary Shares- The laws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States. For instance, you may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law" for risks associated with investing in us as a Cayman Islands holding company.
Regulation - Risk 11
The PRC government's significant oversight over the WFOE and the VIE and its subsidiaries' business operations could result in a material adverse change in the WFOE, the VIE and its subsidiaries' operations and the value of our Ordinary Shares.
We conduct business in China primarily through the WFOE and the VIE and its subsidiaries. The WFOE, the VIE and its subsidiaries' operations in China are governed by PRC laws and regulations. The PRC government has significant oversight over the conduct of the WFOE, the VIE and its subsidiaries' business, and it regulates and may intervene in the VIE and its subsidiaries' operations, which could result in a material adverse change in the WFOE, the VIE and its subsidiaries' business operations and/or the value of our Ordinary Shares. Also, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder BGM's ability to offer or continue to offer securities to investors. In addition, implementation of industry-wide regulations directly targeting the WFOE and the VIE and its subsidiaries' operations could cause BGM's securities to significantly decline in value or become worthless. Therefore, investors of our Company face potential uncertainty from actions taken by the PRC government affecting the WFOE and the VIE and its subsidiaries' business.
Regulation - Risk 12
PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from future financing activities to make loans or additional capital contributions to our PRC Subsidiary.
As an offshore holding company, we may transfer funds to the PRC Subsidiary or finance our operating entity by means of loans or capital contributions. Any capital contributions or loans that we, as an offshore entity, make to our Company's PRC Subsidiary, are subject to PRC regulations. Any loans to the PRC Subsidiary, which are foreign-invested enterprises, cannot exceed statutory limits based on the difference between the amount of our investments and registered capital in such subsidiary, and shall be registered with China's State Administration of Foreign Exchange ("SAFE"), or its local counterparts. Furthermore, any capital increase contributions we make to the PRC Subsidiary, which are foreign-invested enterprises, shall be approved by China's Ministry of Commerce ("MOFCOM"), or its local counterparts. We or our affiliated entities may not be able to obtain these government registrations or approvals on a timely basis, if at all. If we or our affiliated entities fail to obtain such approvals or make such registration, our ability to make equity contributions or provide loans to the Company's PRC Subsidiary or to fund its operations may be negatively affected, which may adversely affect its liquidity and ability to fund working capital and expansion projects and meet its obligations and commitments. As a result, our liquidity and our ability to fund and expand the WFOE and the VIE and its subsidiaries' business may be negatively affected.
Regulation - Risk 13
The business operations of the WFOE and the VIE and its subsidiaries require a number of permits and licenses. We cannot assure you that the VIE and its subsidiaries can maintain all required licenses, permits and certifications to carry on their business at all times.
Pharmaceutical companies in China are required to obtain certain permits and licenses from various PRC governmental authorities, including Pharmaceutical Product Permits. The VIE and its subsidiaries have obtained certificates, permits, and licenses required for the operation of a pharmaceutical enterprise and the manufacturing of pharmaceutical products in the PRC. The latest amended Drug Administration Law took effect on December 1, 2019 and has vacated the GMP certificate requirements for pharmaceutical companies. As such, the WFOE and the VIE and its subsidiaries do not need to renew their current GMP certificates. However, we cannot assure you that the WFOE and the VIE and its subsidiaries can maintain all the other required licenses, permits and certifications to carry on their business at all times. Moreover, these licenses, permits and certifications are subject to periodic renewal and/or reassessment by the relevant PRC governmental authorities and the standards of such renewal or reassessment may change from time to time. The WFOE and the VIE and its subsidiaries intend to apply for the renewal of these licenses, permits and certifications when required by then applicable laws and regulations. Any failure by the WFOE or the VIE or the VIE's subsidiaries to obtain and maintain all licenses, permits and certifications necessary to carry on their business at any time could have a material adverse effect on the WFOE and the VIE and its subsidiaries' business, financial condition and results of operations. In addition, any inability to renew these licenses, permits and certifications could severely disrupt the business of the WFOE and the VIE and its subsidiaries, and prevent them from continuing to carry on their business. Any changes in the standards used by governmental authorities in considering whether to renew or reassess the business licenses, permits and certifications of the WFOE and the VIE and its subsidiaries, as well as any enactment of new regulations that may restrict the conduct of their business, may also decrease our revenue and/or increase our costs and materially reduce our profitability and prospects. Furthermore, if the interpretation or implementation of existing laws and regulations changes or if new regulations come into effect requiring us or our affiliated entities to obtain any additional licenses, permits or certifications that were previously not required for the WFOE and the VIE and its subsidiaries to operate their existing businesses, we cannot assure you that the WFOE and the VIE and its subsidiaries will successfully obtain such licenses, permits or certifications. Gan Di Xin, exclusively produced by Gansu QLS, is subject to continuing regulation by the National Medical Products Administration (the "NMPA") in China. The innovative product, Ahan Antibacterial Paste, is subject to continuing regulation by the National Health and Family Planning Commission. If the labeling or manufacturing process of an approved pharmaceutical product is significantly modified, the NMPA may require that the WFOE and the VIE and its subsidiaries obtain a new pre-market approval.
Litigation & Legal Liabilities3 | 5.2%
Litigation & Legal Liabilities - Risk 1
The pharmaceutical business of the WFOE and the VIE and its subsidiaries is subject to inherent risks relating to product liability and personal injury claims.
