EpicQuest Education Group International Ltd F-1, filed Dec 15, 2020
EpicQuest Education Group International Ltd (EEIQ)
As filed with the U.S. Securities and Exchange Commission on December 14, 2020
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Elite Education Group International Limited
(Exact Name of Registrant as Specified in its Charter)
| British Virgin Islands | Not applicable | |||
| (State or Other Jurisdiction
of Incorporation or Organization) |
(Primary Standard
Industrial Classification Code Number) |
(I.R.S. Employer
Identification Number) |
1209 N. University Blvd, Middletown, OH 45042
Tel: +1 (513) 835-5394
(Address, including zip code, and telephone number, including area code, of principal executive offices)
Vcorp Agent Services, Inc.
25 Robert Pitt Dr., Suite 204
Monsey, NY 10952
Tel: (888) 528-2677
(Name, address, including zip code, and telephone number, including areas code, of agent for service)
Copies to:
F. Alec Orudjev, Esq. Schiff Hardin LLP 901 K Street, NW, Suite 700 Washington, DC 20001 Tel: 202-724-6848 |
Richard I. Anslow, Esq. Jonathan Deblinger, Esq. Ellenoff Grossman & Schole LLP 1345 Avenue of the Americas, 11th Floor New York, NY 10105 Tel: 212-370-1300 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
| Emerging growth company | ☒ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act ☐
CALCULATION OF REGISTRATION FEE
| Title of each Class of Securities to be Registered | Maximum Aggregate Offering Price (1)(2)(3) | Amount of Registration Fee | ||||||
| Units (6) | $ | 6,900,000 | $ | 752.79 | ||||
| Common stock, par value $0.016 per share (4) | $ | - | $ | - | ||||
| Warrants to purchase common stock (4) | $ | - | $ | - | ||||
| Shares of common stock issuable upon exercise of the Series A Warrants | $ | 6,900,000 | $ | 752.79 | ||||
| Shares of common stock issuable upon exercise of the Series B Warrants | $ | 8,625,000 | $ | 940.98 | ||||
| Underwriters’ warrants (5) | ||||||||
| Common stock underlying Underwriters’ warrants (5) | $ | 660,000 | $ | 72.00 | ||||
| Total | $ | 23,085,000 | $ | 2,518.57 | ||||
| (1) | Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. |
| (2) | Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional securities as may be issuable to prevent dilution resulting from stock splits, stock dividends or similar transactions. |
| (3) | Includes the price of additional shares of common stock and warrants to purchase shares of common stock that the underwriters have the option to purchase to cover overallotments, if any. |
| (4) | Included in the price of the units. No separate registration fee is required pursuant to Rule 457(g) under the Securities Act. |
| (5) | Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(g) under the Securities Act. We have calculated the proposed maximum aggregate offering price of the common stock underlying the underwriter’s warrants by assuming that such warrants are exercisable at a price per share equal to 110% of the public offering price of the common stock in the units sold in this offering. |
| (6) | Each unit includes (i) one share of common stock (or, at the purchaser’s election, one share of Series B Convertible Preferred Stock), (ii) one Series A Warrant, and (iii) one Series B Warrant. |
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement is filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS (Subject to Completion) | DATED December 14, 2020 |
Elite Education Group International Limited
750,000 Units
Shares and Warrants
This is the initial public offering of Elite Education Group International Limited.
The public offering price per Unit is $8.00. Each Unit consists of (a) one ordinary share, (b) one Series A warrant (the “Series A Warrants”) to purchase one ordinary share at an exercise price equal to $5.00 per share, exercisable until the fifth anniversary of the issuance date, and (c) one Series B warrant (the “Series B Warrants,” and together with the Series A Warrants, the “Warrants”) to purchase one ordinary share at an exercise price equal to $10.00 per share, exercisable until the fifth anniversary of the issuance date and subject to certain adjustment and cashless exercise provisions as described herein. The Units will be offered on a firm commitment basis. The ordinary shares and the Warrants are immediately separable and will be issued separately, but will be purchased together in this offering.
Prior to this offering, there has been no public market for our ordinary shares. We have applied to have our ordinary shares listed on the NASDAQ Capital Market under the symbol “EEIQ” for the ordinary shares we are offering. We cannot guarantee that we will be successful in listing our ordinary shares on the Nasdaq; however, we will not complete this offering unless we are so listed. We do not intend to apply for listing of either of the Warrants on the Nasdaq Capital Market or any other securities exchange or nationally recognized trading system, and we do not expect a market to develop for the Series A Warrants or the Series B Warrants.
We anticipate that following the completion of this initial public offering of our securities, our Chief Executive Officer and our Chief Financial Officer together will beneficially own approximately 80.9% of the Company’s then outstanding securities. While under NASDAQ Marketplace Rules 5615(c), we may be deemed a “controlled company,” we do not intend to avail our company of the corporate governance exemptions afforded to a “controlled company” under the NASDAQ Marketplace Rules.
We are an “emerging growth company” as defined in the Jumpstart Our Business Act of 2012, as amended, and, as such, will be subject to reduced public company reporting requirements.
An investment in our securities is highly speculative, involves a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. See “Risk Factors” beginning on page 13 of this prospectus.
| Unit | Total | |||||||
| Initial public offering price | $ | 8.00 | $ | 6,000,000 | ||||
| Underwriting discounts and commissions (1) | $ | 0.64 | $ | 480,000 | ||||
| Proceeds to us, before expenses | $ | 7.36 | $ | 5,520,000 | ||||
| (1) | We have agreed to issue upon the closing of this offering, compensation warrants to ViewTrade Securities, Inc., as representative of the underwriters, entitling them to purchase up to 10% of the securities sold in this offering. We have also agreed to pay a non-accountable expense allowance to the underwriters of 0.5% of the gross proceeds received in this offering and to reimburse the underwriters for other out-of-pocket expenses related to the offering. For a description of other terms of the compensation warrants and a description of the other compensation to be received by the underwriters, see “Underwriting.” |
We have granted the underwriter an option, exercisable one or more times in whole or in part, to purchase up to 112,500 additional ordinary shares and/or Series A Warrants to purchase up to an aggregate of 112,500 ordinary shares and Series B Warrants to purchase up to an aggregate of 112,500 ordinary shares, in any combinations thereof, from us at the public offering price per security, less the underwriting discounts and commissions, for 45 days after the date of this prospectus to cover over-allotments, if any.
The underwriters are offering the Units as set forth under “Underwriting.” Delivery of the securities underlying the Units will be made on or about , 2020.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
VIEWTRADE SECURITIES, INC.
The date of this prospectus is , 2020
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. Neither we, nor the underwriters have authorized anyone to provide you with different information. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.
For investors outside the United States: Neither we, nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ordinary shares and the distribution of this prospectus outside the United States.
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This summary highlights information that we present more fully in the rest of this prospectus. This summary does not contain all of the information you should consider before buying ordinary shares in this offering. This summary contains forward-looking statements that involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,” “will,” “could,” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements. You should read the entire prospectus carefully, including the “Risk Factors” section and the financial statements and the notes to those statements.
Our Company
Elite Education Group International Limited (EEI) is a holding company registered and incorporated in the British Virgin Islands (BVI) on December 13, 2017 by Jianbo Zhang. As a wholly-owned subsidiary of EEI, Quest Holding International LLC (QHI) was incorporated in 2012 in Ohio to facilitate study abroad and post-study services for Chinese students in the United States. Miami International Education Center LLC (MIE) was set up on January 13, 2017 in Ohio, and is a wholly-owned subsidiary of QHI. We partner with Miami University of Ohio, one of the oldest public universities in the country, to offer our services to Chinese students interested in studying in the United States. Located in southwestern Ohio and established in 1809, Miami University has 7 colleges, 5 different campuses, and the campus population of approximately 25,000. Known as “public Ivy,” the university offers more than 120 undergraduate, 60 graduate and 13 Ph.D. degrees. Currently, our partnership with the University extends to Middletown and Hamilton campuses, and has extended its reach to include the main campus of Miami University in Oxford starting the 2019-20 fiscal year.
We develop specific education goals and plan for each student enrolled in its program, and provide a safe and structured environment and support services so that students can focus most of their attention on academic studies.
Our mission is to provide our students with a reliable and comprehensive support system to fulfill their dreams of studying abroad. We strive to accomplish that by offering students and parents a one-stop destination for the US study needs, with potential expansion to other destinations as discussed below. We maintain an office in the United States and work with a business partner in the PRC. Our US Office is mainly responsible for providing study abroad and post-study services which include, among others, student dormitory management, academic guidance, international student services, student catering services, student transfer application services, internship and employment guidance. QHI’s business partner in China is Renda Financial Education Technology Co., Ltd. (Renda), located in Beijing. Its main business includes development and cooperation of the Chinese study market, language testing, student application, visa service, pre-departure training, pick-up arrangements, or any other accommodation arrangements as may be required.
QHI focuses on all stages of the study process and aims to provide the best services available to ensure that every student successfully completes university application, travel and settlement processes. It accomplishes this by offering a one-stop solution to these needs.
The PRC office coordinates the pre-attendance service needs of our customers while our United States office coordinates or provides the actual study abroad and post-study services.
Such pre-attendance services coordinated by our PRC office at no charge include information support and counseling services for students and parents:
| ● | Language test training counseling – we provide International English Proficiency Test (ITEP) counseling, registration, and test placement for students with no or poor language skills |
| ● | Admission application – our professional personnel reviews and provides feedback on student application materials |
| ● | Visa counseling - our personnel provide visa counseling and guidance services for the student applicants |
| ● | Pre-departure guidance – we offer logistical and organizational support for the student applicants prior their departure to the educational institutions |
| ● | Accommodation arrangements – we pick up and drop off the students at the point of arrival. |
The services after arrival include, among others:
| ● | Pick-up service with no charge - our US office opens and maintains a 24-hour hotline to coordinate with Miami University for pick-up and ensures that each student arrives at and settles in dormitories safely |
| ● | Welcome service at no charge – we coordinate with Miami University whose staff members offer a two-week orientation |
| ● | Dormitory service - our dormitory administrators are on duty 24 hours per day and 7 days per week |
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| ● | Catering services – we maintain a Chinese restaurant consisting of Chinese chefs and culinary staff near student dormitories to offer several meals a day to our students |
| ● | Academic guidance – with the help of professionally retained tutors, we offer academic guidance to help students choose and plan their career development |
| ● | Internship services – we arrange for various types of internships and social practice activities throughout the academic calendar to help students with the future employment, educational and social prospects; we believe these services also help developing their problem solving skills, workplace and emotional intelligence training |
| ● | Shuttle bus services – our staff offer shuttle bus services to cater to students’ needs. |
Industry and Market Background
Over the past years, China’s economic and social improvements were followed by increases in spending on education, particularly, for pursuing education on foreign soil. According to the 2018 studies from Ministry of Education in China, the total number of Chinese students studying abroad reached 662,100 in 2018, of whom 596,300 studying there at their own expense, an increase of 8.8% over the previous year. According to the 2019 White Book of Chinese international students (the 2019 Annual Report), students also appear to choose more diverse destinations to pursue their studies. Chinese students remain on top of the list of international students in the United States, Canada, Australia, Japan, South Korea and the United Kingdom, with the United States being the top choice for international students, with the UK being second such choice. The proportion of student respondents who rank the U.S. as their prior choice fell from 49% in 2017 to 44% in 2018 and to 43% in 2019. The U.K. remains the second most popular destination for Chinese students, with 41% of applications, a 6% percent increase from last year.
As students’ parents’ education and income levels improve, the demand for foreign education extends to middle school or even elementary school levels. For most students, preparations for studying abroad starts as early as middle school. Prospective students tend to focus on teacher-student ratios, living conditions, educational experience and professionalization of their fields, among other factors. In addition to improving academic qualifications and enriching academic background, studying abroad now is more about enhancing students’ life experience, self-perception, and communication skill.
The United States, the United Kingdom, Australia, and Canada remain the most desirable destinations for studying abroad. As economic conditions in many countries tighten and educational budgets are reduced, universities have economic incentives to seek to admit students who pay out-of-state tuition fees, especially Asian students. East Asian countries are the world’s largest origin of international students, followed by South Asia and the Middle East.
In 2018, Chinese students represented the largest portion of all foreign students in the United States. In addition, the overall trend of increased tuition and fees continued at US universities and colleges, public and private alike. For instance, the Ivy League institutions raised their tuition on average by nearly 8%, and Columbia University charges tuition fees of $59,430 per year, higher than any other private colleges. The University of California at Berkeley has the biggest jump on tuition fees percentage wise.
According to the United Kingdom’s Higher Education Statistics Agency (HESA), the number of British undergraduates at Oxford University and Cambridge University fell by 7% and 5%, respectively, as compared to a decade ago. This drop was replaced with international students. There are 51% more international undergraduates at Oxford and 65% more at Cambridge than a decade ago. The number of international students in Cambridge’s postgraduate programs now exceeds that of British students.
While the number of British students has been decreasing, the number of international students has been on the rise. At the same time, non-EU students will continue paying higher tuition fees. For example, Oxford University and Cambridge University intend to increase tuition in excess of UK 30,000 pounds (or approximately USD 43,000) per year. In addition, according to the HESA, other top British universities also plan to recruit more undergraduates in 2019, e.g., University College London plans to expand by 65%, the University of Bristol - 41%, and the University of Exeter - 74%. Such expansion primarily targets international students and the tuition fees are expected to increase accordingly.
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The number of overseas students in Australia and tuition fees appears to follow the same growth pattern on an annual basis. For instance, the number of Asian (PRC) international students in Australia is greater than that in the United States. In the 2018-2019 academic year, 39% of foreign university students in Australia came from China, representing an increase of 17%. In the new academic season of 2019, the University of Melbourne and the University of Queensland have announced their plans to expand the enrollment for international students from Asia for following academic years. In November 2018, all Australian universities released their 2019 tuition fees all of which trending upwards, e.g., tuition fees of the University of Sydney are up by approximately RMB 10,000; the University of New South Wales – by RMB 11,000; the University of Melbourne – by RMB 7,500 on average.
An increasing number of international students is targeting Canada for its studies. The number of students from two largest Asian countries, China and India, grow faster than any other country. Nearly three out of every ten international students are Chinese. Such large volume of Chinese international students has resulted in a considerable financial contribution to many Canadian universities. In 2018, for example, the University of Toronto, earned $928 million (RMB 4.7 billion). We anticipate that Canadian universities including, among others, the University of Toronto, McGill University, etc., will continue expanding enrollment of Asian students in 2019 and beyond. Other well-known Canadian universities, such as the University of British Columbia at Vancouver and the University of Montreal, are open to expanding their enrollment of international students. Along with increasing the number of international students, the University of Toronto also plans to increase tuition fees by an average of 6% per year for the next five years starting from 2019; Simon Fraser University plans to increase tuition fees in 2019, including a 4% increase for international students to address its $15 million budget deficit. We view these trends as business opportunities.
With the development of the PRC international study market, the Chinese government and foreign universities have increasingly directed more attention to the PRC education market. Both high school students and their parents focus on locating high-quality ways of studying abroad to realize return on their educational investments. Similarly, many preparatory programs in the marketplace also promise that students will graduate after only three years abroad. Most domestic one-year programs only provide courses to learn the language, but lack the study of professional courses. These preparatory programs are situated in public universities, mainly in the form of one-year university preparatory courses, 2 + 2 year cooperation projects and 3 + 2 year undergraduate continuing courses.
EEI’s business partner in China, Renda, has been engaged in operation and management of such cooperative courses at Renmin University of China from 2006 to 2016. Over the past 10 years, Renda has sent Chinese students to the UK, Canada and the United States for further studies. Consistent with the industry demands, the project types have been changing continuously in the past 10 years, from 3 + 2 to 2 + 3, and then to the final year of university preparatory course. After substantial analysis of the attendance and participation levels, it became apparent that the scale of one-year preparatory course in the market has been too small which made it difficult to recruit students. In fact, it appears that one-year preparatory courses available in the market have not delivered on the cost saving promises; on the contrary, they prolonged the study abroad periods.
Our Strategies and Development Objectives
We strive to continue to improve the quality of our project offerings, provide our customers with the most suitable options to carry on with their studies abroad, and ultimately to establish an internationally recognized education brand. We have designed our management systems to pursue and secure an enduring competitive advantage in the market for education services by improving our research & development capabilities, stable market positioning and channels, and efficient sales system.
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Specific areas of our focus include:
| ● | Developing unique signature brand, project, talent and internet capabilities, designed to optimize the customer experience and retention structure, and to build an international education and study abroad product chain. |
| ● | Focusing on development and expansion of our educational products to increase our domestic market share and expand our global market to establish an integrated product as well as maintaining diversification, along with adopting mobile application to facilitate multi-channel operation modes. |
| ● | Continuing enhancing of our brand quality by offering higher quality service at all stages, diversifying our services which includes pre-departure planning for overseas study, professional visa training, group purchases of air tickets, safety training on abroad study, academic guidance and career guidance, packaging our products, and promoting both online and offline activities to increase brand exposure. |
| ● | Establishing a multi-dimensional education platform that includes global overseas education industry chains, educational training, and mobile application components: |
| ● | Global Overseas Educational Industry Chain Establishment |
| ● | We aim to expand our business in Hong Kong and Southeast Asia markets such as Myanmar, Vietnam, Thailand, to build private international schools, and establish relationships with local prestigious universities to initiate multinational platforms for the local students to have opportunities to study abroad, as well as various universities in the United Kingdom, Britain, the United States, and Australia to attract more Chinese students. We began exploring opportunities in Myanmar in 2018, and intend to explore similar opportunities in Vietnam in 2020 and to roll out this initiative in the 2020/21 academic year. |
| ● | Following recent enrollment volume, Miami University and QHI have agreed to expand their cooperation on the University’s Hamilton campus. QHI serves as a principal for all the recruitment and promotional activities, which are related to these two campuses, in Asia. Not unlike traditional universities, we currently provide dormitory housing and student dining hall services to approximately 30 student residents of the Hamilton campus. We have also reached an agreement with Miami University with respect to expansion onto the University’s main campus in Oxford, and will increase our recruiting to match the Oxford campus expansion in 2020. |
| ● | QHI began explorations of the Canadian market with the intent to replicate the Miami University model in a new setting. QHI will be in charge of the recruitment, pre-departure through post-study services. We anticipate rolling out this initiative in the 2020/21 academic year. |
| ● | QHI has been pursuing a new partner in the UK (particularly, London) with the intention to establish its own UK college and/or university partnership to provide additional options for Chinese students in 2021. In October 2019, QHI entered into a certain International Representative Agreement with the University of Northumbria at Newcastle (the “UNN”). Under this agreement, the UNN engaged QHI as its non-exclusive representative to promote and market the UNN academic programs to prospective students in the PRC. QHI is required to conduct all such activities in compliance with the UNN rules and regulations as well as other applicable UK laws, rules and regulations. The UNN agreed to pay certain recruiting fees to QHI depending on the number of new students recruited in any given academic year, e.g., 1-19 students – 15% commission rate (percentage of tuition fee), 20-39 students – 20%, 40-59 students – 22.5%, 60-79 students – 25%, and 80 or more students – 27.5%. The Agreement also contemplates volume bonus payable to QHI, e.g., from UK₤1,000 on 5-9 new students recruited in academic year to UK₤10,000 on 50 or more students. This agreement expires on April 30, 2022. Since October 2019, we have not generated any recruitment commissions under this representation agreement. |
| ● | Educational Training |
| ● | Early childhood training combined with early childhood education, English, and special training school |
| ● | Overseas language study training and test preparation for the IELTS, TOEFL, GRE and SAT tests |
| ● | Special training including brain development, abacus arithmetic, studies in Chinese history, and technical fields (e.g., engineering fundamentals) |
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| ● | Mobile Application |
Through years of accumulation of market resources, we have established a comprehensive and diversified internet platform including, but not limited to, overseas study service, education and training, and business cooperation. We intend to continue and expand our study abroad services to include access to:
| ● | applications of U.K., U.S., Canadian and Australia universities |
| ● | required and supplemented documents, application guidance, pre-departure Q&A, air ticket reservation, dormitory reservation, overseas high school student guidance, rental assisting, legal aid, medical escort, and driving permit training |
| ● | school information for parents to monitor children performances |
| ● | special skill training program, language training (i.e., IELTS/TOEFL/SAT sprint training), professional teaching training |
| ● | a platform for all agencies for expeditious cooperation |
| ● | online courses, including college preparation, PTE training, and outstanding teacher courses |
Our Competitive Strengths
We believe that the following strengths differentiate us from our competitors and will continue contributing to our growth and success:
| ● | Low admission requirements and no minimum language requirements. QHI serves as a principal and takes over its recruiting and promotion aspect for the regional campuses, and has reached an agreement to do so for its main campus (Oxford), in China and other Asian countries starting 2020. The application process is extended and can be confusing for the uninitiated. While most colleges require a GPA of at least 2.5 and/or minimum language proficiency, the Miami project does not maintain such requirements. The English Language Center (ELC) at the Miami University specially set up an Academic Redirection Program (APR) course for students with GPA of 2.0 or lower. Internal testing methods are flexible, and can be taken at any time and any place, without geographical limitations. The Miami University also accepts ITEP test scores as a language standard for admission to the ELC program at the Miami University. ITEP is an online examination system, which offers flexibility and quick scoring; it is most suited for those students who do not have time to take IELTS or TOEFL. |
| ● | Comprehensive service after study. We believe that our post-study services are one of the most important reasons why agents and parents choose us. After students arrive in the United States, QHI provides comprehensive services for students, including pick-up services, student dormitory, safety guidance for freshmen, academic guidance, guidance for further education, legal aid, and medical escort. To our knowledge, no other education group offers similar services. |
| ● | High entrance rate. According to US NEWS ranking, the freshman retention rate at Miami University is 91%. |
| ● | High success rate. The average number of students enrolled in the program is 130-140 per year, and the number of students who are transferred or expelled is less than 5 per year. Historically, we have noticed that virtually all students, irrespective of their background or grades, can progress academically and eventually transfer to the Oxford campus, which is the main campus. We are so confident in the quality of our services that we offer a guarantee with respect to the progress and graduation of our students. |
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Impact of the COVID-19 Pandemic on the Company
Beginning in late 2019, there were reports of the COVID-19 (coronavirus) outbreak originating in China, prompting government-imposed quarantines, cessation of certain travel and widespread business closures.
The Company’s Spring student admission (January intake) has not been affected by the COVID-19 outbreak since all students arrived at the Miami University before January 15, 2020. Several of the current (Fall 2019 admission) students travelled to China during the year-end vacation break; they all returned to the US on or around January 25, 2020. The Company implemented quarantine measures pursuant to which all students with recent travel histories were quarantined in their places of residence for at least two weeks. In addition, the Company undertook the following steps:
| ● | Prepare quarantine rooms - for students returning to the United States from Hubei and other provinces in China, the Company arranged isolated dormitory rooms, one room per person. |
| ● | Provide necessary sanitary materials to be used in quarantined areas - the Company distributed sanitizer and other materials for students to clean their rooms on a daily basis; the residence administrators were assigned to disinfect the common areas, including stairs and corridors. |
| ● | Deliver meals to the quarantined students - to avoid direct contact and comply with social distancing prescriptions, the cafeteria staff packed all three meals for quarantined students and delivered food to their room on a daily basis. |
| ● | Purchase and supply Personal Protective Equipment (PPE) materials - from the outset of the US COVID-19 outbreak, the Company’s US offices began purchasing PPE materials, including masks, disposable gloves, sanitizers and disinfection supplies. All these supplies have been distributed to students and staff members. |
| ● | Require masks - all students and staff members are required to wear masks in the public space or common areas of the dormitories. |
The Company has diligently followed and enforced the foregoing measures. Following the 14-day quarantine period, no student has exhibited any COVID-19 related symptoms, and all our students and staff members were and remain healthy. No positive cases of COVID-19 have been reported to date.
The Company continues to implement the foregoing measures and has added additional ones, including:
| ● | Food storage and meal deliveries - the Company continues providing all meals to the student dormitories to minimize direct contacts and maintain social distancing. Beginning in March, the cafeteria kitchen began storing frozen food to accommodate the student needs for sustained periods of time. In addition, the Company has been arranging group grocery shopping trips chaperoned by our residence administrators by shuttle bus every week. The buses are sanitized before each departure, and everyone is required to wear a mask and disposable gloves for the grocery shopping. All purchased goods are sanitized before taken to individual student rooms. |
| ● | Entry and exit dormitory area - all students must sign in and out entering and existing the dormitories. The students are only permitted to go to supermarkets or to seek medical treatment, if necessary. No outside visitors are permitted at the residential halls. |
| ● | Daily health checks - The Company has established a daily health reporting system such that every student who lives in the residence building is required to log into the system to report his or her health conditions on a daily basis. We keep track of this condition for both students and staff members. |
| ● | Non-contact communication - In order to minimize direct contact all students interactions with our staff have been moved to virtually/online modes, including student consultations and dormitory inspections. |
To date, the student recruitment for Miami University has come to the end for the Summer 2020 and Fall 2020 terms. According to the summary statistics, prior to June 1, 2020, the outbreak in China did not materially affect our student admission rates. According to our review of the Summer 2020 and Fall 2020 student applications, there has been, in fact, a 10% increase in the number of applications as compared with prior periods (440 as of the end of May 2020 compared to 403 for the same period last year). We believe there are two reasons for this increase. First, to date, international high schools have not been materially affected by the outbreak. In 2019, we worked with an increased number of such high schools. Approximately 40% of our current applications, compared to 29% in 2019, are from such international high schools. The main reason why the applications by international school students is largely unaffected by the disruptions caused by the pandemic is that such students do not have Chinese high school diploma/qualification and therefore cannot take Chinese university entrance examinations. They are effectively forced to choose to study abroad while students in public high schools are in a position to forgo these opportunities and instead choose to study domestically by taking the university entrance examination. That is why we believe the number of applications from students in public schools is decreasing. Secondly, our reputation has strengthened among existing or previous students and their parents. During the early stages of the outbreak, we determined to move all our marketing activities into a virtual or online format. Since January, we held more than 70 online promotional and training sessions, including business training with partners, school life broadcast activities, etc. We increased the number and variety of online activities including online guidance classes and online service training sessions, so as to maintain potential student interest and student enrollment rates. However, due to the COVID-19 pandemic, most of the programs at Miami University have been delayed or postponed, and the number of students that has confirmed enrollment was 132 as of May 28, 2020, which was about 17% lower as compared to 159 as of the same date last year. After June 1, 2020, however, the number of applications we received was affected by the increasing COVID-19 cases and the tension in the relationship between the U.S. and Chinese governments. In 2019, we received 42 applications after June 1, but this figure was only 24 in 2020. The Company considers this drop to be an episodic decrease caused by unprecedented exogenous factors in 2020. The Company continues its focus fostering its pool of applicants through foundational programs with some Chinese universities.
As of August 15, 2020, a total of 147 students decided to join our program in the U.S., compared to 156 students in 2019. However, only 104 out of these 147 students will start their programs in the Fall 2020 term, while the rest have decided to defer the start of their programs to the Spring 2021 term mainly because of their concerns about the effectiveness of online learning.
The COVID-19 outbreak appears to be under control or nearly so in China. Wuhan city, the epicenter of the outbreak, has been reopened. As have the Chinese markets and economy. Chinese high schools resumed classes and activities in mid-April. Once the school functions are fully or close to fully restored, we expect to attract new students to enroll in the studies abroad programs. We expect that the Beijing office will maintain some online promotion activities and will host in-person marketing activities.
6
Operational and financial outlook
The Company has put in place several operational adjustments below for the Fall 2020 academic semester.
| ● | While currently the US visa office in Beijing is temporarily closed, the visa application process for Fall admission has been started. If needed, the students who are admitted in the summer term will be transferred to Fall admission. |
| ● | If the university does not reopen for the Fall semester, it will provide online courses for the newly admitted students, without impacting registration and enrollment. |
| ● | For students who are admitted, but wish to postpone their studies in the US, we would offer study opportunities within our domestic cooperative projects at Ocean University of China in Qingdao, China for one or two semesters. |
| ● | We will leverage our centrally managed residence system to encourage more students (mainly 2019 intakes) to continue living in our dormitory for another one or two semesters. |
While it is presently unknown to what precise extent the world economies and the Company’s operations may be affected if the pandemic persists for an extended period of time. It is also possible that the outbreak will cause additional disruptions to the Company’s operations and prospects.
The Company has been implementing effective approaches among multiple locations for business operations for more than five years. As a result, the Company believes that COVID-19 related challenges are not likely to have material negative impact on its student recruitment system. The Company may incur significant delays, reductions in revenue and increases in expenses relating to such events outside of its control, but the Company believes effective approaches implemented by the Company will help minimize the negative impacts caused by COVID-19 on its operations. The outbreak could preclude current and new students from enrolling in the academic programs in the US, which adversely affects the Company’s ability to generate new revenue. Any and all of the foregoing could have a material adverse impact on its business, operating results and financial condition. The outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital in the future. We currently believe that our financial resources will be adequate to see us through the outbreak and intend to continue growing our business.
The Company’s near term financial condition has been adversely affected by the pandemic. If and to the extent the pandemic persists, the Company’s financial condition and growth prospects may be adversely affected as the sales are likely to be adversely affected. As noted above, while the number of applications in 2020 went up by 10% as compared with prior period (440 in 2020 as compared with 403 in 2019), the number of students that has confirmed enrollment was 132 as of May 28, 2020, which is about 17% lower as compared to 159 as of the same date last year. Starting June 1, 2020, however, the number of applications we received was affected by the increasing COVID-19 cases and the tension in the relationship between the U.S. and Chinese governments. In 2019, we received 42 applications after June 1, but this figure was only 24 in 2020. As of August 15, 2020, a total of 147 students decided to join our program in the U.S., compared to 156 students in 2019. However, only 104 out of these 147 students will start their programs in the Fall 2020 term, while the rest have decided to defer the start of their programs to the Spring 2021 term mainly because of their concerns about the effectiveness of online learning.
If the pandemic continues and/or there is a second wave of COVID-19, the demand for services provided by the Company is likely to be volatile in the long run, and this may results in an unstable sales growth of the Company. The likelihood and extent of the adverse effect may be reduced if and to the extent the Company commences new programs at Miami University (Oxford campus) and University of North Umbria at Newcastle, UK. If COVID-19 persists, student travel to the U.S. is likely to be delayed and/or postponed, and the Company’s operations would need to accommodate for this decrease in demand. Notwithstanding the pandemic, Miami University will reopen the school operations to arrange student admission; if and to the extent students wish to postpone admission, we will provide arrangements for such students to enroll in Miami University credit program established at some Chinese universities for one or more academic semesters prior to entering Miami University for normal study. If the pandemic continues and/or there is a second wave of COVID-19, however, this is likely to change if students will have to take online courses for a longer period of time.
COVID-19 has resulted in part of our employees’ working remotely over the past six months, and this changed our traditional approach of recruiting and serving students. However, it has not adversely affected our ability of maintaining operations. In the long run if the pandemic continues and/or there is a second wave of COVID-19, the Company may have to consider how to adjust the remote working approach in order to accommodate for student needs, but does not expect working remotely to adversely affect financial reporting systems or internal control.
As the Company does not have any credit arrangements, including short-term debts, long-term debts, commercial papers and other financial obligations, the impacts of COVID-19 on the Company’s capital and financial resources will be minimal. Due to the amount of cash held by the Company, its overall liquidity position will not likely change in the near or long term. However, the Company’s ability to raise money from the capital market by issuing equity may be adversely affected by the pandemic, and the cost of capital will likely be higher. All of the assets owned by the Company are located in the U.S. and the Company does not expect significant changes in judgments in determining the fair-value of such assets. The Company does not have significant financial assets and non-financial assets that are measured based on fair value on a recurring basis. The largest financial asset on the balance sheet is cash; the other material assets on balance sheet are non-financial assets such as prepaid expenses and property and equipment. As disclosed in the Company’s consolidated financial statements, there were no significant estimates and judgements with regard to consolidated financial statements for the years ended September 30, 2019 and 2018, respectively. Nor does the Company expect any material impairments as a result of the impact by COVID-19 pandemic. Other than property and equipment, which are primarily buildings and lands located in U.S., the Company does not have other long-lived assets on the balance sheets. Buildings and lands in US are generally expect to preserve or even appreciate in values. The Company does not have material accounts receivable either since students are required to prepay tuition fees before admitted into our program.
While the Company has not experienced challenges in implementing its business continuity plans in the near-term, or requiring material expenditures to do so, if the pandemic continues and/or there is a second wave of COVID-19, the Company is likely to need more expenditures on student recruitment. The Company does not expect that its operations will be materially impacted by any constraints or other impacts on its human capital resources and productivity. Nor does it expect for travel restrictions and border closures to significantly affect the Company’s business operations, but it is likely to affect the Company’s operations in the near term because students will have to take online courses in locations outside the U.S.
7
Recent Developments
On October 27, 2020, our Board of Directors and stockholders approved a 1-for-0.63 reverse stock split of our issued and outstanding ordinary shares (the “Reverse Stock Split”), effective as of the same date. Unless indicated otherwise, the share numbers and share price in this prospectus give retroactive effect to the Reverse Stock Split.
Corporate Structure and Information
Our main offices are located in Middletown, Ohio at 1209 N. University Blvd., Middletown, OH 45042; our telephone number at those offices is +1 (513) 835-5394. In addition, we maintain offices in Beijing, China at A-1718 Jiatai International Building, 41 Central East 4th Ring Road; our telephone number at those offices is (+86) (10) 8571-0121. The Company’s website is as follows: http://www.eei-global.net. Information contained on, or available through, our website does not constitute part of, and is not deemed incorporated by reference into, this prospectus.
The following diagram illustrates our corporate structure as of the date of this prospectus, including our subsidiaries.
| * | The Company’s Chairman and Chief Executive Officer, Jianbo Zhang, is the sole director and shareholder of Wonderland Holdings International Ltd. Assuming completion of this offering, Mr. Zhang and Mr. Wu, the Company’s CFO, will hold approximately 75.8% and 4.51% of our outstanding shares, respectively. For additional information relating to his ownership in the Company refer to the Security Ownership of Certain Beneficial Owners and Management discussion appearing on p. 56 of this prospectus. |
Summary of Risks Affecting Our Company
Our business is subject to numerous risks described in the section titled “Risk Factors” and elsewhere in this prospectus. The main risks set forth below and others you should consider are discussed more fully in the section entitled “Risk Factors” beginning on page 13, which you should read in its entirety.
| ● | Our Chairman and Chief Executive Officer has and will continue to exert substantial influence over our company. While under NASDAQ Marketplace Rules 5615(c), we may be deemed a “controlled company,” we do not intend to avail our company of the corporate governance exemptions afforded to a “controlled company” under the NASDAQ Marketplace Rules. |
| ● | Our executive officers have no prior experience in operating a U.S. public company, and their inability to operating the public company aspects of our business could harm us. |
| ● | We may not be able to improve our services or offer new services in a timely or cost-effective manner. |
| ● | If we fail to improve existing or offer new services in anticipation of market demand in a timely and cost-effective manner, our competitive position and ability to generate revenues may be materially and adversely affected. |
| ● | Changes in China’s economic, political or social conditions or government policies, including those implemented as a result of the COVID-19 pandemic, could have a material adverse effect on our business and operations. |
| ● | An active trading market for our shares may not develop following this offering, and the trading price of our shares may be volatile, each of which could result in substantial losses to investors. |
| ● | Because we are incorporated under British Virgin Islands law, investors may face difficulties in protecting their interests, and investors’ ability to protect their rights through U.S. courts may be limited. |
8
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012, and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
| ● | being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our filings with the Securities and Exchange Commission, or the SEC; |
| ● | not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting; |
| ● | reduced disclosure obligations regarding executive compensation in periodic reports, proxy statements and registration statements; and |
| ● | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our ordinary shares pursuant to this offering. However, if certain events occur before the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company before the end of such five-year period.
In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards and acknowledge such election is irrevocable pursuant to Section 107 of the JOBS Act.
Foreign Private Issuer Status
We are a foreign private issuer within the meaning of the rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:
| ● | we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company; |
| ● | for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies; |
| ● | we are not required to provide the same level of disclosure on certain issues, such as executive compensation; |
| ● | we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; |
| ● | we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and |
| ● | we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction. |
Notes on Prospectus Presentation
Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them. Certain market data and other statistical information contained in this prospectus is based on information from independent industry organizations, publications, surveys and forecasts. Some market data and statistical information contained in this prospectus are also based on management’s estimates and calculations, which are derived from our review and interpretation of the independent sources listed above, our internal research and our knowledge of the PRC information technology industry. While we believe such information is reliable, we have not independently verified any third-party information and our internal data has not been verified by any independent source.
For the sake of clarity, this prospectus follows the English naming convention of first name followed by last name, regardless of whether an individual’s name is Chinese or English.
Except where the context otherwise requires and for purposes of this prospectus only:
| ● | Depending on the context, the terms “we,” “us,” “our company,” and “our” refer to Elite Education Group International Limited, a British Virgin Islands company, and its subsidiary and affiliated companies: |
| ● | “shares” and “ordinary shares” refer to our shares, $0.001 par value per share; |
| ● | “China” and “PRC” refer to the People’s Republic of China, excluding, for the purposes of this prospectus only, Macau, Taiwan and Hong Kong; and |
| ● | all references to “RMB,” “yuan” and “Renminbi” are to the legal currency of China, and all references to “USD,” and “U.S. dollars” are to the legal currency of the United States. |
Unless otherwise noted, all currency figures in this filing are in U.S. dollars. Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
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Summary Financial and Operating Data
The following summary consolidated statements of operations and cash flow data for the years ended September 30, 2019 and 2018, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP, our consolidated financial statements have been prepared as if the current corporate structure had been in existence throughout the periods presented. Our management believes that the assumptions underlying our financial statements and the above allocations are reasonable. Our financial statements, however, may not necessarily reflect our results of operations, financial position and cash flows as if we had operated as a separate, stand-alone company during the periods presented. You should not view our historical results as an indicator of our future performance.
| For years ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Restated | Restated | |||||||
| Revenues | $ | 8,700,332 | $ | 6,285,176 | ||||
| Gross profit | 6,472,025 | 4,533,127 | ||||||
| Operating costs and expenses | (3,828,392 | ) | (2,868,513 | ) | ||||
| Income from operations | 2,643,633 | 1,664,614 | ||||||
| Net other income | 79,921 | 51,879 | ||||||
| Provision for income taxes | 668,796 | 646,879 | ||||||
| Net income | 2,054,758 | 1,069,614 | ||||||
| Comprehensive income | 2,054,758 | 1,069,614 | ||||||
| Net income per share – basic and diluted | 0.26 | 0.13 | ||||||
| Weighted average number of shares - basic and diluted | 7,938,000 | 7,938,000 | ||||||
| For six months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Restated | Restated | |||||||
| Revenues | $ | 6,128,360 | $ | 4,908,136 | ||||
| Gross profit | 4,572,541 | 3,632,540 | ||||||
| Operating costs and expenses | (2,893,552 | ) | (1,933,877 | ) | ||||
| Income from operations | 1,678,989 | 1,698,663 | ||||||
| Net other income | 7,218 | 35,394 | ||||||
| Provision for income taxes | 374,642 | 451,552 | ||||||
| Net income | 1,311,565 | 1,282,505 | ||||||
| Comprehensive income | 1,311,565 | 1,282,505 | ||||||
| Net income per share – basic and diluted | 0.17 | 0.16 | ||||||
| Weighted average number of shares - basic and diluted | 7,938,000 | 7,938,000 | ||||||
Summary Consolidated Balance Sheet Data, Statements of Financial Position
| As of March 31, | As of September 30, | |||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| Restated | Restated | Restated | ||||||||||
| Cash and cash equivalents | $ | 5,518,384 | $ | 8,272,623 | $ | 4,017,950 | ||||||
| Total current assets | 7,925,850 | 10,928,837 | 6,053,979 | |||||||||
| Total assets | 11,457,548 | 14,872,178 | 10,790,102 | |||||||||
| Total current liabilities | 3,674,911 | 8,401,106 | 6,373,788 | |||||||||
| Total non-current liabilities | - | - | - | |||||||||
| Total liabilities | 3,674,911 | 8,401,106 | 6,373,788 | |||||||||
| Total equity | 7,782,637 | 6,471,072 | 4,416,314 | |||||||||
| Total liabilities and equity | 11,457,548 | 14,872,178 | 10,790,102 | |||||||||
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Summary Consolidated Statements of Cash Flow Data
| For
years ended September 30, |
||||||||
| 2019 | 2018 | |||||||
| Net cash provided by operating activities | $ | 4,669,699 | $ | 2,165,141 | ||||
| Net cash used in investing activities | (203,172 | ) | (491,593 | ) | ||||
| Net cash used in financing activities | (211,854 | ) | 438,796 | |||||
| Net increase (decrease) in cash, cash equivalents | 4,254,673 | 2,112,344 | ||||||
| Cash and cash equivalents at beginning of period | 4,017,950 | 1,905,606 | ||||||
| Cash and cash equivalents at end of period | 8,272,623 | 4,017,950 | ||||||
| For six months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Net cash used in operating activities | $ | (2,548,456 | ) | $ | (366,505 | ) | ||
| Net cash (used in) provided by investing activities | (25,864 | ) | 72,847 | |||||
| Net cash (used in) provided by financing activities | (179,919 | ) | - | |||||
| Net increase (decrease) in cash, cash equivalents | (2,754,239 | ) | (293,658 | ) | ||||
| Cash and cash equivalents at beginning of period | 8,272,623 | 4,017,950 | ||||||
| Cash and cash equivalents at end of period | 5,518,384 | 3,724,292 | ||||||
The Offering
| Securities Offered | 750,000 Units, each Unit consists of (a) one ordinary share, (b) one Series A warrant (the “Series A Warrants”) to purchase one ordinary share at an exercise price equal to $5.00 per share, exercisable until the fifth anniversary of the issuance date, and (c) one Series B warrant to purchase one ordinary share at an exercise price equal to $10.00 per share, exercisable until the fifth anniversary of the issuance date and subject to certain adjustment and cashless exercise provisions as described herein. | |
| Over-allotment Option | We have granted the underwriter an option, exercisable one or more times in whole or in part, to purchase up to 112,500 additional ordinary shares and/or Series A Warrants to purchase up to an aggregate of 112,500 ordinary shares and Series B Warrants to purchase up to an aggregate of 112,500 ordinary shares, in any combinations thereof, from us at the public offering price per security, less the underwriting discounts and commissions, for 45 days after the date of this prospectus to cover over-allotments, if any. See “Underwriting” for additional information regarding the over-allotment option. |
11
| Shares outstanding before this offering | 7,938,000 ordinary shares | |
| Shares outstanding after this offering | 8,800,500 ordinary shares (not including ordinary shares issuable upon Series A and Series B warrant exercises, but including 112,500 ordinary shares assuming that the underwriters’ over-allotment option is exercised in full) | |
| Use of Proceeds | We estimate that our net proceeds from this offering will be approximately $4.50 million, based on an assumed initial public offering price of $8.00 per unit, and after deducting estimated underwriting discounts and commissions and estimated offering expenses and assuming no exercise of the over-allotment option granted to the underwriters. We intend to use the net proceeds from this offering for expansion of our facilities at additional campuses of Miami University of Ohio, expansion into the Canadian and Southeast Asian markets, entry into the UK educational markets, and working capital and general corporate purposes. See “Use of Proceeds” for more information. | |
| Indemnification Escrow | Net proceeds of this offering in the amount of $200,000 shall be used to fund an escrow account for a period of 12 months following the closing date of this offering, which account shall be used in the event we have to indemnify the underwriters pursuant to the terms of an underwriting agreement with the underwriters. | |
| Lockups | Certain of our executive officers, directors, and stockholders have agreed with the underwriters not to sell, transfer or dispose of any shares or similar securities for a period of 12 months following the closing of this offering. We have agreed, for a period of 180 days after the closing of this offering, not to sell, transfer or dispose of any shares or similar securities, subject to certain exceptions. See “Shares Eligible for Future Sale” and “Underwriting.” | |
| Underwriters’ Warrants | Upon the closing of this offering, we will issue to ViewTrade Securities, Inc., as representatives of the underwriters, warrants entitling the representative to purchase 10% of the aggregate number of securities issued in this offering. The warrants shall be exercisable for a period of five years from the commencement of sales of this offering. | |
| NASDAQ Trading symbol | We have applied to have our ordinary shares listed on the NASDAQ Capital Market under the symbol “EEIQ” for the ordinary shares we are offering. We will not complete this offering unless we are so listed. We do not intend to apply for any listing of either of the Warrants on the Nasdaq Capital Market or any other securities exchange or nationally recognized trading system, and we do not expect a market to develop for the Series A Warrants or the Series B Warrants. | |
| Risk Factors | Investing in these securities involves a high degree of risk. As an investor, you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section of this prospectus before deciding to invest in our ordinary shares. |
12
Investment in our securities involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this prospectus before making an investment decision. The risks and uncertainties described below represent our known material risks to our business. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, you may lose all or part of your investment. You should not invest in this offering unless you can afford to lose your entire investment.
Risks Related to Our Business
Although historically we have generated net income, we cannot assure you that we will continue on the profitability path going forward.
We have generated revenues of $8,700,332 and $6,285,176, and had net incomes of $2,054,758 and $1,069,614 for the fiscal years ended September 30, 2019 and 2018, respectively; for the period ended March 31, 2020, the revenue and net income figures were $6,128,360 and $1,311,565, respectively. We expect that our operating expenses will continue to increase as we expand our business. If we are not able to increase revenue and/or manage operating expenses in line with revenue forecasts, we may not be able to achieve profitability. Any significant failure to realize anticipated revenue growth from our new and existing lines of business and/or manage operating expenses in line with revenue forecasts, could result in continued operating losses. As such, we cannot assure you that we will maintain profitability.
If we are not able to continue to attract students to retain our services, our business and prospects will be materially and adversely affected.
The success of our business depends primarily on the number of student members enrolled. Therefore, our ability to continue to attract students is critical to the continued success and growth of our business. This in turn will depend on several factors, including our ability to develop new services and enhance existing ones to respond to changes in market trends and student demands, manage our growth while maintaining consistent and high education quality, broaden our relationships with strategic partners and market our services effectively to a broader base of prospective students. If we are unable to continue to attract students, our net revenues may decline, which may have a material adverse effect on our business, financial condition and results of operations.
Our results of operations may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our results of operations, including our operating revenue, expenses and other key metrics, may vary significantly in the future and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results for any one quarter are not necessarily an indication of future performance. Our financial results may fluctuate due to a variety of factors, some of which are outside of our control and, as a result, may not fully reflect the underlying performance of our business. Fluctuation in our operating results may adversely affect the price of our shares. Factors that may cause fluctuations in our quarterly results include:
| ● | our ability to attract new customers, maintain relationships with existing customers, and expand into new markets; |
| ● | the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure; |
| ● | general economic, industry and market conditions in China; and |
| ● | our emphasis on customer experience instead of near-term growth. |
If we fail to attract more students to participate in our activities, our operations and financial condition will be materially adversely affected.
The success of our business depends primarily on the number of students who participate each year. Therefore, our ability to continue to attract students is critical to our continued success and growth. We rely heavily on our relationships with provincial and local governments, schools, principals and teachers to promote and encourage participation in our programs to parents, teachers and students. We must create an innovative theme to attract the interest of the participants. In addition, parental support is critical for student participation. If we are unable to continue to attract parents and students to participate, not only will our revenues decline in this business line, but our brand will be harmed, which may have a material adverse effect on our business, financial condition and results of operations.
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Our operations may be affected by the potential Impact of the COVID-19 pandemic.
Beginning in late 2019, there were reports of the COVID-19 (coronavirus) outbreak originating in China, prompting government-imposed quarantines, suspension of in-person attendance of academic programs, cessation of certain travel and business closures. Following this outbreak, in February 2020, the Company’s Beijing office was temporarily shut down and employees worked remotely. In March 2020, the Company gradually resumed its operations. It is presently unknown whether and to what precise extent the Company’s operations may be affected if the pandemic persists for an extended period of time. The Company may incur significant delays, reductions in revenue and increases in expenses relating to such events outside of its control. In addition, the outbreak precludes the Company personnel from visiting its potential customers, which may adversely affect the Company’s ability to generate new sales. The Company expects that the impact of the COVIS-19 outbreak on the United States and world economies will have a material adverse effect on the demand for international travel and obtaining education in the US. During the early stages of the outbreak, we determined to move all our marketing activities into a virtual or online format. Since January, we held more than 70 online promotional and training sessions, including business training with partners, school life broadcast activities, etc. We increased the number and variety of online activities including online guidance classes and online service training sessions, so as to maintain potential student interest and student enrollment rates. However, due to the COVID-19 pandemic, most of the programs at Miami University have been delayed or postponed, and the number of students that has confirmed enrollment was 132 as of May 28, 2020, which was about 17% lower as compared to 159 as of the same date last year. After June 1, 2020, however, the number of applications we received was affected by the increasing COVID-19 cases and the tension in the relationship between the U.S. and Chinese governments. In 2019, we received 42 applications after June 1, but this figure was only 24 in 2020. As of August 15, 2020, a total of 147 students decided to join our program in the U.S., compared to 156 students in 2019. However, only 104 out of these 147 students will start their programs in the Fall 2020 term, while the rest have decided to defer the start of their programs to the Spring 2021 term mainly because of their concerns about the effectiveness of online learning. The COVID-19 outbreak appears to be under control or nearly so in China. Wuhan city, the epicenter of the outbreak, has been reopened. As have the Chinese markets and economy. Chinese high schools resumed classes and activities in mid-April. Once the school functions are fully or close to fully restored, we expect to attract new students to enroll in the studies abroad programs. We expect that the Beijing office will maintain some online promotion activities and will host in-person marketing activities. Parents’ and students’ interest in such travel and education abroad may be adversely affected by these events. Any and all of the foregoing could have a material adverse impact on the Company’s business, operating results and financial condition. We currently believe that our financial resources, not including the process of this offering, will be adequate to sustain the Company’s operations through the outbreak. However, in the event that we do need to raise capital in the future, the outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital.
China regulates education services extensively and we may be subject to government actions if our programs do not comply with PRC laws.
Violation of PRC laws, rules or regulations pertaining to education and related activities may result in penalties, including fines. We endeavor to comply with such requirements by requesting relevant documents from our program participants. However, we cannot assure you that violations or alleged violations of such requirements will not occur with respect to our operations. If the relevant PRC governmental agencies determine that our programs violate any applicable laws, rules or regulations, we could be subject to penalties. While we have and continue to engage in strategies to mitigate this risk by diversifying our marketing efforts and focusing on Southeast Asian markets, there is no assurance that such efforts will be successful in mitigating such risks faced by the Company.
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.
Our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole. China’s economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. The PRC government has implemented measures since the late 1970’s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, which are generally viewed as a positive development for foreign business investment. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over the PRC economic growth through allocating resources, controlling payments of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies. For example, as a result of China’s current nationwide anti-corruption campaign, public school spending has become strictly regulated. To comply with the expenditure control policies of the Chinese government, many public universities temporarily reduced their self-taught education spending in 2017. This caused the demand for our courses in 2017 to decrease. If our clients continue to reduce their demand for our services due to the policies of the Chinese government, this could adversely impact our business, financial condition and operating results.
While China’s economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been slowing. Some of the governmental measures may benefit the overall Chinese economy but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. Any stimulus measures designed to boost the Chinese economy may contribute to higher inflation, which could adversely affect our results of operations and financial condition. For example, certain operating costs and expenses, such as employee compensation and office operating expenses, may increase as a result of higher inflation. In addition, the PRC government has implemented in the past certain measures to control the pace of economic growth. These measures may cause decreased economic activity, which in turn could lead to a reduction in demand for our services and consequently have a material adverse effect on our businesses, financial condition and results of operations.
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Our business, financial condition and results of operations may be adversely affected by a downturn in the global or Chinese economy.
Because our student enrollment may depend on our students’ and potential students’ levels of disposable income, perceived job prospects and willingness to spend, our business and prospects may be affected by economic conditions in China or globally. The global financial markets experienced significant disruptions in 2008 and the United States, Europe and other economies went into recession; the 2020, the world economy has been facing the challenges of the global COVID-19 pandemic. The recovery from the lows of 2008 and 2009 was uneven and is continuously facing new challenges, including the escalation of the European sovereign debt crisis since 2011 and the slowdown of the Chinese economy in 2012. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. A decline in the economic prospects in the mechanics and other industries could alter current or prospective students’ spending priorities and the recruiting demand from workers in these areas. We cannot assure you that education spending in general or with respect to our course offerings in particular will increase, or not decrease, from current levels. Therefore, a slowdown in China’s economy or the global economy may lead to a reduction in demand for mechanics or other training covered by our courses, which could materially and adversely affect our financial condition and results of operations.
The Company’s operations and performance depend significantly on global and regional economic and geopolitical conditions. Changes in U.S.-China trade policies, and a number of other economic and geopolitical factors both in China and abroad could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. Such factors may include, without limitation:
| ● | instability in political or economic conditions, including but not limited to inflation, recession, foreign currency exchange restrictions and devaluations, restrictive governmental controls on transportation, visas issued to citizens of other countries, the movement and repatriation of earnings and capital, and actual or anticipated military or political conflicts, particularly in emerging markets; |
| ● | intergovernmental conflicts or actions, including but not limited to armed conflict, trade wars, retaliatory tariffs, and acts of terrorism or war; and |
| ● | interruptions to the Company’s business with its largest customers, distributors and suppliers resulting from but not limited to, strikes, financial instabilities, computer malfunctions or cybersecurity incidents, inventory excesses, natural disasters or other disasters such as fires, floods, earthquakes, hurricanes or explosions. |
We could be adversely affected by political tensions between the United States and China.
Political tensions between the United States and China have escalated due to, among other things, the COVID-19 outbreak, the PRC National People’s Congress’ passage of the Hong Kong National Security Law, sanctions imposed by the U.S. Department of Treasury on certain officials of the Hong Kong Special Administrative Region and the central government of the PRC, as well as the executive orders could have adverse effect on our operations. Rising political tensions could reduce levels of trade, investments, technological exchanges and other economic activities between the two major economies, which would have a material adverse effect on global economic conditions and the stability of global financial markets. Any of these factors could have a material adverse effect on our business, prospects, financial condition and results of operations. Furthermore, there have been recent media reports on deliberations within the U.S. government regarding potentially limiting or restricting China-based companies from accessing U.S. capital markets. If any such deliberations were to materialize, the resulting legislation may have a material and adverse impact on the stock performance of China-based issuers listed in the United States. We cannot assure you that, if the political tension between the United States and China intensifies and further regulations affecting our business are passed, our business will not be materially and adversely affected.
Some students may decide not to continue engaging our courses for a number of reasons, including a perceived lack of improvement in their performance in specific courses, a change in requirements or general dissatisfaction with our programs, which may adversely affect our business, financial condition, results of operations and reputation.
The success of our business depends in large part on our ability to retain our students by delivering a satisfactory learning experience and improving their performance. If students feel that we are not providing them the experience they are seeking, they may choose not to renew. Student satisfaction with our programs may decline for a number of reasons, many of which may not reflect the effectiveness and efficiency of our services. If students’ performances decline as a result of their own study habits, they may not refer other students to us, which could materially adversely affect our business.
Failure to protect the confidential information of our customers against security breaches could damage our reputation and brand and substantially harm our business and results of operations.
Maintaining security for the storage and transmission of confidential information on our system, such as student names, personal information and billing addresses, is essential to maintaining student confidence. We have adopted security policies and measures to protect our proprietary data and student information. However, advances in technology, the expertise of hackers, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the technology that we use to protect confidential information. We may not be able to prevent third parties, especially hackers or other individuals or entities engaging in similar activities, from illegally obtaining such confidential or private information. Such individuals or entities obtaining our clients’ confidential or private information may further engage in various other illegal activities using such information. Any negative publicity regarding our safety or privacy protection mechanisms and policies, and any claims asserted against us or fines imposed upon us as a result of actual or perceived failures, could have a material and adverse effect on our public image, reputation, financial condition and results of operations.
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If we fail to strengthen and protect our brands, our operations and the financial situation will be materially affected.
We believe that our brand is synonymous with achievement, creativity, self-esteem and accomplishment throughout the PRC. It is critical that we maintain and protect our brand and our image, as we continue to launch new programs, projects and acquire new businesses. As we launch new business lines, and seek to increase visibility in our current business lines, the use of several marketing tools, sponsorship and support from traditional advertisers, schools and government officials will be important to our success. A number of factors could prevent us from successfully promoting our brand, including student and parent dissatisfaction with our services, the failure of our marketing tools and strategies to attract new students. If we are unable to maintain and enhance the brand or utilize marketing tools in a cost-effective manner, our revenues and profitability may suffer. If we are unable to further enhance our brand recognition and increase awareness of our services, or if we incur excessive sales and marketing expenses, our business and results of operations may be materially and adversely affected.
We may not be able to implement our growth strategy and future plans successfully.
Our growth strategy includes increasing sales, leveraging our brand, and acquiring companies that have services, products or technologies that extend or complement our existing business. While we currently have not identified any specific target companies, the process to undertake a growth strategy like ours, is time-consuming and costly. We expect to expend significant resources and there is no guarantee that we will successfully execute our plans. Failure to manage expansion effectively may affect our success in executing our business plan and may adversely affect our business, financial condition and results of operations. We may not realize the anticipated benefits of any or all of our strategies, or may not realize them in the time frame expected. In addition, future acquisitions may require us to issue additional equity securities, spend our cash, or incur debt, and amortization expenses related to intangible assets or write-offs of goodwill, any of which could adversely affect our results of operations.
We face significant competition and if we fail to compete effectively, we may lose our market share and our profitability may be adversely affected.
The education sector in China is rapidly evolving, highly fragmented and competitive, and we expect competition in this sector to persist and intensify. We face competition and competition is particularly intense in some of the key geographic markets in which we operate. We also face competition from companies that focus on one area of our business and are able to devote all of their resources to that business line. These companies may be able to more quickly adapt to changing technology, student preferences and market conditions in these markets than we can. These companies may, therefore, have a competitive advantage over us with respect to these business areas. The increasing use of the Internet and advances in Internet and computer-related technologies are eliminating geographic and cost-entry barriers to providing educational services and products. As a result, many international companies that offer online test preparation and language training courses may decide to expand their presence in China or to try to penetrate the Chinese market. Many of these international companies have strong education brands, and students and parents in China may be attracted to the offerings based in the country that the student wishes to study in or in which the selected language is widely spoken. In addition, many Chinese and smaller companies are able to use the Internet to quickly and cost-effectively offer their services and products to a large number of students with less capital expenditure than previously required. Competition could result in loss of market share and revenues, lower profit margins and limit our future growth. A number of our current and potential future competitors may have greater financial and other resources than we have. In addition, many US universities and colleges marketing in China also represent our competition. These competitors may be able to devote greater resources than we can to the development, promotion and sale of their services and products, and respond more quickly than we can to changes in student needs, market needs or new technologies. As a result, our net revenues and profitability may decrease. We cannot assure you that we will be able to compete successfully against current or future competitors. If we are unable to maintain our competitive position or otherwise respond to competitive pressures effectively, we may lose our market share and our profitability may be materially adversely affected.
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Our success depends, to a large extent, on the skill and experience of our management in the education business. If any member of our senior management leaves, or if we fail to recruit suitable replacements, our operation and financial situation will be adversely affected.
Our success depends in large part on the continued employment of our senior management and key personnel who can effectively identify, build and expand relationships that are critical for us, operate our business, as well as our ability to attract and retain skilled employees. Competition for highly skilled management, technical, research and development and other employees is intense in the education industry in the PRC and we may not be able to attract or retain highly qualified personnel in the future. If any of our employees leave, and we fail to effectively manage a transition to new personnel, or if we fail to attract and retain qualified and experienced professionals on acceptable terms, our business, financial conditions and results of operations could be adversely affected. Our success also depends on our having highly trained sales and marketing personnel to support and promote our current products as well as new service and product launches. We will need to continue to hire additional personnel as our business grows. A shortage in the number of people with these skills or our failure to attract them to our company could impede our ability to increase revenues from our existing products and services, ensure full compliance with applicable federal and state regulations, launch new product offerings and would have an adverse effect on our business and financial results.
We may not be able to adequately protect our intellectual property, which could cause us to be less competitive.
Our trademarks, trade names, and other intellectual property rights are important to our success. In connection with our business, we have registered one domain name in the PRC. We maintain confidentiality of applicant information by encrypting all such information and storing it on third-party servers, with controlled access to any such confidential information by our personnel. Unauthorized use of any of our intellectual property may adversely affect our business and reputation. We rely on trade secrets and confidentiality agreements with our employees, consultants and others to protect our intellectual property rights. Nevertheless, it may be possible for third parties to obtain and use our intellectual property without authorization, or use logos or trade names similar to ours. The unauthorized use of intellectual property is widespread in China, and enforcement of intellectual property rights by Chinese regulatory agencies is inconsistent. Moreover, litigation may be necessary in the future to enforce our intellectual property rights. Future litigation could result in substantial costs and diversion of our management’s attention and resources and could disrupt our business. If we are unable to enforce our intellectual property rights, it could have a material adverse effect on our financial condition and results of operations. Given the relative unpredictability of China’s legal system and potential difficulties enforcing a court judgment in China, we may be unable to halt the unauthorized use of our intellectual property through litigation. Failure to adequately protect our intellectual property could materially adversely affect our competitive position, our ability to attract students and our results of operations.
Our operations are subject to seasonality.
Our programs, which are our primary source of revenues, are seasonal. We tend to experience an increase in revenue from these lines in the second half of the year. As a result, we generally record higher revenue in the second half as compared to the first half of each calendar year. Any adverse change in the trends in spending patterns and other factors, conditions or events in the PRC, may affect our operational results.
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We may need additional capital, and financing may not be available on terms acceptable to us, or at all.
Although our current cash and cash equivalents, anticipated cash flows from operating activities will be sufficient to meet our anticipated working capital requirements and capital expenditures in the ordinary course of business for at least 12 months following this offering, there is a risk that we may need additional cash resources in the future to fund our growth plans or if we experience adverse changes in business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for new investments, acquisitions, capital expenditures or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. The issuance and sale of additional equity would result in further dilution to our shareholders.
| ● | default and foreclosure on our assets if our operating revenue is insufficient to repay debt obligations; |
| ● | acceleration of obligations to repay the indebtedness (or other outstanding indebtedness), even if we make all principal and interest payments when due, if we breach any covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; |
| ● | our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding; |
| ● | diverting a substantial portion of cash flow to pay principal and interest on such debt, which would reduce the funds available for expenses, capital expenditures, acquisitions and other general corporate purposes; and |
| ● | creating potential limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate. |
The occurrence of any of these risks could adversely affect our operations or financial condition.
We will be subject to changing laws, rules and regulations in the U.S. and other jurisdictions regarding regulatory matters, corporate governance and public disclosure that will increase both our costs and the risks associated with non-compliance.
Following this offering, we will be subject to rules and regulations by various governing bodies, including, for example, the Securities and Exchange Commission, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.
Our business is subject to risks related to lawsuits and other claims brought by our clients or business partners. If the outcomes of these proceedings are adverse to us, it could have a material adverse effect on our business, results of operations and financial condition.
We are subject to lawsuits and other claims in the ordinary course of our business. We are currently not involved in any lawsuits with our customers. However, claims arising out of actual or alleged violations of law could be asserted against us by individuals, companies, governmental or other entities in civil, administrative or criminal investigations and proceedings. These claims could be asserted under a variety of laws and regulations, including but not limited to contract laws, consumer protection laws or regulations, intellectual property laws, environmental laws, and labor and employment laws. These actions could expose us to adverse publicity and to monetary damages, fines and penalties, as well as suspension or revocation of licenses or permits to conduct business. Even if we eventually prevail in these matters, we could incur significant legal fees or suffer reputational harm, which could have a material adverse effect on our business and results of operations as well as our future growth and prospects. While all of students enrolled in university academic programs are required to maintain health insurance coverage, we may be subject to claims by students and/or their parents if and to the extent they decide to assert claims against us relating to, among other things, their stay at our dorms and use of our catering services. If such claims are asserted and successfully litigated, our operations and financial condition may be materially affected by the adverse outcome of any such litigation.
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Our management team members, individually and together, own a large percentage of our outstanding stock and could significantly influence the outcome of our corporate matters.
Our Chairman and CEO, Jianbo Zhang, indirectly and directly, owns approximately 84% of our issued and outstanding ordinary shares, and Zhenyu Wu, our Chief Financial Officer owns 5% of our issued and outstanding ordinary shares. Following the completion of the offering, Messrs. Zhang and Wu will hold approximately 75.8% and 4.51% of our outstanding shares, respectively. As a result, together, and individually they will be able to exercise significant influence over all matters that require us to obtain shareholder approval, including the election of directors to our board and approval of significant corporate transactions that we may consider, such as a merger or other sale of our company or its assets. This concentration of ownership in our shares by such individual or their affiliates will limit the other shareholders’ ability to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control over us.
If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price of our shares.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
As a public company, we will have significant additional requirements for enhanced financial reporting and internal controls. We will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting starting with our annual report on Form 20-F following this offering. In addition, an independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting beginning with our annual report on Form 20-F following the date on which we cease to qualify as an emerging growth company if we become an accelerated filer or large accelerated filer. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. Following the Company’s review of the certain financial presentation and disclosures for the fiscal years ended September 30, 2018 and 2019, respectively, the Company discovered certain cut-off errors in relation to our prepayment balances, costs of services and revenues. The errors have impacted fiscal years ended September 30, 2018 and 2019, respectively, and six-month periods ended March 31, 2020 and 2019, respectively. These errors in prepayment balances have consequently impacted the opening retained earnings for the year ended September 30, 2018 and the costs of services and income taxes for the two fiscal years ended September 30, 2018 and 2019 respectively. In addition, a cut-off error was noted in relation to the Company’s revenue for the year ended September 30, 2019. Consequently, this error has impacted the accounts receivable balance as at and income taxes for the year ended September 30, 2019. All the relevant notes to the consolidated financial statements have been restated to reflect the adjustments aforementioned. The Audit Committee of the Company’s Board considered these matters with the Company’s management and consulted the Company’s independent auditors, following which the Audit Committee determine to amend and restate the consolidated financial statements for the fiscal period in question. Following the restatements, the Company’s gross margin for the quarterly period ended March 31, 2020 was above 70%, which is fairly consistent with the Company’s gross margins for other periods.
The Company’s management concluded that a deficiency in the Company’s internal controls existed because the Company lacked sufficient dedicated accounting personnel that would have been expected to detect the cut-off errors. In order to remediate the foregoing deficiency in the Company’s internal controls over financial reporting the Company has assigned a dedicated personnel in the Company and hired a financial consultant to work with the book keeper, and intends to engage full-time accounting personnel with accounting experience in evaluating and reviewing of accounting entries and transactions. If we are unable to remedy and maintain adequate internal controls or fail to correct deficiencies in our controls noted by our management or our independent registered public accounting firm, our business and operating results could be adversely affected, we could fail to meet our obligations to report our operating results accurately and completely.
We cannot assure you that we will not, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a material adverse effect on the market price of our shares.
Lack of experience of our management team as officers of a publicly-traded company may hinder our ability to comply with the Sarbanes-Oxley Act.
It may be time-consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We need to hire additional financial reporting, internal controls and other finance staff or consultants in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the Sarbanes-Oxley Act’s internal controls requirements, we may not be able to obtain the independent registered public accounting firm certifications that the Sarbanes-Oxley Act requires publicly-traded companies to obtain.
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Risks Relating to Our Corporate Structure
We will likely not pay dividends in the foreseeable future.
Dividend policy is subject to the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements and other factors. There is no assurance that our Board of Directors will declare dividends even if we are profitable. Under BVI law, we may only pay dividends if we are solvent before and after the dividend payment in the sense that we will be able to satisfy our liabilities as they become due in the ordinary course of business; and the value of assets of our Company will not be less than the sum of our total liabilities.
The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
The PRC M&A Rules and related regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. For example, the M&A Rules require that PRC’s Ministry of Commence (MOFCOM) be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand, (iv) or in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. Mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the MOFCOM when the threshold under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, or the Prior Notification Rules, issued by the State Council in August 2008 is triggered. In addition, the security review rules issued by the MOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement.
In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions. It is unclear whether our business would be deemed to be in an industry that raises “national defense and security” or “national security” concerns. However, the MOFCOM or other government agencies may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.
As the rights of shareholders under British Virgin Islands law differ from those under U.S. law, you may have fewer protections as a shareholder.
Our corporate affairs will be governed by our memorandum and articles of association, the BVI Business Companies Act, 2004 (as amended), referred to below as the “BVI Act”, and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are governed by the BVI Act and the common law of the British Virgin Islands. The common law of the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from the common law of England and the wider Commonwealth, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are largely codified in the BVI Act, but are potentially not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law. As a result of all of the above, holders of our shares may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company.
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British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of the ability to protect their interests.
Shareholders of British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States Shareholders of a British Virgin Islands company could, however, bring a derivative action in the British Virgin Islands courts, and there is a clear statutory right to commence such derivative claims under Section 184C of the BVI Act. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. This means that even if shareholders were to sue us successfully, they may not be able to recover anything to make up for the losses suffered.
The laws of the British Virgin Islands may provide less protection for minority shareholders than those under U.S. law, so minority shareholders may have less recourse than they would under U.S. law if the shareholders are dissatisfied with the conduct of our affairs.
Under the laws of the British Virgin Islands, the rights of minority shareholders are protected by provisions of the BVI Act dealing with shareholder remedies and other remedies available under common law (in tort or contractual remedies). The principal protection under statutory law is that shareholders may bring an action to enforce the constitutional documents of the company (i.e. the memorandum and articles of association) as shareholders are entitled to have the affairs of the company conducted in accordance with the BVI Act and the memorandum and articles of association of the company. A shareholder may also bring an action under statute if he feels that the affairs of the company have been or will be carried out in a manner that is unfairly prejudicial or discriminating or oppressive to him. The BVI Act also provides for certain other protections for minority shareholders, including in respect of investigation of the company and inspection of the company books and records. There are also common law rights for the protection of shareholders that may be invoked, largely dependent on English common law, since the common law of the British Virgin Islands for business companies is limited.
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Risks Related to Our Securities and This Offering
There has been no public market for our ordinary shares prior to this offering, and you may not be able to resell our ordinary shares at or above the price you paid, or at all.
Prior to this initial public offering, there has been no public market for our shares. We intend to list our ordinary shares on the NASDAQ Capital Market. If an active trading market for our ordinary shares does not develop after this offering, the market price and liquidity of our ordinary shares will be materially and adversely affected. Negotiations with the underwriters will determine the initial public offering price for our ordinary shares which may bear no relationship to their market price after the initial public offering. We cannot assure you that an active trading market for our ordinary shares will develop or that the market price of our ordinary shares will not decline below the initial public offering price.
If we are unable to comply with certain conditions, our ordinary shares may not trade on the NASDAQ Capital Market.
In addition, we have relied on an exemption to the blue sky registration requirements afforded to “covered securities.” Securities listed on the NASDAQ Capital Market are “covered securities.” If we were unable to meet the final conditions for listing, then we would be unable to rely on the covered securities exemption to blue sky registration requirements and we would need to register the offering in each state in which we planned to sell shares. Consequently, we will not complete this offering until we have met the final conditions.
The Warrants may not have value.
The Warrants being offered by us in this offering h expire five years from the date of issuance. In the event that our ordinary shares do not exceed the exercise price of the Warrants during the period when such Warrants are exercisable, such Warrants may not have any value.
Holders of our Warrants will have no rights as shareholders until they acquire shares of our common stock, if ever.
If you acquire the Warrants to purchase shares of our common stock in this offering, you will have no rights with respect to our common stock until you acquire shares of such common stock upon exercise of your Warrants. Upon exercise of your Warrants, you will be entitled to exercise the rights of a holder of common stock only as to matters for which the record date occurs after the exercise date.
There is no public market for either of the Warrants being offered by us in this offering and an active trading market for the same is not expected to develop.
There is no established public trading market for either of the Warrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intend to apply for any listing of either of the Warrants offered hereby on the Nasdaq Capital Market or any other securities exchange or nationally recognized trading system. Without an active market, the liquidity of the Warrants will be severely limited.
If we are listed on the NASDAQ Capital Market and our financial condition deteriorates, we may not meet continued listing standards on the NASDAQ Capital Market.
The NASDAQ Capital Market also requires companies to fulfill specific requirements in order for their shares to continue to be listed. If our shares are listed on the NASDAQ Capital Market but are delisted from the NASDAQ Capital Market at some later date, our shareholders could find it difficult to sell our shares. In addition, if our ordinary shares are delisted from the NASDAQ Capital Market at some later date, we may apply to have our ordinary shares quoted on the Bulletin Board or in the “pink sheets” maintained by the National Quotation Bureau, Inc. The Bulletin Board and the “pink sheets” are generally considered to be less efficient markets than the NASDAQ Capital Market. In addition, if our ordinary shares are not so listed or are delisted at some later date, our ordinary shares may be subject to the “penny stock” regulations. These rules impose additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors and require the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. As a result, the ability or willingness of broker-dealers to sell or make a market in our ordinary shares might decline. If our ordinary shares are not so listed or are delisted from the NASDAQ Capital Market at some later date or become subject to the penny stock regulations, it is likely that the price of our shares would decline and that our shareholders would find it difficult to sell their shares.
If a limited number of participants in this offering purchase a significant percentage of the offering, the effective public float may be smaller than anticipated and the price of our ordinary shares may be volatile.
As a company conducting a relatively modest public offering, we are subject to the risk that a small number of investors will purchase a high percentage of the offering. If this were to happen, investors could find our shares to be more volatile than they might otherwise anticipate. Companies that experience such volatility in their stock price may be more likely to be the subject of securities litigation. In addition, if a large portion of our public float were to be held by a few investors, smaller investors may find it more difficult to sell their shares.
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The market price for our shares may be volatile.
