A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Summary of Risk Factors
Our business faces significant
risks and uncertainties. You should carefully consider all of the information set forth in this Report and in other documents we file
with or furnish to the SEC, including the risk factors following this risk factor summary, before deciding to invest in or to maintain
an investment in our securities. Our business, as well as our reputation, financial condition, results of operations and price of our
securities, could be materially adversely affected by any of these risks, as well as other risks and uncertainties not currently known
to us or not currently considered material. These risks include, among others, the following:
Risks
Relating to Our Business
● We have a limited operating history and our historical operating and financial results are not necessarily indicative of future performance, which makes it difficult to predict our future business prospects and financial performance.
● We incurred net losses attributable to ordinary shareholders in the past, and we may not maintain net income attributable to ordinary shareholders in the future.
● We face risks associated with our global operations and continued global expansion.
● We face intense competition, and we may not compete effectively.
● Our business is heavily reliant on trading related income; if there is a sustained slowdown in securities trading, our results of operations and business prospects may be adversely affected.
● A majority of our trading-related income is derived from payment for order flow, or PFOF.
● We are directly and indirectly exposed to fluctuations in interest rates, and rapidly changing interest rate environments could reduce our interest related income and adversely affect our results of operations.
● We may not be able to successfully execute our strategies and effectively manage our growth and the increasing complexity of our business.
1
Risks Relating to Regulations Applicable to
our Industry
● We are subject to extensive regulatory requirements in the jurisdictions where we operate.
● The regulatory environments that we operate in are constantly evolving, which may cause us to incur substantial costs or require us to change our business practices in ways that are adverse to our business.
● Our ability to offer event contracts is subject to the outcome of currently ongoing and potential future regulatory enforcement actions and litigation, as well as potential changes in federal or state law, that could immediately or subsequently prevent us from offering, or continuing to offer, event contracts.
● We may be involved in regulatory investigations, actions, and settlements during our course of business.
Risks Relating to Attracting, Retaining and
Engaging Customers
● We may be unable to retain existing customers or attract new customers, or fail to offer a positive trading experience to our customers and address their needs.
● We cannot guarantee the profitability of our customers’ investments or ensure that our customers will exercise rational judgment with respect to their investments.
Risks Relating to Our Platform, Systems and
Technology
● Our platform and internal systems rely on software and applications, many of which we are increasingly employing artificial intelligence (“AI”) to develop, that are highly technical and may contain undetected errors.
● An increase in volume on the systems we use or other errors or events could cause them to malfunction.
● We may experience unexpected network interruptions, security breaches, or computer virus attacks and failures in our information technology systems.
● We are incorporating AI technologies into some of our products and processes. These technologies may present business, compliance, and reputational risks.
Risks Relating to Our Products and Services
● Our PFOF practices may potentially create a misalignment of interest.
● We rely on a limited number of market makers and liquidity providers to generate a large portion of our revenues. A loss of any of those market makers or liquidity providers could negatively affect our business.
Risks
Relating to Cryptocurrency Products and Services
● The prices of most cryptocurrencies are extremely volatile. Fluctuations in the price of various cryptocurrencies might cause uncertainty in the market and could negatively impact trading volumes of cryptocurrencies, and we may not effectively identify, prevent or mitigate cryptocurrency market risks, any of which would adversely affect the success of our business, financial condition and results of operations.
● Cryptocurrency laws, regulations, and accounting standards are often difficult to interpret and are rapidly evolving in ways that are difficult to predict. Changes in these laws and regulations, or our failure to comply with them, could negatively impact cryptocurrency trading on our platforms.
2
Risks
Relating to Cybersecurity, Data Privacy, and Intellectual Property
● Failure to protect customer data and privacy or to prevent security breaches relating to our platform could result in economic loss, damage our reputation, deter customers from using our products and services, and expose us to legal penalties and liability.
● Laws and regulations regarding cybersecurity and data privacy are complex and evolving.
Risks
Related to Ownership of Our Securities
● Future resales of Webull Class A Ordinary Shares issued to Webull shareholders and other significant shareholders may cause the market price of the Webull Class A Ordinary Shares to drop significantly, even if Webull’s business is doing well.
● There can be no assurance that Webull will be able to comply with the continued listing standards of Nasdaq.
● We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.
● We are a “controlled company” and the interests of our controlling shareholder may conflict with ours or yours in the future.
● If we fail to maintain effective internal control over financial reporting, we may be unable to accurately report our financial results or comply with applicable reporting requirements.
Risks Relating to Our Business
We have a limited
operating history and our historical operating and financial results are not necessarily indicative of future performance, which makes
it difficult to predict our future business prospects and financial performance.
We have a limited operating
history, which makes it difficult to evaluate our future prospects and ability to make profit. We launched our digital trading platform
in May 2018, and have experienced a period of significant growth since then. We expect our business expansion to continue as we further
grow our customer base, increase customer engagement and explore new market opportunities. However, due to our limited operating history,
our historical growth rates and past revenues may not be indicative of our future performance. There is no assurance that our growth rate
will continue in future periods and you should not rely on the revenue growth of any prior quarterly or annual period as an indication
of our future performance. If our growth rate were to decline significantly or become negative, it could adversely affect our operating
results and financial condition.
We cannot assure you that
we can successfully implement our business model. As the market and our business develop, we may modify our platform, products, and services.
These changes may not achieve expected results and may have a material and adverse impact on our results of operations and financial condition.
Rather than relying on our historical operating and financial results to evaluate us, you should consider our business prospects in light
of the risks and difficulties we may encounter as an early-stage company operating in a rapidly evolving and highly competitive market.
We may not be able to successfully address these risks and difficulties, which could significantly harm our business, results of operations,
and financial condition.
3
We incurred net
losses attributable to ordinary shareholders in the past, and we may not achieve net income attributable to ordinary shareholders in the
future.
We incurred net losses attributable to ordinary shareholders in the
past. We incurred net losses attributable to ordinary shareholders of $487.5 million and $517.8 million, for the years ended December
31, 2025 and 2024, respectively, after recognizing the effects of preferred share redemption value accretion and after recognizing the
fair value of Webull Ordinary Shares and Webull Incentive Warrants issue to preferred shareholders on the Closing Date of the Business
Combination Agreement. We cannot assure you that we will be able to achieve net income attributable to ordinary shareholders in the future.
Any failure to increase our revenue or to manage our operating expenses could prevent us from achieving net income attributable to ordinary
shareholders. Our ability to generate net income will depend on factors such as growth of our customer base, our ability to engage and
monetize our customers, our ability to expand globally, optimization of our operating expenses, and macroenvironment and conditions. There
can be no assurance that we will be able to generate net income consistently.
We face risks associated
with our global operations and continued global expansion.
We have businesses in diverse global markets and are subject to risks
associated with doing business across the globe and in differing economic and regulatory environments. Our business, financial condition,
and results of operations may be influenced to a significant degree by macroeconomic and social conditions globally and in our markets.
A general slowdown or volatility in the global economy and related risks, including a recession, inflation, or a tightening of capital
markets, could adversely affect our business, financial condition, and results of operations. Changes in retail investors’ behavior
due to adverse economic conditions may also adversely impact us as such developments could lead to a decrease in trading volume and reduction
in demand for our products and services, which may adversely affect our business, financial condition, results of operations, or competitive
position.
We continue to expand our
operations into additional international markets. However, offering our products and services in a new geographical area involves numerous
risks and challenges. As we enter into countries and markets that are new to us, we must tailor our services and business model to the
unique circumstances of such countries and markets, which can be complex, difficult, and costly, and could divert management and personnel
resources. In addition, we may face competition in other countries from companies that may have more experience with operations in those
countries or with global operations in general. Laws and business practices that favor local competitors or prohibit or limit foreign
ownership of certain businesses, or our failure to adapt our practices, systems, processes, and business models effectively to the customer
preferences of each country into which we expand, could slow down our growth. Certain markets in which we operate have, or certain new
markets in which we may operate in the future may have, lower margins than our more mature markets, which could have a negative impact
on our overall margins as our revenues from these markets grow over time.
In addition to the above,
continued operations and expansion around the world exposes us to other risks such as:
● exposure to local economic or social instability, threatened or actual acts of terrorism and security concerns in general;
● difficulties in achieving market acceptance of our products and services in different geographic markets with different preferences;
● difficulties in managing international operations;
● evolving local government regulation on securities trading activities and foreign investment;
● potentially more stringent bodies of law regulating our industry, intellectual property, tax, privacy, or data protection;
● barriers to entry of local markets; and
● exchange rate fluctuations.
As a result of these risks,
we may find it difficult or prohibitively expensive to operate on a global scale or to enter into additional markets. Entry into foreign
markets could be delayed, which could hinder our ability to grow our business. There can be no assurance that our global operations or
expansion plan will proceed as planned or succeed at all. Unsuccessful global operations or expansion may incur significant expenses and
divert management’s attention, which in turn may adversely affect our business, financial condition, and results of operations.
4
We face intense
competition, and we may not compete effectively.
The market for digital trading
and investing services is rapidly evolving and intensely competitive. We expect competition to continue and intensify in the future. We
face competition from traditional retail brokerage firms and digital trading platforms in the various markets where we operate our
businesses. In an effort to satisfy the demands of investors for next-generation electronic trading systems, universal access to
markets, smart routing, better trading tools, and lower financing rates, our competitors have embarked upon building such systems and
service enhancements.
We expect competition
to increase in the future as current competitors diversify and improve their product and service offerings and as new participants enter
the market. We cannot assure you that we will be able to compete effectively or efficiently with current or future competitors. They
may be acquired by, receive investment from or enter into strategic relationships with, established and well-financed companies or investors,
which would help enhance their competitiveness. Furthermore, the current competitors and new entrants in the digital trading and investing
industry may also seek to develop new service offerings, technologies, or capabilities which could render some of the services that we
offer obsolete or less competitive. Some of them may adopt more aggressive pricing policies or devote greater resources to marketing
and promotional campaigns than we do. The occurrence of any of these circumstances may hinder our growth and reduce our market share,
and thus our business, results of operations, financial condition, and prospects would be materially and adversely affected.
Our business is
heavily reliant on trading related income; if there is a sustained slowdown in securities trading, our results of operations and business
prospects may be adversely affected.
Like other digital trading
firms, our business and profitability are directly affected by factors that are beyond our control, such as economic conditions, broad
trends in business and finance, investor sentiment in capital markets, changes in the volume of securities and derivative transactions,
changes in the markets in which such transactions occur, and changes in how such transactions are processed. Weakness in the equity markets,
such as a slowdown causing a reduction in trading volume in U.S. or foreign-listed securities, derivatives, and other financial instruments,
may result in reduced transaction revenues and would have a material adverse effect on our business, financial condition, and results
of operations.
Our revenues depend substantially
on our customers’ trading volume, which is influenced by the general trading activities in the securities trading market. Declines
in trading volumes generally result in lower revenues from securities trading activities. Declines in market values of securities or other
financial instruments can also result in illiquid markets, which can also result in lower revenues and profitability from securities trading
activities. Additionally, securities trading faces competition from other investment products, such as passive investment products and
other innovative investment instruments. These alternative investment products may divert investors from or reduce their activity levels
in securities trading. Any of the foregoing factors could have a material adverse effect on our business, financial condition, results
of operations, and cash flows.
A majority of our
trading-related income is derived from payment for order flow.
We derived a significant percentage
of our revenues via payments from our market makers and liquidity providers, a practice known as payment for order flow, or PFOF. Revenue
generated from equity and option order flow income amounted to $304.1 million and $197.1 million for the years ended December 31,
2025 and 2024, representing 53.3% and 50.5% of our total revenues during the same period, respectively.
The practice of PFOF has drawn
heightened scrutiny from the U.S. Congress, the SEC, state regulators and other regulatory and legislative authorities. For example,
regulators have brought enforcement actions against a similarly situated broker-dealer for matters relating to its receipt of PFOF, which
resulted in material fines and censures. We cannot assure you that lawmakers and regulators will not bring a similar action against us
or impose restrictions on the practice of PFOF in the future, including, but not limited to, requirements to provide additional disclosure
on best execution, or impose maximum payment rates and limitations on trading volume applicable to PFOF or ban the practice entirely.
For example, in December 2022, the SEC proposed four separate equity market structure rules related to (i) best execution; (ii) order
competition, including requiring certain retail equity orders to be exposed in auctions before being internalized; (iii) order execution
disclosure; and (iv) order tick size and fee caps. Although these proposed rules related to market structure design do not outright
ban PFOF, they introduce new requirements around “conflicted transactions,” and if adopted as proposed, they would have the
indirect effect of making PFOF more difficult or impossible to earn and compressing the revenues we could theoretically earn. Any new
or heightened PFOF regulation, including the above-mentioned proposed rules if adopted as proposed, could have a material and adverse
effect on our business operations and we may experience pressure and disruption to our current business operations. In addition, as a
broker-dealer facilitating the trading of national market system stocks, we are subject to the disclosure obligations of Rules 605 and
606 of Regulation NMS, which were adopted in 2000 to help the public compare and evaluate execution quality at different market centers.
In March 2024, Rule 605 was amended to increase the disclosure obligations of brokerages subject to Rule 605. Compliance with these amendments
may require us to make additional disclosures about our execution practices, some of which could cause certain of our customers or potential
customers to not use our investing platform. We may incur significant compliance costs in an effort to comply with any such laws and regulations.
Because some of our competitors either do not engage in PFOF or derive a lower percentage of their revenues from PFOF than we do, any
such heightened regulation or a ban of PFOF could have an outsized impact on our results of operations. Furthermore, depending on the
nature of any new requirements, heightened regulation could also increase our risk of potential regulatory violations and civil litigation,
which could result in fines or other penalties, as well as negative publicity.
5
We are directly
and indirectly exposed to fluctuations in interest rates, and rapidly changing interest rate environments could reduce our interest related
income and adversely affect our results of operations.
A large portion of our revenue
comes from interest related income earned from our stock lending services, margin financing services as well as interest income from customers’
and our own bank deposits. Interest rates are the key driver of our interest related income and are subject to many factors beyond our
control. Reductions in interest rates and a return to a low interest rate environment would adversely affect our revenues and net income.
Higher interest rates also
lead to higher payment obligations by our customers to us and to their creditors under mortgage, credit card, and other consumer and
merchant loans, which might reduce our customers’ ability to satisfy their obligations to us, including failing to pay for securities
purchased, deliver securities sold, or meet margin calls, and therefore lead to increased delinquencies, charge-offs, and allowances
for loan and interest receivables, which could have an adverse effect on our revenues and net income. Fluctuations in interest rates
could adversely impact our customers’ general spending levels and ability and willingness to invest through our platform.
We may not be able
to successfully execute our strategies and effectively manage our growth and the increasing complexity of our business.
We continue to experience
significant growth and expansion in our business, which will continue to place demands on our management, operational, compliance, and
financial resources. We may encounter difficulties as we execute our strategies and expand our operations, data and technology, marketing
and branding, general and administrative and compliance functions. To effectively manage and capitalize on our growth, we must continue
to expand our information technology and financial, operating, administrative and compliance systems and controls, and continue to manage
headcount, capital, and processes efficiently. Our continued growth could strain our existing resources, and we could experience ongoing
operating and compliance difficulties in managing our business as it expands across multiple jurisdictions, including difficulties in
hiring, training, and managing a diverse and growing employee base. Failure to scale and preserve our company culture with growth could
harm our future success, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives.
If we do not adapt to meet these evolving challenges, or if our management team does not effectively scale with our growth, we may experience
erosion to our brand, the quality of our products and services may suffer, and our company culture may be harmed.
Successful implementation
of our growth strategy will also require significant expenditures before any substantial associated revenue is generated and we cannot
guarantee that these increased investments will result in corresponding and offsetting revenue growth. Because we have a limited history
operating our business at its current scale, it is difficult to evaluate our current business and future prospects, including our ability
to plan for and model future growth. Our limited operating experience at this scale and other economic factors beyond our control reduce
our ability to accurately forecast quarterly or annual revenue. Failure to manage our future growth effectively could have an adverse
effect on our business, operating results, and financial condition.
New lines of business
or new services may subject us to additional risks.
From time to time, we may
implement new lines of business or offer new services within existing lines of business. There are substantial risks and uncertainties
associated with these efforts, particularly in instances where the markets are not fully developed. For example, during the second quarter
of 2023 we began offering investment advisory services through Webull Advisors LLC; during the first quarter of 2024 we began offering
futures products through Webull Financial LLC; during the third quarter of 2025, we began reintroducing cryptocurrency trading to the
Webull App for users in the United States, Brazil and Australia; and during 2025 we began offering eligible customers in the United States
access to event-based prediction markets through a third-party platform. Each of these initiatives expose us to new rules and regulations
relevant to that new line of business. We may also invest significant time and resources in developing and marketing other new lines of
business and/or new services. Initial timetables for the introduction and development of new lines of business and/or new services may
not be achieved and profitability targets may not prove feasible. External factors such as compliance with regulations, competition, and
shifting market preferences may also impact the successful implementation of a new line of business or a new service. Our personnel and
technology systems may fail to adapt to the changes in such new areas, and we may fail to effectively integrate new services into our
existing operation. We may also lack experience in managing new lines of business or new services. In addition, we may be unable to proceed
with our operation as planned or compete effectively due to different competitive landscapes in these new areas. Furthermore, any new
line of business and/or new service could place significant challenges on the effectiveness of our internal control system. Failure to
successfully manage these risks in the development and implementation of new lines of business or new services could have a material adverse
effect on our business, results of operations, and financial condition.
6
Our business depends
on our strong brand. We may fail to protect or promote our brand and reputation, or be subject to negative media coverage of our company,
our business partners, or our industry.
We have developed a strong
brand that we believe has contributed significantly to the success of our business. Maintaining, protecting, and enhancing the “Webull”
brand is critical to expanding our customer base, and depends largely on our ability to continue to develop and provide reliable and satisfactory
experiences for our customers and to attract other business partners to work with us. Our brand and reputation could be harmed if we fail
to achieve these objectives or if our public image were to be tarnished by negative publicity, misinformation, unexpected events, or actions
by third parties. Unfavorable publicity regarding, for example, our product changes, product quality, litigation or regulatory activity,
privacy practices, terms of service, employment matters, the use of our products and services for illicit or objectionable ends, the actions
of our customers, or the actions of other companies that provide similar services to ours, regardless of the truthfulness of such publicity,
has in the past, and could in the future, adversely affect our reputation. Further, we have in the past, and may in the future, be the
target of social media campaigns criticizing actual or perceived actions or inactions that are disfavored by our customers, employees,
or society at-large; these campaigns could materially impact our customers’ decisions to trade on our platform. Any such negative
publicity could have an adverse effect on the size, activity, and loyalty of our customers and result in a decrease in revenue, which
could adversely affect our business, operating results, and financial condition. Our brand may also be impaired by a number of other factors,
including any failure to keep pace with technological advances, a decline in execution efficiency, failure to protect our intellectual
property rights, or alleged violations by us of law and regulations or public policy.
The U.S. Congress and various executive agencies, including the Department
of Commerce and the Department of War, have become increasingly concerned about companies with connections to China, and continued inquiries
and investigations relating to concerns about our connections to China may materially and adversely affect our business, financial condition,
and results of operations.
The U.S. Government has in
recent years taken several measures directed at companies with connections to the People’s Republic of China. For example:
● the Holding Foreign Companies Accountable Act, which was passed in 2020, requires foreign companies listed on U.S. stock exchanges to comply with U.S. auditing standards. Companies that fail to allow the Public Company Accounting Oversight Board, or PCAOB, to inspect their audits for three consecutive years face delisting, and on December 16, 2021, the PCAOB determined that it was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, though it vacated that determination one year later;
● in February 2024, then U.S. President Biden issued Executive Order 14117, calling for the Department of Justice, or DOJ, to promulgate regulations to prevent the large-scale transfer of sensitive personal data and U.S. Government-related data to “countries of concern,” including China. The DOJ issued a final rule implementing this executive order, which became effective on April 8, 2025;
● in April 2024, the Protecting Americans from Foreign Adversary Controlled Applications Act became law, prohibiting the distribution, maintenance, or provision of internet hosting services for social media companies that are controlled by, among others, a foreign adversary (which is defined to include China) and has been determined by the President to present a significant threat to national security;
● in October 2024, the U.S. Commerce Department introduced a new export license regime restricting the sale of advanced AI chips to China;
● in January 2025, the U.S. Department of War added several prominent Chinese companies to its list of “Chinese military companies,” alleging such companies have ties to China’s military; and
● beginning in April 2025, members of Congress as well as senior members of the Trump administration have mentioned potentially delisting companies with connections to China as a tactic that could be deployed in a trade war with China.
