Stocks
ETFs
Options
Commodities
Crypto
Currency
Pro Newsletters
Research Tools
Daily Feeds
Calendars
Economic Indicators
Class Actions
Calculators
Education
About Us
Working with TipRanks
Follow Us
Regencell Bioscience (RGC)
NASDAQ:RGC
Holding RGC?
Track your performance easily
Risk Overview Q2, 2024
Risk Distribution
42% Finance & Corporate
19% Tech & Innovation
15% Legal & Regulatory
10% Ability to Sell
8% Macro & Political
6% Production
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
Regencell Bioscience 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.
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 Q2, 2024
Main Risk Category
Finance & Corporate
With 20 Risks
Finance & Corporate
With 20 Risks
Number of Disclosed Risks
48
No changes from last report
S&P 500 Average: 31
48
No changes from last report
S&P 500 Average: 31
Recent Changes
0Risks added
0Risks removed
3Risks changed
Since Jun 2024
0Risks added
0Risks removed
3Risks changed
Since Jun 2024
Number of Risk Changed
3
No changes from last report
S&P 500 Average: 3
3
No changes from last report
S&P 500 Average: 3
See the risk highlights of Regencell Bioscience 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 48
Finance & Corporate
Total Risks: 20/48 (42%)Above Sector Average
Share Price & Shareholder Rights10 | 20.8%
Share Price & Shareholder Rights - Risk 1
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our shares, the price and trading volume of our Ordinary Shares could decline.Share Price & Shareholder Rights - Risk 2
As a "controlled company" under the rules of the Nasdaq Capital Market, we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public shareholders.We are a "controlled company" as defined under the Nasdaq Stock Market listing rules because Mr. Yat-Gai Au, our founder, director and CEO, currently beneficially owns 81.2% of our Ordinary Shares. As long as our officers and directors, either individually or in the aggregate, own at least 50% of the voting power of our company, we are a "controlled company" as defined under Nasdaq Stock Market listing rules.
For so long as we are a controlled company under that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules, including:
- an exemption from the rule that a majority of our board of directors must be independent directors;- an exemption from the rule that the compensation of our CEO must be determined or recommended solely by independent directors; and - an exemption from the rule that our director nominees must be selected or recommended solely by independent directors.
As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
Cayman Islands law does not impose any fiduciary or other duties on a majority (or controlling) shareholder in respect of the company or any minority shareholders.
Although we do not intend to rely on the "controlled company" exemption under the Nasdaq Stock Market listing rules, we could elect to rely on this exemption in the future. If we elect to rely on the "controlled company" exemption, a majority of the members of our board of directors might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely of independent directors.
Share Price & Shareholder Rights - Risk 3
Our founder and CEO will continue to own a significant percentage of our Ordinary Shares and will be able to exert significant control over matters subject to shareholder approval.Mr. Yat-Gai Au, our founder, director and CEO, currently beneficially owns 81.2% of our company through Regencell (BVI) Limited, and our company will continue to be controlled by him. Therefore, he has the ability to substantially influence us through this ownership position. For example, he may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. His interests may not always coincide with our corporate interests or the interests of other shareholders, and he may act in a manner with which you may not agree or that may not be in the best interests of our other shareholders. So long as he continues to own a significant amount of our equity, he will continue to be able to strongly influence or effectively control our decisions.
Share Price & Shareholder Rights - Risk 4
A possible "short squeeze" due to a sudden increase in demand of our Ordinary Shares that largely exceeds supply may lead to price volatility in our Ordinary Shares.Investors may purchase our Ordinary Shares to hedge existing exposure in our Ordinary Shares or to speculate on the price of our Ordinary Shares. Speculation on the price of our Ordinary Shares may involve long and short exposures. To the extent aggregate short exposure exceeds the number of shares of our Ordinary Shares available for purchase in the open market, investors with short exposure may have to pay a premium to repurchase our Ordinary Shares for delivery to lenders of our Ordinary Shares. Those repurchases may in turn, dramatically increase the price of our Ordinary Shares until investors with short exposure are able to purchase additional common shares to cover their short position. This is often referred to as a "short squeeze." A short squeeze could lead to volatile price movements in our Ordinary Shares that are not directly correlated to the performance or prospects of our company and once investors purchase our Ordinary Shares necessary to cover their short position the price of our Ordinary Shares may decline.
Share Price & Shareholder Rights - Risk 5
The market price for our Ordinary Shares may be volatile.Our Ordinary Shares may be very thinly traded, and the price if traded may not reflect our value. There can be no assurance that there will be an active market for our Ordinary Shares in the future. The market liquidity will be dependent on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. If a more active market should develop, the price may be highly volatile. The market price for our Ordinary Shares may be volatile and subject to wide fluctuations due to factors such as:
- the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;- actual or anticipated fluctuations in our quarterly operating results;- changes in financial estimates by securities research analysts;- negative publicity, studies or reports;- our capability to catch up with the technological innovations in the industry;- announcements by us or our competitors of acquisitions, strategic partnerships, joint ventures or capital commitments;- addition or departure of key personnel;- fluctuations of exchange rates between Hong Kong dollar and the U.S. dollar; and - general economic or political conditions in Hong Kong.
In addition, the securities market has from time-to-time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Ordinary Shares.
Share Price & Shareholder Rights - Risk 6
Volatility in our Ordinary Shares price may subject us to securities litigation.The market for our Ordinary Shares may have, when compared to seasoned issuers, significant price volatility and we expect that our share price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management's attention and resources.