The trading prices of our ordinary shares are likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of internet or other companies based in China that have listed their securities in the United States in recent years. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial decline in their trading prices. The trading performances of other Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States, which consequently may impact the trading performance of our ordinary shares, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, which may have a material adverse effect on the market price of our shares. In addition to the above factors, the price and trading volume of our ordinary shares may be highly volatile due to multiple factors, including the following:
| ● | regulatory developments affecting us, our users, or our industry; |
| ● | regulatory uncertainties with regard to our variable interest entity arrangements; |
| ● | announcements of studies and reports relating to our service offerings or those of our competitors; |
| ● | actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results; |
| ● | changes in financial estimates by securities research analysts; |
| ● | announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures or capital commitments; |
| ● | additions to or departures of our senior management; |
| ● | detrimental negative publicity about us, our management or our industry; |
| ● | fluctuations of exchange rates between the RMB and the U.S. dollar; |
| ● | release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares; and |
| ● | sales or perceived potential sales of additional ordinary shares. |
We are a “foreign private issuer,” and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our performance and prospects.
We are a foreign private issuer and, as a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime. As a foreign private issuer, we will also be exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we will still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. While we may determine, on our own accord, to provide the results of our operations on a quarterly basis, and since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies.
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Shares eligible for future sale may adversely affect the market price of our ordinary shares, as the future sale of a substantial amount of outstanding ordinary shares in the public marketplace could reduce the price of our ordinary shares.
The market price of our shares could decline as a result of sales of substantial amounts of our shares in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of our ordinary shares. An aggregate of shares is outstanding before the consummation of this offering and 8,800,500 shares will be outstanding immediately after this offering. All of the shares sold in the offering will be freely transferable without restriction or further registration under the Securities Act. The remaining shares will be “restricted securities” as defined in Rule 144. These shares may be sold in the future without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act.
You will experience immediate and substantial dilution.
The initial public offering price of our Units is expected to be substantially higher than the pro forma net tangible book value per share of our ordinary shares. Assuming the completion of the offering, if you purchase shares in this offering, you will incur immediate dilution of approximately $6.59 in the pro forma net tangible book value per share from the price per share that you pay for the shares. Accordingly, if you purchase shares in this offering, you will incur immediate and substantial dilution of your investment. See “Dilution.”
We have not finally determined the use of the proceeds from this offering, and we may use the proceeds in ways with which you may not agree.
While we have identified the priorities to which we expect to put the proceeds of this offering, our management will have considerable discretion in the application of the net proceeds received by us. Specifically, we intend to use the net proceeds from this offering for facility expansion at additional campuses of Miami University of Ohio, expansion into the Canadian and Southeast Asian markets, for entry into the UK educational markets, and working capital and general corporate purposes. We have reserved the right to re-allocate funds currently allocated to be used as our general working capital. If that were to happen, then our management would have discretion over even more of the net proceeds to be received by our company in this offering. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our efforts to achieve profitability or increase our stock price. The net proceeds from this offering may be placed in investments that do not produce profit or increase value. See “Use of Proceeds.”
As the rights of shareholders under BVI law differ from those under U.S. law, you may have fewer protections as a shareholder.
Our corporate affairs will be governed by the BVI Business Companies Act, 2004, as amended (the “BVI Act”), and the common law of the BVI. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under BVI law are governed by the BVI Act and the common law of the BVI. The common law of the BVI is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from the common law of England and the wider Commonwealth, which has persuasive, but not binding, authority on a court in the BVI. The rights of our shareholders and the fiduciary responsibilities of our directors under BVI law are largely codified in the BVI Act but are potentially not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the BVI has a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law. As a result of all of the above, holders of our ordinary shares may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company.
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Shareholders of BVI companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. Shareholders of a BVI company could, however, bring a derivative action in the BVI courts, and there is a clear statutory right to commence such derivative claims under Section 184C of the BVI Act. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The BVI courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original actions brought in the BVI, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the BVI of judgments obtained in the United States, although the courts of the BVI will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. The BVI Act offers some limited protection of minority shareholders. The principal protection under statutory law is that shareholders may apply to the BVI court for an order directing the company or its director(s) to comply with, or restraining the company or a director from engaging in conduct that contravenes, the BVI Act. Under the BVI Act, the minority shareholders have a statutory right to bring a derivative action in the name of and on behalf of the company in circumstances where a company has a cause of action against its directors. This remedy is available at the discretion of the BVI court. A shareholder may also bring an action against the company for breach of duty owed to him as a member. A shareholder who considers that the affairs of the company have been, are being or likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity, may apply to the BVI court for an order to remedy the situation.
There are common law rights for the protection of shareholders that may be invoked, largely dependent on English company law. Under the general rule pursuant to English company law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the Board of Directors. However, every shareholder is entitled to have the affairs of the company conducted properly according to BVI law and the constituent documents of the company. As such, if those who control the company have persistently disregarded the requirements of company law, then the courts may grant relief. Generally, the areas in which the courts will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe or are about to infringe on the personal rights of the shareholders, such as the right to vote; and (4) where the company has not complied with provisions requiring approval of a special or extraordinary majority of shareholders. This means that even if shareholders were to sue us successfully, they may not be able to recover anything to make up for the losses suffered.
Under the laws of the BVI, the rights of minority shareholders are protected by provisions of the BVI Act dealing with shareholder remedies and other remedies available under common law (in tort or contractual remedies). The principal protection under statutory law is that shareholders may bring an action to enforce the constitutional documents of the company (i.e. the Memorandum and Articles of Association) as shareholders are entitled to have the affairs of the company conducted in accordance with the BVI Act and the Memorandum and Articles of Association of the company. A shareholder may also bring an action under statute if he feels that the affairs of the company have been or will be carried out in a manner that is unfairly prejudicial or discriminating or oppressive to him. The BVI Act also provides for certain other protections for minority shareholders, including in respect of investigation of the company and inspection of the company books and records. There are also common law rights for the protection of shareholders that may be invoked, largely dependent on English common law, since the common law of the BVI for business companies is limited.
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We may not be able to pay any dividends on our ordinary shares in the future due to BVI law.
Under BVI law, we may only pay dividends to our shareholders if the value of our assets exceeds our liabilities and we are able to pay our debts as they become due. We cannot give any assurance that we will declare dividends of any amounts, at any rate or at all in the future. Future dividends, if any, will be at the discretion of our Board of Directors, and will depend upon our results of operations, cash flows, financial condition, payment to us of cash dividends by our subsidiaries, capital needs, future prospects and other factors that our directors may deem appropriate.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
The determination of our status as a foreign private issuer is made annually on the last business day of our most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on or after March 31, 2020. We would lose our foreign private issuer status if (1) a majority of our outstanding voting securities are directly or indirectly held of record by U.S. residents, and (2) a majority of our shareholders or a majority of our directors or management are U.S. citizens or residents, a majority of our assets are located in the United States, or our business is administered principally in the United States. If we were to lose our foreign private issuer status, the regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. We may also be required to modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers, which would involve additional costs.
We will incur increased costs as a result of being a publicly traded company.
As a company with publicly traded securities, we will incur additional legal, accounting and other expenses not presently incurred. In addition, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as well as rules promulgated by the SEC and the national securities exchange on which we list, requires us to adopt corporate governance practices applicable to U.S. public companies. These rules and regulations will increase our legal and financial compliance costs.
We may be exposed to risks relating to evaluations of controls required by Sarbanes-Oxley Act of 2002.
Our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies and, if required, our independent registered public accounting firm may not be able to certify the effectiveness of our internal controls over financial reporting. In either case, we could become subject to regulatory sanction or investigation. Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements.
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As an “emerging growth company” under the Jumpstart Our Business Startups Act, or JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.
As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. We are an emerging growth company until the earliest of:
| ● | the last day of the fiscal year during which we have total annual gross revenues of $1.07 billion or more; |
| ● | the last day of the fiscal year following the fifth anniversary of this offering; |
| ● | the date on which we have, during the previous 3-year period, issued more than $1.07 billion in non-convertible debt; or |
| ● | the date on which we are deemed a “large accelerated issuer” as defined under the federal securities laws. |
For so long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act for up to five fiscal years after the date of this offering. We cannot predict if investors will find our ordinary shares less attractive because we may rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and the trading price of our ordinary shares may be more volatile. In addition, our costs of operating as a public company may increase when we cease to be an emerging growth company.
We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ordinary shares.
Based on the anticipated market price of our ordinary shares in this offering and expected price of our ordinary shares following this offering, and the composition of our income, assets and operations, we do not expect to be treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for the current taxable year or in the foreseeable future. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you the U.S. Internal Revenue Service will not take a contrary position. Furthermore, this is a factual determination that must be made annually after the close of each taxable year. If we are a PFIC for any taxable year during which a U.S. holder holds our ordinary shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ordinary shares and trading volume could decline.
The trading market for our ordinary shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who cover us downgrade our ordinary shares or publish inaccurate or unfavorable research about our business, the market price for our ordinary shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ordinary shares to decline.
Our principal shareholders have substantial influence over our company. Their interests may not be aligned with the interests of our other shareholders, and they could prevent or cause a change of control or other transactions.
Our executive officers and directors, together with our existing shareholders, could have a significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations, the election of directors and other significant corporate actions. In cases where their interests are aligned and they vote together, these shareholders will also have the power to prevent or cause a change in control. Without the consent of some or all of these shareholders, we may be prevented from entering into transactions that could be beneficial to us or our minority shareholders. In addition, our directors and officers could violate their fiduciary duties by diverting business opportunities from us to themselves or others. The interests of our largest shareholders may differ from the interests of our other shareholders. The concentration in the ownership of our ordinary shares may cause a material decline in the value of our ordinary shares.
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As a company incorporated in the British Virgin 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. These practices may afford less protection to shareholders than they would enjoy if we complied fully with Nasdaq corporate governance listing standards.
As a company incorporated in the BVI that is expected to be listed on Nasdaq, we are subject to Nasdaq corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the BVI, which is our home country, may differ significantly from Nasdaq corporate governance listing standards. Currently, we do not plan to rely on the home country practice with respect to our corporate governance after we complete this offering. However, if we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would enjoy under Nasdaq corporate governance listing standards applicable to U.S. domestic issuers.
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.
Because we are a foreign private issuer under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
| ● | the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC; |
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; |
| ● | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and |
| ● | the selective disclosure rules by issuers of material non-public information under Regulation FD. |
We will be 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 the Nasdaq Capital Market. 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. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.
If a limited number of participants in this offering purchase a significant percentage of the offering, the effective public float may be smaller than anticipated and the price of our ordinary shares may be volatile which could subject us to securities litigation and make it more difficult for you to sell your shares.
As a company conducting a relatively small public offering, we are subject to the risk that a small number of investors will purchase a high percentage of the offering. While the underwriters are required to sell shares in this offering to at least 300 round lot shareholders (a round lot shareholder is a shareholder who purchases at least 100 shares) in order to ensure that we meet the Nasdaq initial listing standards, we have not otherwise imposed any obligations on the underwriters as to the maximum number of shares they may place with individual investors. If, in the course of marketing the offering, the underwriters were to determine that demand for our shares was concentrated in a limited number of investors and such investors determined to hold their shares after the offering rather than trade them in the market, other shareholders could find the trading and price of our shares affected (positively or negatively) by the limited availability of our shares. If this were to happen, investors could find our shares to be more volatile than they might otherwise anticipate. Companies that experience such volatility in their share price may be more likely to be the subject of securities litigation. In addition, if a large portion of our public float were to be held by a few investors, smaller investors may find it more difficult to sell their shares.
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We have made statements in this prospectus, including under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business” and elsewhere that constitute forward-looking statements. Forward-looking statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,” “will,” “could” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.
Examples of forward-looking statements include:
| ● | the timing of the development of future services; |
| ● | projections of revenue, earnings, capital structure and other financial items; |
| ● | the development of future company-owned call centers; |
| ● | statements regarding the capabilities of our business operations; |
| ● | statements of expected future economic performance; |
| ● | statements regarding competition in our market; and |
| ● | assumptions underlying statements regarding us or our business. |
The ultimate correctness of these forward-looking statements depends upon a number of known and unknown risks and events. We discuss our known material risks under the heading “Risk Factors” above. Many factors could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Consequently, you should not place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
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We estimate that we will receive net proceeds from the sale of the Units of approximately $4.50 million, based upon an assumed initial public offering price of $8.00 per Unit, after deducting estimated underwriting discounts and commissions and estimated offering expenses. If the underwriters’ option to purchase additional Units is exercised in full, we estimate that we will receive net proceeds of approximately $5.33 million, after deducting estimated underwriting discounts and commissions and before estimated offering expenses.
Proceeds of this offering in the amount of $200,000 shall be used to fund an escrow account for a period of 12 months following the closing date of this offering, which account shall be used in the event we have to indemnify the underwriters pursuant to the terms of an underwriting agreement with the underwriters.
We intend to use the net proceeds of this offering, assuming that the underwriters do not exercise their over-allotment option, as follows:
| ● | Approximately $1.0 million to expand our existing (the Middletown campus) and build future (the Hamilton and Oxford (main) campuses) student dormitory facilities at Miami University of Ohio.* |
| ● | Approximately $1.0 million to support our expansion into the Canadian and Southeast Asian markets.** While we have been conducting industry and market research covering Canada, Vietnam and Myanmar, no capital investment in these markets has been made to date. In Canada, our most likely expansion path will involve acquisition of one or one or more private schools (physical plant and facilities) which would allow us to build a student pool ripe for future expansion; in Vietnam and Myanmar, we intend to work with local partners to recruit students for the Miami University program. |
| ● | Approximately $2.0 million to support our entry into the UK educational markets. We are currently seeking to partner with local universities to establish presence on its existing campus in London’s vicinity to replicate the success of our model with Miami University. As discussed above, QHI’s International Representative Agreement with the University of Northumbria at Newcastle is our first such partner. We have and continue our market research in the UK as well, but have not made any capital investment to date. |
| ● | With the remaining proceeds to be directed to develop and expand student recruitment channels and for working capital and general corporate purposes. |
| * | While it maintains plans to expand our existing business on the Middletown, Hamilton and Oxford (Main) campuses, the Company will not build or acquire any additional dormitory facilities prior to the end of its 2021 fiscal year end (which ends September 30, 2021). |
| ** | While the Company also continues to maintain plans for international expansion of its business to Canadian, Southeast Asian, and UK markets, no such action will be taken until after the end of the Company’s 2021 fiscal year end. The Company has been and will carefully consider its options in the real estate and capital markets significantly affected by the COVID-19 pandemic. |
The precise amounts and percentage of proceeds we would devote to particular categories of activity will depend on prevailing market and business conditions as well as particular opportunities that may arise from time to time. This expected use of our net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including any unforeseen cash needs. Similarly, the priority of our prospective uses of proceeds will depend on business and market conditions are they develop. Accordingly, our management will have significant flexibility and broad discretion in applying the net proceeds of the offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. Pending remitting the offering proceeds, we intend to invest our net proceeds in short-term, interest bearing, investment-grade obligations.
Although we may use a portion of the proceeds for the acquisition of, or investment in, companies, technologies, products or assets that complement our business, we have no present understandings, commitments or agreements to enter into any acquisitions or make any investments. We cannot assure you that we will make any acquisitions or investments in the future.
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The following table sets forth our capitalization as of March 31, 2020:
| ● | On an actual basis; and |
| ● | On a pro forma basis to give effect to the sale of 750,000 Units by us in this offering at the assumed initial public offering price of $8.00 per Unit, after deducting the estimated underwriting commissions and estimated offering expenses and assuming that the underwriters do not exercise their over-allotment option. |
You should read this table in conjunction with our financial statements and related notes appearing elsewhere in this prospectus and “Use of Proceeds” and “Description of Share Capital.” You should read this table in conjunction with our financial statements and related notes appearing elsewhere in this prospectus and “Use of Proceeds” and “Description of Share Capital.”
As of March 31, 2020
| As Reported | Pro Forma Adjusted for IPO | |||||||
| Ordinary shares | ||||||||
| Shares | 7,938,000 | 8,688,000 | ||||||
| Par Value Amount | $ | 12,600 | $ | 13,350 | ||||
| Additional Paid-In Capital | $ | 2,731,273 | $ | 7,235,218 | ||||
| Retained Earnings | $ | 5,038,764 | $ | 5,038,764 | ||||
| Accumulated Other Comprehensive Income | $ | - | $ | - | ||||
| Total | $ | 7,782,637 | $ | 12,287,332 | ||||
The holders of our ordinary shares are entitled to dividends out of funds legally available when and as declared by our board of directors. Our board of directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiary and other holdings and investments. In addition, our operating companies may, from time to time, be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. In the event of our liquidation, dissolution or winding up, holders of our ordinary shares are entitled to receive, ratably, the net assets available to shareholders after payment of all creditors.
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If you invest in our common shares, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share immediately after this offering.
As of March 31, 2020, we had a historical net tangible book value of $7.3 million, or $0.91 per share, based on shares outstanding at March 31, 2020. Our historical net tangible book value per share is the amount of our total tangible assets less our total liabilities at March 31, 2020, divided by the number of shares of common stock outstanding at March 31, 2020.
After giving effect to the sale of 750,000 Units (and the common shares thereunder) in this offering at an initial public offering price of $8.00 per Unit (assuming no exercise of the warrants included in the Units, no value is attributed to such warrants and such warrants are classified and accounted for as equity), and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value at March 31, 2020 would have been $11.8 million, or $1.35 per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $0.44 per share to existing shareholders and immediate dilution of $6.65 per share to new investors purchasing shares of common stock in this offering.
The following table illustrates this dilution on a per share basis:
| Offering(1) | ||||
| Assumed offering price per ordinary share | $ | 8.00 | ||
| Net tangible book value per ordinary share as of March 31, 2020 | $ | 0.91 | ||
| Increase per ordinary share attributable to this offering | $ | 0.44 | ||
| Pro forma net tangible book value per ordinary share after the offering | $ | 1.35 | ||
| Dilution per ordinary share to new investors | $ | 6.65 | ||
The number of shares of our common stock to be outstanding after this offering is based on 7,938,000 common shares outstanding as of March 31, 2020 assumes (i) no exercise by the underwriter of its over-allotment option and (ii) no exercise of the underwriters’ warrants.
The following tables illustrate our pro forma proportionate ownership, upon completion of this offering by present shareholders and investors in this offering, compared to the relative amounts paid by each. They reflect payment by present shareholders as of the date the consideration was received and by investors in this offering at the assumed offering price without deduction of commissions or expenses. The tables further assume no changes in net tangible book value other than those resulting from the offering.
| Shares Purchased | Total Consideration | Average Price | ||||||||||||||||||
| Amount (#) | Percent (%) | Amount ($) | Percent (%) | Per Share ($) | ||||||||||||||||
| Existing shareholders | 7,938,000 | 91.4 | % | 1,439,140 | 19.3 | % | $ | 0.11 | ||||||||||||
| New investors | 750,000 | 8.6 | % | 6,000,000 | 80.7 | % | $ | 8.00 | ||||||||||||
| Total | 8,688,000 | 100 | % | 7,439,140 | 100 | % | $ | 0.56 | ||||||||||||
The table below shows what happens when over-allotment option exercised:
| Shares Purchased | Total Consideration | Average Price | ||||||||||||||||||
| Amount (#) | Percent (%) | Amount ($) | Percent (%) | Per Share ($) | ||||||||||||||||
| Existing shareholders | 7,938,000 | 90.2 | % | 1,439,140 | 17.3 | % | $ | 0.11 | ||||||||||||
| New investors | 862,500 | 9.8 | % | 6,900,000 | 82.7 | % | $ | 8.00 | ||||||||||||
| Total | 8,800,500 | 100 | % | 8,339,140 | 100 | % | $ | 0.62 | ||||||||||||
If the underwriters’ over-allotment option of 112,500 Units is exercised in full, the number of shares held by existing stockholders will be reduced to 90.2% of the total number of shares to be outstanding after this offering; and the number of shares held by the new investors will be increased to 862,500 shares, or 6.4%, of the total number of shares outstanding after this offering.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.” All amounts in included in the fiscal years ended September 30, 2019 and 2018 (“Annual Financial Statements”) are derived from our audited consolidated financial statements included elsewhere in this prospectus. All amounts in included in the six months ended March 31, 2020 and 2019 (“Interim Financial Statements”) are derived from our interim condensed consolidated financial statements included elsewhere in this prospectus. These Annual Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or US GAAP.
Overview
We were founded in 2012. Our revenue is primarily derived from foreign education program fees paid and student accommodation services.
Our revenue for the year ended September 30, 2019 increased by 38% as compared to that of the year ended September 30, 2018. These increases were mainly attributable to increases in the number of student enrollments for our English language programs at Miami University. As a result, our net income for the year ended September 30, 2019 increased by 92% as compared to that of the year ended September 30, 2018.
Our revenue for the six months ended March 31, 2020 increased by 28% as compared to that of the same period ended March 31, 2019. These increases were mainly attributable to increases in the number of student enrollments for our English language programs at Miami University and also the new commission revenue related to our new student recruitment services in 2020. The net income for the six months ended March 31, 2020 increased by 2% compared to the same period of 2019 mainly due to the increase of our revenue. The increase in revenue was offset by the increase in our operating expenses increased by 50% due to the increases in our selling and general administrative expenses to accommodate our business expansion.
As of September 30, 2019, our cash was US$8.3 million, representing an increase of US$4.3 million from US$4.0 million as of September 30, 2018. The increase is mainly due to the growth in our net income as discussed above.
As of March 31, 2020, our cash was US$5.5 million, representing a decrease of US$2.8 million from US$8.3 million as of September 30, 2019. The decrease is mainly due to the timing of our inflows and outflows since the majority of our cash inflows from our educations programs and accommodations services generally occur in the fall semester seasons while cash outflows for our routine operations occur relatively evenly throughout the year.
General Factors Affecting Our Results of Operations
Our business and results of operations are affected by general factors affecting PRC overseas education industry, which include, among other things:
|
● | PRC overall economic growth |
|
● | Per capita disposable income of PRC |
| ● | Changes in U.S. regulatory environment regarding acceptance of oversea students |
Specific Factors Affecting Our Results of Operations
In addition to the general factors, the Company have been and will continue to be affected by a number of factors, many of which may be beyond control of the Company, including those factors set out in the section headed “Risk Factors” in this registration document and those set out below.
Student Enrollment
The growth of the historical sales was mainly driven by the number of student enrollment from the PRC. In general, our ability to attract new students is largely dependent on our reputation, the reputation of our partnered education institutions who provide the English language programs and post-secondary programs, and the quality of our services. Our reputation was primarily driven by the academic performance of our students and the quality of the English programs we offered with our partnered education institutions.
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Partnered Education Institutions
Our revenue will depend significantly our ability to successfully manage our relationship with our partnered education institutions. We may face challenges with finding suitable education institutions in the U.S. Currently, we rely significantly on our partnership with Miami University for the provision of our English language programs. In the event that our relationship with Miami University is found to be unsustainable, the revenue and results of operations of the Company may be adversely affected.
Miami University (Middletown Campus) Agreement
The original term of the Agreement between and among Miami University (MU), Renda Finance and Education Technology Company (Renda) and Quest Holding International, LLC (QHI) is three-years from July 1, 2017 to June 30, 2020, subject to annual review by the parties to it. Under the terms of the Agreement, the Company identifies qualified students for admission to MU-Middletown and ELC and ensures that student application materials are intact and properly completed. Upon admission to the ELC program and arrival on campus, students take English language proficiency testing and instruction. Specifically, students are assessed on their reading, writing, speaking, listening and grammar skills along the Level 1-5 scale: Level 1-3 students are eligible to take non-credit level intensive English course at MU-Middletown; Level 4 students are conditionally admitted and are able to begin course work at MU-Middletown, and once Level 4 is completed, such students graduate to a full-fledged international student status which entitles them to commence the major course work at MU-Middletown. Ordinarily, the parties conclude their renewal negotiations immediately before each new academic year (September); however, given the ongoing impact of the COVID-19 pandemic, the negotiation process has been delayed.
For Level 1-3 students, the Company is required to pay to MU-Middletown $5,600 per student per semester for the costs of Level 1-3 non-credit language instruction and $500 per student per semester for the costs of texts and related course materials. In addition, the Company is required to pay $500 per student per semester to cover various student activity related fees. The aggregate fixed cost of $6,600 per student per semester is non-refundable and will remain unchanged for the term of the MOA. For Level 4-5 students, the Company is required to pay to MU-Middletown $6,200 per student per semester for the costs of Level 1-3 non-credit language instruction and $500 per student per semester for the costs of texts and related course materials. In addition, the Company is required to pay $500 per student per semester to cover various student activity related fees. The aggregate fixed cost of $7,200 per student per semester is non-refundable and will remain unchanged for the term of the MOA. All such payments are made in advance of each academic semester.
The Company is responsible for all accommodations, housing and dining services for students in the ELC program at MU-Middletown. It also provides housing supervision and 24-hour emergency support for the students in residence. For the term of the Agreement, the Company is required to carry a general liability insurance policy and indemnification covering MU, Renda and the Company.
Miami University (Oxford Campus) Agreement
The original term of the agreement between and among Miami University (Oxford) and QHI is three-years from November 1, 2019 to November 1, 2022, subject to review and renewal by the parties to the Agreement. The agreement may be terminated on not less than 90 days’ written notice to the other party. Under the terms of the agreement, the Company agreed to provide and facilitate recruitment and admission-related services to prospective PRC students, their parents, and high school administrators and also to provide PRC students and graduates with student career development consultation, employer recruitment, and engagement with alumni within the career development area during the term of this agreement.
For each non-US resident PRC student enrolled full time in a undergraduate academic programs from whom the Miami University has received full payment of tuition, the Miami University agreed to make a payment in US dollars to the Company as follows: (i) if the Company fails to provide at least 200 students in any given academic year, no payment will be required, (ii) if the Company provides 200 or more students, a payment of 5% for each of the first 200 students will be required, (iii) a payment of 10% for each of the next 50 students (201-250) enrolled in a given academic year, and (iv) a payment of 15% for each for each student above 250 enrolled. Further, under the Agreement, the university agreed to pay the Company a flat fee of $55,000 per academic year to perform the services in connection with the recruitment of prospective students who reside in the United States. For the term of the Agreement, the Company is required to carry a general liability insurance policy and indemnification.
Pricing and Costs
Our results of operations are directly impacted by our prices and costs. We charge our students a fixed tuition fee and incur costs of program fees charged by our partnered education institutions that operate the English language programs. In the event that our current level of tuition fees cannot be sustained due to the increase of competition and/or the program fees are significantly adjusted by our partnered education institutions, the result of operations of the Company may be adversely affected.
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Results of Operations
Years Ended September 30, 2019 and 2018
| For The Year Ended | For The Year Ended | |||||||
| September 30, 2019 | September 30, 2018 | |||||||
| Restated | Restated | |||||||
| Revenues | $ | 8,700,332 | $ | 6,285,176 | ||||
| Costs of services | 2,228,307 | 1,752,049 | ||||||
| Gross profit | 6,472,025 | 4,533,127 | ||||||
| Operating costs and expenses: | ||||||||
| Selling expenses | 1,965,102 | 1,288,863 | ||||||
| General and administrative | 1,863,290 | 1,579,650 | ||||||
| Total operating costs and expenses | 3,828,392 | 2,868,513 | ||||||
| Income from operations | 2,643,633 | 1,664,614 | ||||||
| Other income | (79,921 | ) | (51,879 | ) | ||||
| Income before provision for income taxes | 2,723,554 | 1,716,493 | ||||||
| Income taxes expense | 668,796 | 646,879 | ||||||
| Net income | 2,054,758 | 1,069,614 | ||||||
Revenue, costs of sales and gross profit margin
The following table sets forth the revenue, costs of sales and gross profit margin of the Company:
| For The Year Ended | For The Year Ended | |||||||
| September 30, 2019 | September 30, 2018 | |||||||
| Restated | Restated | |||||||
| Revenues | $ | 8,700,332 | $ | 6,285,176 | ||||
| Costs of services | 2,228,307 | 1,752,049 | ||||||
| Gross profit | 6,472,025 | 4,533,127 | ||||||
| Gross profit margin % | 74 | % | 72 | % | ||||
Revenues primarily consist of the tuition fees and dormitory rental fees we collected from our students. Our revenues increased by US$2.4 million or 38% due to the significant increase in the number of our student enrollments in fiscal 2019 compared to fiscal year 2018. The number of enrolments increased from to 160 in fiscal year 2018 to 186 in fiscal year 2019. Of the US$2.4 million increase, US$2.2 million increase was in relation to increase in our student enrolments and the remaining US$0.2 million increase was related to our new commission revenue earned from providing student recruitment services for University of North Umbria at Newcastle.
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Costs of sales (services) mainly related to the program fees that we paid to our partnered university which provides the English learning programs to our students. The program fees are based on semester terms and are generally fixed per student and per semester. Our English learning programs contain five competence levels. Generally, the last level (Level-five) generally has a lower cost of services and therefore has higher gross margin than programs offered for the first four competence level programs. Our costs of sales in 2019 increased compared to 2018 mainly due to the increase in the number of the enrolments of our students.
Gross profit margin – English Student Enrolments
| For The Year Ended | For The Year Ended | |||||||
| September 30, 2019 | September 30, 2018 | |||||||
| Restated | Restated | |||||||
| Revenues | $ | 8,500,387 | $ | 6,285,176 | ||||
| Costs of services | 2,228,307 | 1,752,049 | ||||||
| Gross profit | 6,272,080 | 4,533,127 | ||||||
| Gross profit margin % | 74 | % | 72 | % | ||||
Our gross margin for English student enrolments in 2019 is fairly consistent with that of 2018.
Six Months Ended March 31, 2020 and 2019
| For The Period Ended | For The Period Ended | |||||||
| March 31, 2020 | March 31, 2019 | |||||||
| Restated | Restated | |||||||
| Revenues | $ | 6,128,360 | $ | 4,908,136 | ||||
| Costs of services | 1,555,819 | 1,275,596 | ||||||
| Gross profit | 4,572,541 | 3,632,540 | ||||||
| Operating costs and expenses: | ||||||||
| Selling expenses | 1,142,150 | 933,574 | ||||||
| General and administrative | 1,751,402 | 1,000,303 | ||||||
| Total operating costs and expenses | 2,893,552 | 1,933,877 | ||||||
| Income from operations | 1,678,989 | 1,698,663 | ||||||
| Other income | (7,218 | ) | (35,394 | ) | ||||
| Income before provision for income taxes | 1,686,207 | 1,734,057 | ||||||
| Income taxes expense | 374,642 | 451,552 | ||||||
| Net income | 1,311,565 | 1,282,505 | ||||||
Revenue, costs of sales and gross profit margin
The following table sets forth the revenue, costs of sales and gross profit margin of the Company:
| For The Period Ended | For The Period Ended | |||||||
| March 31, 2020 | March 31, 2019 | |||||||
| Restated | Restated | |||||||
| Revenues | $ | 6,128,360 | $ | 4,908,136 | ||||
| Costs of services | 1,555,819 | 1,275,596 | ||||||
| Gross profit | 4,572,541 | 3,632,540 | ||||||
| Gross profit margin % | 75 | % | 74 | % | ||||
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Our revenues increased by US$1.3 million or 25% for the period ended March 31, 2020 compared to the same period of 2019. This is due to: 1) $1.0 million or 21% increase in relation to increase in our student enrolments; 2) due to the new commission revenue of $0.3 million we earned from providing student recruitment services for University of North Umbria at Newcastle.
Our costs of sales in 2020 increased compared to 2020 due to the increase in our revenue.
Gross profit margin – English Student Enrolments
| For The Period Ended | For The Period Ended | |||||||
| March 31, 2020 | March 31, 2019 | |||||||
| Restated | Restated | |||||||
| Revenues – English Student enrolment | $ | 5,817,117 | $ | 4,908,136 | ||||
| Costs of services | 1,555,819 | 1,275,596 | ||||||
| Gross profit | 4,261,298 | 3,632,540 | ||||||
| Gross profit margin % | 73 | % | 74 | % | ||||
Our gross margin for English student enrolments in 2020 is fairly consistent with that of 2019. The small decrease was due the number of Level 5 students registered under this program between the two periods. For Level-5 students, costs of services are generally lower compared to other levels.
Operating expenses
Our operating expenses consist of selling and marketing expenses, and general and administrative expenses.
Selling expenses
| For The Year Ended | For The Year Ended | |||||||
| September 30, 2019 | September 30, 2018 | |||||||
| Selling expenses | $ | 1,965,102 | $ | 1,288,863 | ||||
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The Company’s selling expenses primary relate to the student recruitment commission fees paid to agents who provided student recruitment services to the Company and expenses related to business development. The Company relies on agents to promote and recruit potential students to enroll in its English learning programs. The total selling expenses increased by US$0.7 million in 2019 compared to 2018. The increase is in line with the increase of our revenue in 2019 as compared to 2018.
| For The Period Ended | For The Period Ended | |||||||
| March 31, 2020 | March 31, 2019 | |||||||
| Selling expenses | $ | 1,142,150 | $ | 933,574 | ||||
Selling expenses for the six months ended March 31, 2020 increased by US$0.2 million or 22% compared to same period of 2019. The increase is in line with the increase of our revenue in 2020 as compared to 2019.
General and administrative expense
General and administrative expense consist primarily of the following expenses:
| For the Year Ended September 30, 2019 | For the Year Ended September 30, 2018 | |||||||
| Bank charges | $ | 4,854 | $ | 4,891 | ||||
| Depreciation expenses | 91,814 | 82,223 | ||||||
| Insurance | 50,545 | 53,191 | ||||||
| Office expenses | 210,689 | 202,121 | ||||||
| Professional | 182,609 | 200,885 | ||||||
| Rental expenses | 453,432 | 438,796 | ||||||
| Repairs and maintenance | 117,058 | 117,186 | ||||||
| Salary and benefits | 590,164 | 298,831 | ||||||
| Sundry | 20,390 | 15,800 | ||||||
| Tax and licenses | 114,980 | 143,605 | ||||||
| Vehicle expenses | 26,755 | 22,121 | ||||||
| Total | 1,863,290 | 1,579,650 | ||||||
Our general administrative expenses remained relatively stable, only slightly increased by US$0.3 million. This is because our general administrative expenses are generally fixed and will not significantly vary according to the changes of our revenue. The significant increase in 2019 was due to the increase in salaries as a result of the expansion of our business. Therefore, more employees were hired to accommodate the increase.
| For the Period Ended March 31, 2020 | For the Period Ended March 31, 2019 | |||||||
| Bank charges | $ | 3,906 | $ | 3,407 | ||||
| Depreciation expenses | 45,592 | 41,112 | ||||||
| Insurance | 33,945 | 2,390 | ||||||
| Office expenses | 241,187 | 120,980 | ||||||
| Professional | 124,047 | 112,404 | ||||||
| Rental expenses | 253,081 | 219,398 | ||||||
| Repairs and maintenance | 111,820 | 67,695 | ||||||
| Salary and benefits | 838,260 | 344,689 | ||||||
| Sundry | 12,131 | 1,766 | ||||||
| Tax and licenses | 80,339 | 72,310 | ||||||
| Vehicle expenses | 7,094 | 14,152 | ||||||
| Total | 1,751,402 | 1,000,303 | ||||||
The significant increase in 2020 compared to the same period of 2019 was primarily due to the significant increase in salaries as a result of the continued expansion of our business. Therefore, more employees were hired to accommodate the increase. Our office expenses also increased significantly as well to accommodate our business expansion.
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Income Tax
BVI
Under the current laws of the BVI, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no BVI withholding tax will be imposed.
US
Under the current Ohio state and US federal income tax, the Company’s Ohio subsidiaries, QHI and MIE, are subject to the Ohio state’s Commercial Activity Tax (“CAT”) and federal income tax. The Ohio CAT is a business tax levied based on the gross receipts from sales. The federal income tax is based on a flat rate of 21% for the calendar year of 2018.
The following table sets forth a breakdown of the income tax expense for the Company.
| For The Year Ended | For The Year Ended | |||||||
| September 30, 2019 | September 30, 2018 | |||||||
| Restated | Restated | |||||||
| Income tax expenses | $ | 668,796 | $ | 646,879 | ||||
The Company’s income tax expense increased by US$0.02 million in 2019 although pre-income tax increased by $1.0 million, mainly due to the decrease in income tax rate due to the US income tax reform during fiscal 2019.
| For The Period Ended | For The Period Ended | |||||||
| March 31, 2020 | March 31, 2019 | |||||||
| Restated | Restated | |||||||
| Income tax expenses | $ | 374,642 | $ | 451,552 | ||||
The Company’s income tax expense decreased by US$0.08 million in 2020 compared to the same period of 2019 due to pre-income tax for 2020 decreased by US$0.05 million compared to 2019.
Net income
As a result of the factors described above, our net income for the fiscal year ended September 30, 2019 was US$2.1 million, compared to the net income of US$1.1 million for the year ended September 30, 2018, representing an increase in net income of US$1.0 million.
Net income for the six months ended March 31, 2020 was US$1.31 million, compared to the net income of US$1.28 million for the same period ended March 31, 2019, representing a small increase in net income of US$0.03 million.
Liquidity and Capital Resources
Cash Flows and Working Capital
To date, we have financed our operations primarily through cash generated by operating activities. As of March 31, 2020, September 30, 2019 and 2018, we had US$5.5 million, US$8.3 million and US$4.0 million, respectively, in cash, which primarily consist of cash deposited in banks.
The Company’s working capital requirements mainly comprise cost of English learning program fees, student recruitment fees, office expenses, professional fees, rental expenses, and salary expenses. We expect that the Company’s capital requirements will be met by cash generated from its own operating activities.
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Cash Flow Summary
Years Ended September 30, 2019 and 2018
| For the year ended September 30, 2019 | For the year ended September 30, 2018 | |||||||
| Net cash provided by operating activities | 4,669,699 | 2,165,141 | ||||||
| Net cash used in investing activities | (203,172 | ) | (491,593 | ) | ||||
| Net cash provided by (used in) financing activities | (211,854 | ) | 438,796 | |||||
| Net increase (decrease) in cash | 4,254,673 | 2,112,344 | ||||||
| Cash at beginning of period | 4,017,950 | 1,905,606 | ||||||
| Cash at end of period | 8,272,623 | 4,017,950 | ||||||
We had a balance of cash and cash equivalents of US$8.3 million as of September 30, 2019, compared with a balance of US$4.0 million as of September 30, 2018. We mainly derived our cash inflow from operating activities.
Operating Activities:
Net cash generated from operating activities was US$4.7 million for the year ended September 30, 2019, compared to net cash generated from operating activities of US$2.2 million for the year ended September 30, 2018, represented a US$2.5 million increase in the net cash inflow generated from operating activities. The increase in net cash generated from operating activities was primarily due to the following:
| 1) | We had net income of US$2.1 million for the year ended September 30, 2019. For the year ended September 30, 2018, we had net income of US$1.1 million which led to a US$1.0 million increase in net cash inflow from operating activities. |
| 2) | Change in prepaid expenses was US$0.4 million cash outflow for the year ended September 30, 2019. For the year ended September 30, 2018, changes in prepaid expenses was US$0.7 million cash outflow, which led to a US$0.3 decrease in net cash outflow from operating activities. |
| 3) | Change in long-term prepaid expenses provided US$0.6 million net cash inflow for the year ended September 30, 2019. For the year ended September 30, 2018, change in long-term prepaid expenses used US$0.9 million cash outflow, which led to a US$1.5 million increase in net cash inflow from operating activities. |
| 4) | Change in accounts payable and accrued liabilities provided US$0.8 million net cash inflow for the year ended September 30, 2019. For the year ended September 30, 2018, change in accounts payable and accrued liabilities used net cash inflow of US$0.7 million, which led to a US$0.1 million increase in net cash inflow from operating activities. |
| 5) | Change in deferred revenue, provided US$1.2 million net cash inflow for the year ended September 30, 2019. For the year ended September 30, 2018, change in deferred revenue provided net cash inflow of US$1.3 million, which led to a US$0.1 million decrease in net cash inflow from operating activities. |
| 6) | Change in tax receivable, including deferred income tax effects, provided US$0.5 million net cash inflow for the year ended September 30, 2019. For the year ended September 30, 2018, change in deferred income taxes provided net cash inflow of US$0.6 million, which led to a US$0.1 million decrease in net cash inflow from operating activities. |
Investing Activities:
Net cash used in investing activities was US$0.2 million for the year ended September 30, 2019. It was solely attributable to the cash used for purchase of property and equipment during the year.
Net cash used in investing activities was US$0.5 million for the year ended September 30, 2018. It was attributable to US$0.2 million cash used for purchase of property and equipment and US$0.3 million cash advanced to a student recruitment agent of the Company.
Financing Activities:
For the year ended September 30, 2019, the Company had net used in financing activities of US$0.2 million, which was attributable to: i) $0.1 million advanced from a related party; and ii) $0.3 million used in IPO activities.
For the year ended September 30, 2018, the Company had net cash provided by financing activities of US$0.4 million, which was attributable to capital contributed from the Company’s major shareholder.
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Six Months Ended March 31, 2020 and 2019
| For the period ended March 31, 2020 | For the period ended March 31, 2019 | |||||||
| Net cash (used in) provided by operating activities | (2,548,456 | ) | (366,505 | ) | ||||
| Net cash (used in) provided by investing activities | (25,864 | ) | 72,847 | |||||
| Net cash (used in) provided by financing activities | (179,919 | ) | - | |||||
| Net decrease in cash, cash equivalents | (2,754,239 | ) | (293,658 | ) | ||||
| Cash at beginning of period | 8,272,623 | 4,017,950 | ||||||
| Cash at end of period | 5,518,384 | 3,724,292 | ||||||
We had a balance of cash and cash equivalents of US$5.5 million as of March 31, 2020, compared with a balance of US$8.3 million as of September 30, 2019. We mainly derived our cash inflow from operating activities.
Operating Activities:
Net cash used in operating activities was US$2.6 million for the period ended March 31, 2020, compared to net cash used in operating activities of US$0.4 million for the same period of 2019, represented a US$2.2 million increase in the net cash outflow in operating activities. The increase in net cash outflow in operating activities was primarily due to the following:
| 1) | We had net income of US$1.31 million for the period ended March 31, 2020. For the same period of 2019, we had net income of US$1.28 million which led to a US$0.03 million increase in net cash inflow from operating activities. | |
| 2) | Change in accounts receivable was US$0.1 million cash outflow for 2020. For the same period of 2019, changes in accounts receivable was US$0.04 million cash outflow, which led to a US$0.06 increase in net cash outflow in operating activities. | |
| 3) | Change in prepaid expenses was US$0.5 million cash inflow for the period ended March 31, 2020. For the same period of 2019, changes in prepaid expenses was US$0.2 million cash inflow, which led to a US$0.3 increase in net cash inflow from operating activities. |
| 4) | Change in long-term prepaid expenses provided US$0.4 million net cash inflow for the period ended March 31, 2020. For the same period of 2019, change in long-term prepaid expenses provided US$0.4 million cash inflow. Therefore, there was no significant change in long term prepaid expenses in operating activities for the two comparative periods. |
| 5) | Change in accounts payable and accrued liabilities used US$0.4 million net cash outflow for the period ended March 31, 2020. For the same period of 2019, change in accounts payable and accrued liabilities used net cash outflow of US$0.3 million, which led to a US$0.1 million increase in net cash outflow in operating activities. |
| 6) | Change in deferred revenue, used US$4.4 million net cash outflow for the period ended March 31, 2020. For the same period of 2019, change in deferred revenue used net cash outflow of US$2.4 million, which led to a US$2.0 million increase in net cash outflow in operating activities. |
| 7) | Change in tax receivable, including deferred income tax effects, used US$0.06 million net cash for the period ended March 31, 2020. For the same period of 2019, change in tax payable provided net cash inflow of US$0.3 million, which led to a US$0.3 million increase in net cash outflow in operating activities. |
Investing Activities:
Net cash used in investing activities was US$0.03 million for the period ended March 31, 2020. It was solely attributable to the cash used for purchase of property and equipment during the year.
Net cash provided by investing activities was US$0.07 million for the period ended March 31, 2019. It was primarily attributable to US$0.08 million cash received from repayment of notes receivable, which was offsetting by immaterial expenditures used in purchase of property and equipment.
Financing Activities:
For the period ended March 31, 2020, the Company had net used in financing activities of US$0.2 million, which was attributable to cash used in IPO activities.
For the period ended March 31, 2019, the Company did not have any financial activities.
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Analysis of Items with Major Changes on the Consolidated Balance Sheets
| September 30, 2019 | September 30, 2018 | |||||||
| US$ | US$ | |||||||
| Assets | Restated | Restated | ||||||
| Current Assets | ||||||||
| Cash and cash equivalents | 8,272,623 | 4,017,950 | ||||||
| Accounts receivables | 238,881 | 60,785 | ||||||
| Prepaid expenses | 2,061,239 | 1,559,650 | ||||||
| Deferred IPO costs | 351,854 | - | ||||||
| Income tax receivable | 4,240 | 415,594 | ||||||
| Total current assets | 10,928,837 | 6,053,979 | ||||||
| Non-current assets | ||||||||
| Property and equipment, net | 2,919,603 | 2,808,244 | ||||||
| Long term prepaid expenses | 743,738 | 1,121,365 | ||||||
| Deferred income tax assets | - | 96,714 | ||||||
| Notes receivable | 280,000 | 709,800 | ||||||
| Total assets | 14,872,178 | 10,790,102 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | 1,431,063 | 754,688 | ||||||
| Due to related party | 140,000 | - | ||||||
| Deferred revenue | 6,830,043 | 5,619,100 | ||||||
| Total current liabilities | 8,401,106 | 6,373,788 | ||||||
| Total liabilities | 8,401,106 | 6,373,788 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity | ||||||||
| Ordinary shares, US$0.0015873 par value, 31,500,000 shares authorized, 7,938,000 and 7,938,000 shares issued and outstanding as of September 30, 2018 and 2019, respectively | 12,600 | 12,600 | ||||||
| Additional paid-in capital | 2,731,273 | 2,731,273 | ||||||
| Retained earnings | 3,727,199 | 1,672,441 | ||||||
| Total shareholders’ equity | 6,471,072 | 4,416,314 | ||||||
| Total liabilities and shareholders’ equity | 14,872,178 | 10,790,102 | ||||||
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Prepaid expenses & long-term prepaid expenses
Our short-term and long-term prepaid expenses mainly relate to prepayments made to Miami University for tuitions and our student recruitment agents to secure their long-term recruitment agency services for us. The total short-term and long-term prepaid expense balance increased by US$0.1 million due to the increases our student enrollments in 2019.
Property and equipment
The carrying amount of property and equipment increased by US$0.1 million from US$2.8 million as at September 30, 2018 to US$2.9 million as at September 30, 2019 due to the combined effect of (i) acquisition of property and equipment of US$0.2 million; and (ii) depreciation charge for the year ended September 30, 2019 of US$0.1 million.
Notes receivable
Notes receivable were related to loans advanced to certain student recruitment agents of Company. The balance decreased by US$0.4 million due to settlements of two notes payable in 2019.
Income tax receivable
The decrease of income tax receivable was due to the significant increase, a $1.0 million increase, in pre-tax income in 2019 due to the significant increase in our revenue. This new income taxes incurred in 2019 offset the income tax receivable carried forward from 2018.
Deferred revenue
Deferred revenue represents tuition fees and dormitory booking fees prepaid by students. The increase of US$1.2 million in our deferred revenue as at September 30, 2019 compared to September 30, 2018 was due to the significant increase in our student enrolments in 2019 compared to 2018.
Commitments
Other than a residential apartment building lease with a lease term of two years that the Company entered into during 2019 as below, the Company did not have significant commitments, long-term obligations, or guarantees as of March 31, 2020, September 30, 2019 and 2018.
Operating lease
The future aggregate minimum lease payments under the non-cancellable residential apartment building operating lease are as follows:
| Payments due by period | ||||||||||||||||
| Total | Less than 1 year | 1-3 years | Over 3 years | |||||||||||||
| Operating lease obligations ($) | 474,520 | 253,077 | 221,443 | - | ||||||||||||
Critical Accounting Policies
We believe it is helpful for lenders to understand the critical accounting policies underlying our financial statements. There were no significant judgment and estimates for our consolidated Financial Statements. Please refer to Note 2 of our Consolidated Financial Statements included in this Prospectus for details of our critical accounting policies.
Off-balance Sheet Commitments and Arrangements
The Company had not entered into any material off-balance sheet transactions or arrangements as at the latest practicable date.
Overview
Elite Education Group International Limited (EEI) is a holding company registered and incorporated in the British Virgin Islands (BVI) on December 13, 2017 by Jianbo Zhang. As a wholly-owned subsidiary of EEI, Quest Holding International LLC (QHI) was incorporated in 2012 in Ohio to facilitate study abroad and post-study services for Chinese students in the United States. Miami International Education Center LLC (MIE) was set up on January 13, 2017 in Ohio, and is a wholly-owned subsidiary of QHI. We partner with Miami University of Ohio, one of the oldest public universities in the country, to offer our services to Chinese students interested in studying in the United States. Located in southwestern Ohio and established in 1809, Miami University has 7 colleges, 5 different campuses, and the campus population of approximately 25,000. Known as “public Ivy,” the university offers more than 120 undergraduate, 60 graduate and 13 Ph.D. degrees. Currently, our partnership with the University extends to Middletown and Hamilton campuses, and has extended its reach to include the main campus of Miami University in Oxford starting the 2019-20 fiscal year.
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QHI develops specific education goals and plans for each student enrolled in its program, and provides a safe and structured environment and support services so that students can focus most of their attention on academic studies.
QHI’s mission is to provide our students with a reliable and comprehensive support system to fulfill their dreams of studying abroad. It strives to accomplish that by offering students and parents a one-stop destination for international study needs. QHI maintains an office in the United States and works with a business partner in the PRC. Our US Office is mainly responsible for providing study abroad and post-study services which include, among others, student dormitory management, academic guidance, international student services, student catering services, student transfer application services, internship and employment guidance. QHI’s business partner in China is Renda Financial Education Technology Co., Ltd. (Renda), is located in Beijing. Its main business includes development and cooperation of the Chinese study market, language testing, student application, visa service, pre-departure training, pick-up arrangements, or any other accommodation arrangements as may be required.
QHI focuses on all stages of the study abroad process and aims to provide the best services available to ensure that every student successfully completes university application, travel and settlement processes. It accomplishes this by offering a one-stop solution to these needs.
The PRC office coordinates the pre-attendance service needs of our customers while our United States office coordinates or provides the actual study abroad and post-study services.
Such pre-attendance services coordinated by our PRC office with no charge include information support and counseling services for students and parents:
| ● | Language Test Training Counseling – we provide International English Proficiency Test (ITEP) counseling, registration, test placement and test scores for students with no or poor language skills |
| ● | Admission application – our professional personnel reviews and provides feedback on student application materials |
| ● | Visa Counseling - our personnel provide visa counseling and guidance services for the student applicants |
| ● | Pre-departure guidance – we offer logistical and organizational support for the student applicants prior their departure to the educational institutions |
| ● | Accommodation arrangements – we pick-up and drop-off of the students at the point of arrival, etc. |
The services after arrival include, among others:
| ● | Pick-up service with no charge – upon arrival, our US office opens and maintains a 24-hour hotline to coordinate with Miami University for pick-up and ensures that each student arrives at and settles in dormitories safely |
| ● | Welcome service with no charge – we coordinate with Miami University whose staff members offer a two-week orientation |
| ● | Dormitory service - our dormitory administrators are on duty 24 hours per day and 7 days per week |
| ● | Catering services – we maintain a Chinese restaurant consisting of Chinese chefs and culinary staff near student dormitories to offer several meals a day to our students |
| ● | Academic guidance – with the help of professionally retained tutors, we offer academic guidance to help students choose and plan their career development |
| ● | Internship services – we arrange for various types of internships and social practice activities throughout the academic calendar to help students with the future employment, educational and social prospects; we believe these services also help developing their problem solving skills, workplace and emotional intelligence training |
| ● | Shuttle bus services – our staff offer shuttle bus services to cater to students’ needs. |
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The following diagram illustrates our corporate structure as of the date of this prospectus:
| * | The Company’s Chairman and Chief Executive Officer, Jianbo Zhang, is the sole director and shareholder of Wonderland Holdings International Ltd. |
Industry and Market Background
With the development of the PRC international study market, the Chinese government and foreign universities have increasingly directed more attention to the PRC education market, with high school students and their parents being the primary target of such interest become the main force in the international study market. Both students and their parents focus on locating high-quality, low risk ways of studying abroad to realize return on their educational investments. While many of our competitors offer quick preparation schemes, many students continue their language studies in foreign language schools for a few months before going abroad to begin their undergraduate studies. Similarly, many preparatory programs also promise that students will graduate after only three years abroad. Most domestic one-year programs only provide courses to learn the language, but lack the study of professional courses. These preparatory programs are situated in public universities, mainly in the form of one-year university preparatory courses, 2 + 2 year cooperation projects and 3 + 2 year undergraduate continuing courses. Consistent with the industry demands, the project types have been changing continuously in the past 10 years, from 3 + 2 to 2 + 3, and then to the final year of university preparatory course. After substantial analysis of the attendance and participation levels, it became apparent that the scale of one-year preparatory course in the market has been too small which made it difficult to recruit students. In fact, it appears that one-year preparatory courses available in the market have not delivered on the cost saving promises; on the contrary, they prolonged the study abroad periods.
QHI signed a training agreement with four universities in China from the end of 2018 to March 2019, and arranged all the 30-credit courses for freshmen of Miami University to be completed in China. With domestic universities and professors of Miami University being brought together, students can experience being taught by foreign university professors at home and get course credits from Miami University, while attending intensive English courses. The cost of students studying at home is only one third of the tuition fee of Miami University, so both the time cost and the cost of studying abroad are in line with the needs of parents and students.
The Miami University is an American top 100 university which is very popular with Chinese students. However, many Chinese students do not have the chance to enter the university because of their poor language performance. Starting in 2015, QHI partnered with Miami University to establish English Language Center (ELC) on Middletown campus. At the same time, QHI set up nearby dormitory areas and restaurants for ELC students. QHI is the only admission institution on Miami University Middletown Campus. Since 2013, QHI has accumulated a significant number of market resources and enrollment channels.
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The total number of student applications increased from 38 in 2013 to 522 to date in 2019. Given this growth, Miami University’s Middleton campus was not able to meet the enrollment demand and Miami University agreed to allow QHI to begin enrollment of international students at the University’s Hamilton Campus in 2019. The enrollment is expected to be more than 230 students for the first year. The Company is in the process of leasing an apartment building to accommodate for these students.
Our Strategies
We strive to improve the quality of our project offerings, provide our customers with the most suitable options to carry on with their studies abroad, and ultimately to establish an internationally recognized education brand. We have designed our management systems to pursue and secure an enduring competitive advantage in the market for education services by improving our R&D capabilities, stable market positioning and channels, and efficient sales system.
We have developed and intend to implement the following strategies to expand and grow the size of our Company:
Overseas markets
| ● | Miami University Project. Due to the breakthrough in 2018 enrollment performance, our partnership with Miami University has been extended to the Hamilton Campus. QHI serves as a principal and takes over its recruiting and promotion aspect for the regional campuses, and has reached an agreement to do so for its main campus (Oxford), in China and other Asian countries starting 2020. We have established new dormitory and cafeteria in 2019 to service Hamilton’s international students and started recruiting students for the Oxford campus in 2020. |
| ● | Canada Project. QHI has began its exploration of the Canadian markets with the intent to replicate the Miami University model. QHI will be responsible for recruiting students for the Company’s program, all pre-study abroad and post-study abroad services. |
| ● | US & Canada High School and Language Training Programs. As this industry evolves, we expect competition to increase. We intend to establish a private high school and language training school in Canada to support students enrolled in the North American university projects. |
| ● | UK University Collaborative Project. For several years, QHI has been maintained presence in the UK education industry, accumulating a wealth of experiences and partnerships. Starting in 2019, QHI began seeking new collaboration and partnership opportunities with the UK universities to provide more in-depth UK educational opportunities for Chinese international students, and it has established a partnership with the University of Northumbria at Newcastle (UNN) and started recruiting students for UNN. |
| ● | Developing Market Cooperation in Southeast Asia and other countries and regions: Beginning in 2019, we intended to open additional projects in new markets, including Vietnam, Hong Kong and other countries and regions, mainly for self-built private international schools, including but not limited to the high school and University colleges, and to establish cooperation with local well-known universities. This effort is continuing and we anticipate for it to be bring tangible results in the future. |
China markets
| ● | Partnering with High Schools. Presently, we maintain partnerships with more than ten high schools in China, and seek to expand that base. We believe the benefit of such partnerships is in (i) students’ familiarity and comfort with our programs, and (ii) expansion of our brand and influence in the target demographic. |
| ● | Continuous Expansion of the Chinese International Student Service Center. QHI is in contact with nearly 30 international student service providers and a larger number of cooperative programs all across China. Since 2015, QHI has established solid cooperative relationships with many Chinese International Student Service Centers. Currently, three universities have listed our program as their main study abroad recommendation. |
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| ● | QHI University Cooperation Project. In order to provide higher quality study abroad programs, QHI has established cooperation projects with universities to allow Chinese students to obtain 1-2 years’ worth of college credits at North American colleges and universities. Presently, we maintain partnerships with four such institutions and are looking to expand beyond. |
| ● | Domestic Preparatory Training. QHI’s market research has shown that the vast majority of English language programs are in need of improvement. We believe, however, that this is one of the Company’s strengths and intend to open training facilities nationwide to combine English language program with university credit hours, as a cost saving measure for Chinese students who plan to study abroad. |
| ● | Additional Facilities. In response to China’s current policy designed to attract more students to study in China, QHI has established the Myanmar Academy of Science and Engineering. We will recruit students from the Belt and Road countries, and the courses will be taught in Chinese. The Academy enjoys strong support from the local government, and is scheduled to open in 2019. |
We also considering to expand into the area of online education with UK universities and Miami University to make use of the current resources. QHI has already developed an online platform for online education, and with the proceeds of this IPO, the online education initiative will be launched and expanded. Finally, QHI plans to set up a venture fund which invests in student-oriented-and-managed innovation projects. This venture fund will serve as early-stage angel investors and focus on both investments and post-investment involvement. The recruitment of these projects will be through multiple channels and from various sources.
Our Competitive Strengths
We believe that the following strengths differentiate us from our competitors will continue contributing to our growth and success.
| ● | Low Admission Requirements and No Minimum Language Requirements. QHI serves as a principal and takes over its recruiting and promotion aspect for the regional campuses, and has reached an agreement to do so for Miami University’s main campus (Oxford), in China and other Asian countries starting 2020. The application process is extended and can be confusing for the initiated. While most colleges require a GPA of at least 2.5 and/or minimum language proficiency, the Miami project of QHI does not maintain such requirements. The English Language Center (ELC) at the Miami University specially set up an Academic Redirection Program (APR) course for students with GPA 2.0 or below who enroll in the Miami project of QHI. Internal testing methods are flexible, and can be taken at any time and any place, without geographical limitations. The Miami University also accepts ITEP test scores as a language standard for admission to the ELC program at the Miami University. ITEP is an online examination system, which offers flexibility and quick scoring; it is most suited for those students who do not have time to take IELTS or TOEFL. |
| ● | Comprehensive Service After Study. We believe that our post-study services are one of the most important reasons why agents and parents choose us. After students arrive in the United States, QHI provides comprehensive services for students, including pick-up services, student dormitory accommodation arrangements, safety guidance for freshmen, academic guidance, guidance for further education, legal aid and medical escort. To our knowledge, no other education group offers similar services. |
| ● | High retention rate. According to US NEWS ranking, the freshman retention rate at Miami University is 91%. Such a high retention rate is a function of Miami University’s student/teacher ratio. |
| ● | High Success Rate. The average number of students enrolled in our program is 130-140 per year, and the number of students who are transferred or expelled is less than 5 per year. Our track record shows that virtually all students, irrespective of their background or grades, can progress academically and eventually do transfer to the Oxford campus. We are so confident in the quality of our services that we offer an investment guarantee with respect to the progress and graduation of our students. | |
High Barrier to Entry: We believe that it is very difficult to replicate our business model due to the inherent challenges related to reaching long-term agreements with universities in North America, especially those ranked as high as, or higher than, Miami University, the dormitories and catering services provided for students, and partnerships in China. We believe that these elements ascertain the Company’s competitive advantages in the marketplace. |
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Sales and Marketing
We recruit prospective students from various parts of China. Namely, our sales and marketing staff have operations in 4 large regions (North, South, East and West) that cover nearly the entire territory of the country, with North and West of the country being covered by the members of the sales team. During the seven years since our inception in 2012, the number of annual student applications and enrollments increased more than 13 and 5 times, respectively. Our marketing strength lies in our flexibility - we can cooperate with all types of study abroad service providers and educational institutions, irrespective of their size because all of them are tasked with providing prospective student referrals. Our marketing channels include:
| ● | Study Abroad Agencies. Currently, we have established cooperation with the 5 largest study abroad agencies in China. Among them, New Oriental Education, JJL Education and Shinway Education have signed a cooperation agreement of a gradient commission system starting from $4,000 per student with us. Our agreement with EIC Education has the $3,000 per student non-gradient commission system. In 2019, 33 students were recruited through these agents. |
| ● | B2B Study Abroad Companies. We are working on including B2B companies in our partnership circle. As of today, we already have B2B partnerships with GEA, Puri, and H&B. Since a large portion of our current students come from small organizations and individual agents, we can integrate a comprehensive management system to more effectively manage the large number of agents before shifting entirely to B2B. |
| ● | International High School/Language Programs. We maintain contacts with 133 international high school and language programs and this number is constantly increasing. In addition to presentations made by US university representatives, we incorporate summer camps, online courses, English placement test, student leadership development programs, instructor visits and parental visiting groups to enhance prospective student interest and understanding of the Miami University. |
| ● | University Foundation Programs. There are 10 University Foundation programs with which we maintain contact. These programs introduce new students to our services; we also administer admissions support, online courses, English Placement test, application and visa support, seminars with lecturers, track records of previous enrollees and parent visiting groups on top of the standard demonstration classes to grow the number of recruits. |
Presently, there are seven marketing department members comprising three teams of two, which are responsible for different regions across China, with one person to specifically focus on building partnerships with Chinese vocational colleges. Our sales personnel mainly relies on on-site visits and training models to develop and maintain customer base. We also believe that strengthening of online training programs in combination of streamlining the network of training models can effectively reduce the cost of travel. We intend to develop a virtual library of new media training resources segmented by various topics to simplify training and consulting time and improve efficiency. We also intend to implement training programs such as seminars on writing business English email, commercial business communications, PPT production, presentation skills and sales consulting skills to increase the sales capacity of all personnel.
Competition
The competition for the North American educational market has intensified in recent years with more participants entering the market. Our competition generally includes:
| ● | Chinese recruiting offices of the top 100 ranked US universities in US, e.g., American University, University of Arizona and University of Delaware. |
| ● | International education groups such as Shorelight, Study Group, INTO, ELS, ICM Manitoba International College and the like that provide language courses. |
| ● | Foreign universities wishing to establish partnerships with domestic institutions or to recruit from Chinese university level international classes. |
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We have an official university recruiting office, international education group, study-abroad consultants and a training institution in the US, which allows us to serve multitude of functions throughout the supply chain. We believe we offer superior services during and after students’ studies abroad as compared with the services offered by individual study abroad agents. Similarly, we believe that our commission rates and guidance services set us apart from foreign university recruiting offices.
Student Facilities
QHI dormitory in Middletown, OH currently accommodates up to 200 people. The student apartments are fully furnished and come with complete sets of household. To ensure security and safety, there are security cameras installed all around the dormitory areas.
| ● | Restaurant: QHI has opened a full service cafeteria that serves authentic Chinese food, at least twice a day (breakfast and dinner), for students. It can accommodate up to 100 people at a time. The cafeteria area also features a gym and an entertainment area with a wide range of fitness equipment and recreational facilities. |
| ● | Shuttle Buses: We maintain three business vehicles to support our operations and provide for student transportation needs. |
Employees
We believe resource management and planning is critically important to supporting our growth, and we are committed to effectively recruiting, training, developing and retaining our human capital. The QHI US office is located next to Miami University’s Middletown campus. The office has four counselors, one maintenance staff and four chefs dedicated to servicing the students. QHI also has 9 consultants in the marketing department, 5 members in the project development team, and 5 employees in other departments in Beijing.
None of our employees are represented by a labor union or collective bargaining agreements. We consider our employee relations to be good. We believe that attracting and retaining highly experienced personnel is a key to our success. In addition, we believe that we maintain a good working relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations.
Properties
Our principal executive office is located 1209 N. University Blvd, Middletown, OH 45042. We own this property.
In addition, the Company manages and operates 11 apartment buildings/dormitories at 1061-1099 Park Lane, Middletown, OH, 45042, and one dining hall is 1209 N. University Blvd, Middletown, OH 45042. We maintain property insurance policies covering facilities for losses due to fire, earthquake, flood or any other disaster. We believe that the facilities that we currently own are adequate to meet our needs for the foreseeable future, and we believe that we will be able to obtain adequate facilities, principally through leasing of additional properties, to accommodate our future expansion plans.
The Company also maintains administrative offices in Beijing. The offices are rented for the Company by Renda Financial under the terms of an agreement between the Company and Renda which contemplates that we paid a sum of RMB 2.9 million per year for the office rental and Renda’s staffing and paying the employees located at such offices. In September 2019, this agreement was renewed by Renda on behalf of the Company for another 12-month term. Since then, Renda started charging the Company the actual rental expense of RMB1.0 million per year instead of the previous agreed-upon RMB 2.9 million. This annual RMB1.0 million rental fee charged by Renda does not include the other hiring, administrative and paying employee expenditures that previously included in the RMB2.9 package fee. Instead, similar to rental expense, the other services are now charged by Renda based on their actual expenditures incurred on behalf of the Company since October 2019.
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Intellectual Property
We rely on a combination of trade secret protection and employment and confidentiality agreements with executive officers and most other employees, to protect our intellectual property rights. Our employment agreements with our executive officers contain confidentiality and non-disclosure clauses that impose confidentiality obligations on the executive officers at all times during and after their employment with us.
We have also registered one domain name relating to our business, with the Internet Corporation for Assigned Names and Numbers and China Internet Network Information Center.
Legal Proceedings
We are currently not a party to, and are not aware of any threat of, any legal, arbitration or administrative proceedings that, in the opinion of our management, are likely to have a material and adverse effect on our business, financial condition or results of operations. From time to time, we have become, and may in the future become, a party to various legal or administrative proceedings or claims arising in the ordinary course of our business. Regardless of the outcome, legal or administrative proceedings or claims may have an adverse impact on us because of defense and settlement costs, diversion of management attention and other factors.
Government Regulation
The Chinese Ministry of Education offers an approved foreign cooperative program to students selected through the national enrollment plan. This is different from the non-academic language course. Students who do not pass the college entrance examination are considered unplanned enrolled students, who are more suitable for studying abroad. Upon completion of one year of English studies in China, the students may use the language credits as a fulfillment of foundation courses for studying abroad. Upon passing the examination, the grades may be admitted with or without condition by the foreign university.
Regulations on Intellectual Property
The MIIT promulgated the Measures on Administration of Internet Domain Names, or the Domain Name Measures, on August 24, 2017, which took effect on November 1, 2017 and replaced the Administrative Measures on China Internet Domain Name first promulgated by the MIIT on August 1, 2002. According to the Domain Name Measures, the MIIT is in charge of the administration of PRC internet domain names. The domain name registration follows a first-to-file principle. Applicants for registration of domain names must provide the true, accurate and complete information of their identities to domain name registration service institutions. The applicants will become the holder of such domain names upon the completion of the registration procedure.
On November 5, 2004, the MIIT promulgated the Measures for Administration of Domain Names for the Chinese Internet, or the Domain Name Measures. According to the Domain Name Measures, “domain name” shall refer to the character identifier for identifying and locating the hierarchical structure of a computer on the Internet, which corresponds to the Internet protocol (IP) address of the computer concerned. A domain name registration service shall observe the principle of “first apply, first register”. Where the domain name is completed, the applicant for the domain name registration shall be the holder of the domain name. The holder of the domain name shall pay operation fees for a registered domain name on a regular basis. If the domain name holder fails to pay the corresponding operation fees as required, the original domain name registry shall write it off and notify the holder of the domain name in written form.
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The Law Design to Promote Private Education and the Implementation Rules for the Law for Promoting Private Education
The Law for Promoting Private Education of the PRC became effective on September 1, 2003 and the latest amendment was on November 7, 2016 which became effective as of September 1, 2017. Under the Amendment, sponsors of private schools may choose to establish non-profit or for-profit private schools at their own discretion, while prior to the effectiveness of the Amendment, all private schools shall not be established for for-profit purposes. Nonetheless, school sponsors are not allowed to establish for-profit private schools that are engaged in compulsory education. In other words, the schools engaged in compulsory education should retain their non-profit status after the Amendment comes into force. According to the Amendment, the key features of the aforesaid new classification system for private schools include the following: (i) sponsors of for-profit private schools are entitled to retain the profits and proceeds from the schools and the operation surplus may be allocated to the sponsors pursuant to the PRC Company Law and other relevant laws and regulations; (ii) sponsors of non-profit private schools are not entitled to the distribution of profits or proceed from the non-profit schools and all operation surplus of non-profit schools shall be used for the operation of the schools; (iii) for-profit private schools are entitled to set their own tuition and other miscellaneous fees without the need to seek prior approvals from or report to the relevant government authorities. The collection of fees by non-profit private schools, on the other hand, shall be regulated by the provincial, autonomous regional or municipal governments; (iv) private schools (for-profit and non-profit) may enjoy preferential tax treatments. Non-profit private schools will be entitled to the same tax benefits as public schools. Taxation policies for for-profit private schools after the Amendment taking effect are still unclear as more specific provisions are yet to be introduced; (v) where there is construction or expansion of a non-profit private school, the school may acquire the required land use rights in the form of allocation by the government as a preferential treatment. Where there is construction or expansion of a for-profit private school, the school may acquire the required land use rights by purchasing them from the government; (vi) the remaining assets of non-profit private schools after liquidation shall continue to be used for the operation of non-profit schools. The remaining assets of for-profit private schools shall be distributed to the sponsors in accordance with the PRC Company Law; and people’s governments at or above the county level may support private schools by subscribing to their services, provision of student loans and scholarships, and leases or transfers of unused state assets. The governments may further take such measures as government subsidies, bonus funds and incentives for donation in support of non-profit private schools. On December 30, 2016, the MOE, MCA, SAIC, the Ministry of Human Resources and Social Welfare and the State Commission Office of Public Sectors Reform jointly issued the Implementation Rules on the Classification Registration of Private Schools to reflect the new classification system for private schools as set out in the Amendment. Generally, if a private school established before promulgation of the Amendment chooses to register as a non-profit school, it shall amend its articles of association, continue its operation and complete the new registration process. If such private school chooses to register as a for-profit school, it shall conduct financial liquidation process, have the property rights of its assets such as lands, school buildings and net balance being authenticated by relevant government authorities, pay up relevant taxes, apply for a new Permit for Operating a Private School, re-register as for-profit schools and continue its operation. Specific provisions regarding the above registrations are yet to be introduced by people’s governments at the provincial level. On December 30, 2016, the MOE, SAIC and the Ministry of Human Resources and Social Welfare jointly issued the Implementation Rules on the Supervision and Administration of For-profit Private Schools, pursuant to which the establishment, division, merger and other material changes of a for-profit private school shall first be approved by the education authorities or the authorities in charge of labor and social welfare, and then be registered with the competent branch of SAIC.
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On August 10, 2018, the PRC Ministry of Justice published on its website the Regulations for the Implementation of the Law of the People’s Republic of China on the Promotion of Privately-run Schools for public comment, which the Ministry of Education has submitted to the State Council for deliberation. The current round is the most recent legislative progress in revising the Regulations for the Implementation of the Law on the Promotion of Privately-run Schools. Specifically,
| ● | Article 5 of the Draft provides that foreign investment enterprises established in China and social organizations with foreign actual controllers may not sponsor, participate in sponsoring or actually control privately-run schools which provide compulsory education. |
| ● | Article 12 of the Draft provides that “Education Groups” may not control not-for-profit private schools through merger and acquisition, franchising and contractual control. |
| ● | Article 7 provides that public schools shall not participate or sponsor private schools; public schools who wish to participate or sponsor private schools requires approval by the government; public schools cannot make profit for licensing its name to the private school; and public schools who are allowed by the government to participate or sponsor in private schools shall have separate teaching system, teaching staff, financial accounts; recruit students separately and issue certificates separately. |
| ● | Article 44 provides that fees, tuitions and other income payments generated from activities by not-for-profit private schools must be carried out under the bank account filed with the applicable education bureau. Schools are also required to build affiliated transaction information disclosure systems, publicize affiliated transactions, and ensure that any member of their board who has an interest in the affiliated transaction withdraws from voting. Article 45 provides that the Education Bureau or the Human Resources Bureau shall review and examine affiliated transactions entered into by the not-for-profit private schools and its affiliated parties. |
| ● | Classifications of permit - the draft detailed the approval authority who issues permits to schools. |
| ● | The draft sets forth a set of preferential policies which may be offered to not-for-profit private schools: the government may allocate certain funds to reimburse not-for-profit private schools; the State shall lease or transfer available state assets to not-for-profit private schools in priority; and not-for-profit private schools should enjoy same policies as public school, such as land-use fees; and tax policies, etc. |
We do not foresee these regulations, if and when they become effective, to bear material impact on our operations in the PRC.
Regulations Relating to Privacy Protection
The PRC Constitution states that PRC law protects the freedom and privacy of communications of citizens and prohibits infringement of these rights. In recent years, PRC government authorities have enacted laws and regulations on internet use to protect personal information from any unauthorized disclosure. Pursuant to the Decision on Strengthening the Protection of Online Information issued by the NPCSC on December 28, 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information issued by the MIIT in July 16, 2013, any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. “Personal information” is defined in these regulations as information that identifies a citizen, the time or location for his use of telecommunication and internet services, or involves privacy of any citizen such as his birth date, ID card number, and address. Any violation of the above decision or order may result in warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities.