We, the VIE, and the VIE's subsidiaries, as a pharmaceutical group, are exposed to risks inherent in the manufacturing and distribution of pharmaceutical products, such as with respect to improper filling of prescriptions, labeling of prescriptions, adequacy of warnings, and unintentional distribution of counterfeit drugs. In addition, product liability claims may be asserted against us, the VIE, or the VIE's subsidiaries with respect to any of the products the WFOE and the VIE and its subsidiaries sell and as a distributor, and we, the VIE, and the VIE's subsidiaries will be required to pay for damages for any successful product liability claim against them, although we, the VIE, and the VIE's subsidiaries may have the right under applicable PRC laws, rules and regulations to recover from the relevant manufacturer or distributors for compensation they paid to their customers in connection with a product liability claim. The WFOE and the VIE and its subsidiaries may also be obligated to recall affected products. If we, the VIE, or the VIE's subsidiaries are found liable for product liability claims, they could be required to pay substantial monetary damages. Furthermore, even if we, the VIE, or its subsidiaries successfully defend themselves against this type of claim, they could be required to spend significant management, financial and other resources, which could disrupt their business, their reputation and their brand name. The WFOE and the VIE and its subsidiaries, like many other similar companies in China, do not carry product liability insurance. As a result, any imposition of product liability could materially harm the business, financial condition and results of operations of our Company, the VIE, and the VIE's subsidiaries. In addition, the WFOE and the VIE and its subsidiaries do not have any business interruption insurance due to the limited coverage of any available business interruption insurance in China, and as a result, any business disruption or natural disaster could severely disrupt the business operations of the WFOE and the VIE and its subsidiaries, and significantly decrease our revenue and profitability.
Litigation & Legal Liabilities - Risk 2
We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.
We are subject to the U.S. Foreign Corrupt Practices Act (the "FCPA"), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We and our affiliated entities are also subject to Chinese anti-corruption laws, which strictly prohibit the payment of bribes to government officials. We and our affiliated entities have operations, agreements with third parties, and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants or distributors of our Company, because these parties are not always subject to our control. Although we believe we and our affiliated entities have complied in all material respects with the provisions of the FCPA and Chinese anti-corruption law as of the date of the annual report on Form 20-F, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants or distributors of our Company may engage in conduct for which we or our affiliated entities might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severe criminal or civil sanctions, and we or our affiliated entities may be subject to other liabilities, which could negatively affect BGM and its affiliated entities' business, operating results and financial condition. In addition, the government may seek to hold the Company liable for successor liability FCPA violations committed by companies in which it invests or that it acquires.
Litigation & Legal Liabilities - Risk 3
You may experience difficulties in effecting services of legal process, enforcing foreign judgments or bringing actions in China against us or our management based on foreign laws.
We are an exempted company incorporated under the laws of the Cayman Islands; however, we do not conduct any businesses and all business operations are conducted by the WFOE and the VIE and its subsidiaries in China and most of our assets are located in China. In addition, all of our directors and executive officers are nationals or residents of the PRC and most of their assets are located outside the United States. As a result, it may be difficult for you to effect service of process upon us or our management inside mainland China. It may also be difficult for you to enforce in U.S. courts of the judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.
Taxation & Government Incentives2 | 3.4%
Taxation & Government Incentives - Risk 1
Under the EIT Law, we may be classified as a "Resident Enterprise" of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.
China passed the EIT Law, which became effective on December 29, 2018, and its implementing rules, which became effective on April 23, 2019. Under the EIT Law, an enterprise established outside of China with "de facto management bodies" within China is considered a "resident enterprise," meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes, which is subject to an EIT rate of 25.0% on its global income. The implementing rules of the EIT Law define de facto management as "substantial and overall management and control over the production and operations, personnel, accounting, and properties" of the enterprise. On April 22, 2009, the State Administration of Taxation of China (the "SAT") issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a "non-domestically incorporated resident enterprise" if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate stamps, board and shareholder minutes are kept in China; and (iv) over half of its directors with voting rights or senior management reside in China. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its non-PRC shareholders. Because substantially all of the WFOE and the VIE and its subsidiaries' operations and senior management are located within the PRC and are expected to remain so for the foreseeable future, we may be considered a PRC resident enterprise for enterprise income tax purposes and therefore subject to the PRC enterprise income tax at the rate of 25% on worldwide income. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise controlled by a Chinese natural person. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case. If the PRC tax authorities determine that we are a "resident enterprise" for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we or our affiliated entities may be subject to the enterprise income tax at a rate of 25% on worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Currently, the WFOE and the VIE and its subsidiaries do not have any non-China source income, as they conduct their sales in China. However, under the EIT Law and its implementing rules, dividends paid to us from the PRC Subsidiary would be deemed as "qualified investment income between resident enterprises" and therefore qualify as "tax-exempt income" pursuant to clause 26 of the EIT Law. Second, it is possible that future guidance issued with respect to the new "resident enterprise" classification could result in a situation in which the dividends we pay with respect to our Ordinary Shares, or the gain our non-PRC shareholders may realize from the transfer of our Ordinary Shares, may be treated as PRC-sourced income and may therefore be subject to a 10% PRC withholding tax. The EIT Law and its implementing regulations are, however, relatively new and ambiguities exist with respect to the interpretation and identification of PRC-sourced income, and the application and assessment of withholding taxes. If we are required under the EIT Law and its implementing regulations to withhold PRC income tax on dividends payable to our non-PRC shareholders, or if non-PRC shareholders are required to pay PRC income tax on gains on the transfer of their Ordinary Shares, the WFOE and the VIE and its subsidiaries' business could be negatively impacted and the value of your investment may be materially reduced. Further, if we were to be treated as a "resident enterprise" by PRC tax authorities, we and our affiliated entities would be subject to taxation in both China and such countries in which we have taxable income, and our PRC tax may not be creditable against such other taxes.