Share Price & Shareholder Rights - Risk 7
Because our business is conducted in Hong Kong dollars and the price of our Ordinary Shares is quoted in United States dollars, changes in currency conversion rates may affect the value of your investments.Our business is conducted in Hong Kong, our books and records are maintained in Hong Kong dollars, which is the currency of Hong Kong, and the financial statements that we file with the SEC and provide to our shareholders are presented in United States dollars. Changes in the exchange rate between Hong Kong dollar and U.S. dollar affect the value of our assets and the results of our operations in United States dollars. The value of Hong Kong dollar against United States dollar and other currencies may fluctuate and is affected by, among other things, changes in the Hong Kong's political and economic conditions and perceived changes in the economy of Hong Kong and the United States. Any significant revaluation of Hong Kong dollar may materially and adversely affect our cash flows, revenue and financial condition. Changes in the conversion rate between United States dollar and Hong Kong dollar will affect the amount of proceeds we will have available for our business.
Share Price & Shareholder Rights - Risk 8
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.As a foreign private issuer, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. For example, we are not subject to the proxy rules in the United States and disclosure with respect to our annual general meetings will be governed by Cayman Islands law requirements. In addition, our officers, directors and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers, directors and principal shareholders purchase or sell our Ordinary Shares.
Share Price & Shareholder Rights - Risk 9
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 share price may be more volatile.
Share Price & Shareholder Rights - Risk 10
Our Ordinary Shares may be prohibited from being trading on a national exchange under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect our auditors located in Hong Kong. The delisting of our Ordinary Shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.Changed
The Holding Foreign Companies Accountable Act (the "HFCAA") was enacted on December 18, 2020. The HFCAA states if the SEC determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit securities of any such company from being traded on a national securities exchange or in the over the counter trading market in the U.S.
On December 2, 2021, the SEC adopted final amendments to its rules implementing the HFCAA and established procedures to identify registrants and prohibit the trading of the securities of certain registrants as required by the HFCAA. On August 26, 2022, the PCAOB announced that it had signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People's Republic of China, which the PCAOB believes represents the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely, consistent with U.S. law. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it was unable to inspect or investigate completely registered public accounting firms. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. Whether the PCAOB will continue to be able to conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our and our auditor's control. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year.
Our former auditor, Friedman LLP, and our current auditor, Marcum Asia CPAs LLP , the independent registered public accounting firm that issues the audit report included elsewhere in this Annual Report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, are subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Both Friedman LLP and Marcum Asia CPAs LLP are currently subject to PCAOB inspections and PCAOB is able to inspect our auditor. However, 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. The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to PCAOB inspection.
Accounting & Financial Operations5 | 10.4%
Accounting & Financial Operations - Risk 1
We have a very limited operating history, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.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 our business, and 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
We have identified material weaknesses in our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.In the course of auditing our consolidated financial statements as of and for the years ended June 30, 2024, and 2023, we and our independent registered public accounting firms identified three material weaknesses in our internal control over financial reporting as well as other control deficiencies. As defined in standards established by the Public Company Accounting Oversight Board ("PCAOB"), a "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate to (1) our lack of sufficient skilled staff with accounting principles generally accepted in the United States of America ("U.S. GAAP") knowledge and the SEC reporting knowledge for the purpose of financial reporting as well as the lack in formal accounting policies and procedures manual to ensure proper financial reporting in accordance with U.S. GAAP and SEC reporting requirements; (2) our lack of internal audit function to establish formal risk assessment process and internal control framework; and (3) lack of segregation of duties for certain key functions due to limited staff and resources.
Our management identified material weaknesses in the design and operation of our internal controls because:
- Our lack of sufficient skilled staff with U.S. GAAP knowledge and the SEC reporting knowledge for the purpose of financial reporting as well as the lack in formal accounting policies and procedures manual to ensure proper financial reporting in accordance with U.S. GAAP and SEC reporting requirements;- Our lack of internal audit function to establish formal risk assessment process and internal control framework; and - Our lack of segregation of duties for certain key functions due to limited staff and resources.
As defined under standards established by PCAOB, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
As a result, we have already taken some steps and have continued to implement measures to remediate the material weaknesses identified, including but not limited to (i) continuing to recruit experienced personnel with relevant past experience working on U.S. GAAP and SEC reporting, (ii) improving our monitoring of and oversight controls for non-recurring transactions to ensure the accuracy and completeness of financial reporting and (iii) engaging external experts to assist with should there be non-recurring and complex transactions and continuing to implement measures to remediate our internal control deficiencies.
All internal control systems, no matter how well designed, have inherent limitations including the possibility of human error and the circumvention or overriding of controls. Further, because of changes in conditions, the effectiveness of internal controls may vary over time. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
We cannot be certain that these measures will successfully remediate the material weaknesses or that other material weaknesses will not be discovered in the future. If our efforts are not successful or other material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results accurately on a timely basis or help prevent fraud, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence or delisting and cause the market price of our Ordinary Shares to decline. In addition, it could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our securities. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods. Because of our status as an emerging growth company, you will not be able to depend on any attestation from our independent registered public accountants as to our internal control over financial reporting for the foreseeable future.
We are a public company in the United States subject to the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act"). Section 404 of the Sarbanes-Oxley Act requires that we include a report of management on our internal control over financial reporting in this Annual Report. In addition, once we cease to be an "emerging growth company" as such term is defined under Jumpstart Our Business Startups Act of 2012, as amended (the "JOBS Act"), our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.
During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Generally, if we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, and harm our results of operations. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions.