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The following table sets forth our executive officers and directors, their ages and the positions held by them:
| Name | Age | Position | ||
| Jianbo Zhang | 56 | Chairman, Chief Executive Officer | ||
| Zhenyu Wu | 41 | Chief Financial Officer, director | ||
| Yunxia Xu | 39 | Vice President and Chief Operating Officer | ||
| Tong Wang | 39 | Vice President and Chief Development Officer | ||
| Jing Li | 39 | Chief Marketing Officer | ||
| Bo Yu | 46 | Chief Programs Officer | ||
| Craig Wilson (1)(4)* | 48 | Independent director | ||
| G. Michael Pratt (2)* | 70 | Independent director | ||
| M. Kelly Cowan (3)* | 58 | Independent director |
| * | Each of independent director nominees has accepted appointment as our independent director, effective upon the SEC’s declaration of effectiveness of the registration statement on Form F-1 of which this prospectus is a part. |
| (1) | Chair of the Audit Committee. |
| (2) | Chair of the Compensation Committee. |
| (3) | Chair of the Nominating Committee. |
| (4) | Audit Committee financial expert. |
Zhang Jianbo is the founding Chairman and Chief Executive Officer of the Company. From October 2012 to December 2017, he served as Chief Executive Officer of Quest Holding International. From December 2017 to present, he has held the offices of the Company’s CEO. Mr. Zhang holds an undergraduate degree in Finance from Renmin University of China (1987), where he also completed a Ph.D. Diploma Course in Finance, School of Finance (2013). He also completed an EMBA course at Singapore Tiandu Education Group (2003) and an MBA course at Coventry University, UK (1999), and holds a Master Diploma Course in Finance, School of Finance, Renmin University (1993). Zhang Jianbo holds a pivotal role in the Company’s founding and long-term vision.
Zhenyu Wu is the Company’s Chief Financial Officer and a Board member. From 2017 to present, Mr. Wu has been an Associate Dean Research and Graduate Research Programs and a Professor of Entrepreneurship and Finance, Asper School of Business, University of Manitoba. He was the Head, Department of Business Administration, at the same School of Business from 2015 to 2017. From 2011 to 2017, he was an Associate Professor at the I.H. School of Business, University of Manitoba, and he holds the position of Canada Research Chair (Tier II) in Entrepreneurship and Innovation starting 2012. Mr. Wu holds a Ph.D. in Finance (2007), an MBA degree in Finance (2012), and a Master’s Arts degree in Economics (2001), all from the University of Calgary, Calgary, Alberta, Canada. He also holds a B.A. degree in Economics from Nankai University, Tianjin, China (1999). Mr. Wu’s knowledge of the Company’s operations as well as his financial and accounting expertise are critical to the Company’s success.
Yunxia Xu is the Company’s Chief Operating Officer. Since December 2017, she held the position of General Manager at Elite Education Group Ltd. Prior to that, from September 2016 to December 2017, she held the position of General Manager at QHI responsible for coordination and management of the US offices. From 2009 to August 2016, she was the Deputy General Manager at Beijing Renda Finance Education Technology Co., Ltd. She holds a Bachelor’s degree in English from Shandong Normal University (2003) and attended several MBA diploma courses at Renmin University (2008-2009) and Tsinghua University (2013-2015). Yunxia Xu’s knowledge of education industry makes her a valuable addition to the Company’s management.
Tong Wang is the Company’s Vice President and Chief Development Officer. He joined the Company on November 1, 2019. He holds a BA degree in E-Commerce and Information Technology and a M.A. degree in Marketing from Coventry University, UK. Before joining the Company, he was a Senior Partner of the UXIN Group (NASDAQ: UXIN) and the General Manager of its Vehicle Sale Management Center from January 2016 to October 2019. Between June 2012 and June 2016, he served as the General Manager and Director of the UXIN Auction (Beijing).
Jing Li is the Company’s Chief Marketing Officer. From March 2013 to present, she has held the offices of Managing Director at QHI, responsible for marketing and partnership development, and team management. She holds a Bachelor’s degree in Polymer Materials from Institute of Clothing Technology, Beijing, China (2000-2004) and a Master’s degree in Polymers and Surface Coatings Science and Technology from University of Leeds, UK (2005-2007). Jing Li’s experience in marketing and management offers an important contribution to the Company’s management team.
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Bo Yu is the Company’s Chief Programs Officer. Prior to joining EEI in 2018, he held multiple positions with Global IELTS, Beijing School of Shinyway Education, and Meten English. He obtained the Global Teacher Certificate – TEFL (Teaching English as a Foreign Language) from Trinity College, London, U.K. in 1999, and the Global Advanced English Trainer Certificate – LTCL in Sheffield, U.K. in 2000. He studied in the Master’s Degree in Education Program (TESOL MA) at Sheffield Harlem University, U.K. in 2001. Bo Yu’s educational experience and experience offer a significant contribution to the Company’s efforts.
Craig Wilson is an independent director of the Company. He is currently a Professor of Finance at Edwards School of Business, University of Saskatchewan. From 2018 to present, he has held the position of the Head of Department of Finance & Management Science, Edwards School of Business, University of Saskatchewan, and from 2008 to present – of an Associate Professor of Finance at the same School of Business. Mr. Wilson holds a PhD in Finance (University of Alberta 2004) and a Bachelor of Commerce degree in Finance (University of Alberta, 2004) as well as a Bachelor of Science degree in Mathematics (University of Alberta, 1996). Mr. Wilson’s deep academic knowledge and expertise of finance and management sciences represent valuable skills on the Company’s Board.
G. Michael Pratt is an independent director of the Company. From July 2010 to June 2016, Mr. Pratt served as Dean of Regional Campuses and Associate Provost at Miami University of Ohio. Prior to that, from 2013 to 2016, he was Associate Provost, Dean of Regional Campuses, Professor of Anthropology (2010-2013). He holds a Ph.D. in Anthropology, Case Western Reserve University, Cleveland, Ohio (1981), a Master’s degree in Anthropology, Case Western Reserve University (1975) and an undergraduate degree in Anthropology, Miami University, Oxford, Ohio (1973). Mr. Pratt’s academic background and long-standing connections to our key partner, Miami University, represent an important contribution to the Board’s skillset.
M. Kelly Cowan is an independent director of the Company. From October 2015 to September 2016, Ms. Cowan held the position of Director of Middletown Campus at Cincinnati State Technical and Community College. Prior to that, from 1993 to 2014, she was a professor and Dean at Miami University Middletown Campus. Ms. Cowan’s academic background and long-standing connections to the Ohio university community represent an important contribution to the Board’s skillset.
None of the events listed in Item 401(f) of Regulation S-K has occurred during the past ten years that is material to the evaluation of the ability or integrity of any of our directors, director nominees or executive officers.
Board of Directors and Board Committees
Composition of Board; Risk Oversight
Our Board of Directors presently consists of five directors. Pursuant to our Memorandum and Articles of Association, our officers will be elected by and serve at the discretion of the board. Our directors are not subject to a term of office and hold office until such time as they resign or are removed from office by resolution of our shareholders. A director will be removed from office automatically if, among other things, the director becomes bankrupt or makes any arrangement or composition with his creditors, or becomes physically or mentally incapable of acting as director. Except as noted above, there are no family relationships between any of our executive officers and directors. Officers are elected by, and serve at the discretion of, the board of directors. Our board of directors shall hold meetings on at least a quarterly basis.
As a smaller reporting company under the NASDAQ rules we are only required to maintain a board of directors comprised of at least 50% independent directors, and an audit committee of at least two members, comprised solely of independent directors who also meet the requirements of Rule 10A-3 under the Securities Exchange Act of 1934. There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a general meeting. There are no other arrangements or understandings pursuant to which our directors are selected or nominated.
There is no formal requirement under the Company’s memorandum and articles of association mandating that we hold an annual meeting of our shareholders. However, notwithstanding the foregoing, we intend to hold such meetings on our annual meeting to, among other things, elect our directors.
While it may be deemed a “controlled company” under the NASDAQ Marketplace Rules (specifically, as defined in Rule 5615(c)), the Company does not intend to avail itself of the corporate governance exemptions afforded to a controlled company under the NASDAQ Marketplace Rules. Similarly, the Company intends to comply with all applicable NASDAQ corporate governance requirements irrespective of its “foreign private issues” status.
Our board plays a significant role in our risk oversight. The board makes all relevant Company decisions. As such, it is important for us to have our Chief Executive Officer serve on the board as he plays key roles in the risk oversight or the Company. As a smaller reporting company with a small board of directors, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters.
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Director Independence
Our board has reviewed the independence of our directors, applying the NASDAQ independence standards. Based on this review, the board determined that each of Craig Wilson, Michael Pratt and Kelly Cowan are “independent” within the meaning of the NASDAQ rules. In making this determination, our board considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our board deemed relevant in determining their independence. As required under applicable NASDAQ rules, we anticipate that our independent directors will meet on a regular basis as often as necessary to fulfill their responsibilities, including at least annually in executive session without the presence of non-independent directors and management.
Duties of Directors
Under BVI law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association. A shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.
Board Committees
Currently, three committees have been established under the board: the Audit Committee, the Compensation Committee and the Nominating Committee.
The Audit Committee is responsible for overseeing the accounting and financial reporting processes of our company and audits of the financial statements of our company, including the appointment, compensation and oversight of the work of our independent auditors. The Compensation Committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms of compensation, and also administers our incentive compensation plans and equity-based plans (but our board retains the authority to interpret those plans). The Nominating Committee of the board is responsible for the assessment of the performance of the board, considering and making recommendations to the board with respect to the nominations or elections of directors and other governance issues. The nominating committee considers diversity of opinion and experience when nominating directors.
Audit Committee
The Audit Committee will be responsible for, among other matters:
| ● | appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm; |
| ● | discussing with our independent registered public accounting firm the independence of its members from its management; |
| ● | reviewing with our independent registered public accounting firm the scope and results of their audit; |
| ● | approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; |
| ● | overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC; |
| ● | reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements; |
| ● | coordinating the oversight by our board of directors of our code of business conduct and our disclosure controls and procedures; |
| ● | establishing procedures for the confidential and or anonymous submission of concerns regarding accounting, internal controls or auditing matters; and |
| ● | reviewing and approving related-party transactions. |
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Our Audit Committee consists of Craig Wilson, Michael Pratt and Kelly Cowan, with Mr. Wilson serving as chair of the Audit Committee. Our board has affirmatively determined that each of the members of the Audit Committee meets the definition of “independent director” for purposes of serving on an Audit Committee under Rule 10A-3 of the Exchange Act and NASDAQ rules. In addition, our board has determined that Mr. Wilson qualifies as an “audit committee financial expert” as such term is currently defined in Item 407(d)(5) of Regulation S-K and meets the financial sophistication requirements of the NASDAQ rules.
Compensation Committee
The Compensation Committee will be responsible for, among other matters:
| ● | reviewing and approving, or recommending to the board of directors to approve the compensation of our CEO and other executive officers and directors; | |
| ● | reviewing key employee compensation goals, policies, plans and programs; | |
| ● | administering incentive and equity-based compensation; | |
| ● | reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and | |
| ● | appointing and overseeing any compensation consultants or advisors. |
Our Compensation Committee consists of Craig Wilson, Michael Pratt and Kelly Cowan, with Mr. Pratt serving as chair of the Compensation Committee. Our board has affirmatively determined that each of the members of the Compensation Committee meets the definition of “independent director” for purposes of serving on Compensation Committee under NASDAQ rules.
Nominating Committee
The Nominating Committee will be responsible for, among other matters:
| ● | selecting or recommending for selection candidates for directorships; |
| ● | evaluating the independence of directors and director nominees; |
| ● | reviewing and making recommendations regarding the structure and composition of our board and the board committees; |
| ● | developing and recommending to the board corporate governance principles and practices; |
| ● | reviewing and monitoring the Company’s Code of Business Conduct and Ethics; and |
| ● | overseeing the evaluation of the Company’s management. |
Our Nominating Committee consists of consists of Craig Wilson, Michael Pratt and Kelly Cowan, with Ms. Cowan serving as chair of the Nominating Committee. Our board has affirmatively determined that each of the members of the Nominating Committee meets the definition of “independent director” for purposes of serving on a Nominating Committee under NASDAQ rules.
Code of Business Conduct and Ethics
Our board has adopted a code of business conduct and ethics that applies to our directors, officers and employees. A copy of this code is available on our website. We intend to disclose on our website any amendments to the Code of Business Conduct and Ethics and any waivers of the Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions.
Duties of Directors
Under BVI law, our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. See “Description of Share Capital—Differences in Corporate Law” for additional information on our directors’ fiduciary duties under BVI law. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association. We have the right to seek damages if a duty owed by our directors is breached.
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The functions and powers of our board of directors include, among others:
| ● | appointing officers and determining the term of office of the officers; |
| ● | authorizing the payment of donations to religious, charitable, public or other bodies, clubs, funds or associations as deemed advisable; |
| ● | exercising the borrowing powers of the company and mortgaging the property of the company; |
| ● | executing checks, promissory notes and other negotiable instruments on behalf of the company; and |
| ● | maintaining or registering a register of mortgages, charges or other encumbrances of the company. |
Interested Transactions
A director may vote, attend a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is interested. A director must promptly disclose the interest to all other directors after becoming aware of the fact that he or she is interested in a transaction we have entered into or are to enter into. A general notice or disclosure to the board or otherwise contained in the minutes of a meeting or a written resolution of the board or any committee of the board that a director is a shareholder, director, officer or trustee of any specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary to give special notice relating to any particular transaction.
Remuneration and Borrowing
The directors may receive such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid for all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or committees of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. Our board of directors may exercise all the powers of the company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party.
Qualification
A director is not required to hold shares as a qualification to office.
Executive Compensation
Summary Compensation Table
The following table shows the annual compensation paid by us for the years ended September 30, 2019, 2018 and 2017, respectively:
| Name/principal position | Year | Salary | Equity Compensation |
All
other Compensation |
(1) | Total Paid | ||||||||||||
| Jianbo Zhang, Chairman and CEO (1) | 2019 | $ | 60,000 | $ | - | $ | 60,000 | $ | 120,000 | |||||||||
| 2018 | $ | 60,000 | $ | - | $ | 60,000 | $ | 120,000 | ||||||||||
| Zhenyu Wu, CFO and Director | 2019 | $ | 30,000 | $ | - | $ | 30,000 | $ | 60,000 | |||||||||
| 2018 | $ | 30,000 | $ | - | $ | 30,000 | $ | 60,000 | ||||||||||
| Yunxia Xu, VP and COO | 2019 | $ | 30,000 | $ | - | $ | 30,000 | $ | 60,000 | |||||||||
| 2018 | $ | 30,000 | $ | - | $ | 30,000 | $ | 60,000 | ||||||||||
| Tong Wang, VP and CDO | 2019 | $ | - | $ | - | $ | - | $ | - | |||||||||
| 2018 | $ | - | $ | - | $ | - | $ | - | ||||||||||
| Jing Li, CMO | 2019 | $ | 30,000 | $ | - | $ | 30,000 | $ | 60,000 | |||||||||
| 2018 | $ | 30,000 | $ | - | $ | 30,000 | $ | 60,000 | ||||||||||
| Bo Yu, CPO | 2019 | $ | 30,000 | $ | - | $ | 30,000 | $ | 60,000 | |||||||||
| 2018 | $ | 5,000 | $ | - | $ | 5,000 | $ | 10,000 | ||||||||||
| (1) | All other compensation amounts represent bonus payments in 2019, 2018 and 2017. |
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Employment Agreements
Employment Agreement with Jianbo Zhang
Effective as of October 1, 2018, we entered into an employment agreement with Jianbo Zhang pursuant to which he agreed to serve as our Chief Executive Officer. The agreement provides for an annual base salary of USD$60,000 payable in accordance with the Company’s ordinary payroll practices. Under the terms of the agreement, Mr. Zhang will be entitled to receive an annual cash bonus in the amount of up to $60,000 if, in the determination of the Company’s Compensation Committee, the Company’s total sales increased by 20% during the fiscal year in question. He is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. Upon approval from the Board of Directors, he will also be granted 100,000 restricted shares on a quarterly basis under the terms of the 2019 Equity Incentive Plan. The term of the agreement shall expire on September 30, 2023, which term will automatically extend for additional 12 month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits under the agreement. If his employment is terminated at our election without “cause” (as defined in the agreement), which requires 30 days’ advanced notice, or by him for “good reason” (as defined in the agreement), he shall be entitled to receive severance payments equal to 9 months’ of his base salary and a pro rata portion of his target annual bonus for the year when termination occurs. Mr. Zhang has agreed not to compete with us for 9 months after the termination of his employment; he also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature.
Employment Agreement with Zhenyu Wu
Effective as of October 1, 2018, we entered into an employment agreement with Zhenyu Wu pursuant to which he agreed to serve as our Chief Financial Officer. The agreement provides for an annual base salary of USD$30,000 payable in accordance with the Company’s ordinary payroll practices. Under the terms of the agreement, effective as of October 1, 2018, Mr. Wu will be entitled to receive an annual cash bonus in the amount of up to $30,000 if, in the determination of the Company’s Compensation Committee, the Company’s total sales increased by 20% during the fiscal year in question. He is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. Upon approval from the Board of Directors, he will also be granted 50,000 restricted shares on a quarterly basis under the terms of the 2019 Equity Incentive Plan. The term of the agreement shall expire on September 30, 2023, which term will automatically extend for additional 12 month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits under the agreement. If his employment is terminated at our election without “cause” (as defined in the agreement), which requires 30 days’ advanced notice, or by him for “good reason” (as defined in the agreement), he shall be entitled to receive severance payments equal to 9 months’ of his base salary and a pro rata portion of his target annual bonus for the year when termination occurs. Mr. Wu has agreed not to compete with us for 9 months after the termination of his employment; he also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature.
Employment Agreement with Yunxia Xu
Effective as of October 1, 2018, we entered into an employment agreement with Yunxia Xu pursuant to which she agreed to serve as our Vice President and Chief Operating Officer. The agreement provides for an annual base salary of USD$30,000 payable in accordance with the Company’s ordinary payroll practices. Under the terms of the agreement, effective as of October 1, 2018, Ms. Xu will be entitled to receive an annual cash bonus in the amount of up to $30,000 if, in the determination of the Company’s Compensation Committee, the Company’s total sales increased by 20% during the fiscal year in question. She is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. Upon approval from the Board of Directors, she will also be granted 30,000 restricted shares on a quarterly basis under the terms of the 2019 Equity Incentive Plan. The term of the agreement shall expire on September 30, 2023, which term will automatically extend for additional 12 month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of her salary through the date of her termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of her benefits under the agreement. If her employment is terminated at our election without “cause” (as defined in the agreement), which requires 30 days’ advanced notice, or by her for “good reason” (as defined in the agreement), she shall be entitled to receive severance payments equal to 9 months’ of her base salary and a pro rata portion of her target annual bonus for the year when termination occurs. Ms. Xu has agreed not to compete with us for 9 months after the termination of her employment; she also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature.
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Employment Agreement with Tong Wang
Effective as of November 1, 2019, we entered into an employment agreement with Tong Wang pursuant to which he agreed to serve as our Vice President and Chief Development Officer. The agreement provides for an annual base salary of USD$30,000 payable in accordance with the Company’s ordinary payroll practices. Under the terms of the agreement, Mr. Wang will be entitled to receive an annual cash bonus in the amount of up to $30,000 if, in the determination of the Company’s Compensation Committee, the Company’s total sales increased by 20% during the fiscal year in question. He is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. Upon approval from the Board of Directors, he will also be granted 30,000 restricted shares on a quarterly basis under the terms of the 2019 Equity Incentive Plan. The term of the agreement shall expire on October 31, 2023, which term will automatically extend for additional 12 month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits under the agreement. If his employment is terminated at our election without “cause” (as defined in the agreement), which requires 30 days’ advanced notice, or by her for “good reason” (as defined in the agreement), he shall be entitled to receive severance payments equal to 9 months’ of his base salary and a pro rata portion of her target annual bonus for the year when termination occurs. Mr. Wang has agreed not to compete with us for 9 months after the termination of her employment; he also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature.
Employment Agreement with Jing Li
Effective as of October 1, 2018, we entered into an employment agreement with Jing Li pursuant to which she agreed to serve as our Chief Marketing Officer. The agreement provides for an annual base salary of USD$30,000 payable in accordance with the Company’s ordinary payroll practices. Under the terms of the agreement, effective as of October 1, 2018, Ms. Li will be entitled to receive an annual cash bonus in the amount of up to $30,000 if, in the determination of the Company’s Compensation Committee, the Company’s total sales increased by 20% during the fiscal year in question. She is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. Upon approval from the Board of Directors, she will also be granted 10,000 restricted shares on a quarterly basis under the terms of the 2019 Equity Incentive Plan. The term of the agreement shall expire on September 30, 2023, which term will automatically extend for additional 12 month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of her salary through the date of her termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of her benefits under the agreement. If her employment is terminated at our election without “cause” (as defined in the agreement), which requires 30 days’ advanced notice, or by her for “good reason” (as defined in the agreement), she shall be entitled to receive severance payments equal to 9 months’ of her base salary and a pro rata portion of her target annual bonus for the year when termination occurs. Ms. Li has agreed not to compete with us for 9 months after the termination of her employment; she also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature.
Employment Agreement with Bo Yu
Effective as of August 1, 2019, we entered into an employment agreement with Bo Yu pursuant to which he agreed to serve as our Chief Programs Officer. The agreement provides for an annual base salary of USD$30,000 payable in accordance with the Company’s ordinary payroll practices. Under the terms of the agreement, effective as of August 1, 2019, Mr. Yu will be entitled to receive an annual cash bonus in the amount of up to $30,000 if, in the determination of the Company’s Compensation Committee, the Company’s total sales increased by 20% during the fiscal year in question. He is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. Upon approval from the Board of Directors, he will also be granted 10,000 restricted shares on a quarterly basis under the terms of the 2019 Equity Incentive Plan. The term of the agreement shall expire on September 30, 2023, which term will automatically extend for additional 12 month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits under the agreement. If his employment is terminated at our election without “cause” (as defined in the agreement), which requires 30 days’ advanced notice, or by her for “good reason” (as defined in the agreement), he shall be entitled to receive severance payments equal to 9 months’ of his base salary and a pro rata portion of his target annual bonus for the year when termination occurs. Mr. Yu has agreed not to compete with us for 9 months after the termination of her employment; he also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature.
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2019 Equity Incentive Plan
We have adopted the 2019 Equity Incentive Plan (the “Plan”). The Plan is a stock-based compensation plan that provides for discretionary grants of, among others, stock options, stock awards and stock unit awards to key employees and directors of the Company. The purpose of the Plan is to recognize contributions made to our company and its subsidiaries by such individuals and to provide them with additional incentive to achieve the objectives of our Company. No grants have been made under the plan as of the date hereof. The following is a summary of the Plan and is qualified by the full text of the Plan.
Administration. The Plan will be administered by our board of directors, or, once constituted, the Compensation Committee of the board of directors (we refer to body administering the Plan as the “Committee”).
Number of Shares of Ordinary shares. The number of ordinary shares that may be issued under the Plan is 2,000,000. Shares issuable under the Plan may be authorized but unissued shares or treasury shares. If there is a lapse, forfeiture, expiration, termination or cancellation of any award made under the Plan for any reason, the shares subject to the award will again be available for issuance. Any shares subject to an award that are delivered to us by a participant, or withheld by us on behalf of a participant, as payment for an award or payment of withholding taxes due in connection with an award will not again be available for issuance, and all such shares will count toward the number of shares issued under the Plan. The number of ordinary shares issuable under the Plan is subject to adjustment, in the event of any reorganization, recapitalization, stock split, stock distribution, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the company or any similar corporate transaction. In each case, the Committee has the discretion to make adjustments it deems necessary to preserve the intended benefits under the Plan. No award granted under the Plan may be transferred, except by will, the laws of descent and distribution.
Eligibility. All key employees and directors of the Company are eligible to receive awards under the Plan.
Awards to Participants. The Plan provides for discretionary awards of, among others, stock options, stock awards and stock unit awards to participants. Each award made under the Plan will be evidenced by a written award agreement specifying the terms and conditions of the award as determined by the Committee in its sole discretion, consistent with the terms of the Plan.
Stock Options. The Committee has the discretion to grant non-qualified stock options or incentive stock options to participants and to set the terms and conditions applicable to the options, including the type of option, the number of shares subject to the option and the vesting schedule; each option will expire ten years from the date of grant and no dividend equivalents may be paid with respect to stock options. The aggregate maximum number of shares as to which a Key Employee may receive Stock Options and Stock Appreciation Rights in any calendar year is 200,000, except that the aggregate maximum number of shares as to which a Key Employee may receive Stock Options and Stock Appreciation Rights in the calendar year in which such Key Employee begins employment with the Company or its Subsidiaries is 350,000.
Stock Awards. The Committee has the discretion to grant stock awards to participants. Shares granted under the Plan will be effective and exercisable as of the Company’s completion of our initial public offering of its securities and other terms, restrictions and qualifications that may be set forth in the individual grant agreements. Stock awards will consist of ordinary shares granted without any consideration from the participant or shares sold to the participant for appropriate consideration as determined by the Board. The number of shares awarded to each participant, and the restrictions, terms and conditions of the award, will be at the discretion of the Committee. Subject to the restrictions, a participant will be a shareholder with respect to the shares awarded to him or her and will have the rights of a shareholder with respect to the shares, including the right to vote the shares and receive dividends on the shares; provided that dividends otherwise payable on any performance-based stock award will be held by us and will be paid to the holder of the stock award only to the extent the restrictions on such stock award lapse, and the Committee in its discretion can accumulate and hold such amounts payable on any other stock awards until the restrictions on the stock award lapse. The aggregate maximum number of shares that may be used for Stock Awards, Stock Bonus Awards and or Stock Unit Awards that are intended to qualify as “performance-based” in accordance with Section 162(m) of the Code that may be granted to any Key Employee in any calendar year is 250,000, or, in the event the award is settled in cash, an amount equal to the fair market value of such number of shares on the date on which the award is settled.
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Payment for Stock Options and Withholding Taxes. The Committee may make one or more of the following methods available for payment of any award, including the exercise price of a stock option, and for payment of the minimum required tax obligation associated with an award: (i) cash; (ii) cash received from a broker-dealer to whom the holder has submitted an exercise notice together with irrevocable instructions to deliver promptly to us the amount of sales proceeds from the sale of the shares subject to the award to pay the exercise price or withholding tax; (iii) by directing us to withhold ordinary shares otherwise issuable in connection with the award having a fair market value equal to the amount required to be withheld; and (iv) by delivery of previously acquired ordinary shares that are acceptable to the Committee and that have an aggregate fair market value on the date of exercise equal to the exercise price or withholding tax, or certification of ownership by attestation of such previously acquired shares.
Amendment of Award Agreements; Amendment and Termination of the Plan; Term of the Plan. The Committee may amend any award agreement at any time, provided that no amendment may adversely affect the right of any participant under any agreement in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or stock exchange rule. The Board may terminate, suspend or amend the Plan, in whole or in part, from time to time, without the approval of the shareholders, unless such approval is required by applicable law, regulation or stock exchange rule, and provided that no amendment may adversely affect the right of any participant under any outstanding award in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or rule of any stock exchange on which the shares are listed.
Notwithstanding the foregoing, neither the Plan nor any outstanding award agreement can be amended in a way that results in the repricing of a stock option. Repricing is broadly defined to include reducing the exercise price of a stock option or cancelling a stock option in exchange for cash, other stock options with a lower exercise price or other stock awards. (This prohibition on repricing without shareholder approval does not apply in case of an equitable adjustment to the awards to reflect changes in the capital structure of the company or similar events.)
No awards may be granted under the Plan on or after the tenth anniversary of the effective date of the Plan.
Interested Transactions
A director may vote, attend a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is interested. A director must promptly disclose the interest to all other directors after becoming aware of the fact that he or she is interested in a transaction we have entered into or are to enter into.
A general notice or disclosure to the board or otherwise contained in the minutes of a meeting or a written resolution of the board or any committee of the board that a director is a shareholder, director, officer or trustee of any specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary to give special notice relating to any particular transaction.
Limitation on Liability and Other Indemnification Matters
British Virgin Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the British Virgin Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Under our Memorandum and Articles of Association, we may indemnify its directors, officers and liquidators against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with civil, criminal, administrative or investigative proceedings to which they are party or are threatened to be made a party by reason of their acting as our director, officer or liquidator. To be entitled to indemnification, these persons must have acted honestly and in good faith with a view to the best interest of the registrant and, in the case of criminal proceedings, they must have had no reasonable cause to believe their conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Director Compensation
All directors hold office until their successors have been duly elected and qualified unless a term of offices has been fixed by a resolution of directors or resolutions of members. There are no family relationships among our directors or executive officers. Officers are elected by and serve at the discretion of the Board of Directors. Employee directors do not receive any compensation for their services. Non-employee directors are entitled to receive $1,250 per month for serving as directors (with the exception that the Chair of the Audit Committee are entitled to receive $1,500 per month) and may receive option grants from our company.
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The following is a description of transactions since inception, in which the amount involved in the transaction exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets as at the year-end for the last two completed fiscal years, and for the two six months periods ended March 31, 2020 and 2019, and to which any of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
| Name of related parties | Relationship with the Company | |
| Jianbo Zhang | Founder and ultimate controlling shareholder, CEO | |
| Beijing Renda Finance and Education Technology Co., Ltd (“Renda”) | A company controlled by the founder and ultimate controlling shareholder, CEO from March 23, 2009 to April 26, 2018 | |
| Jinan Wanze Education Information Consulting Co., Ltd. (“Jinan Wanze”) | A company controlled by the founder and ultimate controlling shareholder, CEO from May 10, 2011 to July 26, 2018 |
Related Party transactions
For the years ended September 30, 2019 and 2018
The Company had the following related party transactions:
| (i) | During the year ended September 30, 2019, Jianbo Zhang paid US $nil (2018: US$438,796) working capital expenditures on behalf of the Company and converted these working capital loans to additional paid in capital for both 2019 and 2018. |
| (ii) | During the year ended September 30, 2019, the Company made US $nil (2018: US$1,379,500) prepayments to Renda, who used the fund to pay the Company’s Chinese agents for three-year student recruitment services on behalf of the Company. |
| (iii) | During the year ended September 30, 2019, the Company made US$534,000 (2018: US$931,800) prepayments to Jinan Wanze, who used the fund to pay the Company’s Chinese agents for three-year student recruitment services on behalf of the Company. |
| (iv) | The Company entered an agreement with Renda which required the Company to pay Renda an annual fee of RMB2,900,000 for the years ended September 30, 2019 and 2018 for expenditures incurred by Renda on behalf of the Company. This amount for the year ended September 30, 2018 was eventually paid by Jianbo Zhang (refer to (i) above). |
For the six months ended March 31, 2020 and 2019
There were no material related party transactions during the period ended March 31, 2020 and 2019 respectively.
Due from related party balance
The Company’s related parties balances as of March 31, 2020, September 30, 2019 and 2018 are as follows:
| March 31, 2020 | September 30, 2019 | September 30, 2018 | ||||||||||
| US$ | US$ | US$ | ||||||||||
| Renda – Note receivable – principal | - | - | 143,000 | |||||||||
| Renda – Note receivable – accrued interests | - | - | 15,554 | |||||||||
| Jinan Wanze – Note receivable – principal | - | - | 286,800 | |||||||||
| Jinan Wanze – Note receivable – accrued interests | - | - | 34,295 | |||||||||
| Total | - | - | 479,649 | |||||||||
The related party balances as of September 30, 2018 relate to note receivables due from Renda and Wanze. The note receivables both are unsecured, bearing an interest of 10% per annum and due on June 7, 2020 or August 28, 2020. Interests are payable on an annual basis and therefore accrued interests are recorded in short-term accounts receivable on the consolidated financial statements.
On August 12, 2019, Renda and Wanze both entered into a separate agreement with the Company to settle the notes payable to the Company in full, including all accrued interests, by offsetting the working capital expenditures and/or commissions paid by Renda and Wanze on behalf of the Company.
Due to related party balance
The related party balances of $140,000 as of March 31, 2020 and September 30, 2019 relate to IPO costs paid by Jianbo Zhang on behalf of the Company. The due to related party balance is unsecured, non-interest bearing and due on demand.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information with respect to the beneficial ownership of our ordinary shares and as adjusted to reflect the sale of the ordinary shares offered by us in our initial public offering, for:
| ● | each stockholder known by us to be the beneficial owner of more than 5% of our outstanding ordinary shares; |
| ● | each of our directors; |
| ● | each of our named executive officers; and |
| ● | all of our directors and executive officers as a group. |
We have determined beneficial ownership in accordance with the rules of the SEC. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to subscribe for within 60 days of December 14, 2020 through the exercise of any warrants or other rights. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power or the power to receive the economic benefit with respect to all ordinary shares that they beneficially own, subject to applicable community property laws. None of the stockholders listed in the table are a broker-dealer or an affiliate of a broker dealer. None of the stockholders listed in the table are located in the United States and none of the ordinary shares held by them are located in the United States. Applicable percentage ownership is based on 7,938,000 ordinary shares outstanding as of December 14, 2020. Unless otherwise indicated, the address of each beneficial owner listed in the table below is to the Company c/o 1209 N. University Blvd, Middletown, OH 45042.
| Beneficial Ownership Prior to Offering (1) | Beneficial Ownership After | |||||||||||
| Name of Beneficial Owner | Ordinary shares | Percentage | Offering (1) Percentage | |||||||||
| Jianbo Zhang, CEO (3)(4) | 6,667,416 | 83.99 | % | 75.76 | % | |||||||
| Zhenyu Wu, CFO (5) | 396,900 | 5.00 | % | 4.51 | % | |||||||
| Yunxia Xu, COO (6) | 63,000 | * | * | |||||||||
| Jing Li, CMO (7) | 31,500 | * | * | |||||||||
| Bo Yu, CPO (7) | - | * | - | |||||||||
| Craig Wilson (2) | - | - | - | |||||||||
| Michael Pratt (2) | - | - | - | |||||||||
| Kelly Cowan (2) | - | - | - | |||||||||
| All directors and executive officers as a group (8 persons) | 1,999,116 | 25.18 | % | 22.72 | % | |||||||
| 5% or greater beneficial owners as a group | ||||||||||||
| Wonderland Holdings International Limited (3) | 5,159,700 | 65 | % | 58.63 | % | |||||||
| * | Less than 1%. |
| (1) | Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the ordinary shares or the power to receive the economic benefit of the ordinary shares. This calculation also assumes that the underwriters exercise their option to purchase 112,500 additional shares in full for the purpose of covering over-allotments. See “Underwriting.” |
| (2) | Independent director. |
| (3) | A BVI incorporated entity with the mailing address of c/o No. 36, Daxing Hutong, Fongcheng District, Beijing City, PRC. As Jianbo Zhang is the sole shareholder and director of the entity, he is deemed the beneficial owner of the Company’s securities held by Wonderland Holdings. |
| (4) | Does not include a restricted stock grant of up to 100,000 shares of the Company to be made pursuant to the terms of the 2019 Equity Incentive Plan (the “Plan”), vesting in four equal installments on the first calendar day of each full fiscal quarters following the grant date. |
| (5) | Does not include a restricted stock grant of up to 50,000 shares of the Company to be made pursuant to the terms of the Plan, vesting in four equal installments on the first calendar day of each full fiscal quarters following the grant date. |
| (6) | Does not include a restricted stock grant of up to 30,000 shares of the Company to be made pursuant to the terms of the Plan vesting in four equal installments on the first calendar day of each full fiscal quarters following the grant date. |
| (7) | Does not include a restricted stock grant of up to 10,000 shares of the Company to be made pursuant to the terms of the Plan, vesting in four equal installments on the first calendar day of each full fiscal quarters following the grant date. |
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As of October 10, 2019, there were 23 holders of record entered in our share register, of which no holders were U.S. residents. The number of individual holders of record is based exclusively upon our share register and does not address whether a share or shares may be held by the holder of record on behalf of more than one person or institution who may be deemed to be the beneficial owner of a share or shares in our company.
To our knowledge, no other shareholder beneficially owns more than 5% of our shares. Our company is not owned or controlled directly or indirectly by any government or by any corporation or by any other natural or legal person severally or jointly. Our major shareholders do not have any special voting rights.
Our audit committee charter will provide that our audit committee be responsible for reviewing and approving, in advance any related party transactions. This will cover, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which we were or are to be a participant, where the amount involved exceeds $120,000 and a related person had or will have a direct or indirect material interest, including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. All of the transactions described in this section occurred prior to the creation of our audit committee and the adoption of this policy but were subsequently ratified by our Board of Directors.
We were incorporated as a BVI business company under the BVI Act on December 13, 2017 under the name “Elite Education Group International Limited.”
On October 27, 2020, our Board of Directors and stockholders approved a 1-for-0.63 reverse stock split of our issued and outstanding ordinary shares (the “Reverse Stock Split”), which became effective on October 27, 2020.
As of the date of this prospectus, we have authorized 31,500,000 ordinary shares, of US$0.0015 par value. The following are summaries of the material provisions of our Memorandum and Articles of Association; a copy of these documents are filed as exhibits to the registration statement of which this prospectus is a part.
Units Offered Hereby
We are offering 750,000 Units at a fixed price of $8.00 per Unit. Each Unit consists of (a) one ordinary share, (b) one Series A Warrants to purchase one ordinary share at an exercise price equal to $10.00 per share, exercisable until the fifth anniversary of the issuance date, and (c) one Series B Warrants to purchase one ordinary share at an exercise price equal to $5.00 per share, exercisable until the fifth anniversary of the issuance date and subject to certain adjustment and cashless exercise provisions as described herein. The ordinary shares and the Warrants are immediately separable and will be issued separately, but will be purchased together in this offering. We do not intend to apply for any listing of either of the Warrants on the Nasdaq Capital Market or any other securities exchange or nationally recognized trading system, and we do not expect a market to develop for the Series A Warrants or the Series B Warrants.
Shares
All of our issued ordinary shares are fully paid and non-assessable. Certificates evidencing the ordinary shares are issued in registered form. Our shareholders who are non-residents of the British Virgin Islands may freely hold and vote their ordinary shares.
Distributions
The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors subject to the BVI Act.
Voting rights
Any action required or permitted to be taken by the shareholders must be effected at a duly called meeting of the shareholders entitled to vote on such action or may be effected by a resolution in writing. At each meeting of shareholders, each shareholder who is present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly authorized representative) will have one vote for each ordinary share that such shareholder holds.
Warrant Agent
The Series A Warrants and Series B Warrants will be issued in registered form under a warrant agent agreement (the “Warrant Agent Agreement”) between us and our warrant agent, VStock Transfer, LLC (the “Warrant Agent”). The material provisions of the warrants are set forth herein and a copy of the Warrant Agent Agreement has been filed as an exhibit to the Registration Statement on Form F-1, of which this prospectus forms a part. The Company and the Warrant Agent may amend or supplement the Warrant Agent Agreement 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 Agent Agreement as the parties thereto may deem necessary or desirable and that the parties determine, in good faith, shall not adversely affect the interest of the Series A Warrant or Series B Warrant holders. All other amendments and supplements to the Warrant Agent Agreement shall require the vote or written consent of holders of at least 50.1% of each of the Series A Warrants and Series B Warrants.
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Series A Warrants Offered Hereby
The Series A Warrants entitle the registered holder to purchase one share of our common stock at a price equal to $5.00 per share, subject to adjustment as discussed below, terminating at 5:00 p.m., New York City time, on the fifth (5th) anniversary of the date of issuance.
The exercise price and number of shares of common stock issuable upon exercise of the Series A Warrants may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend on or recapitalization, reorganization, merger or consolidation.
The Series A Warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the Warrant Agent, with the exercise form attached to the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised. The Series A Warrant holders do not have the rights or privileges of holders of common stock and any voting rights until they exercise their Series A Warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the Series A warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
No Series A Warrants will be exercisable for cash unless at the time of the exercise a prospectus or prospectus relating to common stock issuable upon exercise of the Series A Warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the Series A Warrant Agent Agreement, we have agreed to use our best efforts to maintain a current prospectus or prospectus relating to common stock issuable upon exercise of the Series A Warrants until the expiration of the Series A Warrants. Additionally, the market for the Series A Warrants may be limited if the prospectus or prospectus relating to the common stock issuable upon exercise of the Series A Warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of such Series A Warrants reside. In no event will the registered holders of a Series A Warrant be entitled to receive a net-cash settlement in lieu of physical settlement in shares of our common stock.
No fractional shares of common stock will be issued upon exercise of the Series A Warrants. If, upon exercise of the Series A Warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of shares of common stock to be issued to the Warrant holder. If multiple Series A Warrants are exercised by the holder at the same time, we will aggregate the number of whole shares issuable upon exercise of all the Series A Warrants.
The price of the Series A Warrants has been arbitrarily established by us and the Underwriter after giving consideration to numerous factors, including but not limited to, the pricing of the Units in this offering. No particular weighting was given to any one aspect of those factors considered. We have not performed any method of valuation of the warrants.
Series B Warrants Offered Hereby
The Series B Warrants entitle each holder to purchase one share of our common stock at an exercise price of $10.00 per share, subject to adjustment as discussed below, terminating at 5:00 p.m., New York City time, on the fifth (5th) anniversary of the date of issuance.
The exercise price and number of shares of common stock issuable upon exercise of the Series B Warrants may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend on or recapitalization, reorganization, merger or consolidation. The Series B Warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the Warrant Agent, with the exercise form attached to the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised. The Series B Warrant holders do not have the rights or privileges of holders of common stock and any voting rights until they exercise their Series B Warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the Series B warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
No Series B Warrants will be exercisable for cash unless at the time of the exercise a prospectus or prospectus relating to common stock issuable upon exercise of the Series B Warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the Series B Warrant Agent Agreement, we have agreed to use our best efforts to maintain a current prospectus or prospectus relating to common stock issuable upon exercise of the Series B Warrants until the expiration of the Series B Warrants. Additionally, the market for the Series B Warrants may be limited if the prospectus or prospectus relating to the common stock issuable upon exercise of the Series B Warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of such Series B Warrants reside. In no event will the registered holders of a Series B Warrant be entitled to receive a net-cash settlement in lieu of physical settlement in shares of our common stock. If we fail to maintain a current prospectus or prospectus relating to the common stock issuable upon the exercise of the Series B Warrants, such holders may exercise their Series B warrants on a “cashless” basis pursuant to a formula set forth in the terms of the Series B Warrants.
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Additionally, holders of Series B Warrants may exercise such warrants on a “cashless” basis upon the earlier of (i) 15 trading days from the issuance date of such warrant or (ii) the time when $10.0 million of volume is traded in our common stock, if the volume weighted average price (“VWAP”) of our common stock on any trading day on or after the date of issuance fails to exceed the exercise price of the Series B Warrant (subject to adjustment for any stock splits, stock dividends, stock combinations, recapitalizations and similar events). In such event, the aggregate number of shares of common stock issuable in such cashless exercise shall equal the product of (x) the aggregate number of shares of common stock that would be issuable upon exercise of the Series B Warrant in accordance with its terms if such exercise were by means of a cash exercise rather than a cashless exercise and (y) 1.00.
No fractional shares of common stock will be issued upon exercise of the Series B Warrants. If, upon exercise of the Series B Warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of shares of common stock to be issued to the Warrant holder. If multiple Series B Warrants are exercised by the holder at the same time, we will aggregate the number of whole shares issuable upon exercise of all the Series B Warrants.
The price of the Series B Warrants has been arbitrarily established by us and the Underwriter after giving consideration to numerous factors, including but not limited to, the pricing of the Units in this offering. No particular weighting was given to any one aspect of those factors considered. We have not performed any method of valuation of the warrants.
Election of directors
Delaware law permits cumulative voting for the election of directors only if expressly authorized in the certificate of incorporation. The laws of the British Virgin Islands, however, do not specifically prohibit or restrict the creation of cumulative voting rights for the election of our directors. Cumulative voting is not a concept that is accepted as a common practice in the British Virgin Islands, and we have made no provisions in our memorandum and articles of association to allow cumulative voting for elections of directors.
Meetings
We must provide written notice of all meetings of shareholders, stating the time, date and place at least 7 days before the date of the proposed meeting to those persons whose names appear as shareholders in the register of members on the date of the notice and are entitled to vote at the meeting. Our board of directors shall call a meeting of shareholders upon the written request of shareholders holding at least 30% of our outstanding voting shares. In addition, our board of directors may call a meeting of shareholders on its own motion. A meeting of shareholders may be called on short notice if at least 90% of the ordinary shares entitled to vote on the matters to be considered at the meeting have waived notice of the meeting, and presence at the meeting shall be deemed to constitute waiver for this purpose.
At any meeting of shareholders, a quorum will be present if there are shareholders present in person or by proxy representing not less than one-third of the issued ordinary shares entitled to vote on the resolutions to be considered at the meeting. Such quorum may be represented by only a single shareholder or proxy. If no quorum is present within two hours of the start time of the meeting, the meeting shall be dissolved if it was requested by shareholders. In any other case, the meeting shall be adjourned to the next business day, and if shareholders representing not less than one-third of the votes of the ordinary shares or each class of shares entitled to vote on the matters to be considered at the meeting are present within one hour of the start time of the adjourned meeting, a quorum will be present. If not, the meeting will be dissolved. No business may be transacted at any meeting of shareholders unless a quorum is present at the commencement of business. If present, the chair of our board of directors shall be the chair presiding at any meeting of the shareholders. If the chair of our board is not present then the shareholders present shall choose a shareholder to chair the meeting of the shareholders.
A corporation that is a shareholder shall be deemed for the purpose of our memorandum and articles of association to be present in person if represented by its duly authorized representative. This duly authorized representative shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were our individual shareholder.
Protection of minority shareholders
The BVI Act offers some limited protection of minority shareholders. The principal protection under statutory law is that shareholders may apply to the BVI court for an order directing the company or its director(s) to comply with, or restraining the company or a director from engaging in conduct that contravenes, the BVI Act or the company’s Memorandum and Articles of Association. Under the BVI Act, the minority shareholders have a statutory right to bring a derivative action in the name of and on behalf of the company in circumstances where a company has a cause of action against its directors. This remedy is available at the discretion of the BVI court. A shareholder may also bring an action against the company for breach of duty owed to him as a member. A shareholder who considers that the affairs of the company have been, are being or likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity, may apply to the BVI court for an order to remedy the situation.
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There are common law rights for the protection of shareholders that may be invoked, largely dependent on English company law. Under the general rule pursuant to English company law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the Board of Directors. However, every shareholder is entitled to have the affairs of the company conducted properly according to BVI law and the constituent documents of the company. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s Memorandum and Articles of Association, then the courts may grant relief. Generally, the areas in which the courts will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe or are about to infringe on the personal rights of the shareholders, such as the right to vote; and (4) where the company has not complied with provisions requiring approval of a special or extraordinary majority of shareholders.
Pre-emptive rights
There are no pre-emptive rights applicable to the issue by us of new ordinary shares under either BVI law or our memorandum and articles of association.
Transfer of ordinary shares
Subject to the restrictions in our memorandum and articles of association, the lock-up agreements with our underwriters described in “Shares Eligible for Future Sale—Lock-Up Agreements” and applicable securities laws, any of our shareholders may transfer all or any of his or her ordinary shares by written instrument of transfer signed by the transferor and containing the name and address of the transferee. Our board of directors may resolve by resolution to refuse or delay the registration of the transfer of any ordinary share. If our board of directors resolves to refuse or delay any transfer, it shall specify the reasons for such refusal in the resolution. Our directors may not resolve or refuse or delay the transfer of a ordinary share unless: (a) the person transferring the shares has failed to pay any amount due in respect of any of those shares; or (b) such refusal or delay is deemed necessary or advisable in our view or that of our legal counsel in order to avoid violation of, or in order to ensure compliance with, any applicable, corporate, securities and other laws and regulations.
Liquidation
As permitted by BVI law and our memorandum and articles of association, the company may be voluntarily liquidated by a resolution of shareholders or, if permitted under section 199(2) of the BVI Act, by a resolution of directors if we have no liabilities or we are able to pay our debts as they fall due and the value of our assets equals or exceeds our liabilities by resolution of directors and resolution of shareholders.
Calls on ordinary shares and forfeiture of ordinary shares
Our board of directors may, on the terms established at the time of the issuance of such shares or as otherwise agreed, make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 days prior to the specified time of payment. The ordinary shares that have been called upon and remain unpaid are subject to forfeiture. For the avoidance of doubt, if the issued ordinary shares have been fully paid in accordance with the terms of its issuance and subscription, the directors shall not have the right to make calls on such fully paid ordinary shares and such fully paid ordinary shares shall not be subject to forfeiture.
Redemption of ordinary shares
Subject to the provisions of the BVI Act, we may issue shares on terms that are subject to redemption, at our option or at the option of the holders, on such terms and in such manner as may be determined by our memorandum and articles of association and subject to any applicable requirements imposed from time to time by, the BVI Act, the SEC, the NASDAQ Capital Market, or by any recognized stock exchange on which our securities are listed.
Modifications of rights
If at any time, the Company is authorized to issue more than one class of ordinary shares, all or any of the rights attached to any class of shares may be amended only with the consent in writing of or by a resolution passed at a meeting of not less than 50% of the shares of the class to be affected.
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Changes in the number of shares we are authorized to issue and those in issue
We may from time to time by resolution of our board of directors or by a resolution of shareholders:
| ● | amend our memorandum of association to increase or decrease the maximum number of shares we are authorized to issue; |
| ● | subject to our memorandum of association, divide our authorized and issued shares into a larger number of shares; and |
| ● | subject to our memorandum of association, combine our authorized and issued shares into a smaller number of shares. |
Untraceable shareholders
We are not entitled to sell the shares of a shareholder who is untraceable.
Inspection of books and records
Under BVI Law, holders of our ordinary shares are entitled, upon giving written notice to us, to inspect (i) our memorandum and articles of association, (ii) the register of members, (iii) the register of directors and (iv) minutes of meetings and resolutions of members, and to make copies and take extracts from the documents and records. However, our directors can refuse access if they are satisfied that to allow such access would be contrary to our interests. See “Where You Can Find More Information.”
Rights of non-resident or foreign shareholders
There are no limitations imposed by our memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.
Issuance of additional ordinary shares
Our memorandum and articles of association authorizes our board of directors to issue additional ordinary shares from authorized but unissued shares, to the extent available, from time to time as our board of directors shall determine.
Differences in Corporate Law
The BVI Act and the laws of the BVI affecting BVI companies like us and our shareholders differ from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the laws of the British Virgin Islands applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.
Mergers and similar arrangements
Under the laws of the BVI, two or more companies may merge or consolidate in accordance with Section 170 of the BVI Act. A merger means the merging of two or more constituent companies into one of the constituent companies and a consolidation means the uniting of two or more constituent companies into a new company. In order to merge or consolidate, the directors of each constituent company must approve a written plan of merger or consolidation, which must be authorized by a resolution of shareholders. While a director may vote on the plan of merger or consolidation even if he has a financial interest in the plan, the interested director must disclose the interest to all other directors of the company promptly upon becoming aware of the fact that he is interested in a transaction entered into or to be entered into by the company. A transaction entered into by our company in respect of which a director is interested (including a merger or consolidation) is voidable by us unless the director’s interest was (a) disclosed to the board prior to the transaction or (b) the transaction is (i) between the director and the company and (ii) the transaction is in the ordinary course of the company’s business and on usual terms and conditions. Notwithstanding the above, a transaction entered into by the company is not voidable if the material facts of the interest are known to the shareholders and they approve or ratify it or the company received fair value for the transaction. In any event, all shareholders must be given a copy of the plan of merger or consolidation irrespective of whether they are entitled to vote at the meeting to approve the plan of merger or consolidation. The shareholders of the constituent companies are not required to receive shares of the surviving or consolidated company but may receive debt obligations or other securities of the surviving or consolidated company, other assets, or a combination thereof. Further, some or all of the shares of a class or series may be converted into a kind of asset while the other shares of the same class or series may receive a different kind of asset. As such, not all the shares of a class or series must receive the same kind of consideration. After the plan of merger or consolidation has been approved by the directors and authorized by a resolution of the shareholders, articles of merger or consolidation are executed by each company and filed with the Registrar of Corporate Affairs in the BVI. A shareholder may dissent from a mandatory redemption of his shares, an arrangement (if permitted by the court), a merger (unless the shareholder was a shareholder of the surviving company prior to the merger and continues to hold the same or similar shares after the merger) or a consolidation. A shareholder properly exercising his dissent rights is entitled to a cash payment equal to the fair value of his shares.
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A shareholder dissenting from a merger or consolidation must object in writing to the merger or consolidation before the vote by the shareholders on the merger or consolidation, unless notice of the meeting was not given to the shareholder. If the merger or consolidation is approved by the shareholders, the company must give notice of this fact to each shareholder within 20 days (from the date of the notice) who gave written objection. These shareholders then have 20 days to give to the company their written election in the form specified by the BVI Act to dissent from the merger or consolidation, provided that in the case of a merger, the 20 days starts when the plan of merger is delivered to the shareholder. Upon giving notice of his election to dissent, a shareholder ceases to have any shareholder rights except the right to be paid the fair value of his shares. As such, the merger or consolidation may proceed in the ordinary course notwithstanding his dissent. Within seven days of the later of the delivery of the notice of election to dissent and the effective date of the merger or consolidation, the company must make a written offer to each dissenting shareholder to purchase his shares at a specified price per share that the company determines to be the fair value of the shares. The company and the shareholder then have 30 days to agree upon the price. If the company and a shareholder fail to agree on the price within the 30 days, then the company and the shareholder shall, within 20 days immediately following the expiration of the 30-day period, each designate an appraiser and these two appraisers shall designate a third appraiser. These three appraisers shall fix the fair value of the shares as of the close of business on the day prior to the shareholders’ approval of the transaction without taking into account any change in value as a result of the transaction.
Shareholders’ suits
There are both statutory and common law remedies available to our shareholders as a matter of British Virgin Islands law. These are summarized below.
Prejudiced members
A shareholder who considers that the affairs of the company have been, are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, likely to be oppressive, unfairly discriminatory or unfairly prejudicial to him in that capacity, can apply to the court under Section 184I of the BVI Act, inter alia, for an order that his shares be acquired, that he be provided compensation, that the Court regulate the future conduct of the company, or that any decision of the company which contravenes the BVI Act or our memorandum and articles of association be set aside. Section 184C of the BVI Act provides that a shareholder of a company may, with the leave of the Court, bring an action in the name of the company to redress any wrong done to it, i.e., derivate actions.
Just and equitable winding up
In addition to the statutory remedies outlined above, shareholders can also petition for the winding up of a company on the grounds that it is just and equitable for the court to so order. Save in exceptional circumstances, this remedy is only available where the company has been operated as a quasi-partnership and trust and confidence between the partners has broken down.
Indemnification of directors and executive officers and limitation of liability
BVI law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any provision providing indemnification may be held by the BVI courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Under our memorandum and articles of association, we indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings for any person who:
| ● | is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was our director; or |
| ● | is or was, at our request, serving as a director or officer of, or in any other capacity is or was acting for, another body corporate or a partnership, joint venture, trust or other enterprise. |
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These indemnities only apply if the person acted honestly and in good faith with a view to our best interests and, in the case of criminal proceedings, the person had no reasonable cause to believe that his conduct was unlawful.
This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Anti-takeover provisions in our Memorandum and Articles of Association
Some provisions of our memorandum and articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable. However, under BVI law, our directors may only exercise the rights and powers granted to them under our memorandum and articles of association, as amended and restated from time to time, as they believe in good faith to be in the best interests of our company.
Directors’ fiduciary duties
Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction.
The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction and that the transaction was of fair value to the corporation.
Under BVI law, our directors owe the company certain statutory and fiduciary duties including, among others, a duty to act honestly, in good faith, for a proper purpose and with a view to what the directors believe to be in the best interests of the company. Our directors are also required, when exercising powers or performing duties as a director, to exercise the care, diligence and skill that a reasonable director would exercise in comparable circumstances, taking into account without limitation, the nature of the company, the nature of the decision and the position of the director and the nature of the responsibilities undertaken. In the exercise of their powers, our directors must ensure neither they nor the company acts in a manner which contravenes the BVI Act or our memorandum and articles of association, as amended and restated from time to time. A shareholder has the right to seek damages for breaches of duties owed to us by our directors.
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Shareholder action by written consent
Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. BVI law provides that shareholders may approve corporate matters by way of a written resolution without a meeting signed by or on behalf of shareholders sufficient to constitute the requisite majority of shareholders who would have been entitled to vote on such matter at a general meeting; provided that if the consent is less than unanimous, notice must be given to all non-consenting shareholders.
Shareholder proposals
Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings. BVI law and our memorandum and articles of association allow our shareholders holding not less than 30% of the votes of the outstanding voting shares to requisition a shareholders’ meeting. We are not obliged by law to call shareholders’ annual general meetings, but our memorandum and articles of association do permit the directors to call such a meeting. The location of any shareholders’ meeting can be determined by the board of directors and can be held anywhere in the world.
Cumulative voting
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. As permitted under BVI law, our memorandum and articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of directors
Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our memorandum and articles of association, directors can be removed from office, with or without cause, by a resolution of shareholders called for the purpose of removing the director or for purposes including the removal of the director or by written resolution passed by at least 75% of the votes of the shareholders of the Company. Directors can also be removed by a resolution of directors passed at a meeting of directors called for the purpose of removing the director or for purposes including the removal of the director.
Transactions with interested shareholders
The Delaware General Corporation Law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or group who or which owns or owned 15% or more of the target’s outstanding voting shares within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware public corporation to negotiate the terms of any acquisition transaction with the target’s board of directors. BVI law has no comparable statute and our memorandum and articles of association fails to expressly provide for the same protection afforded by the Delaware business combination statute.
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Dissolution; Winding Up
Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under the BVI Act and our memorandum and articles of association, we may appoint a voluntary liquidator by a resolution of the shareholders.
Variation of rights of shares
Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under our memorandum and articles of association, if at any time our shares are divided into different classes of shares, the rights attached to any class may only be varied, whether or not our company is in liquidation, with the consent in writing of or by a resolution passed at a meeting by a majority of the votes cast by those entitled to vote at a meeting of the holders of the issued shares in that class.
Amendment of governing documents
Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by BVI law, our memorandum and articles of association may be amended by a resolution of shareholders and, subject to certain exceptions, by a resolution of directors. An amendment is effective from the date it is registered at the Registry of Corporate Affairs in the BVI.
Stock Transfer Agent
Vstock Transfer is our company’s stock transfer agent. VStock’s contact information is VStock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598, tel. (212) 828-8436.
SHARES ELIGIBLE FOR FUTURE SALE
Before our initial public offering, there has not been a public market for our ordinary shares. Future sales of substantial amounts of our ordinary shares in the public market after our initial public offering, or the possibility of these sales occurring, could cause the prevailing market price for our ordinary shares to fall or impair our ability to raise equity capital in the future. We are unable to estimate the number of ordinary shares that may be sold in the future.
Upon the completion of this offering, we will have outstanding 8,800,500 ordinary shares. The amount of shares outstanding upon completion of this offering assumes no exercise of the underwriters’ option to purchase additional shares. All of the shares sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by one of our affiliates as that term is defined in Rule 144 under the Securities Act, which generally includes directors, officers or 10% stockholders.
Lock-Up
We and our executive officers and directors have agreed with the underwriters not to offer, sell, dispose of or hedge any shares of our ordinary shares, subject to specified limited exceptions and extensions described elsewhere in this prospectus, during the period continuing through the date that is twelve months (subject to extension) after the date of this prospectus, except with the prior written consent of ViewTrade on behalf of the underwriters. ViewTrade in its sole discretion on behalf of the underwriters, may release any of the securities subject to these lock-up agreements at any time without notice. The lock-up period may be extended in the circumstances described under “Underwriting.”
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Rule 144
Ordinary shares held by any of our affiliates, as that term is defined in Rule 144 of the Securities Act, as well as shares held by our current stockholders, may be resold only pursuant to further registration under the Securities Act or in transactions that are exempt from registration under the Securities Act. In general, under Rule 144 as currently in effect, beginning 90 days after our Form F-1 Registration Statement becomes effective, any of our affiliates would be entitled to sell, without further registration, within any three-month period a number of shares that does not exceed the greater of:
| ● | 1% of the number of ordinary shares then outstanding, which will equal approximately shares immediately after this offering; or | |
| ● | the average weekly trading volume of the ordinary shares during the four calendar weeks preceding the filing of a Form 144 with respect to the sale. |
Sales under Rule 144 by our affiliates will also be subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
The following summary of the material British Virgin Islands and U.S. federal income tax consequences of an investment in our ordinary shares and Warrants is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ordinary shares, such as the tax consequences under state, local and other tax laws.
The following sets forth the material British Virgin Islands and U.S. federal income tax matters related to an investment in our ordinary shares and Warrants (the “Equity Securities”). It is directed to U.S. Holders (as defined below) of our ordinary shares and is based on laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This description does not deal with all possible tax consequences relating to an investment in the Equity Securities, such as the tax consequences under state, local and other tax laws. The following brief description applies only to U.S. Holders (defined below) that hold the Equity Securities as capital assets and that have the U.S. dollar as their functional currency. This brief description is based on the upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions thereunder in effect as of the date of this prospectus. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below. The brief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of shares and you are, for U.S. federal income tax purposes:
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; |
| ● | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
| ● | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons as described in Section 7701(a)(30) of the Code or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
WE URGE POTENTIAL PURCHASERS OF OUR SHARES TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX
CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR SHARES.
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British Virgin Islands Taxation
The company and all distributions, interest and other amounts paid by the company in respect of the ordinary shares of the company to persons who are not resident in the BVI are exempt from all provisions of the Income Tax Ordinance in the BVI.
No estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by persons who are not resident in the BVI with respect to any ordinary shares, debt obligations or other securities of the company.
All instruments relating to transactions in respect of the ordinary shares, debt obligations or other securities of the company and all instruments relating to other transactions relating to the business of the company are exempt from payment of stamp duty in the BVI provided that they do not relate to real estate in the BVI.
There are currently no withholding taxes or exchange control regulations in the BVI applicable to the company or its shareholders.
United States Federal Income Taxation
The following does not address the tax consequences to any particular investor or to persons in special tax situations such as:
| ● | banks; |
| ● | financial institutions; |
| ● | insurance companies; | |
| ● | regulated investment companies; |
| ● | real estate investment trusts; broker-dealers; |
| ● | traders that elect to mark-to-market; |
| ● | U.S. expatriates; |
| ● | tax-exempt entities; |
| ● | persons liable for alternative minimum tax; |
| ● | persons holding our ordinary shares as part of a straddle, hedging, conversion or integrated transaction; |
| ● | persons that actually or constructively own 10% or more of our voting shares; |
| ● | persons who acquired our ordinary shares pursuant to the exercise of any employee share option or otherwise as consideration; or |
| ● | persons holding our ordinary shares through partnerships or other pass-through entities. |
Prospective purchasers are urged to consult their tax advisors about the application of the U.S. Federal tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our ordinary shares.
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Taxation of Warrants
A U.S. Holder that purchases the Equity Securities in connection with this offering will not be subject to United States federal income taxation with respect to the receipt of warrants. Instead, such a U.S. Holder will allocate its purchase price for our ordinary shares between the ordinary shares and the Warrants received in proportion to the relative fair market values of these securities on the date the Equity Securities are purchased. This allocation will establish a U.S. Holder’s initial tax bases in our ordinary shares and the Warrants.
The exercise of a warrant to purchase common shares generally will not constitute a taxable event. Accordingly, a U.S. Holder generally will not recognize gain or loss upon the exercise of the Warrant. Rather, a U.S. Holder will recognize taxable gain or loss if and when such U.S. Holder disposes of the ordinary shares received pursuant to the exercise of the Warrant in a taxable transaction. A U.S. Holder’s aggregate tax basis in the common shares received pursuant to the exercise of the warrant will be equal to the amount paid upon the exercise of the Warrant plus the U.S. Holder’s basis in the Warrant. The holding period of the ordinary shares received pursuant to the exercise of the Warrant would begin on the day that the Warrant is exercised.
Subject to the discussion under “—Passive Foreign Investment Company” below, for United States federal income tax purposes, a U.S. Holder will recognize taxable gain or loss upon the sale or other disposition of the Warrants in an amount equal to the difference between the amount realized for the Warrants and the U.S. Holder’s tax basis in the Warrants. Such gain or loss will generally be treated as capital gain or loss. Capital gains of non-corporate holders derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. Gain or loss recognized by a U.S. Holder on a sale of Warrants generally will be treated as United States source gain or loss for United States foreign tax credit purposes.
If a Warrant is allowed to lapse unexercised, a U.S. Holder will recognize a capital loss equal to such U.S. Holder’s basis in the Warrant. Such loss will be long-term if the Warrant has been held for more than one year. The deductibility of capital losses is subject to limitations under the Code.
The exercise price of the Warrants will be adjusted in certain circumstances. Under Section 305(c) of the Code, adjustments (or failures to make adjustments) that have the effect of increasing a holder’s proportionate interest in our assets or earnings may in some circumstances result in a deemed distribution to such holder. Adjustments to the exercise price made pursuant to a bona fide reasonable adjustment formula that has the effect of preventing the dilution of the interest of the holders of the Warrants, however, will generally not be considered to result in a deemed distribution to holders. If any price adjustment to the exercise price of the Warrants does not qualify as being pursuant to a bona fide reasonable adjustment formula, a holder of a Warrant will be deemed to have received a distribution even though such holder has not received any cash or property as a result of such adjustments. Any deemed distributions will be taxable as a dividend, return of capital, or capital gain in accordance with the earnings and profits rules under the Code. U.S. Holders should consult their own tax advisors regarding the possible application of Section 305(c) of the Code.
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Taxation of Dividends and Other Distributions on our Shares
Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to the ordinary shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). The dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the ordinary shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Under U.S. Internal Revenue Service authority, ordinary shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on the NASDAQ Capital Market. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our ordinary shares, including the effects of any change in law after the date of this prospectus. Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our ordinary shares will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”
To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
Taxation of Dispositions of Shares
Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the ordinary shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ordinary shares for more than one year, you will be eligible for reduced tax rates applicable to long term capital gains. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation purposes.
Passive Foreign Investment Company
Based on our current and anticipated operations and the composition of our assets, we do not expect to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our current taxable year. Our actual PFIC status for the current taxable year will not be determinable until after the close of such taxable year and, accordingly, there is no guarantee that we will not be a PFIC for the current taxable year. PFIC status is a factual determination for each taxable year which cannot be made until the close of the taxable year. A non-U.S. corporation is considered a PFIC for any taxable year if either:
| ● | at least 75% of its gross income is passive income; or |
| ● | at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”). |
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We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock. We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. In particular, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our ordinary shares, our PFIC status will depend in large part on the market price of our ordinary shares. Accordingly, fluctuations in the market price of the ordinary shares may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in this offering. If we are a PFIC for any year during which you hold ordinary shares, we will continue to be treated as a PFIC for all succeeding years during which you hold ordinary shares. However, if we cease to be a PFIC, you may avoid some of the adverse effects of the PFIC regime by making a “deemed sale” election with respect to the ordinary shares.
If we are a PFIC for any taxable year during which you hold ordinary shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive on the ordinary shares and any gain you realize from a sale or other disposition (including a pledge) of the Equity Securities, unless, in the case of the ordinary shares, you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ordinary shares will be treated as an excess distribution. Under these special tax rules:
| ● | the excess distribution or gain will be allocated ratably over your holding period for the ordinary shares; |
| ● | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and |
| ● | the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the Equity Securities cannot be treated as capital, even if you hold the ordinary shares as capital assets.
The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ordinary shares cannot be treated as capital, even if you hold the ordinary shares as capital assets.
A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment discussed above. If you make a mark-to-market election for the ordinary shares, you will include in income each year an amount equal to the excess, if any, of the fair market value of the ordinary shares as of the close of your taxable year over your adjusted basis in such ordinary shares. You are allowed a deduction for the excess, if any, of the adjusted basis of the ordinary shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the ordinary shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ordinary shares, as well as to any loss realized on the actual sale or disposition of the ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ordinary shares. Your basis in the ordinary shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “Taxation of Dividends and Other Distributions on our Shares” generally would not apply.
The mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including the NASDAQ Capital Market. Pursuant to a special rule that applies to a company that initiates a public offering of a class of stock during the fourth quarter of the calendar year, our common shares will be treated as “regularly traded” in 2020 if the ordinary shares are traded on a qualified exchange or other market, other than in de minimis quantities, on the greater of 1/6 of the days remaining in the quarter in which the offering occurs, or 5 days. If the ordinary shares are regularly traded on the NASDAQ Capital Market and if you are a holder of ordinary shares, the mark-to-market election would be available to you were we to be or become a PFIC. The mark-to-market election is currently not available with respect to the Warrants.
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Alternatively, a U.S. Holder of stock (but not warrants) in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold ordinary shares in any year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 regarding distributions received on the ordinary shares and any gain realized on the disposition of the ordinary shares.
You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in the Equity Securities and the elections discussed above.
Information Reporting and Backup Withholding
Dividend payments with respect to our ordinary shares and proceeds from the sale, exchange or redemption of our ordinary shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding at a current rate of 24%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information.
Foreign Financial Asset Reporting
Certain U.S. Holders are required to report their holdings of certain foreign financial assets, including equity of foreign entities, if the aggregate value of all of these assets exceeds certain threshold amounts. The ordinary shares are expected to constitute foreign financial assets subject to these requirements unless the ordinary shares are held in an account at certain financial institutions. U.S Holders should consult their tax advisers regarding the application of these reporting requirements.
Transfer Reporting Requirements
A U.S Holder that transfers cash in exchange for equity of a newly created non-U.S. corporation may be required to file Form 926 or a similar form with the IRS if the transferred cash, when aggregated with all transfers made by such U.S. Holder (or any related person) within the preceding 12 month period, exceeds $100,000. United States Holders should consult their tax advisers regarding the applicability of this requirement to their acquisition of ordinary shares and Warrants.
ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of the British Virgin Islands with limited liability. We are incorporated in the British Virgin Islands because of certain benefits associated with being a British Virgin Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of exchange control or currency restrictions and the availability of professional and support services. However, the British Virgin Islands has a less developed body of securities laws as compared to the United States and provides protections for investors to a significantly lesser extent. In addition, British Virgin Islands companies may not have standing to sue before the federal courts of the United States.
Substantially all of our assets are located in the United States. In addition, a majority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such persons or to enforce against them or against us, judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.
We have appointed Vcorp Agent Services as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any State of the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.
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We have been advised by our counsel as to BVI law, that the United States and the BVI Virgin Islands do not have a treaty providing for reciprocal recognition and enforcement of judgments of courts of the United States in civil and commercial matters and that a final judgment for the payment of money rendered by any general or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not be automatically enforceable in the BVI. We have also been advised by Ogier that a final and conclusive judgment obtained in U.S. federal or state courts under which a sum of money is payable as compensatory damages (i.e., not being a sum claimed by a revenue authority for taxes or other charges of a similar nature by a governmental authority, or in respect of a fine or penalty or multiple or punitive damages) may be the subject of an action on a debt in the court of the British Virgin Islands under the common law doctrine of obligation.
We incorporated in the BVI in order to enjoy the following benefits: (1) political and economic stability; (2) an effective judicial system; (3) a favorable tax system; (4) the absence of exchange control or currency restrictions; and (5) the availability of professional and support services. However, certain disadvantages accompany incorporation in the BVI. These disadvantages include, but are not limited to, the following: (1) the BVI has a less developed body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors; and (2) BVI companies may not have standing to sue before the federal courts of the United States. Our constitutional documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.
All of our operations are conducted outside the United States, and all of our assets are located outside the United States. All of our officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.
Ogier has advised us that there is uncertainty as to whether the BVI and China courts, respectively, would:
| ● | recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or |
| ● | entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States. |
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PRC courts may recognize and enforce foreign judgments in accordance with the requirements of PRC Civil Procedure Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the BVI that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedure Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the BVI.
We will enter into an underwriting agreement with ViewTrade Securities, Inc., or the Representative, acting as the sole book-runner and lead managing underwriter, with respect to the Units subject to this offering. Subject to the terms and conditions of the underwriting agreement, each underwriter named below has severally agreed to purchase from us, on a firm commitment basis, the number of Units set forth opposite its name below, at the public offering price, less the underwriting discount set forth on the cover page of this prospectus:
| Underwriters | Number
of Units | |||
| ViewTrade Securities, Inc. | [●] | |||
| Total | 750,000 | |||
The underwriters have agreed to purchase all of the Units offered by this prospectus if they are purchased. The underwriting agreement provides that the underwriters are obligated to purchase all of the Units offered by this prospectus, other than those covered by the over-allotment option, if any Units are purchased. Under the terms of the underwriting agreement, the obligations of the underwriters to pay for and accept delivery of the Units are subject to the passing upon of certain legal matters by counsel and certain conditions such as confirmation of the accuracy of representations and warranties by us about our financial condition and operations and other matters.
Commission and Expenses
The underwriting discounts and commissions are 8% of the initial public offering price.
We agreed to pay $70,000 as an advance payment towards the Representative’s accountable expenses ($35,000 paid upon execution of the engagement letter in connection with this offering, and $35,000 to be paid upon receipt of initial comments from the SEC staff in connection with this offering, (together, the “Advance”)). As of the date of this prospectus, we have paid $35,000 of the Advance to the Representative. The Advance shall be applied towards the Representative’s accountable expenses. Any portion of the Advance will be returned to us in the event it is not actually incurred.
The Representative has advised us that the underwriters propose to offer the Units to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $[●] per Unit. The underwriters may allow, and certain dealers may re-allow, a discount from the concession not in excess of $[●] per Unit to certain brokers and dealers. After this offering, the initial public offering price, concession and reallowance to dealers may be reduced by the Representative. No such reduction shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus.
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The following table shows the underwriting discounts and commissions payable to the underwriters by us in connection with this offering.
| Aggregate | ||||||||
| Per Unit | Amount | |||||||
| Public offering price | $ | 8.00 | $ | 6,000,000 | ||||
| 8.0% Underwriting discount (1) | $ | 0.64 | $ | 480,000 | ||||
| Non-accountable expense allowance (2) | $ | 0.04 | $ | 30,000 | ||||
| Proceeds before other expenses | $ | 7.32 | $ | 5,490,000 | ||||
| (1) | Represents an underwriting discount of public offering price. We have paid ViewTrade a $35,000 advance to be applied against the accountable expenses in connection with this offering. |
| (2) | The non-accountable expense allowance is equal to 0.5% of the gross proceeds of the offering. |
We estimate that the total expense of this offering excluding the underwriters’ discount and the non-accountable expense allowance will be approximately $[●]. We have also agreed to reimburse the Representative’s accountable expenses relating to the offering in amount not to exceed $150,000 (including any Advances).