Taxation & Government Incentives - Risk 2
Contractual arrangements in relation to the VIE may be subject to scrutiny by the PRC tax authorities and they may determine that we or the VIE owe additional taxes, which could negatively affect our results of operations and the value of your investment.
Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable year when the transactions are conducted. The Enterprise Income Tax Law of the People's Republic of China (the "EIT Law") requires every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm's length principles. We may face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements between our WFOE, Gansu QLS, and the shareholders of Gansu QLS were not entered into on an arm's length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust Gansu QLS's income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by Gansu QLS for PRC tax purposes, which could in turn increase their tax liabilities without reducing WFOE's tax expenses. In addition, if WFOE were to request that the shareholders of Gansu QLS transfer their equity interests in Gansu QLS at nominal or no value pursuant to these contractual arrangements, such transfer could be viewed as a gift and could subject WFOE to PRC income tax. Furthermore, the PRC tax authorities may impose late payment fees and other penalties on Gansu QLS for the adjusted but unpaid taxes according to the applicable regulations. BGM and its affiliated entities' results of operations could be materially and adversely affected if Gansu QLS's tax liabilities increase or if it is required to pay late payment fees and other penalties.
Ability to Sell
Total Risks: 6/58 (10%)Below Sector Average
Competition1 | 1.7%
Competition - Risk 1
The WFOE and the VIE and its subsidiaries face significant competition in industries experiencing rapid technological change, and there is a possibility that their competitors may achieve regulatory approval and develop new product candidates before the WFOE and the VIE and its subsidiaries, which may harm our financial condition and the ability of the WFOE and the VIE and its subsidiaries to successfully market or commercialize any of their product candidates.
The pharmaceutical and chemical industries currently are characterized by rapidly changing technologies, significant competition and a strong emphasis on intellectual property. The WFOE and the VIE and its subsidiaries will face competition with respect to their current and future pharmaceutical and fertilizer product candidates from major pharmaceutical and chemical companies in China. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization of pharmaceutical and fertilizer products. For example, competition for improving oxytetracycline strains comes from conventional and advanced breeding techniques. Other potentially competitive sources of improvement in oxytetracycline yields include improvements in specific biotechnology areas and information management. The WFOE and the VIE and its subsidiaries have competitors in China that manufacture products similar to theirs. These companies sell similar products to ours and some of them may have more assets, resources and a larger market share. We believe the WFOE and the VIE and its subsidiaries are able to compete with these competitors because of their geographical location in Western China, unique combination of products and lower prices of products. Some of the current or potential competitors of the WFOE and the VIE and its subsidiaries may have significantly greater financial resources and expertise in research and development, manufacturing, product testing, obtaining regulatory approvals and marketing approved products than they do. Mergers and acquisitions in the pharmaceutical, chemical and agricultural industries may result in even more resources being concentrated among a smaller number of competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with the WFOE and the VIE and its subsidiaries in recruiting and retaining qualified scientific and management personnel, as well as in acquiring technologies complementary to, or necessary for, the research and development ("R&D") projects of the WFOE and the VIE and its subsidiaries. Business opportunities of the WFOE and the VIE and its subsidiaries could be reduced or eliminated if their competitors develop and commercialize products that are more effective, more convenient or are less expensive than any products the WFOE and the VIE and its subsidiaries develop alone or with collaborators or that would render any such products obsolete or non-competitive. The competitors of the WFOE and the VIE and its subsidiaries also may obtain regulatory approval for their products more rapidly than the WFOE and the VIE and its subsidiaries may obtain approval for any that they develop, which could result in the competitors of the WFOE and the VIE and its subsidiaries establishing a strong market position before any new products of the WFOE and the VIE and its subsidiaries are able to enter the market. Additionally, technologies developed by the competitors of the WFOE and the VIE and its subsidiaries may render the product candidates of the WFOE and the VIE and its subsidiaries uneconomical or obsolete, and the WFOE and the VIE and its subsidiaries or their collaborators may not be successful in marketing any product candidates they may develop against competitors. The availability of the competitors' products could limit the demand, and the price the WFOE and the VIE and its subsidiaries are able to charge, for any products that they develop alone or with collaborators.
Demand1 | 1.7%
Demand - Risk 1
Changed
A significant portion of our revenue is concentrated in a few large customers, and the WFOE, the VIE and its subsidiaries do not have long-term agreements with their key customers and rely upon their longstanding relationship with these customers. If the WFOE and the VIE and its subsidiaries lose one or more of their customers, BGM and its affiliated entities' results of operations may be adversely and materially impacted.
The customers of the WFOE and the VIE and its subsidiaries consist of qualified distributors, dealers and corporate customers. The WFOE and the VIE and its subsidiaries have several large customers with whom we generated substantial revenue each year, and the composition of largest customers has changed from year to year. For the fiscal year ended September 30, 2024, two customers represented approximately 16% and 12% of the sales of the WFOE and the VIE and its subsidiaries, respectively. For the fiscal year ended September 30, 2023, two customers represented approximately 15% and 14% of the sales of the WFOE and the VIE and its subsidiaries, respectively. For the fiscal year ended September 30, 2022, two customers represented approximately 11% and 11% of the sales of the WFOE and the VIE and its subsidiaries, respectively. Since the WFOE and the VIE and its subsidiaries do not have long-term customer supply agreements with such large customers and rely primarily upon their goodwill and reputation to sustain the business relationship, BGM and its affiliated entities' results of operations may be adversely and materially impacted if one or more of these customers stop purchasing from the VIE or its subsidiaries.