7
We believe that we do not fall within the scope of these or other laws,
rules, or regulations targeting companies with connections to China. This view is based primarily on the facts that (1) we are regulated
as broker-dealers in 12 major markets globally; (2) our principal business operations are based in the U.S.; (3) of the six members of
our current board of directors and senior management teams, five are U.S. citizens and based in the U.S. (namely Messrs. Denier, H.C.
Wang, James, Houlihan, and Bishop); (4) our auditor, KPMG LLP, is based in the U.S.; (5) all of the personally identifiable
information of the customers of Webull Financial, our U.S. broker-dealer, is stored in servers located in the United States and cannot
be transmitted outside of the United States or accessed by our non-U.S. employees without permission and oversight from our U.S. personnel;
and (6) our operations in mainland China are limited to research and development and technical support functions. However, our founder
and chief executive officer, Mr. Anquan Wang, is a citizen of the People’s Republic of China, beneficially owns 16.4% of the outstanding
Webull Ordinary Shares (including all of the outstanding Webull Class B Ordinary Shares), representing 79.2% of Webull’s total voting
power as of March 31, 2026. Mr. Anquan Wang also has beneficial ownership over 2,301,374 Webull Class A Ordinary Shares held of record
by Webull Partners Limited (our share-award platform entity for certain of our employees, officers and directors) and may exercise voting
rights with respect to 10,058,435 Webull Class A Ordinary Shares, subject to the satisfaction of certain conditions under the Proxy Agreement
(as defined below) as of December 31, 2025. In addition, our mainland China subsidiary, Hunan Weibu Information Technology Co., Ltd.,
employs 863 employees, representing 62% of our employees as of December 31, 2025, and is subject to the jurisdiction of the People’s
Republic of China. We cannot be certain that future laws, rules, or regulations will not be drafted in a way that brings us within their
scope and that such laws will not materially and adversely affect our business, financial condition, and results of operations.
We have also been the subject
of inquiries and investigations from various government bodies in the United States relating to concerns about our connections to China.
For example, in April 2024, the attorneys general from 14 different U.S. states posted a letter on a social media platform in which they
raised concerns about our treatment of the sensitive personal and financial data and alleged that such data could potentially be exposed
to the Chinese Communist Party. Further, on December 5, 2024, the Select Committee on the Strategic Competition Between the United
States and the Chinese Communist Party of the U.S. House of Representatives (the “Select Committee”) delivered a letter to
the chief executive officer of Webull Financial requesting information concerning the relationship between Webull Financial and our operations
in China, and the security of sensitive customer data. We believe the claims and allegations in both letters were largely based on outdated
and inaccurate information about us, and we are cooperating with both the state attorneys general and the Select Committee to address
the concerns raised in their respective letters. Although we have not received further requests from either the state attorneys general
or the Select Committee in more than one year, we cannot be certain that either of them or another investigatory body will not make further
accusations or inquiries and that we will be able to resolve all of their concerns and that the result of such inquiries will not lead
to further action on their part, any of which may materially and adversely affect our business, financial condition, and results of operations.
Adverse economic
conditions may adversely affect our business.
Our performance is subject
to general economic conditions and their impact on the securities markets and our customers. The United States and other key international
economies have experienced cyclical downturns from time to time in which economic activity declined resulting in lower consumption rates,
restricted credit, reduced profitability, weaknesses in financial markets, bankruptcies, and overall uncertainty with respect to the economy.
Trade wars, sanctions, and foreign exchange limitations can also increase the severity and levels of unpredictability in economies globally
and increase the volatility of global financial markets. To the extent that general economic conditions and securities markets materially
deteriorate, our ability to attract and retain customers may suffer.
We depend on our
senior management and highly skilled personnel and our ability to attract, retain, and motivate them.
We believe that our future
success depends significantly on our continuing ability to attract, develop, motivate, and retain our senior management and a sufficient
number of experienced and skilled employees. Qualified individuals are in high demand and we may have to incur significant costs to attract
and retain them. Additionally, we use share-based awards to attract talented employees, and if our share price declines in value, we may
have difficulties recruiting and retaining qualified employees.
In particular, we cannot ensure
that we will be able to retain the services of our senior management and key executive officers. The loss of any key management or executive
could be highly disruptive and may adversely affect our business operations and future growth. The loss of even a few qualified employees,
or an inability to attract, retain, and motivate additional highly skilled employees required for the planned expansion of our business
could adversely impact our operating results and impair our ability to grow. Moreover, if any of these individuals joins a competitor
or forms a competing business, we may lose crucial business secrets, technological know-how, and other valuable resources. Although our
senior management and executive officers have non-compete agreements with us, we cannot assure you that they will comply with such agreements
or that we will be able to effectively enforce them.
We may not be able
to obtain additional capital when desired, on favorable terms or at all.
We may make investments from time to time in technologies, facilities,
equipment, hardware, software, and other projects to remain competitive. If we are not able to achieve or maintain positive cash flow
from operations, our business may be adversely impacted and we may require additional financing. Due to the unpredictable nature of the
capital markets and our industry, there can be no assurance that we will be able to raise additional capital on terms favorable to us,
or at all, if and when required, especially if we experience disappointing results of operations. In addition, our financing activities
may also have a dilutive effect on our shareholders. If adequate capital is not available to us as required, our ability to fund our operations,
take advantage of business opportunities, develop or enhance our infrastructure, or respond to competitive pressures could be significantly
limited. If we do raise additional funds through the issuance of equity or convertible debt securities, the ownership interests of our
shareholders could be significantly diluted or the newly issued securities may have rights, preferences, or privileges senior to those
of existing shareholders. The dilution created by the potential exercise of the Webull Warrants, as well as the fact that we have registered
for resale with the Resale Registration Statement a significant number of Webull Ordinary Shares that are held by the Webull Existing
Shareholders, our founder, the Initial SKGR Shareholders and certain investors party to Non-Redemption Agreement and Additional Non-Redemption
Agreements may make it more difficult for us to raise additional financing through the sale of equity securities at a price that management
deems appropriate. For more information, also see “— Risks Relating to Ownership of Securities of Webull — Future
resales of Webull Class A Ordinary Shares issued to Webull shareholders and other significant shareholders may cause the market price
of the Webull Class A Ordinary Shares to drop significantly, even if Webull’s business is doing well.” For more information
on the potential exercise of our warrants, please see “— Risks Relating to Ownership of Securities of Webull — Webull
Warrants are currently exercisable for Webull Class A Ordinary Shares, which increases the number of Webull shares eligible for future
resale in the public market and may result in dilution to Webull shareholders.”
8
Our business and
reputation may be harmed by the failure of our employees or business partners to perform their duties or their misconduct or errors.
We operate in an industry
in which integrity and the confidence of our users and customers are of critical importance. During our daily operations, we are subject
to risks of errors and misconduct by our employees and business partners, which include:
● engaging in misrepresentation or fraudulent activities when marketing or performing brokerage, advisory, and other services to users and customers;
● improperly using or disclosing confidential information of our users and customers or other parties;
● concealing unauthorized or unsuccessful activities; or
● otherwise not complying with applicable laws and regulations or our internal policies or procedures.
Employee or service provider
errors, including mistakes in executing, recording, or processing transactions for customers, could expose us to the risk of material
losses even if the errors are detected. Although we have implemented processes and procedures and provide trainings to our employees and
service providers in order to reduce the likelihood of misconduct and error, these efforts may not be successful.
If any of our employees or
business partners engages in illegal or suspicious activities or other misconduct, we could suffer serious harm to our reputation, financial
condition, customer relationships, and ability to attract new customers and even be subject to regulatory sanctions and significant legal
liability. If we were found to have not met our regulatory oversight and compliance and other obligations, we could be subject to regulatory
sanctions, financial penalties, damage to our reputation, and restrictions on our activities for failure to properly identify, monitor,
and respond to potentially problematic activity. Our employees, contractors, and agents could also commit errors that subject us to financial
claims for negligence, as well as regulatory actions, or result in financial liability. Further, allegations by regulatory authorities
of non-compliance could affect our brand and reputation. We may also be subject to negative publicity from fines and penalties that would
adversely affect our brand, public image, and reputation, as well as potential challenges, suspicions, investigations, or alleged claims
against us. It is not always possible to deter all misconduct by our employees or business partners during the ongoing operations of our
business or uncover any misconduct that occurred in their past employment, and the precautions we take to detect and prevent any misconduct
may not always be effective. Misconduct by our employees or business partners, or even unsubstantiated allegations of misconduct, could
have a material adverse effect on our reputation and business.
Future strategic
alliances or acquisitions may have a material and adverse effect on our business, results of operations, and financial condition.
We may enter into strategic
alliances, including joint ventures or minority equity investments, with various third parties to further our business purpose from time
to time. These alliances could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance
by the third party, and increased expenses in establishing new strategic alliances, any of which may materially and adversely affect our
business, or our investments may be subject to loss. We may have limited ability to monitor or control the actions of these third parties
and, to the extent any of these strategic third parties suffers negative publicity or harm to their reputation from events relating to
their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with any such third party.
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In addition, when appropriate
opportunities arise, we may acquire additional assets, products, technologies, or businesses that are complementary to our existing business.
In addition to possible shareholders’ approval, we may also have to obtain approvals and licenses from relevant government authorities
for the acquisitions and comply with any applicable laws and regulations, which could result in increased delays and costs, and may derail
our business strategy if we fail to do so. Furthermore, acquisitions and the subsequent integration of new assets and businesses into
our own require significant attention from our management and could result in a diversion of resources from our existing business, which
in turn could have an adverse effect on our business operations. Acquired assets or businesses may not generate the financial results
we expect. Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the
occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets, and exposure to potential unknown
liabilities of the acquired business. Moreover, the costs of identifying and consummating acquisitions may be significant.
We face risks related
to health epidemics and other outbreaks, as well as natural disasters, which could significantly disrupt our operations and adversely
affect our business, results of operations, and financial condition.
Our business could be adversely
affected by the effects of epidemics. In recent years, there have been outbreaks of epidemics globally. Our results of operations
could be adversely affected to the extent that an outbreak has any negative impact on the global economy in general and the global mobile
internet and online brokerage industry in particular.
We are also vulnerable to
natural disasters and other calamities. Natural disasters or other catastrophic events may also cause damage or disruption to our operations,
and the global economy, and could have an adverse effect on our business, operating results, and financial condition. Our business operations
are subject to interruption by natural disasters, fire, power shortages, and other events beyond our control. Further, acts of terrorism,
labor activism or unrest, and other geo-political unrest could cause disruptions in our business or the businesses of our partners or
the economy as a whole.
It is possible that we may
be unable to recover certain data in the event of a server failure. We cannot assure you that any backup systems will be adequate to protect
us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, sabotages, war, riots, terrorist
attacks, or similar events. In the event of a natural disaster, including a major earthquake, blizzard, or hurricane, or a catastrophic
event such as a fire, power loss, or telecommunications failure, we may be unable to continue our operations and may endure system interruptions,
reputational harm, delays in development of our platform, lengthy interruptions in service, breaches of data security, and loss of critical
data, all of which could have an adverse effect on our future operating results. Any of the foregoing events may give rise to server interruptions,
breakdowns, system failures, technology platform failures, or internet failures, which could cause the loss or corruption of data or malfunctions
of software or hardware as well as adversely affect our ability to provide services on our platform.
Risks Relating to Regulations Applicable to
our Industry
We are subject
to extensive regulatory requirements in the jurisdictions where we operate.
Our business is subject to
a wide variety of laws, rules, regulations, policies, orders, determinations, directives, treaties, legal and regulatory interpretations
and guidance in the markets in which we operate. These local, state, federal, and international laws, regulations, and industry standards
include, among others, those governing broker-dealers, investment advisers, money transmission, privacy, data governance, data protection,
cybersecurity, risk management, fraud detection, anti-bribery, anti-money laundering, and counter-terrorist financing. The businesses
we are involved in are heavily regulated, and firms in our industry have been subject to an increasingly regulated environment over recent years,
and penalties and fines sought by regulatory authorities have increased accordingly.
Our ability to comply with
all applicable laws and rules is largely dependent on our compliance, audit, and reporting systems to ensure compliance, as well as our
ability to attract and retain qualified compliance personnel. We could be subject to disciplinary or other actions in the future due to
claimed non-compliance, including, without limitation, as it relates to obtaining necessary registrations, permits, licenses, and/or other
authorizations in a jurisdiction, or maintaining the minimum regulatory capital, which could have a material adverse effect on our business,
financial condition, and results of operations. Many of the government agencies and self-regulatory organizations that oversee our business
also engage in regular examinations of our business which may lead to identification of areas of our operations that are not in compliance
with regulatory requirements. Non-compliance with applicable laws or regulations, including, without limitation, as they relate to registration
with applicable legal authorities and the filing of required forms, notices, and other filings with applicable regulatory authorities,
could result in sanctions being levied against us, including fines and censures, suspension or expulsion from a certain jurisdiction or
market, or the revocation or limitation of licenses (or the imposition of a requirement to obtain licenses or permits).
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While we have implemented
policies and procedures designed to help monitor and ensure compliance with existing and new laws and regulations, there can be no assurance
that we and our employees, contractors, and agents will not violate or otherwise fail to comply with such laws and regulations. To the
extent that we or our employees, contractors, or agents are deemed or alleged to have violated or failed to comply with any laws or regulations,
including related interpretations, orders, determinations, directives, or guidance, we or they could be subject to civil, criminal, and
administrative fines, penalties, orders, and actions, including being required to suspend or terminate the offering of certain products
and services. Consequently, non-compliance with applicable laws or regulations could adversely affect our reputation, prospects, revenues,
and earnings.
As we continue to operate
and to expand our services internationally, we must comply with the regulatory controls of each country in which we conduct, or intend
to conduct business, the requirements of which may not be clearly defined. The varying compliance requirements of these different jurisdictions,
which are often unclear and are subject to change and reinterpretation, may increase the compliance costs of our operations and make it
more difficult to further expand internationally. There can be no assurance that we will be able to comply with all applicable regulations
in a cost-effective and timely manner, or at all. In addition, changes in current laws or regulations or in governmental policies could
adversely affect our business, financial condition, and results of operations.
The complexity and the evolution
of the regulatory and enforcement regimes that we may be subject to across the globe could result in a single event prompting a large
number of overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions.
Any of the foregoing could, individually or in the aggregate, harm our reputation, damage our brands and business, and adversely affect
our results of operations and financial condition.
The regulatory
environments that we are subject to are constantly evolving, which may cause us to incur substantial costs or require us to change our
business practices in ways that are adverse to our business.
Over the past few decades,
the brokerage and investment industry has experienced meaningful technological innovations and developments, including the introduction
of electronic trading, order handling, decimal pricing, mobile internet, and other advances, which have given rise to industry reforms.
However, certain legal and regulatory regimes were adopted prior to the advent of the internet, mobile technologies, and related technologies.
Therefore, these legal and regulatory regimes, including the laws, rules, and regulations thereunder, may continue to evolve and may be
modified, interpreted, and applied in a manner to keep up with the industry developments and trends, and may take a while to formalize.
As a result, substantial costs, risks, and uncertainties may arise in relation to adapting to these regulatory changes. As the laws, rules,
and regulations applicable to broker-dealers and investment advisers that provide services to retail customers, which constitute substantially
all of our business, are becoming increasingly scrutinized, we may be required to change our current business practices in a materially
adverse manner to comply with the evolving laws, regulations, or other government or regulatory scrutiny and our introduction of new products
or services, our expansion into new lines of business, and our pursuit of other business opportunities or actions may also be restricted.
Adverse changes to, or our failure to comply with, any additional laws and regulations may have an adverse effect on our reputation and
brand and our business, operating results, and financial condition.
Our ability to offer event contracts is
subject to the outcome of currently ongoing and potential future regulatory enforcement actions and litigation, as well as potential changes
in federal or state law, that could immediately or subsequently prevent us from offering, or continuing to offer, event contracts.
Webull Financial facilitates trading
of event contracts offered on KalshiEX LLC’s (“Kalshi”) event contract exchange. Event contracts, whether offered by
Kalshi or others, have drawn scrutiny from federal and state regulators and resulted in litigation that we are party to as well as litigation
against other companies that offer event contracts. In particular:
● On April 8, 2025, a federal district court in Nevada issued a preliminary injunction in KalshiEx, LLC v. Hendrick, et al. preventing the Nevada Gaming Commission and Nevada Gaming Control Board from enforcing applicable Nevada state laws and pursuing civil or criminal liability against KalshiEx for offering sports-related event contracts because the Commodity Exchange Act (“CEA”) grants the Commodity Futures Trading Commission (“CFTC”) exclusive jurisdiction over event contracts that are traded or executed on a designated contract market and the CFTC has approved (or at least has not disapproved) the contracts. Kalshi has since filed for similar injunctive relief in New Jersey, Maryland, Ohio, New York, Connecticut, and Tennessee. On April 28, 2025, the federal district court in the New Jersey lawsuit, KalshiEx LLC v. Flaherty, et al., issued a preliminary injunction against the New Jersey gaming regulators concluding that Kalshi has demonstrated a reasonable chance of prevailing on its preemption arguments. The New Jersey gaming regulators have appealed this decision to the Third Circuit Court of Appeals, which heard oral argument in September 2025. The U.S. District Court for the District of Maryland denied Kalshi’s motion for injunctive relief and Kalshi has appealed this decision to the Fourth Circuit Court of Appeals. Kalshi has also been sued by the Massachusetts Attorney General in Massachusetts state court, seeking to enforce Massachusetts state gaming laws. On February 6, 2026, the Massachusetts state court entered a preliminary injunction against Kalshi, which would bar Kalshi from offering sports event contracts to persons located in Massachusetts, and Kalshi has noticed its appeal from this decision.
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● On October 14, 2025, the U.S. District Court for the District of Nevada denied motions by North American Derivatives Exchange, Inc. (“Crypto.com”) for a judgment on the pleadings and a preliminary injunction because the Court found Crypto.com’s event contract offerings which turn on the outcome of live events, such as sports-related event contracts, as opposed to the “occurrence, nonoccurrence, or the extent of the occurrence of an event,” are not “swaps” falling within the CFTC’s exclusive jurisdiction. The district court found that Crypto.com was unlikely to prevail on its argument that the CFTC has exclusive jurisdiction over its sports-related event contracts.
● On March 17, 2026, the Arizona Attorney General filed criminal charges against Kalshi alleging that Kalshi operated an illegal gambling business in Arizona without a license and engaged in prohibited election wagering. On March 27, 2026, the Washington Attorney General filed a civil lawsuit against Kalshi alleging that it is operating illegal online gambling in Washington. In addition, on March 20, 2026, a Nevada state court entered a temporary restraining order temporarily barring Kalshi from offering certain event contracts in Nevada without applicable state gaming licenses.
● We are also subject to and have been named as a defendant in lawsuits by private plaintiffs alleging statutory violations, including that our sports event contracts constitute illegal sports betting, and seeking, among other things, damages (including under “statute of Anne” laws providing for triple damages) and injunctive relief.