The distribution of our securities will end upon the underwriters’ cessation of selling efforts and stabilization activities.
Pursuant to the underwriting agreement, we have granted the representatives an option, exercisable for 45 days from the date of this prospectus, to purchase up to an additional 112,500 Units on the same terms as the other Units being purchased by the underwriters from us. The representatives may exercise the option solely to cover over-allotments, if any, in the sale of the Units that the underwriters have agreed to purchase. If the over-allotment option is exercised in full, the total public offering price, underwriting discount, offering expenses and net proceeds to us after offering expenses will be $6,900,000, $552,000, $[●] and $[●], respectively.
Underwriters’ Warrants
We have also agreed to issue to the underwriters warrants to purchase a number of shares of common stock equal to an aggregate of 10% of the shares of common stock sold in this offering. The warrants will have an exercise price equal to 110% of the offering price of the common stock sold in this offering and may be exercised on a cashless basis. The warrants are exercisable commencing 180 days after the effective date of the registration statement related to this offering, and will be exercisable for five years from the commencement of sales of this offering. The warrants are not redeemable by us. The warrants also provide for unlimited “piggyback” registration rights at our expense with respect to the underlying common stock during the five-year period running from the commencement of sales of this offering. The warrants and the underlying common stock have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(e)(1) of FINRA. The underwriters (or permitted assignees under FINRA Rule 5110(e)(2)) may not sell, transfer, assign, pledge, or hypothecate the warrants or the securities underlying the warrants, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the commencement of sales of this offering, except to any FINRA member participating in the offering and their officers or partners, registered persons or affiliates so long as the warrants and underlying securities remain subject to the lock-up. The warrants will provide for adjustment in the number and price of such warrants in the event of recapitalization, merger or other structural transaction to prevent mechanical dilution.
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Indemnification; Indemnification Escrow
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement, or to contribute to payments that the underwriters may be required to make in respect of those liabilities. Concurrently with the execution and delivery of the underwriting agreement, we will set up an escrow account with a third-party escrow agent pursuant to which $200,000 of proceeds from the offering will be deposited by the Company at closing for a period of 12 months following the closing date of this offering, which funds will be used in the event we have to indemnify the underwriters pursuant to the terms of the underwriting agreement. Except as described below, the funds in the escrow account that are not subject to an indemnification claim as of 12 month anniversary of closing will be returned to us in accordance with the terms of the escrow agreement. We will pay the reasonable fees and expenses of the escrow agent. In accordance with the terms of the underwriting agreement, we may not change our independent auditing firm within one year of the closing of this offering without the prior written consent of the Representative, which will not be unreasonably withheld. We have agreed to replace our independent auditing firm with a new independent auditing firm within 60 days of the closing of this offering. Upon such appointment, we will cause the new auditing firm to conduct a review of our financial statements included in this registration statement. Following the new auditing firm’s written confirmation to the Representative following that review that there are no material misstatements or adjustments which would require restatements of any of the financial statements included in the registration statement, then $200,000 of the escrow amount will be released to us no later than 30 calendar days following the Representative’s receipt of the written confirmation.
Lock-Up Agreements
Our officers, directors and holders of all of our currently outstanding common stock, prior to the offering, have agreed to a twelve (12) month “lock-up” period from the closing of this offering of the common stock with respect to the common stock that they beneficially own, including the issuance of shares upon the exercise of convertible securities and options that are currently outstanding or which may be issued. This means that, for a period of twelve (12) months following the closing of the offering of the common stock, such persons may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of the Representative.
We have agreed, subject to some exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our common stock or any securities convertible into or exchangeable or exercisable for our common stock, for a period of 180 days after the date this prospectus becomes effective.
Listing
We have applied to have our common stock approved for listing on the Nasdaq Capital Market under the symbol “EEIQ.” We make no representation that such application will be approved or that the common stock will trade on such market either now or at any time in the future.
Electronic Distribution
A prospectus in electronic format may be made available on websites or through other online services maintained by Representative or by its affiliates. Other than the prospectus in electronic format, the information on the Representative’s website and any information contained in any other website maintained by it is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the Representative in its capacity as an underwriter, and should not be relied upon by investors. Any underwriter who is a qualified market maker on the Nasdaq Capital Market may engage in passive market making transactions on the Nasdaq Capital Market in accordance with Rule 103 of Regulation M, during the business day prior to the pricing of the offering, before the commencement of offers or sales. Passive market makers must comply with applicable volume and price limitations and must be identified as passive market makers. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered below the passive market maker’s bid, however, the passive market maker’s bid must then be lowered when certain purchase limits are exceeded.
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No Prior Public Market
Prior to this offering, there has been no public market for our securities and the public offering price for our common stock will be determined through negotiations between us and the Representative. Among the factors to be considered in these negotiations will be prevailing market conditions, our financial information, market valuations of other companies that we and the Representative believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant. The offering price for the shares of the Company’s common stock in this offering has been arbitrarily determined by the Company in its negotiations with the underwriters and does not necessarily bear any direct relationship to the assets, operations, book or other established criteria of value of the Company.
Offers outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the common stock offered by this prospectus in any jurisdiction where action for that purpose is required. The common stock offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such Shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any share of common stock offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Price Stabilization, Short Positions
Until the distribution of the common stock offered by this prospectus is completed, rules of the SEC may limit the ability of the underwriters to bid for and to purchase our common stock. As an exception to these rules, the underwriters may engage in transactions effected in accordance with Regulation M under the Exchange Act that are intended to stabilize, maintain or otherwise affect the price of our common stock. The underwriters may engage in over-allotment sales, syndicate covering transactions, stabilizing transactions and penalty bids in accordance with Regulation M.
| ● | Stabilizing transactions consist of bids or purchases made by the managing underwriter for the purpose of preventing or slowing a decline in the market price of our securities while this offering is in progress. |
| ● | Short sales and over-allotments occur when the managing underwriter, on behalf of the underwriting syndicate, sells more of our shares than they purchase from us in this offering. In order to cover the resulting short position, the managing underwriter may exercise the overallotment option described above and/or may engage in syndicate covering transactions. There is no contractual limit on the size of any syndicate covering transaction. The underwriters will deliver a prospectus in connection with any such short sales. Purchasers of shares sold short by the underwriters are entitled to the same remedies under the federal securities laws as any other purchaser of units covered by the registration statement. |
| ● | Syndicate covering transactions are bids for or purchases of our securities on the open market by the managing underwriter on behalf of the underwriters in order to reduce a short position incurred by the managing underwriter on behalf of the underwriters. |
| ● | A penalty bid is an arrangement permitting the managing underwriter to reclaim the selling concession that would otherwise accrue to an underwriter if the common stock originally sold by the underwriter were later repurchased by the managing underwriter and therefore was not effectively sold to the public by such underwriter. |
Stabilization, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market.
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Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the prices of our common stock. These transactions may occur on the Nasdaq or on any trading market. If any of these transactions are commenced, they may be discontinued without notice at any time. A prospectus in electronic format may be made available on a website maintained by the representatives of the underwriters and may also be made available on a website maintained by other underwriters. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives of the underwriters to underwriters that may make Internet distributions on the same basis as other allocations. In connection with the offering, the underwriters or syndicate members may distribute prospectuses electronically. No forms of prospectus other than printed prospectuses and electronically distributed prospectuses that are printable in Adobe PDF format will be used in connection with this offering.
The underwriters have informed us that they do not expect to confirm sales of shares of common stock offered by this prospectus to accounts over which they exercise discretionary authority without obtaining the specific approval of the account holder.
Notice to Prospective Investors in Hong Kong
The contents of this prospectus have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice. Please note that (i) our shares may not be offered or sold in Hong Kong, by means of this prospectus or any document other than to “professional investors” within the meaning of Part I of Schedule 1 of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) (SFO) and any rules made thereunder, or in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong) (CO) or which do not constitute an offer or invitation to the public for the purpose of the CO or the SFO, and (ii) no advertisement, invitation or document relating to our shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere) which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the SFO and any rules made thereunder.
Notice to Prospective Investors in the People’s Republic of China
This prospectus may not be circulated or distributed in the PRC and the Shares may not be offered or sold, and will not offer or sell to any person for re-offering or resale directly or indirectly to any resident of the PRC except pursuant to applicable laws, rules and regulations of the PRC. For the purpose of this paragraph only, the PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.
| Item 13. | Other Expenses of Issuance and Distribution |
The estimated expenses payable by us in connection with the offering described in this registration statement (other than the placement discounts and commissions) will be as follows. With the exception of the filing fees for the U.S. Securities Exchange Commission, FINRA and NASDAQ, all amounts are estimates.
| U.S. Securities and Exchange Commission registration fee | $ | 2,236.27 | ||
| FINRA filing fee | $ | 691.48 | ||
| NASDAQ listing fee | $ | 75,000 | ||
| Legal fees and expenses for BVI counsel | $ | 15,000 | ||
| Legal fees and expenses for U.S. counsel | $ | 225,000 | ||
| Accounting fees and expenses | $ | 471,377 | ||
| Printing fees and expenses | $ | 46,000 | ||
| Total | $ | 835,305 |
84
Certain matters as to U.S. federal law in connection with this offering will be passed upon for us by Schiff Hardin LLP. The validity of the issuance of the Units and the common stock will be passed upon for us by Ogier. Ellenoff Grossman & Schole LLP has acted as counsel for the underwriters with respect to this offering.
Financial statements as of September 30, 2019 and 2018, respectively, and for the years then ended appearing in this prospectus, have been included herein and in the registration statement in reliance upon the report of ZH CPA LLC, Denver, Colorado, an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form F-1 under the Securities Act with respect to the ordinary shares offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For further information about us and the ordinary shares offered hereby, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance we refer you to the copy of such contract or other document filed as an exhibit to the registration statement. We currently do not file periodic reports with the SEC. Upon closing of our initial public offering, we will be required to file periodic reports (including an annual report on Form 20-F, which we will be required to file within 120 days from the end of each fiscal year), and other information with the SEC pursuant to the Exchange Act. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
85
elite
educaiton international co., ltd
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |
| Consolidated Financial Statements for the Years Ended September 30, 2019 and 2018 | |
| Report of Independent Registered Public Accounting Firm | F-2 |
| Consolidated Balance Sheets as of September 30, 2019 and 2018 | F-3 |
| Consolidated Statements of Operations and Comprehensive Income the for years Ended September 30, 2019 and 2018 | F-4 |
| Consolidated Statements of Changes in Shareholders’ Equity for the years Ended September 30, 2019 and 2018 | F-5 |
| Consolidated Statements of Cash Flows for years Ended September 30, 2019 and 2018 | F-6 |
| Notes to Consolidated Financial Statements | F-7 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Elite Education Group International Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Elite Education Group International Limited and its subsidiaries (collectively the “Company”) as of September 30, 2019 and 2018, and the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity, and cash flows for each of the two years in the period ended September 30, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Other matters
As discussed in Note 2 to the financial statements, the 2019 and 2018 financial statements have been restated to correct certain misstatements.
| /s/ ZH CPA, LLC | |
We have served as the Company’s auditor since 2018 Denver, Colorado April 3, 2020 (except for Note 2 with regard to Restatements as to which the date is October 9, 2020 and for Note 9, 10 & 13 for the Retroactive adjustment for reverse stock split as to which the date is November 2, 2020) | |
F-2
elite educaiton international co., ltd
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2019 and 2018
(US$, except share data and per share data, or otherwise noted)
| September 30, 2019 | September 30, 2018 | |||||||
| US$ | US$ | |||||||
| Assets | (Restated) | (Restated) | ||||||
| Current Assets | ||||||||
| Cash and cash equivalents | 8,272,623 | 4,017,950 | ||||||
| Accounts receivables | 238,881 | 60,785 | ||||||
| Prepaid expenses | 2,061,239 | 1,559,650 | ||||||
| Deferred IPO costs | 351,854 | - | ||||||
| Income tax receivable | 4,240 | 415,594 | ||||||
| Total current assets | 10,928,837 | 6,053,979 | ||||||
| Non-current assets | ||||||||
| Property and equipment, net | 2,919,603 | 2,808,244 | ||||||
| Long term prepaid expenses | 743,738 | 1,121,365 | ||||||
| Deferred income tax assets | - | 96,714 | ||||||
| Notes receivable | 280,000 | 709,800 | ||||||
| Total assets | 14,872,178 | 10,790,102 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | 1,431,063 | 754,688 | ||||||
| Due to related party | 140,000 | - | ||||||
| Deferred revenue | 6,830,043 | 5,619,100 | ||||||
| Total current liabilities | 8,401,106 | 6,373,788 | ||||||
| - | ||||||||
| Total liabilities | 8,401,106 | 6,373,788 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity | ||||||||
| Ordinary shares, US$0.0015873 par value, 31,500,000 shares authorized, 7,938,000 and 7,938,000 shares issued and outstanding as of September 30, 2018 and 2019, respectively | 12,600 | 12,600 | ||||||
| Additional paid-in capital | 2,731,273 | 2,731,273 | ||||||
| Retained earnings | 3,727,199 | 1,672,441 | ||||||
| Total shareholders’ equity | 6,471,072 | 4,416,314 | ||||||
| Total liabilities and shareholders’ equity | 14,872,178 | 10,790,102 | ||||||
The accompanying notes form an integral part of these consolidated financial statements.
F-3
elite educaiton international co., ltd
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 2019 AND 2018
(US$, except share data and per share data, or otherwise noted)
| For The Year Ended | For The Year Ended | |||||||
| September 30, 2019 | September 30, 2018 | |||||||
| US$ | US$ | |||||||
| (Restated) | (Restated) | |||||||
| Revenues | 8,700,332 | 6,285,176 | ||||||
| Costs of services | 2,228,307 | 1,752,049 | ||||||
| Gross profit | 6,472,025 | 4,533,127 | ||||||
| Operating costs and expenses: | ||||||||
| Selling expenses | 1,965,102 | 1,288,863 | ||||||
| General and administrative | 1,863,290 | 1,579,650 | ||||||
| Total operating costs and expenses | 3,828,392 | 2,868,513 | ||||||
| Income from operations | 2,643,633 | 1,664,614 | ||||||
| Other (income) expenses: | ||||||||
| Interest income | (79,921 | ) | (51,879 | ) | ||||
| Total other (income) expenses | (79,921 | ) | (51,879 | ) | ||||
| Income before provision for income taxes | 2,723,554 | 1,716,493 | ||||||
| Current income tax expense (recovery) | 572,082 | - | ||||||
| Deferred income tax expense (recovery) | 96,714 | 646,879 | ||||||
| Income taxes expense | 668,796 | 646,879 | ||||||
| Net income | 2,054,758 | 1,069,614 | ||||||
| Comprehensive income | 2,054,758 | 1,069,614 | ||||||
| Basic & diluted net income per share | $ | 0.26 | $ | 0.13 | ||||
| Weighted average number of ordinary shares-basic and diluted | 7,938,000 | 7,938,000 | ||||||
The accompanying notes form an integral part of these consolidated financial statements.
F-4
elite educaiton international co., ltd
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 2019 AND 2018
(US$, except share data and per share data, or otherwise noted)
| Ordinary shares | Ordinary shares amount | Additional paid-in capital | Retained earnings | Total equity | ||||||||||||||||
| Balance as of September 30, 2017 (Restated) | 12,600,000 | 12,600 | 2,292,478 | 602,827 | 2,907,905 | |||||||||||||||
| Reverse stock split | (4,662,000 | ) | - | - | - | |||||||||||||||
| Balance as of September 30, 2017 (Adjusted) | 7,938,000 | 12,600 | 2,292,478 | 602,827 | 2,907,905 | |||||||||||||||
| Net income | 1,069,614 | 1,069,614 | ||||||||||||||||||
| Share issuance | - | |||||||||||||||||||
| Shareholders’ contributions | 438,795 | 438,795 | ||||||||||||||||||
| Balance as of September 30, 2018 (Restated) | 7,938,000 | 12,600 | 2,731,273 | 1,672,441 | 4,416,314 | |||||||||||||||
| Net income | 2,054,758 | 2,054,758 | ||||||||||||||||||
| Share issuance | - | |||||||||||||||||||
| Shareholders’ contributions | - | |||||||||||||||||||
| Balance as of September 30, 2019 (Restated) | 7,938,000 | 12,600 | 2,731,273 | 3,727,199 | 6,471,072 | |||||||||||||||
The accompanying notes form an integral part of these consolidated financial statements.
F-5
elite educaiton international co., ltd
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 2019 AND 2018
(US$, except share data and per share data, or otherwise noted)
| For The Year Ended September 30, | For The Year Ended September 30, | |||||||
| 2019 | 2018 | |||||||
| US$ | US$ | |||||||
| Cash Flows from Operating Activities: | (Restated) | (Restated) | ||||||
| Net income | 2,054,758 | 1,069,614 | ||||||
| Adjustments for items not affecting cash: | ||||||||
| Depreciation and amortization | 91,814 | 82,223 | ||||||
| Deferred income tax expense | 96,714 | 646,879 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (207,602 | ) | (51,879 | ) | ||||
| Prepaid expenses | (384,997 | ) | (729,325 | ) | ||||
| Long-term prepaid expenses | 547,487 | (903,930 | ) | |||||
| Accounts payable & accrued liabilities | 849,228 | 722,428 | ||||||
| Deferred revenue | 1,210,943 | 1,329,131 | ||||||
| Income tax receivable | 411,354 | - | ||||||
| Net cash provided from (used in) operating activities | 4,669,699 | 2,165,141 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | (203,172 | ) | (211,593 | ) | ||||
| Notes receivable | - | (280,000 | ) | |||||
| Net cash used in investing activities | (203,172 | ) | (491,593 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Amount advanced from related parties | 140,000 | - | ||||||
| Deferred costs related to initial public offering | (351,854 | ) | - | |||||
| Capital contributions from shareholders | - | 438,796 | ||||||
| Net cash provided from (used in) financing activities | (211,854 | ) | 438,796 | |||||
| Net increase/(decrease) in cash, cash equivalents and restricted cash | 4,254,673 | 2,112,344 | ||||||
| Cash and cash equivalents, beginning of year | 4,017,950 | 1,905,606 | ||||||
| Cash and cash equivalents, end of year | 8,272,623 | 4,017,950 | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: | ||||||||
| Interest paid | - | - | ||||||
| Income taxes paid | 160,728 | - | ||||||
The accompanying notes form an integral part of these consolidated financial statements.
F-6
elite educaiton international co., ltd
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and principal activities
The Company was incorporated in the British Virgin Island (“BVI”) on December 13, 2017. The Company principally engages in the business of foreign language educations. The Company’s revenue is primarily derived from foreign education programs and student accommodation services.
2. Summary of significant accounting policies
Basis of presentation
The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Principal of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
| Principal activities | Percentage of ownership | Date of incorporation | Place of incorporation | |||||||
| Elite Education International Co., Ltd (the “Company”) | Investment holding | — | December 13, 2017 | BVI | ||||||
| Quest Holdings International LLC (“QHI”) | Foreign education programs and student dormitory services | 100 | % | December 19, 2012 | Ohio, US | |||||
| Miami International Education Center LLC (“MIE”) | Collection of tuition payments from oversea students | 100 | % | January 23, 2017 | Ohio, US | |||||
Reorganization
On December 13, 2017, the Company engaged in a corporate reorganization to roll two controlled entities (refer to table above) into the Company through a share exchange arrangement. The Company issued 12,600,000 shares to exchange all the outstanding shares of QHI held by QHI’s shareholders. During the years presented in these consolidated financial statements, the controls of the two entities, QHI and MIE (MIE is fully owned by QHI) has never changed since they have been always under the control of the shareholders of QHI. Accordingly, this transaction has been treated as a corporate restructuring (reorganization) of entities under common control and thus the current capital structure of QHI has been retrospectively presented in prior periods as if such structure existed at that time and in accordance with ASC 805-50-45-5. Since the two subsidiaries were under common control for the entirety of the years ended September 30, 2019 and 2018, the results of the subsidiaries are included in the consolidated financial statements for both periods.
F-7
Use of estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates and differences could be material. Changes in estimates are recorded in the period they are identified.
There were no significant accounting estimates reflected in the Company’s consolidated financial statements.
Foreign currency and foreign currency translation
The Company’s reporting currency is the United States dollar (“US$”). The US$ is the functional currency of the Company and all of its subsidiaries.
Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currency at the prevailing rates of exchange at the balance date. The resulting exchange differences are reported in the consolidated statements of operations and comprehensive income.
Certain risks and concentration
The Company’s financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and notes receivable. As of September 30, 2019 and 2018, substantially all of the Company’s cash and cash equivalents were held in major financial institutions located in the US.
The Company does not have trades receivable related to students as they are required to prepay service fees. Accounts receivable at September 30, 2019 primarily consist of commission receivable of $199,945 in relation to student recruitment services that the Company performed for another university. The amount has been subsequently collected. The Company’s accounts receivable as of September 30, 2018 are immaterial as revenues are generated from individual students who are required to prepay services fees
Majority of the total notes receivable, which was $429,800, has been collected in 2019. The remaining $280,000 notes receivable balance as at September 30, 2019 is related to a third party borrower. Although the Company is directly affected by the financial conditions of the borrower, the Company does not believe significant credit risk exist since the borrower is also the Company’s student recruitment agent who charges the Company recruitment commission fees for its services. The Company can delay or withhold its payments of recruitment commission fees to the recruitment agent borrower to mitigate the credit risk.
Therefore, there was no significant concentration risk for the Company as at September 30, 2019 and 2018.
F-8
Cash and cash equivalents
Cash and cash equivalents consist of petty cash on hand and cash held in banks, which are highly liquid and have original maturities of three months or less and are unrestricted as to withdrawal or use.
Accounts receivable
The Company does not have trades receivable related to students as they are required to prepay service fees. Accounts receivable at September 30, 2019 primarily consist of commission receivable of $199,945 in relation to student recruitment services that the Company performed for another university, University of Northumbria at Newcastle. Subsequent to September 30, 2020, the commission receivable has been collected.
Revenue recognition
The Company generates revenues primarily by provision of English education programs and accommodation services to its students. Revenue is recognized when the following four revenue recognition criteria are met:
| (i) | Persuasive evidence of an arrangement exists, |
| (ii) | Delivery has occurred or services have been rendered, |
| (iii) | The selling price is fixed or determinable, and |
| (iv) | Collectability is reasonably assured. |
Revenues for English education programs and accommodation services are both recognized over time upon the delivery of services to the students based on the term of the semester. Revenue recognized represents the net invoiced value after deduction of scholarship, if any, provided to the Company’s students.
The Company also has an agreement with University of North Umbria at Newcastle by which the Company provides student recruitment services to University of North Umbria at Newcastle. In return, University of North Umbria at Newcastle compensates the Company on a commission basis for students that the Company recruited for University of North Umbria at Newcastle. Commission revenue in relation to these services are recognized at the point in time when the Company referred the student and the student enrolled with and started studying at University of North Umbria at Newcastle. This point in time is generally at the first day the related semester begins.
The Company also provides certain occasional short-term training programs or conferences to international adult students. These programs and conferences generally have a one-week term and revenue is therefore recognized at the time when the services are provided.
Funds received from student prior to provision of our education and accommodation services are recognized as deferred revenue. The deferred revenue is subsequently released into revenue once the registered semester starts and is released using straight-line method based on the semester period, which is generally three months. The release of the deferred revenue is to match the timing of the cost of our services, which is generally also based on the semester term.
Costs of services
Costs of services are primarily comprised of the tuition fees paid to our partnered education institution, Miami University, for the provision of our English language programs. The tuition fees are recognized into costs of services when such fees are incurred based on semester terms in direct relation to Miami University’s conducting of the English language education services for us.
F-9
Fair value measurement
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value as follows:
| Level 1: | Quoted prices (unadjusted) in active markets for identical assets or liabilities. | ||
| Level 2: | Observable, market-based inputs, other than quoted prices, in active markets for identical assets or liabilities. | ||
| Level 3: | Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. | ||
The Company’s financial instruments include cash and cash equivalents, accounts receivable, notes receivables, accounts payable and accrued liabilities and taxes payable. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and taxes payable approximate their fair values due to the short-term nature of these instruments.
The Company noted no transfers between levels during any of the periods presented. The Company did not have any instruments that were measured at fair value on a recurring nor non-recurring basis as of September 30, 2019 and 2018.
Property and equipment
Property and equipment are recorded at cost, less accumulated depreciation and impairment. Depreciation of property and equipment is calculated on a straight-line basis, after consideration of expected useful lives and estimated residual values. The estimated annual deprecation rate of these assets are generally as follows:
| Category | Depreciation years | Estimated residual value | ||
| Buildings | 33 to 39 | $Nil | ||
| Machinery & equipment | 3 | $Nil | ||
| Vehicles | 5 | $Nil | ||
| Furniture and fixtures | 7 | $Nil |
Expenditures for maintenance and repairs are expensed as incurred. Gains and losses on disposals are the differences between net sales proceeds and carrying amount of the relevant assets and are recognized in the consolidated statements of operations and comprehensive income.
F-10
Impairment of long-lived assets
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amounts to the expected future undiscounted cash flows attributable to these assets. If it is determined that an asset is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the assets exceeds the expected discounted cash flows arising from those assets.
There were no impairment losses for the years ended September 30, 2019 and 2018.
Leases
A lease for which substantially all the benefits and risks incidental to ownership remain with the lessor is classified by the lessee as an operating lease. When a lease contains rent holidays, the Company records the total expenses on a straight-line basis over the lease term.
Leases that substantially transfer to the Company all the risks and rewards of ownership of assets are accounted for as capital leases. At the commencement of the lease term, a capital lease is capitalized at the lower of the fair value of the leased asset and the present value of the minimum lease payments, each determined at the inception of the lease.
The corresponding liability to the lessor is included in the consolidated balance sheets as capital lease obligation. Lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Assets under capital leases are depreciated the same as owned assets over the shorter of the lease term and their estimated useful lives.
Taxation
Current income taxes are provided on the basis of net profit for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions.
Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carry forwards and credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in which temporary differences are expected to be reversed or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statement of operation and comprehensive income in the period of the enactment of the change.
F-11
The Company considers positive and negative evidence when determining whether a portion or all of its deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, its experience with tax attributes expiring unused, and its tax planning strategies. The ultimate realization of deferred tax assets is dependent upon its ability to generate sufficient future taxable income within the carry-forward periods provided for in the tax law and during the periods in which the temporary differences become deductible. When assessing the realization of deferred tax assets, the Company has considered possible sources of taxable income including (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carry-forwards, (iii) future taxable income arising from implementing tax planning strategies, and (iv) specific known trend of profits expected to be reflected within the industry.
The Company recognizes a tax benefit associated with an uncertain tax position when, in its judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The Company’s liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The Company’s effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management. The Company classifies interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense.
Earnings per share
Basic earnings per share is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period using the two-class method. Under the two-class method, net income is allocated between ordinary shares and other participating securities based on their participating rights. Net loss is not allocated to other participating securities if based on their contractual terms they are not obligated to share in the losses. Diluted earnings per share is calculated by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares are not included in the denominator of the diluted loss per share calculation when inclusion of such shares would be anti-dilutive.
Defined contribution plans
The Company contributes to defined contribution retirement schemes which are available to all employees. Contributions to the schemes by the Company and employees are calculated as a percentage of employees’ basic salaries. The retirement benefit scheme cost charged to profit or loss represents contributions payable by the Company to the funds.
Recently issued accounting standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards (“IFRS”). An entity has the option to apply the provisions of ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this standard recognized at the date of initial application. ASU 2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2017, and early adoption is permitted but not earlier than the original effective date of December 15, 2016. The most significant aspect of our evaluation of Topic 606 relates to ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This implementation guidance discusses principal versus agent considerations and gross versus net revenue reporting, including specific indicators to assist in the determination of whether we control a specified good or service before it is transferred to the customer. The Company is still in the process of evaluation of the impact and through our evaluation, we believe that the accounting treatments under the new guidance are expected to be consistent with our current revenue recognition policies and the Company does not expect the new standard to have a material impact on our consolidated financial statements. The Company will adopt Topic 606 during the first quarter of 2020. In addition, the Company is still evaluating the use of either the retrospective or modified retrospective transition method.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40)—Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 provides guidance regarding management’s responsibility to (i) evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and (ii) provide related footnote disclosures. ASU 2014-15 is effective for fiscal years and interim periods within those years beginning after December 15, 2016. The Company adopted ASU 2014-15 as of January 1, 2017. The adoption of ASU 2014-15 did not have an impact on the Company’s consolidated financial statements.
F-12
In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance will impact the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified the need for a valuation allowance on deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities not under the fair value option is largely unchanged. The standard is effective for public business entities for annual periods (and interim periods within those annual periods) beginning after December 15, 2017. For all other entities, it is effective for fiscal years beginning after 15 December 2018, and interim periods within fiscal years beginning after 15 December 2019. The Company is currently evaluating the method of adoption and the impact ASU 2016-01 will have on the Company’s consolidated financial statements.
In February 2016, FASB issued ASU No. 2016–02, “Leases (Topic 842)”, ASC 842, and subsequently amended the guidance relating largely to transition considerations under the standard in July 2018. The new guidance, which creates new accounting and reporting guidelines for leasing arrangements, requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for public business entities for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which further clarifies the determination of fair value of the underlying asset by lessors that are not manufacturers or dealers and modifies transition disclosure requirements for changes in accounting principles and other technical updates. The amendments in ASU 2019-01 amend Topic 842 and the effective date of those amendments is for fiscal years beginning December 15, 2019, and interim periods within those fiscal years for public business entities. For all other entities, ASC 842 is effective for annual periods beginning after December 15, 2020. The Company is currently evaluating the impact of the new pronouncement on its condensed consolidated financial statements but does not expect it to have a significant impact.
In June 2016, the FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which will be effective January 1, 2020. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which a Group recognizes an allowance based on the estimate of expected credit loss. The Company is currently evaluating the impact of this new guidance on its financial position, results of operations, EPS and cash flows.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The ASU provides guidance on eight specific cash flow issues:
| i. | Debt Prepayment or Debt Extinguishment Costs; |
| ii. | Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; |
| iii. | Contingent Consideration Payments Made after a Business Combination; |
| iv. | Proceeds from the Settlement of Insurance Claims; |
| v. | Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies; |
| vi. | Distributions Received from Equity Method Investees; |
| vii. | Beneficial Interests in Securitization Transactions; and |
| viii. | Separately Identifiable Cash Flows and Application of the Predominance Principle |
F-13
ASU 2016-15 is effective for public entities for interim and annual periods beginning after December 15, 2017, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company does not believe the ASU currently will impact the consolidated financial statements since the Company does not have any of the eight cash flow issues. The Company will continue to evaluate the impact of this accounting standard update on its consolidated statements of cash flows in the year of adoption.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”). This ASU affects all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This update will become effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, and early adoption is permitted in any interim or annual period. The adoption of the guidance does not have impact to the Company’s statement of cash flows for the years ended September 30, 2019 and 2018 as the Company does not have restricted cash or restricted cash equivalents.
In September 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EIFT Meeting and Rescission of Prior SEC Staff Announcement and Observer Comments. The transition provisions in ASC Topic 606 require that a public business entity and certain other specified entities adopt ASC Topic 606 for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities are required to adopt ASC Topic 606 for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is still in the process of evaluation of the impact.
Restatements
The Company has noted certain errors in relation to its consolidated financial statements for the years ended September 30, 2018 and 2019 that had been previously issued on April 3, 2020. These errors are in relation to certain cut-off errors in the Company’s prepayment balances as at September 30, 2017, September 30, 2018 and September 2019. These errors in prepayment balances have consequently impacted the opening retained earnings for the year ended September 30, 2018 and the costs of services and income taxes for the two fiscal years ended September 30, 2018 and 2019 respectively.
In addition, a cut-off error was noted in relation to the Company’s revenue for the year ended September 30, 2019. Consequently, this error has impacted the accounts receivable balance as at and income taxes for the year ended September 30, 2019.
All the relevant notes to the consolidated financial statements have been restated to reflect the adjustments aforementioned.
Consolidated Balance Sheet
| September 30, 2018 As reported | Adjustments | September 30, 2018 As restated | ||||||||||
| US$ | US$ | US$ | ||||||||||
| ASSETS | ||||||||||||
| Current Assets: | ||||||||||||
| Prepaid expenses | 2,204,650 | (645,000 | ) | 1,559,650 | ||||||||
| Non-current Assets: | ||||||||||||
| Deferred income tax assets | 73,656 | 23,058 | 96,714 | |||||||||
| Total Assets | 11,412,044 | (621,942 | ) | 10,790,102 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Total Liabilities | 6,373,788 | — | 6,373,788 | |||||||||
| Stockholders’ Equity: | ||||||||||||
| Retained earnings | ||||||||||||
| Opening retained earnings | 1,138,027 | (535,200 | ) | 602,827 | ||||||||
| Current period net earnings | 1,156,356 | (86,742 | ) | 1,069,614 | ||||||||
| Total retained earnings | 2,294,383 | (621,942 | ) | 1,672,441 | ||||||||
| Total Stockholders’ Equity | 5,038,256 | (621,942 | ) | 4,416,314 | ||||||||
| Total Liabilities and Stockholders’ Equity | 11,412,044 | (621,942 | ) | 10,790,102 | ||||||||
F-14
| September 30, 2019 As reported | Adjustments | September 30, 2019 As restated | ||||||||||
| US$ | US$ | US$ | ||||||||||
| ASSETS | ||||||||||||
| Current Assets: | ||||||||||||
| Accounts receivable | 38,936 | 199,945 | 238,881 | |||||||||
| Prepaid expenses | 2,845,439 | (784,200 | ) | 2,061,239 | ||||||||
| Income tax receivable | 16,996 | (12,756 | ) | 4,240 | ||||||||
| Total Assets | 15,469,189 | (597,011 | ) | 14,872,178 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Total Liabilities | 8,401,106 | — | 8,401,106 | |||||||||
| Stockholders’ Equity: | ||||||||||||
| Retained earnings | ||||||||||||
| Opening retained earnings | 2,294,383 | (621,942 | ) | 1,672,441 | ||||||||
| Current period net earnings | 2,029,827 | 24,931 | 2,054,758 | |||||||||
| Total retained earnings | 4,324,210 | (597,011 | ) | 3,727,199 | ||||||||
| Total Stockholders’ Equity | 7,068,083 | (597,011 | ) | 6,471,072 | ||||||||
| Total Liabilities and Stockholders’ Equity | 15,469,189 | (597,011 | ) | 14,872,178 | ||||||||
Consolidated Statement of Income and Comprehensive Income
| For the Year Ended September 30, 2018 As reported | Adjustments | For the Year Ended September 30, 2018 As restated | ||||||||||
| US$ | US$ | US$ | ||||||||||
| Revenues | 6,285,176 | 6,285,176 | ||||||||||
| Cost of services | 1,642,249 | 109,800 | 1,752,049 | |||||||||
| Gross profit | 4,642,927 | (109,800 | ) | 4,533,127 | ||||||||
| Total operating expenses | 2,868,513 | 2,868,513 | ||||||||||
| Income from operations | 1,774,414 | (109,800 | ) | 1,664,614 | ||||||||
| Total other income (expense) | (51,879 | ) | (51,879 | ) | ||||||||
| Income before income taxes | 1,826,293 | (109,800 | ) | 1,716,493 | ||||||||
| Income tax expense | 669,937 | (23,058 | ) | 646,879 | ||||||||
| Net income | 1,156,356 | (86,742 | ) | 1,069,614 | ||||||||
| Total Comprehensive income | 1,156,356 | (86,742 | ) | 1,069,614 | ||||||||
| Earnings per ordinary share | ||||||||||||
| Basic and diluted | 0.15 | 0.02 | 0.13 | |||||||||
| Weighted average ordinary shares outstanding | ||||||||||||
| Basic & diluted | 7,938,000 | — | 7,938,000 | |||||||||
F-15
| For the Year Ended September 30, 2019 As reported | Adjustments | For the Year Ended September 30, 2019 As restated | ||||||||||
| US$ | US$ | US$ | ||||||||||
| Revenues | 8,500,387 | 199,945 | 8,700,332 | |||||||||
| Cost of services | 2,089,107 | 139,200 | 2,228,307 | |||||||||
| Gross profit | 6,411,280 | 60,745 | 6,472,025 | |||||||||
| Total operating expenses | 3,828,392 | 3,828,392 | ||||||||||
| Income from operations | 2,582,888 | 60,745 | 2,643,633 | |||||||||
| Total other income (expense) | (79,921 | ) | (79,921 | ) | ||||||||
| Income before income taxes | 2,662,809 | 60,745 | 2,723,554 | |||||||||
| Income tax expense | 632,982 | 35,814 | 668,796 | |||||||||
| Net income | 2,029,827 | 24,931 | 2,054,758 | |||||||||
| Total Comprehensive income | 2,029,827 | 24,931 | 2,054,758 | |||||||||
| Earnings per ordinary share | ||||||||||||
| Basic and diluted | 0.26 | 0.00 | * | 0.26 | ||||||||
| Weighted average ordinary shares outstanding | ||||||||||||
| Basic & diluted | 7,938,000 | — | 7,938,000 | |||||||||
| * | Less than $0.01 |
F-16
Consolidated Statement of Stockholders’ Equity
| Ordinary Shares | Ordinary amount | Additional paid-in capital | Retained Earnings As reported | Retained Earnings As restated | Total As reported | Total As restated | ||||||||||||||||||||||
| US$ | US$ | US$ | US$ | US$ | US$ | |||||||||||||||||||||||
| Balance, September 30, 2017 | 7,938,000 | 12,600 | 2,292,478 | 1,138,027 | 602,827 | 3,443,105 | 2,907,905 | |||||||||||||||||||||
| Net income | 1,156,356 | 1,069,614 | 1,156,356 | 1,069,614 | ||||||||||||||||||||||||
| Share issuance | - | - | ||||||||||||||||||||||||||
| Shareholders’ contributions | 438,795 | 438,795 | 438,795 | |||||||||||||||||||||||||
| Balance, September 30, 2018 | 7,938,000 | 12,600 | 2,731,273 | 2,294,383 | 1,672,441 | 5,038,256 | 4,416,314 | |||||||||||||||||||||
| Net income | 2,029,827 | 2,054,758 | 2,029,827 | 2,054,758 | ||||||||||||||||||||||||
| Share issuance | - | - | ||||||||||||||||||||||||||
| Shareholders’ contributions | - | - | ||||||||||||||||||||||||||
| Balance, September 30, 2019 | 7,938,000 | 12,600 | 2,731,273 | 4,324,210 | 3,727,199 | 7,068,083 | 6,471,072 | |||||||||||||||||||||
Consolidated Statement of Cash Flows
| For the Year Ended September 30, 2018 As reported | Adjustments | For the Year Ended September 30, 2018 As restated | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | US$ | US$ | US$ | |||||||||
| Net income | 1,156,356 | (86,742 | ) | 1,069,614 | ||||||||
| Adjustments for items not affecting cash: | ||||||||||||
| Deferred income tax expense | 669,937 | (23,058 | ) | 646,879 | ||||||||
| Changes in non-cash working capital: | ||||||||||||
| Prepaid expenses | (839,125 | ) | 109,800 | (729,325 | ) | |||||||
| Net cash provided (used) in operating activities | 2,165,141 | 2,165,141 | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Net cash used in investing activities | (491,593 | ) | (491,593 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Net cash provided by financing activities | 438,796 | 438,796 | ||||||||||
| Net increase/(decrease) in cash, cash equivalents and restricted cash | 2,112,344 | 2,112,344 | ||||||||||
| Cash and cash equivalents, beginning of year | 1,905,606 | 1,905,606 | ||||||||||
| Cash and cash equivalents, end of year | 4,017,950 | 4,017,950 | ||||||||||
F-17
| For the Year Ended September 30, 2019 As reported | Adjustments | For the Year Ended September 30, 2019 As restated | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | US$ | US$ | US$ | |||||||||
| Net income | 2,029,827 | 24,931 | 2,054,758 | |||||||||
| Adjustments for items not affecting cash: | ||||||||||||
| Deferred income tax expense | 73,656 | 23,058 | 96,714 | |||||||||
| Changes in non-cash working capital: | ||||||||||||
| Accounts receivable | (7,657 | ) | (199,945 | ) | (207,602 | ) | ||||||
| Prepaid expenses | (524,197 | ) | 139,200 | (384,997 | ) | |||||||
| Income tax receivable | 398,598 | 12,756 | 411,354 | |||||||||
| Net cash provided (used) in operating activities | 4,669,699 | 4,669,699 | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Net cash used in investing activities | (203,172 | ) | (203,172 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Net cash used in financing activities | (211,854 | ) | (211,854 | ) | ||||||||
| Net increase/(decrease) in cash, cash equivalents and restricted cash | 4,254,673 | 4,254,673 | ||||||||||
| Cash and cash equivalents, beginning of year | 4,017,950 | 4,017,950 | ||||||||||
| Cash and cash equivalents, end of year | 8,272,623 | 8,272,623 | ||||||||||
3. Prepaid Expenses
Prepaid expenses consist of the following:
| September 30, 2019 | September 30, 2018 | |||||||
| US$ | US$ | |||||||
| Prepaid recruitment fees | 1,124,713 | 834,677 | ||||||
| Prepaid tuition fees to Miami University | 865,291 | 684,893 | ||||||
| Prepaid insurance | 48,835 | 40,080 | ||||||
| Other prepaid expenses | 22,400 | - | ||||||
| Total | 2,061,239 | 1,559,650 | ||||||
Prepaid recruitment fees represent the prepaid student recruitment fees to agents who help the Company promote and recruit students to enroll in the English education programs offered by the Company. The prepaid expenses are deferred as they represent payments for future services to be rendered by our service agents and future economic benefits to the Company are anticipated. A portion of the prepaid amounts are for long-term services from these agents and hence they are recorded as long-term prepaid expenses. These prepaid expenses are generally for a 3-year term services and are subsequently amortized into expenses using straight-line method based on the 3-year service contract term.
F-18
Prepaid tuition fees represent the tuition fees that the Company prepaid to Miami University for services have yet to be provided by Miami University. The prepaid tuition fees will be recognized into costs of services when such fees are incurred based on semester terms in direct relation to Miami University’s conducting of the English language education services for us.
4. Deferred costs
Deferred costs represented the incremental costs incurred for the Company’s initial public offering (“IPO”). These costs primary include specific legal costs, accounting costs and professional consulting costs. These costs are deferred and will be charged against the gross proceeds of the IPO at completion.
5. Long Term Prepaid Expenses
Long term prepaid expenses represent the long-term portion of the prepaid student recruitment fees to agents for their long-term recruitment services.
6. Property and Equipment, net
Property and equipment, net consist of the following:
| September 30, 2019 | September 30, 2018 | |||||||
| US$ | US$ | |||||||
| Land | 1,007,273 | 1,007,273 | ||||||
| Buildings | 2,078,790 | 1,875,718 | ||||||
| Machinery & equipment | 84,542 | 84,542 | ||||||
| Vehicles | 133,184 | 133,184 | ||||||
| Furniture and fixtures | 71,301 | 71,200 | ||||||
| Total | 3,375,090 | 3,171,917 | ||||||
| Less: Accumulated depreciation | $ | (455,487 | ) | $ | (363,673 | ) | ||
| Property and equipment, net | 2,919,603 | 2,808,244 | ||||||
Depreciation expenses was recorded in general and administrative expense. The Company recorded depreciation expenses of US$91,814 and US$82,223 for the year ended September 30, 2019 and 2018, respectively.
7. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of September 30, 2019 and 2018 primarily consist of the following:
| September 30, 2019 | September 30, 2018 | |||||||
| US$ | US$ | |||||||
| Accounts payable | 106,122 | - | ||||||
| Rent payables | 140,225 | - | ||||||
| Student refundable deposits | 752,084 | 603,164 | ||||||
| Accrued commission expenses | 203,564 | 151,524 | ||||||
| Salary payables | 180,000 | - | ||||||
| Other payables | 49,068 | - | ||||||
| Total | 1,431,063 | 754,688 | ||||||
8. Income Taxes
BVI
Under the current laws of the BVI, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no BVI withholding tax will be imposed.
US
Under the current Ohio state and US federal income tax, the Company’s Ohio subsidiaries, QHI and MIE, are subject to the Ohio state’s Commercial Activity Tax (“CAT”) and federal income tax. The Ohio CAT is a business tax levied based on the gross receipts from sales. The federal income tax is based on a flat rate of 21% for the calendar year of 2019 (2018: 21%).
F-19
The Company’s provision for income taxes consists of the following:
| September 30, 2019 | September 30, 2018 | |||||||
| US$ | US$ | |||||||
| Current | 572,082 | - | ||||||
| Deferred | 96,714 | 646,879 | ||||||
| Total income tax (recovery) | 668,796 | 646,879 | ||||||
Reconciliation of the differences between statutory tax rate and the effective tax rate
The Company operates in serval tax jurisdictions. Therefore, its income is subject to various rates of taxation. The income tax expense differs from the amount that would have resulted from applying the BVI statutory income tax rates to the Company’s pre-tax income as follows:
| September 30, 2019 | September 30, 2018 | |||||||
| US$ | US$ | |||||||
| Income before income tax expenses | 2,723,554 | 1,716,493 | ||||||
| BVI statutory income tax rate | - | % | - | % | ||||
| Income tax calculated at statutory rate | - | - | ||||||
| (Increase) decrease in income tax expense resulting from: | ||||||||
| Rate differences in various jurisdictions | 668,796 | 362,564 | ||||||
| Utilization of loss carryforward | (96,714 | ) | (362,564 | ) | ||||
| Change in deferred income tax assets due to US reform | - | 284,315 | ||||||
| Change in deferred income tax assets due to use of loss carryforward | 96,714 | 362,564 | ||||||
| Income tax expense/Effective tax rate | 668,796 | 646,879 | ||||||
The Company’s deferred tax assets are as below:
| September 30, 2019 | September 30, 2018 | |||||||
| US$ | US$ | |||||||
| Deferred income tax assets | ||||||||
| Tax losses carryforwards | - | 96,714 | ||||||
| Total deferred income tax assets | - | 96,714 | ||||||
Uncertain tax positions
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions.
As of September 30, 2019 and 2018, the Company did not have any significant unrecognized uncertain tax positions.
9. Ordinary Shares
The Company’s ordinary share’s par value is US$0.001 and is authorized to issue 50,000,000 shares and 12,600,000 shares had been issued and outstanding as of September 30, 2019 and 2018 respectively.
On October 27, 2020, the Company executed a 1-for-0.63 reverse stock split. As a result of the stock split, the number of authorized shares to be issued becomes 31,500,000 and the issued and outstanding shares becomes 7,938,000 shares. As the change in ordinary shares occurred before the effectiveness of this registration statement, the Company has retrospectively accounted for the change in the current and prior period financial statements that are presented in these consolidated financial statements (refer to Note 10).
F-20
10. Earnings per share
Basic and diluted net earnings per share for each of the years presented are calculated as follows:
Before reverse stock split
| September 30, 2019 | September 30, 2018 | |||||||
| US$ | US$ | |||||||
| Numerator: | ||||||||
| Net Income attributable to ordinary shareholders—basic and diluted | 2,054,758 | 1,069,614 | ||||||
| Denominator: | ||||||||
| Weighted average number of ordinary shares outstanding—basic and diluted | 12,600,000 | 12,600,000 | ||||||
| Earning per share attributable to ordinary shareholders —basic and diluted | 0.16 | 0.08 | ||||||
Basic earnings per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. As a result of the reverse stock split occurred on October 27, 2020, the Company has retrospectively adjusted its earnings per share as follows:
After reverse stock split
| September 30, 2019 | September 30, 2018 | |||||||
| US$ | US$ | |||||||
| (Adjusted) | (Adjusted) | |||||||
| Numerator: | ||||||||
| Net Income attributable to ordinary shareholders—basic and diluted | 2,054,758 | 1,069,614 | ||||||
| Denominator: | ||||||||
| Weighted average number of ordinary shares outstanding—basic and diluted | 7,938,000 | 7,938,000 | ||||||
| Earning per share attributable to ordinary shareholders —basic and diluted | 0.26 | 0.13 | ||||||
11. Commitments and Contingencies
Other than a residential apartment building lease with a lease term of two years that the Company entered into during 2019 as below, the Company did not have significant commitments, long-term obligations, or guarantees as of September 30, 2019 and 2018.
Operating lease
The future aggregate minimum lease payments under the non-cancellable residential apartment building operating lease are as follows:
| Payments due by period | ||||||||||||||||
| Total | Less than 1 year | 1-3 years | Over 3 years | |||||||||||||
| Operating lease obligations ($) | 474,520 | 253,077 | 221,443 | - | ||||||||||||
Contingencies
The Company is subject to legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome arising out of any such matter will have a material adverse effect on our consolidated business, financial position, cash flows or results of operations taken as a whole. As of September 30, 2019, the Company is not a party to any material legal or administrative proceedings.
F-21
12. Related Party Transactions and Balances
Related Parties
| Name of related parties | Relationship with the Company | |
| Jianbo Zhang | Founder and ultimate controlling shareholder, CEO | |
| Beijing Renda Finance and Education Technology Co., Ltd (“Renda”) | A company controlled by the founder and ultimate controlling shareholder, CEO from March 23, 3009 to April 26, 2018 | |
| Jinan Wanze Education Information Consulting Co., Ltd. (“Jinan Wanze”) | A company controlled by the founder and ultimate controlling shareholder, CEO from May 10, 2011 to July 26, 2018 |
Related Party transactions
The Company had the following related party transactions:
| (i) | During the year ended September 30, 2019, Jianbo Zhang paid US $nil (2018: US$438,796) working capital expenditures on behalf of the Company and converted these working capital loans to additional paid in capital for both 2019 and 2018. |
| (ii) | During the year ended September 30, 2019, the Company made US $nil (2018: US$ 1,379,500) prepayments to Renda, who used the fund to pay the Company’s Chinese agents for three-year student recruitment services on behalf of the Company. |
| (iii) | During the year ended September 30, 2019, the Company made US$534,000 (2018: US$ 931,800) prepayments to Jinan Wanze, who used the fund to pay the Company’s Chinese agents for three-year student recruitment services on behalf of the Company. |
| (iv) | The Company entered an agreement with Renda which required the Company to pay Renda an annual fee of RMB2,900,000 for the years ended September 30, 2019 and 2018 for expenditures incurred by Renda on behalf of the Company. This amount for the year ended September 30, 2018 was eventually paid by Jianbo Zhang (refer to (i) above). |
Due from related party balance
The Company’s related parties balances as of September 30, 2019 and 2018 are as follows:
| September 30, 2019 | September 30, 2018 | |||||||
| US$ | US$ | |||||||
| Renda – Note receivable – principal | - | 143,000 | ||||||
| Renda – Note receivable – accrued interests | - | 15,554 | ||||||
| Jinan Wanze – Note receivable – principal | - | 286,800 | ||||||
| Jinan Wanze – Note receivable – accrued interests | - | 34,295 | ||||||
| Total | - | 479,649 | ||||||
The related party balances as of September 30, 2018 relate to note receivables due from Renda and Wanze. The note receivables both are unsecured, bearing an interest of 10% per annum and due on June 7, 2020 or August 28, 2020. Interests are payable on an annual basis and therefore accrued interests are recorded in short-term accounts receivable on the consolidated financial statements.
On August 12, 2019, Renda and Wanze both entered into a separate agreement with the Company to settle the notes payable to the Company in full, including all accrued interests, by offsetting the working capital expenditures and/or commissions paid by Renda and Wanze on behalf of the Company.
Due to related party balance
The related party balances of $140,000 as of September 30, 2019 relate to IPO costs paid by Jianbo Zhang on behalf of the Company. The due to related party balance is unsecured, non-interest bearing and due on demand.
13. Subsequent Events
The Company has evaluated the impact of events that have occurred subsequent to September 30, 2019, through the date the consolidated financial statements were available to issue, and concluded that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements, except as follow:
| ● | On October 27, 2020, the Company conducted a 1/0.63 reverse stock split. The Company has retrospectively accounted for this change. Refer to Notes 9 and 10. |
14. Comparative figures
Certain comparative figures have been reclassified to conform to the current year’s financial statement presentation.
F-22
elite
educaiton international co., ltd
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
F-23
elite educaiton international co., ltd
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2020 AND SEPTEMBER 30, 2019
(US$, except share data and per share data, or otherwise noted)
| March 31, 2020 | September 30, 2019 | |||||||
| US$ | US$ | |||||||
| (Unaudited) | (Restated) | |||||||
| (Restated) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | 5,518,384 | 8,272,623 | ||||||
| Accounts receivables | 351,536 | 238,881 | ||||||
| Prepaid expenses | 1,524,157 | 2,061,239 | ||||||
| Deferred IPO costs | 531,773 | 351,854 | ||||||
| Income tax receivable | - | 4,240 | ||||||
| Total current assets | 7,925,850 | 10,928,837 | ||||||
| Non-current assets | ||||||||
| Property and equipment, net | 2,899,874 | 2,919,603 | ||||||
| Long term prepaid expenses | 351,824 | 743,738 | ||||||
| Notes receivable | 280,000 | 280,000 | ||||||
| Total assets | 11,457,548 | 14,872,178 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | 1,029,951 | 1,431,063 | ||||||
| Income tax payable | 60,824 | - | ||||||
| Due to related party | 140,000 | 140,000 | ||||||
| Deferred revenue | 2,444,136 | 6,830,043 | ||||||
| Total current liabilities | 3,674,911 | 8,401,106 | ||||||
| - | - | |||||||
| Total liabilities | 3,674,911 | 8,401,106 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity | ||||||||
| Ordinary shares, US$0.0015873 par value, 31,500,000 shares authorized, 7,938,000 and 7,938,000 shares issued and outstanding as of March 31, 2020 and September 30, 2019, respectively | 12,600 | 12,600 | ||||||
| Additional paid-in capital | 2,731,273 | 2,731,273 | ||||||
| Retained earnings | 5,038,764 | 3,727,199 | ||||||
| Total shareholders’ equity | 7,782,637 | 6,471,072 | ||||||
| Total liabilities and shareholders’ equity | 11, 457,548 | 14,872,178 | ||||||
F-24
elite educaiton international co., ltd
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 2020 AND 2019
(US$, except share data and per share data, or otherwise noted)
| For The Six Months Ended | For The Six Months Ended | |||||||
| March 31, 2020 | March 31, 2019 | |||||||
| US$ | US$ | |||||||
| (Unaudited) | (Unaudited) | |||||||
| (Restated) | (Restated) | |||||||
| Revenues | 6,128,360 | 4,908,136 | ||||||
| Costs of services | 1,555,819 | 1,275,596 | ||||||
| Gross profit | 4,572,541 | 3,632,540 | ||||||
| Operating costs and expenses: | ||||||||
| Selling expenses | 1,142,150 | 933,574 | ||||||
| General and administrative | 1,751,402 | 1,000,303 | ||||||
| Total operating costs and expenses | 2,893,552 | 1,933,877 | ||||||
| Income from operations | 1,678,989 | 1,698,663 | ||||||
| Other (income) expenses: | ||||||||
| Interest (income) expenses | (19,900 | ) | (35,394 | ) | ||||
| Foreign exchange (gains) losses | 12,682 | - | ||||||
| Total other (income) expenses | (7,218 | ) | (35,394 | ) | ||||
| Income before provision for income taxes | 1,686,207 | 1,734,057 | ||||||
| Current income tax expense (recovery) | 374,642 | 354,838 | ||||||
| Deferred income tax expense (recovery) | - | 96,714 | ||||||
| Income taxes expense | 374,642 | 451,552 | ||||||
| - | ||||||||
| Net income | 1,311,565 | 1,282,505 | ||||||
| Comprehensive income | 1,311,565 | 1,282,505 | ||||||
| Basic & diluted net income per share | $ | 0.17 | $ | 0.16 | ||||
| Weighted average number of ordinary shares-basic and diluted | 7,938,000 | 7,938,000 | ||||||
F-25
elite educaiton international co., ltd
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 2020 AND 2019
(US$, except share data and per share data, or otherwise noted)
Six months ended March 31, 2019
| Ordinary shares | Ordinary shares amount | Additional paid-in capital | Retained earnings | Total equity | ||||||||||||||||
| Balance as of September 30, 2018 (Restated) | 12,600,000 | 12,600 | 2,731,273 | 1,672,441 | 4,416,314 | |||||||||||||||
| Reverse stock split | (4,662,000 | ) | - | - | - | - | ||||||||||||||
| Balance as of September 30, 2018 (Adjusted) | 7,938,000 | 12,600 | 2,731,273 | 1,672,441 | 4,416,314 | |||||||||||||||
| Net income | 1,282,504 | 1,282,504 | ||||||||||||||||||
| Balance as of March 31, 2019 (Unaudited) (Restated) | 7,938,000 | 12,600 | 2,731,273 | 2,954,945 | 5,698,818 | |||||||||||||||
Six months ended March 31, 2020
| Balance as of September 30, 2019 (Restated) | 12,600,000 | 12,600 | 2,731,273 | 3,727,199 | 6,471,072 | |||||||||||||||
| Reverse stock split | (4,662,000 | ) | - | - | - | - | ||||||||||||||
| Balance as of September 30, 2019 (Adjusted) | 7,938,000 | 12,600 | 2,731,273 | 3,727,199 | 6,471,072 | |||||||||||||||
| Net income | 1,311,565 | 1,311,565 | ||||||||||||||||||
| Balance as of March 31, 2020 (Unaudited) (Restated) | 7,938,000 | 12,600 | 2,731,273 | 5,038,764 | 7,782,637 |
F-26
elite educaiton international co., ltd
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2020 AND 2019
(US$, except share data and per share data, or otherwise noted)
| For The Six Months Ended March 31, | For The Six Months Ended March 31, | |||||||
| 2020 | 2019 | |||||||
| US$ | US$ | |||||||
| (Unaudited) | (Unaudited) | |||||||
| (Restated) | (Restated) | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | 1,311,565 | 1,282,505 | ||||||
| Adjustments for items not affecting cash: | ||||||||
| Depreciation and amortization | 45,592 | 41,112 | ||||||
| Deferred income tax expense | - | 96,714 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (112,655 | ) | (35,393 | ) | ||||
| Prepaid expenses | 537,082 | 210,620 | ||||||
| Long-term prepaid expenses | 391,914 | 418,482 | ||||||
| Accounts payable & accrued liabilities | (401,112 | ) | (295,588 | ) | ||||
| Deferred revenue | (4,385,907 | ) | (2,351,469 | ) | ||||
| Income tax receivable | 65,065 | 266,512 | ||||||
| Net cash provided from (used in) operating activities | (2,548,456 | ) | (366,505 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | (25,864 | ) | (7,153 | ) | ||||
| Notes receivable | - | 80,000 | ||||||
| Net cash (used in) provided by investing activities | (25,864 | ) | 72,847 | |||||
| Cash Flows from Financing Activities: | ||||||||
| Deferred costs related to initial public offering | (179,919 | ) | - | |||||
| Net cash provided from (used in) financing activities | (179,919 | ) | - | |||||
| Net increase/(decrease) in cash, cash equivalents and restricted cash | (2,754,239 | ) | (293,658 | ) | ||||
| Cash and cash equivalents, beginning of period | 8,272,623 | 4,017,950 | ||||||
| Cash and cash equivalents, end of period | 5,518,384 | 3,724,292 | ||||||
F-27
elite educaiton international co., ltd
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and principal activities
The Company was incorporated in the British Virgin Island (“BVI”) on December 13, 2017. The Company principally engages in the business of foreign language educations. The Company’s revenue is primarily derived from foreign education programs and student accommodation services.
2. Summary of significant accounting policies
Basis of presentation
The unaudited condensed consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, cash flows and changes in equity for the interim periods presented. These unaudited condensed financial statements do not include certain information and footnote disclosures as required by the U.S. GAAP for complete annual financial statements. Therefore, these unaudited condensed consolidated interim financial statements should be read in conjunction with the financial statements and related notes included in the Company’s first initial offering Registration Statement on Form F-1 for the year ended September 30, 2019.
Principal of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
| Principal
activities |
Percentage of ownership |
Date
of incorporation |
Place
of incorporation | |||||||
| Elite Education
International Co., Ltd (the “Company”) |
Investment holding | — | December 13, 2017 | BVI | ||||||
| Quest Holdings International LLC (“QHI”) | Foreign education programs and student dormitory services | 100 | % | December 19, 2012 | Ohio, US | |||||
| Miami International Education Center LLC (“MIE”) | Collection of tuition payments from oversea students | 100 | % | January 23, 2017 | Ohio, US | |||||
F-28
Use of estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates and differences could be material. Changes in estimates are recorded in the period they are identified.
There were no significant accounting estimates reflected in the Company’s consolidated financial statements.
Foreign currency and foreign currency translation
The Company’s reporting currency is the United States dollar (“US$”). The US$ is the functional currency of the Company and all of its subsidiaries.
Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currency at the prevailing rates of exchange at the balance date. The resulting exchange differences are reported in the consolidated statements of operations and comprehensive income.
Certain risks and concentration
The Company’s financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and notes receivable. As of March 31, 2020 and September 30, 2019, substantially all of the Company’s cash and cash equivalents were held in major financial institutions located in the US. The Company’s accounts receivable as of March 31, 2020 primarily represents commission receivable of $298,561 in relation to student recruitment services that the Company performed for another university, University of Northumbria at Newcastle. This amount has been subsequent collected in July 2020. The remaining balance of $52,975 of accounts receivable as of March 31, 2020 primarily represents accrued interests of $50,937 related to notes receivables (refer to details in below). The Company’s accounts receivable as of September 30, 2019 are immaterial as revenues are generated from individual students who are required to prepay services fees.
Majority of the total notes receivable, which was $429,800, has been collected in 2019. The remaining $280,000 notes receivable balance as at March 31, 2020 and September 30, 2019 is related to a third party borrower. Although the Company is directly affected by the financial conditions of the borrower, the Company does not believe significant credit risk exist since the borrower is also the Company’s student recruitment agent who charges the Company recruitment commission fees for its services. The Company can delay or withhold its payments of recruitment commission fees to the recruitment agent borrower to mitigate the credit risk.
Therefore, there was no significant concentration risk for the Company as at March 31, 2020 and September 30, 2019.
F-29
Cash and cash equivalents
Cash and cash equivalents consist of petty cash on hand and cash held in banks, which are highly liquid and have original maturities of three months or less and are unrestricted as to withdrawal or use.
Accounts receivable
The Company does not have trades receivable related to students as they are required to prepay service fees. Accounts receivable at March 31, 2020 primarily consist of commission receivable of $298,561 in relation to student recruitment services that the Company performed for another university, University of Northumbria at Newcastle and interests receivable of $50,937 in relation to the notes receivable (refer to details under “Certain risks and concentration” above). Subsequent to March 31, 2020, the commission receivable has been collected.
Revenue recognition
The Company generates revenues primarily by provision of English education programs and accommodation services to its students. Revenue is recognized when the following four revenue recognition criteria are met:
| (i) | Persuasive evidence of an arrangement exists, |
| (ii) | Delivery has occurred or services have been rendered, |
| (iii) | The selling price is fixed or determinable, and |
| (iv) | Collectability is reasonably assured. |
Revenues for English education programs and accommodation services are both recognized over time upon the delivery of services to the students based on the term of the semester. Revenue recognized represents the net invoiced value after deduction of scholarship, if any, provided to the Company’s students.
The Company also has an agreement with University of Northumbria at Newcastle by which the Company provides student recruitment services to University of Northumbria at Newcastle. In return, University of Northumbria at Newcastle compensates the Company on a commission basis for students that the Company recruited for University of Northumbria at Newcastle. Commission revenue in relation to these services are recognized at the point in time when the Company referred the student and the student enrolled with and started studying at University of Northumbria at Newcastle. This point in time is generally at the first day the related semester begins.
Furthermore, from time to time, the Company provides certain occasional short-term training programs or conferences to international adult students. These programs and conferences generally have a one-week term and revenue is therefore recognized at the time when the services are provided.
Funds received from student prior to provision of our education and accommodation services are recognized as deferred revenue. The deferred revenue is subsequently released into revenue once the registered semester starts and is released using straight-line method based on the semester period, which is generally three months. The release of the deferred revenue is to match the timing of the cost of our services, which is generally also based on the semester term.
Costs of services
Costs of services are primarily comprised of the tuition fees paid to our partnered education institution, Miami University, for the provision of our English language programs. The tuition fees are recognized into costs of services when such fees are incurred based on semester terms in direct relation to Miami University’s conducting of the English language education services for us.
F-30
Fair value measurement
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value as follows:
| Level 1: | Quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
| Level 2: | Observable, market-based inputs, other than quoted prices, in active markets for identical assets or liabilities. | |
| Level 3: | Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. |
The Company’s financial instruments include cash and cash equivalents, accounts receivable, notes receivables, accounts payable and accrued liabilities and taxes payable. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and taxes payable approximate their fair values due to the short-term nature of these instruments.
The Company noted no transfers between levels during any of the periods presented. The Company did not have any instruments that were measured at fair value on a recurring nor non-recurring basis as of March 31, 2020 and September 30, 2019.
Property and equipment
Property and equipment are recorded at cost, less accumulated depreciation and impairment. Depreciation of property and equipment is calculated on a straight-line basis, after consideration of expected useful lives and estimated residual values. The estimated annual deprecation rate of these assets are generally as follows:
| Category | Depreciation years | Estimated residual value | ||||
| Buildings | 33 to 39 | $Nil | ||||
| Machinery & equipment | 3 | $Nil | ||||
| Vehicles | 5 | $Nil | ||||
| Furniture and fixtures | 7 | $Nil | ||||
Expenditures for maintenance and repairs are expensed as incurred. Gains and losses on disposals are the differences between net sales proceeds and carrying amount of the relevant assets and are recognized in the consolidated statements of operations and comprehensive income.
F-31
Impairment of long-lived assets
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amounts to the expected future undiscounted cash flows attributable to these assets. If it is determined that an asset is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the assets exceeds the expected discounted cash flows arising from those assets.
There were no impairment losses for the years ended March 31, 2020 and September 30, 2019.
Leases
A lease for which substantially all the benefits and risks incidental to ownership remain with the lessor is classified by the lessee as an operating lease. When a lease contains rent holidays, the Company records the total expenses on a straight-line basis over the lease term.
Leases that substantially transfer to the Company all the risks and rewards of ownership of assets are accounted for as capital leases. At the commencement of the lease term, a capital lease is capitalized at the lower of the fair value of the leased asset and the present value of the minimum lease payments, each determined at the inception of the lease.
The corresponding liability to the lessor is included in the consolidated balance sheets as capital lease obligation. Lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Assets under capital leases are depreciated the same as owned assets over the shorter of the lease term and their estimated useful lives.
Taxation
Current income taxes are provided on the basis of net profit for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions.
Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carry forwards and credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in which temporary differences are expected to be reversed or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statement of operation and comprehensive income in the period of the enactment of the change.
F-32
The Company considers positive and negative evidence when determining whether a portion or all of its deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, its experience with tax attributes expiring unused, and its tax planning strategies. The ultimate realization of deferred tax assets is dependent upon its ability to generate sufficient future taxable income within the carry-forward periods provided for in the tax law and during the periods in which the temporary differences become deductible. When assessing the realization of deferred tax assets, the Company has considered possible sources of taxable income including (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carry-forwards, (iii) future taxable income arising from implementing tax planning strategies, and (iv) specific known trend of profits expected to be reflected within the industry.
The Company recognizes a tax benefit associated with an uncertain tax position when, in its judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The Company’s liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The Company’s effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management. The Company classifies interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense.
Earnings per share
Basic earnings per share is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period using the two-class method. Under the two-class method, net income is allocated between ordinary shares and other participating securities based on their participating rights. Net loss is not allocated to other participating securities if based on their contractual terms they are not obligated to share in the losses. Diluted earnings per share is calculated by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares are not included in the denominator of the diluted loss per share calculation when inclusion of such shares would be anti-dilutive.
Defined contribution plans
The Company contributes to defined contribution retirement schemes which are available to all employees. Contributions to the schemes by the Company and employees are calculated as a percentage of employees’ basic salaries. The retirement benefit scheme cost charged to profit or loss represents contributions payable by the Company to the funds.
Recently issued accounting standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards (“IFRS”). An entity has the option to apply the provisions of ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this standard recognized at the date of initial application. For public business entities, certain non-for-profit entities and certain employee benefit plans, ASU 2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2017, and early adoption is permitted but not earlier than the original effective date of December 15, 2016.
F-33
For all other entities, including non-public entities, the effective date for all other entities is annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the ASU early as of an annual reporting period beginning after December15, 2016, including interim reporting periods within that reporting period. All other entities also may apply ASC 606 early as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies ASC 606.
The most significant aspect of our evaluation of Topic 606 relates to ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This implementation guidance discusses principal versus agent considerations and gross versus net revenue reporting, including specific indicators to assist in the determination of whether we control a specified good or service before it is transferred to the customer. The Company is still in the process of evaluation of the impact and through our evaluation, we believe that the accounting treatments under the new guidance are expected to be consistent with our current revenue recognition policies and the Company does not expect the new standard to have a material impact on our consolidated financial statements. The Company will adopt Topic 606 for the annual reporting period ended September 30, 2020. For the interim six-month period ended March 31, 2020, the Company still applies the legacy revenue recognition standards ASC 605. However, the Company does not expect the adoption of ASC 606 to have a significant impact on its revenue recognition for its current revenue streams.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance will impact the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified the need for a valuation allowance on deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities not under the fair value option is largely unchanged. The standard is effective for public business entities for annual periods (and interim periods within those annual periods) beginning after December 15, 2017. For all other entities, it is effective for fiscal years beginning after 15 December 2018, and interim periods within fiscal years beginning after 15 December 2019. The Company will adopt this new standard for the annual reporting period ended September 30, 2020. For the interim six-month period ended March 31, 2020, this ASU is still not adopted. The Company, however, does not expect ASU 2016-01 to have a significant impact on the Company’s consolidated financial statements upon its adoption.
In February 2016, FASB issued ASU No. 2016–02, “Leases (Topic 842)”, ASC 842, and subsequently amended the guidance relating largely to transition considerations under the standard in July 2018. The new guidance, which creates new accounting and reporting guidelines for leasing arrangements, requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for public business entities for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which further clarifies the determination of fair value of the underlying asset by lessors that are not manufacturers or dealers and modifies transition disclosure requirements for changes in accounting principles and other technical updates. The amendments in ASU 2019-01 amend Topic 842 and the effective date of those amendments is for fiscal years beginning December 15, 2019, and interim periods within those fiscal years for public business entities. For all other entities, ASC 842 is effective for annual periods beginning after December 15, 2020. The Company is currently evaluating the impact of the new pronouncement on its condensed consolidated financial statements but does not expect it to have a significant impact.
F-34
In June 2016, the FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which will be effective for fiscal year beginning after December 15, 2020 for non-public entities. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which a Group recognizes an allowance based on the estimate of expected credit loss.. The FASB has issued ASU 2019-10, which amends the effective date of the ASU 2016-13Credit Losses accounting standards. For non-public entities, the effective date is deferred to fiscal year beginning December 15, 2022. The Company does not expect the adoption of the accounting standards to have a significant impact to its current consolidated financial statements. However, the Company will continue to evaluate the impact of this new guidance on its financial statements when it is closer to effective date of the adoption.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The ASU provides guidance on eight specific cash flow issues:
| i. | Debt Prepayment or Debt Extinguishment Costs; |
| ii. | Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; |
| iii. | Contingent Consideration Payments Made after a Business Combination; |
| iv. | Proceeds from the Settlement of Insurance Claims; |
| v. | Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies; |
| vi. | Distributions Received from Equity Method Investees; |
| vii. | Beneficial Interests in Securitization Transactions; and |
| viii. | Separately Identifiable Cash Flows and Application of the Predominance Principle |
ASU 2016-15 is effective for public entities for interim and annual periods beginning after December 15, 2017, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company does not believe the ASU currently will impact the consolidated financial statements since the Company does not have any of the eight cash flow issues. The Company will continue to evaluate the impact of this accounting standard update on its consolidated statements of cash flows in the year of adoption.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”). This ASU affects all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This update will become effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, and early adoption is permitted in any interim or annual period. The Company plans to adopt the standard for its fiscal year beginning October 1, 2019. However, the Company does not expect the adoption of the guidance to have an impact to the Company’s statement of cash flows as the Company presently does not have restricted cash or restricted cash equivalents and will not expect to have such item as of September 30, 2020.
Restatements
The Company has noted certain errors in relation to its consolidated financial statements for the six months ended March 31, 2020 and 2019 that had been previously issued on September 18, 2020. These errors are in relation to certain cut-off errors in the Company’s prepayment balances as at September 30, 2017, September 30, 2018 and September 2019. These errors in prepayment balances have consequently impacted the opening retained earnings for the years ended September 30, 2018 and 2019 and the costs of services and income taxes for the two six months ended March 31, 30, 2020 and 2019 respectively.
In addition, a cut-off error was noted in relation to the Company’s revenue for the period ended March 31, 2020. Consequently, this error has impacted the opening retained earning balance as at and income taxes for the six months ended March 31, 2020.
All the relevant notes to the consolidated financial statements have been restated to reflect the adjustments aforementioned.