Accounting & Financial Operations - Risk 4
Our future operating results are difficult to predict and may vary significantly from quarter to quarter, which may adversely affect the price of our Ordinary Shares.Our limited research progress of our standardized TCM formulae candidates, together with our history of losses, make prediction of future operating results difficult. You should not rely on our past performance as any indication of future growth rates or operating results. Our valuation and the price of our securities likely will fall in the event our operating results do not meet the expectations of analysts and investors. Comparisons of our quarterly operating results are an unreliable indication of our future performance because they are likely to vary significantly based on many factors, including:
- our inability to enroll enough mild-to-moderate ADHD and ASD patients into our second research studies; - the success of our standardized TCM formulae candidates to treat individuals with ADHD and/or ASD, and the possible future introduction of new products and treatments for ADHD and/or ASD; - the successful completion of future research studies, and the possibility that the results of any future study may be adverse to our product and services, or reveal some heretofore unknown risk to patients from treatment in the personalized TCM formulae; the failure by us to make professional presentation and publication of positive outcomes data from these research studies; - our ability to commercialize the standardized TCM formulae candidates in Hong Kong once we obtain permission from the Hong Kong Chinese Medicines Board; - the expansion and rate of success of our marketing and advertising efforts to ADHD and ASD patients, and the rate of success of our direct sales force in Hong Kong; - failure of third-party contract manufacturers to deliver products or provide services in a cost effective and timely manner; - our failure to compete with other treatment for ADHD and ASD; - actions relating to ongoing compliance of the Hong Kong Chinese Medicine Ordinance (the "HKCMO"); - unanticipated delays in the development and introduction of our future products and/or our inability to control costs; - the effects of global or local pandemics or epidemics and governmental responses; and - general economic conditions as well as those specific to our customers and markets.
Therefore, you should expect that our results of operations will be difficult to predict, which will make an investment in our company uncertain.
Accounting & Financial Operations - Risk 5
We are an early-stage TCM bioscience company with a limited operating history.We are an early-stage TCM bioscience company with a limited operating history that focuses on the research, development and commercialization of TCM for the treatment of neurocognitive disorders and degenerations, specifically Attention Deficit Hyperactivity Disorder ("ADHD") and Autism Spectrum Disorder ("ASD"). We have incurred operating losses since our formation. We incurred total net losses of $4.36 million and $6.06 million, respectively, for the fiscal years ended June 30, 2024 and 2023. The likelihood of success of our business plan and growth strategy must be considered in light of the problems, substantial expenses, difficulties, complications and delays frequently encountered in connection with developing and expanding early-stage businesses and the regulatory and competitive environment in which we operate.
Accordingly, you should consider our annual report in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development, especially early-stage bioscience research companies such as ours. Potential investors should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, potential investors should consider that we cannot assure you that we will be able to, among other things:
- successfully implement or execute our current business plan, and we cannot assure you that our business plan is sound;- successfully manufacture and commercialize our standardized liquid-based TCM formulae treatment for mild, moderate and severe ADHD and ASD patients after our second research studies;- successfully complete the research studies to obtain regulatory approval for the marketing of our TCM formulae candidates;- obtain, secure, maintain and, as necessary, defend our intellectual property rights;- attract and retain an experienced management and research team;- launch commercial sales of our standardized liquid-based TCM formulae candidates, whether alone or in collaboration with others;- raise sufficient funds in the capital markets or otherwise to effectuate our business plan; and - utilize the funds that we do have and/or raise in the future to efficiently execute our business strategy;
If we cannot successfully execute any one of the foregoing, our business may fail and your investment will be adversely affected.
Debt & Financing2 | 4.2%
Debt & Financing - Risk 1
We have limited sources of working capital and will need substantial additional financing.Debt & Financing - Risk 2
Future debt agreements may contain, restrictions that may limit our flexibility in operating our business.Documents governing our future indebtedness, or in connection with additional capital raises, if any, may contain, numerous financial and operating covenants that limit the discretion of management with respect to certain business matters. Restrictive covenants included in the above-mentioned credit facility include restrictions on, among others, our ability to incur or permit additional indebtedness and change the nature of our business.
Our ability to comply with these and other provisions of the existing loan agreement is dependent on our future performance, which will be subject to many factors, some of which are beyond our control. The breach of any negative covenants in our current or future agreements could result in an event of default, as may be defined in such agreements, thereby leading to a potential default interest rate or immediate repayment of any borrowed amounts. These restrictive covenants which may be in place from time to time and a lack of compliance by us could limit our flexibility in operating our business.
Corporate Activity and Growth3 | 6.3%
Corporate Activity and Growth - Risk 1
There is uncertainty regarding our ability to continue as a going concern, indicating the possibility that we may be required to curtail or discontinue our operations in the future. If we discontinue our operations, you may lose all of your investment.Corporate Activity and Growth - Risk 2
Our business model may not be sufficient to ensure our success in our intended market.Our survival is currently dependent upon the success of our efforts to gain ADHD and ASD patients' acceptance of liquid-based TCM formulae treatment that will ultimately represent a very small segment in our targeted industry when it is completed. Should our target market not be as responsive to our products as we anticipate, we may not have in place alternate products or services that we can offer to ensure our survival.
Our TCM formulae treatment may not be desired for purchase by patients, or potential competitors may develop services that imitate or compete with ours or prospective offers and take our targeted revenue stream away from us or reduce our ability to command profitable revenue streams for our products. If international pharmaceutical companies, develop more successful products to cure ADHD and/or ASD or offer competitive products at a lower price, our revenue, margins, and profitability will suffer.