Sales & Marketing1 | 1.7%
Sales & Marketing - Risk 1
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer's most recently completed second fiscal quarter, and, accordingly, the next determination with respect to our status will be made on March 31, 2025. We would lose our foreign private issuer status if, for example, more than 50% of our Ordinary Shares are directly or indirectly held by residents of the U.S. and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms beginning on March 31, 2025, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq Listing Rules. As a U.S. listed public company that is not a foreign private issuer, we would incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange.
Brand / Reputation3 | 5.2%
Brand / Reputation - Risk 1
If the WFOE and the VIE and its subsidiaries fail to increase their brand name recognition, they may face difficulty in obtaining new customers.
Although the brand name of the WFOE and the VIE and its subsidiaries is well-respected in the Chinese pharmaceutical and chemical industry, they still believe that maintaining and enhancing the brand name recognition in a cost-effective manner is critical to achieving widespread acceptance of the current and future products and services of the WFOE and the VIE and its subsidiaries, and is an important element in the effort of the WFOE and the VIE and its subsidiaries to increase their customer base. Successful promotion of the brand name of the WFOE and the VIE and its subsidiaries will depend largely on their marketing efforts and ability to provide reliable and quality products at competitive prices. Brand promotion activities may not necessarily yield increased revenue, and even if they do, any increased revenue may not offset the expenses the WFOE and the VIE and its subsidiaries will incur in marketing activities. If the WFOE and the VIE and its subsidiaries fail to successfully promote and maintain their brand, or if they incur substantial expenses in an unsuccessful attempt to promote and maintain their brand, the VIE and its subsidiaries may fail to attract new customers or retain their existing customers, in which case BGM and its affiliated entities' business, operating results and financial condition, would be materially adversely affected.
Brand / Reputation - Risk 2
Adverse publicity associated with the products of the WFOE and the VIE and its subsidiaries, ingredients or network marketing program, or those of similar companies, could harm our financial condition and operating results.
The results of the WFOE and the VIE and its subsidiaries' operations may be significantly affected by the public's perception of the WFOE and the products of the WFOE and the VIE and its subsidiaries and similar companies. This perception depends upon opinions concerning: - the safety and quality of the products and product ingredients of the WFOE and the VIE and its subsidiaries;- the safety and quality of similar products and ingredients distributed by other companies; and - the downstream distributors and sales forces of the WFOE and the VIE and its subsidiaries. Adverse publicity concerning any actual or purported failure to comply with applicable laws and regulations regarding product claims and advertising, good manufacturing practices, or other aspects of the business of the WFOE and the VIE and its subsidiaries, whether or not resulting in enforcement actions or the imposition of penalties, could have an adverse effect on the goodwill of the WFOE and the VIE and its subsidiaries, and could negatively affect their sales and ability to generate revenue. In addition, the consumers' perception of the safety and quality of products and ingredients of the WFOE and the VIE and its subsidiaries, as well as similar products and ingredients distributed by other companies, can be significantly influenced by media attention, publicized scientific research or findings, widespread product liability claims and other publicity concerning the products or ingredients of the WFOE and the VIE and its subsidiaries or similar products and ingredients distributed by other companies. Adverse publicity, whether or not accurate or resulting from consumers' use or misuse of the products, that associates consumption of the products or product ingredients of the WFOE and the VIE and its subsidiaries or any similar products or ingredients with illness or other adverse effects, questions the benefits of their or similar products or claims that any such products are ineffective, inappropriately labeled or have inaccurate instructions as to the products' use, could negatively impact the reputation of the WFOE and the VIE and its subsidiaries or the market demand for their products.
Brand / Reputation - Risk 3
If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm the WFOE and the VIE and its subsidiaries' business operations and our reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.
Recently, U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our Company and the VIE and its subsidiaries' business. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our Company and business operations will be severely hampered and your investment in our stock could be rendered worthless.
Macro & Political
Total Risks: 6/58 (10%)Above Sector Average
Economy & Political Environment3 | 5.2%
Economy & Political Environment - Risk 1
The WFOE and the VIE and its subsidiaries' business may be materially and adversely affected if any of our PRC Subsidiary, the VIE or the VIE's subsidiaries declares bankruptcy or becomes subject to a dissolution or liquidation proceeding.
The Enterprise Bankruptcy Law of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007. The Bankruptcy Law provides that an enterprise will be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise's assets are, or are demonstrably, insufficient to clear such debts. Our PRC Subsidiary, the VIE and the VIE's subsidiaries hold substantially all the assets that are important to the WFOE and the VIE and its subsidiaries' business operations. If any of these entities undergoes a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering WFOE, the VIE and its subsidiaries' to operate their business, which could materially and adversely affect BGM and its affiliated entities' business, financial condition and results of operations. According to SAFE's Notice of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, promulgated on November 19, 2012 and amended on May 4, 2015, and the Provisions on the Foreign Exchange Administration of Domestic Direct Investment of Foreign Investors, effective on May 13, 2013, if any of our PRC Subsidiary, the VIE, or the VIE's subsidiaries undergoes a voluntary or involuntary liquidation proceeding, prior approval from SAFE for remittance of foreign exchange to our shareholders abroad is no longer required, but we still need to conduct a registration process with the SAFE local branch. It is not clear whether "registration" is a mere formality or involves the kind of substantive review process undertaken by SAFE and its relevant branches in the past.