F-35
Consolidated Balance Sheet
| September 30, 2019 As reported | Adjustments | September 30, 2019 As restated | ||||||||||
| US$ | US$ | US$ | ||||||||||
| ASSETS | ||||||||||||
| Current Assets: | ||||||||||||
| Accounts receivable | 38,936 | 199,945 | 238,881 | |||||||||
| Prepaid expenses | 2,845,439 | (784,200 | ) | 2,061,239 | ||||||||
| Income tax receivable | 16,996 | (12,756 | ) | 4,240 | ||||||||
| Total Assets | 15,469,189 | (597,011 | ) | 14,872,178 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Total Liabilities | 8,401,106 | — | 8,401,106 | |||||||||
| Stockholders’ Equity: | ||||||||||||
| Retained earnings | ||||||||||||
| Opening retained earnings | 2,294,383 | (621,942 | ) | 1,672,441 | ||||||||
| Current period net earnings | 2,029,827 | 24,931 | 2,054,758 | |||||||||
| Total retained earnings | 4,324,210 | (597,011 | ) | 3,727,199 | ||||||||
| Total Stockholders’ Equity | 7,068,083 | (597,011 | ) | 6,471,072 | ||||||||
| Total Liabilities and Stockholders’ Equity | 15,469,189 | (597,011 | ) | 14,872,178 | ||||||||
| March 31, 2020 As reported | Adjustments | March 31, 2020 As restated | ||||||||||
| US$ | US$ | US$ | ||||||||||
| ASSETS | ||||||||||||
| Current Assets: | ||||||||||||
| Income tax receivable | 74,626 | (74,626 | ) | - | ||||||||
| Total Assets | 11,532,174 | (74,626 | ) | 11,457,548 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Income tax payable | — | 60,824 | 60,824 | |||||||||
| Total Liabilities | 3,614,087 | 60,824 | 3,674,911 | |||||||||
| Stockholders’ Equity: | ||||||||||||
| Retained earnings | ||||||||||||
| Opening retained earnings | 4,324,210 | (597,011 | ) | 3,727,199 | ||||||||
| Current period net earnings | 850,004 | 461,561 | 1,311,565 | |||||||||
| Total retained earnings | 5,174,214 | (135,450 | ) | 5,038,764 | ||||||||
| Total Stockholders’ Equity | 7,918,087 | (135,450 | ) | 7,782,637 | ||||||||
| Total Liabilities and Stockholders’ Equity | 11,532,174 | (74,626 | ) | 11,457,548 | ||||||||
F-36
Consolidated Statement of Income and Comprehensive Income
| For The Six Months Ended March 31, 2019 As reported | Adjustments | For The Six Months Ended March 31, 2019 As restated | ||||||||||
| US$ | US$ | US$ | ||||||||||
| Revenues | 4,793,300 | 114,836 | 4,908,136 | |||||||||
| Cost of services | 1,377,361 | (101,765 | ) | 1,275,596 | ||||||||
| Gross profit | 3,415,939 | 216,601 | 3,632,540 | |||||||||
| Total operating expenses | 1,933,877 | 1,933,877 | ||||||||||
| Income from operations | 1,482,062 | 216,601 | 1,698,663 | |||||||||
| Total other income (expense) | (35,394 | ) | (35,394 | ) | ||||||||
| Income before income taxes | 1,517,456 | 216,601 | 1,734,057 | |||||||||
| Income tax expense | 383,008 | 68,544 | 451,552 | |||||||||
| Net income | 1,134,448 | 148,057 | 1,282,505 | |||||||||
| Total Comprehensive income | 1,134,448 | 148,057 | 1,282,505 | |||||||||
| Earnings per ordinary share | ||||||||||||
| Basic and diluted | 0.14 | 0.02 | 0.16 | |||||||||
| Weighted average ordinary shares outstanding | ||||||||||||
| Basic & diluted | 7,938,000 | — | 7,938,000 | |||||||||
| For The Six Months Ended March 31, 2020 As reported | Adjustments | For The Six Months Ended March 31, 2020 As restated | ||||||||||
| US$ | US$ | US$ | ||||||||||
| Revenues | 6,328,305 | (199,945 | ) | 6,128,360 | ||||||||
| Cost of services | 2,340,019 | (784,200 | ) | 1,555,819 | ||||||||
| Gross profit | 3,988,286 | 584,255 | 4,572,541 | |||||||||
| Total operating expenses | 2,893,552 | 2,893,552 | ||||||||||
| Income from operations | 1,094,734 | 584,255 | 1,678,989 | |||||||||
| Total other income (expense) | (7,218 | ) | (7,218 | ) | ||||||||
| Income before income taxes | 1,101,952 | 584,255 | 1,686,207 | |||||||||
| Income tax expense | 251,948 | 122,694 | 374,642 | |||||||||
| Net income | 850,004 | 461,561 | 1,311,565 | |||||||||
| Total Comprehensive income | 850,004 | 461,561 | 1,311,565 | |||||||||
| Earnings per ordinary share | ||||||||||||
| Basic and diluted | 0.11 | 0.06 | 0.17 | |||||||||
| Weighted average ordinary shares outstanding | ||||||||||||
| Basic & diluted | 7,938,000 | — | 7,938,000 | |||||||||
F-37
Consolidated Statement of Stockholders’ Equity
| Ordinary Shares | Ordinary amount | Additional paid-in capital | Retained Earnings As reported | Retained Earnings As restated | Total As reported | Total As restated | ||||||||||||||||||||||
| US$ | US$ | US$ | US$ | US$ | US$ | |||||||||||||||||||||||
| Balance, September 30, 2018 | 7,938,000 | 12,600 | 2,731,273 | 2,294,383 | 1,672,441 | 5,038,256 | 4,416,314 | |||||||||||||||||||||
| Net income | 1,134,448 | 1,282,504 | 1,134,448 | 1,282,504 | ||||||||||||||||||||||||
| Shareholders’ contributions | 219,398 | 219,398 | - | |||||||||||||||||||||||||
| Balance, March 31, 2019 | 7,938,000 | 12,600 | 2,950,671 | 3,428,831 | 2,954,945 | 6,392,102 | 5,698,818 | |||||||||||||||||||||
| Ordinary Shares | Ordinary amount | Additional paid-in capital | Retained Earnings As reported | Retained Earnings As restated | Total As reported | Total As restated | ||||||||||||||||||||||
| US$ | US$ | US$ | US$ | US$ | US$ | |||||||||||||||||||||||
| Balance, September 30, 2019 | 7,938,000 | 12,600 | 2,731,273 | 4,324,210 | 3,727,199 | 7,068,083 | 6,471,072 | |||||||||||||||||||||
| Net income | - | 850,004 | 1,311,565 | 850,004 | 1,311,565 | |||||||||||||||||||||||
| Balance, March 31, 2020 | 7,938,000 | 12,600 | 2,731,273 | 5,174,214 | 5,038,764 | 7,918,087 | 7,782,637 | |||||||||||||||||||||
Consolidated Statement of Cash Flows
| For The Six Months Ended March 31, 2019 As reported | Adjustments | For The Six Months Ended March 31, 2019 As restated | ||||||||||
| US$ | US$ | US$ | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net income | 1,134,448 | 148,057 | 1,282,505 | |||||||||
| Adjustments for items not affecting cash: | ||||||||||||
| Deferred income tax expense | 73,656 | 23,058 | 96,714 | |||||||||
| Changes in non-cash working capital: | ||||||||||||
| Prepaid expenses | 427,221 | (216,601 | ) | 210,620 | ||||||||
| Accounts payable & accrued liabilities | 33,298 | (328,886 | ) | (295,588 | ) | |||||||
| Deferred revenue | (2,899,753 | ) | 548,284 | (2,351,469 | ) | |||||||
| Income tax receivable | 221,026 | 45,486 | 266,512 | |||||||||
| Net cash provided (used) in operating activities | (585,903 | ) | 219,398 | (366,505 | ) | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Net cash used in investing activities | 72,847 | 72,847 | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Net cash provided by financing activities | 219,398 | (219,398 | ) | - | ||||||||
| Net increase/(decrease) in cash, cash equivalents and restricted cash | (293,658 | ) | (293,658 | ) | ||||||||
| Cash and cash equivalents, beginning of period | 4,017,950 | 4,017,950 | ||||||||||
| Cash and cash equivalents, end of period | 3,724,292 | 3,724,292 | ||||||||||
F-38
| For The Six Months Ended March 31, 2020 As reported | Adjustments | For The Six Months Ended March 31, 2020 As restated | ||||||||||
| US$ | US$ | US$ | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net income | 850,004 | 461,561 | 1,311,565 | |||||||||
| Changes in non-cash working capital: | ||||||||||||
| Accounts receivable | (312,600 | ) | 199,945 | (112,655 | ) | |||||||
| Prepaid expenses | 1,321,282 | (784,200 | ) | 537,082 | ||||||||
| Income tax receivable | (57,629 | ) | 122,694 | 65,065 | ||||||||
| Net cash provided (used) in operating activities | (2,548,456 | ) | (2,548,456 | ) | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Net cash used in investing activities | (25,864 | ) | (25,864 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Net cash used in financing activities | (179,919 | ) | (179,919 | ) | ||||||||
| Net increase/(decrease) in cash, cash equivalents and restricted cash | (2,754,239 | ) | (2,754,239 | ) | ||||||||
| Cash and cash equivalents, beginning of period | 8,272,623 | 8,272,623 | ||||||||||
| Cash and cash equivalents, end of period | 5,518,384 | 5,518,384 | ||||||||||
3. Prepaid Expenses
Prepaid expenses consist of the following:
| March 31, 2020 | September 30, 2019 | |||||||
| US$ | US$ | |||||||
| Prepaid recruitment fees | 993,582 | 1,124,713 | ||||||
| Prepaid tuition fees to Miami University | 401,095 | 865,291 | ||||||
| Prepaid insurance | 65,585 | 48,835 | ||||||
| Other prepaid expenses | 63,895 | 22,400 | ||||||
| Total | 1,524,157 | 2,061,239 | ||||||
Prepaid recruitment fees represent the prepaid student recruitment fees to agents who help the Company promote and recruit students to enroll in the English education programs offered by the Company. The prepaid expenses are deferred as they represent payments for future services to be rendered by our service agents and future economic benefits to the Company are anticipated. A portion of the prepaid amounts are for long-term services from these agents and hence they are recorded as long-term prepaid expenses. These prepaid expenses are generally for a 3-year term services and are subsequently amortized into expenses using straight-line method based on the 3-year service contract term.
Prepaid tuition fees represent the tuition fees that the Company prepaid to Miami University for services have yet to be provided by Miami University. The prepaid tuition fees will be recognized into costs of services when such fees are incurred based on semester terms in direct relation to Miami University’s conducting of the English language education services for us.
4. Deferred costs
Deferred costs represented the incremental costs incurred for the Company’s initial public offering (“IPO”). These costs primary include specific legal costs, accounting costs and professional consulting costs. These costs are deferred and will be charged against the gross proceeds of the IPO at completion.
F-39
5. Long Term Prepaid Expenses
Long term prepaid expenses represent the long term portion of the prepaid student recruitment fees to agents for their long term recruitment services.
6. Property and Equipment, net
Property and equipment, net consist of the following:
| March 31, 2020 | September 30, 2019 | |||||||
| US$ | US$ | |||||||
| Land | 1,007,273 | 1,007,273 | ||||||
| Buildings | 2,078,790 | 2,078,790 | ||||||
| Machinery & equipment | 84,542 | 84,542 | ||||||
| Vehicles | 156,175 | 133,184 | ||||||
| Furniture and fixtures | 74,173 | 71,301 | ||||||
| Total | 3,400,953 | 3,375,090 | ||||||
| Less: Accumulated depreciation | $ | (501,079 | ) | $ | (455,487 | ) | ||
| Property and equipment, net | 2,899,874 | 2,919,603 | ||||||
Depreciation expenses was recorded in general and administrative expense. The Company recorded depreciation expenses of US$45,592 and US$41,112 for the period ended March 31, 2020 and 2019, respectively.
7. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of March 31, 2020 and September 30, 2019 primarily consist of the following:
| March 31, 2020 | September 30, 2019 | |||||||
| US$ | US$ | |||||||
| Accounts payable | - | 106,122 | ||||||
| Rent payables | - | 140,225 | ||||||
| Student refundable deposits | 726,557 | 752,084 | ||||||
| Accrued commission expenses | - | 203,564 | ||||||
| Salary payables | 288,394 | 180,000 | ||||||
| Other payables | 15,000 | 49,068 | ||||||
| Total | 1,029,951 | 1,431,063 | ||||||
F-40
8. Ordinary Shares
The Company’s ordinary share’s par value is US$0.001 and is authorized to issue 50,000,000 shares and 12,600,000 shares had been issued and outstanding as of March 31, 2020 and September 30, 2019 respectively.
On October 27, 2020, the Company executed a 1-for-0.63 reverse stock split. As a result of the stock split, the number of authorized shares to be issued becomes 31,500,000 and the issued and outstanding shares becomes 7,938,000 shares. As the change in ordinary shares occurred before the effectiveness of this registration statement, the Company has retrospectively accounted for the change in the current and prior period financial statements that are presented in these condensed interim consolidated financial statements (refer to Note9 ).
9. Earnings per share
Basic and diluted net earnings per share for each of the six-month periods presented are calculated as follows:
Before reverse stock split
| March 31, 2020 | March 31, 2019 | |||||||
| US$ | US$ | |||||||
| Numerator: | ||||||||
| Net Income attributable to ordinary shareholders—basic and diluted | 1,311,565 | 1,282,504 | ||||||
| Denominator: | ||||||||
| Weighted average number of ordinary shares outstanding—basic and diluted | 12,600,000 | 12,600,000 | ||||||
| Earning per share attributable to ordinary shareholders —basic and diluted | 0.10 | 0.10 | ||||||
Basic earnings per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. As a result of the share split occurred on October 27, 2020, the Company has retrospectively adjusted its earnings per share as follows:
After reverse stock split
| March 31, 2020 | March 31, 2019 | |||||||
| US$ | US$ | |||||||
| Numerator: | (Adjusted) | (Adjusted) | ||||||
| Net Income attributable to ordinary shareholders—basic and diluted | 1,311,565 | 1,282,504 | ||||||
| Denominator: | ||||||||
| Weighted average number of ordinary shares outstanding—basic and diluted | 7,938,000 | 7,938,000 | ||||||
| Earning per share attributable to ordinary shareholders —basic and diluted | 0.17 | 0.16 | ||||||
10. Commitments and Contingencies
Other than a residential apartment building lease with a lease term of two years that the Company entered into during 2019 as below, the Company did not have significant commitments, long-term obligations, or guarantees as of March 31, 2020 and September 30, 2019.
Operating lease
The future aggregate minimum lease payments under the non-cancellable residential apartment building operating lease are as follows:
| Payments due by period | ||||||||||||||||
| Total | Less than 1 year | 1-3 years | Over 3 years | |||||||||||||
| Operating lease obligations ($) | 347,981 | 253,077 | 94,904 | - | ||||||||||||
Contingencies
The Company is subject to legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome arising out of any such matter will have a material adverse effect on our consolidated business, financial position, cash flows or results of operations taken as a whole. As of March 31, 2020, the Company is not a party to any material legal or administrative proceedings.
F-41
11. Related Party Transactions and Balances
Related Parties
| Name of related parties | Relationship with the Company | |
| Jianbo Zhang | Founder and ultimate controlling shareholder, CEO |
Related Party transactions
There were no material related party transactions during the period ended March 31, 2020 and 2019 respectively.
Due to related party balance
The related party balances of $140,000 as of March 31, 2020 and September 30, 2019 relate to IPO costs paid by Jianbo Zhang on behalf of the Company. The due to related party balance is unsecured, non-interest bearing and due on demand.
12. Subsequent Events
The Company has evaluated the impact of events that have occurred subsequent to March 31, 2020, through the date the condensed consolidated financial statements were available to issue, and concluded that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes to the consolidated financial statements, except as follow:
| ● | On October 27, 2020, the Company conducted a 1/0.63 reverse stock split. The Company has retrospectively accounted for this change. Refer to Notes 8 and 9. |
F-42
Elite Education Group International Limited
750,000 Units consisting of:
Shares
Series A Warrants
Series B Warrants
Prospectus
, 2020
Until [_], 2020 (25 days after commencement of our initial public offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
| Item 6. | Indemnification of Directors and Officers |
BVI law does limit the extent to which a company’s Memorandum and Articles of Association may provide for indemnification of officers and directors. Our Memorandum and Articles of Association provides for indemnification of its officers and directors for any liability incurred in their capacities as such, except through their own fraud or willful default to the extent permitted under British Virgin Islands law. Indemnification is only available to a person who acted in good faith and in what that person believed to be in the best interests of our Company.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is theretofore unenforceable.
A director, officer or agent of a company formed under the BVI laws is obligated to act honestly and in good faith and exercise care, diligence and skill of a reasonably prudent person acting in comparable circumstances. Our constitutional documents do not relieve directors, officers or agents from personal liability arising from the management of the business of the company. Notwithstanding the foregoing, Section 132 of the BVI Business Companies Act permits indemnification of directors, officers and agents against all expenses, including legal fees and judgments, fines and settlements, in respect of actions related to their employment. There are no agreements that relieve directors, officer or agents from personal liability. We intend to obtain director and officer insurance.
II-1
| Item 7. | Recent Sales of Unregistered Securities |
Since our inception, we issued and sold 4,410,000 and 8,190,000 of our common shares to Zhang Jianbo and Wonderland Holdings International Limited, in consideration for USD$27,342 and $50,778, respectively. The foregoing issuances were made in a transaction not involving a public offering pursuant to an exemption from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act, and/or rules and regulations promulgated thereunder, including Regulation D or Regulation S, by virtue of being issuances of securities by non-U.S. companies to non-U.S. citizens or residents, conducted outside the United States and not using any element of interstate commerce.
| Item 8. | Exhibits and Financial Statement Schedules |
(a) Exhibits
The following exhibits are filed herewith or incorporated by reference in this prospectus:
| * | To be filed by amendment. |
| (1) | Previously filed. |
(b) Financial Statement Schedules
None.
II-2
| Item 9. | Undertakings |
The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (§230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
To provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
That, insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.”
II-3
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the People’s Republic of China, on December 14, 2020.
| Elite Education Group International Limited | ||
| By: | /s/ Zhang Jianbo | |
| Name: | Zhang Jianbo | |
| Title: | Chief Executive Officer (Principal Executive Officer) | |
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Zhang Jianbo and Zhenyu Wu, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement and any and all additional registration statements pursuant to Rule 462(b) of the Securities Act of 1933, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agents full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| Signature | Title | Date | ||
| Chairman, Chief Executive Officer | December 14, 2020 | |||
| Zhang Jianbo | (Principal Executive Officer) | |||
| Chief Financial Officer and Director | December 14, 2020 | |||
| Zhenyu Wu | (Principal Financial and Accounting Officer) | |||
| Craig Wilson | Independent Director | December 14, 2020 | ||
| G. Michael Pratt | Independent Director | December 14, 2020 | ||
| M. Kelly Cowan | Independent Director | December 14, 2020 |
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SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act of 1933, the undersigned, the duly authorized representative in the United States of the Company has signed this registration statement or amendment thereto in New York on , 2020.
| Authorized U.S. Representative | |||
| Vcorp Agent Services, Inc. | |||
| 25 Robert Pitt Dr., Suite 204 | |||
| Monsey, NY 10952 | |||
| Tel: (888) 528-2677 | |||
| By: | /s/ | ||
| Name: | |||
| Title: | Authorized Person | ||
II-5
Exhibit 3.1
BVI COMPANY NUMBER: 1963796
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE BVI BUSINESS COMPANIES ACT, 2004
MEMORANDUM AND ARTICLES
OF ASSOCIATION
OF
Elite Education Group International Limited
A COMPANY LIMITED BY SHARES
Incorporated on the 13th day of December, 2017
INCORPORATED IN THE BRITISH VIRGIN ISLANDS
(As adopted by Director’s resolution dated 14 May, 2019 and filed on 14 May, 2019)
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE BVI BUSINESS COMPANIES ACT, 2004
MEMORANDUM OF ASSOCIATION
OF
Elite Education Group International Limited
A COMPANY LIMITED BY SHARES
| 1. | DEFINITIONS AND INTERPRETATION |
| 1.1. | In this Memorandum of Association and the Articles of Association of the Company, if not inconsistent with the subject or context: |
“Act” means the BVI Business Companies Act, 2004 (No. 16 of 2004) and includes the regulations made under the Act;
“Articles” means the Articles of Association of the Company;
“Chairman of the Board” has the meaning specified in Regulation 12;
“Distribution” in relation to a distribution by the Company to a Shareholder means the direct or indirect transfer of an asset, other than Shares, to or for the benefit of the Shareholder, or the incurring of a debt to or for the benefit of a Shareholder, in relation to Shares held by a Shareholder, and whether by means of the purchase of an asset, the purchase, redemption or other acquisition of Shares, a transfer of indebtedness or otherwise, and includes a dividend;
“Memorandum” means this Memorandum of Association of the Company;
“Person” includes individuals, corporations, trusts, the estates of deceased individuals, partnerships and unincorporated associations of persons;
“Registrar” means the Registrar of Corporate Affairs appointed under section 229 of the Act;
“Resolution of Directors” means either:
| (a) | a resolution approved at a duly convened and constituted meeting of directors of the Company by the affirmative vote of a majority of the directors present at the meeting who voted except that where a director is given more than one vote, he shall be counted by the number of votes he casts for the purpose of establishing a majority; or |
| (b) | a resolution consented to in writing or by telex, telegram, cable or other written electronic communication by a majority of the directors of the Company. A written resolution consented to in such manner may consist of several documents including written electronic communication, in like form each signed or assented to by one or more directors. |
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“Resolution of Shareholders” means either:
| (a) | a resolution approved at a duly convened and constituted meeting of the Shareholders of the Company by the affirmative vote of a majority of in excess of 50 percent of the votes of the Shares entitled to vote thereon which were present at the meeting and were voted; or |
| (b) | a resolution consented to in writing by a majority of in excess of 50 percent of the votes of Shares entitled to vote thereon; |
“Seal” means any seal which has been duly adopted as the common seal of the Company;
“Securities” means Shares and debt obligations of every kind of the Company, and including without limitation options, warrants and rights to acquire Shares or debt obligations;
“Share” means a share issued or to be issued by the Company;
“Shareholder” means a Person whose name is entered in the register of members as the holder of one or more Shares or fractional Shares;
“Treasury Share” means a Share that was previously issued but was repurchased, redeemed or otherwise acquired by the Company and not cancelled; and
“Written” or any term of like import includes information generated, sent, received or stored by electronic, electrical, digital, magnetic, optical, electromagnetic, biometric or photonic means, including electronic data interchange, electronic mail, telegram, telex or telecopy, and “in writing” shall be construed accordingly.
| 1.2. | In the Memorandum and the Articles, unless the context otherwise requires a reference to: |
| (a) | a “Regulation” is a reference to a regulation of the Articles; |
| (b) | a “Clause” is a reference to a clause of the Memorandum; |
| (c) | voting by Shareholders is a reference to the casting of the votes attached to the Shares held by the Shareholder voting; |
| (d) | the Act, the Memorandum or the Articles is a reference to the Act or those documents as amended or, in the case of the Act, any re-enactment thereof and any subsidiary legislation made thereunder; and |
| (e) | the singular includes the plural and vice versa. |
| 1.3. | Any words or expressions defined in the Act unless the context otherwise requires bear the same meaning in the Memorandum and the Articles unless otherwise defined herein. |
| 1.4. | Headings are inserted for convenience only and shall be disregarded in interpreting the Memorandum and the Articles. |
| 2. | NAME |
The name of the Company is Elite Education Group International Limited.
| 3. | STATUS |
The Company is a company limited by Shares.
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| 4. | REGISTERED OFFICE AND REGISTERED AGENT |
| 4.1. | The first registered office of the Company is at Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands, the office of the first registered agent. |
| 4.2. | The first registered agent of the Company is Vistra (BVI) Limited of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. |
| 4.3. | The Company may by Resolution of Shareholders or by Resolution of Directors change the location of its registered office or change its registered agent. |
| 4.4. | Any change of registered office or registered agent will take effect on the registration by the Registrar of a notice of the change filed by the existing registered agent or a legal practitioner in the British Virgin Islands acting on behalf of the Company. |
| 4.5. | The registered agent shall: |
| (a) | act on the instructions of the directors of the Company if those instructions are contained in a Resolution of Directors and a copy of the Resolution of Directors is made available to the registered agent; and |
| (b) | recognise and accept the appointment or removal of a director or directors by Shareholders. |
| 5. | CAPACITY AND POWERS |
| 5.1. | Subject to the Act and any other British Virgin Islands legislation, the Company has, irrespective of corporate benefit: |
| (a) | full capacity to carry on or undertake any business or activity, do any act or enter into any transaction; and |
| (b) | for the purposes of paragraph (a), full rights, powers and privileges. |
| 5.2. | For the purposes of section 9(4) of the Act, there are no limitations on the business that the Company may carry on. |
| 6. | NUMBER AND CLASSES OF SHARES |
| 6.1. | Shares in the company shall be issued in the currency of the United States of America. |
| 6.2. | The Company is authorised to issue a maximum of 12,600,000 shares of a single class each with a par value of US$0.001. |
| 6.3. | The Company may issue fractional Shares and a fractional Share shall have the corresponding fractional rights, obligations and liabilities of a whole Share of the same class or series of Shares. |
| 6.4. | Shares may be issued in one or more series of Shares as the directors may by Resolution of Directors determine from time to time. |
| 7. | RIGHTS OF SHARES |
| 7.1. | Each Share confers upon the Shareholder: |
| (a) | the right to one vote at a meeting of the Shareholders or on any Resolution of Shareholders; |
| (b) | the right to an equal share in any dividend paid by the Company; and |
| (c) | the right to an equal share in the distribution of the surplus assets of the Company on its liquidation. |
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| 7.2. | The Company may by Resolution of Directors redeem, purchase or otherwise acquire all or any of the Shares subject to Regulation 3 of the Articles. |
| 8. | VARIATION OF RIGHTS |
If at any time the Shares are divided into different classes, the rights attached to any class may only be varied, whether or not the Company is in liquidation, with the consent in writing of or by a resolution passed at a meeting by the holders of not less than 50 percent of the issued Shares in that class.
| 9. | RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU |
The rights conferred upon the holders of the Shares of any class shall not, unless otherwise expressly provided by the terms of issue of the Shares of that class, be deemed to be varied by the creation or issue of further Shares ranking pari passu therewith.
| 10. | REGISTERED SHARES |
| 10.1. | The Company shall issue Registered Shares only. |
| 10.2. | The Company is not authorised to issue Bearer Shares, convert Registered Shares to Bearer Shares or exchange Registered Shares for Bearer Shares. |
| 11. | TRANSFER OF SHARES |
| 11.1. | The Company shall, on receipt of an instrument of transfer complying with Sub-Regulation 6.1 of the Articles, enter the name of the transferee of a Share in the register of members unless the directors resolve to refuse or delay the registration of the transfer for reasons that shall be specified in a Resolution of Directors. |
| 11.2. | The directors may not resolve to refuse or delay the transfer of a Share unless the Shareholder has failed to pay an amount due in respect of the Share. |
| 12. | AMENDMENT OF THE MEMORANDUM AND THE ARTICLES |
| 12.1. | Subject to Clause 8, the Company may amend the Memorandum or the Articles by Resolution of Shareholders or by Resolution of Directors, save that no amendment may be made by Resolution of Directors: |
| (a) | to restrict the rights or powers of the Shareholders to amend the Memorandum or the Articles; |
| (b) | to change the percentage of Shareholders required to pass a Resolution of Shareholders to amend the Memorandum or the Articles; |
| (c) | in circumstances where the Memorandum or the Articles cannot be amended by the Shareholders; or |
| (d) | to Clauses 7, 8, 9 or this Clause 12. |
| 12.2. | Any amendment of the Memorandum or the Articles will take effect on the registration by the Registrar of a notice of amendment, or restated Memorandum and Articles, filed by the registered agent. |
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We, Vistra (BVI) Limited of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands for the purpose of incorporating a BVI Business Company under the laws of the British Virgin Islands hereby sign this Memorandum of Association the 13th day of December, 2017.
Incorporator
| /s/ Rexella D. Hodge | |
| (Sd.) Rexella D. Hodge | |
| Authorised Signatory | |
| Vistra (BVI) Limited | |
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TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE BVI BUSINESS COMPANIES ACT, 2004
ARTICLES OF ASSOCIATION
OF
Elite Education Group International Limited
A COMPANY LIMITED BY SHARES
| 1. | REGISTERED SHARES |
| 1.1. | Every Shareholder is entitled, on request to a certificate signed by a director or officer of the Company, or any other person authorised by Resolution of Directors, or under the Seal specifying the number of Shares held by him and the signature of the director, officer or authorised person and the Seal may be facsimiles. |
| 1.2. | Any Shareholder receiving a certificate shall indemnify and hold the Company and its directors and officers harmless from any loss or liability which it or they may incur by reason of any wrongful or fraudulent use or representation made by any person by virtue of the possession thereof. If a certificate for Shares is worn out or lost it may be renewed on production of the worn out certificate or on satisfactory proof of its loss together with such indemnity as may be required by Resolution of Directors. |
| 1.3. | If several Persons are registered as joint holders of any Shares, any one of such Persons may give an effectual receipt for any Distribution. |
| 2. | SHARES |
| 2.1. | Shares and other Securities may be issued at such times, to such Persons, for such consideration and on such terms as the directors may by Resolution of Directors determine. |
| 2.2. | Section 46 of the Act (Pre-emptive rights) does not apply to the Company. |
| 2.3. | A Share may be issued for consideration in any form or a combination of forms, including money, a promissory note, or other written obligation to contribute money or property, real property, personal property (including goodwill and know-how), services rendered or a contract for future services. |
| 2.4. | The consideration for a Share with par value shall not be less than the par value of the Share. If a Share with par value is issued for consideration less than the par value, the person to whom the Share is issued is liable to pay to the Company an amount equal to the difference between the issue price and the par value. |
| 2.5. | A bonus share issued by the Company shall be deemed to have been fully paid for on issue. |
| 2.6. | No Shares may be issued for a consideration, which is in whole or in part, other than money, unless a Resolution of Directors has been passed stating: |
| (a) | the amount to be credited for the issue of the Shares; and |
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| (b) | that, in the opinion of the directors, the present cash value of the non-money consideration and money consideration, if any, is not less than the amount to be credited for the issue of the Shares. |
| 2.7. | The consideration paid for any Share, whether a par value Share or a no par value Share, shall not be treated as a liability or debt of the Company for the purposes of: |
| (a) | the solvency test in Regulations 3 and 18; and |
| (b) | sections 197 and 209 of the Act. |
| 2.8. | The Company shall keep a register (the “register of members”) containing: |
| (a) | the names and addresses of the Persons who hold Shares; |
| (b) | the number of each class and series of Shares held by each Shareholder; |
| (c) | the date on which the name of each Shareholder was entered in the register of members; and |
| (d) | the date on which any Person ceased to be a Shareholder. |
| 2.9. | The register of members may be in any such form as the directors may approve, but if it is in magnetic, electronic or other data storage form, the Company must be able to produce legible evidence of its contents. Until the directors otherwise determine, the magnetic, electronic or other data storage form shall be the original register of members. |
| 2.10. | A Share is deemed to be issued when the name of the Shareholder is entered in the register of members. |
| 3. | REDEMPTION OF SHARES AND TREASURY SHARES |
| 3.1. | The Company may purchase, redeem or otherwise acquire and hold its own Shares in such manner and upon such other terms as the directors may agree with the relevant Shareholder(s) save that the Company may not purchase, redeem or otherwise acquire its own Shares without the consent of Shareholders whose Shares are to be purchased, redeemed or otherwise acquired unless the Company is permitted by the Act or any other provision in the Memorandum or Articles to purchase, redeem or otherwise acquire the Shares without their consent. |
| 3.2. | The Company may acquire its own fully paid Share or Shares for no consideration by way of surrender of the Share or Shares to the Company by the Shareholder holding the Share or Shares. Any surrender of a Share or Shares under this Sub-Regulation 3.2 shall be in writing and signed by the Shareholder holding the Share or Shares. |
| 3.3. | The Company may only offer to purchase, redeem or otherwise acquire Shares if the Resolution of Directors authorising the purchase, redemption or other acquisition contains a statement that the directors are satisfied, on reasonable grounds, that immediately after the acquisition the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due. |
| 3.4. | Sections 60 (Process for acquisition of own Shares), 61 (Offer to one or more shareholders) and 62 (Shares redeemed otherwise than at the option of company) of the Act shall not apply to the Company. |
| 3.5. | Shares that the Company purchases, redeems or otherwise acquires pursuant to this Regulation may be cancelled or held as Treasury Shares except to the extent that such Shares are in excess of 50 percent of the issued Shares in which case they shall be cancelled but they shall be available for reissue. |
| 3.6. | All rights and obligations attaching to a Treasury Share are suspended and shall not be exercised by the Company while it holds the Share as a Treasury Share. |
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| 3.7. | Treasury Shares may be transferred by the Company on such terms and conditions (not otherwise inconsistent with the Memorandum and the Articles) as the Company may by Resolution of Directors determine. |
| 3.8. | Where Shares are held by another body corporate of which the Company holds, directly or indirectly, Shares having more than 50 percent of the votes in the election of directors of the other body corporate, all rights and obligations attaching to the Shares held by the other body corporate are suspended and shall not be exercised by the other body corporate. |
| 4. | MORTGAGES AND CHARGES OF SHARES |
| 4.1. | Shareholders may mortgage or charge their Shares. |
| 4.2. | There shall be entered in the register of members at the written request of the Shareholder: |
| (a) | a statement that the Shares held by him are mortgaged or charged; |
| (b) | the name of the mortgagee or chargee; and |
| (c) | the date on which the particulars specified in subparagraphs (a) and (b) are entered in the register of members. |
| 4.3. | Where particulars of a mortgage or charge are entered in the register of members, such particulars may be cancelled: |
| (a) | with the written consent of the named mortgagee or chargee or anyone authorised to act on his behalf; or |
| (b) | upon evidence satisfactory to the directors of the discharge of the liability secured by the mortgage or charge and the issue of such indemnities as the directors shall consider necessary or desirable. |
| 4.4. | Whilst particulars of a mortgage or charge over Shares are entered in the register of members pursuant to this Regulation: |
| (a) | no transfer of any Share the subject of those particulars shall be effected; |
| (b) | the Company may not purchase, redeem or otherwise acquire any such Share; and |
| (c) | no replacement certificate shall be issued in respect of such Shares, |
without the written consent of the named mortgagee or chargee.
| 5. | FORFEITURE |
| 5.1. | Shares that are not fully paid on issue are subject to the forfeiture provisions set forth in this Regulation. |
| 5.2. | A written notice of call specifying the date for payment to be made shall be served on the Shareholder who defaults in making payment in respect of the Shares. |
| 5.3. | The written notice of call referred to in Sub-Regulation 5.2 shall name a further date not earlier than the expiration of 14 days from the date of service of the notice on or before which the payment required by the notice is to be made and shall contain a statement that in the event of non-payment at or before the time named in the notice the Shares, or any of them, in respect of which payment is not made will be liable to be forfeited. |
| 5.4. | Where a written notice of call has been issued pursuant to Sub-Regulation 5.3 and the requirements of the notice have not been complied with, the directors may, at any time before tender of payment, forfeit and cancel the Shares to which the notice relates. |
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| 5.5. | The Company is under no obligation to refund any moneys to a Shareholder whose Shares have been cancelled pursuant to Sub-Regulation 5.4 and that Shareholder shall be discharged from any further obligation to the Company. |
| 6. | TRANSFER OF SHARES |
| 6.1. | Subject to the Memorandum, Shares may be transferred by a written instrument of transfer signed by the transferor and containing the name and address of the transferee, which shall be sent to the Company for registration. |
| 6.2. | The transfer of a Share is effective when the name of the transferee is entered on the register of members. |
| 6.3. | If the directors of the Company are satisfied that an instrument of transfer relating to Shares has been signed but that the instrument has been lost or destroyed, they may resolve by Resolution of Directors: |
| (a) | to accept such evidence of the transfer of Shares as they consider appropriate; and |
| (b) | that the transferee’s name should be entered in the register of members notwithstanding the absence of the instrument of transfer. |
| 6.4. | Subject to the Memorandum, the personal representative of a deceased Shareholder may transfer a Share even though the personal representative is not a Shareholder at the time of the transfer. |
| 7. | MEETINGS AND CONSENTS OF SHAREHOLDERS |
| 7.1. | Any director of the Company may convene meetings of the Shareholders at such times and in such manner and places within or outside the British Virgin Islands as the director considers necessary or desirable. |
| 7.2. | Upon the written request of Shareholders entitled to exercise 30 percent or more of the voting rights in respect of the matter for which the meeting is requested the directors shall convene a meeting of Shareholders. |
| 7.3. | The director convening a meeting shall give not less than 7 days’ notice of a meeting of Shareholders to: |
| (a) | those Shareholders whose names on the date the notice is given appear as Shareholders in the register of members and are entitled to vote at the meeting; and |
| (b) | the other directors. |
| 7.4. | The director convening a meeting of Shareholders may fix as the record date for determining those Shareholders that are entitled to vote at the meeting the date notice is given of the meeting, or such other date as may be specified in the notice, being a date not earlier than the date of the notice. |
| 7.5. | A meeting of Shareholders held in contravention of the requirement to give notice is valid if Shareholders holding at least 90 percent of the total voting rights on all the matters to be considered at the meeting have waived notice of the meeting and, for this purpose, the presence of a Shareholder at the meeting shall constitute waiver in relation to all the Shares which that Shareholder holds. |
| 7.6. | The inadvertent failure of a director who convenes a meeting to give notice of a meeting to a Shareholder or another director, or the fact that a Shareholder or another director has not received notice, does not invalidate the meeting. |
| 7.7. | A Shareholder may be represented at a meeting of Shareholders by a proxy who may speak and vote on behalf of the Shareholder. |
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| 7.8. | The instrument appointing a proxy shall be produced at the place designated for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. The notice of the meeting may specify an alternative or additional place or time at which the proxy shall be presented. |
| 7.9. | The instrument appointing a proxy shall be in substantially the following form or such other form as the chairman of the meeting shall accept as properly evidencing the wishes of the Shareholder appointing the proxy. |
[COMPANY NAME]
(the “Company”)
I/We, ……………………………, being a Shareholder of the Company HEREBY APPOINT ………………………………… of …………………………… or failing him ………..……………… of ………………………..…… to be my/our proxy to vote for me/us at the meeting of Shareholders to be held on the …… day of …………..…………, 20…… and at any adjournment thereof.
(Any restrictions on voting to be inserted here.)
Signed this …… day of …………..…………, 20……
……………………………
Shareholder
| 7.10. | The following applies where Shares are jointly owned: |
| (a) | if two or more persons hold Shares jointly each of them may be present in person or by proxy at a meeting of Shareholders and may speak as a Shareholder; |
| (b) | if only one of the joint owners is present in person or by proxy he may vote on behalf of all joint owners; and |
| (c) | if two or more of the joint owners are present in person or by proxy they must vote as one. |
| 7.11. | A Shareholder shall be deemed to be present at a meeting of Shareholders if he participates by telephone or other electronic means and all Shareholders participating in the meeting are able to hear each other. |
| 7.12. | A meeting of Shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than 50 percent of the votes of the Shares entitled to vote on Resolutions of Shareholders to be considered at the meeting. A quorum may comprise a single Shareholder or proxy and then such person may pass a Resolution of Shareholders and a certificate signed by such person accompanied where such person be a proxy by a copy of the proxy instrument shall constitute a valid Resolution of Shareholders. |
| 7.13. | If within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Shareholders, shall be dissolved; in any other case it shall stand adjourned to the next business day in the jurisdiction in which the meeting was to have been held at the same time and place or to such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the Shares or each class or series of Shares entitled to vote on the matters to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved. |
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| 7.14. | At every meeting of Shareholders, the Chairman of the Board shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the Board is not present at the meeting, the Shareholders present shall choose one of their number to be the chairman. If the Shareholders are unable to choose a chairman for any reason, then the person representing the greatest number of voting Shares present in person or by proxy at the meeting shall preside as chairman failing which the oldest individual Shareholder or representative of a Shareholder present shall take the chair. |
| 7.15. | The chairman may, with the consent of the meeting, adjourn any meeting from time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. |
| 7.16. | At any meeting of the Shareholders the chairman is responsible for deciding in such manner as he considers appropriate whether any resolution proposed has been carried or not and the result of his decision shall be announced to the meeting and recorded in the minutes of the meeting. If the chairman has any doubt as to the outcome of the vote on a proposed resolution, he shall cause a poll to be taken of all votes cast upon such resolution. If the chairman fails to take a poll then any Shareholder present in person or by proxy who disputes the announcement by the chairman of the result of any vote may immediately following such announcement demand that a poll be taken and the chairman shall cause a poll to be taken. If a poll is taken at any meeting, the result shall be announced to the meeting and recorded in the minutes of the meeting. |
| 7.17. | Subject to the specific provisions contained in this Regulation for the appointment of representatives of Persons other than individuals the right of any individual to speak for or represent a Shareholder shall be determined by the law of the jurisdiction where, and by the documents by which, the Person is constituted or derives its existence. In case of doubt, the directors may in good faith seek legal advice from any qualified person and unless and until a court of competent jurisdiction shall otherwise rule, the directors may rely and act upon such advice without incurring any liability to any Shareholder or the Company. |
| 7.18. | Any Person other than an individual which is a Shareholder may by resolution of its directors or other governing body authorise such individual as it thinks fit to act as its representative at any meeting of Shareholders or of any class of Shareholders, and the individual so authorised shall be entitled to exercise the same rights on behalf of the Shareholder which he represents as that Shareholder could exercise if it were an individual. |
| 7.19. | The chairman of any meeting at which a vote is cast by proxy or on behalf of any Person other than an individual may call for a notarially certified copy of such proxy or authority which shall be produced within 7 days of being so requested or the votes cast by such proxy or on behalf of such Person shall be disregarded. |
| 7.20. | Directors of the Company may attend and speak at any meeting of Shareholders and at any separate meeting of the holders of any class or series of Shares. |
| 7.21. | An action that may be taken by the Shareholders at a meeting may also be taken by a resolution consented to in writing, without the need for any notice, but if any Resolution of Shareholders is adopted otherwise than by the unanimous written consent of all Shareholders, a copy of such resolution shall forthwith be sent to all Shareholders not consenting to such resolution. The consent may be in the form of counterparts, each counterpart being signed by one or more Shareholders. If the consent is in one or more counterparts, and the counterparts bear different dates, then the resolution shall take effect on the earliest date upon which Shareholders holding a sufficient number of votes of Shares to constitute a Resolution of Shareholders have consented to the resolution by signed counterparts. |
| 8. | DIRECTORS |
| 8.1. | The first directors of the Company shall be appointed by the first registered agent within 6 months of the date of incorporation of the Company; and thereafter, the directors shall be elected by Resolution of Shareholders or by Resolution of Directors. |
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| 8.2. | No person shall be appointed as a director, alternate director, or nominated as a reserve director, of the Company unless he has consented in writing to be a director, alternate director or to be nominated as a reserve director respectively. |
| 8.3. | Subject to Sub-Regulation 8.1, the minimum number of directors shall be one and there shall be no maximum number. |
| 8.4. | Each director holds office for the term, if any, fixed by the Resolution of Shareholders or the Resolution of Directors appointing him, or until his earlier death, resignation or removal. If no term is fixed on the appointment of a director, the director serves indefinitely until his earlier death, resignation or removal. |
| 8.5. | A director may be removed from office, |
| (a) | with or without cause, by Resolution of Shareholders passed at a meeting of Shareholders called for the purposes of removing the director or for purposes including the removal of the director or by a written resolution passed by at least 75 percent of the votes of the Shareholders of the Company entitled to vote; or |
| (b) | with cause, by Resolution of Directors passed at a meeting of directors called for the purpose of removing the director or for purposes including the removal of the director. |
| 8.6. | A director may resign his office by giving written notice of his resignation to the Company and the resignation has effect from the date the notice is received by the Company or from such later date as may be specified in the notice. A director shall resign forthwith as a director if he is, or becomes, disqualified from acting as a director under the Act. |
| 8.7. | The directors may at any time appoint any person to be a director either to fill a vacancy or as an addition to the existing directors. Where the directors appoint a person as director to fill a vacancy, the term shall not exceed the term that remained when the person who has ceased to be a director ceased to hold office. |
| 8.8. | A vacancy in relation to directors occurs if a director dies or otherwise ceases to hold office prior to the expiration of his term of office. |
| 8.9. | Where the Company only has one Shareholder who is an individual and that Shareholder is also the sole director of the Company, the sole Shareholder/director may, by instrument in writing, nominate a person who is not disqualified from being a director of the Company as a reserve director of the Company to act in the place of the sole director in the event of his death. |
| 8.10. | The nomination of a person as a reserve director of the Company ceases to have effect if: |
| (a) | before the death of the sole Shareholder/director who nominated him, |
| (i) | he resigns as reserve director, or |
| (ii) | the sole Shareholder/director revokes the nomination in writing; or |
| (b) | the sole Shareholder/director who nominated him ceases to be able to be the sole Shareholder/director of the Company for any reason other than his death. |
| 8.11. | The Company shall keep a register of directors (the “register of directors”) containing: |
| (a) | in the case of an individual director, the particulars stated in section 118A(1)(a) of the Act; |
| (b) | in the case of a corporate director, the particulars stated in section 118A(1)(b) of the Act; and |
| (c) | such other information as may be prescribed by the Act. |
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| 8.12. | The register of directors may be kept in any such form as the directors may approve, but if it is in magnetic, electronic or other data storage form, the Company must be able to produce legible evidence of its contents. Until a Resolution of Directors determining otherwise is passed, the magnetic, electronic or other data storage shall be the original register of directors. |
| 8.13. | The Company shall file for registration with the Registrar a copy of its register of directors (and any changes to the register of directors) in accordance with the provisions of the Act. |
| 8.14. | The directors may, by Resolution of Directors, fix the emoluments of directors with respect to services to be rendered in any capacity to the Company. |
8.15. A director is not required to hold a Share as a qualification to office.
| 8.16. | A director, by written instrument deposited at the registered office of the Company may from time to time appoint another director or another person who is not disqualified for appointment as a director under section 111 of the Act to be his alternate to: |
| (a) | exercise the appointing director’s powers; and |
| (b) | carry out the appointing director’s responsibilities, |
in relation to the taking of decisions by the directors in the absence of the appointing director.
| 8.17. | No person shall be appointed as an alternate director unless he has consented in writing to be an alternate director. The appointment of an alternate director does not take effect until written notice of the appointment has been deposited at the registered office of the Company. |
| 8.18. | The appointing director may, at any time, terminate or vary the alternate’s appointment. The termination or variation of the appointment of an alternate director does not take effect until written notice of the termination or variation has been deposited at the registered office of the Company, save that if a director shall die or cease to hold the office of director, the appointment of his alternate shall thereupon cease and terminate immediately without the need of notice. |
| 8.19. | An alternate director has no power to appoint an alternate, whether of the appointing director or of the alternate director. |
| 8.20. | An alternate director has the same rights as the appointing director in relation to any directors’ meeting and any written resolution of directors circulated for written consent. Unless stated otherwise in the notice of the appointment of the alternate, or a notice of variation of the appointment, if undue delay or difficulty would be occasioned by giving notice to a director of a resolution of which his approval is sought in accordance with these Articles his alternate (if any) shall be entitled to signify approval of the same on behalf of that director. Any exercise by the alternate director of the appointing director’s powers in relation to the taking of decisions by the directors is as effective as if the powers were exercised by the appointing director. An alternate director does not act as an agent of or for the appointing director and is liable for his own acts and omissions as an alternate director. |
| 8.21. | The remuneration of an alternate director (if any) shall be payable out of the remuneration payable to the director appointing him (if any), as agreed between such alternate and the director appointing him. |
| 9. | POWERS OF DIRECTORS |
| 9.1. | The business and affairs of the Company shall be managed by, or under the direction or supervision of, the directors of the Company. The directors of the Company have all the powers necessary for managing, and for directing and supervising, the business and affairs of the Company. The directors may pay all expenses incurred preliminary to and in connection with the incorporation of the Company and may exercise all such powers of the Company as are not by the Act or by the Memorandum or the Articles required to be exercised by the Shareholders. |
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| 9.2. | Each director shall exercise his powers for a proper purpose and shall not act or agree to the Company acting in a manner that contravenes the Memorandum, the Articles or the Act. Each director, in exercising his powers or performing his duties, shall act honestly and in good faith in what the director believes to be the best interests of the Company. |
| 9.3. | If the Company is the wholly owned subsidiary of a holding company, a director of the Company may, when exercising powers or performing duties as a director, act in a manner which he believes is in the best interests of the holding company even though it may not be in the best interests of the Company. |
| 9.4. | Any director which is a body corporate may appoint any individual as its duly authorised representative for the purpose of representing it at meetings of the directors, with respect to the signing of consents or otherwise. |
| 9.5. | The continuing directors may act notwithstanding any vacancy in their body. |
| 9.6. | The directors may by Resolution of Directors exercise all the powers of the Company to incur indebtedness, liabilities or obligations and to secure indebtedness, liabilities or obligations whether of the Company or of any third party. |
| 9.7. | All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for moneys paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as shall from time to time be determined by Resolution of Directors. |
| 9.8. | For the purposes of Section 175 (Disposition of assets) of the Act, the directors may by Resolution of Directors determine that any sale, transfer, lease, exchange or other disposition is in the usual or regular course of the business carried on by the Company and such determination is, in the absence of fraud, conclusive. |
| 10. | PROCEEDINGS OF DIRECTORS |
| 10.1. | Any one director of the Company may call a meeting of the directors by sending a written notice to each other director. |
| 10.2. | The directors of the Company or any committee thereof may meet at such times and in such manner and places within or outside the British Virgin Islands as the directors may determine to be necessary or desirable. |
| 10.3. | A director is deemed to be present at a meeting of directors if he participates by telephone or other electronic means and all directors participating in the meeting are able to hear each other. |
| 10.4. | A director shall be given not less than 3 days’ notice of meetings of directors, but a meeting of directors held without 3 days’ notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting who do not attend waive notice of the meeting, and for this purpose the presence of a director at a meeting shall constitute waiver by that director. The inadvertent failure to give notice of a meeting to a director, or the fact that a director has not received the notice, does not invalidate the meeting. |
| 10.5. | A meeting of directors is duly constituted for all purposes if at the commencement of the meeting there are present in person or by alternate not less than one-half of the total number of directors, unless there are only 2 directors in which case the quorum is 2. |
| 10.6. | If the Company has only one director the provisions herein contained for meetings of directors do not apply and such sole director has full power to represent and act for the Company in all matters as are not by the Act, the Memorandum or the Articles required to be exercised by the Shareholders. In lieu of minutes of a meeting the sole director shall record in writing and sign a note or memorandum of all matters requiring a Resolution of Directors. Such a note or memorandum constitutes sufficient evidence of such resolution for all purposes. |
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| 10.7. | At meetings of directors at which the Chairman of the Board is present, he shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the Board is not present, the directors present shall choose one of their number to be chairman of the meeting. |
| 10.8. | An action that may be taken by the directors or a committee of directors at a meeting may also be taken by a Resolution of Directors or a resolution of a committee of directors consented to in writing or by telex, telegram, cable or other written electronic communication by a majority of the directors or by a majority of the members of the committee, as the case may be, without the need for any notice. A written resolution consented to in such manner may consist of several documents, including written electronic communication, in like form each signed or assented to by one or more directors. If the consent is in one or more counterparts, and the counterparts bear different dates, then the resolution shall take effect on the date upon which the last director has consented to the resolution by signed counterparts. |
| 11. | COMMITTEES |
| 11.1. | The directors may, by Resolution of Directors, designate one or more committees, each consisting of one or more directors, and delegate one or more of their powers, including the power to affix the Seal, to the committee. |
| 11.2. | The directors have no power to delegate to a committee of directors any of the following powers: |
| (a) | to amend the Memorandum or the Articles; |
| (b) | to designate committees of directors; |
| (c) | to delegate powers to a committee of directors; |
| (d) | to appoint or remove directors; |
| (e) | to appoint or remove an agent; |
| (f) | to approve a plan of merger, consolidation or arrangement; |
| (g) | to make a declaration of solvency or to approve a liquidation plan; or |
| (h) | to make a determination that immediately after a proposed Distribution the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due. |
| 11.3. | Sub-Regulation 11.2(b) and (c) do not prevent a committee of directors, where authorised by the Resolution of Directors appointing such committee or by a subsequent Resolution of Directors, from appointing a sub-committee and delegating powers exercisable by the committee to the sub-committee. |
| 11.4. | The meetings and proceedings of each committee of directors consisting of 2 or more directors shall be governed mutatis mutandis by the provisions of the Articles regulating the proceedings of directors so far as the same are not superseded by any provisions in the Resolution of Directors establishing the committee. |
| 11.5. | Where the directors delegate their powers to a committee of directors they remain responsible for the exercise of that power by the committee, unless they believed on reasonable grounds at all times before the exercise of the power that the committee would exercise the power in conformity with the duties imposed on directors of the Company under the Act. |
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| 12. | OFFICERS AND AGENTS |
| 12.1. | The Company may by Resolution of Directors appoint officers of the Company at such times as may be considered necessary or expedient. Such officers may consist of a Chairman of the Board of Directors, a president and one or more vice-presidents, secretaries and treasurers and such other officers as may from time to time be considered necessary or expedient. Any number of offices may be held by the same person. |
| 12.2. | The officers shall perform such duties as are prescribed at the time of their appointment subject to any modification in such duties as may be prescribed thereafter by Resolution of Directors. In the absence of any specific prescription of duties it shall be the responsibility of the Chairman of the Board to preside at meetings of directors and Shareholders, the president to manage the day to day affairs of the Company, the vice-presidents to act in order of seniority in the absence of the president but otherwise to perform such duties as may be delegated to them by the president, the secretaries to maintain the register of members, minute books and records (other than financial records) of the Company and to ensure compliance with all procedural requirements imposed on the Company by applicable law, and the treasurer to be responsible for the financial affairs of the Company. |
| 12.3. | The emoluments of all officers shall be fixed by Resolution of Directors. |
| 12.4. | The officers of the Company shall hold office until their successors are duly appointed, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by Resolution of Directors. Any vacancy occurring in any office of the Company may be filled by Resolution of Directors. |
| 12.5. | The directors may, by Resolution of Directors, appoint any person, including a person who is a director, to be an agent of the Company. |
| 12.6. | An agent of the Company shall have such powers and authority of the directors, including the power and authority to affix the Seal, as are set forth in the Articles or in the Resolution of Directors appointing the agent, except that no agent has any power or authority with respect to the following: |
| (a) | to amend the Memorandum or the Articles; |
| (b) | to change the registered office or agent; |
| (c) | to designate committees of directors; |
| (d) | to delegate powers to a committee of directors; |
| (e) | to appoint or remove directors; |
| (f) | to appoint or remove an agent; |
| (g) | to fix emoluments of directors; |
| (h) | to approve a plan of merger, consolidation or arrangement; |
| (i) | to make a declaration of solvency or to approve a liquidation plan; |
| (j) | to make a determination that immediately after a proposed Distribution the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due; or |
| (k) | to authorise the Company to continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands. |
| 12.7. | The Resolution of Directors appointing an agent may authorise the agent to appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company. |
| 12.8. | The directors may remove an agent appointed by the Company and may revoke or vary a power conferred on him. |
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| 13. | CONFLICT OF INTERESTS |
| 13.1. | A director of the Company shall, forthwith after becoming aware of the fact that he is interested in a transaction entered into or to be entered into by the Company, disclose the interest to all other directors of the Company. |
| 13.2. | For the purposes of Sub-Regulation 13.1, a disclosure to all other directors to the effect that a director is a member, director or officer of another named entity or has a fiduciary relationship with respect to the entity or a named individual and is to be regarded as interested in any transaction which may, after the date of the entry into the transaction or disclosure of the interest, be entered into with that entity or individual, is a sufficient disclosure of interest in relation to that transaction. |
| 13.3. | A director of the Company who is interested in a transaction entered into or to be entered into by the Company may: |
| (a) | vote on a matter relating to the transaction; |
| (b) | attend a meeting of directors at which a matter relating to the transaction arises and be included among the directors present at the meeting for the purposes of a quorum; and |
| (c) | sign a document on behalf of the Company, or do any other thing in his capacity as a director, that relates to the transaction, |
and, subject to compliance with the Act shall not, by reason of his office be accountable to the Company for any benefit which he derives from such transaction and no such transaction shall be liable to be avoided on the grounds of any such interest or benefit.
| 14. | INDEMNIFICATION |
| 14.1. | Subject to the limitations hereinafter provided the Company shall indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person who: |
| (a) | is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director of the Company; or |
| (b) | is or was, at the request of the Company, serving as a director of, or in any other capacity is or was acting for, another body corporate or a partnership, joint venture, trust or other enterprise. |
| 14.2. | The indemnity in Sub-Regulation 14.1 only applies if the person acted honestly and in good faith with a view to the best interests of the Company and, in the case of criminal proceedings, the person had no reasonable cause to believe that their conduct was unlawful. |
| 14.3. | For the purposes of Sub-Regulation 14.2, a director acts in the best interests of the Company if he acts in the best interests of |
| (a) | the Company’s holding company; or |
| (b) | a Shareholder or Shareholders; |
in either case, in the circumstances specified in Sub-Regulation 9.3 or the Act, as the case may be.
| 14.4. | The decision of the directors as to whether the person acted honestly and in good faith and with a view to the best interests of the Company and as to whether the person had no reasonable cause to believe that his conduct was unlawful is, in the absence of fraud, sufficient for the purposes of the Articles, unless a question of law is involved. |
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| 14.5. | The termination of any proceedings by any judgment, order, settlement, conviction or the entering of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in good faith and with a view to the best interests of the Company or that the person had reasonable cause to believe that his conduct was unlawful. |
| 14.6. | Expenses, including legal fees, incurred by a director in defending any legal, administrative or investigative proceedings may be paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf of the director to repay the amount if it shall ultimately be determined that the director is not entitled to be indemnified by the Company in accordance with Sub-Regulation 14.1. |
| 14.7. | Expenses, including legal fees, incurred by a former director in defending any legal, administrative or investigative proceedings may be paid by the Company in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf of the former director to repay the amount if it shall ultimately be determined that the former director is not entitled to be indemnified by the Company in accordance with Sub-Regulation 14.1 and upon such terms and conditions, if any, as the Company deems appropriate. |
| 14.8. | The indemnification and advancement of expenses provided by, or granted pursuant to, this section is not exclusive of any other rights to which the person seeking indemnification or advancement of expenses may be entitled under any agreement, Resolution of Shareholders, resolution of disinterested directors or otherwise, both as acting in the person’s official capacity and as to acting in another capacity while serving as a director of the Company. |
| 14.9. | If a person referred to in Sub-Regulation 14.1 has been successful in defence of any proceedings referred to in Sub-Regulation 14.1, the person is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the person in connection with the proceedings. |
| 14.10. | The Company may purchase and maintain insurance in relation to any person who is or was a director, officer or liquidator of the Company, or who at the request of the Company is or was serving as a director, officer or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or not the Company has or would have had the power to indemnify the person against the liability as provided in the Articles. |
| 15. | RECORDS AND UNDERLYING DOCUMENTATION |
| 15.1. | The Company shall keep the following documents at the office of its registered agent: |
| (a) | the Memorandum and the Articles; |
| (b) | the register of members, or a copy of the register of members; |
| (c) | the register of directors, or a copy of the register of directors; and |
| (d) | copies of all notices and other documents filed by the Company with the Registrar of Corporate Affairs in the previous 10 years. |
| 15.2. | Until the directors determine otherwise by Resolution of Directors the Company shall keep the original register of members and original register of directors at the office of its registered agent. |
| 15.3. | If the Company maintains only a copy of the register of members or a copy of the register of directors at the office of its registered agent, it shall: |
| (a) | within 15 days of any change in either register, notify the registered agent in writing of the change; and |
| (b) | provide the registered agent with a written record of the physical address of the place or places at which the original register of members or the original register of directors is kept. |
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| 15.4. | Where the original register of members or the original register of directors is maintained other than at the office of the registered agent, and the place at which the original records is changed, the Company shall provide the registered agent with the physical address of the new location of the records of the Company within 14 days of the change of location. |
| 15.5. | The Company shall keep the following records at the office of its registered agent or at such other place or places, within or outside the British Virgin Islands, as the directors may determine: |
| (a) | the records and underlying documentation of the Company; |
| (b) | minutes of meetings and Resolutions of Shareholders and classes of Shareholders; |
| (c) | minutes of meetings and Resolutions of Directors and committees of directors; and |
| (d) | an impression of the Seal. |
| 15.6. | The records and underlying documentation of the Company shall be in such form as: |
| (a) | are sufficient to show and explain the Company’s transactions; and |
| (b) | will, at any time, enable the financial position of the Company to be determined with reasonable accuracy. |
| 15.7. | The Company shall retain the records and underlying documentation for a period of at least five years from the date: |
| (a) | of completion of the transaction to which the records and underlying documentation relate; or |
| (b) | the Company terminates the business relationship to which the records and underlying documentation relate. |
| 15.8. | Where the records and underlying documentation of the Company are kept at a place or places other than at the office of its registered agent, the Company shall provide the registered agent with a written: |
| (a) | record of the physical address of the place at which the records and underlying documentation are kept; and |
| (b) | record of the name of the person who maintains and controls the Company’s records and underlying documentation. |
| 15.9. | Where the place or places at which the records and underlying documentation of the Company, or the name of the person who maintains and controls the Company’s records and underlying documentation, change, the Company shall, within 14 days of the change, provide its registered agent with: |
| (a) | the physical address of the new location of the records and underlying documentation; or |
| (b) | the name of the new person who maintains and controls the Company’s records and underlying documentation. |
| 15.10. | The Company shall provide its registered agent without delay any records and underlying documentation in respect of the Company that the registered agent requests pursuant to the Act. |
| 15.11. | The records and underlying documentation kept by the Company under this Regulation shall be in written form or either wholly or partly as electronic records complying with the requirements of the Electronic Transactions Act, 2001 (No. 5 of 2001) as from time to time amended or re-enacted. |
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| 16. | REGISTER OF CHARGES |
| 16.1. | The Company shall maintain at the office of its registered agent a register of charges in which there shall be entered the following particulars regarding each mortgage, charge and other encumbrance created by the Company: |
| (a) | the date of creation of the charge; |
| (b) | a short description of the liability secured by the charge; |
| (c) | a short description of the property charged; |
| (d) | the name and address of the trustee for the security or, if there is no such trustee, the name and address of the chargee; |
| (e) | unless the charge is a security to bearer, the name and address of the holder of the charge; and |
| (f) | details of any prohibition or restriction contained in the instrument creating the charge on the power of the Company to create any future charge ranking in priority to or equally with the charge. |
| 16.2. | Where a change occurs in the relevant charges or in the details of the charges required to be recorded in the Company’s register of charges maintained in accordance with Sub-Regulation 16.1, the Company shall, within 14 days of the change occurring, transmit details of the change to the registered agent. |
| 17. | SEAL |
The Company shall have a Seal and may have more than one Seal and references herein to the Seal shall be references to every Seal which shall have been duly adopted by Resolution of Directors. The directors shall provide for the safe custody of the Seal and for an imprint thereof to be kept at the registered office. Except as otherwise expressly provided herein the Seal when affixed to any written instrument shall be witnessed and attested to by the signature of any one director or other person so authorised from time to time by Resolution of Directors. Such authorisation may be before or after the Seal is affixed, may be general or specific and may refer to any number of sealings. The directors may provide for a facsimile of the Seal and of the signature of any director or authorised person which may be reproduced by printing or other means on any instrument and it shall have the same force and validity as if the Seal had been affixed to such instrument and the same had been attested to as hereinbefore described.
| 18. | DISTRIBUTIONS |
| 18.1. | The directors of the Company may, by Resolution of Directors, authorise a Distribution at a time and of an amount they think fit if they are satisfied, on reasonable grounds, that, immediately after the Distribution, the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due. |
| 18.2. | Distributions may be paid in money, Shares, or other property. |
| 18.3. | Notice of any Distribution that may have been declared shall be given to each Shareholder as specified in Sub-Regulation 20.1 and all Distributions unclaimed for 3 years after having been declared may be forfeited by Resolution of Directors for the benefit of the Company. |
| 18.4. | No Distributions shall bear interest as against the Company and no Distribution shall be paid on Treasury Shares. |
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| 19. | ACCOUNTS AND AUDIT |
| 19.1. | The Company shall keep records that are sufficient to show and explain the Company’s transactions and that will, at any time, enable the financial position of the Company to be determined with reasonable accuracy. |
| 19.2. | The Company may by Resolution of Shareholders call for the directors to prepare periodically and make available a profit and loss account and a balance sheet. The profit and loss account and balance sheet shall be drawn up so as to give respectively a true and fair view of the profit and loss of the Company for a financial period and a true and fair view of the assets and liabilities of the Company as at the end of a financial period. |
| 19.3. | The Company may by Resolution of Shareholders call for the accounts to be examined by auditors. |
| 19.4. | The first auditors shall be appointed by Resolution of Directors; subsequent auditors shall be appointed by Resolution of Shareholders or by Resolution of Directors. |
| 19.5. | The auditors may be Shareholders, but no director or other officer shall be eligible to be an auditor of the Company during their continuance in office. |
| 19.6. | The remuneration of the auditors of the Company may be fixed by Resolution of Directors. |
| 19.7. | The auditors shall examine each profit and loss account and balance sheet required to be laid before a meeting of the Shareholders or otherwise given to Shareholders and shall state in a written report whether or not: |
| (a) | in their opinion the profit and loss account and balance sheet give a true and fair view respectively of the profit and loss for the period covered by the accounts, and of the assets and liabilities of the Company at the end of that period; and |
| (b) | all the information and explanations required by the auditors have been obtained. |
| 19.8. | The report of the auditors shall be annexed to the accounts and shall be read at the meeting of Shareholders at which the accounts are laid before the Company or shall be otherwise given to the Shareholders. |
| 19.9. | Every auditor of the Company shall have a right of access at all times to the books of account and vouchers of the Company, and shall be entitled to require from the directors and officers of the Company such information and explanations as he thinks necessary for the performance of the duties of the auditors. |
| 19.10. | The auditors of the Company shall be entitled to receive notice of, and to attend any meetings of Shareholders at which the Company’s profit and loss account and balance sheet are to be presented. |
| 20. | NOTICES |
| 20.1. | Any notice, information or written statement to be given by the Company to Shareholders may be given by personal service or by mail addressed to each Shareholder at the address shown in the register of members. |
| 20.2. | Any summons, notice, order, document, process, information or written statement to be served on the Company may be served by leaving it, or by sending it by registered mail addressed to the Company, at its registered office, or by leaving it with, or by sending it by registered mail to, the registered agent of the Company. |
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| 20.3. | Service of any summons, notice, order, document, process, information or written statement to be served on the Company may be proved by showing that the summons, notice, order, document, process, information or written statement was delivered to the registered office or the registered agent of the Company or that it was mailed in such time as to admit to its being delivered to the registered office or the registered agent of the Company in the normal course of delivery within the period prescribed for service and was correctly addressed and the postage was prepaid. |
| 21. | VOLUNTARY LIQUIDATION |
The Company may by Resolution of Shareholders or, subject to section 199(2) of the Act, by Resolution of Directors appoint a voluntary liquidator.
| 22. | CONTINUATION |
The Company may by Resolution of Shareholders or by a Resolution of Directors continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands in the manner provided under those laws.
We, Vistra (BVI) Limited of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands for the purpose of incorporating a BVI Business Company under the laws of the British Virgin Islands hereby sign these Articles of Association the 13th day of December, 2017.
Incorporator
| /s/ Rexella D. Hodge | |
| (Sd.) Rexella D. Hodge Authorised Signatory Vistra (BVI) Limited | |
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Exhibit 3.2
Company Number: 1963796
Elite Education Group International Limited
CERTIFIED COPY OF EXTRACT OF RESOLUTION
ADOPTED BY THE DIRECTOR
PURSUANT TO THE MEMORANDUM AND
ARTICLES OF ASSOCIATION OF THE COMPANY
ON THE 5TH DAY OF SEPTEMBER 2019
Amendment to Memorandum of Association
| RESOLVED | that Clause 6.2 of the Memorandum of Association of the Company be deleted in their entirety the following be substituted in lieu thereof: |
6.2 The Company is authorised to issue a maximum of 50,000,000 shares of a single class each with a par value of US$0.001.
Dated this 6th day of September, 2019
 |
| Vistra (BVI) Limited |
| Registered Agent |
(Resolution dated 5th September, 2019 and filed on 6th September, 2019)
Exhibit 4.1
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations.
| TEN COM | - | as tenants in common | UNIF GIFT MIN ACT.........................Custodian....................... (Cust) (Minor) Act....................................................... (State) |
| TEN ENT | - | as tenants by the entireties | |
| JT TEN | - | as
joint tenants with the right of survivorship and not as tenants in common |
| Additional abbreviations may also be used though not in the above list. |
For value received, __________________________________________________________________________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE:
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_________________________________________________________________________________________________ shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
________________________________________________________________________________________________, Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
| Dated |
| X |
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE. THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions).
SIGNATURE GUARANTEED:
TRANSFER FEE WILL APPLY
Exhibit 10.1
FORM INDEPENDENT DIRECTOR AGREEMENT
THIS AGREEMENT (the “Agreement”) is made as of , and is by and between Elite Education Group International Limited, a British Virgin Islands corporation (hereinafter referred to as the “Company”), and (hereinafter referred to as the “Director”).
BACKGROUND
The Board of Directors of the Company desires to appoint or to ensure the continued appointment of the Director and to have or to continue to have the Director perform the duties of an independent director and the Director desires to be so appointed for or to remain appointed for such position and to perform or to continue to perform the duties required of such position in accordance with the terms and conditions of this Agreement.
AGREEMENT
In consideration for the above recited promises and the mutual promises contained herein, the adequacy and sufficiency of which are hereby acknowledged, the Company and the Director hereby agree as follows:
1. DUTIES. The Company requires that the Director be available to perform the duties of an independent director customarily related to this function as may be determined and assigned by the Board of Directors of the Company and as may be required by the Company’s constituent instruments, including its Articles of Incorporation/Association, Bylaws and its corporate governance and board committee charters, each as amended or modified from time to time, and any applicable governing law, rule, regulation or statute (the “Law”). The Director agrees to devote as much time as is necessary to perform completely the duties as the Director of the Company, including duties as a member of such committees as the Director may hereafter be appointed to. The Director will perform such duties described herein in accordance with the general fiduciary duty of directors arising under the Law.
2. TERM. The term of this Agreement shall commence on the effective date of the IPO shall continue until the Director’s removal or resignation.
3. COMPENSATION. For all services to be rendered by the Director in any capacity hereunder, the Company agrees to pay the Director a fee of $1,500 per month. Such fee may be adjusted, up or down, from time to time as determined by the Company’s Board of Directors.
4. EXPENSES. In addition to the compensation provided in paragraph 3 hereof, the Company will reimburse the Director for pre-approved reasonable business-related expenses incurred in good faith in the performance of the Director’s duties for the Company. Such payments shall be made by the Company upon submission by the Director of a signed statement itemizing the expenses incurred. Such statement shall be accompanied by sufficient documentary matter to support the expenditures.
5. CONFIDENTIALITY. The Company and the Director each acknowledge that, in order for the intents and purposes of this Agreement to be accomplished, the Director shall necessarily be obtaining access to certain confidential information concerning the Company and its affairs, including, but not limited to business methods, information systems, financial data and strategic plans which are unique assets of the Company (“Confidential Information”). The Director covenants not to, either directly or indirectly, in any manner, utilize or disclose to any person, firm, corporation, association or other entity any Confidential Information.
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6. ASSIGNMENT. The rights and benefits of the Company under this Agreement shall be transferable, and all the covenants and agreements hereunder shall inure to the benefit of, and be enforceable by or against, its successors and assigns. The duties and obligations of the Director under this Agreement are personal and therefore the Director may not assign any right or duty under this Agreement without the prior written consent of the Company.
7. MISCELLANEOUS. If any provision of this Agreement shall be declared invalid or illegal, for any reason whatsoever, then, notwithstanding such invalidity or illegality, the remaining terms and provisions of this Agreement shall remain in full force and effect in the same manner as if the invalid or illegal provision had not been contained herein.
8. COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one instrument. Facsimile or electronic .PDF (or similar format) execution and delivery of this Agreement is legal, valid and binding for all purposes.
9. ENTIRE AGREEMENT. Except as provided elsewhere herein, this Agreement sets forth the entire agreement of the parties with respect to its subject matter and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party to this Agreement with respect to such subject matter.
IN WITNESS WHEREOF, the parties hereto have caused this Independent Director Agreement to be duly executed and signed as of the day and year first above written.
| Elite Education Group International Limited | ||
| By: | ||
| Name: | Jianbo Zhang | |
| Title: | Chief Executive Officer | |
| Independent Director | ||
| Name: | ||
| Address: | ||
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Exhibit 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the “Agreement”) is effective as of October 1, 2018 (the “Effective Date”), by and between Elite Education Group International Limited, a British Virgin Islands corporation (the “Company”), and Jianbo Zhang (“Executive”, and the Company and the Executive collectively referred to herein as the “Parties”).
WITNESSETH:
WHISEAS, the Company desires to hire Executive and to employ him as the Company’s Chief Executive Officer (“CEO”) effective as of October 1, 2018, and the Parties desire to enter into this Agreement embodying the terms of such employment;
NOW, THISEFORE, in consideration of the premises and the mutual covenants and promises of the Parties contained herein, the Parties, intending to be legally bound, hereby agree as follows:
1. Title and Job Duties.
(a) Subject to the terms and conditions set forth in this Agreement, the Company agrees to employ Executive as its Chief Executive Officer. Executive shall report directly to the Board of Directors of the Company (the “Board”).
(b) Executive accepts such employment and agrees, during the term of his employment, to devote his full business and professional time and energy to the Company, and agrees faithfully to perform his duties and responsibilities in an efficient, trustworthy and business-like manner. Executive also agrees that the Board shall determine from time to time such of his duties as may be assigned to him. Executive agrees to carry out and abide by such directions of the Board.
(c) Without limiting the generality of the foregoing, Executive shall not, without the written approval of the Company, render services of a business or commercial nature on his own behalf or on behalf of any person, firm, or corporation, for compensation or otherwise, during his employment hereunder. The foregoing limitation shall not apply to Executive’s involvement in associations, charities and service on another entity’s board of directors, provided such involvement does not interfere with Executives responsibilities (and as it pertains to any service on another entity’s board of directors, provided such action is pre-approved by the Company).
2. Salary and Additional Compensation.
(a) Base Salary. The Company shall pay to Executive an annual base salary (“Base Salary”) USD$ 60,000 paid monthly in accordance with the Company’s normal payroll procedures. The Compensation Committee shall review the Executive’s Base Salary no less than annually and may increase (but not decrease) such Base Salary during the term of this Agreement.