Corporate Activity and Growth - Risk 3
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 Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the Nasdaq Capital Market, and other applicable securities rules and regulations. Compliance with these rules and regulations will nonetheless increase our legal, accounting, 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." As a foreign private issuer, the Exchange Act requires, among other things, that we file annual and current reports with respect to our business and operating results.
As a result of disclosure of information in this Annual Report and in filings required of a public company, our business and financial condition will become 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 business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation and results of operations.
We also expect that being a public company and 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 of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
Tech & Innovation
Total Risks: 9/48 (19%)Below Sector Average
Innovation / R&D7 | 14.6%
Innovation / R&D - Risk 1
Our standardized TCM formulae candidates for mild, moderate and severe ADHD and ASD patients are still in development. If we are unable to obtain regulatory approval or ultimately commercialize our standardized TCM formulae and/or products based on our TCM formulae, or if we experience significant delays in doing so, our business, financial condition, results of operations, and prospects will be materially and adversely affected.Innovation / R&D - Risk 2
Our research and development of TCM formulae candidates is at an early stage of development and all of our TCM formulae candidates may require significant interactions with regulatory authorities and investments before their respective commercial launches. If we are unable to advance our TCM formulae candidates to final development, meet regulatory requirements, including obtaining regulatory approval, where applicable, or ultimately commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed.Our research and development of TCM formulae is at an early stage and will require significant investment and regulatory approvals prior to commercialization. Each of our TCM formulae candidates will require additional research and development, obtaining regulatory approval, such as obtaining manufacturing supply, substantial investment and significant marketing efforts before it generates any revenue from product sales. We are not permitted to market or promote any of our standardized TCM formulae candidates before our receipt of regulatory approval from the Hong Kong Chinese Medicines Board, or comparable regulatory authorities, and we may never receive such regulatory approval for any such standardized TCM formulae candidates.
The success of our product candidates will depend on several factors, including but not limited to the following:
- receipt of regulatory approvals from applicable regulatory authorities for drug product candidates or, alternatively, compliance with regulatory requirements applicable to non-drug products;- establishing current Good Manufacturing Practices ("GMP") compliant supply and commercial manufacturing operations or deciding with GMP-compliant third-party manufacturers for supply and commercial manufacturing;- obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates;- launching commercial sales of our product candidates, if and when approved or allowed for marketing, whether alone or in collaboration with others; and - maintaining a continued acceptable safety profile of the product candidates following approval or commercialization.
We cannot be certain that research and development of any of our TCM formulae candidates will be successful or that we will obtain regulatory approval or be able to successfully commercialize any product based on our TCM formulae and generate revenue. Success in our research studies does not ensure that application of regulatory approval will be successful. Our research studies may fail to demonstrate that our TCM formulae candidates are safe and effective for their proposed uses. Any such failure could cause us to abandon further development of any one or more of our TCM formulae candidates and may delay development of other TCM formulae candidates. Any delay in, or termination of, our development will delay and possibly preclude the filing with regulatory authorities and, ultimately, our ability to commercialize the TCM formulae candidates and generate revenue.
Innovation / R&D - Risk 3
Although the assessment tools for the assessment of ADHD and ASD are globally recognized, the outcome of our efficacy trial may be subject to some biases of parents and caregivers of patients because we relied on the data provided by them.The assessment tools we used in our efficacy trial include (i) Sik-Kee Au TCM Brain Theory for ADHD/ASD Assessment (SKATBT-A3), which is a 48-item questionnaire developed by our research and development team, designed to assess patients' conditions that are commonly observed by the TCM Practitioner. Items assessed are indicative of patients' overall body and neurological conditions based on the TCM Practitioner's brain theory and his over 30 years of experience in treating ADHD and ASD patients; (ii) Autism Treatment Evaluation Checklist (ATEC); (iii) Gilliam Autism Rating Scale (GARS); (iv) Vanderbilt ADHD Diagnostic Parent Rating Scale (VADRS); and (v) Swanson, Nolan, and Pelham (SNAP)-IV 26-item Parent Rating Scale (SNAP-IV-26). Most of these assessment tools are globally recognized and accepted methods of scoring severity levels of ADHD and ASD patients.
We believe that these assessment tools serve a useful purpose in helping us evaluate the effectiveness of our TCM formulae candidates. Based on the results of these assessments, we are then able to identify additional TCM formulae candidates, direct our resources efficiently, and provide data support for our future applications of proprietary Chinese medicine ("pCm") registrations with the Hong Kong Chinese Medicine Council.
Notwithstanding the foregoing, we rely on parents or caregivers of patients to provide us with initial data which we cannot guarantee the accuracy. If the parents and caregivers of enrolled ADHD and ASD patients fail to observe and record accurately, then we will not only fail to realize any benefits from using these assessment tools, but may also be led to invest time and financial resources inefficiently in attempting to develop inappropriate TCM formulae candidates.
Innovation / R&D - Risk 4
If we encounter difficulties enrolling patients in our research studies, our TCM formulae development could be delayed or otherwise adversely affected.We conduct research studies involving TCM formulae candidates whose activity and specificity have been optimized by our TCM Practitioner in his prior ADHD and ASD treatments. Timely completion of research studies in accordance with the protocols depends, among other things, on our ability to enroll a sufficient number of patients who meet the efficacy trial criteria and remain in the study until the conclusion. We may experience difficulties enrolling and retaining appropriate patients in our efficacy trial for a variety of reasons, including but not limited to:
- the size and nature of the patient population;- eligibility of patients based on our criteria;- the specific design of each study and subsequent changes in the design;- our ability to recruit personnel with the appropriate competencies and experience;- competing research studies for similar therapies or other new therapeutics, which will reduce the number and types of patients available;- patients' perceptions of the potential advantages and side effects of the TCM formulae being studied in relation to other available therapies, including any new drug candidates or treatments that may be approved for the indications we are investigating;- our ability to obtain and maintain patient consents;- patients' attrition; and - the availability of approved therapies that are similar to our TCM formulae candidates.
