SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” that involve substantial risks and uncertainties. All statements other than statements of historical or current fact included in this Annual Report on Form 10-K are forward looking statements. Forward-looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance, and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “assume,” “believe,” “can have,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “likely,” “may,” “might,” “objective,” “plan,” “predict,” “project,” “potential,” “seek,” “should,” “target,” “will,” “would” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operational performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, and growth rates, our plans and objectives for future operations, growth, or initiatives, or strategies are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expect and, therefore, you should not unduly rely on such statements. The risks and uncertainties that could cause those actual results to differ materially from those expressed or implied by these forward-looking statements include but are not limited to:
| ● | fluctuations in the demand for our products in light of changes in laws and regulations applicable to food and beverages and changes in consumer preferences; |
| ● | supply chain disruptions that could interrupt product manufacturing and increase product costs; |
| ● | our ability to source raw materials and navigate a shortage of available materials; |
| ● | our ability to compete successfully in our industry; |
| ● | the impact of earthquakes, fire, power outages, floods, pandemics and other catastrophic events, as well as the impact of any interruption by problems such as terrorism, cyberattacks, or failure of key information technology systems; |
| ● | our ability to accurately forecast demand for our products or our results of operations; |
| ● | the impact of problems relating to delays or disruptions in the shipment of our goods through operational ports; |
| ● | our ability to expand into additional foodservice and geographic markets; |
| ● | our ability to successfully design and develop new products; |
| ● | fluctuations in freight carrier costs related to the shipment of our products could have a material adverse impact on our results of operations |
| ● | the continuing effects of COVID-19 or other public health crises; |
| ● | our ability to attract and retain skilled personnel and senior management; and |
| ● | other risks and uncertainties described in Item 1A. Risk Factors of Part I of this Annual Report on Form 10-K. |
We make many of our forward-looking statements based on our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.
See the “Risk Factors” section and elsewhere in this Annual Report on Form 10-K for a more complete discussion of the risks and uncertainties mentioned above and for a discussion of other risks and uncertainties we face that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this Annual Report on Form 10-K.
We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this Annual Report on Form 10-K are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.
Risk Factor Summary
Our business is subject to a number of risks and uncertainties, including those highlighted in the section titled “Risk Factors” in this Annual Report on Form 10-K. Some of these principal risks include the following:
Risks Related to Our Business
| ● | There is no guarantee that our center-satellite model (as discussed in further detail below) will succeed. |
| ● | We may not be able to successfully implement our growth strategy on a timely basis or at all. Additionally, new stores may place a greater burden on our existing resources and adversely affect our existing business. |
| ● | The terms of our debt financing arrangements may restrict our current and future operations, which could adversely affect our ability to respond to changes in our business and to manage our operations. |
| ● | There is no guarantee that our partnership with JD will be successful. |
| ● | Our new store base, or stores opened or acquired in the future may negatively impact our financial results in the short-term, and may not achieve sales and operating levels consistent with our mature store base on a timely basis or at all and may negatively impact our business and financial results. |
| ● | Because we have entered into a significant number of related party transactions through the course of our routine business operations, there is a risk of conflicts of interest involving our management, and that such transactions may not reflect terms that would be available from unaffiliated third parties. |
Risks Related to Our Industry
| ● | We face competition in our industry, and our failure to compete successfully may have an adverse effect on our profitability and operating results. |
| ● | Our inability to maintain or improve levels of comparable store sales could cause our stock price to decline. |
| ● | Economic conditions that impact consumer spending could materially affect our business. |
| ● | Our inability to maintain or increase our operating margins could adversely affect the price of our Class A common stock. |
| ● | We may be unable to protect or maintain our intellectual property, including HK Good Fortune, which could result in customer confusion and adversely affect our business. |
| ● | Our success depends upon our ability to source and market new products to meet our high standards and customer preferences and our ability to offer our customers an aesthetically pleasing shopping environment. |
| ● | Our stores rely heavily on sales of perishable products. Ordering errors or product supply disruptions may have an adverse effect on our profitability and operating results. |