(b) Annual Bonus. Commencing with the year ending October 1, 2018, Executive will be entitled to receive an annual cash bonus in the amount of USD$ 60,000 (the “Annual Bonus”), payable with respect to each year of the Term subsequent to the issuance of the Company’s final audited financial statements for such year, provided, however that the Company’s overall sales revenue has increased by no less than 20% as compared with the same period for the prior fiscal year. The final determination on the amount, if any, of the Annual Bonus will be made by, and in the sole discretion of the Compensation Committee of the Board of Directors of the Company (the “Board”) (or the Board, if such committee has been dissolved), based on criteria established by the Compensation Committee of the Board (or the Board, if such committee has been dissolved).
(c) Equity Incentive Plan, Restricted Share Grant. The Company shall adopt, subject to shareholder approval, a stock-based compensation plan that provides for discretionary grants of, among others, stock options, stock awards and stock unit awards to key employees and directors of the Company (the “Plan”). Following adoption of the Plan, the Board, upon a recommendation of the Compensation Committee, will grant a restricted stock grant to the Executive in the amount of up to 100,000 shares of the Company’s common stock pursuant to the terms of the Plan (the “Restricted Shares”). Such grant of the Restricted Shares shall be valid for a period of 10 years from the date of the grant, and shall vest in four equal installments on the first calendar day of each full fiscal quarters following the grant date.
3. Expenses. In accordance with Company policy, the Company shall reimburse Executive for all reasonable association fees, professional related expenses (certifications, licenses and continuing professional education) and business expenses properly and necessarily incurred and paid by Executive in the performance of his duties under this Agreement, including without limitation all travel expenses to and from his designated office as set forth in the opening paragraph of this Agreement, upon his presentment of detailed receipts in the form required by the Company’s policy. Notwithstanding the foregoing, all expenses must be promptly submitted for reimbursement by the Executive. In no event shall any reimbursement be paid by the Company after the end of the year following the year in which the expense is incurred by the Executive.
4. Benefits.
(a) Vacation and Sick Leave. Executive shall be entitled to 8 weeks of vacation per year and 20 days of sick leave per year, which shall accrue at a pro rata rate per pay period, consistent with the Company’s overall policies.
(b) Health Insurance and Other Plans. Executive shall be eligible to participate in the Company’s medical, dental and other employee benefit programs, if any, that are provided by the Company for its employees at Executive’s level in accordance with the provisions of any such plans, as the same may be in effect from time to time.
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5. Term. The term of employment under this Agreement (the “Term) shall be for a five-year period commencing on the Effective Date and shall be automatically extended for an additional consecutive twelve (12)-month period on the fifth (5th) anniversary of the Effective Date and each subsequent anniversary thereof, unless and until the Company or Executive provides written notice to the other party not less than ninety (90) days before such anniversary date that such party is electing not to extend the Term, in which case the Term shall end at the expiration of the Term as last extended, unless sooner terminated as set forth below. Following any such notice by the Company of its election not to extend the Term, Executive may terminate his employment at any time prior to the expiration of the Term by giving written notice to the Company at least thirty (30) days prior to the effective date of termination, and upon the earlier of such effective date of termination or the expiration of the Term, Executive shall be entitled to receive the same severance benefits as are provided upon a termination of employment by the Company without Cause as described in Section 7(a) and Section 7(d).
6. Termination.
(a) Termination at the Company’s Election.
(i) For Cause. At the election of the Company, Executive’s employment may be terminated at any time for Cause (as defined below) upon written notice to Executive given pursuant to Section 12 of this Agreement. For purposes of this Agreement, “Cause” for termination shall mean that Executive: (A) pleads “guilty” or “no contest” to, or is convicted of an act which is defined as a felony under federal or state law, or is indicted or formally charged with acts involving criminal fraud or embezzlement; (B) in carrying out his duties, engages in conduct that constitutes gross negligence or willful misconduct; (C) engages in substantiated fraud, misappropriation or embezzlement against the Company; (D) engages in any inappropriate or improper conduct that causes material harm to the reputation of the Company; or (E) materially breaches any term of this Agreement. With respect to subsection (E) of this section, to the extent such material breach may be cured, the Company shall provide Executive with written notice of the material breach and Executive shall have ten (10) days to cure such breach.
(ii) Upon Disability, Death or Without Cause. At the election of the Company, Executive’s employment may be terminated: (A) should Executive have a physical or mental impairment that substantially limits a major life activity and Executive is unable to perform the essential functions of his job with or without reasonable accommodation (“Disability”); (B) upon Executive’s death; or (C) with ninety (90) days prior written notice, at any time Without Cause for any or no reason.
(b) Termination at Executive’s Election; Good Reason Termination. Notwithstanding anything contained elsewhere in this Agreement to the contrary, Executive may terminate his employment hereunder at any time and for any reason, upon thirty (30) days’ prior written notice given pursuant to Section 12 of this Agreement (“Voluntary Resignation”), provided that upon notice of resignation, the Company may terminate Executive’s employment immediately and pay Executive thirty (30) days’ Base Salary in lieu of notice. Furthermore, the Executive may terminate this Agreement for “Good Reason,” which shall be deemed to exist: (i) if the Company’s Board of Directors or that of any successor entity of Company, fails to appoint or reappoint the Executive or removes the Executive as the [title]of the Company; (ii) if Executive is assigned any duties materially inconsistent with the duties or responsibilities of the [title]of the Company as contemplated by this Agreement or any other action by the Company that results in a material diminution in such position, authority, duties, or responsibilities, excluding an isolated, insubstantial, and inadvertent action not taken in bad faith; or (iii) a material breach by the Company of this Agreement. Good Reason shall not exist hereunder unless the Executive provides notice in writing to the Company of the existence of a condition described above within a period not to exceed ninety (90) days of the initial existence of the condition, and with respect to subsection (iii) of this section, to the extent such material breach may be cured, the Company does not remedy the condition within thirty (30) days of receipt of such notice.
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(c) Termination in General. If Executive’s employment with the Company terminates for any reason, the Company will pay or provide to Executive: (i) any unpaid Salary through the date of employment termination, (ii) any unpaid Annual Bonus for the fiscal year prior to the fiscal year in which the termination occurs (payable at the time the bonuses are paid to employees generally), (iii) any accrued but unused vacation or paid time off in accordance with the Company’s policy, (iv) reimbursement for any unreimbursed business expenses incurred through the termination date, to the extent reimbursable in accordance with Section 3, and (v) all other payments or benefits (if any) to which Executive is entitled under the terms of any benefit plan or arrangement.
7. Severance.
(a) Subject to Section 7(b) below, if Executive’s employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, Executive shall be entitled to receive a severance payment equal to (i) nine (9) months of Executive’s Base Salary, and (ii) a pro rata portion of the target Annual Bonus for the year in which such termination occurs. Such severance payment shall be made in a single lump sum sixty (60) days following such termination, provided the Executive has executed and delivered to the Company, and has not revoked a general release of the Company, its parents, subsidiaries and affiliates and each of its officers, directors, employees, agents, successors and assigns, and such other persons and/or entities as the Company may determine, in a form reasonably acceptable to the Company. Such general release shall be delivered on or about the date of termination and must be executed within fifty-five (55) days of termination.
(b) If Executive’s employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, and such termination occurs within three months prior to a Change in Control in contemplation of the Change in Control or within six (6) months after the Change in Control, Executive shall be entitled to receive, in addition to any severance pursuant to Section 7(a) above, an acceleration of the vesting of any equity grants to date, if any, or, if the termination occurs after the Change of Control, the Substitute Grant, as applicable. For purposes of this Agreement, “Change in Control” means the occurrence of any of the following events: (i) an acquisition (other than directly from the Company) of any voting securities of the Company by any person or group of affiliated or related persons (as such term is defined in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (“Exchange Act”)), immediately after which such person or group has beneficial ownership (within the meaning of the Exchange Act) of more than fifty percent (50%) of the combined voting power of the Company’s then outstanding voting securities; provided that this subsection shall not apply to an acquisition of voting securities by any employee benefit plan or trust maintained by or for the benefit of the Company or its employees; (ii) a merger, consolidation or reorganization involving the Company whereby the holders of Company common stock immediately preceding such transaction no longer hold a majority of the shares of Company common stock after such transaction; or (iii) the sale or other disposition of all or substantially all of the Company's assets.
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(c) If Executive's employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, and if Executive is eligible for and elects to continue to participate in the Company’s medical and dental benefit programs, the Company will continue to pay the same portion of Executive's medical and dental insurance premiums as during active employment (for Executive and eligible spouse and dependents) until the earlier of: (1) nine months from Executive's cessation from employment; or (2) the date Executive is eligible for medical and/or dental insurance benefits from another employer.
8. Confidentiality Agreement.
(a) Executive understands that during the Term she may have access to unpublished and otherwise confidential information both of a technical and non-technical nature, relating to the business of the Company and any of its parents, subsidiaries, divisions, affiliates (collectively, “Affiliated Entities”), or clients, including without limitation any of their actual or anticipated business, research or development, any of their technology or the implementation or exploitation thereof, including without limitation information Executive and other have collected, obtained or created, information pertaining to patent formulations, vendors, prices, costs, materials, processes, codes, material results, technology, system designs, system specifications, materials of construction, trade secrets and equipment designs, including information disclosed to the Company by other under agreements to hold such information confidential (collectively, the “Confidential Information”). Executive agrees to observe all Company policies and procedures concerning such Confidential Information. Executive further agrees not to disclose or use, either during his employment or at any time thereafter, any Confidential Information for any purpose, including without limitation any competitive purpose, unless authorized to do so by the Company in writing, except that she may disclose and use such information when necessary in the performance of his duties for the Company. Executive’s obligations under this Agreement will continue with respect to Confidential Information, whether or not his employment is terminated, until such information becomes generally available from public sources through no action of Executive. Notwithstanding the foregoing, however, Executive shall be permitted to disclose Confidential Information as may be required by a subpoena or other governmental order, provided that she first notifies promptly the Company of such subpoena, order or other requirement and allows the Company the opportunity to obtain a protective order or other appropriate remedy.
(b) During Executive’s employment, upon the Company’s request, or upon the termination of his employment for any reason, Executive will promptly deliver to the Company all documents, records, files, notebooks, manuals, letters, notes, reports, customer and supplier lists, cost and profit data, e-mail, apparatus, computers, cell phones, tablets, hardware, software, drawings, and any other material of the Company or any of its Affiliated Entities or clients, including all materials pertaining to Confidential Information developed by Executive or other, and all copies of such materials, whether of a technical, business or fiscal nature, whether on the hard drive of a laptop or desktop computer, in hard copy, disk or any other format, which are in Executive’s possession, custody or control.
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(c) Executive will promptly disclose to the Company any idea, invention, discovery or improvement, whether patentable or not (“Creations”), conceived or made by him alone or with other at any time during his employment. Executive agrees that the Company owns all such Creations, conceived or made by Executive alone or with other at any time during his employment, and Executive hereby assigns and agrees to assign to the Company all rights she has or may acquire their and agrees to execute any and all applications, assignments and other instruments relating thereto which the Company deems necessary or desirable. These obligations shall continue beyond the termination of his employment with respect to Creations and derivatives of such Creations conceived or made during his employment with the Company. Executive understands that the obligation to assign Creations to the Company shall not apply to any Creation which is developed entirely on his own time without using any of the Company’s equipment, supplies, facilities, and/or Confidential Information unless such Creation (a) relates in any way to the business or to the current or anticipated research or development of the Company or any of its Affiliated Entities; or (b) results in any way from his work at the Company.
(d) Executive will not assert any rights to any invention, discovery, idea or improvement relating to the business of the Company or any of its Affiliated Entities or to his duties hereunder as having been made or acquired by Executive prior to his work for the Company.
(e) During the Term, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to grant and authorize sublicenses) to make, have made, modify, use, sell, offer to sell, import, reproduce, distribute, publish, prepare derivative works of, display, perform publicly and by means of digital audio transmission and otherwise exploit as part of or in connection with any product, process or machine created or incorporated by the Executive.
(f) Executive agrees to cooperate fully with the Company, both during and after his employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights, patents, trademarks and other intellectual property rights (both in the United States and foreign countries) relating to such Creations. Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Creations. Executive further agrees that if the Company is unable, after reasonable effort, to secure Executive’s signature on any such papers, any officer of the Company shall be entitled to execute such papers as his agent and attorney-in-fact and Executive hereby irrevocably designates and appoints each officer of the Company as his agent and attorney-in-fact to execute any such papers on his behalf and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Creations, under the conditions described in this paragraph.
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9. Non-solicitation; non-competition. (a) Executive agrees that, during the Term and until nine (9) months after the termination of his employment, Executive will not, directly or indirectly, including on behalf of any person, firm or other entity, employ or actively solicit for employment any employee of the Company or any of its Affiliated Entities, or anyone who was an employee of the Company or any of its Affiliated Entities within the nine (9) months prior to the termination of Executive’s employment, or induce any such employee to terminate his or his employment with the Company or any of its Affiliated Entities.
(b) Executive further agrees that, during the Term and until nine (9) months after the termination of his employment, Executive will not, directly or indirectly, including on behalf of any person, firm or other entity, without the express written consent of an authorized representative of the Company, (i) perform services within the Territory (as defined below) for any Competing Business (as defined below), whether as an employee, consultant, agent, contractor or in any other capacity, (ii) hold office as an officer or director or like position in any Competing Business, or (iii) request any present or future customers or suppliers of the Company or any of its Affiliated Entities to curtail or cancel their business with the Company or any of its Affiliated Entities. These obligations will continue for the specified period regardless of whether the termination of Executive’s employment was voluntary or involuntary or with or without Cause or for any other reason.
(c) “Competing Business” means any corporation, partnership or other entity or person (other than the Company) which is engaged (a) in the development, manufacture, marketing, distribution or sale of, or research directed to the development, manufacture, marketing, distribution or sale of competing anti-cancer drug candidates or products or (b) in any other business activity carried on or planned to be carried on by the Company or any of its Affiliates during the Term.
(d) “Territory” shall mean within any state or foreign jurisdiction in which the Company or any subsidiary of the Company is then providing services or products or marketing its services or products (or engaged in active discussions to provide such services).
(e) Executive agrees that in the event a court determines the length of time or the geographic area or activities prohibited under this Section 9 are too restrictive to be enforceable, the court shall reduce the scope of the restriction to the extent necessary to make the restriction enforceable. In furtherance and not in limitation of the foregoing, the Company and the Executive each intend that the covenants contained in this Section 9 shall be deemed to be a series of separate covenants, one for each and every state, territory or jurisdiction of the United States, the People’s Republic of China, and any foreign country set forth therein. If, in any judicial proceeding, a court shall refuse to enforce any of such separate covenants, then such unenforceable covenants shall be deemed eliminated from the provisions hereof for the purpose of such proceedings to the extent necessary to permit the remaining separate covenants to be enforced in such proceedings.
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10. Representation and Warranty. The Executive hereby acknowledges and represents that she has had the opportunity to consult with legal counsel regarding his rights and obligations under this Agreement and that she fully understands the terms and conditions contained herein. Executive represents and warrants that Executive has provided the Company a true and correct copy of any agreements that purport: (a) to limit Executive’s right to be employed by the Company; (b) to prohibit Executive from engaging in any activities on behalf of the Company; or (c) to restrict Executive’s right to use or disclose any information while employed by the Company. Executive further represents and warrants that Executive will not use on the Company’s behalf any information, materials, data or documents belonging to a third party that are not generally available to the public, unless Executive has obtained written authorization to do so from the third party and provided such authorization to the Company. In the course of Executive’s employment with the Company, Executive is not to breach any obligation of confidentiality that Executive has with third parties, and Executive agrees to fulfill all such obligations during Executive’s employment with the Company. Executive further agrees not to disclose to the Company or use while working for the Company any trade secrets belonging to a third party.
11. Injunctive Relief. Without limiting the remedies available to the Company, Executive acknowledges that a breach of any of the covenants contained in Sections 8 and 9 above may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it will not be possible to measure precisely damages for such injuries and that, in the event of such a breach or threat thereof, the Company shall be entitled, without the requirement to post bond or other security, to obtain a temporary restraining order and/or injunction restraining Executive from engaging in activities prohibited by this Agreement or such other relief as may be required to specifically enforce any of the covenants in Sections 8 and 9 of this Agreement.
12. Notice. Any notice or other communication required or permitted to be given to the Parties shall be deemed to have been given if either personally delivered, or if sent for next-day delivery by nationally recognized overnight courier, and addressed as follows:
(a) If to Executive, to: [_]
(b) If to the Company, to: 1209 N. University Blvd., Middletown, OH, USA 45042
13. Severability. If any provision of this Agreement is declared void or unenforceable by a court of competent jurisdiction, all other provisions shall nonetheless remain in full force and effect.
14. Withholding. The Company may withhold from any payment that it is required to make under this Agreement amounts sufficient to satisfy applicable withholding requirements under any federal, state or local law.
15. Indemnification. The Company agrees that Executive will be covered by any “directors and officers” insurance policies then in effect with respect to Executive’s acts as an officer.
16. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of Delaware, without regard to the conflict of laws provisions thereof.
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17. Waiver. The waiver by either Party of a breach of any provision of this Agreement shall not be or be construed as a waiver of any subsequent breach. The failure of a Party to insist upon strict adherence to any provision of this Agreement on one or more occasions shall not be considered a waiver or deprive that Party of the right thereafter to insist upon strict adherence to that provision or any other provision of this Agreement. Any such waiver must be in writing, signed by the Party against whom such waiver is to be enforced.
18. Assignment. This Agreement is a personal contract and Executive may not sell, transfer, assign, pledge or hypothecate his rights, interests and obligations hereunder. Except as otherwise herein expressly provided, this Agreement shall be binding upon and shall inure to the benefit of Executive and his personal representatives and shall inure to the benefit of and be binding upon the Company and its successors and assigns, including without limitation, any corporation or other entity into which the Company is merged or which acquires all or substantially all of the assets of the Company.
19. Entire Agreement. This Agreement embodies all of the representations, warranties, covenants, understandings and agreements between the Parties relating to Executive’s employment with the Company. No other representations, warranties, covenants, understandings, or agreements exist between the Parties relating to Executive’s employment. This Agreement shall supersede all prior agreements, written or oral, relating to Executive’s employment. This Agreement may not be amended or modified except by a writing signed by the Parties.
[Signature page follows]
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IN WITNESS WHISEOF, the Parties have caused this Agreement to be duly executed and delivered on the date first written above.
| By: | /s/ Jianbo Zhang | |||
| Name: | Jianbo Zhang | |||
| Title: | Chief Executive Officer | |||
| Agreed to and Accepted: | ||||
| Elite Education Group International Limited | ||||
| By: | /s/ | |||
| Title: | Chair of the audit committee | |||
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Exhibit 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the “Agreement”) is effective as of October 1, 2018 (the “Effective Date”), by and between Elite Education Group International Limited, a British Virgin Islands corporation (the “Company”), and Zhenyu Wu (“Executive”, and the Company and the Executive collectively referred to herein as the “Parties”).
WITNESSETH:
WHISEAS, the Company desires to hire Executive and to employ him as the Company’s Chief Financial Officer effective as of October 1, 2018, and the Parties desire to enter into this Agreement embodying the terms of such employment;
NOW, THISEFORE, in consideration of the premises and the mutual covenants and promises of the Parties contained herein, the Parties, intending to be legally bound, hereby agree as follows:
1. Title and Job Duties.
(a) Subject to the terms and conditions set forth in this Agreement, the Company agrees to employ Executive as its Chief Executive Officer. Executive shall report directly to the Board of Directors of the Company (the “Board”).
(b) Executive accepts such employment and agrees, during the term of his employment, to devote his full business and professional time and energy to the Company, and agrees faithfully to perform his duties and responsibilities in an efficient, trustworthy and business-like manner. Executive also agrees that the Board shall determine from time to time such of his duties as may be assigned to him. Executive agrees to carry out and abide by such directions of the Board.
(c) Without limiting the generality of the foregoing, Executive shall not, without the written approval of the Company, render services of a business or commercial nature on his own behalf or on behalf of any person, firm, or corporation, for compensation or otherwise, during his employment hereunder. The foregoing limitation shall not apply to Executive’s involvement in associations, charities and service on another entity’s board of directors, provided such involvement does not interfere with Executives responsibilities (and as it pertains to any service on another entity’s board of directors, provided such action is pre-approved by the Company).
2. Salary and Additional Compensation.
(a) Base Salary. The Company shall pay to Executive an annual base salary (“Base Salary”) USD$ 30,000 paid monthly in accordance with the Company’s normal payroll procedures. The Compensation Committee shall review the Executive’s Base Salary no less than annually and may increase (but not decrease) such Base Salary during the term of this Agreement.
(b) Annual Bonus. Commencing with the year ending October 1, 2018, Executive will be entitled to receive an annual cash bonus in the amount of USD$ 30,000 (the “Annual Bonus”), payable with respect to each year of the Term subsequent to the issuance of the Company’s final audited financial statements for such year, provided, however that the Company’s overall sales revenue has increased by no less than 20% as compared with the same period for the prior fiscal year. The final determination on the amount, if any, of the Annual Bonus will be made by, and in the sole discretion of the Compensation Committee of the Board of Directors of the Company (the “Board”) (or the Board, if such committee has been dissolved), based on criteria established by the Compensation Committee of the Board (or the Board, if such committee has been dissolved).
(c) Equity Incentive Plan, Restricted Share Grant. The Company shall adopt, subject to shareholder approval, a stock-based compensation plan that provides for discretionary grants of, among others, stock options, stock awards and stock unit awards to key employees and directors of the Company (the “Plan”). Following adoption of the Plan, the Board, upon a recommendation of the Compensation Committee, will grant a restricted stock grant to the Executive in the amount of up to 50,000 shares of the Company’s common stock pursuant to the terms of the Plan (the “Restricted Shares”). Such grant of the Restricted Shares shall be valid for a period of 10 years from the date of the grant, and shall vest in four equal installments on the first calendar day of each full fiscal quarters following the grant date.
3. Expenses. In accordance with Company policy, the Company shall reimburse Executive for all reasonable association fees, professional related expenses (certifications, licenses and continuing professional education) and business expenses properly and necessarily incurred and paid by Executive in the performance of his duties under this Agreement, including without limitation all travel expenses to and from his designated office as set forth in the opening paragraph of this Agreement, upon his presentment of detailed receipts in the form required by the Company’s policy. Notwithstanding the foregoing, all expenses must be promptly submitted for reimbursement by the Executive. In no event shall any reimbursement be paid by the Company after the end of the year following the year in which the expense is incurred by the Executive.
4. Benefits.
(a) Vacation and Sick Leave. Executive shall be entitled to 6 weeks of vacation per year and 15 days of sick leave per year, which shall accrue at a pro rata rate per pay period, consistent with the Company’s overall policies.
(b) Health Insurance and Other Plans. Executive shall be eligible to participate in the Company’s medical, dental and other employee benefit programs, if any, which are provided by the Company for its employees at Executive’s level in accordance with the provisions of any such plans, as the same may be in effect from time to time.
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5. Term. The term of employment under this Agreement (the “Term) shall be for a five-year period commencing on the Effective Date and shall be automatically extended for an additional consecutive twelve (12)-month period on the fifth (5th) anniversary of the Effective Date and each subsequent anniversary thereof, unless and until the Company or Executive provides written notice to the other party not less than ninety (90) days before such anniversary date that such party is electing not to extend the Term, in which case the Term shall end at the expiration of the Term as last extended, unless sooner terminated as set forth below. Following any such notice by the Company of its election not to extend the Term, Executive may terminate his employment at any time prior to the expiration of the Term by giving written notice to the Company at least thirty (30) days prior to the effective date of termination, and upon the earlier of such effective date of termination or the expiration of the Term, Executive shall be entitled to receive the same severance benefits as are provided upon a termination of employment by the Company without Cause as described in Section 7(a) and Section 7(d).
6. Termination.
(a) Termination at the Company’s Election.
(i) For Cause. At the election of the Company, Executive’s employment may be terminated at any time for Cause (as defined below) upon written notice to Executive given pursuant to Section 12 of this Agreement. For purposes of this Agreement, “Cause” for termination shall mean that Executive: (A) pleads “guilty” or “no contest” to, or is convicted of an act which is defined as a felony under federal or state law, or is indicted or formally charged with acts involving criminal fraud or embezzlement; (B) in carrying out his duties, engages in conduct that constitutes gross negligence or willful misconduct; (C) engages in substantiated fraud, misappropriation or embezzlement against the Company; (D) engages in any inappropriate or improper conduct that causes material harm to the reputation of the Company; or (E) materially breaches any term of this Agreement. With respect to subsection (E) of this section, to the extent such material breach may be cured, the Company shall provide Executive with written notice of the material breach and Executive shall have ten (10) days to cure such breach.
(ii) Upon Disability, Death or Without Cause. At the election of the Company, Executive’s employment may be terminated: (A) should Executive have a physical or mental impairment that substantially limits a major life activity and Executive is unable to perform the essential functions of his job with or without reasonable accommodation (“Disability”); (B) upon Executive’s death; or (C) with ninety (90) days prior written notice, at any time Without Cause for any or no reason.
(b) Termination at Executive’s Election; Good Reason Termination. Notwithstanding anything contained elsewhere in this Agreement to the contrary, Executive may terminate his employment hereunder at any time and for any reason, upon thirty (30) days’ prior written notice given pursuant to Section 12 of this Agreement (“Voluntary Resignation”), provided that upon notice of resignation, the Company may terminate Executive’s employment immediately and pay Executive thirty (30) days’ Base Salary in lieu of notice. Furthermore, the Executive may terminate this Agreement for “Good Reason,” which shall be deemed to exist: (i) if the Company’s Board of Directors or that of any successor entity of Company, fails to appoint or reappoint the Executive or removes the Executive as the [title]of the Company; (ii) if Executive is assigned any duties materially inconsistent with the duties or responsibilities of the [title]of the Company as contemplated by this Agreement or any other action by the Company that results in a material diminution in such position, authority, duties, or responsibilities, excluding an isolated, insubstantial, and inadvertent action not taken in bad faith; or (iii) a material breach by the Company of this Agreement. Good Reason shall not exist hereunder unless the Executive provides notice in writing to the Company of the existence of a condition described above within a period not to exceed ninety (90) days of the initial existence of the condition, and with respect to subsection (iii) of this section, to the extent such material breach may be cured, the Company does not remedy the condition within thirty (30) days of receipt of such notice.
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(c) Termination in General. If Executive’s employment with the Company terminates for any reason, the Company will pay or provide to Executive: (i) any unpaid Salary through the date of employment termination, (ii) any unpaid Annual Bonus for the fiscal year prior to the fiscal year in which the termination occurs (payable at the time the bonuses are paid to employees generally), (iii) any accrued but unused vacation or paid time off in accordance with the Company’s policy, (iv) reimbursement for any unreimbursed business expenses incurred through the termination date, to the extent reimbursable in accordance with Section 3, and (v) all other payments or benefits (if any) to which Executive is entitled under the terms of any benefit plan or arrangement.
7. Severance.
(a) Subject to Section 7(b) below, if Executive’s employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, Executive shall be entitled to receive a severance payment equal to (i) nine (9) months of Executive’s Base Salary, and (ii) a pro rata portion of the target Annual Bonus for the year in which such termination occurs. Such severance payment shall be made in a single lump sum sixty (60) days following such termination, provided the Executive has executed and delivered to the Company, and has not revoked a general release of the Company, its parents, subsidiaries and affiliates and each of its officers, directors, employees, agents, successors and assigns, and such other persons and/or entities as the Company may determine, in a form reasonably acceptable to the Company. Such general release shall be delivered on or about the date of termination and must be executed within fifty-five (55) days of termination.
(b) If Executive’s employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, and such termination occurs within three months prior to a Change in Control in contemplation of the Change in Control or within six (6) months after the Change in Control, Executive shall be entitled to receive, in addition to any severance pursuant to Section 7(a) above, an acceleration of the vesting of any equity grants to date, if any, or, if the termination occurs after the Change of Control, the Substitute Grant, as applicable. For purposes of this Agreement, “Change in Control” means the occurrence of any of the following events: (i) an acquisition (other than directly from the Company) of any voting securities of the Company by any person or group of affiliated or related persons (as such term is defined in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (“Exchange Act”)), immediately after which such person or group has beneficial ownership (within the meaning of the Exchange Act) of more than fifty percent (50%) of the combined voting power of the Company’s then outstanding voting securities; provided that this subsection shall not apply to an acquisition of voting securities by any employee benefit plan or trust maintained by or for the benefit of the Company or its employees; (ii) a merger, consolidation or reorganization involving the Company whereby the holders of Company common stock immediately preceding such transaction no longer hold a majority of the shares of Company common stock after such transaction; or (iii) the sale or other disposition of all or substantially all of the Company's assets.
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(c) If Executive's employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, and if Executive is eligible for and elects to continue to participate in the Company’s medical and dental benefit programs, the Company will continue to pay the same portion of Executive's medical and dental insurance premiums as during active employment (for Executive and eligible spouse and dependents) until the earlier of: (1) nine months from Executive's cessation from employment; or (2) the date Executive is eligible for medical and/or dental insurance benefits from another employer.
8. Confidentiality Agreement.
(a) Executive understands that during the Term she may have access to unpublished and otherwise confidential information both of a technical and non-technical nature, relating to the business of the Company and any of its parents, subsidiaries, divisions, affiliates (collectively, “Affiliated Entities”), or clients, including without limitation any of their actual or anticipated business, research or development, any of their technology or the implementation or exploitation thereof, including without limitation information Executive and other have collected, obtained or created, information pertaining to patent formulations, vendors, prices, costs, materials, processes, codes, material results, technology, system designs, system specifications, materials of construction, trade secrets and equipment designs, including information disclosed to the Company by other under agreements to hold such information confidential (collectively, the “Confidential Information”). Executive agrees to observe all Company policies and procedures concerning such Confidential Information. Executive further agrees not to disclose or use, either during his employment or at any time thereafter, any Confidential Information for any purpose, including without limitation any competitive purpose, unless authorized to do so by the Company in writing, except that she may disclose and use such information when necessary in the performance of his duties for the Company. Executive’s obligations under this Agreement will continue with respect to Confidential Information, whether or not his employment is terminated, until such information becomes generally available from public sources through no action of Executive. Notwithstanding the foregoing, however, Executive shall be permitted to disclose Confidential Information as may be required by a subpoena or other governmental order, provided that she first notifies promptly the Company of such subpoena, order or other requirement and allows the Company the opportunity to obtain a protective order or other appropriate remedy.
(b) During Executive’s employment, upon the Company’s request, or upon the termination of his employment for any reason, Executive will promptly deliver to the Company all documents, records, files, notebooks, manuals, letters, notes, reports, customer and supplier lists, cost and profit data, e-mail, apparatus, computers, cell phones, tablets, hardware, software, drawings, and any other material of the Company or any of its Affiliated Entities or clients, including all materials pertaining to Confidential Information developed by Executive or other, and all copies of such materials, whether of a technical, business or fiscal nature, whether on the hard drive of a laptop or desktop computer, in hard copy, disk or any other format, which are in Executive’s possession, custody or control.
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(c) Executive will promptly disclose to the Company any idea, invention, discovery or improvement, whether patentable or not (“Creations”), conceived or made by him alone or with other at any time during his employment. Executive agrees that the Company owns all such Creations, conceived or made by Executive alone or with other at any time during his employment, and Executive hereby assigns and agrees to assign to the Company all rights she has or may acquire their and agrees to execute any and all applications, assignments and other instruments relating thereto which the Company deems necessary or desirable. These obligations shall continue beyond the termination of his employment with respect to Creations and derivatives of such Creations conceived or made during his employment with the Company. Executive understands that the obligation to assign Creations to the Company shall not apply to any Creation which is developed entirely on his own time without using any of the Company’s equipment, supplies, facilities, and/or Confidential Information unless such Creation (a) relates in any way to the business or to the current or anticipated research or development of the Company or any of its Affiliated Entities; or (b) results in any way from his work at the Company.
(d) Executive will not assert any rights to any invention, discovery, idea or improvement relating to the business of the Company or any of its Affiliated Entities or to his duties hereunder as having been made or acquired by Executive prior to his work for the Company.
(e) During the Term, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to grant and authorize sublicenses) to make, have made, modify, use, sell, offer to sell, import, reproduce, distribute, publish, prepare derivative works of, display, perform publicly and by means of digital audio transmission and otherwise exploit as part of or in connection with any product, process or machine created or incorporated by the Executive.
(f) Executive agrees to cooperate fully with the Company, both during and after his employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights, patents, trademarks and other intellectual property rights (both in the United States and foreign countries) relating to such Creations. Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Creations. Executive further agrees that if the Company is unable, after reasonable effort, to secure Executive’s signature on any such papers, any officer of the Company shall be entitled to execute such papers as his agent and attorney-in-fact and Executive hereby irrevocably designates and appoints each officer of the Company as his agent and attorney-in-fact to execute any such papers on his behalf and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Creations, under the conditions described in this paragraph.
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9. Non-solicitation; non-competition. (a) Executive agrees that, during the Term and until nine (9) months after the termination of his employment, Executive will not, directly or indirectly, including on behalf of any person, firm or other entity, employ or actively solicit for employment any employee of the Company or any of its Affiliated Entities, or anyone who was an employee of the Company or any of its Affiliated Entities within the nine (9) months prior to the termination of Executive’s employment, or induce any such employee to terminate his or his employment with the Company or any of its Affiliated Entities.
(b) Executive further agrees that, during the Term and until nine (9) months after the termination of his employment, Executive will not, directly or indirectly, including on behalf of any person, firm or other entity, without the express written consent of an authorized representative of the Company, (i) perform services within the Territory (as defined below) for any Competing Business (as defined below), whether as an employee, consultant, agent, contractor or in any other capacity, (ii) hold office as an officer or director or like position in any Competing Business, or (iii) request any present or future customers or suppliers of the Company or any of its Affiliated Entities to curtail or cancel their business with the Company or any of its Affiliated Entities. These obligations will continue for the specified period regardless of whether the termination of Executive’s employment was voluntary or involuntary or with or without Cause or for any other reason.
(c) “Competing Business” means any corporation, partnership or other entity or person (other than the Company) which is engaged (a) in the development, manufacture, marketing, distribution or sale of, or research directed to the development, manufacture, marketing, distribution or sale of competing anti-cancer drug candidates or products or (b) in any other business activity carried on or planned to be carried on by the Company or any of its Affiliates during the Term.
(d) “Territory” shall mean within any state or foreign jurisdiction in which the Company or any subsidiary of the Company is then providing services or products or marketing its services or products (or engaged in active discussions to provide such services).
(e) Executive agrees that in the event a court determines the length of time or the geographic area or activities prohibited under this Section 9 are too restrictive to be enforceable, the court shall reduce the scope of the restriction to the extent necessary to make the restriction enforceable. In furtherance and not in limitation of the foregoing, the Company and the Executive each intend that the covenants contained in this Section 9 shall be deemed to be a series of separate covenants, one for each and every state, territory or jurisdiction of the United States, the People’s Republic of China, and any foreign country set forth therein. If, in any judicial proceeding, a court shall refuse to enforce any of such separate covenants, then such unenforceable covenants shall be deemed eliminated from the provisions hereof for the purpose of such proceedings to the extent necessary to permit the remaining separate covenants to be enforced in such proceedings.
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10. Representation and Warranty. The Executive hereby acknowledges and represents that she has had the opportunity to consult with legal counsel regarding his rights and obligations under this Agreement and that she fully understands the terms and conditions contained herein. Executive represents and warrants that Executive has provided the Company a true and correct copy of any agreements that purport: (a) to limit Executive’s right to be employed by the Company; (b) to prohibit Executive from engaging in any activities on behalf of the Company; or (c) to restrict Executive’s right to use or disclose any information while employed by the Company. Executive further represents and warrants that Executive will not use on the Company’s behalf any information, materials, data or documents belonging to a third party that are not generally available to the public, unless Executive has obtained written authorization to do so from the third party and provided such authorization to the Company. In the course of Executive’s employment with the Company, Executive is not to breach any obligation of confidentiality that Executive has with third parties, and Executive agrees to fulfill all such obligations during Executive’s employment with the Company. Executive further agrees not to disclose to the Company or use while working for the Company any trade secrets belonging to a third party.
11. Injunctive Relief. Without limiting the remedies available to the Company, Executive acknowledges that a breach of any of the covenants contained in Sections 8 and 9 above may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it will not be possible to measure precisely damages for such injuries and that, in the event of such a breach or threat thereof, the Company shall be entitled, without the requirement to post bond or other security, to obtain a temporary restraining order and/or injunction restraining Executive from engaging in activities prohibited by this Agreement or such other relief as may be required to specifically enforce any of the covenants in Sections 8 and 9 of this Agreement.
12. Notice. Any notice or other communication required or permitted to be given to the Parties shall be deemed to have been given if either personally delivered, or if sent for next-day delivery by nationally recognized overnight courier, and addressed as follows:
(a) If to Executive, to: 18 Yachts Cove, Winnipeg, Manitoba, Canada R2N 0C9
(b) If to the Company, to: 1209 N. University Blvd., Middletown, OH, USA 45042
13. Severability. If any provision of this Agreement is declared void or unenforceable by a court of competent jurisdiction, all other provisions shall nonetheless remain in full force and effect.
14. Withholding. The Company may withhold from any payment that it is required to make under this Agreement amounts sufficient to satisfy applicable withholding requirements under any federal, state or local law.
15. Indemnification. The Company agrees that Executive will be covered by any “directors and officers” insurance policies then in effect with respect to Executive’s acts as an officer.
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16. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of Delaware, without regard to the conflict of laws provisions thereof.
17. Waiver. The waiver by either Party of a breach of any provision of this Agreement shall not be or be construed as a waiver of any subsequent breach. The failure of a Party to insist upon strict adherence to any provision of this Agreement on one or more occasions shall not be considered a waiver or deprive that Party of the right thereafter to insist upon strict adherence to that provision or any other provision of this Agreement. Any such waiver must be in writing, signed by the Party against whom such waiver is to be enforced.
18. Assignment. This Agreement is a personal contract and Executive may not sell, transfer, assign, pledge or hypothecate his rights, interests and obligations hereunder. Except as otherwise herein expressly provided, this Agreement shall be binding upon and shall inure to the benefit of Executive and his personal representatives and shall inure to the benefit of and be binding upon the Company and its successors and assigns, including without limitation, any corporation or other entity into which the Company is merged or which acquires all or substantially all of the assets of the Company.
19. Entire Agreement. This Agreement embodies all of the representations, warranties, covenants, understandings and agreements between the Parties relating to Executive’s employment with the Company. No other representations, warranties, covenants, understandings, or agreements exist between the Parties relating to Executive’s employment. This Agreement shall supersede all prior agreements, written or oral, relating to Executive’s employment. This Agreement may not be amended or modified except by a writing signed by the Parties.
[Signature page follows]
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IN WITNESS WHISEOF, the Parties have caused this Agreement to be duly executed and delivered on the date first written above.
| By: | /s/ Zhenyu Wu | |||
| Name: | Zhenyu Wu | |||
| Title: | Chief Financial Officer | |||
| Agreed to and Accepted: | ||||
| Elite Education Group International Limited | ||||
| By: | /s/ Jianbo Zhang | |||
| Date: October 1, 2018 | ||||
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Exhibit 10.4
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the “Agreement”) is effective as of October 1, 2018 (the “Effective Date”), by and between Elite Education Group International Limited, a British Virgin Islands corporation (the “Company”), and Jing Li (“Executive”, and the Company and the Executive collectively referred to herein as the “Parties”).
WITNESSETH:
WHISEAS, the Company desires to hire Executive and to employ her as the Company’s Chief Marketing Officer effective as of October 1, 2018, and the Parties desire to enter into this Agreement embodying the terms of such employment;
NOW, THISEFORE, in consideration of the premises and the mutual covenants and promises of the Parties contained herein, the Parties, intending to be legally bound, hereby agree as follows:
1. Title and Job Duties.
(a) Subject to the terms and conditions set forth in this Agreement, the Company agrees to employ Executive as its Chief Executive Officer. Executive shall report directly to the Board of Directors of the Company (the “Board”).
(b) Executive accepts such employment and agrees, during the term of her employment, to devote her full business and professional time and energy to the Company, and agrees faithfully to perform her duties and responsibilities in an efficient, trustworthy and business-like manner. Executive also agrees that the Board shall determine from time to time such of her duties as may be assigned to her. Executive agrees to carry out and abide by such directions of the Board.
(c) Without limiting the generality of the foregoing, Executive shall not, without the written approval of the Company, render services of a business or commercial nature on her own behalf or on behalf of any person, firm, or corporation, for compensation or otherwise, during her employment hereunder. The foregoing limitation shall not apply to Executive’s involvement in associations, charities and service on another entity’s board of directors, provided such involvement does not interfere with Executives responsibilities (and as it pertains to any service on another entity’s board of directors, provided such action is pre-approved by the Company).
2. Salary and Additional Compensation.
(a) Base Salary. The Company shall pay to Executive an annual base salary (“Base Salary”) USD$ 30,000 paid monthly in accordance with the Company’s normal payroll procedures. The Compensation Committee shall review the Executive’s Base Salary no less than annually and may increase (but not decrease) such Base Salary during the term of this Agreement.
(b) Annual Bonus. Commencing with the year ending October 1, 2018, Executive will be entitled to receive an annual cash bonus in the amount of USD$ 30,000 (the “Annual Bonus”), payable with respect to each year of the Term subsequent to the issuance of the Company’s final audited financial statements for such year, provided, however that the Company’s overall sales revenue has increased by no less than 20% as compared with the same period for the prior fiscal year. The final determination on the amount, if any, of the Annual Bonus will be made by, and in the sole discretion of the Compensation Committee of the Board of Directors of the Company (the “Board”) (or the Board, if such committee has been dissolved), based on criteria established by the Compensation Committee of the Board (or the Board, if such committee has been dissolved).
(c) Equity Incentive Plan, Restricted Share Grant. The Company shall adopt, subject to shareholder approval, a stock-based compensation plan that provides for discretionary grants of, among others, stock options, stock awards and stock unit awards to key employees and directors of the Company (the “Plan”). Following adoption of the Plan, the Board, upon a recommendation of the Compensation Committee, will grant a restricted stock grant to the Executive in the amount of up to 10,000 shares of the Company’s common stock pursuant to the terms of the Plan (the “Restricted Shares”). Such grant of the Restricted Shares shall be valid for a period of 10 years from the date of the grant, and shall vest in four equal installments on the first calendar day of each full fiscal quarters following the grant date.
3. Expenses. In accordance with Company policy, the Company shall reimburse Executive for all reasonable association fees, professional related expenses (certifications, licenses and continuing professional education) and business expenses properly and necessarily incurred and paid by Executive in the performance of her duties under this Agreement, including without limitation all travel expenses to and from her designated office as set forth in the opening paragraph of this Agreement, upon her presentment of detailed receipts in the form required by the Company’s policy. Notwithstanding the foregoing, all expenses must be promptly submitted for reimbursement by the Executive. In no event shall any reimbursement be paid by the Company after the end of the year following the year in which the expense is incurred by the Executive.
4. Benefits.
(a) Vacation and Sick Leave. Executive shall be entitled to 3 weeks of vacation per year and 10 days of sick leave per year, which shall accrue at a pro rata rate per pay period, consistent with the Company’s overall policies.
(b) Health Insurance and Other Plans. Executive shall be eligible to participate in the Company’s medical, dental and other employee benefit programs, if any, which are provided by the Company for its employees at Executive’s level in accordance with the provisions of any such plans, as the same may be in effect from time to time.
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5. Term. The term of employment under this Agreement (the “Term) shall be for a five-year period commencing on the Effective Date and shall be automatically extended for an additional consecutive twelve (12)-month period on the fifth (5th) anniversary of the Effective Date and each subsequent anniversary thereof, unless and until the Company or Executive provides written notice to the other party not less than ninety (90) days before such anniversary date that such party is electing not to extend the Term, in which case the Term shall end at the expiration of the Term as last extended, unless sooner terminated as set forth below. Following any such notice by the Company of its election not to extend the Term, Executive may terminate her employment at any time prior to the expiration of the Term by giving written notice to the Company at least thirty (30) days prior to the effective date of termination, and upon the earlier of such effective date of termination or the expiration of the Term, Executive shall be entitled to receive the same severance benefits as are provided upon a termination of employment by the Company without Cause as described in Section 7(a) and Section 7(d).
6. Termination.
(a) Termination at the Company’s Election.
(i) For Cause. At the election of the Company, Executive’s employment may be terminated at any time for Cause (as defined below) upon written notice to Executive given pursuant to Section 12 of this Agreement. For purposes of this Agreement, “Cause” for termination shall mean that Executive: (A) pleads “guilty” or “no contest” to, or is convicted of an act which is defined as a felony under federal or state law, or is indicted or formally charged with acts involving criminal fraud or embezzlement; (B) in carrying out her duties, engages in conduct that constitutes gross negligence or willful misconduct; (C) engages in substantiated fraud, misappropriation or embezzlement against the Company; (D) engages in any inappropriate or improper conduct that causes material harm to the reputation of the Company; or (E) materially breaches any term of this Agreement. With respect to subsection (E) of this section, to the extent such material breach may be cured, the Company shall provide Executive with written notice of the material breach and Executive shall have ten (10) days to cure such breach.
(ii) Upon Disability, Death or Without Cause. At the election of the Company, Executive’s employment may be terminated: (A) should Executive have a physical or mental impairment that substantially limits a major life activity and Executive is unable to perform the essential functions of her job with or without reasonable accommodation (“Disability”); (B) upon Executive’s death; or (C) with ninety (90) days prior written notice, at any time Without Cause for any or no reason.
(b) Termination at Executive’s Election; Good Reason Termination. Notwithstanding anything contained elsewhere in this Agreement to the contrary, Executive may terminate her employment hereunder at any time and for any reason, upon thirty (30) days’ prior written notice given pursuant to Section 12 of this Agreement (“Voluntary Resignation”), provided that upon notice of resignation, the Company may terminate Executive’s employment immediately and pay Executive thirty (30) days’ Base Salary in lieu of notice. Furthermore, the Executive may terminate this Agreement for “Good Reason,” which shall be deemed to exist: (i) if the Company’s Board of Directors or that of any successor entity of Company, fails to appoint or reappoint the Executive or removes the Executive as the [title]of the Company; (ii) if Executive is assigned any duties materially inconsistent with the duties or responsibilities of the [title]of the Company as contemplated by this Agreement or any other action by the Company that results in a material diminution in such position, authority, duties, or responsibilities, excluding an isolated, insubstantial, and inadvertent action not taken in bad faith; or (iii) a material breach by the Company of this Agreement. Good Reason shall not exist hereunder unless the Executive provides notice in writing to the Company of the existence of a condition described above within a period not to exceed ninety (90) days of the initial existence of the condition, and with respect to subsection (iii) of this section, to the extent such material breach may be cured, the Company does not remedy the condition within thirty (30) days of receipt of such notice.
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(c) Termination in General. If Executive’s employment with the Company terminates for any reason, the Company will pay or provide to Executive: (i) any unpaid Salary through the date of employment termination, (ii) any unpaid Annual Bonus for the fiscal year prior to the fiscal year in which the termination occurs (payable at the time the bonuses are paid to employees generally), (iii) any accrued but unused vacation or paid time off in accordance with the Company’s policy, (iv) reimbursement for any unreimbursed business expenses incurred through the termination date, to the extent reimbursable in accordance with Section 3, and (v) all other payments or benefits (if any) to which Executive is entitled under the terms of any benefit plan or arrangement.
7. Severance.
(a) Subject to Section 7(b) below, if Executive’s employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, Executive shall be entitled to receive a severance payment equal to (i) nine (9) months of Executive’s Base Salary, and (ii) a pro rata portion of the target Annual Bonus for the year in which such termination occurs. Such severance payment shall be made in a single lump sum sixty (60) days following such termination, provided the Executive has executed and delivered to the Company, and has not revoked a general release of the Company, its parents, subsidiaries and affiliates and each of its officers, directors, employees, agents, successors and assigns, and such other persons and/or entities as the Company may determine, in a form reasonably acceptable to the Company. Such general release shall be delivered on or about the date of termination and must be executed within fifty-five (55) days of termination.
(b) If Executive’s employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, and such termination occurs within three months prior to a Change in Control in contemplation of the Change in Control or within six (6) months after the Change in Control, Executive shall be entitled to receive, in addition to any severance pursuant to Section 7(a) above, an acceleration of the vesting of any equity grants to date, if any, or, if the termination occurs after the Change of Control, the Substitute Grant, as applicable. For purposes of this Agreement, “Change in Control” means the occurrence of any of the following events: (i) an acquisition (other than directly from the Company) of any voting securities of the Company by any person or group of affiliated or related persons (as such term is defined in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (“Exchange Act”)), immediately after which such person or group has beneficial ownership (within the meaning of the Exchange Act) of more than fifty percent (50%) of the combined voting power of the Company’s then outstanding voting securities; provided that this subsection shall not apply to an acquisition of voting securities by any employee benefit plan or trust maintained by or for the benefit of the Company or its employees; (ii) a merger, consolidation or reorganization involving the Company whereby the holders of Company common stock immediately preceding such transaction no longer hold a majority of the shares of Company common stock after such transaction; or (iii) the sale or other disposition of all or substantially all of the Company's assets.
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(c) If Executive's employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, and if Executive is eligible for and elects to continue to participate in the Company’s medical and dental benefit programs, the Company will continue to pay the same portion of Executive's medical and dental insurance premiums as during active employment (for Executive and eligible spouse and dependents) until the earlier of: (1) nine months from Executive's cessation from employment; or (2) the date Executive is eligible for medical and/or dental insurance benefits from another employer.
8. Confidentiality Agreement.
(a) Executive understands that during the Term she may have access to unpublished and otherwise confidential information both of a technical and non-technical nature, relating to the business of the Company and any of its parents, subsidiaries, divisions, affiliates (collectively, “Affiliated Entities”), or clients, including without limitation any of their actual or anticipated business, research or development, any of their technology or the implementation or exploitation thereof, including without limitation information Executive and other have collected, obtained or created, information pertaining to patent formulations, vendors, prices, costs, materials, processes, codes, material results, technology, system designs, system specifications, materials of construction, trade secrets and equipment designs, including information disclosed to the Company by other under agreements to hold such information confidential (collectively, the “Confidential Information”). Executive agrees to observe all Company policies and procedures concerning such Confidential Information. Executive further agrees not to disclose or use, either during her employment or at any time thereafter, any Confidential Information for any purpose, including without limitation any competitive purpose, unless authorized to do so by the Company in writing, except that she may disclose and use such information when necessary in the performance of her duties for the Company. Executive’s obligations under this Agreement will continue with respect to Confidential Information, whether or not her employment is terminated, until such information becomes generally available from public sources through no action of Executive. Notwithstanding the foregoing, however, Executive shall be permitted to disclose Confidential Information as may be required by a subpoena or other governmental order, provided that she first notifies promptly the Company of such subpoena, order or other requirement and allows the Company the opportunity to obtain a protective order or other appropriate remedy.
(b) During Executive’s employment, upon the Company’s request, or upon the termination of her employment for any reason, Executive will promptly deliver to the Company all documents, records, files, notebooks, manuals, letters, notes, reports, customer and supplier lists, cost and profit data, e-mail, apparatus, computers, cell phones, tablets, hardware, software, drawings, and any other material of the Company or any of its Affiliated Entities or clients, including all materials pertaining to Confidential Information developed by Executive or other, and all copies of such materials, whether of a technical, business or fiscal nature, whether on the hard drive of a laptop or desktop computer, in hard copy, disk or any other format, which are in Executive’s possession, custody or control.
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(c) Executive will promptly disclose to the Company any idea, invention, discovery or improvement, whether patentable or not (“Creations”), conceived or made by her alone or with other at any time during her employment. Executive agrees that the Company owns all such Creations, conceived or made by Executive alone or with other at any time during her employment, and Executive hereby assigns and agrees to assign to the Company all rights she has or may acquire their and agrees to execute any and all applications, assignments and other instruments relating thereto which the Company deems necessary or desirable. These obligations shall continue beyond the termination of her employment with respect to Creations and derivatives of such Creations conceived or made during her employment with the Company. Executive understands that the obligation to assign Creations to the Company shall not apply to any Creation which is developed entirely on her own time without using any of the Company’s equipment, supplies, facilities, and/or Confidential Information unless such Creation (a) relates in any way to the business or to the current or anticipated research or development of the Company or any of its Affiliated Entities; or (b) results in any way from her work at the Company.
(d) Executive will not assert any rights to any invention, discovery, idea or improvement relating to the business of the Company or any of its Affiliated Entities or to her duties hereunder as having been made or acquired by Executive prior to her work for the Company.
(e) During the Term, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to grant and authorize sublicenses) to make, have made, modify, use, sell, offer to sell, import, reproduce, distribute, publish, prepare derivative works of, display, perform publicly and by means of digital audio transmission and otherwise exploit as part of or in connection with any product, process or machine created or incorporated by the Executive.
(f) Executive agrees to cooperate fully with the Company, both during and after her employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights, patents, trademarks and other intellectual property rights (both in the United States and foreign countries) relating to such Creations. Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Creations. Executive further agrees that if the Company is unable, after reasonable effort, to secure Executive’s signature on any such papers, any officer of the Company shall be entitled to execute such papers as her agent and attorney-in-fact and Executive hereby irrevocably designates and appoints each officer of the Company as her agent and attorney-in-fact to execute any such papers on her behalf and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Creations, under the conditions described in this paragraph.
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9. Non-solicitation; non-competition. (a) Executive agrees that, during the Term and until nine (9) months after the termination of her employment, Executive will not, directly or indirectly, including on behalf of any person, firm or other entity, employ or actively solicit for employment any employee of the Company or any of its Affiliated Entities, or anyone who was an employee of the Company or any of its Affiliated Entities within the nine (9) months prior to the termination of Executive’s employment, or induce any such employee to terminate her or her employment with the Company or any of its Affiliated Entities.
(b) Executive further agrees that, during the Term and until nine (9) months after the termination of her employment, Executive will not, directly or indirectly, including on behalf of any person, firm or other entity, without the express written consent of an authorized representative of the Company, (i) perform services within the Territory (as defined below) for any Competing Business (as defined below), whether as an employee, consultant, agent, contractor or in any other capacity, (ii) hold office as an officer or director or like position in any Competing Business, or (iii) request any present or future customers or suppliers of the Company or any of its Affiliated Entities to curtail or cancel their business with the Company or any of its Affiliated Entities. These obligations will continue for the specified period regardless of whether the termination of Executive’s employment was voluntary or involuntary or with or without Cause or for any other reason.
(c) “Competing Business” means any corporation, partnership or other entity or person (other than the Company) which is engaged (a) in the development, manufacture, marketing, distribution or sale of, or research directed to the development, manufacture, marketing, distribution or sale of competing anti-cancer drug candidates or products or (b) in any other business activity carried on or planned to be carried on by the Company or any of its Affiliates during the Term.
(d) “Territory” shall mean within any state or foreign jurisdiction in which the Company or any subsidiary of the Company is then providing services or products or marketing its services or products (or engaged in active discussions to provide such services).
(e) Executive agrees that in the event a court determines the length of time or the geographic area or activities prohibited under this Section 9 are too restrictive to be enforceable, the court shall reduce the scope of the restriction to the extent necessary to make the restriction enforceable. In furtherance and not in limitation of the foregoing, the Company and the Executive each intend that the covenants contained in this Section 9 shall be deemed to be a series of separate covenants, one for each and every state, territory or jurisdiction of the United States, the People’s Republic of China, and any foreign country set forth therein. If, in any judicial proceeding, a court shall refuse to enforce any of such separate covenants, then such unenforceable covenants shall be deemed eliminated from the provisions hereof for the purpose of such proceedings to the extent necessary to permit the remaining separate covenants to be enforced in such proceedings.
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10. Representation and Warranty. The Executive hereby acknowledges and represents that she has had the opportunity to consult with legal counsel regarding her rights and obligations under this Agreement and that she fully understands the terms and conditions contained herein. Executive represents and warrants that Executive has provided the Company a true and correct copy of any agreements that purport: (a) to limit Executive’s right to be employed by the Company; (b) to prohibit Executive from engaging in any activities on behalf of the Company; or (c) to restrict Executive’s right to use or disclose any information while employed by the Company. Executive further represents and warrants that Executive will not use on the Company’s behalf any information, materials, data or documents belonging to a third party that are not generally available to the public, unless Executive has obtained written authorization to do so from the third party and provided such authorization to the Company. In the course of Executive’s employment with the Company, Executive is not to breach any obligation of confidentiality that Executive has with third parties, and Executive agrees to fulfill all such obligations during Executive’s employment with the Company. Executive further agrees not to disclose to the Company or use while working for the Company any trade secrets belonging to a third party.
11. Injunctive Relief. Without limiting the remedies available to the Company, Executive acknowledges that a breach of any of the covenants contained in Sections 8 and 9 above may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it will not be possible to measure precisely damages for such injuries and that, in the event of such a breach or threat thereof, the Company shall be entitled, without the requirement to post bond or other security, to obtain a temporary restraining order and/or injunction restraining Executive from engaging in activities prohibited by this Agreement or such other relief as may be required to specifically enforce any of the covenants in Sections 8 and 9 of this Agreement.
12. Notice. Any notice or other communication required or permitted to be given to the Parties shall be deemed to have been given if either personally delivered, or if sent for next-day delivery by nationally recognized overnight courier, and addressed as follows:
(a) If to Executive, to: [_]
(b) If to the Company, to: 1209 N. University Blvd., Middletown, OH, USA 45042
13. Severability. If any provision of this Agreement is declared void or unenforceable by a court of competent jurisdiction, all other provisions shall nonetheless remain in full force and effect.
14. Withholding. The Company may withhold from any payment that it is required to make under this Agreement amounts sufficient to satisfy applicable withholding requirements under any federal, state or local law.
15. Indemnification. The Company agrees that Executive will be covered by any “directors and officers” insurance policies then in effect with respect to Executive’s acts as an officer.
16. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of Delaware, without regard to the conflict of laws provisions thereof.
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17. Waiver. The waiver by either Party of a breach of any provision of this Agreement shall not be or be construed as a waiver of any subsequent breach. The failure of a Party to insist upon strict adherence to any provision of this Agreement on one or more occasions shall not be considered a waiver or deprive that Party of the right thereafter to insist upon strict adherence to that provision or any other provision of this Agreement. Any such waiver must be in writing, signed by the Party against whom such waiver is to be enforced.
18. Assignment. This Agreement is a personal contract and Executive may not sell, transfer, assign, pledge or hypothecate her rights, interests and obligations hereunder. Except as otherwise herein expressly provided, this Agreement shall be binding upon and shall inure to the benefit of Executive and her personal representatives and shall inure to the benefit of and be binding upon the Company and its successors and assigns, including without limitation, any corporation or other entity into which the Company is merged or which acquires all or substantially all of the assets of the Company.
19. Entire Agreement. This Agreement embodies all of the representations, warranties, covenants, understandings and agreements between the Parties relating to Executive’s employment with the Company. No other representations, warranties, covenants, understandings, or agreements exist between the Parties relating to Executive’s employment. This Agreement shall supersede all prior agreements, written or oral, relating to Executive’s employment. This Agreement may not be amended or modified except by a writing signed by the Parties.
[Signature page follows]
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IN WITNESS WHISEOF, the Parties have caused this Agreement to be duly executed and delivered on the date first written above.
| By: | /s/ Jing Li | |||
| Name: | Jing Li | |||
| Title: | Chief Marketing Officer | |||
| Agreed to and Accepted: | ||||
| Elite Education Group International Limited | ||||
| By: | /s/ Jianbo Zhang | |||
| Date: October 1, 2018 | ||||
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Exhibit 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the “Agreement”) is effective as of October 1, 2018 (the “Effective Date”), by and between Elite Education Group International Limited, a British Virgin Islands corporation (the “Company”), and Yunxia Xu (“Executive”, and the Company and the Executive collectively referred to herein as the “Parties”).
WITNESSETH:
WHISEAS, the Company desires to hire Executive and to employ her as the Company’s Chief Operating Officer effective as of October 1, 2018, and the Parties desire to enter into this Agreement embodying the terms of such employment;
NOW, THISEFORE, in consideration of the premises and the mutual covenants and promises of the Parties contained herein, the Parties, intending to be legally bound, hereby agree as follows:
1. Title and Job Duties.
(a) Subject to the terms and conditions set forth in this Agreement, the Company agrees to employ Executive as its Chief Executive Officer. Executive shall report directly to the Board of Directors of the Company (the “Board”).
(b) Executive accepts such employment and agrees, during the term of her employment, to devote her full business and professional time and energy to the Company, and agrees faithfully to perform her duties and responsibilities in an efficient, trustworthy and business-like manner. Executive also agrees that the Board shall determine from time to time such of her duties as may be assigned to her. Executive agrees to carry out and abide by such directions of the Board.
(c) Without limiting the generality of the foregoing, Executive shall not, without the written approval of the Company, render services of a business or commercial nature on her own behalf or on behalf of any person, firm, or corporation, for compensation or otherwise, during her employment hereunder. The foregoing limitation shall not apply to Executive’s involvement in associations, charities and service on another entity’s board of directors, provided such involvement does not interfere with Executives responsibilities (and as it pertains to any service on another entity’s board of directors, provided such action is pre-approved by the Company).
2. Salary and Additional Compensation.
(a) Base Salary. The Company shall pay to Executive an annual base salary (“Base Salary”) USD$ 30,000 paid monthly in accordance with the Company’s normal payroll procedures. The Compensation Committee shall review the Executive’s Base Salary no less than annually and may increase (but not decrease) such Base Salary during the term of this Agreement.
(b) Annual Bonus. Commencing with the year ending October 1, 2018, Executive will be entitled to receive an annual cash bonus in the amount of USD$ 30,000 (the “Annual Bonus”), payable with respect to each year of the Term subsequent to the issuance of the Company’s final audited financial statements for such year, provided, however that the Company’s overall sales revenue has increased by no less than 20% as compared with the same period for the prior fiscal year. The final determination on the amount, if any, of the Annual Bonus will be made by, and in the sole discretion of the Compensation Committee of the Board of Directors of the Company (the “Board”) (or the Board, if such committee has been dissolved), based on criteria established by the Compensation Committee of the Board (or the Board, if such committee has been dissolved).
(c) Equity Incentive Plan, Restricted Share Grant. The Company shall adopt, subject to shareholder approval, a stock-based compensation plan that provides for discretionary grants of, among others, stock options, stock awards and stock unit awards to key employees and directors of the Company (the “Plan”). Following adoption of the Plan, the Board, upon a recommendation of the Compensation Committee, will grant a restricted stock grant to the Executive in the amount of up to 30,000 shares of the Company’s common stock pursuant to the terms of the Plan (the “Restricted Shares”). Such grant of the Restricted Shares shall be valid for a period of 10 years from the date of the grant, and shall vest in four equal installments on the first calendar day of each full fiscal quarters following the grant date.
3. Expenses. In accordance with Company policy, the Company shall reimburse Executive for all reasonable association fees, professional related expenses (certifications, licenses and continuing professional education) and business expenses properly and necessarily incurred and paid by Executive in the performance of her duties under this Agreement, including without limitation all travel expenses to and from her designated office as set forth in the opening paragraph of this Agreement, upon her presentment of detailed receipts in the form required by the Company’s policy. Notwithstanding the foregoing, all expenses must be promptly submitted for reimbursement by the Executive. In no event shall any reimbursement be paid by the Company after the end of the year following the year in which the expense is incurred by the Executive.
4. Benefits.
(a) Vacation and Sick Leave. Executive shall be entitled to 4 weeks of vacation per year and 15 days of sick leave per year, which shall accrue at a pro rata rate per pay period, consistent with the Company’s overall policies.
(b) Health Insurance and Other Plans. Executive shall be eligible to participate in the Company’s medical, dental and other employee benefit programs, if any, which are provided by the Company for its employees at Executive’s level in accordance with the provisions of any such plans, as the same may be in effect from time to time.
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5. Term. The term of employment under this Agreement (the “Term) shall be for a five-year period commencing on the Effective Date and shall be automatically extended for an additional consecutive twelve (12)-month period on the fifth (5th) anniversary of the Effective Date and each subsequent anniversary thereof, unless and until the Company or Executive provides written notice to the other party not less than ninety (90) days before such anniversary date that such party is electing not to extend the Term, in which case the Term shall end at the expiration of the Term as last extended, unless sooner terminated as set forth below. Following any such notice by the Company of its election not to extend the Term, Executive may terminate her employment at any time prior to the expiration of the Term by giving written notice to the Company at least thirty (30) days prior to the effective date of termination, and upon the earlier of such effective date of termination or the expiration of the Term, Executive shall be entitled to receive the same severance benefits as are provided upon a termination of employment by the Company without Cause as described in Section 7(a) and Section 7(d).
6. Termination.
(a) Termination at the Company’s Election.
(i) For Cause. At the election of the Company, Executive’s employment may be terminated at any time for Cause (as defined below) upon written notice to Executive given pursuant to Section 12 of this Agreement. For purposes of this Agreement, “Cause” for termination shall mean that Executive: (A) pleads “guilty” or “no contest” to, or is convicted of an act which is defined as a felony under federal or state law, or is indicted or formally charged with acts involving criminal fraud or embezzlement; (B) in carrying out her duties, engages in conduct that constitutes gross negligence or willful misconduct; (C) engages in substantiated fraud, misappropriation or embezzlement against the Company; (D) engages in any inappropriate or improper conduct that causes material harm to the reputation of the Company; or (E) materially breaches any term of this Agreement. With respect to subsection (E) of this section, to the extent such material breach may be cured, the Company shall provide Executive with written notice of the material breach and Executive shall have ten (10) days to cure such breach.
(ii) Upon Disability, Death or Without Cause. At the election of the Company, Executive’s employment may be terminated: (A) should Executive have a physical or mental impairment that substantially limits a major life activity and Executive is unable to perform the essential functions of her job with or without reasonable accommodation (“Disability”); (B) upon Executive’s death; or (C) with ninety (90) days prior written notice, at any time Without Cause for any or no reason.
(b) Termination at Executive’s Election; Good Reason Termination. Notwithstanding anything contained elsewhere in this Agreement to the contrary, Executive may terminate her employment hereunder at any time and for any reason, upon thirty (30) days’ prior written notice given pursuant to Section 12 of this Agreement (“Voluntary Resignation”), provided that upon notice of resignation, the Company may terminate Executive’s employment immediately and pay Executive thirty (30) days’ Base Salary in lieu of notice. Furthermore, the Executive may terminate this Agreement for “Good Reason,” which shall be deemed to exist: (i) if the Company’s Board of Directors or that of any successor entity of Company, fails to appoint or reappoint the Executive or removes the Executive as the [title]of the Company; (ii) if Executive is assigned any duties materially inconsistent with the duties or responsibilities of the [title]of the Company as contemplated by this Agreement or any other action by the Company that results in a material diminution in such position, authority, duties, or responsibilities, excluding an isolated, insubstantial, and inadvertent action not taken in bad faith; or (iii) a material breach by the Company of this Agreement. Good Reason shall not exist hereunder unless the Executive provides notice in writing to the Company of the existence of a condition described above within a period not to exceed ninety (90) days of the initial existence of the condition, and with respect to subsection (iii) of this section, to the extent such material breach may be cured, the Company does not remedy the condition within thirty (30) days of receipt of such notice.
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(c) Termination in General. If Executive’s employment with the Company terminates for any reason, the Company will pay or provide to Executive: (i) any unpaid Salary through the date of employment termination, (ii) any unpaid Annual Bonus for the fiscal year prior to the fiscal year in which the termination occurs (payable at the time the bonuses are paid to employees generally), (iii) any accrued but unused vacation or paid time off in accordance with the Company’s policy, (iv) reimbursement for any unreimbursed business expenses incurred through the termination date, to the extent reimbursable in accordance with Section 3, and (v) all other payments or benefits (if any) to which Executive is entitled under the terms of any benefit plan or arrangement.
7. Severance.
(a) Subject to Section 7(b) below, if Executive’s employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, Executive shall be entitled to receive a severance payment equal to (i) nine (9) months of Executive’s Base Salary, and (ii) a pro rata portion of the target Annual Bonus for the year in which such termination occurs. Such severance payment shall be made in a single lump sum sixty (60) days following such termination, provided the Executive has executed and delivered to the Company, and has not revoked a general release of the Company, its parents, subsidiaries and affiliates and each of its officers, directors, employees, agents, successors and assigns, and such other persons and/or entities as the Company may determine, in a form reasonably acceptable to the Company. Such general release shall be delivered on or about the date of termination and must be executed within fifty-five (55) days of termination.
(b) If Executive’s employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, and such termination occurs within three months prior to a Change in Control in contemplation of the Change in Control or within six (6) months after the Change in Control, Executive shall be entitled to receive, in addition to any severance pursuant to Section 7(a) above, an acceleration of the vesting of any equity grants to date, if any, or, if the termination occurs after the Change of Control, the Substitute Grant, as applicable. For purposes of this Agreement, “Change in Control” means the occurrence of any of the following events: (i) an acquisition (other than directly from the Company) of any voting securities of the Company by any person or group of affiliated or related persons (as such term is defined in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (“Exchange Act”)), immediately after which such person or group has beneficial ownership (within the meaning of the Exchange Act) of more than fifty percent (50%) of the combined voting power of the Company’s then outstanding voting securities; provided that this subsection shall not apply to an acquisition of voting securities by any employee benefit plan or trust maintained by or for the benefit of the Company or its employees; (ii) a merger, consolidation or reorganization involving the Company whereby the holders of Company common stock immediately preceding such transaction no longer hold a majority of the shares of Company common stock after such transaction; or (iii) the sale or other disposition of all or substantially all of the Company's assets.
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(c) If Executive's employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, and if Executive is eligible for and elects to continue to participate in the Company’s medical and dental benefit programs, the Company will continue to pay the same portion of Executive's medical and dental insurance premiums as during active employment (for Executive and eligible spouse and dependents) until the earlier of: (1) nine months from Executive's cessation from employment; or (2) the date Executive is eligible for medical and/or dental insurance benefits from another employer.
8. Confidentiality Agreement.
(a) Executive understands that during the Term she may have access to unpublished and otherwise confidential information both of a technical and non-technical nature, relating to the business of the Company and any of its parents, subsidiaries, divisions, affiliates (collectively, “Affiliated Entities”), or clients, including without limitation any of their actual or anticipated business, research or development, any of their technology or the implementation or exploitation thereof, including without limitation information Executive and other have collected, obtained or created, information pertaining to patent formulations, vendors, prices, costs, materials, processes, codes, material results, technology, system designs, system specifications, materials of construction, trade secrets and equipment designs, including information disclosed to the Company by other under agreements to hold such information confidential (collectively, the “Confidential Information”). Executive agrees to observe all Company policies and procedures concerning such Confidential Information. Executive further agrees not to disclose or use, either during her employment or at any time thereafter, any Confidential Information for any purpose, including without limitation any competitive purpose, unless authorized to do so by the Company in writing, except that she may disclose and use such information when necessary in the performance of her duties for the Company. Executive’s obligations under this Agreement will continue with respect to Confidential Information, whether or not her employment is terminated, until such information becomes generally available from public sources through no action of Executive. Notwithstanding the foregoing, however, Executive shall be permitted to disclose Confidential Information as may be required by a subpoena or other governmental order, provided that she first notifies promptly the Company of such subpoena, order or other requirement and allows the Company the opportunity to obtain a protective order or other appropriate remedy.
(b) During Executive’s employment, upon the Company’s request, or upon the termination of her employment for any reason, Executive will promptly deliver to the Company all documents, records, files, notebooks, manuals, letters, notes, reports, customer and supplier lists, cost and profit data, e-mail, apparatus, computers, cell phones, tablets, hardware, software, drawings, and any other material of the Company or any of its Affiliated Entities or clients, including all materials pertaining to Confidential Information developed by Executive or other, and all copies of such materials, whether of a technical, business or fiscal nature, whether on the hard drive of a laptop or desktop computer, in hard copy, disk or any other format, which are in Executive’s possession, custody or control.
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(c) Executive will promptly disclose to the Company any idea, invention, discovery or improvement, whether patentable or not (“Creations”), conceived or made by her alone or with other at any time during her employment. Executive agrees that the Company owns all such Creations, conceived or made by Executive alone or with other at any time during her employment, and Executive hereby assigns and agrees to assign to the Company all rights she has or may acquire their and agrees to execute any and all applications, assignments and other instruments relating thereto which the Company deems necessary or desirable. These obligations shall continue beyond the termination of her employment with respect to Creations and derivatives of such Creations conceived or made during her employment with the Company. Executive understands that the obligation to assign Creations to the Company shall not apply to any Creation which is developed entirely on her own time without using any of the Company’s equipment, supplies, facilities, and/or Confidential Information unless such Creation (a) relates in any way to the business or to the current or anticipated research or development of the Company or any of its Affiliated Entities; or (b) results in any way from her work at the Company.
(d) Executive will not assert any rights to any invention, discovery, idea or improvement relating to the business of the Company or any of its Affiliated Entities or to her duties hereunder as having been made or acquired by Executive prior to her work for the Company.
(e) During the Term, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to grant and authorize sublicenses) to make, have made, modify, use, sell, offer to sell, import, reproduce, distribute, publish, prepare derivative works of, display, perform publicly and by means of digital audio transmission and otherwise exploit as part of or in connection with any product, process or machine created or incorporated by the Executive.
(f) Executive agrees to cooperate fully with the Company, both during and after her employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights, patents, trademarks and other intellectual property rights (both in the United States and foreign countries) relating to such Creations. Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Creations. Executive further agrees that if the Company is unable, after reasonable effort, to secure Executive’s signature on any such papers, any officer of the Company shall be entitled to execute such papers as her agent and attorney-in-fact and Executive hereby irrevocably designates and appoints each officer of the Company as her agent and attorney-in-fact to execute any such papers on her behalf and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Creations, under the conditions described in this paragraph.
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9. Non-solicitation; non-competition. (a) Executive agrees that, during the Term and until nine (9) months after the termination of her employment, Executive will not, directly or indirectly, including on behalf of any person, firm or other entity, employ or actively solicit for employment any employee of the Company or any of its Affiliated Entities, or anyone who was an employee of the Company or any of its Affiliated Entities within the nine (9) months prior to the termination of Executive’s employment, or induce any such employee to terminate her or her employment with the Company or any of its Affiliated Entities.
