Item 3. Legal Proceedings
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in various
lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties
and an adverse result in these or other matters may arise from time to time that may harm our business. Except for the litigation disclosed
below, we are not currently a party to any legal or arbitration proceeding the outcome of which, if ‘determined adversely to us,
would individually or in the aggregate be reasonably expected to have a material adverse effect on our business, operating results, cash
flows, or financial condition.
On May 14, 2020, Boustead filed a lawsuit against
the Company and Leaping Group Co., Ltd. a limited liability organized under the laws of Cayman Islands (“LGC”) for breaching
the underwriting agreement Boustead had with each of the Company and LGC, in which Boustead was separately engaged as the exclusive financial
advisor to provide financial advisory services to the Company and LGC.
In April 2020, the Company acquired 51.2% equity
interest in LGC after LGC terminated its efforts to launch an IPO on its own. Boustead alleged that the acquisition transaction between
the Company and LGC was entered into during the lockup period of the exclusive agreement between Boustead and LGC, and therefore deprived
Boustead of compensation that Boustead would otherwise have been entitled to receive under its exclusive agreement with LGC. Therefore,
Boustead is attempting to recover from the Company an amount equal to a percentage of the value of the transaction it conducted with LGC.
Boustead’s Complaint alleged four causes
of action against the Company, including breach of contract; breach of the implied covenant of good faith and fair dealing; tortious interference
with business relationships and quantum meruit.
On October 6, 2020, we filed a motion to dismiss
Boustead’s Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) and 12(b)(5). On October 9, 2020, the United States District
Court for the Southern District of New York directed Boustead to respond to the motion or amend its Complaint by November 10, 2020. Boustead
opted to amend its complaint and filed the amended complaint on November 10, 2020. Boustead’s first amended complaint asserted the
same four causes of action against LGC and us as its original complaint. We filed another motion to dismiss Boustead’s amended complaint
on December 8, 2020.
On August 25, 2021, the United States District
Court for the Southern District of New York granted ATIF’s motion to dismiss Boustead’s first amended complaint. In its order
and opinion, the United States District Court for the Southern District of New York allowed Boustead to move for leave to amend its causes
of action against us as to breach of contract and tortious interference with business relationships, but not breach of the implied covenant
of good faith and fair dealing and quantum meruit. On November 4, 2021, Boustead filed a motion seeking leave to file a second amended
complaint to amend its cause of action for Breach of Contract. The Court granted Boustead’s motion for leave and Boustead filed
the second amended complaint on December 28, 2021 alleging only breach of contract and dropping all other causes of action alleged in
the original complaint. On January 18, 2022, the Company filed a motion to dismiss Boustead’s second amended complaint. Boustead
filed its opposition on February 1, 2022 and the Company replied on February 8, 2022.
On July 6, 2022, the Court
denied our motion to dismiss the second amended complaint. Thereafter, on August 3, 2022, the Company filed a motion to compel arbitration.
Briefing on the Company’s motion to compel concluded on August 23, 2022 Since the agreement between ATIF and Boustead contains a
valid arbitration clause that applies to Boustead’s breach of contract claim, and the parties have not engaged in discovery, on
February 14, 2023, the Court ordered that ATIF’s motion to compel arbitration is granted and this case is stayed pending arbitration.
On March 10, 2023, Boustead,
filed Demand for Arbitration against ATIF (the Respondent) before JAMS in California and JAMS case Ref. No. is 5220002783. On May 25,
2023, ATIF filed its answer to deny Boustead’s Demand for Arbitration, which was unsuccessful and the arbitration process was initiated.
The arbitrator ordered a motion to be filed by Boustead for a determination of contact interpretation, prior to extensive discovery into
issues such as the alleged merits and damages, and to determine whether the contract interpretation should allow the matter to further
proceed. Boustead had filed the Motion for Contract Interpretation Determination. ATIF filed its opposition to that Motion on October
16, 2023. The hearing on the motion was held on November 8, 2023, during which
the arbitrator extended the hearing to February 29, 2024. The arbitrator also established December 15, 2023, as the deadline for Boustead
to submit its reply regarding the contract interpretation issues raised by the Company. Simultaneously, the Company was granted until
February 12, 2024, to present its response brief.
Our management believes it
is premature to assess and predict the outcome of this pending arbitration.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II