Even if we are able to enroll a sufficient number of patients in our efficacy trial, delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned research studies, which could prevent completion of these studies and adversely affect our ability to advance the development of our TCM formulae candidates.
Innovation / R&D - Risk 5
Results of our earlier studies on personalized TCM formulae may not be predictive of future efficacy trial results. Failure can occur at any stage of research and development.The results of research studies of our personalized TCM formulae may not be predictive of the results of standardized TCM formulae candidates. Standardized TCM formulae candidates may fail to show the desired safety and efficacy despite positive results of personalized TCM formulae. Based upon negative or inconclusive results, we, along with our TCM Practitioner or any potential future collaborator may decide, or regulators may require us, to conduct additional research studies. In addition, data obtained from research studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit, or prevent regulatory approval.
As of the date of this Annual Report, our second efficacy trial in ADHD and ASD in Hong Kong is ongoing. However, there is no assurance that whether our second efficacy trial needs to be redesigned. Research studies can be delayed or aborted for a variety of reasons, including delay or failure to:
- recruit suitable patients to participate in research studies and have such patients complete the research studies or return for post-treatment follow-up;- address any patient safety concerns that arise during the course of an efficacy trial;- ensure that patients comply with and complete efficacy trial protocol;- initiate or add a sufficient number of efficacy trial sites;- manufacture sufficient quantities of TCM formulae candidate for use in research studies and ensure efficacy trial material is provided to efficacy trial sites in a timely manner; and - obtain the statistical analysis plan to be used to evaluate the efficacy trial data.
Qualified patient enrollment is a significant factor in our research studies and is affected by many factors, including the size and nature of the patient population, the eligibility criteria for the studies, the design of the efficacy trial, competing research studies and patients' perceptions as to the potential advantages of the TCM formulae being studied in relation to other available therapies.
If we experience delays in the start or completion of, or termination of, any research studies of our TCM formulae candidates, the commercial prospects of our TCM formulae candidates may be affected, and our ability to generate product revenues will be delayed. In addition, any delays in completing our research studies will increase our costs, slow down our TCM formulae candidates' development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may negatively harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of research studies may also ultimately lead to the denial of regulatory approval of our TCM formulae candidates.
Innovation / R&D - Risk 6
Our TCM formulae candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if any.Potential undesirable side effects caused by our TCM formulae candidates may cause it to interrupt, delay, or halt research studies or could cause regulatory authorities to interrupt, delay, or halt our research studies or could result in a more restrictive label or the delay or denial of regulatory approval by the Hong Kong Chinese Medicines Board, or other regulatory authorities. We may observe some potential side effects in future research studies that could affect patient recruitment or the ability of enrolled patients to complete the study or result in potential product liability claims. Any of these occurrences may harm our business, financial condition, and prospects significantly.
Our research studies assessed a sample of the potential patient population. With a limited number of patients and duration of exposure, rare and severe side effects of our TCM formulae candidates may only be uncovered with a large number of patients exposed to the TCM formulae treatment. If our TCM formulae candidates receive regulatory approval and we, our partners, or others identify undesirable side effects caused by such standardized liquid-based TCM formulae treatment after such approval, a number of potentially significant negative consequences could result, including:
- the Hong Kong Chinese Medicines Board or other comparable regulatory authorities may withdraw or limit their approval of such standardized TCM formulae candidates;- we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;- we may be required to change the way such standardized TCM formulae candidates are distributed or administered, conduct additional research studies, or change the labeling of our TCM formulae treatment;- the Hong Kong Chinese Medicines Board or other comparable regulatory authorities may require a risk evaluation and mitigation strategy, plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools;- we may be subject to regulatory investigations and government enforcement actions;- we may decide to remove such TCM formulae treatment from the marketplace;- we could be sued and held liable for injury caused to individuals exposed to or taking our TCM formulae treatment; and - our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected TCM formulae treatment and could substantially increase the costs of commercializing our TCM formulae treatment, if approved, and significantly impact our ability to successfully commercialize our TCM formulae candidates and generate revenue.
Innovation / R&D - Risk 7
If any of our TCM formulae candidates are approved for marketing and commercialization and we are unable to develop, manufacture, sales, marketing and distribution capabilities on our own or enter into agreements with third parties to produce and sell our products on acceptable terms, we will be unable to successfully commercialize any such future therapeutics.We currently have no sales and marketing, or distribution capabilities or experience. In order to commercialize our standardized TCM formulae candidates, if approved, we must build marketing and sales capabilities or decide to make arrangements with third parties to produce and sell products, and we may not be successful in doing so. Building the requisite sales, marketing or distribution capabilities will be expensive and time-consuming and will require significant attention of our leadership team to manage. Any failure or delay in the development of our sales, marketing or distribution capabilities would adversely impact the commercialization of our products. The competition for talented individuals experienced in selling and marketing TCM products is intense, and we cannot assure you that we can assemble an effective team. Additionally, we may choose to collaborate with third parties on the commercialization of our standardized TCM formulae candidates. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize our standardized TCM formulae candidates if and when we receive regulatory approval, or any such commercialization may experience delays or limitations.