The outcome of
these cases or new laws or regulations, changes in the interpretation of existing laws or regulations, or more rigorous enforcement in
this space could immediately or subsequently prevent us from offering, or continuing to offer, access to some or all types of event contracts
in the future, including in specific states. In particular, additional federal or state courts, including appellate courts, may conclude
that state laws attempting to prevent the trading of CFTC-regulated sports-related event contracts are not preempted by the CEA, or that
outcome based event contracts are not “swaps” falling within the jurisdiction of the CFTC, which would likely require us to
cease offering certain event contracts in one or more states (or across all jurisdictions in which we operate) and could lead to adverse
litigation and regulatory actions against us for doing so. Any such decision could also result in us becoming subject to various new state-specific
regulations relating to or implicating other event contracts, which would further limit our ability to offer access to event contracts
within such state(s). Changes in CFTC or other regulatory policy that seek to ban or more heavily regulate event contracts, particularly
event contracts that we offer such as those related to sporting events, could also require us to cease offering event contracts or materially
impact our ability to offer event contracts and we may be required to cease offering such contracts in one or more jurisdictions in which
we operate either immediately or with minimal advanced notice to customers. The regulatory framework governing event contracts and similar
products remains uncertain and subject to change. The CFTC or other federal or state regulators may in the future adopt rules, issue guidance,
or take enforcement actions that restrict, prohibit, or otherwise materially limit our ability to offer certain event contracts or similar
products in one or more jurisdictions in which we operate. Regulatory authorities could also take broader or more expansive actions with
respect to these or other event-based products without advance notice. If our ability to offer event contracts (either entirely or in
certain categories) in one or more jurisdictions is limited or prohibited, our brand perception may suffer, we may be unable to retain
customers, and we may incur significant costs in responding to regulatory actions or attempting to continue offering such products. Any
of these outcomes could adversely affect our business, financial condition, and results of operations.
We may be involved
in regulatory investigations, actions, and settlements during our course of business.
We operate in a highly regulated
industry, and scrutiny of our industry is expected to increase the regulatory risks applicable to us and make compliance with the applicable
laws, rules, and regulations more challenging. Furthermore, laws regulating financial services, the internet, mobile technologies, and
related technologies among various markets may impose different, more specific, or even conflicting obligations on us, as well as broader
liability. There have been a number of legal and regulatory examinations and investigations conducted by the SEC, FINRA, other federal
or state regulatory agencies, as well as non-U.S. regulatory bodies, arising out of certain business practices and the operations of other
market players in our industry, which have led to lawsuits, arbitration claims, and enforcement proceedings, as well as other actions
and claims, and resulted in injunctions, fines, penalties, and monetary settlements.
We are subject to routine
regulatory oversight, examinations, and inquiries by regulatory authorities as part of the ordinary course of our business. These have
in some instances led to, and might in the future lead to, enforcement proceedings, lawsuits, arbitration claims, as well as other actions
and claims, resulting in injunctions, fines, penalties, and monetary settlements. For example, in 2022 FINRA informed Webull Financial
that it had found instances of alleged non-compliance relating to its option trading approval process and our handling of customer complaints.
Specifically, FINRA alleged that beginning at the time Webull Financial first offered options trading in December 2019 through July 2021,
Webull Financial did not exercise reasonable due diligence before approving customers to trade options as flaws in its automated, electronic
system to approve or disapprove customer accounts for options trading — and Webull Financial’s inadequate supervision of the
system — resulted in customers being approved for options trading authority who did not satisfy its eligibility criteria or whose
accounts contained red flags that options trading might not be appropriate for them. FINRA also claimed that from May 2018 through December
2021, Webull Financial’s supervisory system, including its written supervisory procedures, was not reasonably designed to identify
and respond to customer complaints. Finally, FINRA alleged that from December 2019 through March 2021, Webull Financial did not maintain
and keep current an options complaint log. As a result, in February 2023, we signed a letter of acceptance, waiver, and consent and
paid a $3 million fine. In addition, in 2022 the Massachusetts Securities Division, or MSD, began examining Webull Financial for
allegations that it did not dedicate sufficient resources to compliance, leading Webull Financial to eventually settle with the MSD for
$500,000. Further, the SEC found that from October 2018 through December 2022 Webull Financial filed deficient suspicious activity reports,
or SARs, with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network, in that the SARs failed to include all
of the required details of the reported suspicious transactions that Webull Financial knew or should have known in the narrative of the
SARs. Webull Financial agreed to cease and desist the filing of deficient SARs and paid a fine of $125,000. In addition, in 2025, Webull
Financial entered into a Letter of Acceptance, Waiver and Consent with FINRA pursuant to which FINRA found that, for certain periods between
January 2019 and December 2022, Webull Financial did not adequately supervise and retain certain social media communications by third-party
promoters, did not properly deliver and maintain records regarding Form CRS, did not comply with Rule 603(c) of Regulation NMS, and did
not properly administer certain controls relating to the entry of erroneous orders. Webull Financial was censured and paid a $1.6 million
fine.
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There can be no assurance
that we will not be subject to any material regulatory investigations, actions, or settlements in the future. These proceedings, inquiries,
examinations, investigations, and other regulatory matters might subject us to fines, penalties, and monetary settlements, harm our reputation
and brand, require substantial management attention, result in additional compliance requirements, result in certain of our subsidiaries
having their regulatory licenses or ability to conduct business in some jurisdictions (which could, among other things, result in statutory
disqualification by FINRA and the SEC) suspended or revoked, increase regulatory scrutiny of our business, restrict our operations or
require us to change our business practices, require changes to our products and services, require changes in personnel or management,
delay planned product or service launches or development, limit our ability to acquire other complementary businesses and technologies,
or lead to the suspension or expulsion of our broker-dealer or other regulated subsidiaries or their officers or employees.
We may not be able
to obtain or maintain all necessary licenses, permits, and approvals and to make all necessary registrations and filings for our business
activities in multiple jurisdictions.
The securities and derivatives
business is heavily regulated, and requires certain regulatory licenses, permits, filings, and approvals to conduct and develop business.
We currently hold twelve broker-dealer licenses, approvals or registrations across North America, Asia Pacific, Europe, and Africa, and
are in the process of securing additional licenses in Latin America. For a detailed description of the licenses obtained for our business,
see “Item 4. Key Information. B. Business Overview — Risk Management — Our Licenses and Applicable
Jurisdictions.”
Although we generally ensure
we have the requisite licenses in a new market before onboarding customers, rules relating to solicitation of customers by foreign registered
broker-dealers are sometimes unclear and subject to interpretation, therefore regulators in some jurisdictions in which we have customers
but do not have locally registered broker-dealer licenses may determine that we lack the necessary registrations, licenses, permits, or
other authorizations in order to avail our platform to those customers, which could result in fines, censures, or other penalties, including
expulsion from that jurisdiction.
Due to the uncertainties of
interpretation and implementation of existing and future laws and regulations, regulators may determine that the licenses we hold may
not be sufficient to meet the regulatory requirements of the business we conduct or otherwise plan to conduct, which may restrain our
ability to expand our business scope and subject us to fines or other regulatory actions by relevant regulators. As we further develop
and expand our business, we will likely need to obtain additional qualifications, permits, filings, approvals, or licenses. Moreover,
we may be required to obtain additional licenses or approvals for our existing business if the regulatory authorities adopt more stringent
policies or regulations for our industry.
In addition, to expand our
business scope and explore innovative business models, we have adopted and will continue to adopt various operating strategies and measures.
Due to the uncertainties of interpretation and application of pertinent laws by government authorities, we cannot guarantee that such
strategies and measures will not be challenged under laws and regulations in the jurisdictions where we conduct our business. If so, relevant
regulatory authorities may issue warnings, order us to rectify our non-compliant operations and impose fines on us. In the case of serious
violations as determined by relevant authorities at their discretion, they may ban the relevant operations, seize our equipment in connection
with such operations, impose fines, or revoke our licenses, which may materially and adversely affect our business.
As of the date of this Report,
we have not been subject to any material penalties from any relevant regulatory authorities for failure to obtain any regulatory licenses
for our business operations in the past. The lack of material fines and other penalties is not a guarantee that we have obtained all required
licenses, registrations or other authorizations in each jurisdiction in which we conduct our business. Further, we cannot assure you that
U.S. federal, state, and local and foreign regulatory agencies will not impose such penalties on us in the future. In addition, we
may be required to obtain additional licenses or permits, and we cannot assure you that we will be able to timely obtain, maintain, or
renew all required licenses or permits or make all necessary filings in the future. If we fail to obtain, hold, or maintain any of the
required licenses or permits or make the necessary filings on time or at all, we may be subject to various penalties, such as confiscation
of the revenues that were generated through the unlicensed activities, the imposition of fines, and the discontinuation or restriction
of our operations. Any such penalties may disrupt our business operations and materially and adversely affect our business, financial
condition, and results of operations.
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We have been in
the past and may continue to be subject to complaints, claims, controversies, regulatory actions, and legal proceedings.
We have been and may continue
to be subject to or involved in various complaints, claims, controversies, regulatory actions, arbitrations and legal proceedings. Complaints,
claims, arbitration, lawsuits, litigation, and government and regulatory investigations, inquiries, actions or requests are common in
our industry, and subject to inherent uncertainties, and existing or new claims against us may develop into lawsuits or regulatory penalties
and other disciplinary actions. We have devoted considerable time and resources to dealing these issues in the past and may have to do
so from time to time in the future. Lawsuits, litigation, arbitration and regulatory actions may cause us to incur substantial costs or
fines, utilize a significant portion of our resources and divert management’s attention from our day-to-day operations, materially
modify or suspend our business operations, or delay planned transactions, product launches or improvements, and may result in additional
compliance and licensure requirements, loss or non-renewal of existing licenses or authorizations, prohibition from or delays in obtaining
additional licenses or authorizations required for our business, and/or barring or termination of certain employees, any of which could
materially and adversely affect our financial condition, results of operations, business prospects, brand, and reputation.
Defending against litigation,
investigations, inquiries, or other claims is costly and can impose a significant burden on our management and employees, and there can
be no assurance that favorable final outcomes will be obtained in all cases. Settlements of such claims can also be costly. In addition,
there can be no assurance that we will be successful in the claims we pursue against other parties. Any resulting liability, losses or
expenses, or changes required to our businesses to reduce the risk of future liability may have a material adverse effect on our business,
financial condition, and prospects. An adverse outcome of a single claim against us in one jurisdiction may result in significant negative
publicity and heightened scrutiny by regulators and courts of our business operations in other jurisdictions, or potential penalties or
other regulatory actions against us. Any of such outcomes may cause significant disruptions to our operations and materially and adversely
affect our results of operations and financial condition.
We are subject
to regulatory capital requirements set by local securities regulatory authorities and agencies.
Stringent rules with respect
to the maintenance of specific levels of net capital by broker-dealers or investment advisory firms have been adopted by many regulatory
authorities and agencies. Our business operations may cause us and our subsidiaries to be subject to regulatory capital requirements set
by local regulatory authorities and agencies. For a detailed description of the regulatory capital requirements that our operating subsidiaries
are subject to, see “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Regulatory
capital requirements.”
We believe we currently are
in compliance with all capital requirements set by all applicable regulatory authorities. However, if we fail to remain in compliance
with such capital adequacy requirements, or a regulator takes an adverse action against us or our affiliates as a result of historical
non-compliance, we could be forced to suspend our business operations until such time as we have injected enough capital to comply with
applicable rules and regulations or otherwise be subject to censures, fines or other sanctions. Additionally, the regulators could suspend
or revoke our registration, expel us from membership, or impose censures, fines, or other sanctions. If the net capital requirements are
changed or expanded, or if there is an unusually large charge against net capital, then our operations that require capital could be limited.
A large operating loss or charge against net capital could have a material adverse effect on our ability to maintain or expand our business.
Further, we may from time to time incur indebtedness and other obligations which could make it more difficult to meet these capitalization
requirements or any additional regulatory requirements.
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Risks Relating to Attracting, Retaining and
Engaging Customers
We may be unable
to retain existing customers or attract new customers, or fail to offer a positive trading experience to our customers and address their
needs.
We provide comprehensive digital
trading and investing services and derive substantially all of our revenues from such services. Maintaining growth momentum of our platform
depends on retaining existing customers and attracting new customers. If there is insufficient demand for our products and services, we
might not be able to maintain and increase our trading volume and revenues as we expect, and our business and results of operations may
be adversely affected.
Our success depends largely
on our ability to attract new customers and retain existing customers. Although we have been able to develop a large and growing customer
base, to continue doing so we must attract new customers by continuing to build our brand and reputation as a convenient and reliable
digital investment platform, as well as effectively market and precisely target our products and services to prospective users. To retain
and engage our user base, we must provide a superior trading and investing experience, offer quality services, introduce effective trading
and investment tools, develop engaging and informative platform features, and build and manage an active user community.
Our customers may not continue
to place trading orders or increase the level of their trading activities on our platform if we fail to deliver satisfactory services
and experience. Failure to deliver services in a timely manner with satisfactory experience could cause our customers to lose confidence
in us and use our platform less frequently or even stop using our platform altogether, which in turn could materially and adversely affect
our business. Even if we are able to provide high-quality and satisfactory services on our platform in a timely manner, we cannot assure
you that we will be able to retain existing customers and increase trading volume when faced with events out of our control, such as changes
to our customers’ personal financial situations or the deterioration of capital markets conditions.
In addition, we may not be
able to retain our existing customers or attract new customers in a cost-effective manner. Historically, we incurred significant expenditures
in marketing and branding expenses. However, there can be no assurance that these efforts will yield satisfactory results in retaining
our existing customers or attracting new customers. We cannot assure you that we will be able to maintain or grow our customer base in
a cost-effective way, and failure to do so may cause our business, financial condition, and results of operations to be adversely affected.
Finally, to the extent any
regulatory body determines that our methods of marketing (including the use of testimonials or other endorsements of third parties) and/or
encouraging engagement on our platform (including through the provision of free stocks) violate any law, rule, or regulation, we expect
that our marketing efforts and/or the level of trading activities on our platform may be adversely affected and we may be subject to fines,
censures, or other regulatory actions in such jurisdictions.
The Webull Affiliate
Program exposes us to regulatory scrutiny while our control over the participants and the content that they post about us is limited.
Webull Affiliate Programs
are part of a marketing strategy under which certain of our subsidiaries establish relationships with content creators who use social
media to promote the Webull platform and are compensated for referring new customers to open brokerage accounts. Our subsidiaries take
steps to ensure that the affiliate program complies with applicable laws and regulations, including by (i) conducting due diligence on
prospective participants, (ii) requiring approved participants to comply with specified policies and standards of conduct, as well as
to adhere to all applicable laws and regulations, and (iii) monitoring participants’ social media for compliance on an ongoing basis.
However, such steps may not be sufficient to prevent or significantly mitigate all risks associated with these program. Due diligence
on prospective participants is limited to their currently available, public, identifiable and disclosed social media accounts and information
that they provide to our subsidiaries, and may not take into account private social media accounts or unidentified accounts associated
with prospective participants or private content and messages. Additionally, while our subsidiaries monitor affiliate marketing program
participants’ social media, certain participants’ posts and communications may not be subject to pre-approval, and may contain
content which violates the policies and standards they agree to with us or other laws or regulations. There can be no assurance that participants
in our affiliate marketing programs will comply with all applicable laws and regulations, as required by the terms of the programs, or
that the operation of affiliate marketing programs will not result in adverse consequences to our subsidiaries that run the programs,
including investigations, regulatory enforcement actions, fines or other penalties. Further, the regulatory landscape surrounding digital
marketing, including affiliate marketing programs, is evolving, with governments and regulatory bodies increasingly scrutinizing online
advertising practices. Changes in regulations or interpretations thereof could require costly adjustments to our program, such as compliance
measures or alterations to our affiliate agreements.
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We cannot guarantee
the profitability of our customers’ investments or ensure that our customers will exercise rational judgment with respect to their
investments.
We cannot guarantee the profitability
of the trades and investments made by customers on our platform. Substantially all of the trades on our platform are self-directed by
our customers and the profitability of our customers’ investments is directly affected by elements beyond our control, such as changes
in price and market liquidity, economic conditions, and broad trends in business and finance. We have created a social community to facilitate
the learning and sharing of financial and market information. Although these materials and commentaries contain prominent disclaimers,
our customers may seek to hold us responsible when they use such information to make trading decisions and suffer financial loss on their
trades, or if their trades are not as profitable as they had expected. Furthermore, it is possible that some customers could solely rely
on certain predictive statements made by other customers on our platform, ignoring our alert warnings that customers should make their
own investment judgments and should not predict future performance based on historical results. As a result, our customers’ trading
loss may affect our transaction volumes and revenues as customers decide to reduce trading activities. In addition, some customers who
have suffered substantial losses on our platform may blame our platform, attempt to harm our reputation, seek to recover damages from
us or bring lawsuits against us.
We may fail to
respond or adapt to the rapidly evolving needs of our customers in a timely and cost-effective manner, or our new product and service
offerings may not achieve sufficient market acceptance.
As we provide services in
markets that are characterized by rapid technological change, evolving industry standards, frequent new product and service introductions,
and increasing demand for higher levels of customer experience, we seek to stay abreast of the needs and preferences of our customers
to serve their evolving trading needs and investment demands and keep up with any technological innovations and developments. We believe
our ability to anticipate and identify the evolving needs of our users and customers and develop and introduce new service offerings to
address such needs will be a significant factor in maintaining or improving our competitive position and prospects for growth. We may
also have to incur substantial unanticipated costs to develop and deliver these service offerings, and we cannot assure you that we can
obtain financing to cover such expenditure. See “— Risks Relating to Our Business — We may not be
able to obtain additional capital when desired, on favorable terms or at all.” Our success will also depend on our ability to
develop and introduce new services and enhance existing services for our users and customers in a timely manner. Even if we introduce
new and enhanced services to the market, they may not achieve market acceptance.
If we fail to offer services
that cater to our customers’ evolving investment and trading needs as well as technological innovations and developments, we may
not be able to maintain and continue to grow the trading volume on our platform, and our business and results of operations may be adversely
affected. In recent years, we have expanded our service offerings for our users and customers from information and digital trading
services to wealth management services, as well as other ancillary tools and functions, and we may expand to new service offerings in
the future. However, we may have limited experience with these new service offerings, and expansion into new service offerings may involve
new risks and challenges that we may not have experienced before. We cannot assure you that we will be able to overcome such new risks
and challenges and make our new service offerings successful. Initial timetables for the introduction and development of new service offerings
may not be achieved and profitability targets may not prove feasible. External factors, such as compliance with regulations, competition,
and shifting market preferences, may also impact the successful implementation of our new service offerings. Our personnel and technology
systems may fail to adapt to the changes in such new areas or we may fail to effectively integrate new services into our existing operation.
We may lack experience in managing our new service offerings. In addition, we may be unable to compete effectively due to different competitive
landscapes in these new areas. Even if we expand our businesses into new areas, the expansion may not yield intended profitable results.
Furthermore, any new service offerings could have a significant impact on the effectiveness of our internal control system. Failure to
successfully manage these risks in the development and implementation of new service offerings could have a material adverse effect on
our business, results of operations, and financial condition.
16
Disputes with our
customers could adversely impact our brand and reputation.
From time to time, we have
been, and may in the future be, subject to claims and disputes with our customers with respect to our products and services, such as regarding
the execution and settlement of trades, fraudulent or unauthorized transactions, account takeovers, deposits and withdrawals of assets,
failures or malfunctions of our systems and services, or other issues relating to our products services. Additionally, the ingenuity of
criminal fraudsters, combined with many consumers’ susceptibility to fraud, may cause our customers to be subject to ongoing unauthorized
account access and identity fraud issues. While we have taken measures to detect and reduce the risk of fraud, there is no guarantee that
they will be successful and, in any case, they require continuous improvement and optimization to be effective. There can be no guarantee
that we will be successful in preventing and resolving these disputes or defending ourselves in any of these matters, and any failure
may result in impaired relationships with our customers, damage to our brand and reputation, and substantial fines and damages. In some
cases, the measures we have implemented to detect and deter fraud have led to poor customer experiences, including indefinite account
inaccessibility for some of our customers, which increases our customer support costs and can compound damages. We have in the past and
could in the future incur significant costs in compensating our customers, such as if a transaction was unauthorized, erroneous, or fraudulent.
We could also incur significant legal expenses resolving and defending claims, even those without merit. To the extent we are found to
have failed to fulfill our regulatory obligations, we could also lose our authorizations or licenses or become subject to conditions that
could make future operations more costly, impair our ability to grow, and adversely impact our operating results. We may in the future
become subject to investigation and enforcement action by state, federal, and international consumer protection agencies, which monitor
customer complaints against us and, from time to time, escalate matters for investigation and potential enforcement against us.