Economy & Political Environment - Risk 2
A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect the VIE and its subsidiaries' business and financial condition.
The COVID-19 pandemic had a severe and negative impact on the Chinese and the global economy in 2020. Even before the outbreak of COVID-19, the global macroeconomic environment was facing numerous challenges. The growth rate of the Chinese economy had already been slowing since 2010. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies which had been adopted by the central banks and financial authorities of some of the world's leading economies, including the United States and China, even before 2020. Unrest, terrorist threats and the potential for war in the Middle East and elsewhere may increase market volatility across the globe. There have also been concerns about the relationship between China and other countries, including the surrounding Asian countries, which may potentially have economic effects. In particular, there is significant uncertainty about the future relationship between the United States and China with respect to trade policies, treaties, government regulations and tariffs. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect BGM and its affiliated entities' business, results of operations and financial condition.
Economy & Political Environment - Risk 3
Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for the WFOE and the VIE and its subsidiaries' products and materially and adversely affect their competitive position.
All of the business operations of the VIE and its subsidiaries are conducted in China. Accordingly, BGM and its affiliated entities' business, results of operations, financial condition and prospects are subject to economic, political and legal developments in China. Although the Chinese economy is no longer a planned economy, the PRC government continues to exercise significant control over China's economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between RMB and foreign currencies, and regulate the growth of the general or specific market. These government involvements have been instrumental in China's significant growth in the past 30 years. In response to the recent global and Chinese economic downturn, the PRC government has adopted policy measures aimed at stimulating the economic growth in China. If the PRC government's current or future policies fail to help the Chinese economy achieve further growth or if any aspect of the PRC government's policies limits the growth of our industry or otherwise negatively affects the WFOE and the VIE and its subsidiaries' business, their growth rate or strategy, and results of operations could be adversely affected as a result.
Natural and Human Disruptions1 | 1.7%
Natural and Human Disruptions - Risk 1
The WFOE and the VIE and its subsidiaries face risks related to natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could significantly disrupt their operations and negatively affect our results of operations and financial condition.
In the past, China has experienced significant natural disasters, including earthquakes, extreme weather conditions, as well as health scares related to epidemics, and any similar event could materially impact the business of the WFOE and the VIE and its subsidiaries in the future. If a disaster or other disruption were to occur in the future that affects the regions where the WFOE and the VIE and its subsidiaries operate their business, the business operations of the WFOE and the VIE and its subsidiaries could be materially and adversely affected due to loss of personnel, damages to their manufacturing facilities and volatile Chinese markets. Even if the WFOE and the VIE and its subsidiaries are not directly affected, such a disaster or disruption could affect the operations or financial condition of the ecosystem participants such as suppliers and distributors, which could harm our results of operations. In general, the business of the WFOE and the VIE and its subsidiaries could be affected by public health epidemics. If any of the employees or staff members of the WFOE and the VIE and its subsidiaries who operates manufacturing facilities or conduct R&D activities is suspected of having contracted a contagious disease, the WFOE and the VIE and its subsidiaries may be required to apply quarantines to their facilities or suspend manufacturing operations entirely. Furthermore, any future outbreak may restrict economic activities in affected regions and beyond, resulting in reduced business volume, temporary closure of factories or other disruptions of the business operations of the WFOE and the VIE and its subsidiaries, and adversely affect BGM and its affiliated entities' results of operations. For the fiscal years ended September 30, 2023 and 2022, the COVID-19 pandemic negatively impacted the WFOE and the VIE and its subsidiaries' business operations. Specifically, the WFOE and the VIE and its subsidiaries' production costs materially increased due to an increase in raw material prices. In addition, the market demand for some of the products of the WFOE and the VIE and VIE's subsidiaries decreased, resulting in a decrease in market prices of these products. These two factors combined led to a decrease in our profit margin and a decrease in our net income for the fiscal years ended September 30, 2023 and 2022.
Capital Markets2 | 3.4%
Capital Markets - Risk 1
Governmental control of currency conversion may affect the value of your investment.
The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. The WFOE and the VIE and its subsidiaries receive substantially all of our revenues in RMB. Under our current corporate structure, our income is primarily derived from dividend payments from the PRC Subsidiary. Shortages in the availability of foreign currency may restrict the ability of the PRC Subsidiary to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses, such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our security-holders.
Capital Markets - Risk 2
Changed
Fluctuations in exchange rates could adversely affect the VIE and its subsidiaries' business and the value of BGM's securities.
Changes in the value of the RMB against the U.S. dollar, Euro and other foreign currencies are affected by, among other things, changes in China's political and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on our shares in U.S. dollar terms. For example, to the extent that we need to convert U.S. dollars we receive from our initial public offering into RMB for our WFOE and VIE and its subsidiaries' business operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on RMB amount we would receive from the conversion. Conversely, if we decide to convert the 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 a negative effect on the U.S. dollar amount available to us. In addition, fluctuations of the RMB against other currencies may increase or decrease the cost of imports and exports, and thus affect the price-competitiveness of the WFOE and the VIE and its subsidiaries' products against products of foreign manufacturers or products relying on foreign inputs. Since July 2005, the RMB is no longer pegged to the U.S. dollar. Although the People's Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.