(b) Executive further agrees that, during the Term and until nine (9) months after the termination of her employment, Executive will not, directly or indirectly, including on behalf of any person, firm or other entity, without the express written consent of an authorized representative of the Company, (i) perform services within the Territory (as defined below) for any Competing Business (as defined below), whether as an employee, consultant, agent, contractor or in any other capacity, (ii) hold office as an officer or director or like position in any Competing Business, or (iii) request any present or future customers or suppliers of the Company or any of its Affiliated Entities to curtail or cancel their business with the Company or any of its Affiliated Entities. These obligations will continue for the specified period regardless of whether the termination of Executive’s employment was voluntary or involuntary or with or without Cause or for any other reason.
(c) “Competing Business” means any corporation, partnership or other entity or person (other than the Company) which is engaged (a) in the development, manufacture, marketing, distribution or sale of, or research directed to the development, manufacture, marketing, distribution or sale of competing anti-cancer drug candidates or products or (b) in any other business activity carried on or planned to be carried on by the Company or any of its Affiliates during the Term.
(d) “Territory” shall mean within any state or foreign jurisdiction in which the Company or any subsidiary of the Company is then providing services or products or marketing its services or products (or engaged in active discussions to provide such services).
(e) Executive agrees that in the event a court determines the length of time or the geographic area or activities prohibited under this Section 9 are too restrictive to be enforceable, the court shall reduce the scope of the restriction to the extent necessary to make the restriction enforceable. In furtherance and not in limitation of the foregoing, the Company and the Executive each intend that the covenants contained in this Section 9 shall be deemed to be a series of separate covenants, one for each and every state, territory or jurisdiction of the United States, the People’s Republic of China, and any foreign country set forth therein. If, in any judicial proceeding, a court shall refuse to enforce any of such separate covenants, then such unenforceable covenants shall be deemed eliminated from the provisions hereof for the purpose of such proceedings to the extent necessary to permit the remaining separate covenants to be enforced in such proceedings.
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10. Representation and Warranty. The Executive hereby acknowledges and represents that she has had the opportunity to consult with legal counsel regarding her rights and obligations under this Agreement and that she fully understands the terms and conditions contained herein. Executive represents and warrants that Executive has provided the Company a true and correct copy of any agreements that purport: (a) to limit Executive’s right to be employed by the Company; (b) to prohibit Executive from engaging in any activities on behalf of the Company; or (c) to restrict Executive’s right to use or disclose any information while employed by the Company. Executive further represents and warrants that Executive will not use on the Company’s behalf any information, materials, data or documents belonging to a third party that are not generally available to the public, unless Executive has obtained written authorization to do so from the third party and provided such authorization to the Company. In the course of Executive’s employment with the Company, Executive is not to breach any obligation of confidentiality that Executive has with third parties, and Executive agrees to fulfill all such obligations during Executive’s employment with the Company. Executive further agrees not to disclose to the Company or use while working for the Company any trade secrets belonging to a third party.
11. Injunctive Relief. Without limiting the remedies available to the Company, Executive acknowledges that a breach of any of the covenants contained in Sections 8 and 9 above may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it will not be possible to measure precisely damages for such injuries and that, in the event of such a breach or threat thereof, the Company shall be entitled, without the requirement to post bond or other security, to obtain a temporary restraining order and/or injunction restraining Executive from engaging in activities prohibited by this Agreement or such other relief as may be required to specifically enforce any of the covenants in Sections 8 and 9 of this Agreement.
12. Notice. Any notice or other communication required or permitted to be given to the Parties shall be deemed to have been given if either personally delivered, or if sent for next-day delivery by nationally recognized overnight courier, and addressed as follows:
(a) If to Executive, to: [_]
(b) If to the Company, to: 1209 N. University Blvd., Middletown, OH, USA 45042
13. Severability. If any provision of this Agreement is declared void or unenforceable by a court of competent jurisdiction, all other provisions shall nonetheless remain in full force and effect.
14. Withholding. The Company may withhold from any payment that it is required to make under this Agreement amounts sufficient to satisfy applicable withholding requirements under any federal, state or local law.
15. Indemnification. The Company agrees that Executive will be covered by any “directors and officers” insurance policies then in effect with respect to Executive’s acts as an officer.
16. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of Delaware, without regard to the conflict of laws provisions thereof.
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17. Waiver. The waiver by either Party of a breach of any provision of this Agreement shall not be or be construed as a waiver of any subsequent breach. The failure of a Party to insist upon strict adherence to any provision of this Agreement on one or more occasions shall not be considered a waiver or deprive that Party of the right thereafter to insist upon strict adherence to that provision or any other provision of this Agreement. Any such waiver must be in writing, signed by the Party against whom such waiver is to be enforced.
18. Assignment. This Agreement is a personal contract and Executive may not sell, transfer, assign, pledge or hypothecate her rights, interests and obligations hereunder. Except as otherwise herein expressly provided, this Agreement shall be binding upon and shall inure to the benefit of Executive and her personal representatives and shall inure to the benefit of and be binding upon the Company and its successors and assigns, including without limitation, any corporation or other entity into which the Company is merged or which acquires all or substantially all of the assets of the Company.
19. Entire Agreement. This Agreement embodies all of the representations, warranties, covenants, understandings and agreements between the Parties relating to Executive’s employment with the Company. No other representations, warranties, covenants, understandings, or agreements exist between the Parties relating to Executive’s employment. This Agreement shall supersede all prior agreements, written or oral, relating to Executive’s employment. This Agreement may not be amended or modified except by a writing signed by the Parties.
[Signature page follows]
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IN WITNESS WHISEOF, the Parties have caused this Agreement to be duly executed and delivered on the date first written above.
| By: | /s/ Yunxia Xu | |||
| Name: | Yunxia Xu | |||
| Title: | Chief Operating Officer | |||
| Agreed to and Accepted: | ||||
| Elite Education Group International Limited | ||||
| By: | /s/ Jianbo Zhang | |||
| Date: October 1, 2018 | ||||
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Exhibit 10.6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the “Agreement”) is effective as of October 1, 2018 (the “Effective Date”), by and between Elite Education Group International Limited, a British Virgin Islands corporation (the “Company”), and Bo Yu (“Executive”, and the Company and the Executive collectively referred to herein as the “Parties”).
WITNESSETH:
WHISEAS, the Company desires to hire Executive and to employ him as the Company’s Chief Program Officer effective as of October 1, 2018, and the Parties desire to enter into this Agreement embodying the terms of such employment;
NOW, THISEFORE, in consideration of the premises and the mutual covenants and promises of the Parties contained herein, the Parties, intending to be legally bound, hereby agree as follows:
1. Title and Job Duties.
(a) Subject to the terms and conditions set forth in this Agreement, the Company agrees to employ Executive as its Chief Executive Officer. Executive shall report directly to the Board of Directors of the Company (the “Board”).
(b) Executive accepts such employment and agrees, during the term of his employment, to devote his full business and professional time and energy to the Company, and agrees faithfully to perform his duties and responsibilities in an efficient, trustworthy and business-like manner. Executive also agrees that the Board shall determine from time to time such of his duties as may be assigned to him. Executive agrees to carry out and abide by such directions of the Board.
(c) Without limiting the generality of the foregoing, Executive shall not, without the written approval of the Company, render services of a business or commercial nature on his own behalf or on behalf of any person, firm, or corporation, for compensation or otherwise, during his employment hereunder. The foregoing limitation shall not apply to Executive’s involvement in associations, charities and service on another entity’s board of directors, provided such involvement does not interfere with Executives responsibilities (and as it pertains to any service on another entity’s board of directors, provided such action is pre-approved by the Company).
2. Salary and Additional Compensation.
(a) Base Salary. The Company shall pay to Executive an annual base salary (“Base Salary”) USD$ 30,000 paid monthly in accordance with the Company’s normal payroll procedures. The Compensation Committee shall review the Executive’s Base Salary no less than annually and may increase (but not decrease) such Base Salary during the term of this Agreement.
(b) Annual Bonus. Commencing with the year ending October 1, 2018, Executive will be entitled to receive an annual cash bonus in the amount of USD$ 30,000 (the “Annual Bonus”), payable with respect to each year of the Term subsequent to the issuance of the Company’s final audited financial statements for such year, provided, however that the Company’s overall sales revenue has increased by no less than 20% as compared with the same period for the prior fiscal year. The final determination on the amount, if any, of the Annual Bonus will be made by, and in the sole discretion of the Compensation Committee of the Board of Directors of the Company (the “Board”) (or the Board, if such committee has been dissolved), based on criteria established by the Compensation Committee of the Board (or the Board, if such committee has been dissolved).
(c) Equity Incentive Plan, Restricted Share Grant. The Company shall adopt, subject to shareholder approval, a stock-based compensation plan that provides for discretionary grants of, among others, stock options, stock awards and stock unit awards to key employees and directors of the Company (the “Plan”). Following adoption of the Plan, the Board, upon a recommendation of the Compensation Committee, will grant a restricted stock grant to the Executive in the amount of up to 10,000 shares of the Company’s common stock pursuant to the terms of the Plan (the “Restricted Shares”). Such grant of the Restricted Shares shall be valid for a period of 10 years from the date of the grant, and shall vest in four equal installments on the first calendar day of each full fiscal quarters following the grant date.
3. Expenses. In accordance with Company policy, the Company shall reimburse Executive for all reasonable association fees, professional related expenses (certifications, licenses and continuing professional education) and business expenses properly and necessarily incurred and paid by Executive in the performance of his duties under this Agreement, including without limitation all travel expenses to and from his designated office as set forth in the opening paragraph of this Agreement, upon his presentment of detailed receipts in the form required by the Company’s policy. Notwithstanding the foregoing, all expenses must be promptly submitted for reimbursement by the Executive. In no event shall any reimbursement be paid by the Company after the end of the year following the year in which the expense is incurred by the Executive.
4. Benefits.
(a) Vacation and Sick Leave. Executive shall be entitled to 3 weeks of vacation per year and 10 days of sick leave per year, which shall accrue at a pro rata rate per pay period, consistent with the Company’s overall policies.
(b) Health Insurance and Other Plans. Executive shall be eligible to participate in the Company’s medical, dental and other employee benefit programs, if any, which are provided by the Company for its employees at Executive’s level in accordance with the provisions of any such plans, as the same may be in effect from time to time.
5. Term. The term of employment under this Agreement (the “Term) shall be for a five-year period commencing on the Effective Date and shall be automatically extended for an additional consecutive twelve (12)-month period on the fifth (5th) anniversary of the Effective Date and each subsequent anniversary thereof, unless and until the Company or Executive provides written notice to the other party not less than ninety (90) days before such anniversary date that such party is electing not to extend the Term, in which case the Term shall end at the expiration of the Term as last extended, unless sooner terminated as set forth below. Following any such notice by the Company of its election not to extend the Term, Executive may terminate his employment at any time prior to the expiration of the Term by giving written notice to the Company at least thirty (30) days prior to the effective date of termination, and upon the earlier of such effective date of termination or the expiration of the Term, Executive shall be entitled to receive the same severance benefits as are provided upon a termination of employment by the Company without Cause as described in Section 7(a) and Section 7(d).
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6. Termination.
(a) Termination at the Company’s Election.
(i) For Cause. At the election of the Company, Executive’s employment may be terminated at any time for Cause (as defined below) upon written notice to Executive given pursuant to Section 12 of this Agreement. For purposes of this Agreement, “Cause” for termination shall mean that Executive: (A) pleads “guilty” or “no contest” to, or is convicted of an act which is defined as a felony under federal or state law, or is indicted or formally charged with acts involving criminal fraud or embezzlement; (B) in carrying out his duties, engages in conduct that constitutes gross negligence or willful misconduct; (C) engages in substantiated fraud, misappropriation or embezzlement against the Company; (D) engages in any inappropriate or improper conduct that causes material harm to the reputation of the Company; or (E) materially breaches any term of this Agreement. With respect to subsection (E) of this section, to the extent such material breach may be cured, the Company shall provide Executive with written notice of the material breach and Executive shall have ten (10) days to cure such breach.
(ii) Upon Disability, Death or Without Cause. At the election of the Company, Executive’s employment may be terminated: (A) should Executive have a physical or mental impairment that substantially limits a major life activity and Executive is unable to perform the essential functions of his job with or without reasonable accommodation (“Disability”); (B) upon Executive’s death; or (C) with ninety (90) days prior written notice, at any time Without Cause for any or no reason.
(b) Termination at Executive’s Election; Good Reason Termination. Notwithstanding anything contained elsewhere in this Agreement to the contrary, Executive may terminate his employment hereunder at any time and for any reason, upon thirty (30) days’ prior written notice given pursuant to Section 12 of this Agreement (“Voluntary Resignation”), provided that upon notice of resignation, the Company may terminate Executive’s employment immediately and pay Executive thirty (30) days’ Base Salary in lieu of notice. Furthermore, the Executive may terminate this Agreement for “Good Reason,” which shall be deemed to exist: (i) if the Company’s Board of Directors or that of any successor entity of Company, fails to appoint or reappoint the Executive or removes the Executive as the [title]of the Company; (ii) if Executive is assigned any duties materially inconsistent with the duties or responsibilities of the [title]of the Company as contemplated by this Agreement or any other action by the Company that results in a material diminution in such position, authority, duties, or responsibilities, excluding an isolated, insubstantial, and inadvertent action not taken in bad faith; or (iii) a material breach by the Company of this Agreement. Good Reason shall not exist hereunder unless the Executive provides notice in writing to the Company of the existence of a condition described above within a period not to exceed ninety (90) days of the initial existence of the condition, and with respect to subsection (iii) of this section, to the extent such material breach may be cured, the Company does not remedy the condition within thirty (30) days of receipt of such notice.
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(c) Termination in General. If Executive’s employment with the Company terminates for any reason, the Company will pay or provide to Executive: (i) any unpaid Salary through the date of employment termination, (ii) any unpaid Annual Bonus for the fiscal year prior to the fiscal year in which the termination occurs (payable at the time the bonuses are paid to employees generally), (iii) any accrued but unused vacation or paid time off in accordance with the Company’s policy, (iv) reimbursement for any unreimbursed business expenses incurred through the termination date, to the extent reimbursable in accordance with Section 3, and (v) all other payments or benefits (if any) to which Executive is entitled under the terms of any benefit plan or arrangement.
7. Severance.
(a) Subject to Section 7(b) below, if Executive’s employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, Executive shall be entitled to receive a severance payment equal to (i) nine (9) months of Executive’s Base Salary, and (ii) a pro rata portion of the target Annual Bonus for the year in which such termination occurs. Such severance payment shall be made in a single lump sum sixty (60) days following such termination, provided the Executive has executed and delivered to the Company, and has not revoked a general release of the Company, its parents, subsidiaries and affiliates and each of its officers, directors, employees, agents, successors and assigns, and such other persons and/or entities as the Company may determine, in a form reasonably acceptable to the Company. Such general release shall be delivered on or about the date of termination and must be executed within fifty-five (55) days of termination.
(b) If Executive’s employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, and such termination occurs within three months prior to a Change in Control in contemplation of the Change in Control or within six (6) months after the Change in Control, Executive shall be entitled to receive, in addition to any severance pursuant to Section 7(a) above, an acceleration of the vesting of any equity grants to date, if any, or, if the termination occurs after the Change of Control, the Substitute Grant, as applicable. For purposes of this Agreement, “Change in Control” means the occurrence of any of the following events: (i) an acquisition (other than directly from the Company) of any voting securities of the Company by any person or group of affiliated or related persons (as such term is defined in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (“Exchange Act”)), immediately after which such person or group has beneficial ownership (within the meaning of the Exchange Act) of more than fifty percent (50%) of the combined voting power of the Company’s then outstanding voting securities; provided that this subsection shall not apply to an acquisition of voting securities by any employee benefit plan or trust maintained by or for the benefit of the Company or its employees; (ii) a merger, consolidation or reorganization involving the Company whereby the holders of Company common stock immediately preceding such transaction no longer hold a majority of the shares of Company common stock after such transaction; or (iii) the sale or other disposition of all or substantially all of the Company's assets.
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(c) If Executive's employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, and if Executive is eligible for and elects to continue to participate in the Company’s medical and dental benefit programs, the Company will continue to pay the same portion of Executive's medical and dental insurance premiums as during active employment (for Executive and eligible spouse and dependents) until the earlier of: (1) nine months from Executive's cessation from employment; or (2) the date Executive is eligible for medical and/or dental insurance benefits from another employer.
8. Confidentiality Agreement.
(a) Executive understands that during the Term she may have access to unpublished and otherwise confidential information both of a technical and non-technical nature, relating to the business of the Company and any of its parents, subsidiaries, divisions, affiliates (collectively, “Affiliated Entities”), or clients, including without limitation any of their actual or anticipated business, research or development, any of their technology or the implementation or exploitation thereof, including without limitation information Executive and other have collected, obtained or created, information pertaining to patent formulations, vendors, prices, costs, materials, processes, codes, material results, technology, system designs, system specifications, materials of construction, trade secrets and equipment designs, including information disclosed to the Company by other under agreements to hold such information confidential (collectively, the “Confidential Information”). Executive agrees to observe all Company policies and procedures concerning such Confidential Information. Executive further agrees not to disclose or use, either during his employment or at any time thereafter, any Confidential Information for any purpose, including without limitation any competitive purpose, unless authorized to do so by the Company in writing, except that she may disclose and use such information when necessary in the performance of his duties for the Company. Executive’s obligations under this Agreement will continue with respect to Confidential Information, whether or not his employment is terminated, until such information becomes generally available from public sources through no action of Executive. Notwithstanding the foregoing, however, Executive shall be permitted to disclose Confidential Information as may be required by a subpoena or other governmental order, provided that she first notifies promptly the Company of such subpoena, order or other requirement and allows the Company the opportunity to obtain a protective order or other appropriate remedy.
(b) During Executive’s employment, upon the Company’s request, or upon the termination of his employment for any reason, Executive will promptly deliver to the Company all documents, records, files, notebooks, manuals, letters, notes, reports, customer and supplier lists, cost and profit data, e-mail, apparatus, computers, cell phones, tablets, hardware, software, drawings, and any other material of the Company or any of its Affiliated Entities or clients, including all materials pertaining to Confidential Information developed by Executive or other, and all copies of such materials, whether of a technical, business or fiscal nature, whether on the hard drive of a laptop or desktop computer, in hard copy, disk or any other format, which are in Executive’s possession, custody or control.
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(c) Executive will promptly disclose to the Company any idea, invention, discovery or improvement, whether patentable or not (“Creations”), conceived or made by him alone or with other at any time during his employment. Executive agrees that the Company owns all such Creations, conceived or made by Executive alone or with other at any time during his employment, and Executive hereby assigns and agrees to assign to the Company all rights she has or may acquire their and agrees to execute any and all applications, assignments and other instruments relating thereto which the Company deems necessary or desirable. These obligations shall continue beyond the termination of his employment with respect to Creations and derivatives of such Creations conceived or made during his employment with the Company. Executive understands that the obligation to assign Creations to the Company shall not apply to any Creation which is developed entirely on his own time without using any of the Company’s equipment, supplies, facilities, and/or Confidential Information unless such Creation (a) relates in any way to the business or to the current or anticipated research or development of the Company or any of its Affiliated Entities; or (b) results in any way from his work at the Company.
(d) Executive will not assert any rights to any invention, discovery, idea or improvement relating to the business of the Company or any of its Affiliated Entities or to his duties hereunder as having been made or acquired by Executive prior to his work for the Company.
(e) During the Term, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to grant and authorize sublicenses) to make, have made, modify, use, sell, offer to sell, import, reproduce, distribute, publish, prepare derivative works of, display, perform publicly and by means of digital audio transmission and otherwise exploit as part of or in connection with any product, process or machine created or incorporated by the Executive.
(f) Executive agrees to cooperate fully with the Company, both during and after his employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights, patents, trademarks and other intellectual property rights (both in the United States and foreign countries) relating to such Creations. Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Creations. Executive further agrees that if the Company is unable, after reasonable effort, to secure Executive’s signature on any such papers, any officer of the Company shall be entitled to execute such papers as his agent and attorney-in-fact and Executive hereby irrevocably designates and appoints each officer of the Company as his agent and attorney-in-fact to execute any such papers on his behalf and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Creations, under the conditions described in this paragraph.
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9. Non-solicitation; non-competition. (a) Executive agrees that, during the Term and until nine (9) months after the termination of his employment, Executive will not, directly or indirectly, including on behalf of any person, firm or other entity, employ or actively solicit for employment any employee of the Company or any of its Affiliated Entities, or anyone who was an employee of the Company or any of its Affiliated Entities within the nine (9) months prior to the termination of Executive’s employment, or induce any such employee to terminate his or his employment with the Company or any of its Affiliated Entities.
(b) Executive further agrees that, during the Term and until nine (9) months after the termination of his employment, Executive will not, directly or indirectly, including on behalf of any person, firm or other entity, without the express written consent of an authorized representative of the Company, (i) perform services within the Territory (as defined below) for any Competing Business (as defined below), whether as an employee, consultant, agent, contractor or in any other capacity, (ii) hold office as an officer or director or like position in any Competing Business, or (iii) request any present or future customers or suppliers of the Company or any of its Affiliated Entities to curtail or cancel their business with the Company or any of its Affiliated Entities. These obligations will continue for the specified period regardless of whether the termination of Executive’s employment was voluntary or involuntary or with or without Cause or for any other reason.
(c) “Competing Business” means any corporation, partnership or other entity or person (other than the Company) which is engaged (a) in the development, manufacture, marketing, distribution or sale of, or research directed to the development, manufacture, marketing, distribution or sale of competing anti-cancer drug candidates or products or (b) in any other business activity carried on or planned to be carried on by the Company or any of its Affiliates during the Term.
(d) “Territory” shall mean within any state or foreign jurisdiction in which the Company or any subsidiary of the Company is then providing services or products or marketing its services or products (or engaged in active discussions to provide such services).
(e) Executive agrees that in the event a court determines the length of time or the geographic area or activities prohibited under this Section 9 are too restrictive to be enforceable, the court shall reduce the scope of the restriction to the extent necessary to make the restriction enforceable. In furtherance and not in limitation of the foregoing, the Company and the Executive each intend that the covenants contained in this Section 9 shall be deemed to be a series of separate covenants, one for each and every state, territory or jurisdiction of the United States, the People’s Republic of China, and any foreign country set forth therein. If, in any judicial proceeding, a court shall refuse to enforce any of such separate covenants, then such unenforceable covenants shall be deemed eliminated from the provisions hereof for the purpose of such proceedings to the extent necessary to permit the remaining separate covenants to be enforced in such proceedings.
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10. Representation and Warranty. The Executive hereby acknowledges and represents that she has had the opportunity to consult with legal counsel regarding his rights and obligations under this Agreement and that she fully understands the terms and conditions contained herein. Executive represents and warrants that Executive has provided the Company a true and correct copy of any agreements that purport: (a) to limit Executive’s right to be employed by the Company; (b) to prohibit Executive from engaging in any activities on behalf of the Company; or (c) to restrict Executive’s right to use or disclose any information while employed by the Company. Executive further represents and warrants that Executive will not use on the Company’s behalf any information, materials, data or documents belonging to a third party that are not generally available to the public, unless Executive has obtained written authorization to do so from the third party and provided such authorization to the Company. In the course of Executive’s employment with the Company, Executive is not to breach any obligation of confidentiality that Executive has with third parties, and Executive agrees to fulfill all such obligations during Executive’s employment with the Company. Executive further agrees not to disclose to the Company or use while working for the Company any trade secrets belonging to a third party.
11. Injunctive Relief. Without limiting the remedies available to the Company, Executive acknowledges that a breach of any of the covenants contained in Sections 8 and 9 above may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it will not be possible to measure precisely damages for such injuries and that, in the event of such a breach or threat thereof, the Company shall be entitled, without the requirement to post bond or other security, to obtain a temporary restraining order and/or injunction restraining Executive from engaging in activities prohibited by this Agreement or such other relief as may be required to specifically enforce any of the covenants in Sections 8 and 9 of this Agreement.
12. Notice. Any notice or other communication required or permitted to be given to the Parties shall be deemed to have been given if either personally delivered, or if sent for next-day delivery by nationally recognized overnight courier, and addressed as follows:
(a) If to Executive, to: [_]
(b) If to the Company, to: 1209 N. University Blvd., Middletown, OH, USA 45042
13. Severability. If any provision of this Agreement is declared void or unenforceable by a court of competent jurisdiction, all other provisions shall nonetheless remain in full force and effect.
14. Withholding. The Company may withhold from any payment that it is required to make under this Agreement amounts sufficient to satisfy applicable withholding requirements under any federal, state or local law.
15. Indemnification. The Company agrees that Executive will be covered by any “directors and officers” insurance policies then in effect with respect to Executive’s acts as an officer.
16. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of Delaware, without regard to the conflict of laws provisions thereof.
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17. Waiver. The waiver by either Party of a breach of any provision of this Agreement shall not be or be construed as a waiver of any subsequent breach. The failure of a Party to insist upon strict adherence to any provision of this Agreement on one or more occasions shall not be considered a waiver or deprive that Party of the right thereafter to insist upon strict adherence to that provision or any other provision of this Agreement. Any such waiver must be in writing, signed by the Party against whom such waiver is to be enforced.
18. Assignment. This Agreement is a personal contract and Executive may not sell, transfer, assign, pledge or hypothecate his rights, interests and obligations hereunder. Except as otherwise herein expressly provided, this Agreement shall be binding upon and shall inure to the benefit of Executive and his personal representatives and shall inure to the benefit of and be binding upon the Company and its successors and assigns, including without limitation, any corporation or other entity into which the Company is merged or which acquires all or substantially all of the assets of the Company.
19. Entire Agreement. This Agreement embodies all of the representations, warranties, covenants, understandings and agreements between the Parties relating to Executive’s employment with the Company. No other representations, warranties, covenants, understandings, or agreements exist between the Parties relating to Executive’s employment. This Agreement shall supersede all prior agreements, written or oral, relating to Executive’s employment. This Agreement may not be amended or modified except by a writing signed by the Parties.
[Signature page follows]
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IN WITNESS WHISEOF, the Parties have caused this Agreement to be duly executed and delivered on the date first written above.
| By: | /s/ Bo Yu | |||
| Name: | Bo Yu | |||
| Title: | Chief Program Officer | |||
| Agreed to and Accepted: | ||||
| Elite Education Group International Limited | ||||
| By: | /s/ Jianbo Zhang | |||
| Date: October 1, 2018 | ||||
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Exhibit 10.7
Agreement
Part A: Beijing Renda Finance and Education Technology Co., Ltd and
Part B: Quest Holding International LLC (QHI)
Beijing Renda Finance and Education Technology Co., Ltd (Party A) and QHI (Party B) have agreed to be bound to the terms, conditions, and obligations contained in this Agreement.
| I. | On behalf of Part B. Part A will hire, administrate, and pay employees for Party B, and rent an office for them in the Mainland of China. |
| II. | Part B will pay the actual operating expenses to Part A in each of the 12-month period from October 1, 2020 to September 30, 2021. |
| III. | This agreement is valid for 1 year from October 1, 2020to September 30, 2021. |
| IV. | Any party may terminate this agreement upon ninety (90) days prior written notice to the other party. |
IN WITNESS WHEREOF, the Parties have executed this agreement as of this 1st day of October, 2020.
 |
 | |
Jinliang Zhang,General Manager Beijing Renda Finance and Education |
Jianbo Zhang, General Manager Quest Holding International, LLC | |
| Technology Co., Ltd | ||
Exhibit 10.9
Elite Education Group International Limited
1209 N. University Blvd, Middletown, OH 45042
[_], 2020
[Director Name]
[Address]
Re: Director Offer Letter
Dear [_]:
Elite Education Group International Limited (the “Company”), is pleased to offer you a position as a member of its Board of Directors (the “Board”). We believe your background and experience will be a significant asset to the Company and we look forward to your participation on the Board. Should you choose to accept this position as a member of the Board, this letter agreement (the “Agreement”) shall constitute an agreement between you and the Company and contains all the terms and conditions relating to the services you agree to provide the Company.
1. Term. This Agreement is effective as of the date hereof (the “Effective Date”). Your term as director shall continue until your successor is duly elected and qualified. Your term of office as a member of the Board shall be up for re-election each year at the Company’s annual shareholder’s meeting and upon re-election, the terms and provisions of this Agreement shall remain in full force and effect.
2. Services. You shall render services as a member of the Board and such committees of the Board as the Board may designate, subject to your agreement to serve on such committees (hereinafter, your “Duties”). During the term of this Agreement, you shall attend and participate in such number of meetings of the Board and of the committees of which you may become a member (if any) as regularly or specially called. You may attend and participate at each such meeting, via teleconference or in person. You shall consult with the other members of the Board and committee (if any) regularly and as necessary via telephone, electronic mail or other forms of correspondence.
3. Services for Others. You shall be free to represent or perform services for other persons during the term of this Agreement. However, you agree that you do not presently perform and do not intend to perform, during the term of this Agreement, similar duties, consulting or other services for companies whose businesses are or would be, in any way, competitive with the Company (except for companies previously disclosed by you to the Company in writing). Should you propose to perform similar duties, consulting or other services for any such company, you agree to notify the Company in writing in advance (specifying the name of the organization for whom you propose to perform such services) and to provide information to the Company sufficient to allow it to determine if the performance of such services would conflict with areas of interest to the Company.
4. Compensation.
4.1. Cash. Commencing on the Effective Date, and upon each anniversary thereof that you remain a director, you shall receive cash compensation of $[_] for each calendar year of service under this Agreement on a pro-rated basis which shall be paid on a quarterly basis in arrears. Notwithstanding the foregoing to the contrary, all fees are subject to approval and/or change as deemed appropriate by the Board.
4.2 Reimbursement of Reasonable Expenses. You shall also be reimbursed for reasonable, pre-approved expenses incurred by you in connection with the performance of your Duties (including travel expenses for in-person meetings).
5. No Assignment. Because of the personal nature of the services to be rendered by you, this Agreement may not be assigned by you without the prior written consent of the Company.
6. Confidential Information; Non-Disclosure. In consideration of your access to certain Confidential Information (as defined below) of the Company, in connection with your business relationship with the Company, you hereby represent and agree as follows:
a. Definition. For purposes of this Agreement the term “Confidential Information” means: (i) any information which the Company possesses that has been created, discovered or developed by or for the Company, and which has or could have commercial value or utility in the business in which the Company is engaged; and (ii) any information which is related to the business of the Company and is generally not known by non-Company personnel. Confidential Information includes, without limitation, trade secrets and any information concerning products, processes, formulas, designs, inventions (whether or not patentable or registrable under copyright or similar laws, and whether or not reduced to practice), discoveries, concepts, ideas, improvements, techniques, methods, research, development and test results, specifications, data, know-how, software, formats, marketing plans, and analyses, business plans and analyses, strategies, forecasts, customer and supplier identities, characteristics and agreements.
b. Exclusions. Notwithstanding the foregoing, the term Confidential Information shall not include: (i) any information which becomes generally available to the public other than as a result of a breach of the confidentiality portions of this Agreement, or any other agreement requiring confidentiality between the Company and you; (ii) information received from a third party in rightful possession of such information who is not restricted from disclosing such information; (iii) information known by you prior to receipt of such information from the Company, which prior knowledge can be documented; and (iv) information you are required to disclose pursuant to any applicable law, regulation, judicial or administrative order or decree, or request by other regulatory organization having authority pursuant to the law; provided, however, that you shall first have given prior written notice to the Company and made a reasonable effort to obtain a protective order requiring that the Confidential Information not be disclosed.
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c. Documents. You agree that, without the express written consent of the Company, you will not remove from the Company's premises or retain following the termination of this Agreement or your service to the Company any notes, formulas, programs, data, records, machines or any other documents or items which in any manner contain or constitute Confidential Information, nor will you make reproductions or copies of same. You shall promptly return any such documents or items, along with any reproductions or copies to the Company upon the Company's demand, upon termination of this Agreement, or upon your termination or resignation.
d. Confidentiality. You agree that you will at all times hold in trust and confidence all Confidential Information and will not disclose to others, directly or indirectly, any Confidential Information or anything relating to such information without the prior written consent of the Company, except as may be necessary to perform your duties to the Company as a member of the Board. You further agree that you will not use any Confidential Information without the prior written consent of the Company, except as may be necessary to perform your duties to the Company as a member of the Board. Notwithstanding the foregoing, you may disclose Confidential Information to your legal counsel and accounting advisors who have a need to know such information for accounting or tax purposes and who agree to be bound by the provisions of this paragraph (d).
e. Ownership. You agree that Company shall own all right, title and interest (including patent rights, copyrights, trade secret rights, mask work rights, trademark rights, and all other intellectual and industrial property rights of any sort throughout the world) relating to any and all inventions (whether or not patentable), works of authorship, mask works, designations, designs, know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by you during the term of this Agreement and that arise out of your Duties (collectively, “Inventions”) and you will promptly disclose and provide all Inventions to the Company. You agree to assist the Company, at its expense, to further evidence, record and perfect such assignments, and to perfect, obtain, maintain, enforce, and defend any rights assigned.
f. Survival. You agree that the provisions of this Section shall survive and remain in full force and effect upon and following any termination or purported termination of this Agreement or from and after the time you cease performing services to the Company.
7. Non-Solicitation. During the term of your service to the Company and for a period of one (1) year thereafter, you shall not directly solicit for employment any employee of the Company with whom you have had contact due to your service. You agree that the provisions of this Section shall survive and remain in full force and effect upon and following any termination or purported termination of this Agreement or from and after the time you cease performing services to the Company.
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8. Governing Law; Venue; Waiver of Jury Trial. All questions with respect to the construction and/or enforcement of this Agreement, and the rights and obligations of the parties hereunder, shall be determined in accordance with the law of the State of Delaware applicable to agreements made and to be performed entirely in the State of Delaware. The parties hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts sitting in the New York County, New York, for the adjudication of any dispute hereunder or in connection herewith, and hereby irrevocably waive, and agree not to assert in any suit, action or proceeding, any claim that they are is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. THE PARTIES HEREBY IRREVOCABLY WAIVE ANY RIGHT EITHER MAY HAVE TO, AND AGREE NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
9. Entire Agreement; Amendment; Waiver; Counterparts. This Agreement expresses the entire understanding with respect to the subject matter hereof and supersedes and terminates any prior oral or written agreements with respect to the subject matter hereof. Any term of this Agreement may be amended and observance of any term of this Agreement may be waived only with the written consent of the parties hereto. Waiver of any term or condition of this Agreement by any party shall not be construed as a waiver of any subsequent breach or failure of the same term or condition or waiver of any other term or condition of this Agreement. The failure of any party at any time to require performance by any other party of any provision of this Agreement shall not affect the right of any such party to require future performance of such provision or any other provision of this Agreement. This Agreement may be executed in separate counterparts each of which will be an original and all of which taken together will constitute one and the same agreement, and may be executed using facsimiles of signatures, and a facsimile of a signature shall be deemed to be the same, and equally enforceable, as an original of such signature. Delivery of such counterparts by facsimile or email/.pdf transmission shall constitute validity delivery thereof.
10. Indemnification. The Company shall, to the maximum extent provided under applicable law, indemnify and hold you harmless from and against any expenses, including reasonable attorney’s fees, judgments, fines, settlements and other legally permissible amounts (“Losses”), incurred in connection with any proceeding arising out of, or related to, your performance of your Duties, other than any such Losses incurred as a result of your gross negligence, fraud or willful misconduct. The Company shall advance to you any expenses, including reasonable attorneys’ fees and costs of settlement, incurred in defending any such proceeding to the maximum extent permitted by applicable law. Such costs and expenses incurred by you in defense of any such proceeding shall be paid by the Company in advance of the final disposition of such proceeding promptly upon receipt by the Company of (a) written request for payment; (b) appropriate documentation evidencing the incurrence, amount and nature of the costs and expenses for which payment is being sought; and (c) an undertaking adequate under applicable law made by or on your behalf to repay the amounts so advanced if it shall ultimately be determined pursuant to any non-appealable judgment or settlement that you are not entitled to be indemnified by the Company.
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11. Not an Employment Agreement. This Agreement is not an employment agreement, and shall not be construed or interpreted to create any right for you to be employed by the Company or have any rights of an employee of the Company. You shall at all times act as an independent contract of the Company under this Agreement.
12. Acknowledgement. You accept this Agreement subject to all the terms and provisions of this Agreement. You agree to accept as binding, conclusive, and final all decisions or interpretations of the Board of any questions arising under this Agreement.
Thank you for your agreement to serve on our Board, and we look forward to working with you. If you are in agreement with the foregoing, please sign by your name below and return a copy to me, which signature shall signify your agreement.
| Sincerely, | ||
| By: | ||
| Name: | ||
| Title: | ||
| AGREED AND ACCEPTED: | ||
| [Director Name] | ||
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Exhibit 10.11
Elite Education Group International Limited
2019 Equity Incentive Plan
Section 1. Establishment and Purpose.
1.1 The purpose of the Plan is to attract and retain outstanding individuals as Employees, Directors and Consultants of the Company and its Subsidiaries, to recognize the contributions made to the Company and its Subsidiaries by Employees, Directors and Consultants, and to provide such Employees, Directors and Consultants with additional incentive to expand and improve the profits and achieve the objectives of the Company and its Subsidiaries, by providing such Employees, Directors and Consultants with the opportunity to acquire or increase their proprietary interest in the Company through receipt of Awards.
Section 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth below:
2.1 “Award” means any award or benefit granted under the Plan, which shall be a Stock Option, a Stock Award, a Stock Unit Award or an SAR.
2.2 “Award Agreement” means, as applicable, a Stock Option Agreement, Stock Award Agreement, Stock Unit Award Agreement or SAR Agreement evidencing an Award granted under the Plan.
2.3 “Board” means the Board of Directors of the Company.
2.4 “Change in Control” has the meaning set forth in Section 8.2 of the Plan.
2.5 “Code” means the Internal Revenue Code of 1986, as amended from time to time.
2.6 “Committee” means the Compensation Committee of the Board or such other committee as may be designated by the Board from time to time to administer the Plan, or, if no such committee has been designated at the time of any grants, it shall mean the Board.
2.7 “Common Stock” means common stock of the Company.
2.8 “Company” means Elite Education Group International Limited.
2.9 “Consultant” means any person, including an advisor, who is engaged by the Company or an affiliate to render consulting or advisory services and is compensated for such services. However, service solely as a Director, or payment of a fee for such service, will not cause a Director to be considered a “Consultant” for purposes of the Plan. Notwithstanding the foregoing, a person is treated as a Consultant under this Plan only if a Form S-8 Registration Statement under the Securities Act is available to register either the offer or the sale of the Company’s securities to such person.
2.10 “Director” means a director of the Company who is not an employee of the Company or a Subsidiary.
2.11 “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.
2.12 “Fair Market Value” means as of any date, the closing price of a share of Common Stock on the national securities exchange on which the Common Stock is listed, or, if the Common Stock is not listed on a national securities exchange, the over-the-counter market on which the Common Stock trades, or, if the Common Stock is not listed on a national securities exchange or an over-the-counter market, as determined by the Board as of such date, or, if no trading occurred on such date, as of the trading day immediately preceding such date.
2.13 “Incentive Stock Option” or “ISO” means a Stock Option granted under Section 5 of the Plan that meets the requirements of Section 422(b) of the Code or any successor provision.
2.14 “Employee” means an employee of the Company or any Subsidiary selected to participate in the Plan in accordance with Section 3. A Employee may also include a person who is granted an Award (other than an Incentive Stock Option) in connection with the hiring of the person prior to the date the person becomes an employee of the Company or any Subsidiary, provided that such Award shall not vest prior to the commencement of employment.
2.15 “Non-Qualified Stock Option” or “NSO” means a Stock Option granted under Section 5 of the Plan that is not an Incentive Stock Option.
2.16 “Participant” means an Employee, Director or Consultant selected to receive an Award under the Plan.
2.17 “Plan” means the 2018 Equity Incentive Plan.
2.18 “Stock Appreciation Right” or “SAR” means a grant of a right to receive shares of Common Stock or cash under Section 8 of the Plan.
2.19 “Stock Award” means a grant of shares of Common Stock under Section 6 of the Plan.
2.20 “Stock Option” means an Incentive Stock Option or a Non-Qualified Stock Option granted under Section 5 of the Plan.
2.21 “Stock Unit Award” means a grant of a right to receive shares of Common Stock or cash under Section 7 of the Plan.
2.22 “Subsidiary” means an entity of which the Company is the direct or indirect beneficial owner of not less than 50% of all issued and outstanding equity interest of such entity.
Section 3. Administration.
3.1 The Board.
The Plan shall be administered by the Committee, which shall be comprised of at least two members of the Board who satisfy the “non-employee director” definition set forth in Rule 16b-3 under the Exchange Act, unless the Board otherwise determines.
3.2 Authority of the Committee.
(a) The Committee, in its sole discretion, shall determine the Employees and Directors to whom, and the time or times at which Awards will be granted, the form and amount of each Award, the expiration date of each Award, the time or times within which the Awards may be exercised, the cancellation of the Awards and the other limitations, restrictions, terms and conditions applicable to the grant of the Awards. The terms and conditions of the Awards need not be the same with respect to each Participant or with respect to each Award.
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(b) To the extent permitted by applicable law, regulation, and rules of a stock exchange on which the Common Stock is listed or traded, the Committee may delegate its authority to grant Awards to Employees and to determine the terms and conditions thereof to such officer of the Company as it may determine in its discretion, on such terms and conditions as it may impose, except with respect to Awards to officers subject to Section 16 of the Exchange Act.
(c) The Committee may, subject to the provisions of the Plan, establish such rules and regulations as it deems necessary or advisable for the proper administration of the Plan, and may make determinations and may take such other action in connection with or in relation to the Plan as it deems necessary or advisable. Each determination or other action made or taken pursuant to the Plan, including interpretation of the Plan and the specific terms and conditions of the Awards granted hereunder, shall be final and conclusive for all purposes and upon all persons.
(d) No member of the Board or the Committee shall be liable for any action taken or determination made hereunder in good faith. Service on the Committee shall constitute service as a Director so that the members of the Committee shall be entitled to indemnification and reimbursement as Directors of the Company pursuant to the Company’s Certificate of Incorporation and By-Laws.
3.3 Award Agreements.
(a) Each Award shall be evidenced by a written Award Agreement specifying the terms and conditions of the Award. In the sole discretion of the Committee, the Award Agreement may condition the grant of an Award upon the Participant’s entering into one or more of the following agreements with the Company: (i) an agreement not to compete with the Company and its Subsidiaries which shall become effective as of the date of the grant of the Award and remain in effect for a specified period of time following termination of the Participant’s employment with the Company; (ii) an agreement to cancel any employment agreement, fringe benefit or compensation arrangement in effect between the Company and the Participant; and (iii) an agreement to retain the confidentiality of certain information. Such agreements may contain such other terms and conditions as the Committee shall determine. If the Participant shall fail to enter into any such agreement at the request of the Committee, then the Award granted or to be granted to such Participant shall be forfeited and cancelled.
Section 4. Shares of Common Stock Subject to Plan.
4.1 Total Number of Shares.
(a) The total number of shares of Common Stock that may be issued under the Plan shall be 2,000,000. Such shares may be either authorized but unissued shares or treasury shares, and shall be adjusted in accordance with the provisions of Section 4.3 of the Plan.
(b) The number of shares of Common Stock delivered by a Participant or withheld by the Company on behalf of any such Participant as full or partial payment of an Award, including the exercise price of a Stock Option or of any required withholding taxes, shall not again be available for issuance pursuant to subsequent Awards, and shall count towards the aggregate number of shares of Common Stock that may be issued under the Plan. Any shares of Common Stock purchased by the Company with proceeds from a Stock Option exercise shall not again be available for issuance pursuant to subsequent Awards, shall count against the aggregate number of shares that may be issued under the Plan and shall not increase the number of shares available under the Plan.
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(c) If there is a lapse, forfeiture, expiration, termination or cancellation of any Award for any reason (including for reasons described in Section 3.3), or if shares of Common Stock are issued under such Award and thereafter are reacquired by the Company pursuant to rights reserved by the Company upon issuance thereof, the shares of Common Stock subject to such Award or reacquired by the Company shall again be available for issuance pursuant to subsequent Awards, and shall not count towards the aggregate number of shares of Common Stock that may be issued under the Plan.
4.2 Shares Under Awards.
Of the shares of Common Stock authorized for issuance under the Plan pursuant to Section 4.1:
(a) The maximum number of shares of Common Stock as to which an Employee may receive Stock Options or SARs in any calendar year is 200,000, except that the maximum number of shares of Common Stock as to which a Employee may receive Stock Options or SARs in the calendar year in which such Employee begins employment with the Company or its Subsidiaries is 350,000.
(b) The maximum number of shares of Common Stock that may be subject to Stock Options (ISOs and/or NSOs) is full amount of the plan.
(c) The maximum number of shares of Common Stock that may be used for Stock Awards and/or Stock Unit Awards that may be granted to any Employee in any calendar year is 350,000, or, in the event the Award is settled in cash, an amount equal to the Fair Market Value of such number of shares on the date on which the Award is settled.
(d) The maximum number of shares of Common Stock subject to Awards granted under the Plan or otherwise during any one calendar year to any Director, taken together with any cash fees paid by the Company to such Director during such calendar year for service on the Board, will not exceed $1,000,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes).
The numbers of shares described herein shall be as adjusted in accordance with Section 4.3 of the Plan.
4.3 Adjustment.
In the event of any reorganization, recapitalization, stock split, stock distribution, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the Company or any similar corporate transaction, the Committee shall make such adjustments as it deems appropriate, in its sole discretion, to preserve the benefits or intended benefits of the Plan and Awards granted under the Plan. Such adjustments may include: (a) adjustment in the number and kind of shares reserved for issuance under the Plan; (b) adjustment in the number and kind of shares covered by outstanding Awards; (c) adjustment in the exercise price of outstanding Stock Options or SARs or the price of Stock Awards or Stock Unit Awards under the Plan; (d) adjustments to any of the shares limitations set forth in Section 4.1 or 4.2 of the Plan; and (e) any other changes that the Committee determines to be equitable under the circumstances.
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Section 5. Grants of Stock Options.
5.1 Grant.
Subject to the terms of the Plan, the Committee may from time to time grant Stock Options to Participants. Unless otherwise expressly provided at the time of the grant, Stock Options granted under the Plan to Employees will be NSOs. Stock Options granted under the Plan to Directors who are not employees of the Company or any Subsidiary will be NSOs.
5.2 Stock Option Agreement.
The grant of each Stock Option shall be evidenced by a written Stock Option Agreement specifying the type of Stock Option granted, the exercise period, the exercise price, the terms for payment of the exercise price, the expiration date of the Stock Option, the number of shares of Common Stock to be subject to each Stock Option and such other terms and conditions established by the Committee, in its sole discretion, not inconsistent with the Plan.
5.3 Exercise Price and Exercise Period.
With respect to each Stock Option granted to a Participant:
(a) The per share exercise price of each Stock Option shall be the Fair Market Value of the Common Stock subject to the Stock Option on the date on which the Stock Option is granted.
(b) Each Stock Option shall become exercisable as provided in the Stock Option Agreement; provided that the Committee shall have the discretion to accelerate the date as of which any Stock Option shall become exercisable in the event of the Participant’s termination of employment with the Company, or service on the Board, without cause (as determined by the Board in its sole discretion).
(c) No dividends or dividend equivalents shall be paid with respect to any shares subject to a Stock Option prior to the exercise of the Stock Option.
(d) Each Stock Option shall expire, and all rights to purchase shares of Common Stock thereunder shall expire, on the date ten years after the date of grant.
5.4 Required Terms and Conditions of ISOs.
In addition to the foregoing, each ISO granted to an Employee shall be subject to the following specific rules:
(a) The aggregate Fair Market Value (determined with respect to each ISO at the time such Option is granted) of the shares of Common Stock with respect to which ISOs are exercisable for the first time by an Employee during any calendar year (under all incentive stock option plans of the Company and its Subsidiaries) shall not exceed $100,000. If the aggregate Fair Market Value (determined at the time of grant) of the Common Stock subject to an ISO which first becomes exercisable in any calendar year exceeds the limitation of this Section 5.4(a), so much of the ISO that does not exceed the applicable dollar limit shall be an ISO and the remainder shall be a NSO; but in all other respects, the original Stock Option Agreement shall remain in full force and effect.
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(b) Notwithstanding anything herein to the contrary, if an ISO is granted to an Employee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or its parent or subsidiaries within the meaning of Section 422(b)(6) of the Code): (i) the purchase price of each share of Common Stock subject to the ISO shall be not less than 110% of the Fair Market Value of the Common Stock on the date the ISO is granted; and (ii) the ISO shall expire, and all rights to purchase shares of Common Stock thereunder shall expire, no later than the fifth anniversary of the date the ISO was granted.
(c) No ISOs shall be granted under the Plan after ten years from the earlier of the date the Plan is adopted or approved by shareholders of the Company.
5.5 Exercise of Stock Options.
(a) A Participant entitled to exercise a Stock Option may do so by delivering written notice to that effect specifying the number of shares of Common Stock with respect to which the Stock Option is being exercised and any other information the Committee may prescribe. All notices or requests provided for herein shall be delivered to the Chief Financial Officer of the Company.
(b) The Committee in its sole discretion may make available one or more of the following alternatives for the payment of the Stock Option exercise price: (i) in cash; (ii) in cash received from a broker-dealer to whom the Participant has submitted an exercise notice together with irrevocable instructions to deliver promptly to the Company the amount of sales proceeds from the sale of the shares subject to the Stock Option to pay the exercise price; (iii) by directing the Company to withhold such number of shares of Common Stock otherwise issuable in connection with the exercise of the Stock Option having an aggregate Fair Market Value equal to the exercise price; (iv) by delivering previously acquired shares of Common Stock that are acceptable to the Committee and that have an aggregate Fair Market Value on the date of exercise equal to the Stock Option exercise price; or (v) by certifying to ownership by attestation of such previously acquired shares of Common Stock.
The Committee shall have the sole discretion to establish the terms and conditions applicable to any alternative made available for payment of the Stock Option exercise price.
Section 6. Stock Awards.
6.1 Grant.
The Committee may, in its discretion, (a) grant shares of Common Stock under the Plan to any Participant without consideration from such Participant or (b) sell shares of Common Stock under the Plan to any Participant for such amount of cash, Common Stock or other consideration as the Committee deems appropriate.
6.2 Stock Award Agreement.
Each share of Common Stock granted or sold hereunder shall be subject to such restrictions, conditions and other terms as the Board may determine at the time of grant or sale, the general provisions of the Plan, the restrictions, terms and conditions of the related Stock Award Agreement, and the following specific rules:
(a) The Award Agreement shall specify whether the shares of Common Stock are granted or sold to the Participant and such other provisions, not inconsistent with the terms and conditions of the Plan, as the Committee shall determine.
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(b) The restrictions to which the shares of Common Stock awarded hereunder are subject shall lapse as provided in Stock Award Agreement; provided that the Committee shall have the discretion to accelerate the date as of which the restrictions lapse with respect to any Award held by a Participant in the event of the Participant’s termination of employment with the Company, or service on the Board, without cause (as determined by the Committee in its sole discretion).
(c) Except as provided in this subsection (c) and unless otherwise set forth in the related Stock Award Agreement, the Participant receiving a grant of or purchasing Common Stock shall thereupon be a stockholder with respect to such shares and shall have the rights of a stockholder with respect to such shares, including the right to vote such shares and to receive dividends and other distributions paid with respect to such shares; provided that any dividends or other distributions payable with respect to the Stock Award shall be accumulated and held by the Company and paid to the Participant only upon, and to the extent, the restrictions lapse in accordance with the terms of the applicable Stock Award Agreement. Any such dividends or other distributions held by the Company attributable to the portion of a Stock Award that is forfeited shall also be forfeited.
Section 7. Stock Unit Awards.
7.1 Grant.
The Committee may, in its discretion, grant Stock Unit Awards to any Participant. Each Stock Unit subject to the Award shall entitle the Participant to receive, on the date or the occurrence of an event (including the attainment of performance goals) as described in the Stock Unit Award Agreement, a share of Common Stock or cash equal to the Fair Market Value of a share of Common Stock on the date of such event as provided in the Stock Unit Award Agreement.
7.2 Stock Unit Agreement.
Each Stock Unit Award shall be subject to such restrictions, conditions and other terms as the Committee may determine at the time of grant, the general provisions of the Plan, the restrictions, terms and conditions of the related Stock Unit Award Agreement and the following specific rules:
(a) The Stock Unit Agreement shall specify such provisions, not inconsistent with the terms and conditions of the Plan, as the Committee shall determine.
(b) The restrictions to which the shares of Stock Units awarded hereunder are subject shall lapse as provided in Stock Unit Agreement; provided that the Committee shall have the discretion to accelerate the date as of which the restrictions lapse with respect to any Award held by a Participant in the event of the Participant’s termination of employment with the Company, or service on the Board, without cause (as determined by the Board in its sole discretion).
(c) Except as provided in this subsection (c) and unless otherwise set forth in the Stock Unit Agreement, the Participant receiving a Stock Unit Award shall have no rights of a stockholder, including voting or dividends or other distributions rights, with respect to any Stock Units prior to the date they are settled in shares of Common Stock; provided that a Stock Unit Award Agreement may provide that until the Stock Units are settled in shares or cash, the Participant shall be entitled to receive on each dividend or distribution payment date applicable to the Common Stock an amount equal to the dividends or other distributions that the Participant would have received had the Stock Units held by the Participant as of the related record date been actual shares of Common Stock. Such amounts shall be accumulated and held by the Company and paid to the Participant only upon, and to the extent, the restrictions lapse in accordance with the terms of the applicable Stock Unit Award Agreement. Such amounts held by the Company attributable to the portion of the Stock Unit Award that is forfeited shall also be forfeited.
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Section 8. SARs.
8.1 Grant.
The Committee may grant SARs to Participants. Upon exercise, an SAR entitles the Participant to receive from the Company the number of shares of Common Stock having an aggregate Fair Market Value equal to the excess of the Fair Market Value of one share as of the date on which the SAR is exercised over the exercise price, multiplied by the number of shares with respect to which the SAR is being exercised. The Committee, in its discretion, shall be entitled to cause the Company to elect to settle any part or all of its obligations arising out of the exercise of an SAR by the payment of cash in lieu of all or part of the shares it would otherwise be obligated to deliver in an amount equal to the Fair Market Value of such shares on the date of exercise. Cash shall be delivered in lieu of any fractional shares. The terms and conditions of any such Award shall be determined at the time of grant.
8.2 SAR Agreement.
(a) Each SAR shall be evidenced by a written SAR Agreement specifying the terms and conditions of the SAR as the Committee may determine, including the SAR exercise price, expiration date of the SAR, the number of shares of Common Stock to which the SAR pertains, the form of settlement and such other terms and conditions established by the Committee, in its sole discretion, not inconsistent with the Plan.
(b) The per Share exercise price of each SAR shall not be less than 100% of the Fair Market Value of a Share on the date the SAR is granted.
(c) Each SAR shall expire and all rights thereunder shall cease on the date fixed by the Committee in the related SAR Agreement, which shall not be later than the ten years after the date of grant; provided however, if a Participant is unable to exercise an SAR because trading in the Common Stock is prohibited by law or the Company’s insider-trading policy, the SAR exercise date shall be extended to the date that is 30 days after the expiration of the trading prohibition.
(d) Each SAR shall become exercisable as provided in the related SAR Agreement; provided that notwithstanding any other Plan provision, the Committee shall have the discretion to accelerate the date as of which any SAR shall become exercisable in the event of the Participant’s termination of employment, or service on the Board, without cause (as determined by the Committee in its sole discretion).
(e) No dividends or dividend equivalents shall be paid with respect to any SAR prior to the exercise of the SAR.
(f) A person entitled to exercise an SAR may do so by delivery of a written notice in accordance with procedures established by the Committee specifying the number of shares of Common Stock with respect to which the SAR is being exercised and any other information the Committee may prescribe. As soon as reasonably practicable after the exercise of an SAR, the Company shall (i) issue the total number of full shares of Common Stock to which the Participant is entitled and cash in an amount equal to the Fair Market Value, as of the date of exercise, of any resulting fractional share, and (ii) if the Committee causes the Company to elect to settle all or part of its obligations arising out of the exercise of the SAR in cash, deliver to the Participant an amount in cash equal to the Fair Market Value, as of the date of exercise, of the shares it would otherwise be obligated to deliver.
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Section 9. Change in Control.
9.1 Effect of a Change in Control.
(a) Notwithstanding any of the provisions of the Plan or any outstanding Award Agreement, upon a Change in Control of the Company (as defined in Section 9.2), the Board is authorized and has sole discretion to provide that (i) all outstanding Awards shall become fully exercisable, (ii) all restrictions applicable to all Awards shall terminate or lapse and (iii) performance goals applicable to any Awards shall be deemed satisfied at the highest level, as applicable, in order that Participants may realize the benefits thereunder.
(b) In addition to the Board’s authority set forth in Section 3, upon such Change in Control of the Company, the Board is authorized and has sole discretion as to any Award, either at the time such Award is granted hereunder or any time thereafter, to take any one or more of the following actions: (i) provide for the purchase of any outstanding Stock Option, for an amount of cash equal to the difference between the exercise price and the then Fair Market Value of the Common Stock covered thereby had such Stock Option been currently exercisable; (ii) make such adjustment to any such Award then outstanding as the Board deems appropriate to reflect such Change in Control; and (iii) cause any such Award then outstanding to be assumed by the acquiring or surviving corporation after such Change in Control.
9.2 Definition of Change in Control.
“Change in Control” of the Company shall be deemed to have occurred if at any time during the term of an Award granted under the Plan any of the following events occurs:
(a) any Person (other than the Company, a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of shares of Common Stock of the Company) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors (“Person” and “Beneficial Owner” being defined in Rule 13d-3 of the General Rules and Regulations of the Exchange Act);
(b) the Company is party to a merger, consolidation, reorganization or other similar transaction with another corporation or other Person unless, following such transaction, more than 50% of the combined voting power of the outstanding securities of the surviving, resulting or acquiring corporation or Person or its parent entity entitled to vote generally in the election of directors (or Persons performing similar functions) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Company’s outstanding securities entitled to vote generally in the election of directors immediately prior to such transaction, in substantially the same proportions as their ownership, immediately prior to such transaction, of the Company’s outstanding securities entitled to vote generally in the election of directors;
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(c) the election to the Board, without the recommendation or approval of two-thirds of the incumbent Board, of the lesser of: (i) three Directors; or (ii) Directors constituting a majority of the number of Directors of the Company then in office; provided, however, that Directors whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of Directors of the Company will not be considered as incumbent members of the Board for purposes of this Section; or
(d) there is a complete liquidation or dissolution of the Company, or the Company sells all or substantially all of its business and/or assets to another corporation or other Person unless, following such sale, more than 50% of the combined voting power of the outstanding securities of the acquiring corporation or Person or its parent entity entitled to vote generally in the election of directors (or Persons performing similar functions) is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Company’s outstanding securities entitled to vote generally in the election of directors immediately prior to such sale, in substantially the same proportions as their ownership, immediately prior to such sale, of the Company’s outstanding securities entitled to vote generally in the election of directors.
In no event, however, shall a Change in Control be deemed to have occurred, with respect to a Participant, if that Participant is part of a purchasing group which consummates the Change in Control transaction. A Participant shall be deemed “part of a purchasing group” for purposes of the preceding sentence if the Participant is an equity participant or has agreed to become an equity participant in the purchasing company or group (except for (a) passive ownership of less than 3% of the shares of the purchasing company; or (b) ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the Change in Control by a majority of the disinterested Directors).
Section 10. Payment of Taxes.
(a) In connection with any Award, and as a condition to the issuance or delivery of any shares of Common Stock to the Participant in connection therewith, the Company shall require the Participant to pay the Company the minimum amount of federal, state, local or foreign taxes required to be withheld, and in the Company’s sole discretion, the Company may permit the Participant to pay the Company up to the maximum individual statutory rate of applicable withholding.
(b) The Company in its sole discretion may make available one or more of the following alternatives for the payment of such taxes: (i) in cash; (ii) in cash received from a broker-dealer to whom the Participant has submitted notice together with irrevocable instructions to deliver promptly to the Company the amount of sales proceeds from the sale of the shares subject to the Award to pay the withholding taxes; (iii) by directing the Company to withhold such number of shares of Common Stock otherwise issuable in connection with the Award having an aggregate Fair Market Value equal to the minimum amount of tax required to be withheld; (iv) by delivering previously acquired shares of Common Stock of the Company that are acceptable to the Board that have an aggregate Fair Market Value equal to the amount required to be withheld; or (v) by certifying to ownership by attestation of such previously acquired shares of Common Stock.
The Committee shall have the sole discretion to establish the terms and conditions applicable to any alternative made available for payment of the required withholding taxes.
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Section 11. Postponement.
The Committee may postpone any grant or settlement of an Award or exercise of a Stock Option or SAR for such time as the Board in its sole discretion may deem necessary in order to permit the Company:
(a) to effect, amend or maintain any necessary registration of the Plan or the shares of Common Stock issuable pursuant to an Award, including upon the exercise of a Stock Option or SAR, under the Securities Act of 1933, as amended, or the securities laws of any applicable jurisdiction;
(b) to permit any action to be taken in order to (i) list such shares of Common Stock on a stock exchange if shares of Common Stock are then listed on such exchange or (ii) comply with restrictions or regulations incident to the maintenance of a public market for its shares of Common Stock, including any rules or regulations of any stock exchange on which the shares of Common Stock are listed; or
(c) to determine that such shares of Common Stock and the Plan are exempt from such registration or that no action of the kind referred to in (b)(ii) above needs to be taken; and the Company shall not be obligated by virtue of any terms and conditions of any Award or any provision of the Plan to sell or issue shares of Common Stock in violation of the Securities Act of 1933 or the law of any government having jurisdiction thereof.
Any such postponement shall not extend the term of an Award and neither the Company nor its Directors or officers shall have any obligation or liability to a Participant, the Participant’s successor or any other person with respect to any shares of Common Stock as to which the Award shall lapse because of such postponement.
Section 12. Nontransferability.
Awards granted under the Plan, and any rights and privileges pertaining thereto, may not be transferred, assigned, pledged or hypothecated in any manner, or be subject to execution, attachment or similar process, by operation of law or otherwise, other than by will or by the laws of descent and distribution.
Section 13. Delivery of Shares.
Shares of Common Stock issued pursuant to a Stock Award, the exercise of a Stock or SAR or the settlement of a Stock Unit Award shall be represented by stock certificates or on a non-certificated basis, with the ownership of such shares by the Participant evidenced solely by book entry in the records of the Company’s transfer agent; provided, however, that upon the written request of the Participant, the Company shall issue, in the name of the Participant, stock certificates representing such shares of Common Stock. Notwithstanding the foregoing, shares granted pursuant to a Stock Award shall be held by the Secretary of the Company until such time as the shares are forfeited or settled.
Section 14. Termination or Amendment of Plan and Award Agreements.
14.1 Termination or Amendment of Plan.
(a) Except as described in Section 14.3 below, the Board may terminate, suspend, or amend the Plan, in whole or in part, from time to time, without the approval of the stockholders of the Company, unless such approval is required by applicable law, regulation or rule of any stock exchange on which the shares of Common Stock are listed. No amendment or termination of the Plan shall adversely affect the right of any Participant under any outstanding Award in any material way without the written consent of the Participant, unless such amendment or termination is required by applicable law, regulation or rule of any stock exchange on which the shares of Common Stock are listed. Subject to the foregoing, the Committee may correct any defect or supply an omission or reconcile any inconsistency in the Plan or in any Award granted hereunder in the manner and to the extent it shall deem desirable, in its sole discretion, to effectuate the Plan.
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(b) The Board shall have the authority to amend the Plan to the extent necessary or appropriate to comply with applicable law, regulation or accounting rules in order to permit Participants who are located outside of the United States to participate in the Plan.
14.2 Amendment of Award Agreements.
The Committee shall have the authority to amend any Award Agreement at any time; provided however, that no such amendment shall adversely affect the right of any Participant under any outstanding Award Agreement in any material way without the written consent of the Participant, unless such amendment is required by applicable law, regulation or rule of any stock exchange on which the shares of Common Stock are listed.
14.3 No Repricing of Stock Options.
Notwithstanding the foregoing, and except as described in Section 4.3, there shall be no amendment to the Plan or any outstanding Stock Option Agreement or SAR Agreement that results in the repricing of Stock Options or SARs without stockholder approval. For this purpose, repricing includes (i) a reduction in the exercise price of the Stock Option or SARs or (ii) the cancellation of a Stock Option in exchange for cash, Stock Options or SARs with an exercise price less than the exercise price of the cancelled Options or SARs, other Awards or any other consideration provided by the Company, but does not include any adjustment described in Section 4.3.
Section 15. No Contract of Employment.
Neither the adoption of the Plan nor the grant of any Award under the Plan shall be deemed to obligate the Company or any Subsidiary to continue the employment of any Participant for any particular period, nor shall the granting of an Award constitute a request or consent to postpone the retirement date of any Participant.
Section 16. Applicable Law.
All questions pertaining to the validity, construction and administration of the Plan and all Awards granted under the Plan shall be determined in conformity with the laws of Delaware, without regard to the conflict of law provisions of any state, and, in the case of Incentive Stock Options, Section 422 of the Code and regulations issued thereunder.
Section 17. Effective Date and Term of Plan.
17.1 Effective Date.
The Plan as amended and restated has been adopted by the Board, and is effective, as of the date of such adoption, subject to the approval of the Plan by the stockholders of the Company.
17.2 Term of Plan.
Notwithstanding anything to the contrary contained herein, no Awards shall be granted on or after the tenth anniversary of the adoption of this Plan.
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Exhibit 10.12
INTERNATIONAL STUDENT RECRUITMENT SERVICES AGREEMENT
This International Student Recruitment Services Agreement (“Agreement”) is entered into as of the 9 day of Dec, 2019 by and between Miami University, Oxford Campus, Oxford Ohio, a state institution of higher Education, established and operating under the laws of the State of Ohio, and located in Oxford, Ohio (“Miami” or “University”), and Quest Holding International, LLC, an Ohio (USA) limited liability company (“Contractor”). University and Contractor shall from time to time be referred to in this Agreement collectively as the “Parties” and individually as a “Party.”