While certain of our customer
agreements contain arbitration provisions with class action waiver provisions that may limit our exposure to consumer class action litigation,
some federal, state, and foreign courts have refused to enforce one or more of these provisions, and there can be no assurance that we
will be successful in enforcing these arbitration provisions, including the class action waiver provisions, in the future or in any given
case. Legislative, administrative, or regulatory developments may directly or indirectly prohibit or limit the use of pre-dispute arbitration
clauses and class action waiver provisions. Any such prohibitions or limitations on or discontinuation of the use of such arbitration
or class action waiver provisions could subject us to additional lawsuits, including additional consumer class action litigation, and
significantly limit our ability to avoid exposure from consumer class action litigation.
Risks Relating to Our Platform, Systems and
Technology
Our platform and
internal systems rely on software and applications, many of which we are increasingly employing AI to develop, that are highly technical
and may contain undetected errors.
Our platform and internal
systems rely on software and applications, most of which we have developed internally, that are highly technical and complex. In addition,
our platform and internal systems depend on the ability of the software and applications to store, retrieve, process, and manage immense
amounts of data. The software and applications on which we rely have contained, and may now or in the future contain, undetected errors
or bugs. Some errors may only be discovered after the code has been released for external or internal use. Driven by the evolvement of
our product and service offerings, our platform, internal systems, and software and applications are becoming more and more complex and
the possibility of having undetected errors or bugs may increase as a result, which in turn may expose us to greater uncertainties and
risks and make higher demands for our technical capabilities. Errors or other design defects within the software and applications on which
we rely may result in a negative experience for users and customers, delay the introduction of new features or enhancements, result in
trade execution errors, or compromise our ability to protect customer data or our intellectual property. Any errors, bugs or defects discovered
in the software and applications on which we rely could result in harm to our reputation, loss of users or financial service providers,
significant expenses, or liability for damages, any of which could adversely affect our business, results of operations, and financial
condition.
We also increasingly use AI
tools, including third-party large language models, to assist in drafting, reviewing, and generating software code for our platform and
internal systems. While these tools aim to improve development speed and efficiency, AI-generated code may contain errors, security vulnerabilities,
performance issues, or logical flaws that evade our review and testing processes, potentially causing product failures, service disruptions,
data breaches, customer loss, or liability claims. Further, the training data used by these AI models may include copyrighted or proprietary
code, creating the risk that generated outputs reproduce protected intellectual property. This could expose us to infringement claims,
licensing demands, injunctions, or the need for costly code redesign, and may complicate enforcement of our own intellectual property
rights. Reliance on third-party AI providers whose models, availability, pricing, or terms may change unexpectedly, potentially delaying
releases, increasing costs, or forcing disruptive transitions to alternative providers. Over-reliance on AI may also reduce engineering
expertise, heighten vulnerability to adversarial attacks, or place us at a competitive disadvantage relative to peers with more effective
or reliable AI capabilities. Any of these risks, alone or in combination, could materially impair our ability to develop, deliver, and
support high-quality software in a timely and cost-effective manner.
17
An increase in
volume on the systems we use or other errors or events could cause them to malfunction.
The trade orders to buy or
sell securities or invest in other investment products that we offer are received and processed electronically. This method of trading
is heavily dependent on the integrity of the electronic systems supporting it. Heavy stress placed on the systems we use during peak trading
times or in periods of increased market volatility could cause our systems to operate at unacceptably slow speeds or fail altogether.
Any significant degradation or failure of our systems or the systems of third parties involved in the trading process, even for a short
time, could cause customers to suffer delays in trading. In addition, systems errors, including as a result of human error or traffic
overload, could occur. These delays or errors could cause substantial losses for customers and subject us to claims from these customers
for losses or other regulatory penalties or other sanctions or increased settlement disbursements. There can be no assurance that our
network structure will operate appropriately in the event of a subsystem, component or software failure or error. Furthermore, we cannot
assure you that we will be able to prevent an extended systems failure in the event of a power or telecommunications failure, terrorist
attack, epidemic or pandemic, fire, or any natural disaster. Any systems failure that causes interruptions in our operations could have
a material adverse effect on our business, financial condition, and results of operations.
We may experience
unexpected network interruptions, security breaches, or computer virus attacks and failures in our information technology systems.
Our information technology
systems support all phases of our operations and are an essential part of our technology infrastructure. If our systems fail to perform,
we could experience disruptions in operations, slower response times, or decreased customer satisfaction. We must process, record, and
monitor a large number of transactions and our operations are highly dependent on the integrity of our technology systems and our ability
to make timely enhancements and additions to our systems. System interruptions, errors, or downtime can result from a variety of causes,
including unexpected interruptions to the internet infrastructure, technological failures, changes to our systems, changes in customer
usage patterns, linkages with third-party systems, and power failures. Our systems are also vulnerable to disruptions from human error,
execution errors, errors in models such as those used for risk management and compliance, employee misconduct, unauthorized trading, external
fraud, computer viruses, distributed denial of service attacks, or cyberattacks, terrorist attacks, natural disasters, power outages,
capacity constraints, software flaws, events impacting our key business partners and vendors, and other similar events.
Our cloud-based business depends
on the performance and reliability of the cloud infrastructure. We currently host our platform and support our operations on data centers
provided by Amazon Web Services, or AWS, a third-party provider of cloud infrastructure services. We cannot assure you that the cloud
infrastructure we depend on will remain sufficiently reliable for our needs. Any failure to maintain the performance, reliability, security,
or availability of our cloud network infrastructure may cause significant damage to our ability to attract and retain users and customers.
Major risks involving our cloud network infrastructure include:
● breakdowns or system failures resulting in a prolonged shutdown of our servers;
● disruption or failure in the national or regional backbone networks where our servers are located, which would make it impossible for users and customers to access our online and mobile platforms;
● damage from natural disasters or other catastrophic events such as typhoons, volcanic eruptions, earthquakes, floods, telecommunications failures, or other similar events; and
● any infection by or spread of computer viruses or other system failures.
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Any network interruption or
inadequacy that causes interruptions in the availability of our online and mobile platforms or deterioration in the quality of access
to our online and mobile platforms could reduce user and customer satisfaction and result in a reduction in the activity level of our
users and customers as well as the number of customers making trading transactions on our platform. Furthermore, increases in the volume
of traffic on our online and mobile platforms could strain the capacity of our existing computer systems and bandwidth, which could lead
to slower response times or system failures. This could cause a disruption or suspension in our service delivery, which could hurt our
brand and reputation. We may need to incur additional costs to upgrade our technology infrastructure and computer systems in order to
accommodate increased demand if we anticipate that our systems cannot handle higher volumes of traffic and transactions in the future.
Implementation of new systems and technologies is complex, expensive, and time consuming, and may not be successful. If we fail to timely
and successfully implement new information systems and technologies, or make improvements or upgrades to existing information systems
and technologies, or if such systems and technologies do not operate as intended, it could have an adverse impact on our business, internal
controls (including internal controls over financial reporting), operating results, and financial condition.
In addition, it could take
an extended period of time to restore full functionality to our technology or other operating systems in the event of an unforeseen occurrence,
which could affect our ability to process customer transactions. A prolonged interruption in the availability or reduction in the availability,
speed, or functionality of our products and services could harm our business. Frequent or persistent interruptions in our services could
cause current or potential customers or partners to believe that our systems are unreliable, leading them to switch to our competitors
or to avoid or reduce the use of our products and services, and could permanently harm our reputation and brand. Moreover, to the extent
that any system failure or similar event results in damages to our customers, these customers could seek significant compensation or contractual
penalties from us for their losses, and those claims, even if unsuccessful, would likely be time-consuming and costly for us to address.
Problems with the reliability or security of our systems could harm our reputation, and damage to our reputation and the cost of remedying
these problems could negatively affect our business, operating results, and financial condition. Frequent or persistent interruptions
could also lead to regulatory scrutiny, significant fines and penalties, and mandatory and costly changes to our business practices, or
prevent or delay us from obtaining future licenses that may be required for our business. Despite our efforts to identify areas of risk,
oversee operational areas involving risks, and implement policies and procedures designed to manage these risks, there can be no assurance
that we will not suffer unexpected losses, reputational damage, or regulatory actions due to technology or other operational failures
or errors, including those of our vendors or other third parties.
Although we have developed
systems and processes designed to protect the data we manage, prevent data loss and other security breaches, and effectively respond to
known and potential risks, and we expect to continue to expend significant resources to bolster these protections, there can be no assurance
that these security measures will provide absolute security or prevent breaches or attacks. We cannot assure you that there will not be
any material breaches of our security measures due to human error, system errors or vulnerabilities, or other irregularities. Unauthorized
parties have attempted, and we expect that they will continue to attempt, to gain access to our systems and facilities, as well as those
of our customers, partners, and external service providers, through various means including hacking, social engineering, phishing, and
attempting to fraudulently induce individuals (including employees, service providers, and our customers) into disclosing usernames, passwords,
or other sensitive information, which may in turn be used to access our information technology systems and customers’ assets. Threats
can come from a variety of sources, including criminal hackers, industrial espionage, and insiders. Certain attackers may be supported
by significant financial and technological resources, making them even more sophisticated and difficult to detect. As a result, our costs
and the resources we devote to protecting against these advanced threats and their consequences may continue to increase over time.
We are incorporating
AI technologies into some of our products and processes. These technologies may present business, compliance, and reputational risks.
Integrating AI into our products
and processes offers promising opportunities but also presents risks that require careful management. Currently, we apply AI technologies,
including machine learning, in certain areas, such as enhancing in-app support efficiency, fraud detection and personalization features
such as our newsfeed, and through our Vega AI features, which provide contextual market and portfolio insights, analytics, alerts, and
other informational tools designed to enhance the customer experience. However, we plan to expand AI’s use across more facets of
our business. While these developments can strengthen our competitive edge, they also introduce a range of business, compliance, and reputational
risks that could negatively affect our operations. The rapid evolution and expected adoption of AI technology, especially in the fintech
industry, means we must constantly update our systems to stay competitive. If we cannot keep pace with these advancements, we risk losing
market share and having a negative impact on our business performance.
19
Generative AI, one of the
newer and more complex forms of AI, brings unique challenges. This technology has received significant media attention and regulatory
scrutiny due to its ability to produce content that may seem correct but can be factually inaccurate, misleading, or biased. Such unintended
results could not only dissatisfy customers but also harm our reputation and expose us to potential liability. Furthermore, the legal
and regulatory landscape for AI is developing quickly, both in the U.S. and internationally, affecting not only AI-specific regulations
but also intersecting with laws in intellectual property, privacy, consumer protection, and employment. As AI-related regulations evolve,
we may face increased compliance costs and additional non-compliance risks, which could limit our ability to use and deploy AI technologies
effectively.
Our use of AI models developed
by third parties, some of which involve open-source software and external data, presents additional challenges. If we are unable to secure
rights to use these third-party AI technologies on commercially viable terms, we may need to acquire or develop alternative solutions,
which could delay our ability to offer competitive products and raise our operational costs. Additionally, reliance on third-party data
in these models could expose us to data rights and protection risks, as we may have limited insight into how third parties train and develop
their models. This dependency could expose us to liabilities if unauthorized or infringing materials are included in their training data.
Finally, our historical success
has been largely attributed to our proprietary technology, which we believe gives us a competitive advantage. However, if similar technologies
become more accessible to current or future competitors, or if competitors use AI to develop superior solutions, we may need to invest
significantly in new technology to maintain our edge. In a market characterized by rapidly evolving technology and industry standards,
it will be essential to continue innovating, developing, and protecting our technologies to safeguard our business performance and financial
stability.
Fraudulent or illegal
activities on our platform could negatively impact our brand and reputation and cause financial loss.
We have implemented stringent
internal control policies, insider trading, anti-money laundering, and other anti-fraud rules and mechanisms on our platform. Nevertheless,
we remain subject to the risk of fraudulent or illegal activities both on our platform and associated with our users and customers, business
partners, and third parties handling user and customer information. Our resources, technologies, and fraud detection tools may be insufficient
to accurately and timely detect and prevent all fraudulent or illegal activities. Significant increases in fraudulent or illegal activities
could negatively impact our brand and reputation, reduce the trading volume on our platform, and therefore harm our operating and financial
results. The use of our platform for illegal or improper purposes could subject us to claims, individual and class action lawsuits, and
government and regulatory investigations, prosecutions, enforcement actions, inquiries, or requests that could result in liability and
reputational harm for us. Any misbehavior or violation of applicable laws and regulations by our customers could lead to regulatory inquiries
and investigations that involve us, which may affect our business operations and prospects. We might also incur higher costs than expected
in order to take additional steps to reduce risks related to fraudulent and illegal activities. High-profile fraudulent or illegal activities
could also lead to regulatory investigation and may divert our management’s attention and cause us to incur additional regulatory
and litigation expenses and costs. In addition, we could suffer serious harm to our reputation, financial condition, customer relationships,
and ability to attract new customers and even be subject to regulatory sanctions and significant legal liability, if any of our employees
engage in illegal or suspicious activities or other misconduct. Although we have not experienced any material business or reputational
harm as a result of fraudulent or illegal activities in the past, we cannot rule out the possibility that any of the foregoing may occur,
causing harm to our business or reputation in the future. If any of the foregoing were to occur, our results of operations and financial
condition could be materially and adversely affected.
We rely on a number
of external service providers for certain key market information and data, technology, processing and supporting functions, and any interruptions
in services provided by these external service providers may impair our ability to support our customers.
We rely on a number of external
service providers for certain key market information and data, technology, processing and supporting functions. Furthermore, external
content providers provide us with financial information, market news, charts, option and stock quotes, and other fundamental data that
we offer to our customers and users. Particularly, we have contracted with a number of major financial market data providers to allow
our customers to access real-time market information data which is essential for our customers to make their investment decisions and
take actions. These service providers face technical, operational, and security risks of their own. These external service providers may
be subject to financial, legal, regulatory, and labor issues, cybersecurity incidents, break-ins, computer viruses, denial-of-service
attacks, sabotage, acts of vandalism, privacy breaches, service terminations, disruptions, interruptions, and other misconduct. They are
also vulnerable to damage or interruption from human error, power loss, telecommunications failures, fires, floods, earthquakes, hurricanes,
tornadoes, pandemics, and similar events. Any significant failures by them, including improper use or disclosure of our confidential customer,
employee, or company information, could interrupt our business, cause us to incur losses and harm our reputation. Any failure of such
information providers to update or deliver the data in a timely and accurate manner as provided in our agreements with them could lead
to potential losses for our customers, which would in turn affect our business operations and reputation.
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An interruption in or the
cessation of service by any external service provider as a result of system failures, capacity constraints, financial constraints or problems,
unanticipated trading market closures or for any other reason and our inability to make alternative arrangements in a smooth and timely
manner, if at all, could have a material adverse effect on our business, results of operations and financial condition.
In addition, these service
providers may breach their agreements with us, disagree with our interpretation of contract terms or applicable laws and regulations,
refuse to continue or renew their agreements on commercially reasonable terms or at all, fail or refuse to provide services adequately,
take actions that degrade the functionality of our services, impose additional costs or requirements on us or our customers, or give preferential
treatment to competitors. Further, disputes might arise out of or in connection with the agreements regarding our or the service providers’
performance of the obligations thereunder. To the extent that any service provider disagrees with us on the quality of the products or
services, terms and conditions of the payment or other provisions of such agreements, we may face claims, disputes, litigations or other
proceedings initiated by such service provider against us. We may incur substantial expenses and require significant attention of management
in defending against these claims, regardless of their merit. We could also face damages to our reputation as a result of such claims,
and our business, financial condition, results of operations and prospects could be materially and adversely affected.
We rely on mobile
application distribution channels to make our mobile application accessible to customers.
We rely on third-party mobile
application distribution channels such as iOS App Store, various Android App Stores and other channels to distribute our mobile application
to users. We expect a substantial number of downloads of our mobile apps will continue to come from these distribution channels. As such,
the promotion, distribution and operation of our applications are subject to such distribution platforms’ standard terms and policies
for application developers, which are subject to the interpretation of, and frequent changes by, these distribution channels. If the iOS
App Store or any other major distribution channels interpret or change their standard terms and conditions in a manner that is detrimental
to us, or terminate their existing relationship with us, or change their economic relationship with us, our business, financial condition,
and results of operations may be materially and adversely affected. There can be no guarantee that third-party platforms will continue
to support our product offerings, or that customers will be able to continue to use our products.
We rely on various
third-party vendors and service providers to provide integral services related to our business and our supervision of such third parties
may be subject to regulatory scrutiny.
We rely on certain third parties
to provide services that are integral to the proper operation of our business and provision of uninterrupted services to our customers.
To the extent any of these third-party service providers suffers an interruption or failure of its systems or otherwise fails to provide
its respective services in a manner adequate to satisfy the needs of ours and our customers and satisfy applicable legal and regulatory
requirements, our business operations could be materially and adversely impacted. Further, certain regulators, including FINRA, have indicated
that, while a broker-dealer may delegate certain functions to third parties, it remains ultimately responsible for the proper execution
of such services and must maintain and implement supervisory procedures that are reasonably designed to ensure such services are being
provided in a manner that complies with applicable legal and regulatory requirements. If one of our third-party service providers suffers
an interruption or failure of its systems or otherwise fails to provide its services in accordance with applicable legal and regulatory
requirements, we may not be able to find alternative or replacement vendors or service providers in a timely manner or on favorable terms,
and we could be found to have failed to satisfy our duty of supervision. Any such finding could result in fines, censures, or other enforcement
actions from the applicable regulatory authority and could materially and adversely impact our business operations.
We may be held
liable for information or content displayed on, retrieved from or linked to our platform.
We embed social media tools
and user-generated content into our platform to create an active community of investors, companies, analysts, the media, and opinion leaders,
also known as our Webull Community. Our Webull Community complements the investing tools, education, market data, and research we provide
and drives customer education, engagement, and retention. In addition, we provide certain AI-enabled features on our platform, including
AI-generated news summaries, insights, analytics, and other informational content. Because we may not have timely or sufficient control
over the activities conducted within our Webull Community, or over the outputs generated by AI-enabled features, our platform may be misused
by others to engage in illegal or inappropriate activities, or other activities that require permits, licenses or approval from governmental
authorities. AI-generated content, including news summaries or other informational outputs, may contain inaccuracies, incomplete information,
biased content, or other errors that could misinform users. If users rely on such content and suffer losses or other harm, we could face
reputational damage, customer dissatisfaction, regulatory scrutiny, or potential claims. If any illegal, inappropriate or unauthorized
activities are found on or linked to our platform, or if AI-generated content is alleged to be misleading, infringing, or otherwise non-compliant
with applicable laws or regulations, we as the service provider may be held liable for such activities under applicable laws and regulations.
The government may impose other legal sanctions against us, including, in serious cases, suspending our Webull Community platform or revoking
the licenses needed to operate our platform. For additional risks relating to our development and use of AI technologies, see “—
Risks Relating to Attracting, Retaining and Engaging Customers — We are incorporating AI technologies into some of our products
and processes. These technologies may present business, compliance, and reputational risks.”
21
Risks Relating to Our Products and Services
Our PFOF practices
may potentially create a misalignment of interest.
Registered broker-dealers
are subject to “best execution” requirements under the applicable regulatory regime, which require them to obtain the best
reasonably available terms for customer orders. Pursuant to such requirements, broker-dealers should use reasonable diligence so that
the price to the customer is as favorable as possible under prevailing market conditions, taking into account, among other things, the
character of the market for the security, the size and type of the transaction, the number of markets checked, accessibility of quotations
and the terms and conditions of the order as communicated by the broker-dealer’s customer. Although a broker-dealer is not required
to examine every customer order individually for compliance with its duty of best execution, it must undertake regular and rigorous reviews
of the quality of its customer order executions.