Production
Total Risks: 5/58 (9%)Below Sector Average
Employment / Personnel3 | 5.2%
Employment / Personnel - Risk 1
Changed
BGM and its affiliated entities' may not be able to hire and retain qualified personnel to support their growth and if BGM and its affiliated entities' are unable to retain or hire these personnel in the future, their ability to improve their products and implement their business objectives could be adversely affected.
BGM and its affiliated entities must attract, recruit and retain a sizeable workforce of technically competent employees. Competition for senior management and personnel in the PRC is intense and the pool of qualified candidates in the PRC is limited. BGM and its affiliated entities' may not be able to retain the services of their senior executives or personnel, or attract and retain high-quality senior executives or personnel in the future. This failure could materially and adversely affect BGM and its affiliated entities' future growth and financial condition.
Employment / Personnel - Risk 2
Changed
Increases in labor costs in the PRC may adversely affect BGM and its affiliated entities' business and results of operations.
The currently effective PRC Labor Contract Law, or the Labor Contract Law was first adopted on June 29, 2007, later amended on December 28, 2012 and effective on July 1, 2013. The PRC Labor Contract Law has reinforced the protection of employees who, under the Labor Contract Law, have the right, among others, to have written employment contracts, to enter into employment contracts with no fixed term under certain circumstances, to receive overtime wages and to terminate or alter terms in labor contracts. Furthermore, the Labor Contract Law sets forth additional restrictions and increases the costs involved with dismissing employees. To the extent that our affiliated entities need to significantly reduce their workforce, the Labor Contract Law could adversely affect their ability to do so in a timely and cost-effective manner, and their results of operations could be adversely affected. In addition, for employees whose employment contracts include non-competition terms, the Labor Contract Law requires the WFOE and the VIE and its subsidiaries to pay monthly economic compensation after such employment is terminated, which will increase our operating expenses. We expect that the WFOE and the VIE and its subsidiaries' labor costs, including wages and employee benefits, will continue to increase. Unless the WFOE and the VIE and its subsidiaries are able to pass on these increased labor costs to their customers by increasing the prices of their products and services, their financial conditions and results of operations could be materially and adversely affected.
Employment / Personnel - Risk 3
We, the VIE, and the VIE's subsidiaries depend on certain key personnel, and loss of these key personnel could have a material adverse effect on the WFOE and the VIE and its subsidiaries' business, financial condition and results of operations.
The success of our Company, the VIE, and the VIE's subsidiaries is, to a certain extent, attributable to the management, sales and marketing, and research and development expertise of key personnel. We depend upon the services of Mr. Zhanchang Xin, chairman of the board of directors, for the continued growth and operation of our Company, due to his industry experience, technical expertise, as well as his personal and business contacts in the PRC. We may not be able to retain Mr. Zhanchang Xin for any given period of time. Although we have no reason to believe that Mr. Zhanchang Xin will discontinue his services with us or the VIE, the interruption or loss of his services would adversely affect the ability of us, the WFOE, the VIE, and the VIE's subsidiaries to effectively run their business and pursue their business strategy as well as our results of operations. We, the VIE and the VIE's subsidiaries do not carry key man life insurance for any of the key personnel, nor do we foresee purchasing such insurance to protect against the loss of key personnel.
Supply Chain2 | 3.4%
Supply Chain - Risk 1
Any disruption in the supply chain of raw materials and the products of the WFOE and the VIE and its subsidiaries could adversely impact their ability to produce and deliver products.
Some products manufactured by the WFOE and the VIE and its subsidiaries are resource-based products. Thus, the WFOE and the VIE and its subsidiaries must manage their supply chain for raw materials and delivery of their products competently. Even though Chengdu QLS enjoys considerable advantages resulting from its access to high quality, low cost, and abundant local resources, supply chain fragmentation and local protectionism within China may cause disruption risks for the WFOE, the VIE and its other subsidiaries. Local administrative bodies and physical infrastructure built to protect local interests pose transportation challenges for raw material transportation, as well as product delivery throughout China. In addition, profitability and volume could be negatively impacted by limitations inherent within the supply chain, including competitive, governmental, legal, natural disasters, and other events that could affect both supply and price. Any of these occurrences could cause significant disruptions to the supply chain of the WFOE and the VIE and its subsidiaries, manufacturing capability and distribution system that could adversely affect the ability of the WFOE and the VIE and its subsidiaries to produce and deliver some of their products. Additionally, some of the raw materials the WFOE and the VIE and its subsidiaries use are procured from farmers, who are usually subject to environmental risks outside of their control. Thus, these farmers may not have the ability to supply continuously and stably if environmental and climate changes adversely affect their business.
Supply Chain - Risk 2
Changed
The WFOE and the VIE and its subsidiaries source raw materials used for manufacturing from a limited number of suppliers. If the VIE and its subsidiaries lose one or more of the suppliers, their operation may be disrupted, and BGM and its affiliated entities' results of operations may be adversely and materially impacted.
For the fiscal year ended September 30, 2024, two of the suppliers of the WFOE and the VIE and its subsidiaries accounted for 12% and 10% of the total purchases. For the fiscal year ended September 30, 2023, one vendor of the WFOE and the VIE and its subsidiaries accounted for 11% of the total purchases. For the fiscal year ended September 30, 2022, one vendor accounted for 14% of total purchase. If the WFOE and the VIE and its subsidiaries lose suppliers and are unable to swiftly engage new suppliers, their operations may be disrupted or suspended, and they may not be able to deliver hardware products to their customers on time. The WFOE and the VIE and its subsidiaries may also have to pay a higher price to source from a different supplier on short notice. While the WFOE and the VIE and its subsidiaries are actively searching for and negotiating with new suppliers, there is no guarantee that they will be able to locate appropriate new suppliers or supplier merger targets in their desired timeline. As such, BGM and its affiliated entities' results of operations may be adversely and materially impacted.