We may be subject to additional risks related to operating in foreign countries either ourselves or through a third-party, including:
- differing regulatory requirements in foreign countries;- unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;- economic weakness, including inflation or political instability in particular foreign economies and markets;- compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;- foreign taxes, including withholding of payroll taxes;- foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;- difficulties staffing and managing foreign operations;- workforce uncertainty in countries where labor unrest is more common than in the United States;- potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign regulations;- challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;- production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and - business interruptions resulting from geopolitical actions, including war and terrorism.
Trade Secrets2 | 4.2%
Trade Secrets - Risk 1
Our success depends on our ability to obtain and protect our intellectual property.Trade Secrets - Risk 2
Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.We employ individuals who previously worked with other companies, including our competitors or potential competitors. Although we try to ensure that our employees, contractors, or consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third party. Litigation may be necessary to defend against these claims. If we fail in defending any such claims or settling those claims, in addition to paying monetary damages or a settlement payment, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Legal & Regulatory
Total Risks: 7/48 (15%)Below Sector Average
Regulation5 | 10.4%
Regulation - Risk 1
We have not generated revenue from any TCM formulae candidates or applied for any regulatory approvals, nor have distribution capabilities or experience or any granted patents or pending patent applications and may never be profitable.Regulation - Risk 2
The Hong Kong legal system embodies uncertainties which could limit the availability of legal protections.As one of the conditions for the handover of the sovereignty of Hong Kong to China, China accepted conditions such as Hong Kong's Basic Law. The Basic Law ensured Hong Kong will retain its own currency (Hong Kong Dollar), legal system, parliamentary system and people's rights and freedom for fifty years from 1997. This agreement has given Hong Kong the freedom to function with a high degree of autonomy. The Special Administrative Region of Hong Kong is responsible for its own domestic affairs including, but not limited to, the judiciary and courts of last resort, immigration and customs, public finance, currencies and extradition. Hong Kong continues using the English common law system.
However, if the PRC attempts to alter its agreement to allow Hong Kong to function autonomously, this could potentially impact Hong Kong's common law legal system and may in turn bring about uncertainty in, for example, the enforcement of our contractual rights. This could, in turn, materially and adversely affect our business and operations. Additionally, intellectual property rights and confidentiality protections in Hong Kong may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the Hong Kong legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with our customers.
Regulation - Risk 3
The enactment of Law of the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region (the "Hong Kong National Security Law") could impact our Hong Kong holding subsidiary.On June 30, 2020, the Standing Committee of the PRC National People's Congress adopted the Hong Kong National Security Law. This law defines the duties and government bodies of the Hong Kong National Security Law for safeguarding national security and four categories of offences?-?secession, subversion, terrorist activities, and collusion with a foreign country or external elements to endanger national security?-?and their corresponding penalties. On July 14, 2020, the former U.S. President Donald Trump signed the HKAA into law, authorizing the U.S. administration to impose blocking sanctions against individuals and entities who are determined to have materially contributed to the erosion of Hong Kong's autonomy. On August 7, 2020 the U.S. government imposed HKAA-authorized sanctions on eleven individuals, including former HKSAR chief executive Carrie Lam. On October 14, 2020, the U.S. State Department submitted to relevant committees of Congress the report required under HKAA, identifying persons materially contributing to "the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law." The HKAA further authorizes secondary sanctions, including the imposition of blocking sanctions, against foreign financial institutions that knowingly conduct a significant transaction with foreign persons sanctioned under this authority. The imposition of sanctions may directly affect the foreign financial institutions as well as any third parties or customers dealing with any foreign financial institution that is targeted. It is difficult to predict the full impact of the Hong Kong National Security Law and HKAA on Hong Kong and companies located in Hong Kong. If our Hong Kong subsidiary is determined to be in violation of the Hong Kong National Security Law or the HKAA by competent authorities, our business operations, financial position and results of operations could be materially and adversely affected.
Regulation - Risk 4
The PRC government exerts substantial influence and discretion over the manner in which companies incorporated under the laws of PRC must conduct their business activities. We are a Hong Kong-based company with no operations in mainland China. However, if we were to become subject to such direct influence or discretion, it may result in a material change in our operations and/or the value of our Ordinary Shares, which would materially affect the interest of the investors.The PRC legal system is evolving rapidly and the PRC laws, regulations, and rules may change quickly with little advance notice. In particular, because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the non-precedential nature of these decisions, the interpretation of these laws, rules and regulations may contain inconsistences, the enforcement of which involves uncertainties. The PRC government has exercised and continues to exercise substantial control over many sectors of the PRC economy through regulation and/or state ownership. Government actions have had, and may continue to have, a significant effect on economic conditions in the PRC and businesses which are subject to such government actions.
We are a Hong Kong-based company with no operations in mainland China, and we have direct ownership of our operating entities, Regencell Bioscience Limited and Regencell Limited in Hong Kong. Our principal executive offices are located, and we operate, in Hong Kong, a special administrative region of China. The PRC government currently does not exert direct influence and discretion over the manner in which we conduct our business activities outside of mainland China, however, there is no guarantee that we will not be subject to such direct influence or discretion in the future due to changes in laws or other unforeseeable reasons or as a result of our future expansion or acquisition of operations in mainland China. See "- Our business, financial condition and results of operations, and/or the value of our Ordinary Shares or our ability to offer or continue to offer securities to investors may be materially and adversely affected to the extent the laws and regulations of the PRC become applicable to a company such as us."