PFOF practices may give rise
to potential misalignment of interests between a broker and its customers in terms of best execution, as the brokers may be incentivized
to route customer orders to the highest bidder rather than to the market makers or trading venues offering the best prices and fastest
execution. We have implemented a series of conflict management procedures and arrangements to ensure that our PFOF practices do not damage
the interests of our customers, taking into account our overall duty to act in the best interests of our customers and our duty to achieve
the best possible result when executing orders for our customers. For example, we maintain the same PFOF rates for all our wholesale market
makers, so they compete only on execution quality. In addition, the quality of our order execution may be negatively impacted by the fact
that we rely on a limited number of market makers and liquidity providers to execute orders. Reliance on a limited number of market makers
and liquidity providers may reduce competition for orders, which in turn may adversely affect order execution quality. Also, our payment
arrangements with market makers and liquidity providers are not contingent on us allocating to them minimum order flow volumes or other
similar requirements.
We have been subject to examinations
by regulatory authorities, including the SEC, regarding our best execution practices with respect to whether we had conducted a regular
and rigorous review of our execution quality to ensure we had fulfilled our duty to seek best execution. Such investigations did not result
in any material fines or penalties borne by us. However, there can be no assurance that we will not face additional investigations in
the future and we cannot guarantee that we will not face fines or penalties in the future in connection with allegations about our best
execution practices. If we fail to manage such potential misalignment of interests, our duty to provide best execution and execution quality
may be impaired and we may be subject to scrutiny and penalties by regulatory authorities, which may materially and adversely affect our
business prospects, financial position and results of operations.
We rely on a limited
number of market makers and liquidity providers to generate a large portion of our revenues. A loss of any of those market makers or liquidity
providers could negatively affect our business.
We rely on a limited number
of wholesale market makers and liquidity providers to generate a large portion of our revenues. For the years ended December 2025 and
2024, 13.2% and 18.5% of our consolidated revenue was from our top market maker and liquidity provider, respectively. See “Item
4. Information on the Company — B. Business Overview — Investing through the Webull Platform”
for additional information.
There is no assurance that
business relationships with our market makers or liquidity providers can be maintained in the future. Any interruption of the operations
of those market makers or liquidity providers, any failure on their part to accommodate our business growth, any termination or suspension
of our cooperation with those parties, any change of terms in our agreements, or the deterioration of relationship with them may materially
and adversely affect our results of operations. In the event that the key market makers and liquidity providers that we work with experience
any operational difficulties, including system breakdowns, security breaches, violation of applicable laws and regulations, labor strikes
or shortages, natural disasters, health epidemics, or other problems, such difficulties may cause significant interruption to our business
operations, as we may not be able to address such difficulties or find replacement market makers or liquidity providers in a timely or
cost-effective manner. We may have disputes with these business partners, which may result in litigation expenses, divert our management’s
attention and cause us operational difficulties. In addition, we may not be able to renew contracts with these business partners or identify
or enter into new agreements with them for additional services or on favorable terms.
Any failure of such market
makers or liquidity providers to perform effectively or efficiently may have a material negative impact on our business and results of
operations. In addition, market makers and liquidity providers may be required to maintain various approvals, licenses, and permits to
operate their business. There can be no assurance that they can maintain their requisite approvals, licenses, or permits applicable to
their business at all times or obtain such approvals, licenses, or permits at all. In the event that they are not in compliance with such
approvals, licenses, or permits requirements, they may not be able to rectify such incompliance in a timely manner or at all, which may
adversely affect the execution of the order flow we direct to them. As a result, our business, results of operations, and financial condition
may be materially and adversely affected.
22
A substantial portion
of our business currently relies on collaboration with our clearing partner.
We currently rely on Apex
Clearing Corporation, or Apex Clearing, to clear and settle all stock and securities trades in the United States and to custody customer
securities; however, following our transition to an omnibus clearing model completed in October 2025, customer funds are now deposited
with and carried directly by Webull rather than held at Apex Clearing. Apex Clearing is indirectly owned by PEAK6 Investments LLC, which
also owns 100% of the equity interests in PEAK6 Group LLC, which is a minority shareholder of Webull Corporation. Our agreements with
Apex Clearing are non-exclusive and do not prohibit it from working with our competitors or from offering competing services. Apex Clearing
currently provides execution and clearing services for other online brokerage platforms and other alternative brokers, and it could decide
to offer better terms to our competitors. In addition, our clearing partner may not perform as expected under our agreements for a variety
of reasons, including commercial decisions made at their own discretion, or they may be unable to accommodate our projected growth in
customer base, trading volume, and technological upgrades. We cannot assure you that trading will be available or processed at all times
during market hours. For example, on January 28, 2021, we had to halt purchases of stocks of GameStop, AMC, and Koss Corporation
on our platform for approximately one and a half hours because Apex Clearing halted purchases of these stocks on their end. Some
customers claimed that they suffered significant economic loss because of the halt and brought class action lawsuits against us. There
can be no assurance that similar incidents will not happen again. Also, the ability of Apex Clearing to manage and accurately safeguard
the funds and securities deposited in the Webull brokerage accounts requires a high level of internal controls. In the event our clearing
partner fails to perform as expected, our business operations and reputation may be materially and adversely affected. We may in the future
have disagreements or disputes with our clearing partner, which could negatively impact our working relationship with it and in turn adversely
impact our business operations.
Additionally, the growth and success of our margin financing business
depends on the availability of adequate funding to meet customer demand for loans on our platform. Prior to October 2025, under our fully
disclosed model, customer margin loan balances were generally funded by cash balances held across our customer base, within regulatory
allowed limits. We earned margin interest at rates we established for our customers, less a 10 basis point fee paid to Apex Clearing Corporation.
In October 2025, we completed the migration of our U.S. margin brokerage accounts to an omnibus clearing structure. Following this transition,
we manage the funding of customer margin loan balances directly, including through the use of cash balances held across our customer base,
our own capital, credit facilities and other external funding sources, and, to a lesser extent, through our clearing partner. As a result,
our dependence on our clearing partner for margin financing has decreased compared to the fully disclosed model. However, to the extent
that available funding from customer cash balances held across our customer base, our own resources, credit facilities or other funding
sources is insufficient, the funds available for our margin financing business could be limited, which may adversely affect our ability
to meet customer demand. If we are unable to maintain access to adequate funding on reasonable terms, we may not be able to continue to
offer or expand our margin financing services.
In addition to margin fees that we earned from our clearing partner
with respect to our fully disclosed brokerage accounts during a substantial portion of 2025, we received a portion of the interest income
that our clearing partner earns on the uninvested cash balances of our fully disclosed brokerage accounts and receive a portion of the
fully paid lending fees our clearing partner earns on our brokerage accounts that participate in our clearing partner’s fully paid
stock lending program. If we cannot continue to maintain our relationship with our clearing partner, our interest related income could
be negatively impacted. For the years ended December 31, 2025 and 2024, 8.6% and 16.2% of our total revenues were attributable to
payments from our clearing partner for interest related income, respectively.
Our clearing partner is subject
to oversight by the SEC, FINRA, and other regulatory authorities in the United States and other jurisdictions and must comply with
complex rules, regulations, and licensing and examination requirements. Failure to comply with those rules and regulations as well as
licensing and examination requirements may subject our clearing partner to investigations, penalties, and legal proceedings, which may
in turn materially and adversely affect its performance. In the event that our clearing partner cannot perform as expected due to its
own non-compliance with applicable laws, rules, and regulations, which is beyond our control, our business, reputation, results of operations,
and financial condition may be materially and adversely affected.
In the event we need to enter
into alternative arrangements with a different clearing partner to replace our existing arrangements, such transition may be time-consuming
and affect our users’ experience or, if our platform becomes inoperable, may result in our inability to facilitate trades through
our platform. We would also need to comply with applicable rules and regulations regarding execution and clearing services, which would
be costly and time-consuming.
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Our customers may
provide outdated, inaccurate, false, or misleading information during our “know your customer” procedures.
We collect personal information
during the account opening and registration process and screen this information against public databases for purposes of verifying customer
identity and detecting risks. Although we require our customers to submit documents and other information such as their address to prove
their identity and complete the account registration process, and to update such information from time to time, the information provided
by our customers may be outdated, inaccurate, false, or misleading. Though we believe we have appropriate ongoing monitoring procedures
in place to keep customer information up to date pursuant to applicable regulatory requirements, we cannot fully verify the accuracy,
up-to-date status and completeness of such information beyond reasonable effort. Under such circumstances, our provision of products and
services to certain ineligible customers could be in violation of applicable laws and regulations and we may not be aware of this violation
until we are warned by the relevant supervising authorities. We could still be subject to certain legal or regulatory sanctions, fines
or penalties, financial loss, or damage to our reputation resulting from such violations.
We are exposed
to credit risks associated with our margin financing services.
Our margin financing services will expose us to credit risks if our
customers fail to perform contractual obligations or if the value of collateral held to secure the obligations is inadequate. During 2025,
we provided margin financing services to a significant portion our fully disclosed margin brokerage account customers in the United States
through Apex Clearing, our clearing partner, who provided the funding for these services. In October 2025, we completed the migration
of our U.S. margin brokerage accounts from a fully disclosed basis to an omnibus basis with our clearing partner. Following the completion
of this migration, margin financing for omnibus accounts may be funded directly by us, including through other funding sources, and may
also be funded through Apex Clearing. Pursuant to our agreement with Apex Clearing, we indemnify and hold them harmless from certain losses,
liabilities, or claims resulting from any failure of the customers to make payments upon demand, which exposes us to off-balance sheet
risk of credit to the extent Apex Clearing funds such margin financing services. To the extent margin financing is funded directly by
us, we are directly exposed to the risk that our customers fail to satisfy their obligations or if the value of collateral held to secure
those obligations is inadequate.
The risks associated with
margin credit increase during periods of heightened market volatility or in cases where collateral is concentrated and market movements
occur. During such periods, customers who utilize margin loans and who have collateralized their obligations with securities may find
that the securities have a rapidly depreciating value and may not be sufficient to cover their obligations in the event of liquidation.
We are also exposed to credit risk when our customers execute transactions, such as short sales of options and equities that can expose
them to losses beyond their invested capital. We expect this kind of exposure to increase with the growth of our overall business, and,
as a result, we may incur increasing amount of provision for contingent liabilities if we fail to manage the credit risks, which may materially
and adversely affect our business, results of operations and financial condition.
We have adopted comprehensive
internal policies and procedures designed to manage the credit risks associated with our margin financing services. For details of such
policies and procedures, see “Item 4. Information on the Company — B. Business Overview — Risk
Management — Margin Financing Risks.” However, there can be no assurance that our internal policies and procedures
will timely and effectively mitigate our exposure to credit risks or prevent us from incurring loss in this regard. See “— Risks
Relating to Our Products and Services — Our compliance and risk management policies and procedures may not be fully effective
in identifying or mitigating risk exposure in all market environments or against all types of risks.” If we fail to address
these challenges and risks, our margin financing services may not develop as expected and our business prospects, results of operations,
and financial condition may be adversely affected.
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Our compliance
and risk management policies and procedures may not be fully effective in identifying or mitigating risk exposure in all market environments
or against all types of risks.
Our ability to comply with
applicable complex and evolving laws, regulations, and rules is largely dependent on the establishment and maintenance of our compliance,
audit, and reporting systems, as well as our ability to attract and retain qualified compliance and other risk management personnel. We
have devoted significant resources to developing our compliance and risk management policies and procedures and will continue to do so.
Nonetheless, our policies and procedures to identify, monitor, and manage risks may not be fully effective in mitigating our risk exposure
in all market environments or against all types of risks. Our compliance and risk management policies and procedures rely on a combination
of technical and human controls and supervision that are subject to error and failure. Some of our methods for managing risk are discretionary
by nature and are based on internally developed controls and observed historical market behavior, and also involve reliance on standard
industry practices. Many of our risk management policies are based upon observed historical market behavior or statistics based on historical
models. During periods of market volatility or due to unforeseen events, the historically derived correlations upon which these methods
are based may not be valid. As a result, these methods may not predict future exposures accurately, and these exposures could be significantly
greater than what our models indicate. This could cause us to incur losses or cause our risk management strategies to be ineffective.
Other risk management methods depend upon the evaluation of information regarding markets, customers, catastrophe occurrence, or other
matters that are publicly available or otherwise accessible to us, which may not always be accurate, complete, up-to-date, or properly
evaluated. Our risk management policies and procedures may not adequately prevent losses due to technical errors if our testing and quality
control practices are not effective in preventing failures. In addition, we may elect to adjust our risk management policies and procedures
to allow for an increase in risk tolerance, which could expose us to the risk of greater losses.
In addition, although we perform
due diligence on potential customers, it is possible that a regulator could determine we have not satisfied our legal and regulatory obligations,
including, for example, our obligation to ensure all investment products offered on our platform are suitable for customers. If a user
or customer does not meet the relevant qualification requirements under applicable laws but is still able to use our services, we may
be subject to regulatory actions and penalties and held liable for damages. Management of operational, legal, and regulatory risks requires,
among other things, policies and procedures to properly record and verify a large number of transactions and events, and these policies
and procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types of risks. To
the extent a regulatory body determines that certain investment products on our platform (such as options trading, margin trading) are
not suitable for all customers, we would have to cease offering those products to customers for whom they are not suitable, which we would
expect to adversely impact our financial position. In the event of a regulatory action as a result of such determination, we could be
subject to fines, penalties, and censures that generally would be expected to adversely impact our business.
Regulators periodically review
our compliance with our own policies and procedures and with a variety of laws and regulations. We have received in the past and may from
time to time receive additional examination reports citing violations of rules and regulations and inadequacies in our existing compliance
program, and requiring us to enhance certain policies, procedures, and practices with respect to such compliance program, including training,
reporting, and recordkeeping. If we fail to comply with these, or do not adequately remediate certain findings, regulators could take
a variety of actions that could impair our ability to conduct our business. In addition, regulators have broad enforcement powers to censure,
fine, issue cease-and-desist orders, or prohibit us from engaging in some of our business activities. In the case of non-compliance or
alleged non-compliance, we could be subject to investigations and proceedings that may result in substantial penalties or civil lawsuits,
including by customers, for damages, which can be significant. Any of these outcomes would adversely affect our reputation, brand, business,
operating results, and financial condition.
Providing market
insights and analytical tools could subject us to additional risks if such tools are construed to be investment advice or recommendations.
We provide a variety of market
insights and analytical tools on our platform. While we do not consider such market information or tools to constitute investment advice
or an investment recommendation, we cannot guarantee that such services could not be construed as constituting investment advice or recommendations
by customers or regulatory agencies. If we are deemed to be providing investment advice, we will be subject to additional risks and challenges,
including those arising from how we disclose and address possible conflicts of interest, inadequate due diligence, inadequate disclosure,
human error, and fraud. Regulations such as the SEC’s Regulation Best Interest and certain state broker-dealer regulations,
will impose heightened conduct standards and requirements if we are deemed to provide recommendations to retail investors. In addition,
various states are considering potential regulations or have already adopted certain regulations that could impose additional standards
of conduct or other obligations on us if we provide investment advice or recommendations to our customers. Furthermore, we could be subject
to investigations by regulatory agencies if our services are construed as constituting investment advice or recommendations. To the extent
that the services we provide are construed or alleged to constitute investment advice or recommendations and we fail to satisfy regulatory
requirements, fail to know our customers, improperly advise our customers, or if the risks associated with advisory services otherwise
materialize, we could be found liable for losses suffered by those customers, or could be subject to regulatory fines, penalties, and
other actions such as business limitations, any of which could harm our reputation and business.
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Risks Relating to Our Cryptocurrency Products and Services
The prices of most cryptocurrencies
are extremely volatile. Fluctuations in the price of various cryptocurrencies might cause uncertainty in the market and could negatively
impact trading volumes of cryptocurrencies, and we may not effectively identify, prevent or mitigate cryptocurrency market risks, any
of which would adversely affect the success of our business, financial condition and results of operations.
The prices of most cryptocurrencies
are based in part on market adoption and future expectations, which might or might not be realized. As a result, the prices of cryptocurrencies
are highly speculative. The prices of cryptocurrencies have been subject to dramatic fluctuations, which have impacted, and will continue
to impact, our trading volumes and operating results and might adversely impact our growth strategy and business. Several factors could
affect a cryptocurrency’s price, including, but not limited to:
● Global cryptocurrency supply, including various alternative currencies which exist, and global cryptocurrency demand, which can be influenced by the growth or decline of retail merchants’ and commercial businesses’ acceptance of cryptocurrencies as payment for goods and services, the security of online cryptocurrency exchanges and digital wallets that hold cryptocurrencies, the perception that the use and holding of digital currencies is safe and secure, and regulatory restrictions on their use.
● Changes in the software, software requirements or hardware requirements underlying a blockchain network, such as a fork. Forks have occurred and are likely to occur again in the future and could result in a sustained decline in the market price of cryptocurrencies.
● Changes in the rights, obligations, incentives, or rewards for the various participants in a blockchain network.
● The maintenance and development of the software protocol of cryptocurrencies.
● Cryptocurrency exchanges’ deposit and withdrawal policies and practices, liquidity on such exchanges and interruptions in service from or failures of such exchanges.
● Regulatory measures, if any, that affect the use and value of cryptocurrencies or regulatory or judicial assertions or determinations that certain cryptocurrencies are securities.
● Competition for and among various cryptocurrencies that exist and market preferences and expectations with respect to adoption of individual currencies.
● Actual or perceived manipulation of the markets for cryptocurrencies.
● Actual or perceived connections between cryptocurrencies (and related activities such as mining) and adverse environmental effects or illegal activities.
● Social media posts and other public communications by high-profile individuals relating to specific cryptocurrencies, or listing or other business decisions by cryptocurrency companies relating to specific cryptocurrencies.
● Expectations with respect to the rate of inflation in the economy, monetary policies of governments, trade restrictions, and currency devaluations and revaluations.
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Cryptocurrency laws, regulations, and accounting
standards are often difficult to interpret and are rapidly evolving in ways that are difficult to predict. Changes in these laws and regulations,
or our failure to comply with them, could negatively impact cryptocurrency trading on our platforms.
Domestic and foreign regulators
and governments are increasingly focused on the regulation of cryptocurrencies. In the United States, cryptocurrencies are regulated by
both federal and state authorities, depending on the context of their usage. In addition, certain states have adopted, and others may
adopt, new licensing or similar regimes applicable to digital asset business activity (including regimes that can impose requirements
relating to recordkeeping, disclosures, cybersecurity, customer protection, and anti-fraud and AML compliance). We may be required to
obtain additional licenses or approvals (or rely on appropriately licensed third parties) in one or more jurisdictions in order to maintain
or expand cryptocurrency trading on our platforms, and there can be no assurance that we will be able to do so in a timely manner or at
all. Cryptocurrency market disruptions and resulting governmental interventions are unpredictable, and might make cryptocurrencies, or
certain cryptocurrency business activities, illegal altogether. As regulation of cryptocurrencies continues to evolve, there is a substantial
risk of inconsistent regulatory guidance among federal and state agencies and among state governments which, along with potential accounting
and tax issues or other requirements relating to cryptocurrencies, could impede the growth of our cryptocurrency operations. The current
presidential administration and control of Congress in the U.S. also present considerable uncertainty as to future cryptocurrency regulations.
Additionally, regulation in response to the climate impact of cryptocurrency mining could negatively impact cryptocurrency trading on
our platforms.
The cryptocurrency accounting
rules and regulations that we must comply with are complex and subject to interpretation by the FASB, the SEC, and various bodies formed
to promulgate and interpret accounting principles. A change in these rules and regulations or interpretations could have a significant
effect on our reported financial results and financial position, and could even affect the reporting of transactions completed before
the announcement or effectiveness of a change. Further, there are a limited number of precedents for the financial accounting treatment
of cryptocurrency assets (including related issues of valuation and revenue recognition), and no official guidance has been provided by
the FASB or the SEC. Accordingly, there remains significant uncertainty as to the appropriate accounting for cryptocurrency asset transactions,
cryptocurrency assets, and related revenues. Uncertainties in or changes in regulatory or financial accounting standards could result
in the need to change our accounting methods and/or restate our financial statements, and could impair our ability to provide timely and
accurate financial information, which could adversely affect our financial statements, and result in a loss of investor confidence.