Tech & Innovation
Total Risks: 3/58 (5%)Below Sector Average
Innovation / R&D1 | 1.7%
Innovation / R&D - Risk 1
The WFOE and the VIE and its subsidiaries face risks related to research and the ability to develop new pharmaceutical and chemical products.
Our growth and survival depend on the ability of the WFOE and the VIE and its subsidiaries to consistently discover, develop and commercialize new products and find new and improved technology. As such, if the WFOE and the VIE and its subsidiaries fail to make sufficient investments in research, be attentive to unmet consumer needs or focus on advancing pharmaceutical and chemical product technology, their current and future products could be surpassed by more effective or advanced products of other companies.
Trade Secrets1 | 1.7%
Trade Secrets - Risk 1
The success of the WFOE and the VIE and its subsidiaries depends on their ability to protect their intellectual property.
The success of the WFOE and the VIE and its subsidiaries depends on their ability to obtain and maintain patent protection for products developed utilizing their technologies, in the PRC and in other countries, and to enforce these patents. There is no assurance that any of the existing and future patents of the WFOE and the VIE and its subsidiaries will be held valid and enforceable against third-party infringement, or that the products of the WFOE and the VIE and its subsidiaries will not infringe any third-party patent or intellectual property. Although the WFOE and the VIE and its subsidiaries own 31 valid patents and have filed two additional patent applications with the Patent Administration Department of the PRC, there is no assurance that they will be granted. Any patents relating to the technologies of the WFOE and the VIE and its subsidiaries may not be sufficiently broad to protect their products. In addition, the patents of the WFOE and the VIE and its subsidiaries may be challenged, potentially invalidated or potentially circumvented. The patents of the WFOE and the VIE and its subsidiaries may not afford them protection against competitors with similar technology or permit the commercialization of their products without infringing third-party patents or other intellectual property rights. The WFOE and the VIE and its subsidiaries also rely on or intend to rely on their trademarks, trade names and brand names to distinguish their products from the products of their competitors, and have registered or will apply to register a number of these trademarks. However, third parties may oppose our trademark applications or otherwise challenge our use of the trademarks. In the event that the trademarks of the WFOE and the VIE or its subsidiaries are successfully challenged, the WFOE and the VIE and its subsidiaries could be forced to rebrand their products, which could result in loss of brand recognition and could require them to devote resources to advertising and marketing these new brands. Further, the competitors of the WFOE and the VIE and its subsidiaries may infringe their trademarks, or they may not have adequate resources to enforce their trademarks. In addition, the WFOE and the VIE and its subsidiaries also have trade secrets, non-patented proprietary expertise and continuing technological innovation that they shall seek to protect, in part, by entering into confidentiality agreements with licensees, suppliers, employees and consultants. These agreements may be breached and there may not be adequate remedies in the event of a breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Moreover, the trade secrets and proprietary technology of the WFOE and the VIE and its subsidiaries may otherwise become known or be independently developed by their competitors. If patents are not issued with respect to products arising from research, the WFOE and the VIE and its subsidiaries may not be able to maintain the confidentiality of information relating to these products. Implementation and enforcement of PRC laws relating to intellectual property have historically been deficient and ineffective. Accordingly, protection of intellectual property rights in China may not be as effective as in the United States or other developed countries. Furthermore, policing unauthorized use of proprietary technology is difficult and expensive. The WFOE and the VIE and its subsidiaries rely on a combination of patent, copyright, trademark, and trade secret laws and restrictions on disclosure to protect their intellectual property rights. Despite the efforts of the WFOE and the VIE and its subsidiaries to protect their proprietary rights, third parties may attempt to copy or otherwise obtain and use such intellectual property or seek court declarations that they do not infringe upon the intellectual property rights of the WFOE and the VIE and its subsidiaries. Monitoring unauthorized use of the intellectual property of the WFOE and the VIE and its subsidiaries is difficult and costly, and we cannot assure you that the steps the WFOE and the VIE and its subsidiaries have taken or will take will prevent misappropriation of their intellectual property. From time to time, the WFOE and the VIE and its subsidiaries may have to resort to litigation to enforce their intellectual property rights, which could result in substantial costs and diversion of their resources and a favorable outcome, in such event, is not assured.
Cyber Security1 | 1.7%
Cyber Security - Risk 1
Changed
Failure to comply with cybersecurity, data privacy, data protection, or any other laws and regulations related to data may materially and adversely affect BGM and its affiliated entities' business, financial condition, and results of operations.