We currently do not have plan to expand our operation or acquire any operation in the mainland China. However, if we were to become subject to the direct intervention or influence of the PRC government at any time due to changes in laws or other unforeseeable reasons or as a result of our future development, expansion or acquisition of operations in the PRC, it may require a material change in our operations and/or result in increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. In addition, the market prices of our Ordinary Shares could be adversely affected as a result of anticipated negative impacts of any such government actions, as well as negative investor sentiment towards Hong Kong-based companies subject to direct PRC government oversight and regulation, regardless of our actual operating performance. There can be no assurance that the Chinese government would not intervene in or influence our operations at any time.
We were not required to obtain permission from the PRC government to list on a U.S. securities exchange, however there is no guarantee that this will continue to be the case in the future in relation to the continued listing of our securities on a securities exchange outside of the PRC, or even when such permission is obtained, it will not be subsequently denied or rescinded. Any actions by the PRC government to exert more oversight and control over offerings (including of businesses whose primary operations are in Hong Kong) that are conducted overseas and/or foreign investments in Hong Kong-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities, including our Ordinary Shares, to significantly decline or be worthless.
Regulation - Risk 5
Our business, financial condition and results of operations, and/or the value of our Ordinary Shares or our ability to offer or continue to offer securities to investors may be materially and adversely affected to the extent the laws and regulations of the PRC become applicable to a company such as us.We currently do not have or intend to have any subsidiary or any contractual arrangement to establish a variable interest entity structure with any entity in mainland China, and we have direct ownership of our operating entities, Regencell Bioscience Limited and Regencell Limited in Hong Kong. However, as our principal executive offices are located, and we operate, in Hong Kong, a special administrative region of China, there is no guarantee that if certain existing or future laws of the PRC become applicable to a company such as us, it will not have a material adverse impact on our business, financial condition and results of operations and/or our ability to offer or continue to offer securities to investors, any of which may cause the value of such securities to significantly decline or be worthless.
Except for the Basic Law, the national laws of the PRC do not apply in Hong Kong unless they are listed in Annex III of the Basic Law and applied locally by promulgation or local legislation. National laws that may be listed in Annex III are currently limited under the Basic Law to those which fall within the scope of defense and foreign affairs as well as other matters outside the limits of the autonomy of Hong Kong. National laws and regulations relating to data protection, cybersecurity and anti-monopoly have not been listed in Annex III and so do not apply directly to Hong Kong.
The laws and regulations in the PRC are evolving, and their enactment timetable, interpretation and implementation involve significant uncertainties. To the extent any PRC laws and regulations become applicable to us, we may be subject to the risks and uncertainties associated with the legal system in the PRC, including with respect to the enforcement of laws and the possibility of changes of rules and regulations with little or no advance notice. We currently do not have plan to expand our operation or acquire any operation in the mainland China. However, we may also become subject to the laws and regulations of the PRC to the extent we commence business and customer facing operations in mainland China as a result of any future acquisition, expansion or organic growth.
Litigation & Legal Liabilities1 | 2.1%
Litigation & Legal Liabilities - Risk 1
Our TCM business is subject to inherent risks relating to product liability and personal injury claims.Taxation & Government Incentives1 | 2.1%
Taxation & Government Incentives - Risk 1
We believe we were a passive foreign investment company for United States federal income tax purposes for our taxable year ended June 30, 2024; as a result, United States holders of our Ordinary Shares could be subject to adverse United States federal income tax consequences.Changed
Ability to Sell
Total Risks: 5/48 (10%)Above Sector Average
Competition1 | 2.1%
Competition - Risk 1
We may not be able to compete effectively against our competitors.Sales & Marketing1 | 2.1%
Sales & Marketing - Risk 1
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.Brand / Reputation3 | 6.3%
Brand / Reputation - Risk 1
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 our business operations, stock price and reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.Brand / Reputation - Risk 2
Adverse publicity associated with our TCM formulae candidates, ingredients or network marketing program, or those of similar companies, could harm our financial condition and operating results.The results of our operations may be significantly affected by the public's perception of our TCM formulae candidates and the overall TCM treatment industry. This perception is dependent upon opinions concerning:
- the safety and quality of our TCM formulae and ingredients;- the safety and quality of similar products and ingredients distributed by other TCM companies; and - our sales force.
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 our business, whether or not resulting in enforcement actions or the imposition of penalties, could have an adverse effect on our goodwill and could negatively affect our sales and ability to generate revenue. In addition, our consumers' perception of the safety and quality of products and ingredients 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 our TCM formulae candidates or ingredients or similar products and ingredients distributed by other companies. Adverse publicity, whether or not accurate or resulting from consumers' use or misuse of our TCM formulae treatment, that associates consumption of our TCM formulae treatment or ingredients or any similar products or ingredients with illness or other adverse effects, questions the benefits of our or similar products or claims that any such products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could negatively impact our reputation or the market demand for our TCM formulae treatment.
Brand / Reputation - Risk 3
If we fail to increase our brand recognition, we may face difficulty in obtaining new customers or patients.We believe that developing, maintaining and enhancing our brand recognition in a cost-effective manner outside of that market is critical to achieving widespread acceptance of our future products and is an important element in our effort to build our customer or patient base. Successful promotion of our brand and products in the TCM and medical industry will depend largely on our ability to maintain a sizeable and active customer or patient base, our marketing efforts and ability to provide reliable and useful products and treatments at competitive prices. Brand promotion activities may not yield increased revenue in the near future, and even if they do, any increased revenue may not offset the expenses we will incur in building our brand. If we fail to successfully promote and maintain our brand during our commercialization period, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough customers or patients to the extent necessary to realize a sufficient return on our brand-building efforts, in which case our business, operating results and financial condition, would be materially adversely affected.