In addition, future regulatory
actions or policies, including, for instance, the assertion of jurisdiction by domestic and foreign regulators and governments over cryptocurrency
and cryptocurrency markets could limit or restrict cryptocurrency usage, custody, or trading, or the ability to convert cryptocurrencies
to fiat currencies. This includes recent legislative actions related to the CLARITY Act and GENIUS Act. If such legislation is enacted,
implemented, or interpreted in a manner applicable to our cryptocurrency operations, we could be required to make significant operational
changes and incur increased compliance costs. In addition, regulators could request or require that we cease offering certain cryptocurrency
products or services (including in particular jurisdictions or with respect to particular assets), which could result in the suspension
or termination of product offerings, financial losses, and negative publicity. The current presidential administration and control of
Congress in the U.S. also present considerable uncertainty as to such regulatory actions or policies. U.S. regulatory authorities have
recently undertaken coordinated efforts to develop a more comprehensive regulatory framework for digital assets and related market participants.
For example, the SEC has established a dedicated task force focused on digital asset markets, and the SEC and CFTC have issued public
statements regarding their respective roles and oversight of certain digital asset activities. These initiatives, including potential
rulemakings, interpretive guidance, enforcement priorities, or legislative developments, may clarify, expand, or reallocate regulatory
jurisdiction over aspects of cryptocurrency trading, custody, listing, staking, or other related services. The outcome of these efforts
remains uncertain, and new or revised regulatory frameworks could materially increase our compliance obligations, impose additional licensing
or registration requirements on us or our third-party service providers, restrict the availability of certain digital assets on our platforms,
or otherwise adversely affect our cryptocurrency operations, financial condition, and results of operations.
Our continued efforts to expand
our business internationally also subject us to additional laws, regulations, or other government or regulatory scrutiny. Various foreign
jurisdictions have adopted, and may continue to adopt laws, regulations or directives that affect a crypto-asset industry participants,
the crypto-asset markets, and their users, particularly trading platforms and service providers that fall within such jurisdictions’
regulatory scope. We will continue to monitor developments in applicable laws, regulations, and regulatory guidance in the jurisdictions
in which we operate or seek to operate. In addition, any failure to comply with any applicable laws and regulations could result in regulatory
fines, suspensions of personnel or other sanctions, including revocation of our registration or that of our subsidiaries, which could,
among other things, require changes to our business practices and scope of operations or harm our reputation, which, in turn could have
a material adverse effect on our results of operations, financial condition or business. In addition, new laws or regulations, or new
interpretations of existing laws or regulations, could have a materially adverse impact on our ability to operate as currently intended,
or require us to obtain additional or newly-created registrations or licenses in the future and cause us to incur significant expense
in order to ensure compliance.
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Any inability to maintain adequate relationships
with third-party banks, market makers, exchanges, and liquidity providers with respect to, and any inability to settle customer trades
related to, our cryptocurrency offerings would disrupt our ability to offer cryptocurrency trading to customers.
We rely on third-party banks,
market makers, exchanges and liquidity providers to provide cryptocurrency products and services to our customers. The cryptocurrency
market operates 24 hours a day, seven days a week. The cryptocurrency market does not have a centralized clearinghouse, and the transactions
in cryptocurrencies on our platforms rely on direct settlements between us and our market makers, exchanges or liquidity providers after
customer trades are executed. Accordingly, we rely on third-party banks to facilitate cash settlements with customers’ brokerage
accounts and we rely on the ability of market makers and liquidity providers to complete cryptocurrency settlements with us to obtain
cryptocurrency for customer accounts. In addition, we must maintain cash assets in our bank accounts sufficient to meet the working capital
needs of our business, which includes deploying available working capital to facilitate cash settlements with our customers, market makers,
exchanges and liquidity providers (as well as maintaining the minimum capital required by regulators). If we, third-party banks, market
makers, exchanges or liquidity providers have operational failures and cannot perform and facilitate our routine cash and cryptocurrency
settlement transactions, we will be unable to support normal trading operations on our cryptocurrency trading platforms and these disruptions
could have an adverse impact on our business, financial condition and results of operations. Similarly, if we fail to maintain cash assets
in our bank accounts sufficient to meet the working capital needs of our business and necessary to complete routine cash settlements related
to customer trading activity, such failure could impair our ability to support normal trading operations on our cryptocurrency platforms,
which could cause cryptocurrency trading volumes and transaction-based revenues to decline significantly.
We might also be harmed by
the loss of any of our banking partners and market makers. As a result of the many regulations applicable to cryptocurrencies or the risks
of cryptocurrencies generally, many financial institutions have decided, and other financial institutions might in the future decide,
not to provide bank accounts (or access to bank accounts), payments services, or other financial services to companies providing cryptocurrency
products, including us.
From time to time, we might encounter technical
issues in connection with changes and upgrades to the underlying networks of supported cryptocurrencies, which could cause revenues to
decline and expose us to potential liability for customer losses.
Any number of technical changes,
software upgrades, soft or hard forks, cybersecurity incidents or other changes to the underlying blockchain networks might occur from
time to time, causing incompatibility, technical issues, disruptions or security weaknesses to our platforms. If we are unable to identify,
troubleshoot and resolve any such issues successfully, we might no longer be able to support such cryptocurrency, our customers’
assets might be frozen or lost, the security of our hot or cold wallets might be compromised and our platforms and technical infrastructure
might be affected, all of which could cause trading volumes and transaction-based revenue to decline and expose us to potential liability
for customer losses.
Risks Relating to Cybersecurity, Data Privacy,
and Intellectual Property
Failure to protect
customer data and privacy or to prevent security breaches relating to our platform could result in economic loss, damage our reputation,
deter customers from using our products and services, and expose us to legal penalties and liability.
Our computer system, the networks
we use, and the networks and online trading platforms of the exchanges and other third parties with whom we interact are potentially vulnerable
to physical or electronic computer break-ins, viruses, and similar disruptive problems or security breaches. A party that is able to circumvent
our security measures could misappropriate proprietary information or customer information, jeopardize the confidential nature of the
information we transmit over the internet and mobile networks, or cause interruptions in our operations. We or our service providers may
be required to invest significant resources to protect against the threat of security breaches or to alleviate problems caused by any
breaches.
We collect, store, and process
certain personal and other sensitive data from our customers, which makes us a potential target to cyberattacks, computer viruses, physical
or electronic break-ins, or similar disruptions. Individuals who wish to create non-trading accounts on the Webull platform provide us
with their contact information, such as their email address or mobile phone number, or existing accounts they have opened with third parties,
such as Google and Facebook, so that they can log in to the Webull platform. If these users proceed to open trading accounts with our
registered broker-dealers, then in the course of providing services to them, we collect or receive identity, biometric, contact, financial
and profile data, and other information from these users, as well as usage information, geolocation data, activity date, and tracking
data. While we have taken steps to protect the confidential information that we have access to, our security measures could be breached.
Because the techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until
they are launched against a target, we may not be able to anticipate these techniques or implement adequate preventative measures. Any
accidental or willful security breaches or other unauthorized access to our system could cause confidential customer information to be
stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information could also expose us to liability
related to the loss of the information, time-consuming and expensive litigation, and negative publicity. We have not been subject to any
material breaches of any of our cybersecurity measures in the past. If security measures are breached and perceived to be breached, including
because of third-party action, employee error, malfeasance, or otherwise, or if design flaws in our technology infrastructure are or are
perceived to be exposed and exploited, our relationships with customers could be severely damaged, we could incur significant liability
and our business operations could be adversely affected. Any failure or perceived failure by us to prevent information security breaches
or to comply with privacy policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized
release or transfer of personally identifiable information or other customer data, could cause our customers to lose trust in us and could
expose us to legal claims.
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Laws and regulations
regarding cybersecurity and data privacy are complex and evolving.
Due to our global operations,
we are subject to laws and regulations related to the protection of personal data, privacy, and information security of various jurisdictions
where we do business and/or have customers, including but not limited to the United States, Hong Kong, Singapore, the European
Union, and the United Kingdom. As we further proceed with our global expansion and penetrate into additional markets, we may be subject
to laws and regulations of additional jurisdictions. These legislations and regulations govern our practices in relation to the collection,
use, retention, protection, disclosure, transfer, and processing of personal data. For example, legislation and regulations of several
jurisdictions to which we are subject require network operators to follow the principles of legitimacy in relation to the requirement
of lawful and fair collection of personal data, consent of data subjects, retention of personal data, use and disclosure of personal data,
security of personal data, personal data policies and practices, and rights to access and correction of personal data.
Compliance with applicable
laws and regulations in multiple jurisdictions across the globe is challenging. Many of the data-related legislations are evolving and
vary from jurisdiction to jurisdiction. Certain concepts thereunder may also be subject to clarifications and interpretations by the regulators.
Also, there are uncertainties as to the interpretation and application of laws in one jurisdiction which may be interpreted and applied
in a manner inconsistent with another jurisdiction and may conflict with our current policies and practices or require changes to the
features of our systems. Despite our efforts to comply with applicable laws and regulations relating to cybersecurity and data privacy
in connection with our ordinary course of business, we cannot assure you that our existing user information protection systems and technical
measures will be considered sufficient or compliant under applicable laws and regulations. Any actual or perceived failure on our part
to comply with applicable laws or regulations relating to cybersecurity or data privacy, or the perception or allegation that any of the
foregoing types of failures have occurred, could damage our reputation or result in investigations, fines, suspension of our app, or other
forms of sanctions or penalties by governmental authorities and private claims or litigation, any of which could materially and adversely
affect our business, financial condition, results of operations, and prospects.
We expect that cybersecurity
and data privacy compliance will receive greater attention and focus from regulators across the globe as well as attract continued or
greater public scrutiny and attention going forward, which could increase our compliance costs and subject us to heightened risks and
challenges associated with cybersecurity and data privacy.
We may also be subject to new laws, regulations, or standards or new
interpretations of existing laws, regulations, or standards regarding cybersecurity and data privacy, which may require us to incur additional
costs and restrict our business operations. For instance, several U.S. states have enacted new cybersecurity laws and regulations
to protect the personally identifiable information of their residents, including California, Nevada, Maine, Massachusetts, Virginia, Colorado,
Delaware, Connecticut, Florida, Indiana, Iowa, Montana, Oregon, Texas, Tennessee, Utah, and Virginia. Additionally, state legislative
activity and public pressure have prompted new proposals for comprehensive federal data privacy laws and regulations. Furthermore, the
U.S. Department of Justice has adopted regulations implementing Executive Order 14117, codified at 28 CFR Part 202, which became effective
on April 8, 2025, to prevent access to bulk U.S. sensitive personal data by countries of concern or covered persons as defined in the
regulations, and civil monetary penalties and criminal penalties may be imposed for violations. These and other data privacy laws, and
proposed laws, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional
investment of resources in compliance programs, impact strategies and the availability of previously useful data, and could result in
increased compliance costs and/or changes in business practices and policies. Any violations or perceived violation of these laws and
regulations by our business or the third-party service providers with which we share personally identifiable information may require us
to change our business practices or operational structure, including limiting our activities in the applicable market(s), address legal
and/or regulatory investigations and claims, and sustain monetary penalties, reputational damage and/or other harms to our business.
We may face intellectual
property infringement claims and other claims of third-party rights, which may be expensive to defend and may disrupt our business operations.
We cannot be certain that
our operations or any aspects of our business do not or will not infringe or otherwise violate patents, copyrights or other intellectual
property rights held by third parties. We may be subject to legal proceedings and claims relating to the intellectual property rights
of others. In addition, there may be other third-party intellectual property rights that are infringed by our products and services or
other aspects of our business. There could also be existing intellectual property rights of which we are not aware that we may inadvertently
infringe. The conduct of our business including our products and services may also infringe intellectual property rights of other third
parties. Our existing intellectual property rights may be revoked, invalidated, or otherwise limited if other third parties successfully
raise challenges or claims against us. Although we have not been subject to any material intellectual property infringement claim in the
past, we cannot assure you that holders of intellectual property rights purportedly relating to some aspect of our technology or business,
if any such holders exist, would not seek to enforce such intellectual property rights against us. If we are found to have violated the
intellectual property rights of others, we may be subject to liability for our infringing activities or may be prohibited from using such
certain intellectual property or technology, and we may incur licensing fees or be forced to develop alternatives of our own. In addition,
we may incur significant expenses, and may be forced to divert management’s time and other resources from our business operations
to defend against these third-party infringement claims, regardless of their merits.
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We may not be able
to prevent others from making unauthorized use of our intellectual property, and may incur increasing costs to protect us against such
infringements. If we fail to protect our intellectual property rights, our brand and business may suffer.
We rely primarily on trade
secret, contract, copyright, trademark, and patent law to protect our proprietary technology. It is possible that third parties may copy
or otherwise obtain and use our proprietary technology without authorization or otherwise infringe our rights. We cannot assure you that
any of our intellectual property rights would not be challenged, invalidated, or circumvented, or such intellectual property will be sufficient
to provide us a competitive advantage. In addition, other parties may infringe or misappropriate our intellectual property rights, which
would cause us to suffer economic or reputational damages, and we may not be able to successfully assert infringement or misappropriation
of our intellectual property rights. Because of the rapid pace of technological change, we cannot assure you that all of our proprietary
technologies and similar intellectual property will be patented in a timely or cost-effective manner, or at all. Furthermore, parts of
our business rely on technologies developed or licensed by other parties, or co-developed with other parties, and we may not be able to
obtain or continue to obtain licenses and technologies from these other parties on reasonable terms, or at all.
Some of our products
and services contain open-source software, which may pose particular risk to our proprietary software, products and services in a manner
that negatively affects our business.
We use open-source software
in some of our products and services. There is a risk that open-source software licenses could be construed in a manner that imposes unanticipated
conditions or restrictions on our ability to provide or distribute our products or services. Additionally, we may face claims from third
parties demanding release of our proprietary software as a result of our use of open-source software. These claims could result in litigation
and could require us to make our software source code freely available, purchase a costly license or cease offering the implicated products
or services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional
research and development resources, and we may not be able to complete it successfully.
Although we monitor our use
of open-source software to avoid subjecting our platform to conditions we do not intend, we have not recently conducted an extensive audit
of our use of open-source software and, as a result, we cannot assure you that our processes for controlling our use of open-source software
in our platform are, or will be, effective. If we are held to have breached or failed to fully comply with all the terms and conditions
of an open-source software license, we could face litigation, infringement, or other liability, or be required to seek costly licenses
from third parties to continue providing our offerings on terms that are not economically feasible, to re-engineer our platform, to discontinue
or delay the provision of our offerings if re-engineering could not be accomplished on a timely basis or to make generally available,
in source code form, our proprietary code, any of which could adversely affect our business, operating results, and financial condition.
Moreover, the terms of many open-source licenses have not been interpreted by U.S. or foreign courts. As a result, there is a risk
that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to provide or
distribute our platform. From time to time, there have been claims based on improper use of open-source software against companies that
incorporate open-source software into their solutions. As a result, we could be subject to lawsuits by parties claiming improper use of
what we believe to be open-source software.
Risks Relating to Finance, Accounting and Tax
Matters
We expect our
operating expenses to increase significantly in the foreseeable future and may not be able to achieve profitability or maintain positive
cash flow from operations on a consistent basis.
We anticipate that our operating
expenses will increase substantially in the foreseeable future as we continue to hire additional employees, expand our marketing and branding
efforts, develop additional products and services, and expand our geographic footprint. Moreover, as a publicly traded company, we incur,
and expect to continue to incur significant legal, accounting, and other expenses, including substantially higher costs to obtain and
maintain director and officer liability insurance, in connection with our ongoing public company reporting, governance and compliance
obligations. This may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently
to offset these higher expenses. Our revenue growth may slow down or our revenue may decline for a number of other reasons, including
reduced demand for our products and services, increased competition, or any failure to capitalize on growth opportunities. If we are unable
to effectively manage these risks and difficulties as we encounter them, our business, operating results, and financial condition may
suffer.
30
Fluctuations in
exchange rates could have a material adverse effect on our business and results of operations.
Our revenues and expenses
are currently denominated predominantly in U.S. dollars. However, revenues and expenses incurred from our non-U.S. operations — both
of which will likely increase as a result of our plans to expand our business operations to new markets — are or will
typically be denominated in the local currency of the applicable country. The exchange rates of certain foreign currency against the U.S. dollar
may fluctuate significantly and unpredictably. The value of foreign currencies against the U.S. dollar may be affected by changes
in economic conditions and by foreign exchange policies, among other things. It is difficult to predict how market forces or government
policy may impact the exchange rates in the future.
To date, we have not entered
into any material hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to make
greater use of hedging instruments in the future, the availability and effectiveness of these hedges may be limited and we may not be
able to adequately hedge our exposure or at all. As a result, fluctuations in exchange rates may have a material adverse effect on your
investment.
In addition, as we plan to
expand our operations to additional regions, including additional countries in Asia Pacific, Africa, Europe, and Latin America, we will
be exposed to the effects of fluctuations in the exchange rates of additional currencies. The value of the currencies used in the regions
where we plan to expand may fluctuate and are affected by, among other things, changes in economic conditions. We cannot assure you that
movements in foreign currency exchange rates will not have a material adverse effect on our results of operations in future periods.
We have granted
and may continue to grant share incentive awards in the future, which may result in increased share-based compensation expenses.
In
order to promote the success and enhance the value of our company, our shareholders have approved and authorized to reserve a certain
number of our Class A ordinary shares as an award pool for the purpose of share incentive award grants, and we have granted share
incentive awards under such award pool from time to time. For further detailed information, please refer to “Item 6. Directors,
Senior Management and Employees — B. Compensation — Global Plans.” For the years ended December 31,
2025 and 2024, we recorded $43.9 million and $32.6 million,
respectively, in share-based compensation. We believe the granting of share-based compensation is of significant importance to our ability
to attract and retain key personnel and employees, and we will continue to grant share-based compensation to employees in the future.
As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations.
If we are not able
to control our labor costs in an effective way, our business, results of operations, and financial condition may be adversely affected.
Inflationary pressures have
remained elevated for a prolonged period in many of our key markets, and geopolitical conflicts and related disruptions to global energy
supplies, shipping routes and supply chains may exacerbate inflation and increase labor and other operating costs. In addition, we are
required by local laws and regulations to pay various statutory employee benefits, including Social Security and Medicare in the United States
and employer-sponsored health insurance plans for the benefit of our employees. We expect that our labor costs, including wages and employee
benefits, will continue to grow as our business grows at scale. Significant additional increase in government-imposed wage and employee
benefits in the jurisdictions where we have operations may affect our profitability and results of operations, unless we are able to pass
these costs onto our users by increasing prices of our products and services.
31
Failure to comply
with local labor laws and make adequate contributions to various employee benefits plans as required by local regulations may subject
us to penalties.
As we have corporate offices
in multiple jurisdictions, we are required to register with governmental authorities and participate in various government-sponsored employee
benefit plans, including certain social insurance, provident funds and other welfare-oriented payment obligations, and contribute to the
plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of employees up to a maximum amount specified
by the local government from time to time at locations where our employees are based. Failure in making contributions to various employee
benefit plans in strict compliance with applicable local labor-related laws may subject us to late payment penalties, and we could be
required to make up the contributions for these plans as well as to pay late fees and fines. Further, failure to timely obtain work permits
for our foreign employees may subject us to penalties and we may be unable to hire such foreign employees. If any of the foregoing were
to occur, our financial condition and results of operations may be adversely affected.
Changes to U.S. and
foreign tax laws, as well as the application of such laws, could adversely impact our financial position and operating results.
We are subject to complex
tax laws and regulations in the United States and a variety of foreign jurisdictions. All of these jurisdictions have in the past
and may in the future make changes to their corporate income tax rates and other income tax laws which could increase our future income
tax provision. For example, our future income tax obligations could be adversely affected by earnings that are lower than anticipated
in jurisdictions where we have lower statutory rates and by earnings that are higher than anticipated in jurisdictions where we have higher
statutory rates, by changes in the valuation of our deferred tax assets and liabilities, by changes in the amount of unrecognized tax
benefits, or by changes in tax laws, regulations, accounting principles, or interpretations thereof, including changes with possible retroactive
application or effect.