We may be subject to a variety of cybersecurity, data privacy, data protection, and other laws and regulations related to data, including those relating to the collection, use, sharing, retention, security, disclosure, and transfer of confidential and private information, such as personal information and other data. These laws and regulations apply not only to third-party transactions, but also to transfers of information within our organization. These laws and regulations may restrict the WFOE and the VIE and its subsidiaries' business activities and require us or our affiliated entities to incur increased costs and efforts to comply, and any breach or noncompliance may subject us or our affiliated entities to proceedings against us or our affiliated entities, damage our and the affiliated entities' reputation, or result in penalties and other significant legal liabilities, and thus may materially and adversely affect our and the affiliated entities' business, financial condition, and results of operations. In China, the cybersecurity, data privacy, data protection, or other data-related laws and regulations are relatively new and evolving, and their interpretation and application may be uncertain. For example, on November 14, 2021, the Administration Regulations on Cyber Data Security (Draft for Comments) (the "Draft Regulation") was proposed by the Cyberspace Administration of China, or the CAC, for public comments until December 13, 2021. The Draft Regulation reiterates that data processors which process the personal information of at least one million users must apply for a cybersecurity review if they plan on listing its securities overseas, and the Draft Regulation further requires the data processors to apply for cybersecurity review in accordance with relevant laws and regulations under the following circumstances: (i) such data processor engages in merger, reorganization or division of internet platform operators that have gathered a large number of data resources related to national security, economic development and public interests affects or may affect national security; (ii) the listing of such data processor overseas affects or may affect national security; and (iii) such data processor engages in other data processing activities that affect or may affect national security. Any failure to comply with such requirements may subject us or our affiliated entities to, among others, suspension of services, fines, revocation of relevant business permits or business licenses, and/or penalties. Since the CAC is still seeking comments on the Draft Regulation from the public as of the date of this annual report, the Draft Regulation (especially its operative provisions) and its anticipated adoption or effective date are subject to further changes with substantial uncertainty. As of the date of this annual report, we or our affiliated entities have not engaged in the relevant businesses provided in the Draft Regulation. As such, we or our affiliated entities currently do not expect that the draft measures by the CAC or other recent regulations will have an impact on ours and our affiliated entities' business or results of operations, and we believe that we and our affiliated entities are compliant with the regulations and policies that have been issued by the CAC to date. As of the date of this annual report, we or our affiliated entities have not been subjected to any investigation, nor have we or any of our affiliated entities received any notice, warning, or sanction from applicable government authorities (including the CAC) with regard to the WFOE and the VIE and its subsidiaries' business operations concerning any issues related to cybersecurity and data security. In addition, we or our affiliated entities have not been involved in any review, investigation, enquiry, penalty, or other legal proceedings initiated by applicable governmental or regulatory authorities or third parties in relation to in relation to cyber security or data protection. However, we and our affiliated entities still face uncertainties regarding the interpretation and implementation of these laws and regulations in the future. Cybersecurity review could result in disruption in the WFOE and the VIE and its subsidiaries' operations, negative publicity with respect to our Company, and diversion of our managerial and financial resources. Furthermore, if we or our affiliated entities were found to be in violation of applicable laws and regulations in China during such review, we or our affiliated entities could be subject to fines or other government sanctions and reputational damage. Therefore, potential cybersecurity review, if applicable to us, could materially and adversely affect BGM and its affiliated entities' business, financial condition, and results of operations. In addition, the PRC Data Security Law, which was promulgated by the Standing Committee of the National People's Congress (the "SCNPC") on June 10, 2021 and took effect on September 1, 2021, requires data collection to be conducted in a legitimate and proper manner, and stipulates that, for the purpose of data protection, data processing activities must be conducted based on data classification and hierarchical protection system for data security. Furthermore, the Opinions on Strictly Cracking Down Illegal Securities Activities, recently issued jointly by the General Office of the Communist Party of China Central Committee and the General Office of the State Council, require (i) speeding up the revision of the regulatory provisions on strengthening the confidentiality and archives management relating to overseas issuance and listing of securities and (ii) improving the laws and regulations relating to data security, cross-border data flow, and management of confidential information. The PRC Personal Information Protection Law, which was promulgated by the SCNPC on August 20, 2021 and took effect on November 1, 2021, integrates the scattered rules with respect to personal information rights and privacy protection and applies to the processing of personal information within China as well as certain personal information processing activities outside China, including those for the provision of products and services to natural persons within China or for the analysis and assessment of acts of natural persons within China. There remain uncertainties regarding the further interpretation and implementation of those laws and regulations. If they are deemed to be applicable to us, we cannot assure you that we or our affiliated entities will be compliant with such new regulations in all respects, and we or our affiliated entities may be ordered to rectify and terminate any actions that are deemed illegal by the government authorities and become subject to fines and other government sanctions, which may materially and adversely affect BGM and its affiliated entities' business, financial condition, and results of operations.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
    The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
      They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
        It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
          How do companies disclose their risk factors?
          Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
            Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
              Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
                According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
                  How can I use TipRanks risk factors in my stock research?
                  Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
                    You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
                      Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
                        A simplified analysis of risk factors is unique to TipRanks.
                          What are all the risk factor categories?
                          TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
                          1. Financial & Corporate
                          • Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
                          • Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
                          • Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
                          • Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
                          2. Legal & Regulatory
                          • Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
                          • Regulation – risks related to compliance, GDPR, and new legislation.
                          • Environmental / Social – risks related to environmental regulation and to data privacy.
                          • Taxation & Government Incentives – risks related to taxation and changes in government incentives.
                          3. Production
                          • Costs – risks related to costs of production including commodity prices, future contracts, inventory.
                          • Supply Chain – risks related to the company’s suppliers.
                          • Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
                          • Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
                          4. Technology & Innovation
                          • Innovation / R&D – risks related to innovation and new product development.
                          • Technology – risks related to the company’s reliance on technology.
                          • Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
                          • Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
                          5. Ability to Sell
                          • Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
                          • Competition – risks related to the company’s competition including substitutes.
                          • Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
                          • Brand & Reputation – risks related to the company’s brand and reputation.
                          6. Macro & Political
                          • Economy & Political Environment – risks related to changes in economic and political conditions.
                          • Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
                          • International Operations – risks related to the global nature of the company.
                          • Capital Markets – risks related to exchange rates and trade, cryptocurrency.
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