Macro & Political
Total Risks: 4/48 (8%)Above Sector Average
Economy & Political Environment2 | 4.2%
Economy & Political Environment - Risk 1
Political risks associated with conducting business in Hong Kong.Economy & Political Environment - Risk 2
The global economic and geo-political conditions have been and continue to be challenging and have had, and may continue to have, an adverse effect on the financial markets and the economy in general, which has had, and may continue to have, a material adverse effect on our business, financial performance and results of operations and the prices of our Ordinary Shares.Geopolitical crises, such as war, political instability and terrorist attacks, could disrupt our operations. The prolonged conflict between Russia and Ukraine and the recent conflict between Israel and Hamas have led and could lead to significant market and other disruptions, including significant volatility in commodity prices, supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage.
The withdrawal of the United Kingdom (the "UK") from the European Union (the "EU") in January 2020, commonly referred to as "Brexit," has also created significant political and economic uncertainty regarding the future trading relationship between the UK and the EU as well as other countries, such as the United States, Australia, and New Zealand. In particular, the UK and the EU have ratified a trade and cooperation agreement governing their future relationship and the UK continues to negotiate agreements on specific areas of trade and economic arrangements with other countries. The UK-EU trade and cooperation agreement addresses trade, economic arrangements, law enforcement, judicial cooperation and a governance framework including procedures for dispute resolution, among other things. Because the agreement merely sets forth a framework in many respects and will require complex additional bilateral negotiations between the UK and the EU as both parties continue to work on the rules for implementation, significant political and economic uncertainty remains about how the precise terms of the relationship between the parties will differ from the terms before withdrawal. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and financial markets, and may significantly reduce global market liquidity, restrict the ability of key market participants to operate in certain financial markets or restrict our access to capital. Any of these factors could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Volatility in the domestic politics of major markets may lead to changes in the institutional framework of the international economy. In many countries globally, there are concerns over rising inflation and potential economic recessions. In particular, any worsening of the ongoing labor shortage and ongoing rise in inflation could significantly weaken global economies. Globally, countries have required and may continue to require additional financial support, sovereign credit ratings have declined and may continue to decline, and there may be default on sovereign debt obligations of certain countries. In addition, the U.S. Federal Reserve System and other regulatory bodies around the world may raise, or may announce intentions to raise, interest rates. Any of these global economic conditions may increase the cost of borrowing and cause credit to become more limited, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
These economic and geo-political conditions have affected, and may continue to affect, our business in a number of ways. The cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. If these market conditions continue or worsen, they may further limit our ability to access financing or increase our cost of financing to meet liquidity needs, resulting in adverse effects on our financial condition and results of operations. The current global economic slowdown and uncertainty about the future global economic conditions could also continue to increase the volatility of the prices of our Ordinary Shares. We cannot predict the timing or duration of an economic slowdown or the timing or strength of a subsequent economic recovery generally or in our industry. If macroeconomic conditions worsen or the current global economic conditions continue for a prolonged period of time, we are not able to predict the impact that such conditions will have on our industry in general, and our results of operations specifically.
International Operations1 | 2.1%
International Operations - Risk 1
Our international operations involve special risks.Natural and Human Disruptions1 | 2.1%
Natural and Human Disruptions - Risk 1
We face risks related to health epidemics and outbreaks, which could significantly disrupt our ongoing research studies, and therefore our receipt of necessary regulatory approvals could be delayed or prevented.Changed
Production
Total Risks: 3/48 (6%)Below Sector Average
Employment / Personnel2 | 4.2%
Employment / Personnel - Risk 1
We may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire these personnel in the future, our ability to improve our products and implement our business objectives could be adversely affected.Employment / Personnel - Risk 2
We are wholly dependent on certain key personnel and our strategic partner, Mr. Sik-Kee Au, the father of our founder, director, and CEO, and loss of these individuals could have a material adverse effect on our business, financial condition and results of operations.Our success is, to a certain extent, attributable to the management, and research and development expertise and potential sales and marketing of key personnel. We are dependent on the services of Mr. Yat-Gai Au, our founder, director and CEO, for the continued growth and operation of our company, and critical to our overall management, as well as the continued development of our strategic direction, due to their experience, personal and business contacts in Hong Kong and the US.
Our success of developing standardized TCM formulae candidates is wholly dependent upon our strategic partnership with Mr. Sik-Kee Au, the TCM Practitioner, the father of Mr. Yat-Gai Au, our founder, director and CEO, for the continued research and development of the formulae candidates for our company. The whole basis of our TCM research is the TCM formulae transferred by the TCM Practitioner, which was developed based on Sik-Kee Au TCM Brain Theory. We may not be able to retain our partnership with the TCM Practitioner for any given period of time. We are reliant upon the TCM Practitioner to provide these research services and have little control over his availability or expertise, except our Partnership Agreements (as defined below) with the TCM Practitioner. Although we have no reason to believe that he will terminate the partnership relationship with us, the interruption or loss of his services would adversely affect our ability to effectively run our business and pursue our research on standardized TCM formulae candidates as well as our results of operations. The loss of any of these individuals could have a material adverse effect upon our business, financial condition, and results of operations. We do not carry key man life insurance for any of our key personnel, nor do we foresee purchasing such insurance to protect against the loss of key personnel.
Supply Chain1 | 2.1%
Supply Chain - Risk 1
Any disruption in the supply chain of raw materials and our products could adversely impact our ability to produce and deliver products.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.