Our determination of our tax
liability is subject to review and may be challenged by applicable tax authorities. Any adverse outcome of such challenge could harm our
operating results and financial condition. The determination of our worldwide provision for income taxes and other tax liabilities requires
significant judgment and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination
is complex and uncertain. Moreover, as a multinational business, we have subsidiaries that engage in many intercompany transactions in
a variety of tax jurisdictions where the ultimate tax determination is complex and uncertain. Our existing corporate structure and intercompany
arrangements have been implemented in a manner we believe is in compliance with current prevailing tax laws. Furthermore, as we operate
in multiple taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by
tax authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views with
respect to, among other things, the characterization and source of income or other tax items, the manner in which the arm’s-length
standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property. The taxing authorities of
the jurisdictions in which we operate may challenge our tax treatment of certain items or the methodologies we use for valuing developed
technology or intercompany arrangements, which could impact our worldwide effective tax rate and harm our financial position and operating
results.
We are also subject to non-income
taxes, such as payroll, sales, use, value-added, net worth, property, and goods and services taxes in the United States and various
foreign jurisdictions. Specifically, we may be subject to “digital service taxes” or new allocations of tax as a result of
increasing efforts by certain jurisdictions to tax cross border activities that may not have been subject to tax under existing international
tax principles. Technology companies such as ours may be subject to such taxes. Tax authorities may disagree with certain positions we
have taken. As a result, we may have exposure to additional tax liabilities that could have an adverse effect on our operating results
and financial condition.
In addition, our future effective
tax rates could be favorably or unfavorably affected by changes in tax rates, changes in the valuation of our deferred tax assets or liabilities,
the effectiveness of our tax planning strategies, or changes in tax laws or their interpretation. Such changes could have an adverse impact
on our financial condition.
As a result of these and other
factors, the ultimate amount of tax obligations owed may differ from the amounts recorded in our financial statements and any such difference
may harm our operating results in future periods in which we change our estimates of our tax obligations or in which the ultimate tax
outcome is determined.
32
Key business metrics
and other estimates are subject to inherent challenges in measurement, and our business, operating results, and financial conditions could
be adversely affected by real or perceived inaccuracies in those metrics.
We regularly review key business
metrics, including the number of our registered users, funded accounts, our trading volume, and other measures to evaluate growth trends,
measure our performance, and make strategic decisions. These key metrics are calculated using internal company data and have not been
validated by an independent third party. While these numbers are based on what we currently believe to be reasonable estimates for the
applicable period of measurement, there are inherent challenges in such measurements. If we fail to maintain an effective analytics platform,
calculations of our key metrics may be inaccurate, and we may not be able to identify those inaccuracies. Our key business metrics may
also be impacted by compliance or fraud-related bans, technical incidents, or false or spam accounts in existence on our platform. We
regularly deactivate fraudulent and spam accounts that violate our terms of service and exclude these users from the calculation of our
key business metrics; however, we may not succeed in identifying and removing all such accounts from our platform. If our metrics provide
us with incorrect or incomplete information about users and their behavior, we may make inaccurate conclusions about our business.
If we fail to maintain
effective internal control over financial reporting, we may be unable to accurately report our financial results or comply with applicable
reporting requirements.
Our failure to discover and
address any other deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable
financial reporting requirements and related regulatory filings on a timely basis. Moreover, ineffective internal control over financial
reporting could significantly hinder our ability to prevent fraud.
Section 404 of the Sarbanes-Oxley
Act of 2002 requires that we include a report of management on our internal control over financial reporting starting with this
Annual Report on Form 20-F (see “Item 15. Controls and Procedures”). In addition, once we cease to be an
“emerging growth company” as such term is defined in the JOBS Act, our independent registered public accounting firm must
attest to and report on the effectiveness of our internal control over financial reporting. We expect to cease to qualify as an emerging
growth company beginning January 1, 2027, which will subject us to additional compliance and reporting requirements and increased costs.
In anticipation of this transition, we have been enhancing our internal control environment, documentation processes, and testing procedures
to support compliance with the auditor attestation requirements of Section 404(b); however, there can be no assurance that these efforts
will be sufficient to avoid the identification of control deficiencies or material weaknesses in the future. 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 adverse 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, 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 complete our evaluation testing and any required remediation in a timely manner.
During the course of documenting
and testing our internal control procedures, in order to satisfy the requirements of Section 404, 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. 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, harm our results of operations, and lead to a decline in the trading price of our shares.
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.
33
Risks Relating to Ownership of Securities of
Webull
Webull Warrants are currently exercisable
for Webull Class A Ordinary Shares, which increases the number of Webull shares eligible for future resale in the public market and may
result in dilution to Webull shareholders.
Webull Warrants to purchase an aggregate of up to 9,675,384 Webull
Class A Ordinary Shares are currently exercisable in accordance with the terms of the Warrant Assignment Agreement. The exercise price
of the Webull Warrants is US$11.50 per share (subject to adjustment pursuant to the Warrant Assignment Agreement). The Webull Warrants
became exercisable 30 days after the completion of the Business Combination. Unless a registration statement under the Securities Act
with respect to the Webull Class A Ordinary Shares underlying the respective warrants is then effective and a prospectus relating thereto
is current, or a valid exemption from registration is available, Webull will not be obligated to deliver any Webull Class A Ordinary Shares
pursuant to the exercise of Webull Warrants and Webull will have no obligation to settle any warrant exercise. To the extent Webull Warrants
are exercised, additional Webull Class A Ordinary Shares will be issued, which will result in dilution to the existing holders of Webull
Class A Ordinary Shares and increase the number of Webull shares eligible for resale in the public market. Sales of substantial numbers
of such shares in the public market or the fact that such Webull Warrants may be exercised could adversely affect the market price of
Webull Class A Ordinary Shares. However, there is no guarantee that the Webull Warrants will ever be “in the money” while
they are exercisable and/or prior to their expiration, and as such, the Webull Warrants may expire worthless. For more information on
our warrants, including conditions to their exercisability, please see “Description of Securities Other Than Equity Securities
— B. Warrants and Rights.”
The Warrant Assignment Agreement
provides that the terms of the Webull Warrants may be amended without the consent of any holder for the purpose of curing any ambiguity,
or curing, correcting or supplementing any defective provision contained therein, or adding or changing any other provisions with respect
to matters or questions arising under the Warrant Assignment Agreement as the parties may deem necessary or desirable and that the parties
deem shall not adversely affect the rights of the holders of warrants; provided that the approval by the holders of at least 50% of the
outstanding Webull Warrants is required to make any change that adversely affects the rights of the registered holders of Webull Warrants.
Although Webull’s ability to amend the terms of the Webull Warrants with the consent of at least 50% of the then outstanding Webull
Warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of such warrants,
shorten the exercise period or decrease the number of Webull Class A Ordinary Shares purchasable upon exercise of a Webull Warrant.
We
may redeem your unexpired Webull Public Warrants prior to their exercise at a time that is disadvantageous to you, thereby making such
warrants worthless.
Not less than all of the outstanding
Webull Public Warrants may be redeemed, at the option of Webull, at any time while they are exercisable and prior to their expiration,
at the office of the Warrant Agent, upon notice to the registered holders of the Webull Public Warrants, at a redemption price of $0.01
per Webull Public Warrant; provided that (a) the last reported sales price of the Webull Class A Ordinary Shares for
any twenty (20) Trading Days (as defined in the Warrant Assignment Agreement) within the thirty (30) Trading-Day period ending on the
third Trading Day prior to the date on which notice of the redemption is given equals or exceeds $18.00 per Webull Class A Ordinary Share
(subject to adjustment), and (b) there is an effective registration statement covering the issuance of the Webull Class A Ordinary Shares
issuable upon exercise of the Webull Public Warrants, and a current prospectus relating thereto, available throughout the period of not
less than thirty (30) days prior to the redemption date or Webull has elected to require the exercise of the Webull Public Warrants on
a “cashless basis” pursuant to the terms of the Warrant Assignment Agreement.
34
In the event that Webull elects
to redeem the Webull Public Warrants, Webull shall fix a date for redemption (the “Webull Public Warrant Redemption Date”).
Notice of redemption shall be mailed by first class mail, postage prepaid, by Webull not less than thirty (30) days prior to the Webull
Public Warrant Redemption Date to the registered holders of the Webull Public Warrants to be redeemed at their last addresses as they
shall appear on the registration books. Any notice mailed in the manner provided in the Warrant Assignment Agreement shall be conclusively
presumed to have been duly given whether or not the registered holder received such notice.
The Webull Public Warrants
may be exercised for cash (or on a “cashless basis” pursuant to the terms of the Warrant Assignment Agreement, if applicable)
at any time after the notice of redemption shall have been given by Webull and prior to the Webull Public Warrant Redemption Date. In
the event that Webull determines to redeem the Webull Public Warrants or require all holders of Webull Public Warrants to exercise their
Webull Public Warrants on a “cashless basis” pursuant to the terms of the Warrant Assignment Agreement, the notice of redemption
shall contain instructions on how to calculate the number of Webull Class A Ordinary Shares to be received upon exercise of the Webull
Public Warrants. If we elect to require the Warrants to be exercised on a cashless basis and such
cashless exercise is exempt from registration under the Securities Act, we may exercise our redemption right even if we are
unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Redemption of the outstanding
warrants could force you to (i) exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for
you to do so, (ii) sell your warrants at the then-current market price when you might otherwise wish to hold your warrants and not lose
any potential embedded value from a subsequent increase in the value of the Webull Class A Ordinary Shares had such warrants remained
outstanding, or (iii) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely
to be substantially less than the market value of your warrants. Webull is not contractually obligated to notify investors when the Webull
Warrants become eligible for redemption and does not intend to so notify investors upon eligibility of the Webull Warrants for redemption,
unless and until it elects to redeem such warrants pursuant to the terms of the Warrant Assignment Agreement. For more information, also
see “Item 12. Description of Securities Other Than Equity Securities — B. Warrants and Rights.”
Holders of Webull
Warrants will only be able to exercise their Webull Warrants on a “cashless basis” under certain circumstances, and if they
do so, they will receive fewer Webull Class A Ordinary Shares from such exercise than if such warrants were exercised for cash.
The Webull Public Warrants
generally may not be exercised on a “cashless basis”, except as described below.
The Warrant Assignment Agreement
provides that in the following circumstances holders of Webull Public Warrants who seek to exercise their warrants will not be permitted
to do for cash and will, instead, be required to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act: (i)
if the Webull Class A Ordinary Shares issuable upon exercise of the Webull Public Warrants are not registered under the Securities Act
in accordance with the terms of the Warrant Assignment Agreement; and (ii) if we have so elected and the Webull Class A Ordinary Shares
are at the time of any exercise of a Webull Public Warrant not listed on a national securities exchange such that they satisfy the definition
of “covered securities” under Section 18(b)(1) of the Securities Act. If you exercise your Webull Public Warrants on a cashless
basis under the circumstances described in clauses (i) and (ii) in the preceding sentence, you would pay the warrant exercise price by
surrendering the Warrants for that number of Webull Class A Ordinary Shares equal to the quotient obtained by dividing (x) the product
of the number of Class A Ordinary Shares underlying the Webull Public Warrants, multiplied by the difference between the exercise price
and the Fair Market Value by (y) the Fair Market Value. “Fair Market Value” shall mean the average last reported sale price
of the Class A Ordinary Shares for the ten (10) trading day period ending on the trading day prior to the date that notice of exercise
is received by the warrant agent from the holder of such Webull Public Warrants or its securities broker or intermediary. As a result,
a holder of Webull Public Warrants would receive fewer Webull Class A Ordinary Shares upon such exercise than if such Webull Public Warrants
were exercised for cash, thereby reducing the potential economic value of such Webull Public Warrants.
If securities or
industry analysts do not publish research, publish inaccurate or unfavorable research or cease publishing research about Webull, the price
of Webull Securities and trading volume could decline significantly.
The trading market for Webull’s
securities will depend, in part, on the research and reports that securities or industry analysts publish about Webull or its business.
We may be unable to sustain coverage by well-regarded securities and industry analysts. If either none or only a limited number of securities
or industry analysts maintain coverage of Webull, or if these securities or industry analysts are not widely respected within the general
investment community, the demand for Webull’s securities could decrease, which might cause the price of Webull Securities and trading
volume to decline significantly. In the event that Webull obtains securities or industry analyst coverage, if one or more of the analysts
who cover Webull downgrade their assessment of Webull or publish inaccurate or unfavorable research about our business, the market price
and liquidity for Webull’s securities could be negatively impacted.
35
Future resales
of Webull Class A Ordinary Shares issued to Webull shareholders and other significant shareholders may cause the market price of the Webull
Class A Ordinary Shares to drop significantly, even if Webull’s business is doing well.
Immediately following the
consummation of the Business Combination, 455,599,003 Webull Ordinary Shares (including 82,988,016 Webull Class B Ordinary Shares) were
held by the Existing Webull Shareholders and were subject to the transfer restrictions in the Webull Articles and 3,892,884 Webull Ordinary
Shares were held by the Initial SKGR Shareholders and certain non-redemption agreement investors and were subject to the transfer restrictions
in the Auxo Support Agreement. However, all transfer restrictions have expired. In addition, the Resale Registration Statement covers
all or a portion of the Webull Securities held by such shareholders has been declared effective by the SEC. As a result, as of the date
of this Report, all Webull Ordinary Shares previously subject to transfer restrictions have become eligible for resale.
As long as the Resale Registration
Statement remains effective or upon satisfaction of the requirements of Rule 144 under the Securities Act, certain significant securityholders
of Webull, including the Existing Webull Shareholders, our founder Mr. Anquan Wang, the Initial SKGR Shareholders and certain investors
party to Non-Redemption Agreement and Additional Non-Redemption Agreements, may sell large amounts of Webull Securities (including Webull
Class A Ordinary Shares) in the open market or in privately negotiated transactions, which could have the effect of increasing the volatility
in the price of our securities or putting significant downward pressure on the price of the Webull Securities. We do not know when or
in what amount such sales may occur. The registration of securities for resale pursuant to the Resale Registration Statement does not
mean that such securities necessarily will be offered or sold. Any Webull Ordinary Shares issued upon consummation of the Webull Pay Transaction
were not subject to any contractual transfer restrictions.
For more information on the
resale registration statement, the Registration Rights Agreement and registration rights, also see “—
The grant and future exercise of registration rights may adversely affect the market price of Webull Securities.”
For more information on the potential exercise of our warrants, please see “—Webull
Warrants are currently exercisable for Webull Class A Ordinary Shares, which increases the number of Webull shares eligible for future
resale in the public market and may result in dilution to Webull shareholders.”
There can be no
assurance that Webull will be able to comply with the continued listing standards of Nasdaq.
While trading on Nasdaq has
begun, there can be no assurance that Webull’s securities will continue to be listed on Nasdaq or that a viable and active trading
market will develop. If Nasdaq delists Webull Class A Ordinary Shares or Webull Warrants from trading on its exchange due to failure to
continue to meet the listing standards, Webull and its shareholders could face significant material adverse consequences including:
● a lack of liquidity available to holders of Webull Class A Ordinary Shares and Webull Warrants;
● an active trading market of Webull Class A Ordinary Shares and Webull Warrants may not be developed immediately upon the consummation of the Business Combination;
● a limited availability of market quotations for Webull’s securities;
● a limited amount of analyst coverage; and
● a decreased ability to issue additional securities or obtain additional financing in the future.
36
A market for Webull’s
securities may not develop, or be sustained, which would adversely affect the liquidity and price of Webull’s securities.
An active trading market for
Webull’s securities may never develop or, if developed, may not be sustained. You may be unable to sell your Webull’s securities
unless a market can be established and sustained.
The trading prices of Webull’s
securities may be volatile and may fluctuate due to a variety of factors, some of which are beyond our control, including, but not limited
to:
● actual or anticipated fluctuations in our financial condition or results of operations;
● variance in our financial performance from expectations of securities analysts;
● changes in our projected operating and financial results;
● changes in laws and regulations affecting our business, our customers, suppliers, or our industry;
● announcements of new services and expansions by us or our competitors;
● our ability to continue to innovate and bring products to market in a timely manner;
● our involvement in actual or potential litigation or regulatory investigations;
● negative publicity about us, our products or our industry;
● changes in our senior management or key personnel;
● announcements of new investments, acquisitions, strategic partnerships, or joint ventures by us or our competitors;
● sales of our securities by us, our shareholders or our warrant holders;
● changes in international trade policies and trade disputes that could result in tariffs, taxes or other protectionist measures adversely affecting our business;
● general economic, regulatory, industry, and market conditions;
● natural disasters or major catastrophic events; and
● other events or factors, including those resulting from war, incidents of terrorism, natural disasters, pandemics or responses to these events.
These and other factors may
cause the market price and demand for Webull’s securities to fluctuate substantially, which may limit or prevent investors from
readily selling their shares and may otherwise negatively affect the liquidity of Webull’s securities. Fluctuations may be even
more pronounced in the trading market for Webull’s securities shortly following the Business Combination. Following periods of such
volatility in the market price of a company’s securities, securities class action litigation has often been brought against that
company. Because of the potential volatility of Webull’s securities, Webull may become the target of securities litigation in the
future. Securities litigation could result in substantial costs and divert management’s attention and resources from its business.
37
The Existing Warrant
Agreement designates the courts of the State of New York or the United States District Court for the Southern District of New York
as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of the warrants, which could
limit the ability of warrant holders to obtain a favorable judicial forum for disputes with Webull in connection with such warrants.
SKGR, Webull and Continental
Stock Transfer & Trust Company have entered into the Warrant Assignment Agreement, pursuant to which SKGR assigned to Webull,
effective as of Closing, all of its rights, title, interests, and liabilities and obligations in and under the Warrant Agreement, dated
June 23, 2022, by and between SKGR and Continental Stock Transfer & Trust Company (the “Existing Warrant Agreement”).
In connection with such assignment, each SKGR Public Warrant converted into a Webull Public Warrant at such time, and the Existing Warrant
Agreement was amended and restated in its entirety by the Warrant Assignment.
The Warrant Assignment Agreement
provides that, subject to applicable law, (i) any action, proceeding or claim against Webull arising out of or relating in any way
to the Warrant Assignment Agreement, will be brought and enforced in the courts of the State of New York or the United States
District Court for the Southern District of New York, and (ii) Webull irrevocably submits to such jurisdiction, which jurisdiction
shall be the exclusive forum for any such action, proceeding or claim. Webull has waived any objection to such exclusive jurisdiction
and that such courts represent an inconvenient forum. Notwithstanding the foregoing, these provisions of the Warrant Assignment Agreement
do not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal
district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring
any interest in any of Webull Public Warrants under the Warrant Assignment Agreement shall be deemed to have notice of and to have consented
to the forum provisions of the Warrant Assignment Agreement. If any action, the subject matter of which is within the scope the forum
provisions of the Warrant Assignment Agreement, is filed in a court other than a court of the State of New York or the United States
District Court for the Southern District of New York (a “foreign action”) in the name of any holder of the warrants,
such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State
of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”),
and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s
counsel in the foreign action as agent for such warrant holder.
Alternatively, if a court
were to find this provision of the Warrant Assignment Agreement inapplicable or unenforceable with respect to one or more of the specified
types of actions or proceedings, Webull may incur additional costs associated with resolving such matters in other jurisdictions, which
could materially and adversely affect its business, financial condition and results of operations and result in a diversion of the time
and resources of Webull’s management and board of directors.
Our issuance of
additional share capital in connection with financings, acquisitions, investments, our equity incentive plan or otherwise will dilute
all other shareholders.
We expect to issue additional
share capital in the future that will result in dilution to all other shareholders. We expect to grant equity awards to employees under
the Global Plans (including options, restricted shares, restricted share units or other types of awards approved pursuant to the Global
Plans) or new incentive plans that we may adopt in the future. For additional information on the Global Plans, see “Item 6. Directors,
Senior Management and Employees — B. Compensation — Global Plans.” We may also raise capital
through equity financings or convertible and structured security financings in the future. As part of our business strategy, we may acquire
or make investments in companies, solutions or technologies and issue equity securities to pay for any such acquisition or investment.