| ● | Products we sell could cause unexpected side effects, illness, injury or death that could result in their discontinuance or expose us to lawsuits, either of which could result in unexpected costs and damage to our reputation. |
| ● | We may experience negative effects to our reputation from real or perceived quality or health issues with our food products, which could have an adverse effect on our operating results. |
| ● | The current geographic concentration of our stores creates an exposure to local economies, regional downturns or severe weather or catastrophic occurrences that may materially and adversely affect our financial condition and results of operations. |
| ● | Energy costs are an increasingly significant component of our operating expenses and increasing energy costs, unless offset by more efficient usage or other operational responses, may impact our profitability. |
| ● | If we experience a data security breach and confidential customer information is disclosed, we may be subject to penalties and experience negative publicity, which could affect our customer relationships and have a material adverse effect on our business. |
| ● | Disruption of any significant supplier relationship could negatively affect our business. |
| ● | Our high level of fixed lease obligations could adversely affect our financial performance. |
| ● | If we are unable to renew or replace current store leases or if we are unable to enter into leases for additional stores on favorable terms, or if one or more of our current leases is terminated prior to expiration of its stated term, and we cannot find suitable alternate locations, our growth and profitability could be negatively impacted. |
| ● | We have engaged, and are likely to continue to engage, in certain transactions with related parties. These transactions are not negotiated on an arms’ length basis. |
| ● | Failure to sustain customer growth or failure to maintain customer relationships, could materially and adversely affect our business and operating results. |
| ● | Failure to retain our senior management and other key personnel could negatively affect our business. |
| ● | We will require significant additional capital to fund our expanding business, which may not be available to us on satisfactory terms or at all, and even if it is available, failure to use our capital efficiently could have an adverse effect on our profitability. |
Risks Related to Regulatory Compliance and Legal Matters
| ● | Changes in and enforcement of immigration laws could increase our costs and adversely affect our ability to attract and retain qualified store-level employees. |
| ● | Changes in U.S. trade policies could have a material adverse impact on our business. |
| ● | We, as well as our vendors, are subject to numerous federal, and local laws and regulations. Our compliance with these laws and regulations, as they currently exist or as modified in the future, may increase our costs, limit or eliminate our ability to sell certain products, raise regulatory enforcement risks not present in the past, or otherwise adversely affect our business, results of operations and financial condition. |
Risks Related to Ownership of Our Class A Common Stock
| ● | The market for our Class A common stock is new, and we cannot assure you that an active trading market will develop for our Class A common stock. |
| ● | Future sales, or the perception of future sales, of our Class A common stock may depress the price of our Class A common stock. |
| ● | We will continue to incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations. |
| ● | Our management has limited experience managing a public company and our current resources may not be sufficient to fulfill our public company obligations. |
| ● | Our CEO, John Xu, has substantial control over us and has the ability to control the election of directors and other matters submitted to stockholders for approval, which limits your ability to influence corporate matters and may result in actions that you do not believe to be in our interests or your interests. |
| ● | We do not intend to pay cash dividends on our Class A common stock and, as a result, your only opportunity to achieve a return on your investment is if the price of our Class A common stock appreciates. |
| ● | If securities or industry analysts do not publish or cease publishing research or reports about our business or our market, or if they adversely change their recommendations regarding our Class A common stock or if our operating results do not meet their expectations, our stock price and/or trading volume could decline. |
| ● | Our future operating results may fluctuate significantly and our current operating results may not be a good indication of our future performance. Fluctuations in our quarterly financial results could affect our stock price in the future. |
| ● | Sales, or the perception of sales, of shares of our Class A common stock in the public market could adversely affect the market price of our Class A common stock and our ability to raise additional equity capital. |
| ● | If we are unable to continue to meet the Nasdaq Capital market rules for continued listing, our Class A common stock could be delisted. |
| ● | An investment in our Company may involve tax implications, and you are encouraged to consult your own tax and other advisors, as neither we nor any related party is offering any tax assurances or guidance regarding our Company or your investment. |
| ● | If we do not appropriately maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results and the market price of our securities may be adversely affected. |