Any such issuances of additional share capital may cause shareholders to experience significant dilution of their ownership interests
and the per share value of Webull Class A Ordinary Shares to decline. For more information, see “— Risks Relating
to Our Business — We may not be able to obtain additional capital when desired, on favorable terms or at all.” Also see
more information on other potential sources of dilution related to the potential exercise of the Webull Warrants under “—Webull
Warrants are currently exercisable for Webull Class A Ordinary Shares, which increases the number of Webull shares eligible for future
resale in the public market and may result in dilution to Webull shareholders.”
38
The grant and future
exercise of registration rights may adversely affect the market price of Webull Securities.
Pursuant to the Registration
Rights Agreement entered into in connection with the Business Combination, certain holders of Webull securities that entered into such
agreement can each demand that Webull register their registrable securities and assist in underwritten takedown of such securities under
certain circumstances and will each also have piggyback registration rights for these securities in connection with certain registrations
of securities that Webull undertakes. In addition, Webull expects to use commercially reasonable efforts to file a resale shelf registration
statement on Form F-3 once eligible to do so and if any of the registrable securities proposed to be sold by a holder of registration
rights may at that point not be sold unconditionally without registration in any ninety (90) day period pursuant to Rule 144 promulgated
under the Securities Act.
Immediately following the consummation of the Business Combination
(as defined herein), 455,599,003 Webull Ordinary Shares (including 82,988,016 Webull Class B Ordinary Shares) were held by the Existing
Webull Shareholders and were subject to the transfer restrictions in the Webull Articles and 3,892,884 Webull Ordinary Shares were held
by the Initial SKGR Shareholders and certain non-redemption agreement investors and were subject to the transfer restrictions in the Auxo
Support Agreement. The transfer restrictions previously applicable to the Webull Class A Ordinary Shares held by the Initial SKGR Shareholders,
certain non-redemption agreement investors, and the Existing Webull Shareholders under the Auxo Support Agreement and the Webull Articles
have since expired. In addition, the Resale Registration Statement covers the resale of all or a portion of the Webull Securities held
by such shareholders. As a result, as of the date of this Annual Report, all Webull Ordinary Shares previously subject to transfer restrictions
are eligible for resale, subject to applicable securities law limitations, which may adversely affect the market price of our securities.
The grant of future registration rights, for instance in connection with the sale of new securities, or the registration for resale of
the balance of the securities held by the Existing Webull Shareholder (the Resale Registration statement only registers a portion of the
securities held by the Existing Webull Shareholders), may adversely affect the market price of Webull Securities.
The requirements
of being a public company may strain our resources, divert our management’s attention and affect our ability to attract and retain
qualified board members.
We are subject to the reporting
requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, the Dodd-Frank Act, Nasdaq listing requirements
and other applicable securities rules and regulations. As such, we will incur additional legal, accounting and other expenses. These expenses
may increase even more if we no longer qualify as an “emerging growth company,” as defined in Section 2(a) of the
Securities Act. The Exchange Act requires, among other things, that we file annual and reports with respect to our business and operating
results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal
control over financial reporting. We may need to hire more employees or engage outside consultants to comply with these requirements,
which will increase our costs and expenses. We expect to cease to qualify as an emerging growth company beginning January 1, 2027, which
will subject us to additional compliance and reporting requirements and increased costs. In anticipation of this transition, we have been
enhancing our internal control environment, documentation processes, and testing procedures to support compliance with the auditor attestation
requirements of Section 404(b).
Changing laws, regulations
and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and
financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying
interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time
as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters
and higher costs necessitated by ongoing revisions to disclosure and governance practices. We expect these laws and regulations to increase
our legal and financial compliance costs and to render some activities more time-consuming and costly, although we are currently unable
to estimate these costs with any degree of certainty.
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Many members of our management
team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly
complex laws pertaining to public companies. Our management team may not successfully or efficiently manage the transition to being a
public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and regulations
and the continuous scrutiny of securities analysts and investors. The need to establish the corporate infrastructure demanded of a public
company may divert the management’s attention from implementing its growth strategy, which could prevent us from improving our business,
financial condition and results of operations. Furthermore, we expect these rules and regulations to make it more difficult and more expensive
for us to obtain director and officer liability insurance, and consequently we may be required to incur substantial costs to maintain
the same or similar coverage. These additional obligations could have a material adverse effect on our business, financial condition,
results of operations and prospects. These factors could also make it more difficult for us to attract and retain qualified members of
its board of directors, particularly to serve on our audit committee, and qualified executive officers.
As a result of disclosure
of information our filings with the SEC, including this Report, 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 adversely affected, 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 cause an adverse effect on our business, financial
condition, results of operations, prospects and reputation.
We currently qualify as an “emerging
growth company,” but we expect to cease to qualify beginning January 1, 2027, which will increase our compliance and reporting obligations
and costs.
We currently qualify an “emerging
growth company” as defined in the JOBS Act. We expect to cease to qualify as an “emerging growth company” beginning
January 1, 2027. Until such time, we are permitted to, and intend to, take advantage of exemptions from various reporting requirements
that are applicable to most other public companies, including, but not limited to, an exemption from the provisions of Section 404(b) of
the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness
of our internal control over financial reporting and reduced disclosure obligations regarding executive compensation. In anticipation
of this transition, we have been enhancing our internal control environment, documentation processes, and testing procedures to support
compliance with the auditor attestation requirements of Section 404(b).
In addition, Section 102(b)(1) of
the JOBS Act exempts “emerging growth companies” from being required to comply with new or revised financial accounting standards
until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a
class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.
The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply
to non-emerging growth companies, but any such election to opt out is irrevocable. We have elected not to opt out of such extended
transition period, which means that when a standard is issued or revised and it has different application dates for public or private
companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised
standard. This may make comparison of our financial statements with certain other public companies difficult or impossible because of
the potential differences in accounting standards used.
Furthermore, even after we
cease to qualify as an “emerging growth company,” as long as we continue to qualify as a foreign private issuer under the
Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public
companies.
As a result, our shareholders
may not have access to certain information they deem important or at the same time if we were a non-foreign private issuer. We cannot
predict if investors will find Webull Class A Ordinary Shares less attractive because we rely on these exemptions. If some investors
find Webull Class A Ordinary Shares less attractive as a result, there may be a less active trading market and share price for Webull
Class A Ordinary Shares may be more volatile.
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We qualify as a
foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions
applicable to United States domestic public companies.
Because we qualify as a foreign
private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States
that are applicable to U.S. domestic issuers, including: (i) the rules under the Exchange Act requiring the filing of quarterly
reports on Form 10-Q or current reports on Form 8-K with the SEC; (ii) the sections of the Exchange Act regulating
the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; (iii) the
sections of the Exchange Act relating to liability for insiders who profit from trades made in a short period of time; and (iv) the
selective disclosure rules by issuers of material nonpublic information under Regulation FD.
We are required to file an
Annual Report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results
on a quarterly basis through press releases, distributed pursuant to the rules and regulations of Nasdaq. Press releases relating to financial
results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file
with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic
issuers. Accordingly, if you continue to hold our securities, you may receive less or different information about us than that you would
receive about a U.S. domestic public company.
We could lose our status as
a foreign private issuer under current SEC rules and regulations if more than 50% of our outstanding voting securities become directly
or indirectly held of record by U.S. holders and any one of the following is true: (i) the majority of our directors or executive
officers are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our
business is administered principally in the United States. If we lose our status as a foreign private issuer in the future, we will
no longer be exempt from the rules described above and, among other things, will be required to file periodic reports and annual and quarterly
financial statements as if we were a company incorporated in the United States. If this were to happen, we would likely incur substantial
costs in fulfilling these additional regulatory requirements, and members of our management would likely have to divert time and resources
from other responsibilities to ensuring these additional regulatory requirements are fulfilled.
As a company incorporated
in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ
significantly from Nasdaq corporate governance listing standards applicable to domestic U.S. companies; these practices may afford
less protection to shareholders than they would enjoy if we complied fully with Nasdaq corporate governance listing standards.
We are an exempted company
incorporated in the Cayman Islands and listed on Nasdaq as a foreign private issuer. Nasdaq listing rules permit a foreign private issuer
like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands,
which is our home country, may differ significantly from Nasdaq corporate governance listing standards applicable to domestic U.S. companies.
Among other things, we are
not required to have: (i) a majority of the board of directors consist of independent directors; (ii) a compensation committee
consisting of independent directors; (iii) a nominating committee consisting of independent directors; or (iv) regularly scheduled
executive sessions with only independent directors at least twice a year.
Except as otherwise disclosed
in this Report, we intend to rely on the exemptions listed above. As a result, you may not be provided with the benefits of certain corporate
governance requirements of Nasdaq applicable to U.S. domestic public companies. As described in more details in this Report under
“Item 16D. Exemptions from the Listing Standards for Audit Committees” and “Item 16G. Corporate Governance,”
we currently rely on certain “controlled company” and foreign private issuer exemptions from Nasdaq listing standards. These
practices may afford less protection to shareholders than they would enjoy if we complied fully with Nasdaq corporate governance listing
standards.
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You may face difficulties
in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated
under the laws of the Cayman Islands.
We are an exempted company
limited by shares incorporated under the laws of the Cayman Islands. Some of our assets are located outside the United States. One
of our officers resides outside the United States and a substantial portion of the assets of such person are located outside of the
United States. As a result, it may be difficult for investors to effect service of process within the United States upon such
officer, or to enforce judgments obtained in the United States courts against such officer.
Our corporate affairs are
governed by the Webull Articles, the Cayman Companies Act and the common law of the Cayman Islands. The rights of our shareholders to
take action against our directors, actions by minority Webull shareholders and the fiduciary duties of our directors to us under Cayman
Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in
part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose
courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary
duties of our directors under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions
in the United States. In particular, the Cayman Islands has a different body of securities laws than the United States and some
U.S. states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.
In addition, shareholders of Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court
of the United States.
Shareholders of Cayman Islands
exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (other than the memorandum and
articles of association, special resolutions, and the register of mortgages and charges, of such companies) or to obtain copies of lists
of shareholders of these companies. Our directors have discretion under the Webull Articles to determine whether or not, and under what
conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders.
This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or
to solicit proxies from other shareholders in connection with a proxy contest.
Certain corporate governance
practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other
jurisdictions such as the United States. If we continue to choose to follow certain home country practices in the future, our shareholders
may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.
As a result of all of the
above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members
of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
We are a “controlled company”
and the interests of our controlling shareholder may conflict with ours or yours in the future.
Webull qualifies as a “controlled company” as defined under
the corporate governance rules of the Nasdaq, because Mr. Anquan Wang, one of the founders of Webull, beneficially owns 16.4% of the outstanding
Webull Ordinary Shares (including all of our issued and outstanding Webull Class B Ordinary Shares), representing 79.2% of Webull’s
total voting power as of March 31, 2026. Mr. Anquan Wang also has beneficial ownership over 2,301,374 Webull Class A Ordinary Shares held
of record by Webull Partners Limited (our share-award platform entity for certain of our employees, officers and directors) and may exercise
voting rights with respect to 10,058,435 Webull Class A Ordinary Shares subject to the satisfaction of certain conditions under the Proxy
Agreement (as defined below) as of December 31, 2025. For so long as Webull remains a controlled company under that definition, it is
permitted to elect to rely, and may rely, on certain exemptions from Nasdaq corporate governance rules. As a foreign private issuer and
a “controlled company,” Webull is permitted to elect to rely, and may rely, on certain exemptions from corporate governance
rules, including (i) an exemption from the rule that a majority of our board of directors must be independent directors; (ii) an exemption
from the rule that director nominees must be selected or recommended solely by independent directors; (iii) an exemption from the rule
that the compensation committee must be comprised solely of independent directors; and (iv) an exemption from the requirement that an
audit committee be comprised of at least three members under Nasdaq Rule 5605(c)(2)(A). Webull has decided to rely on all of the foregoing
exemptions available to foreign private issuers and “controlled companies.” Accordingly, our shareholders do not have the
same protection afforded to shareholders of companies that are subject to all of the Nasdaq corporate governance standards, and the ability
of our independent directors to influence our business policies and affairs may be reduced. Webull may rely on additional exemptions available
to foreign private issuers in the future. For more information, also see “— Our dual-class voting structure will limit
your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders
of Webull Class A Ordinary Shares may consider beneficial.”
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Our founder will have significant
influence with respect to our management, business plans and policies, including the appointment and removal of our officers. In particular,
because of his voting power, our founder will be able to cause or prevent a change of control of our Company or a change in the composition
of our board of directors and could preclude any unsolicited acquisition of our Company. The concentration of ownership could deprive
you of an opportunity to receive a premium for your Webull Ordinary Shares as part of a sale of the Company and ultimately might affect
the market price of your Webull Ordinary Shares.
Our dual-class
voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control
transactions that holders of Webull Class A Ordinary Shares may consider beneficial.
We have adopted a dual-class
voting structure such that the Webull Ordinary Shares consist of Webull Class A Ordinary Shares and Webull Class B Ordinary
Shares. Holders of Webull Class A Ordinary Shares and Webull Class B Ordinary Shares have the same rights other than voting
and conversion rights. Each holder of Webull Class A Ordinary Shares is entitled to one vote per share and each holder of Webull
Class B Ordinary Shares is entitled to 20 votes per share on all matters submitted to them for a vote. Webull Class A Ordinary
Shares and Webull Class B Ordinary Shares vote together as a single class on all matters submitted to a vote of our shareholders,
except as may otherwise be required by law. Each Webull Class B Ordinary Share is convertible into one Webull Class A Ordinary
Share, whereas Webull Class A Ordinary Shares are not convertible into Webull Class B Ordinary Shares under any circumstances.
Webull may issue additional Webull Class A Ordinary Shares and/or Webull Class B Ordinary Shares in accordance with the Webull Articles
in the future. Upon any transfer of Webull Class B Ordinary Shares by a holder thereof to any person or entity which is not an affiliate
of such holder, such Webull Class B Ordinary Shares are automatically and immediately converted into the equal number of Webull Class A
Ordinary Shares.
Mr. Anquan Wang, one of the founders of Webull, beneficially owns
16.4% of the outstanding Webull Ordinary Shares (including all of the outstanding Webull Class B Ordinary Shares), representing 79.2%
of Webull’s total voting power as of March 31, 2026. Mr. Anquan Wang also has beneficial ownership over 2,301,374 Webull Class A
Ordinary Shares held of record by Webull Partners Limited (our share-award platform entity for certain of our employees, officers and
directors) and may exercise voting rights with respect to 10,058,435 Webull Class A Ordinary Shares subject to the satisfaction of certain
conditions under the Proxy Agreement (as defined below) as of December 31, 2025. As such, Mr. Anquan Wang has considerable influence
over matters requiring shareholder approval, such as electing directors and approving material mergers, acquisitions or other business
combination transactions. This concentrated control will limit your ability to influence corporate matters and could also discourage others
from pursuing any potential merger, takeover, or other change of control transaction, which could have the effect of depriving the holders
of Webull Class A ordinary shares of the opportunity to sell their shares at a premium over the prevailing market price.
Our dual-class
voting structure may render Webull Class A Ordinary Shares and Webull Warrants ineligible for inclusion in certain stock market indices,
and thus adversely affect the trading price and liquidity of such securities.
Certain index providers have
announced restrictions on including companies with multi-class share structures in certain of their indices. For example, S&P Dow
Jones and FTSE Russell have changed their eligibility criteria for inclusion of shares of public companies on certain indices, including
the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of
total voting power from being added to such indices. As a result, our dual-class voting structure may prevent the inclusion of Webull
Class A Ordinary Shares and Webull Warrants in such indices, which could adversely affect the trading price and liquidity of such
securities.
If Webull Class
A Ordinary Shares or Webull Warrants are not eligible for deposit and clearing within the facilities of the Depository Trust Company,
then transactions in the Webull Class A Ordinary Shares or Webull Warrants may be disrupted.
The facilities of the Depository
Trust Company (“DTC”) are a widely used mechanism that allow for rapid electronic transfers of securities between the participants
in the DTC system, which include many large banks and brokerage firms. Webull Class A Ordinary Shares and Webull Warrants are currently
eligible for deposit and clearing within the DTC system. We have entered into arrangements with DTC whereby we will agree to indemnify
DTC for stamp duty that may be assessed upon it as a result of its service as a depository and clearing agency for the Webull Class A
Ordinary Shares and Webull Warrants, and DTC has agreed to accept the Webull Class A Ordinary Shares and Webull Warrants for deposit and
clearing within its facilities.
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DTC is not obligated to continue
accepting Webull Class A Ordinary Shares or Webull Warrants for deposit and clearing within its facilities, and there can be no assurance
that DTC will continue to accept Webull Class A Ordinary Shares or Webull Warrants for deposit and clearing within the facilities. DTC
will generally have discretion to cease to act as a depository and clearing agency for Webull Class A Ordinary Shares or Webull Warrants.
If DTC determines at any time
that Webull Class A Ordinary Shares or Webull Warrants are no longer eligible for continued deposit and clearance within its facilities,
then we believe that Webull Class A Ordinary Shares or Webull Warrants would not be eligible for continued listing on a U.S. securities
exchange and trading in the securities or warrants would be disrupted. While we would pursue alternative arrangements to preserve its
listing and maintain trading of its securities, any such disruption could have a material adverse effect on the market price of Webull
Class A Ordinary Shares and Webull Warrants.
There can be no assurance that Webull will not be classified as a passive
foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal
income tax consequences to U.S. Holders.
A non-U.S. corporation, such
as Webull, will be classified as a “passive foreign investment company” for U.S. federal income tax purposes (“PFIC”)
if either (i) at least 75% of its gross income in a taxable year, including its pro rata share of the gross income of any corporation
in which it is considered to own at least 25% of the shares by value, is passive income or (ii) at least 50% of its assets in a taxable
year (ordinarily determined based on fair market value and averaged quarterly over the year), including its pro rata share of the assets
of any corporation in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive
income. Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active
conduct of a trade or business) and gains from the disposition of passive assets. The calculation of the value of our assets will be based,
in part, on the quarterly market value of Webull Ordinary Shares.
Based on the composition of
the income, assets and operations of Webull and its subsidiaries for 2025, Webull does not believe it was a PFIC for the taxable year
ending December 31, 2025. However, whether Webull is treated as a PFIC for any taxable year is a factual determination that can only be
made after the close of such taxable year, involves extensive factual investigation, including ascertaining the fair market value of all
its assets on a quarterly basis and the character of each item of income that it earns, and, thus, is subject to significant uncertainty
and change. In addition, the determination of whether Webull is treated as a PFIC for the taxable year depends upon Webull’s market
capitalization, which may be volatile. Accordingly, there can be no assurance with respect to Webull’s status as a PFIC for the
taxable year ending December 31, 2025, the current taxable year, or any future taxable year. If Webull were to be or become a PFIC for
any taxable year during which a U.S. Holder holds Webull Class A Ordinary Shares and/or Webull Warrants, certain adverse U.S. federal
income tax consequences could apply to such U.S. Holder. See “Item 10. Additional Information — E. Taxation — Material
U.S. Federal Income Tax Considerations.”
We do not intend to pay cash dividends for
the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price
of the Webull Ordinary Shares.
We have never declared or
paid cash dividends on our share capital. We currently intend to retain all available funds and future earnings, if any, to fund the development
and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future decisions regarding
the declaration and payment of dividends will be at the discretion of our board of directors and will depend on then-existing conditions,
including our financial condition, results of operation, contractual restrictions, capital requirements, business prospects and other
factors our board of directors may deem relevant. In addition, payment of future dividends is subject to certain limitations pursuant
to Cayman Islands law. See “Item 10. Additional Information — B. Memorandum and Articles of Association — The Webull
Articles — Dividends. Accordingly, you may need to rely on sales of your Webull Ordinary Shares after price appreciation, which
may never occur, as the only way to realize any gains on your investment.
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