WHEREAS, Miami is a nationally recognized, four-year, public, student-centered university that provides a strong foundation in the traditional liberal arts, and that seeks to identify and enroll academically talented and ambitious students from around the world;
WHEREAS, Miami wishes to engage Contractor in a mutually beneficial agreement to increase the number of enrollments from prospective students who are citizens of the People’s Republic of China, (“PRC”) and to improve the academic quality of the applicants and enrolled students from the PRC;
WHEREAS, Contractor, has the particular training, ability, knowledge, cultural awareness, language skills and experience necessary to perform the services sought by Miami;
WHEREAS, Miami, in reliance upon Contractor’s representations and warranties as to its particular training, ability, knowledge, cultural awareness, language skills and experience, desires to engage Contractor as an independent contractor pursuant to this Agreement, to provide and facilitate recruitment and admission-related services to prospective PRC students, their parents, and high school administrators and also to provide PRC students and graduates with student career development consultation, employer recruitment, and engagement with alumni within the career development area during the term of this Agreement, as more fully described on Exhibit A attached hereto (the “Services”);
WHEREAS, Miami is a member of the National Association for College Admission Counseling (NACAC), and NAFSA: Association of International Educators, and as such, expects the Contractor to promote Miami University Academic Programs with integrity and accuracy and recruit students in an honest, ethical and responsible manner;
WHEREAS, The Contractor has read and agrees to comply with the Statement of Principles of Good Practice: NACAC’s Code of Ethics and Professional Practices (found at https://www.nacacnet.org/cepp and incorporated herein) and the American International Recruitment Council (AIRC) standards for ethical and responsible recruitment of foreign students (“AIRC Certification Standards 2015”, which are attached hereto and incorporated herein as Exhibit B) as these may be amended from time to time and shall cause these ethical standards to be followed any sub-contractors, franchisees, or other persons employed or contracted by the Contractor to perform the Services;
WHEREAS, the Contractor, desires to be so engaged by Miami pursuant to this Agreement to provide the Services; and
WHEREAS, the Parties hereto desire to make a full statement of their agreement pertaining to the provision of the Services for Miami University during the term of this Agreement;
NOW, THEREFORE, in consideration of the premises set forth hereinabove and the mutual covenants and agreements contained herein, and other good and valuable consideration, which is hereby acknowledged, it is agreed by and between the Parties hereto as follows:
| 1. | Engagement of Contractor. University hereby engages Contractor to perform the Services and hereby grants Contractor the exclusive right to promote University’s campus-based undergraduate degree programs (“Academic Programs”) and the American Culture and English Program (“ACE”) Program to any prospective student who is a citizen of the PRC and not a citizen of the United States of America (“Prospective Student(s)”). For the avoidance of doubt, the exclusive right granted under this Agreement shall include all Prospective Students who are citizens of the PRC, whether living in the PRC or living in some other country, including the United States, during the term of this Agreement. |
| 2. | Term. The Term of this Agreement shall be three years, commencing on November 1, 2019 and ending on November 1, 2022 unless earlier terminated as provided herein (“Term”). |
| 3. | Obligations of Contractor. |
| a. | Contractor agrees that during the term of this Agreement, it will work exclusively with Miami and shall not perform the Services for, or otherwise promote the programs or the interests of any other college, university, or other institution or entity offering post- secondary education. Contractor further agrees that it shall not receive any compensation or promise of future compensation from any other college, university, or other institution or entity offering post-secondary education during the Term. |
| b. | In providing the Services, Contractor shall do all of the following: |
| i. | Contractor shall use diligent efforts, commensurate with its training, ability, knowledge, cultural awareness, language skills and experience, in the performance of Services and to promote Miami University’s Oxford campus, fulltime undergraduate Academic and ACE Programs only to foreign students who are citizens of the PRC and not citizens of the USA; |
| ii. | Contractor will use University approved forms of communication, communication templates and social media to perform outreach to PRC Students on behalf of the University; |
| iii. | Contractor shall identify and recruit qualified prospective students for admission to Miami’s Oxford Campus Academic Programs in accordance with the University’s then current rules, policies, procedures and requirements; |
| iv. | Contractor will ensure that the testing of prospective students in the English language is carried out by qualified persons in accordance with the University’s then current rules, policies, procedures and requirements.; |
| v. | Contractor shall abide all applicable provisions of law and with the rules and regulations of all governmental units having pertinent jurisdiction over this Agreement and the performance of the Services, including, without limitation, those laws and regulations applicable to the performance of Services in the PRC and the United States of America. Contractor shall also abide all applicable rules and policies provided by Miami University; |
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| vi. | Contractor shall utilize a Client Relations Management system to manage the relationship with the University along with all communication and interactions with prospective, admitted and enrolled PRC students; |
| vii. | Contractor shall submit original documents or certified copies for all enrollment application and related materials to the University in a timely manner; |
| viii. | Contractor shall agree to abide by criteria and standards established by NACAC and AIRC for ethical and responsible recruitment of foreign students as they may be amended from time to time (https://www.nacacnet.org/cepp and Exhibit B hereto, respectively) and further agrees to require any agent or subcontractor Contractor engages to perform the services to abide by said criteria and standards; |
| ix. | Contractor shall work to facilitate enrollment applications only from qualified students who meet both the academic and financial requirements to be admitted to the University. |
| x. | Contractor shall agree to provide Prospective Students full and accurate information about University, including but not limited to its enrollment procedures; costs for tuition, fees, room and board, and incidental expenses; academic offerings; student services and activities, and facilities; and |
| xi. | Contractor will be responsible for any and all expenses it incurs in performing the Services. |
| c. | In providing the Services, Contractor shall not do any of the following: |
| i. | Contractor shall not charge students, families, or any person or entity for the provision of these Services. Contractor acknowledges and agrees that the compensation set forth in paragraph 5 of this Agreement shall be the sole compensation that it will receive or accept for performing the Services; |
| ii. | Contractor shall not make any representations or offer any guarantees to Prospective Students about whether they will be granted a student visa; |
| iii. | Contractor shall not, unless authorized by University, make any representations or offer any guarantees to Prospective Students about the likelihood of awards of financial aid, scholarships, or admission; |
| iv. | Contractor shall not make any overt or implied claim or representation, or offer any guarantees, to Prospective Students with respect to individual employment following the completion of any of University’s Academic or ACE Programs; and |
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| v. | Contractor shall not negotiate, approve, execute, or enter into any contracts, memoranda of understanding, affiliation or cooperation agreements, articulation agreements, collaborative research agreements or any other arrangements with any other person or entity that purports to bind or obligate the University. |
| vi. | Contractor shall not perform any activities, functions or services that are considered an aspect of the University’s participation in Title IV, HEA program, and thus subject to applicable third-party servicer requirements. |
| 4. | Use of Logos and Marks. Notwithstanding any other provision of this Agreement, neither Party shall advertise or release any public statements that it has contracted with the other Party without such other Party’s prior written consent. Neither Party shall use the other Party’s name, logos, trademarks, service marks, trade names, or brand indicia (collectively, “Marks”) for any reason or in any manner, without the other Party’s prior written consent. Each Party consenting to the use of its Marks hereunder shall remain the sole and exclusive owner of and retain all right, title and interest in and to its Marks and the goodwill associated therewith. Nothing contained in this Agreement shall be construed as conferring upon any Party, by implication, operation of law or otherwise, any other rights. Upon the expiration or termination of this Agreement, any use of the other Party’s Marks and name shall immediately cease (unless otherwise agreed in writing by the owner of such Marks). If Contractor wishes to use Miami’s Marks, then Contractor must obtain written permission from Miami’s Director of Brand Management and Strategy, or the Miami University Office of General Counsel. |
| 5. | Compensation. |
| a. | Commission for Non-resident PRC Students |
| i. | Undergraduate Academic Programs - For each Prospective Student enrolled full time in a undergraduate Academic Program, who does not reside in the United States and who is ineligible for Federal financial aid and from whom University has received full payment of tuition by end of the published Add/Drop deadline for that semester (“Non-resident PRC Student”), University shall make a payment in US dollars to Contractor in an amount equal to the following percentages of the average first year instructional fee established by Miami for the Academic Year (Fall and Spring Semesters) in which the Non-resident PRC Student first enrolls: |
| ii. | If Contractor fails to provide 200 or more Non-resident PRC Students in a given Academic Year, no payment will be required. |
| iii. | If the Contractor provides 200 or more Non-resident PRC Students in a given Academic Year, 5% for each of the first 200 PRC students; |
| iv. | 10% for each of the next fifty (50) Non-resident PRC Students (201-250) enrolled in a given Academic Year. |
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| v. | 15% for each for each Non-resident PRC Students above 250 enrolled in a given Academic Year. |
| vi. | Commissions shall only be paid one time for each Non-resident PRC Student, even if the Non-resident PRC Student subsequently enrolls in additional Academic Programs. For example, if a Non-resident PRC Student enrolls in an Academic Program after successful completion of University’s ACE program, Contractor shall NOT be entitled to any additional Commission if the Contractor has already received a Commission when the Non-resident PRC Student enrolled in ACE. |
| vii. | Contractor shall not be entitled to Commission for any student who is enrolled as: |
| 1. | a non-matriculated exchange student; or |
| 2. | a student who enrolls in an Academic Program after completing a program on one of the University’s regional campuses. |
In addition to the foregoing, such students shall not be counted for determining Contractor’s eligibility for Commission.
| viii. | The awarding of a merit-based scholarship will not impact the amount of the Commission payment to Contractor. |
| ix. | Contractor understands that new tuition rates for the following academic year will go into effect July 1st each year. |
| x. | For purposes of calculating the Commissions set forth in this Paragraph, “full time” shall mean the same definition as found in 34 CFR §668.2 (12 or more semester hours). |
| b. | Flat Fee for Resident PRC Students – University shall pay Contractor a flat fee of $55,000 per Academic Year (“Flat Fee”) to perform the Services in connection with the recruitment of Prospective Students who reside in the United States (“Resident PRC Students”). The number of Resident PRC Students who enroll at Miami shall not be included for purposes of calculating the Commission owed by Miami for Non-resident PRC Students set forth in Paragraph 5.a., above. |
| c. | Compliance with Department of Education Restrictions on Incentive Compensation -- Contractor agrees that it will not solicit or accept any commission, bonus, or other incentive payment for any Prospective Student that that would violate the United States Department of Education’s prohibition on incentive compensation found at 34 CFR §668.14(b)(22)(i) unless an exception applies, including without limitation the exception found at 34 CFR §668.14(b)(22)(i)(A). |
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| 6. | Payment of Compensation. |
| a. | Commission – University shall pay Contractor the Commission in accordance with invoices issued by Contractor pursuant to this Agreement, or through other means of documentation as otherwise directed and permitted in writing by University. Except as provided in the invoice dispute and reconciliation process outlined in this Paragraph, Commission payments shall be made in two equal installments in each of the first two semesters of attendance by the Non-residential PRC Student. Unless University informs Contractor before the invoice date of changes to the enrollment status of Prospective Students, supported by reasonable evidence, an invoice shall be issued no later than 30 days after the expiration of the Add/Drop period for Non-residential PRC Students for whom full tuition has been paid. If a Non-resident PRC Student withdraws from the University after one semester, no second invoice shall be submitted for that Student and no second Commission payment shall be made by the University. Unless otherwise specified in the relevant invoice, University shall pay Commissions within 30 days of the invoice date. Contractor shall not be eligible to receive the commission payment for any given term until the student has paid his or her tuition fees to University. If a dispute over an invoice is identified within the 30-day period from invoice to payment, the parties shall follow a dispute resolution process that requires written notice of the dispute to Contractor with supporting documentation provided by the University. Disputed sums identified after payment shall be reconciled between the parties through the dispute resolution process in Paragraph 12.b. |
| b. | Flat Fee – |
| c. | Unless otherwise specified in the relevant invoice, payment of the Commission and the Flat Fee shall be made by wire transfer to the following: |
| Name of Financial Inastitution: | Chase |
| Address: | 1 Chase Manhattan Plaza New York, NY 10005 |
| Routing#: | 044000037 |
| Account#: | 882313260 |
| Name of Account Holder: | Quest Holding International |
| d. | All bank fees, corresponding bank and intermediary bank fees and charges are the responsibility of Contractor. |
| 7. | University Rights and Responsibilities. |
| a. | Nothing in this Agreement shall affect the University’s exclusive right to: |
| i. | Establish admission policies and criteria. |
| ii. | Make all admission, scholarship decisions based on Miami’s then current admission and scholarship criteria and communicate such decisions. |
| iii. | Set tuition and fees for all students. |
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| iv. | Process I-20 forms. |
| v. | Approve all communications regarding its Academic Programs, its ACE Program and all marketing materials or other communications to be utilized by Contractor in providing the Services. |
| vi. | Negotiate, approve and execute all contracts, memoranda of understanding, affiliation or cooperation agreements, articulation agreements, collaborative research agreements or any other arrangements with other schools, colleges, universities or other entities that involve or relate to admissions, teaching, research or Miami’s educational mission or that in any way purports to bind or obligate the University. |
| b. | The University shall: |
| i. | Conduct weekly status/update meetings with the Contractor, visit Contractor as needed, establish a single point of contact, and pay Contractor the compensation set forth in Paragraph 5 of this Agreement in the manner and by the due dates specified in Paragraph 6, unless an alternative method of payment is indicated on the relevant invoice. |
| ii. | Provide current, complete, timely, and sufficient University materials and other information to enable Contractor to perform the Services, including but not limited to, marketing materials such as brochures and content for inclusion on Contractor’s websites and email communication templates. |
| iii. | Provide, in clear written format, specific program admission criteria to Contractor and promptly communicate with Contractor if there are any changes or updates. |
| iv. | Once a Prospective Student indicates interest in Miami University, regardless of the source, Miami University agrees to provide the student’s contact information promptly to QHI for all communications and outreach to be managed by QHI on Miami’s behalf. |
| v. | Acknowledge receipt of applications, promptly process the application and render an admission decisions in a timely manner. The University will inform Contractor of status of the PRC Students at each phase of the admission process. The University will release the admission decision and send the admission decision packet (letter and I-20 forms) directly to PRC Students, in compliance with federal requirements. |
| vi. | The University will make available housing accommodations and student support services for all PRC students enrolled at the University. |
| 8. | Mutual Obligations. Each Party, in performing its obligations under this Agreement, shall: |
| a. | Comply with all applicable foreign and domestic laws; and |
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| b. | Provide accurate and complete information, particularly in any material (including without limitation marketing materials) that is intended, or could reasonably be inferred to be intended, for use by third parties. |
| 9. | Intellectual Property. |
| a. | University represents and warrants that it owns or has the right to use all intellectual property embodied in information and material provided by University to the Contractor in connection with this Agreement. University agrees and warrants that Contractor’s use of University Intellectual Property shall not infringe on the intellectual property rights or other ownership rights of any third party. |
| b. | Contractor shall own and retain all intellectual property rights (including all rights under copyright) in all reports and other materials created by Contractor in performing services under this Agreement. Contractor also shall retain all rights to its software and technologies (including without limitation the Contractor database), ideas, concepts, know-how, methods, techniques, processes and skills, and adaptations thereof, that may be utilized in providing the Services under this Agreement. |
| c. | University grants Contractor a limited non-exclusive license to use the University Materials (including University logos and trademarks for marketing) as reasonably required by Contractor to perform the services under this Agreement, provided that Contractor complies with the requirements of Paragraph 4 of this Agreement. |
| 10. | Confidentiality. |
| a. | All confidential and/or proprietary information of any kind, in any form disclosed or learned by either Party in connection with this Agreement shall be deemed “Confidential Information”. For purposes of this Agreement, Confidential Information shall include any and all business information relating to proprietary ideas; original academic content, courses, existing and/or contemplated products; degrees, certificate and professional development tools; production, cost, profit and margin information; finances and financial projections; customers, prospective or new student information, University, marketing, and current or future business plans and models; and other information related to the business activities of the Disclosing Party, as defined below, regardless of any confidentiality designation or restrictive markings, and which the Receiving Party, as defined below, learns or receives from the Disclosing Party. The Confidential Information of each Party (the “Disclosing Party”) may not be used by the Party receiving the Confidential Information (“Receiving Party”), or any agent or Contractor of the Receiving Party, for any purposes except in connection with the provision the Services, and may not be disclosed under any circumstances, in whole or in part, by the Receiving Party, or any agent or contractor of the Receiving Party, to any third party, except (i) to third parties engaged in the provision the Services, only on a need-to-know basis, who agree to maintain the confidentiality of the Confidential Information, and (ii) to the extent necessary to comply with law (including the Ohio Public Records Act, ORC §149.43 et seq.) or the valid order of a court of competent jurisdiction. The Receiving Party agrees to notify the Disclosing Party in advance in the event Confidential Information must be disclosed pursuant to section (i) or (ii) above, and agrees to cooperate with the Disclosing Party in seeking orders of protection or such other measures as may be reasonably necessary to protect the confidentiality of the Confidential Information. |
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| b. | Ohio Public Records Act - Contractor hereby acknowledges that Miami, as a public university, is subject to the Ohio Public Records Act (ORC §149.43 et seq.). Miami is obligated to promptly produce public records when requested by the public. Nothing in the Agreement shall prevent Miami from fully complying with the Ohio Public Records Act. Contractor hereby authorizes Miami to disclose copies of this Agreement, and all invoices, receipts, and purchase orders related to the Agreement pursuant to a request made under the Ohio Public Records Act without first providing Contractor notice. |
| c. | Confidential Information shall not include any information to the extent it: |
| i. | is or becomes a part of the public domain through no act or omission on the part of the Receiving Party; |
| ii. | is disclosed to third parties by the Disclosing Party without restriction on such third parties; |
| iii. | is in the Receiving Party’s possession, without actual or constructive knowledge of an obligation of confidentiality with respect thereto, at or prior to the time of disclosure under this Agreement; |
| iv. | is disclosed to the Receiving Party by a third party having no obligation of confidentiality with respect thereto; or |
| v. | is independently developed by the Receiving Party without reference to the Disclosing Party’s Confidential Information, or is released from confidential treatment by written consent of the Disclosing Party. |
| d. | Notwithstanding any other provision of this Agreement, Contractor shall comply with all applicable laws and regulations relating to confidentiality and privacy. |
| e. | The obligations and restrictions with respect to any Confidential Information shall continue to bind both Parties, even following termination of the Parties’ business relationship or the expiration or termination of this or any other Agreement between the Parties. |
| 11. | Privacy. |
| a. | In connection with this Agreement, to the extent University discloses any Personal Information (as defined below) to Contractor, Contractor hereby warrants and represents that Contractor has implemented and will maintain for as long as necessary reasonable security procedures and practices appropriate to the nature of the information to protect Personal Information from unauthorized access, destruction, use, modification, or disclosure in compliance with all applicable state and federal laws and regulations. |
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| b. | As used in this Agreement, “Personal Information” means (i) any information that Contractor or its personnel collects, processes, receives, or otherwise obtains from or on behalf of Miami or any of its employees or students that does or can identify a specific student or employee of Miami, or by or from which a specific student or employee may be identified, contacted, or located, such as an individual’s name, address, social security number, etc., and any other information relating to such identified or identifiable individual; (ii) all “nonpublic personal information,” as defined under the Gramm-Leach-Bliley Act (15 U.S.C. 6801 et seq.) (“GLB”); (iii) “protected health information” as defined under the Health and Insurance Portability and Accountability Act of 1996 (42 U.S.C. 1320d) (“HIPAA”); (iv) “education records” as defined under the Family Educational Rights and Privacy Act (20 U.S.C. 1232g et seq.) (“FERPA”); and (v) “personal data” as defined under the European Union General Data Protection Regulation 2016/679 (“GDPR”). To the extent that Provider has access to “education records,” it is deemed a “school official” (as such terms are defined under FERPA). |
| c. | Contractor acknowledges that it may receive student records from University under this Agreement and as such is designated by University as a “school official” under the Family Educational Rights and Privacy Act. All student-related records of University and personally identifiable information contained in such records (collectively, “Student Records”) shall be maintained by Contractor in accordance with the requirements of the Family Educational Rights and Privacy Act, 20 USC 1232g, and its implementing regulations, 34 CFR pt. 99, as each may be amended from time to time (collectively “FERPA”) and other applicable laws and accreditation standards pertinent to Student Records. Without limiting the foregoing, Contractor agrees that (i) it is subject to the requirements of FERPA governing the use and redisclosure of Student Records; (ii) it shall not maintain, use, disclose, or allow access to Student Records except as permitted by this Agreement or as otherwise authorized by University; and (iii) to the extent that University discloses Student Records to Contractor under this Agreement, Contractor personnel shall use and shall have access to the information only for the purposes for which disclosure is made. Further, Contractor agrees that to the extent it rediscloses any Student Records to a subcontractor or other party (which it shall do only if permitted by law and this Agreement), it shall require such subcontractor or third party to comply with Contractor obligations under this Paragraph. Contractor shall at all times remain primarily liable for performance of all such obligations. |
| d. | If Contractor uses Miami’s Personal Information in the performance of the Agreement, then Contractor hereby agrees (i) to use Personal Information only for the purposes of performing its obligations under the Agreement; (ii) to not disclose or otherwise make available Personal Information to any third party; provided that Contractor may disclose Personal Information to its employees and legal advisors who have a “need to know,” who have been apprised of the restrictions contained in this paragraph, and who are themselves bound by confidentiality requirements at least as restrictive as those set forth herein; and (c) to promptly notify Miami in the event Contractor becomes aware of any loss or disclosure of any Personal Information. |
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| 12. | Insurance and Indemnification. |
| a. | Contractor will purchase and maintain for the duration of this Agreement at least $7,500,000.00 in General Liability insurance, written on an occurrence basis, and include coverage for bodily and personal injury, property damage, and contractual liability referring to this Agreement. Contractor will add University and its trustees, officers, employees, and agents as additional insureds under its General Liability insurance policies, and provide a certificate of insurance to University. Contractor agrees to defend, indemnify, and hold harmless University and its trustees, officers, employees and agents, and assigns from and against any action, claim, cost, damage, demand, expense, loss, liability, or third party claim, including reasonable attorney and expert fees and costs (collectively “Liability” or “Liabilities”), arising from or relating to: (i) the negligence or willful misconduct of Contractor, its trustees or directors, officers, employees, agents and/or third party vendors/ subcontractors; or (ii) any claim or allegation by a third party that Contractor’s materials produced under this Agreement misappropriate, infringe or violate such third party’s intellectual and/or other proprietary rights; or (iii) any material breach of any provision of this Agreement, including any warranties and representations made by Contractor in connection with this Agreement; or (iv) any failure by Contractor to materially comply with any applicable national, state/provincial, or local laws, regulations, or codes in the performance of its obligations under this Agreement;. |
| b. | In this Paragraph, “Contractor’s materials” means written information about Contractor that is created by Contractor but expressly excludes any information or materials provided by University, or University’s agents, directors, officers or employees, or a student, or any other party. |
| c. | The indemnification obligations contained in this Paragraph shall not be limited by any obligation or term or condition of any insurance policy. The obligations set forth in this Paragraph shall survive the expiration or termination of this Agreement. |
| 13. | Termination. |
| a. | Either Party may terminate this Agreement without cause upon not less than 90 days’ written notice to the other Party. |
| b. | Notwithstanding anything to the contrary in this Agreement, either Party may terminate this Agreement if the other Party breaches the Agreement and fails to cure such breach within 30 days of receiving written notice of such breach from the non- defaulting Party. |
| c. | Notwithstanding anything to the contrary in this Agreement, either Party may terminate this Agreement immediately upon written notice if the other Party: (i) makes an assignment for the benefit of its creditors; (ii) becomes the subject of any proceeding by or against such Party (whether voluntary or involuntary) in insolvency or winding up or for the appointment for a liquidator or receiver; (iii) is adjudicated to be insolvent; or (iv) becomes unable to pay its material debts as they become due. |
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| d. | If a dispute arises in connection with this Agreement and the Parties have been unable to resolve the dispute after having followed the procedure set forth in Paragraph 14(b), either Party may terminate this Agreement in its entirety immediately upon written notice to the other Party. |
| e. | Upon termination of this Agreement however caused, all amounts owed by University to Contractor pursuant to this Agreement shall become immediately due and payable. |
| f. | Notwithstanding termination of this Agreement, Contractor shall be and remain entitled to Commission under Paragraph 4 for each Non-resident PRC Student introduced to University by Contractor prior to the date of termination, provided that the non-US citizen registers and pays fees for a University Academic Program or University ACE Program within six months of the date of termination of this Agreement. |
| 14. | Governing Law; Dispute Resolution. |
| a. | This Agreement shall be construed and enforced solely pursuant to the laws of the State of Ohio (USA), without giving effect to the principles of conflicts of laws thereof and the parties agree that this Agreement shall be subject to the sole and exclusive jurisdiction of the state and federal courts located in the State of Ohio (USA). The Parties agree that the foregoing governing law, jurisdiction and forum selections have been concluded as a result of arms-length negotiations and are not overly onerous or burdensome to either Party. Notwithstanding the foregoing, any court with competent jurisdiction may enforce the judgment and ruling of the state and federal courts located in the State of Ohio (USA). The United Nations Convention on Contracts for the International Sale of Goods (“UN CISG”) shall not apply to this Agreement. |
| b. | If a dispute arises in connection with this Agreement, other than a breach as set forth in Paragraph 13(b), supra: |
| i. | the disputing party shall provide written notice to the other Party, setting out the matters giving rise to the dispute and the relief sought; |
| ii. | within 30 days of receiving such notice, the receiving Party shall provide a written reply to the disputing Party, setting out the recipient’s response to the matters set out in the notice and any additional matters the recipient considers relevant; and |
| iii. | the Parties shall, in good faith and using all commercially reasonable efforts, seek to resolve the dispute within 60 days after the date on which the disputing Party received the reply, including by involving senior management of both Parties. |
| c. | The Parties agree that neither Party shall use any court proceedings until the dispute resolution process in this Paragraph has been exhausted; however, the provisions of this Paragraph shall not affect a Party’s rights to initiate court proceedings if the dispute is not resolved pursuant to this Paragraph. |
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| 15. | Notices. |
All notices or other communications required or permitted under this Agreement shall be in writing and shall be given by personal delivery, confirmed facsimile, commercial courier, or electronic mail (e-mail) addressed to the Party at its principal address as follows:
| If to University: | If to Contractor: | |||
| Name: | Bethany Perkins | Name: | Jianbo Zhang | |
| Title: | Director of Admission | Title: | Chief Executive Officer | |
| Address: | 301 S. Campus Avenue | Address: | 1718, Block A, Jiatai International Plaza, | |
| Oxford, OH 45056 | No. 41 Middle
Road, East 4th Ring, Chaoyang District, Beijing, P.R.China 100025 | |||
| Telephone: | 513-529-1566 | Telephone: | +(86)13901061669 | |
| Facsimile: | Facsimile: | |||
| Email: | bethany.perkins@miamoh.edu | Email: | AKD2019@163.com | |
All such notices and other communications that are addressed as provided in this Paragraph shall be deemed to have been given upon personal delivery, when confirmation of receipt of facsimile transmission is received, upon receipt of delivered by commercial courier, or upon confirmation of receipt of e-mail is received, whichever is appropriate.
| 16. | Assignment and Subcontracting. |
Contractor shall not assign or subcontract any of its responsibilities or obligations to another party without first receiving the written consent of the University, which shall not be unreasonable withheld. Contractor shall remain responsible to University for the performance of all of its responsibilities and obligations under this Agreement and shall be liable to University for acts and omissions of its assignees or subcontractors, which shall be subject to the indemnification obligations contained in Paragraph 12 of this Agreement. Contractor shall supply to Miami a list of its assignees and contractors at the beginning of each quarter of each year of the Term, which list shall include each of its current assignees or subcontractors as well as those assignees or subcontractors utilized during the preceding quarter. Unless otherwise agreed to in writing by University, Contractor will be solely responsible for all costs and expenses associated with the engagement of assignees and subcontractors.
| 17. | Relationship of the Parties. |
| a. | Other than the payments provided in this Agreement, the parties agree that Contractor is exclusively responsible for all taxes, third-party payments or fees, costs and expenses incurred by the Contractor, and that the Contractor is not eligible to participate in any employee benefit plans or other benefits provided by University to its employees. |
| b. | Nothing in this Agreement shall be construed to create an employer-employee relationship between the Parties or any partnership, joint venture, or agency relationship between the Parties. Contractor represents and warrants that its relationship to University and its various subdivisions and affiliates shall be that of an independent contractor and NOT an employee of University for any purpose whatsoever. Contractor is engaged by University only for the purposes and to the extent set forth in this Agreement. Subject only to the terms of this Agreement, Contractor shall have complete control of its employees and agents engaged in the services to be provided, and Contractor shall be solely responsible for payment of all compensation or commission owed to its employees and agents, as well as employment-related taxes. The compensation set forth in Paragraph 4 shall be the sole consideration due Contractor for the Services rendered under this Agreement. Subject to the terms of this Agreement. Contractor does not have, nor shall it hold itself out as having, any right, power or authority to create any contract or obligation, either express or implied, on behalf of, in the name of, or binding upon University, unless University shall consent thereto in writing. Contractor shall ensure that neither it nor its employees or agents shall act or hold themselves out as agents or employees of University. |
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| 18. | Miscellaneous. |
| a. | Severability – If any provision of this Agreement shall be held invalid, illegal, or unenforceable for any reason, the validity, legality and enforceability of such provision in every other respect and of the remaining provisions of this Agreement shall not be impaired. |
| b. | Failure to Exercise Right not a Waiver – No failure or delay by a Party in exercising any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or future exercise thereof or the exercise of any other right, power, or privilege under this Agreement. No term of this Agreement shall be deemed waived, and no breach of this Agreement excused, unless the waiver or consent is in writing signed by the Party granting such waiver or consent. |
| c. | Non-Discrimination; HB 476 – During the term of this Agreement, Contractor agrees not to discriminate on the basis of age, color, disability, gender identity or expression, genetic information, military status, national origin (ancestry), pregnancy, race, religion, sex/gender, status as a parent or foster parent, sexual orientation or protected veteran status. Contractor acknowledges that it is not boycotting any jurisdiction with whom the State of Ohio can enjoy open trade, including Israel, and will not do so during the term of this Agreement. |
| d. | Force Majeure – No Party shall be responsible or liable for any default in performance of its obligations under this Agreement, if such default in performance arises directly or indirectly from causes beyond the reasonable control of that Party, including, but not limited to, fire, flood, war, embargo, strike, boycott, lockout, accident, explosion, fire, riot, insurrection, terrorist act, Act of God, or other action by governmental authority, other than by reason of an act or omission of the Party, but only to the extent and for the duration that the cause prevents performance of the obligation. |
| e. | Counterparts – This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. |
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| f. | Survival – All provisions of this Agreement that, by their express terms or their nature or context, would ordinarily be deemed to survive beyond the expiration or termination of this Agreement shall survive such expiration or termination for any reason. |
| g. | Amendments – This Agreement may be amended only by written agreement of the Parties, executed by the parties’ authorized Contractors. |
| h. | Entire Agreement – The Parties understand and agree that this Agreement, including Exhibits A & B, constitutes the entire understanding between the Parties and supersede all other verbal and written agreements and negotiations by the Parties relating to the Services under this Agreement. Contractor hereby acknowledges reading and receiving a true and exact copy of this Agreement. Notwithstanding the foregoing, this Agreement shall not affect any agreement currently in force between Miami and QHI concerning matters other than the Services, Including without limitation the Memorandum of Agreement dated ________ between Miami, QHI and Renda Finance and Education Technology Company. |
In witness whereof, the Parties hereto have executed this Agreement as of the date first written above.
| QHI | Miami University | |||
| By | /s/ Zhang Jianbo CEO | By | ||
| (name of signatory) | (name of signatory) | |||
| (signatory title) | (signatory title) | |||
| Date | 12/06/2019 | Date | ||
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Exhibit 10.13
Memorandum of Agreement
Miami University and RENDA Finance and Education Technology Company
This Memorandum of Agreement (this “MOA”) is entered by and among Miami University (hereinafter “MU”), a body politic and corporate established and existing under the laws of the State of Ohio (USA); Renda Finance and Education Technology Company (hereinafter “RENDA”), a company established and existing in Beijing, Peoples Republic of China; and Quest Holding International, LLC (hereinafter “QHI”), an Ohio (USA) limited liability company.
WHEREAS, MU operates the Miami University Middletown English Language Center (“ELC”), which provides English language instruction to non-native speakers of English;
WHEREAS, MU wishes to offer certain international students conditional admission to the ELC at MU’s Middletown, Ohio (USA) campus (hereinafter “MUM”) pursuant to the terms and conditions described below; and
WHEREAS, the parties hereto wish to be bound to the terms, conditions, and obligations contained in this MOA.
NOW, THEREFORE, in consideration of the agreements and promises contained in this MOA, and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Admission. RENDA will identify appropriate students for admission to MUM and the ELC (“Students”). These Students will have applied to the ELC and submitted all documents required by MU and MUM for international students. RENDA shall ensure that all application materials are properly completed by Students and submitted to QHI QHI will submit the properly completed application materials to MUM Office of Admissions.
2. Program. Students admitted to the ELC under this Agreement will arrive at the MUM campus before orientation to participate in a mandatory assessment, advising, and academic program orientation. A two-week orientation will occur approximately two weeks prior to the start of regularly scheduled classes in each of MUM’s academic terms (Fall, Spring, Summer).
The ELC Program provides English language instruction to non-native speakers of English, accepted into the ELC’s intensive English language program at Miami University Middletown. Students will be admitted into the ELC based on the MUM ELC Application Form, International Student Financial Support Form, one copy of their passport photo, official academic records, and proof of English language proficiency. Students will be assessed for English language proficiency upon arrival to MUM for placement in the ELC.
The ELC has a total of five levels. Students who apply to the ELC will submit scores from one of the following tests prior to their arrival at MUM: TOEFL, IELTS, ITEP, PTA-Academic, or provide alternative proof of English language proficiency as listed on the Miami. University International Admission website (http://miamioh.edu/admission/international/english-proficiency/index.html) to show their overall level of English proficiency at the time of their application. The appropriate level of English study (regardless of the scores submitted with their application) will be finalized during orientation week. Students will be assessed in reading, writing, speaking, listening, and grammar. Level 1-3 Students will begin non-credit intensive English courses at MUM. Level 4 Students will be conditionally admitted and be able to begin credit courses at MUM. Once level four is successfully completed, Students will have satisfied all English requirements and be fully admitted to MUM as Level 5 international students.
Levels 1, 2, and 3 include the following non-credit courses specifically designed for each level for a total of 22.5 contact hours of intensive English study each week:
Reading/Writing (7.5 contact hours)
Listening/Speaking (7.5 contact hours)
Grammar/Integrated Skills (7.5 contact hours)
Level 4 includes the following courses for a total of 12 credit hours:
ACE 112 – Advanced Communication Strategies:
This is an intensive 5-credit course covering discussion, presentation and lecture listening skills, preparing Students for the diverse encounters they will have with spoken English both in and outside of the academy. Graded (5 Credits, 7.5 contact hours)
ACE 113 – Reading and Writing in Academic Contexts:
This is a rigorous 4-credit course focusing on comprehension, textual analysis, vocabulary, and rhetoric. Students develop critical writing skills needed for success in college and beyond. Graded (4 Credits, 7.5 contact hours)
ACE 310J – Elements of Debate:
Elements of Debate is designed to introduce Students to debate and to develop their ability to explain and support their opinion with strong evidence using advanced vocabulary and sentence structure. The course prepares Students to be active participants in college-level classroom discussions. Graded (3 credits, 7.5 contact hours)
Level 5 Students are fully admitted lo MUM.
Students are required to take ENG 108 and 109 in consecutive semesters. These course descriptions are as follows:
ENG 108 – U.S. Cultures & Composition for Second Language Writers:
This course is designed for Students who need further work in English before enrolling in ENG 109; satisfies in part the Miami Plan requirement of six of global courses. (4 credits, 7.5 contact hours total)
ENG 109 – Composition and Rhetoric for Second Language Writers:
Adaptation of ENG 111 for nonnative speakers; satisfies the Miami Plan requirement of 3 hours of composition and literature. (4 credits, 7.5 contact hours total)
Classes are held Monday through Friday except during university scheduled holidays. The typical weekly schedule will include instruction, courses, and outings or activities. Students may be required to participate in MUM directed and approved cultural activities, meetings, and excursions. Mandatory attendance in class, meetings, and participation in required events will contribute to a Student’s grade for the semester.
All Students in the ELC (including Levels 1-5) are subject to the Miami University Code of Conduct (http://miamioh.edu/student-life/oescr/code-of-conduct/index.html) and the Miami Student Handbook (http://www.miamioh.edu/_files/documents/secretary/Student_Handbook.pdf). These resources and expectations will be reviewed and explained to Students in sessions during orientation.
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Students who successfully complete ELC required courses at the level of B- or above may move to the next level of the ELC program. Once a Level 3 Student meets this requirement, they may take Level 4 credit courses the following semester. Once a Level 4 Student meets this requirement, such Student may enroll the following semester as a fully admitted MU regional campus international student.
3. Housing, Dining and Transportation. QHI is responsible for providing all accommodations for Student housing and dining for Students in the ELC at MUM. MU assumes no liability or responsibility for any functions related to housing, dining, or transportation. QHI will provide housing supervisors for the housing facility and provide MU and MUM with the names and 24-hour emergency contact information for the housing facility supervisors. If operation and upkeep of the housing and dining plan is not acceptable to MU or MUM, then MU has the option of cancelling this MOA and the program outlined in this MOA. Any rejection of the housing and dining plan must be reasonable. MU shall provide a minimum 120 days advance written notice to QHI regarding its intent to cancel this MOA and the program outlined in this MOA, and the reasons for such intent to cancel and allow QHI to revise the housing and dining plan within 120 days of the receipt of such written notice; provided, however, that MU may immediately cancel this MOA and the program outlined in this MOA upon the reasonable belief that the continuation of the housing and dining plan will have a deleterious effect on the health, wellbeing, or safety of any person. QHI will allow MU officials to visit and review its housing and dining facilities in each semester during term of this MOA. QHI is required to report violations of the Miami University Student Code of Conduct and Miami University Student Handbook and any instances of sexual or interpersonal violence to MUM Security Office identified by Title IX federal requirements. Nothing contained in this Section 3 shall limit or otherwise effective MU’s ability to cancel this MOA pursuant to Section 16 of this MOA.
QHI acknowledges and agrees that MU’s and MUM’s student disciplinary procedures allow for the summary suspension from MUM’s premises of a Student prior to a disciplinary hearing where MU or MUM has reasonable cause to believe that the Student’s continued presence poses an immediate and significant risk of substantial harm to the safety or security of themselves, others, or to property. QHI agrees that once it is notified by MU or MUM that a Student admitted hereunder to the ELC has been summarily suspended and no contact is required with any other student is required it shall, immediately remove said Student from QHI’s student housing facilities and relocate the Student into other QHI owned, or controlled, or rented housing, until such time as the summary suspension is lifted or until the Student is suspended or dismissed at the conclusion of the disciplinary process.
4. Insurance and Indemnification. QHI will purchase and maintain for the duration of this MOA at least $7,500,000.00 in General Liability insurance and provide a certificate of insurance to MU. RENDA and QHI, jointly and severally (the “Indemnifying Parties”), shall indemnify and hold harmless MU, and its trustees, officers, and employees from and against any and all loss, expense, damage, claim, demand, judgment, fine, charge, lien, liability, action, cause of action or proceeding of any kind whatsoever (whether arising on account of damage to or loss of properly, or personal injury, emotional distress, or death) (each a “Loss”) arising directly or indirectly from a third party claim alleging (a) any negligent or more culpable act or omission of the Indemnifying Parties in connection with the performance of their obligations under this MOA; or (b) any failure by the Indemnifying Parties to materially comply with any applicable federal, state, or local laws, regulations, or codes in the performance of their obligations under this Agreement; provided, that the Indemnifying Parties will have no duty to indemnify and hold harmless MU to the extent that a Loss results from MU’s negligence or willful misconduct.
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5. Medical History, Tests, and Vaccinations. All Students who are accepted for entrance into the ELC under this MOA are required to submit a completed medical history to the Medical Director of the Student Health Service before final enrollment can be approved. Students are required to submit a medical report on the medical questionnaire for foreign students. All entering Students are required to be vaccinated against MMR, Tdap, Hepatitis B, meningitis, and chicken pox. Further, any Student under the age of 18 years old must receive the polio vaccine. If any Student has not yet received any of the necessary vaccinations, RENDA and QHI shall cause such Students to be vaccinated at Student Health Services at the Student’s own expense.
All Students must demonstrate freedom from tuberculosis. Students accepted into the ELC under this MOA will be tested for tuberculosis. If the test is positive, the Student must obtain a medical evaluation.
6. Medical Insurance. MU requires that all Students be covered by health insurance while enrolled at MU or any of its campuses. RENDA and QHI shall cause each Student to obtain and maintain health insurance through MU’s student health insurance provider, which is currently Aetna. Additional information pertaining to health insurance requirements can be directed to MU’s Student Health Service (see https://miamioh.edu/student-life/student-health-service/student-insurance/index.html). RENDA and QHI shall cause each Student to be responsible for paying any medical expenses including required medical and travel insurance and any out-of-pocket expenses not covered by insurance incurred during the program.
7. Program Fees- Levels 1-3. RENDA and QHI shall pay MUM $5,600.00 per Student, per semester for the costs of Level 1, Level 2, or Level 3 non-credit language instruction and $500.00/per student, per semester for the costs of textbooks and instructional materials.
RENDA and QHI shall pay MUM $500.00 per Student, per semester to cover the costs of excursions, cultural programs and activities during each semester of language instruction. These activities may include visits to sites of local, regional and national interest as well as on-campus activities designed to enhance the Student’s understanding of American college campus life and the culture of the United States. Students are individually responsible for admission, meals, and other personal costs not included in MUM sponsored activities.
This fixed cost ($6,600.00) is non-refundable and not dependent upon the Student completing the language instruction program. This fee will remain in effect during the length of this MOA.
8. Program Fees- Level 4-5. RENDA and QHI shall pay MUM $6200.00 per Student, per semester for the costs of Level 4 and Level 5 language instruction and $500.00/per Student, per semester for the costs of textbooks and instructional materials related to the ELC courses and program.
In addition, RENDA and QHI shall pay MUM $500,00 per Student, per semester to cover the costs of excursions, cultural programs and activities during each semester of language instruction. These activities may include visits to sites of local, regional and national interest as well as on-campus activities designed to enhance the Student’s understanding of American college campus life and the culture of the United States. Students are individually responsible for admission, meals and other personal costs not included in MUM sponsored activities. This fixed cost ($7,200.00) is non-refundable and not dependent upon the Student completing the language instruction program.
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9. Student Expenses. MU and MUM will not be responsible for any of the following program participant costs: visa, airfare, and transportation to and from the MUM campus from point of entry. MU will provide documentation to support the student visa application of each Student. RENDA is responsible for the return to China of any Student who withdraws or is dismissed from MUM.
10. Payment. Payment for Students enrolled at all levels and for attendant instructional materials fees and cultural programing fees and any additional sums under the terms of this MOA shall be made by RENDA and QHI in the U.S. by wire transfer at least 21 days prior to the start of each semester. Wire transfer details can be found in Section 11 of this MOA. RENDA will provide MUM with names, passport, and visa application information for Students intending to enroll in all levels of the program.
11. Transfer and Wire Information.
The wire transfer information is a follows:
JP Morgan Chase bank
100 East Broad Street
Columbus, OH 43271
Miami University Bursar Fund
Account # xxxxxxxxx
Routing # xxxxxxxxx
12. Applicable Policies. Each Student participating in this program shall abide by all the policies and regulations of MU and MUM. MU shall have the right to terminate the participation of an individual participant in the program if such Student violates the policies and regulations of MU, MUM, or the program.
13. Miscellaneous.
a. Non-Discrimination. The parties agree not to discriminate on the basis of religion, race, creed, national or ethnic origin, sex, age, handicap, political affiliation, sexual orientation, disability or status as a veteran.
b. Compliance with Law. The parties specifically intend to comply with all applicable laws, rules and regulations as they may be amended from time to time. If any part of this Agreement is determined to violate federal, state, or local laws, rules, or regulations, the parties agree to negotiate in good faith revisions to any such provisions. If the parties fail to agree within a reasonable time to revisions required to bring the entire Agreement into compliance, either party may terminate this Agreement upon thirty (30) days prior written notice to the other party.
c. Force Majeure. In the event Students are unable to complete the Program due to causes beyond the control of MUM, including, but not limited to: acts of God; war; acts of the government; fires; floods; epidemics; quarantine restrictions; strikes, labor disputes or work stoppages; transportation contingency; and freight embargoes; other catastrophes or any similar occurrences beyond MUM’s reasonable control, MUM shall assist the affected Students in finding an alternate site to complete the program.
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d. FERPA. The parties acknowledge that information (if any) received from MUM regarding Students may be protected by the Family Educational Rights and Privacy Act (“FERPA”), and agrees to use such information only for the purpose for which it was disclosed and not to make it available to any third party without first obtaining the Student’s written consent. For the purposes of this Agreement, RENDA and QHI shall be deemed “university officials.”
e. Use of Name. None of the parties shall use the name, logo, likeness, trademarks, image or other intellectual property of either of the other parties for any advertising, marketing, endorsement or any other purposes without the specific prior written consent of an authorized representative of the other party as to each such use. RENDA may refer to the affiliation with MUM in public information materials regarding the relevant Program. MUM reserves the right to review and request modification of RENDA’s reference to MUM as necessary. RENDA may refer to the affiliation with MUM in its brochures and other public information materials having to do with the Program.
f. Independent Contractors. Each party is separate and independent and this Agreement shall not be deemed to create a relationship of agency, employment, or partnership between or among them. Each party understands and agrees that this Agreement establishes an independent contractor relationship and that the agents or employees of each respective party are not employees or agents of any other party.
g. Severability. The provisions of this Agreement are severable, and if any provision of this Agreement is found to be invalid, void or unenforceable, the remaining provisions will remain in full force and effect.
h. Waiver. The waiver of any breach of any term of this Agreement does not waive any subsequent breach of that or another term of this Agreement,
i. Assignment. No party may assign this Agreement or any rights or obligations under this Agreement to any person or entity without the prior written consent of the other parties. Any assignment in violation of this provision is null and void.
j. Governing Law. This Agreement shall be construed and enforced solely pursuant to the laws of the State of Ohio (USA), without giving effect to the principles of conflicts of laws thereof and the parties agree that this Agreement shall be subject to the sole and exclusive jurisdiction of the state and federal courts located in the State of Ohio (USA). The Parties agree that the foregoing governing law, jurisdiction and forum selections have been concluded as a result of arms-length negotiations and are not overly onerous or burdensome to either Party. Notwithstanding the foregoing, any court with competent jurisdiction may enforce the judgment and ruling of the state and federal courts located in the State of Ohio (USA). The Unite Nations Convention on Contracts for the International Sale of Goods (“UN CISG”) shall not apply to this Agreement.
k. Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties as to the subject matter hereof and supersedes all prior discussions, agreements and undertakings of every kind and nature between them, whether written or oral, with respect to such subject matter, This Agreement may subsequently be modified only by a written document executed by both parties.
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l. Translations. The parties acknowledge and agree that this Agreement was originally written in English and only the English version of this Agreement shall be binding on the parties. The parties further acknowledge and agree that they have had a chance to carefully review (with their attorney if necessary) all of the terms of this Agreement, that they fully understand all of their rights and obligations under this Agreement, and that they agree to be bound by this Agreement. All references to time in this Agreement or any communication between the parties, unless specifically stated otherwise, shall mean Eastern Standard Time (UTC – 5:00)/Eastern Daylight Time (UTC – 4:00). All references to currency in this Agreement or any communication between the parties, unless specifically stated otherwise, shall be in United States Dollars.
m. Notices. Any consent, waiver, notice, demand, request or other instrument required or permitted to be given under this Agreement or any related agreements shall be in writing and shall be delivered by hand or sent prepaid telex, cable or facsimile transmission, or sent, postage prepaid, by registered, certified or express mail or reputable overnight courier service and shall be deemed given when so delivered by hand, telexed, cabled or transmitted, or if mailed, five (5) days after the notice is delivered to the courier service, addressed to the addresses set forth herein, or to such other address as may later be specified.
14. Memorandum of Agreement Period. The term of this MOA is for a period of three (3) years, beginning on July 1, 2017 and expiring on June 30, 2020. Representatives of MU, MUM, RENDA, and QHI will review this MOA annually. This MOA will be reconsidered in October 2018 for renewal or renegotiation.
15. Termination. Any party may terminate this MOA upon ninety (90) days prior written notice to the other party; provided, however the parties use their best efforts to ensure that any Student then participating in the program are able to complete the program. In such event, all applicable provisions of this Agreement shall remain in force during the extension period from the effective date of termination, until the end of the program in which the affected Students are enrolled.
[Signature Page Follows]
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Memorandum of Agreement
Miami University and RENDA Finance and Education Technology Company
*Signature Page*
IN WITNESS WHEREOF, the parties have executed this MOA as of this _____ day of ___________________, 2017.
| /s/ Jianbo Zhang |  | |
| Jianbo Zhang, Director | [____] | |
| RENDA Finance and Education Technology Company | Quest Holding International, LLC, an Ohio LLC. | |
| /s/ Phyllis Callahan | /s/ David K. Creamer | |
| Phyllis Callahan Provost and Executive Vice President for Academic Affairs, Miami University- on behalf of Miami University and Miami University Middletown |
David K. Creamer Vice President for Finance and Business Services and Treasurer, Miami University- on behalf of Miami University and Miami University Middletown | |
| /s/ Catherine Bishop-Clark | ||
| Catherine Bishop-Clark Interim Associate Provost and Dean of the College of Liberal Arts and Applied Science Miami University Middletown |
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Exhibit 10.14
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the “Agreement”) is effective as of November 1, 2019 (the “Effective Date”), by and between Elite Education Group International Limited, a British Virgin Islands corporation (the “Company”), and Tong Wang (“Executive”, and the Company and the Executive collectively referred to herein as the “Parties”).
WITNESSETH:
WHISEAS, the Company desires to hire Executive and to employ him as the Company’s Vice President and Chief Development Officer effective as of November 1, 2019, and the Parties desire to enter into this Agreement embodying the terms of such employment;
NOW, THISEFORE, in consideration of the premises and the mutual covenants and promises of the Parties contained herein, the Parties, intending to be legally bound, hereby agree as follows:
1. Title and Job Duties.
(a) Subject to the terms and conditions set forth in this Agreement, the Company agrees to employ Executive as its Chief Development Officer. Executive shall report directly to the Board of Directors of the Company (the “Board”).
(b) Executive accepts such employment and agrees, during the term of her employment, to devote her full business and professional time and energy to the Company, and agrees faithfully to perform her duties and responsibilities in an efficient, trustworthy and business-like manner. Executive also agrees that the Board shall determine from time to time such of her duties as may be assigned to her. Executive agrees to carry out and abide by such directions of the Board.
(c) Without limiting the generality of the foregoing, Executive shall not, without the written approval of the Company, render services of a business or commercial nature on her own behalf or on behalf of any person, firm, or corporation, for compensation or otherwise, during her employment hereunder. The foregoing limitation shall not apply to Executive’s involvement in associations, charities and service on another entity’s board of directors, provided such involvement does not interfere with Executives responsibilities (and as it pertains to any service on another entity’s board of directors, provided such action is pre-approved by the Company).
2. Salary and Additional Compensation.
(a) Base Salary. The Company shall pay to Executive an annual base salary (“Base Salary”) USD$ 30,000 paid monthly in accordance with the Company’s normal payroll procedures. The Compensation Committee shall review the Executive’s Base Salary no less than annually and may increase (but not decrease) such Base Salary during the term of this Agreement.
(b) Annual Bonus. Commencing with the year ending October 30, 2020, Executive will be entitled to receive an annual cash bonus in the amount of USD$ 30,000 (the “Annual Bonus”), payable with respect to each year of the Term subsequent to the issuance of the Company’s final audited financial statements for such year, provided, however that the Company’s overall sales revenue has increased by no less than 20% as compared with the same period for the prior fiscal year. The final determination on the amount, if any, of the Annual Bonus will be made by, and in the sole discretion of the Compensation Committee of the Board of Directors of the Company (the “Board”) (or the Board, if such committee has been dissolved), based on criteria established by the Compensation Committee of the Board (or the Board, if such committee has been dissolved).
(c) Equity Incentive Plan, Restricted Share Grant. The Company shall adopt, subject to shareholder approval, a stock-based compensation plan that provides for discretionary grants of, among others, stock options, stock awards and stock unit awards to key employees and directors of the Company (the “Plan”). Following adoption of the Plan, the Board, upon a recommendation of the Compensation Committee, will grant a restricted stock grant to the Executive in the amount of up to 30,000 shares of the Company’s common stock pursuant to the terms of the Plan (the “Restricted Shares”). Such grant of the Restricted Shares shall be valid for a period of 10 years from the date of the grant, and shall vest in four equal installments on the first calendar day of each full fiscal quarters following the grant date.
3. Expenses. In accordance with Company policy, the Company shall reimburse Executive for all reasonable association fees, professional related expenses (certifications, licenses and continuing professional education) and business expenses properly and necessarily incurred and paid by Executive in the performance of her duties under this Agreement, including without limitation all travel expenses to and from her designated office as set forth in the opening paragraph of this Agreement, upon her presentment of detailed receipts in the form required by the Company’s policy. Notwithstanding the foregoing, all expenses must be promptly submitted for reimbursement by the Executive. In no event shall any reimbursement be paid by the Company after the end of the year following the year in which the expense is incurred by the Executive.
4. Benefits.
(a) Vacation and Sick Leave. Executive shall be entitled to 4 weeks of vacation per year and 15 days of sick leave per year, which shall accrue at a pro rata rate per pay period, consistent with the Company’s overall policies.
(b) Health Insurance and Other Plans. Executive shall be eligible to participate in the Company’s medical, dental and other employee benefit programs, if any, which are provided by the Company for its employees at Executive’s level in accordance with the provisions of any such plans, as the same may be in effect from time to time.
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5. Term. The term of employment under this Agreement (the “Term) shall be for a five-year period commencing on the Effective Date and shall be automatically extended for an additional consecutive twelve (12)-month period on the fifth (5th) anniversary of the Effective Date and each subsequent anniversary thereof, unless and until the Company or Executive provides written notice to the other party not less than ninety (90) days before such anniversary date that such party is electing not to extend the Term, in which case the Term shall end at the expiration of the Term as last extended, unless sooner terminated as set forth below. Following any such notice by the Company of its election not to extend the Term, Executive may terminate her employment at any time prior to the expiration of the Term by giving written notice to the Company at least thirty (30) days prior to the effective date of termination, and upon the earlier of such effective date of termination or the expiration of the Term, Executive shall be entitled to receive the same severance benefits as are provided upon a termination of employment by the Company without Cause as described in Section 7(a) and Section 7(d).
6. Termination.
(a) Termination at the Company’s Election.
(i) For Cause. At the election of the Company, Executive’s employment may be terminated at any time for Cause (as defined below) upon written notice to Executive given pursuant to Section 12 of this Agreement. For purposes of this Agreement, “Cause” for termination shall mean that Executive: (A) pleads “guilty” or “no contest” to, or is convicted of an act which is defined as a felony under federal or state law, or is indicted or formally charged with acts involving criminal fraud or embezzlement; (B) in carrying out her duties, engages in conduct that constitutes gross negligence or willful misconduct; (C) engages in substantiated fraud, misappropriation or embezzlement against the Company; (D) engages in any inappropriate or improper conduct that causes material harm to the reputation of the Company; or (E) materially breaches any term of this Agreement. With respect to subsection (E) of this section, to the extent such material breach may be cured, the Company shall provide Executive with written notice of the material breach and Executive shall have ten (10) days to cure such breach.
(ii) Upon Disability, Death or Without Cause. At the election of the Company, Executive’s employment may be terminated: (A) should Executive have a physical or mental impairment that substantially limits a major life activity and Executive is unable to perform the essential functions of her job with or without reasonable accommodation (“Disability”); (B) upon Executive’s death; or (C) with ninety (90) days prior written notice, at any time Without Cause for any or no reason.
(b) Termination at Executive’s Election; Good Reason Termination. Notwithstanding anything contained elsewhere in this Agreement to the contrary, Executive may terminate her employment hereunder at any time and for any reason, upon thirty (30) days’ prior written notice given pursuant to Section 12 of this Agreement (“Voluntary Resignation”), provided that upon notice of resignation, the Company may terminate Executive’s employment immediately and pay Executive thirty (30) days’ Base Salary in lieu of notice. Furthermore, the Executive may terminate this Agreement for “Good Reason,” which shall be deemed to exist: (i) if the Company’s Board of Directors or that of any successor entity of Company, fails to appoint or reappoint the Executive or removes the Executive as the [title]of the Company; (ii) if Executive is assigned any duties materially inconsistent with the duties or responsibilities of the [title]of the Company as contemplated by this Agreement or any other action by the Company that results in a material diminution in such position, authority, duties, or responsibilities, excluding an isolated, insubstantial, and inadvertent action not taken in bad faith; or (iii) a material breach by the Company of this Agreement. Good Reason shall not exist hereunder unless the Executive provides notice in writing to the Company of the existence of a condition described above within a period not to exceed ninety (90) days of the initial existence of the condition, and with respect to subsection (iii) of this section, to the extent such material breach may be cured, the Company does not remedy the condition within thirty (30) days of receipt of such notice.
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(c) Termination in General. If Executive’s employment with the Company terminates for any reason, the Company will pay or provide to Executive: (i) any unpaid Salary through the date of employment termination, (ii) any unpaid Annual Bonus for the fiscal year prior to the fiscal year in which the termination occurs (payable at the time the bonuses are paid to employees generally), (iii) any accrued but unused vacation or paid time off in accordance with the Company’s policy, (iv) reimbursement for any unreimbursed business expenses incurred through the termination date, to the extent reimbursable in accordance with Section 3, and (v) all other payments or benefits (if any) to which Executive is entitled under the terms of any benefit plan or arrangement.
(a) Subject to Section 7(b) below, if Executive’s employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, Executive shall be entitled to receive a severance payment equal to (i) nine (9) months of Executive’s Base Salary, and (ii) a pro rata portion of the target Annual Bonus for the year in which such termination occurs. Such severance payment shall be made in a single lump sum sixty (60) days following such termination, provided the Executive has executed and delivered to the Company, and has not revoked a general release of the Company, its parents, subsidiaries and affiliates and each of its officers, directors, employees, agents, successors and assigns, and such other persons and/or entities as the Company may determine, in a form reasonably acceptable to the Company. Such general release shall be delivered on or about the date of termination and must be executed within fifty-five (55) days of termination.
(b) If Executive’s employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, and such termination occurs within three months prior to a Change in Control in contemplation of the Change in Control or within six (6) months after the Change in Control, Executive shall be entitled to receive, in addition to any severance pursuant to Section 7(a) above, an acceleration of the vesting of any equity grants to date, if any, or, if the termination occurs after the Change of Control, the Substitute Grant, as applicable. For purposes of this Agreement, “Change in Control” means the occurrence of any of the following events: (i) an acquisition (other than directly from the Company) of any voting securities of the Company by any person or group of affiliated or related persons (as such term is defined in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (“Exchange Act”)), immediately after which such person or group has beneficial ownership (within the meaning of the Exchange Act) of more than fifty percent (50%) of the combined voting power of the Company’s then outstanding voting securities; provided that this subsection shall not apply to an acquisition of voting securities by any employee benefit plan or trust maintained by or for the benefit of the Company or its employees; (ii) a merger, consolidation or reorganization involving the Company whereby the holders of Company common stock immediately preceding such transaction no longer hold a majority of the shares of Company common stock after such transaction; or (iii) the sale or other disposition of all or substantially all of the Company's assets.
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(c) If Executive's employment is terminated prior to the end of the Term by the Company without Cause or by Executive for Good Reason, and if Executive is eligible for and elects to continue to participate in the Company’s medical and dental benefit programs, the Company will continue to pay the same portion of Executive's medical and dental insurance premiums as during active employment (for Executive and eligible spouse and dependents) until the earlier of: (1) nine months from Executive's cessation from employment; or (2) the date Executive is eligible for medical and/or dental insurance benefits from another employer.
8. Confidentiality Agreement.
(a) Executive understands that during the Term she may have access to unpublished and otherwise confidential information both of a technical and non-technical nature, relating to the business of the Company and any of its parents, subsidiaries, divisions, affiliates (collectively, “Affiliated Entities”), or clients, including without limitation any of their actual or anticipated business, research or development, any of their technology or the implementation or exploitation thereof, including without limitation information Executive and other have collected, obtained or created, information pertaining to patent formulations, vendors, prices, costs, materials, processes, codes, material results, technology, system designs, system specifications, materials of construction, trade secrets and equipment designs, including information disclosed to the Company by other under agreements to hold such information confidential (collectively, the “Confidential Information”). Executive agrees to observe all Company policies and procedures concerning such Confidential Information. Executive further agrees not to disclose or use, either during her employment or at any time thereafter, any Confidential Information for any purpose, including without limitation any competitive purpose, unless authorized to do so by the Company in writing, except that she may disclose and use such information when necessary in the performance of her duties for the Company. Executive’s obligations under this Agreement will continue with respect to Confidential Information, whether or not her employment is terminated, until such information becomes generally available from public sources through no action of Executive. Notwithstanding the foregoing, however, Executive shall be permitted to disclose Confidential Information as may be required by a subpoena or other governmental order, provided that she first notifies promptly the Company of such subpoena, order or other requirement and allows the Company the opportunity to obtain a protective order or other appropriate remedy.
(b) During Executive’s employment, upon the Company’s request, or upon the termination of her employment for any reason, Executive will promptly deliver to the Company all documents, records, files, notebooks, manuals, letters, notes, reports, customer and supplier lists, cost and profit data, e-mail, apparatus, computers, cell phones, tablets, hardware, software, drawings, and any other material of the Company or any of its Affiliated Entities or clients, including all materials pertaining to Confidential Information developed by Executive or other, and all copies of such materials, whether of a technical, business or fiscal nature, whether on the hard drive of a laptop or desktop computer, in hard copy, disk or any other format, which are in Executive’s possession, custody or control.
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(c) Executive will promptly disclose to the Company any idea, invention, discovery or improvement, whether patentable or not (“Creations”), conceived or made by her alone or with other at any time during her employment. Executive agrees that the Company owns all such Creations, conceived or made by Executive alone or with other at any time during her employment, and Executive hereby assigns and agrees to assign to the Company all rights she has or may acquire their and agrees to execute any and all applications, assignments and other instruments relating thereto which the Company deems necessary or desirable. These obligations shall continue beyond the termination of her employment with respect to Creations and derivatives of such Creations conceived or made during her employment with the Company. Executive understands that the obligation to assign Creations to the Company shall not apply to any Creation which is developed entirely on her own time without using any of the Company’s equipment, supplies, facilities, and/or Confidential Information unless such Creation (a) relates in any way to the business or to the current or anticipated research or development of the Company or any of its Affiliated Entities; or (b) results in any way from her work at the Company.
(d) Executive will not assert any rights to any invention, discovery, idea or improvement relating to the business of the Company or any of its Affiliated Entities or to her duties hereunder as having been made or acquired by Executive prior to her work for the Company.
(e) During the Term, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license (with the right to grant and authorize sublicenses) to make, have made, modify, use, sell, offer to sell, import, reproduce, distribute, publish, prepare derivative works of, display, perform publicly and by means of digital audio transmission and otherwise exploit as part of or in connection with any product, process or machine created or incorporated by the Executive.
(f) Executive agrees to cooperate fully with the Company, both during and after her employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights, patents, trademarks and other intellectual property rights (both in the United States and foreign countries) relating to such Creations. Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Creations. Executive further agrees that if the Company is unable, after reasonable effort, to secure Executive’s signature on any such papers, any officer of the Company shall be entitled to execute such papers as her agent and attorney-in-fact and Executive hereby irrevocably designates and appoints each officer of the Company as her agent and attorney-in-fact to execute any such papers on her behalf and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Creations, under the conditions described in this paragraph.
9. Non-solicitation; non-competition. (a) Executive agrees that, during the Term and until nine (9) months after the termination of her employment, Executive will not, directly or indirectly, including on behalf of any person, firm or other entity, employ or actively solicit for employment any employee of the Company or any of its Affiliated Entities, or anyone who was an employee of the Company or any of its Affiliated Entities within the nine (9) months prior to the termination of Executive’s employment, or induce any such employee to terminate her or her employment with the Company or any of its Affiliated Entities.
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(b) Executive further agrees that, during the Term and until nine (9) months after the termination of her employment, Executive will not, directly or indirectly, including on behalf of any person, firm or other entity, without the express written consent of an authorized representative of the Company, (i) perform services within the Territory (as defined below) for any Competing Business (as defined below), whether as an employee, consultant, agent, contractor or in any other capacity, (ii) hold office as an officer or director or like position in any Competing Business, or (iii) request any present or future customers or suppliers of the Company or any of its Affiliated Entities to curtail or cancel their business with the Company or any of its Affiliated Entities. These obligations will continue for the specified period regardless of whether the termination of Executive’s employment was voluntary or involuntary or with or without Cause or for any other reason.
(c) “Competing Business” means any corporation, partnership or other entity or person (other than the Company) which is engaged (a) in the development, manufacture, marketing, distribution or sale of, or research directed to the development, manufacture, marketing, distribution or sale of competing anti-cancer drug candidates or products or (b) in any other business activity carried on or planned to be carried on by the Company or any of its Affiliates during the Term.
(d) “Territory” shall mean within any state or foreign jurisdiction in which the Company or any subsidiary of the Company is then providing services or products or marketing its services or products (or engaged in active discussions to provide such services).
(e) Executive agrees that in the event a court determines the length of time or the geographic area or activities prohibited under this Section 9 are too restrictive to be enforceable, the court shall reduce the scope of the restriction to the extent necessary to make the restriction enforceable. In furtherance and not in limitation of the foregoing, the Company and the Executive each intend that the covenants contained in this Section 9 shall be deemed to be a series of separate covenants, one for each and every state, territory or jurisdiction of the United States, the People’s Republic of China, and any foreign country set forth therein. If, in any judicial proceeding, a court shall refuse to enforce any of such separate covenants, then such unenforceable covenants shall be deemed eliminated from the provisions hereof for the purpose of such proceedings to the extent necessary to permit the remaining separate covenants to be enforced in such proceedings.
10. Representation and Warranty. The Executive hereby acknowledges and represents that she has had the opportunity to consult with legal counsel regarding her rights and obligations under this Agreement and that she fully understands the terms and conditions contained herein. Executive represents and warrants that Executive has provided the Company a true and correct copy of any agreements that purport: (a) to limit Executive’s right to be employed by the Company; (b) to prohibit Executive from engaging in any activities on behalf of the Company; or (c) to restrict Executive’s right to use or disclose any information while employed by the Company. Executive further represents and warrants that Executive will not use on the Company’s behalf any information, materials, data or documents belonging to a third party that are not generally available to the public, unless Executive has obtained written authorization to do so from the third party and provided such authorization to the Company. In the course of Executive’s employment with the Company, Executive is not to breach any obligation of confidentiality that Executive has with third parties, and Executive agrees to fulfill all such obligations during Executive’s employment with the Company. Executive further agrees not to disclose to the Company or use while working for the Company any trade secrets belonging to a third party.
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11. Injunctive Relief. Without limiting the remedies available to the Company, Executive acknowledges that a breach of any of the covenants contained in Sections 8 and 9 above may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it will not be possible to measure precisely damages for such injuries and that, in the event of such a breach or threat thereof, the Company shall be entitled, without the requirement to post bond or other security, to obtain a temporary restraining order and/or injunction restraining Executive from engaging in activities prohibited by this Agreement or such other relief as may be required to specifically enforce any of the covenants in Sections 8 and 9 of this Agreement.
12. Notice. Any notice or other communication required or permitted to be given to the Parties shall be deemed to have been given if either personally delivered, or if sent for next-day delivery by nationally recognized overnight courier, and addressed as follows:
(a) If to Executive, to: [_]
(b) If to the Company, to: [_]
13. Severability. If any provision of this Agreement is declared void or unenforceable by a court of competent jurisdiction, all other provisions shall nonetheless remain in full force and effect.
14. Withholding. The Company may withhold from any payment that it is required to make under this Agreement amounts sufficient to satisfy applicable withholding requirements under any federal, state or local law.
15. Indemnification. The Company agrees that Executive will be covered by any “directors and officers” insurance policies then in effect with respect to Executive’s acts as an officer.
16. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of Delaware, without regard to the conflict of laws provisions thereof.
17. Waiver. The waiver by either Party of a breach of any provision of this Agreement shall not be or be construed as a waiver of any subsequent breach. The failure of a Party to insist upon strict adherence to any provision of this Agreement on one or more occasions shall not be considered a waiver or deprive that Party of the right thereafter to insist upon strict adherence to that provision or any other provision of this Agreement. Any such waiver must be in writing, signed by the Party against whom such waiver is to be enforced.
18. Assignment. This Agreement is a personal contract and Executive may not sell, transfer, assign, pledge or hypothecate her rights, interests and obligations hereunder. Except as otherwise herein expressly provided, this Agreement shall be binding upon and shall inure to the benefit of Executive and her personal representatives and shall inure to the benefit of and be binding upon the Company and its successors and assigns, including without limitation, any corporation or other entity into which the Company is merged or which acquires all or substantially all of the assets of the Company.
19. Entire Agreement. This Agreement embodies all of the representations, warranties, covenants, understandings and agreements between the Parties relating to Executive’s employment with the Company. No other representations, warranties, covenants, understandings, or agreements exist between the Parties relating to Executive’s employment. This Agreement shall supersede all prior agreements, written or oral, relating to Executive’s employment. This Agreement may not be amended or modified except by a writing signed by the Parties.
[Signature page follows]
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IN WITNESS WHISEOF, the Parties have caused this Agreement to be duly executed and delivered on the date first written above.
| By: | |||
| Name: | |||
| Title: | |||
| Agreed to and Accepted: | |||
| Date: | |||
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Exhibit 14.1
CODE OF CONDUCT AND ETHICS
Introduction
Elite Education Group International Limited and each of its subsidiaries (collectively, the “Company”) are committed to the highest standards of ethics and business conduct. The Company conducts its business as a good corporate citizen and complies with all laws, rules and regulations applicable to it or the conduct of its business. This commitment and standard of conduct governs our relationships with customers, suppliers, shareholders, competitors, the communities in which we operate, and with each other as employees at every organizational level. Maintaining the highest ethical standards at all levels within our organization is critical for our success as a corporation. This Code applies to the corporation as a whole and to all employees, directors, officers, as well as consultants and vendors.
The Code is an expression of our core values and represents a framework for decision making. To this end, all of us are responsible for understanding the Code and acting in accordance with it. The Code cannot and is not intended to cover every applicable law, rule or regulation or provide answers to all questions that may arise; for that, we must ultimately rely on each employee’s, officer’s and director’s good sense of what is right, including a sense of when it is proper to seek guidance from others with respect to the appropriate course of conduct. The Company maintains an open-door policy for resolving issues that arise in the workplace. Employees are encouraged to first discuss any questions regarding any law, rule, regulation, or principle discussed in this Code, which may govern business conduct, with the employee’s immediate supervisor. If open communication with the employees’ supervisor does not resolve the issue or makes the employee uncomfortable, the employee should subsequently consult his or her next level supervisor or his or her Human Resources representative. If this does not result in satisfactory resolution of the issue, the employee should consult the Company’s Chief Financial Officer. Additionally, employees are encouraged to email address to the Chairman of the Audit Committee to report any ethics violation. Due to the sensitive nature of the reporting, calls to the hot line can be made anonymously.
The Code does not in any way constitute an employment contract or an assurance of continued employment. It is for the sole and exclusive benefit of the Company and may not be used or relied upon by any other party. The Company may modify or repeal the provisions of the Code or adopt a new Code at any time it deems appropriate, with or without notice.
The Code must be strictly observed and failure to do so could result in disciplinary action, up to and including termination. This Code applies equally to all employees, officers, directors, consultants and vendors of the Company. The Company encourages employees to seek or to ask for advice from their supervisors or human resources representative when ethical issues arise in the workplace.
Compliance with Laws, Rules, Regulations and Policies
We all are expected to act honestly and maintain the highest standards of ethics and business conduct, consistent with the professional image of the Company. We are required to comply fully with all laws, rules and regulations affecting the Company’s business and its conduct in business matters. We are expected to uphold both the letter and the spirit of the law and the Company’s policies.
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The Company conducts its business in the PRC and internationally. It is the Company’s policy to abide by the national and local laws of our host nations and communities. In the case of any conflict between the laws of another country and the PRC, or in any situation where an employee has a doubt as to the proper course of conduct, it is incumbent upon an employee to immediately consult first his or her supervisor, and then his or her human resources representative.
Confidential, Proprietary Information
One of the Company’s most valuable assets is information. Employees, officers and directors should maintain the confidentiality of information (whether specifically regarded as proprietary or not) entrusted to them not only by the Company, but also by suppliers, former employers, customers and others related to our business. Confidential information includes all non-public information that might be of use to our competitors or harmful to the Company, or its customers or suppliers, if disclosed. Examples of confidential information include, but are not limited to, trade secrets, new product or marketing plans, customer lists, employee lists, research and development ideas, manufacturing processes, or acquisition or divestiture prospects.
Employees, officers and directors should take steps to safeguard confidential information by keeping such information secure, limiting access to such information to those employees who have a “need to know” in order to do their job, and avoiding discussion of confidential information in public areas, for example, in elevators, on planes, and on mobile phones. Employees, officers and directors must safeguard documents with confidential information, and should take steps to ensure proper disposal of documents with confidential information through shredding or other appropriate means, so that such documents cannot be acquired by those without proper authorization. Confidential information may be disclosed to others when disclosure is authorized by the Company or legally mandated. The obligation to preserve confidential information is ongoing, even after termination of employment.
Use of Inside Information/ Insider Trading
Federal and state law prohibits the use of “material inside information” when trading in or recommending the Company’s securities. In accordance with applicable federal and state law, no employee, officer or director may engage in transactions in the Company shares (whether for their own account, for the Company’s account or otherwise) while in possession of material inside information (“Insider Trading”) relating to the Company. Further, no employee, officer or director who is in possession of material inside information may communicate such information to third parties who may use such information in the decision to purchase or sell the Company shares (“Tipping”). These restrictions also apply to securities of other companies if an employee, officer or director learns of material inside information in the course of his or her duties for the Company. In addition to violating the Company policy, Insider Trading and Tipping are illegal.
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What constitutes “material inside information” is a complex legal question, but is generally considered to be information not available to the general public, which a reasonable investor contemplating a purchase of the Company shares would be substantially likely to take into account in making his or her investment decision. Such information includes information relating to a stock or share split and other actions relating to capital structure, major management changes, contemplated acquisitions or divestitures, and information concerning earnings or other financial information. Such information continues to be “inside” information until two business days following the broad disclosure to the general public.
Any person who is in possession of material inside information is deemed to be an “insider.” This would include directors, officers, employees (management and non- management), as well as spouses, friends or brokers who may have acquired such information directly or indirectly from an insider “tip. Substantial penalties may be assessed against people who trade while in possession of material inside information and can also be imposed upon companies and so-called controlling persons such as officers and directors who fail to take appropriate steps to prevent or detect insider trading violations by their employees or subordinates. To avoid severe consequences, employees should review this policy and the Insider Trading Policy before trading in securities and consult with the Company’s chief financial officer if any doubts exist as to what constitutes “material inside information.”
Conflicts of Interest
Employees must base business decisions and actions on the best interests of the Company. Accordingly, the Company policy prohibits conflicts of interest. A conflict of interest occurs when an individual’s personal interest interferes in any way—or even appears to interfere—with the interests of the Company as a whole. A conflict situation can arise when an employee or a member of an employee’s family takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest also arise when an employee or a member of his or her family or close personal friend, receives improper personal benefits as a result of his or her position in the Company. Family members include an employee’s spouse, child, stepchild, grandchild, parent, step-parent, grandparent, sibling, in-laws and anyone living in an employee’s household and/or economically dependent upon an employee, including all adoptive relationships.
Such conflicts of interest can undermine our business judgment and our responsibility to the Company and threaten the Company’s business and reputation. Accordingly, all apparent, potential, and actual conflicts of interest should be scrupulously avoided. Though it is not possible to list every activity or situation that might raise a conflict of interest issue(s), the list below is included to help you recognize some of the more significant ones:
| ● | Corporate Opportunities. Taking personally opportunities that are discovered through the use of corporate property, information or position (unless the Company has already been offered the opportunity and turned it down), or using corporate property, information or position for personal gain or competing with the Company. Such action is prohibited. In addition, directors owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises. |
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| ● | Gifts. Receiving from, or giving to, a supplier, customer or competitor, gifts, gratuities, special allowances, inappropriate discounts or other benefits of significant value (as defined below) that may have the potential to influence a business decision. The purpose of business entertainment and gifts in a commercial setting is to create goodwill and sound working relationships, not to gain unfair advantage with suppliers or customers. Gifts and entertainment of more than a significant value, that is, other than as is customary (i.e. holiday gift baskets or vendor attended entertainment), must be pre-approved, by a vice president or an officer of a higher level, other than the recipient of the gift. In addition, any item that costs greater than the local equivalent of USD$500 will be deemed to be of significant value and require pre-approval. If an employee is unsure regarding any gifts received or given, he or she should seek approval from his or her vice president. Any vice president seeking approval shall seek such approval from the Chief Financial Officer. |
| ● | Loans. Providing loans to, or guarantees of obligations of, employees or their family members. Such activity will not be allowed without the prior written approval of the Chief Financial Officer, and if appropriate, the Board of Directors or a committee of the Board of Directors. The Company will not extend, maintain or arrange any personal loan (or the equivalent thereof) to or for any director or executive officer or members of their families, or make guarantees of any of their obligations. |
| ● | Outside Activity. Engaging in any outside activity that materially detracts from or interferes with the performance by an employee of his or her services to the Company. |
| ● | Outside Employment. Serving as a director, representative, employee, partner, consultant or agent of, or providing services to, an organization or individual that is a supplier, customer or otherwise seeking to do or doing business with the Company or a competitor of the Company. |
| ● | Personal Investments. Directly or indirectly, owning stock in, being a partner or creditor of, or having another financial interest in, or being engaged in the management of, a supplier, contractor, customer, distributor or competitor; provided that ownership of less than 1% in a publicly traded company shall not be included in the foregoing. |
All potential and actual conflicts of interest or material transactions or relationships that reasonably could be expected to give rise to such a conflict or the appearance of such a conflict must be promptly communicated to the employee’s supervisor or human resources representative. Employees should take care to report conflicts to a person who they believe is not involved in the matter giving rise to the conflict. If a director believes he or she has an actual or potential conflict of interest with the Company, the director should notify the Chief Financial Officer and the Chairman of the Audit Committee (or any successor committee thereto) as promptly as practicable. The director should not participate in any decision by the Board of Directors, or any Committee of the Board of Directors, that in any way relates to the matter that gives rise to the conflict of interest or potential conflict of interest until the issue has been resolved to the satisfaction of the Chairman of the Audit Committee or the entire Board of Directors. Any employee who has a doubt about whether a conflict of interest exists after consulting this provision of the Code, should contact their human resources representative or, so that he or she can be assisted in making that determination.
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Quality of Disclosures
The US federal and state securities laws impose continuing disclosure requirements on the Company, and require the Company to regularly file certain reports with and make certain submissions (the “Reports”) to the Securities and Exchange Commission and the stock exchange on which the Company’s securities are traded and disseminate them to its shareholders. Such Reports must comply with all applicable legal and exchange requirements and may not contain material misstatements or omit material facts.
All employees, officers and directors directly or indirectly involved in preparing such Reports, any employees, officers or directors who regularly communicate with the press, investors and analysts concerning the Company, and all representatives who assist the Company in preparing such Reports and communications, will ensure that such Reports and communications are (i) full, fair, timely, accurate and understandable and (ii) meet all legal requirements. This policy applies to all public disclosure of material information about the Company, including written disclosures, oral statements, visual presentations, press conferences and media calls.
Protection and Proper Use of the Company Assets
Proper and efficient use of assets of the Company, suppliers, customers and others, such as electronic communication systems, vehicles, cell phones, information (proprietary or otherwise), facilities and equipment, as well as intangible assets, is the responsibility of each employee, officer and director. Employees, officers and directors must not inappropriately use such assets for non-Company business or personal profit for themselves or others unless such use is permitted under an approved written policy, compensation or expense reimbursement program. In addition, employees, officers and directors must act in a manner to protect the Company assets from loss, damage, misuse, theft, removal and waste. Finally, employees, officers and directors must ensure that such assets are used only for legitimate business purposes.
Reporting of any Illegal or Unethical Behavior
Any employee who is aware of any illegal or unethical behavior or who believes that an applicable law, rule or regulation or the Code has been violated, must promptly report the matter to his or her supervisor. If this does not result in a satisfactory conclusion, or if the supervisor is the subject matter of the report, the employee should contact his or her Human Resources representative. Finally, if the matter is not resolved, the employee should contact the Chief Financial Officer or Chief Executive Officer. Additionally, employees are encouraged to email address to the Company to report any ethics violation. Due to the sensitive nature of the reporting, calls to the hot line can be made anonymously.
In addition, an employee who has a concern about the Company’s accounting practices, internal controls or auditing matters, should follow the same reporting procedures outlined above, provided that to the extent such concerns involve the Chief Financial Officer, the employee should not contact such officer. Employees should take care to report violations to a person who they believe is not involved in the matter giving rise to the violation. All reports of violations will be promptly investigated and, if appropriate, remedied, and if legally required, immediately reported to the proper governmental authority.
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Employees will be expected to cooperate in assuring that violations of the Code are promptly addressed. The Company will protect confidentiality of those making reports of possible misconduct to the maximum extent possible, consistent with the requirements necessary to conduct an effective investigation and the law. Any form of retaliation against someone for reporting an activity that he or she in good faith believes to be a violation of any law, rule, regulation, or this Code will not be tolerated.
Any supervisor or other employee intimidating or imposing sanctions on an employee for reporting a matter will be disciplined up to and including termination.
It is illegal to retaliate against a person, including any action regarding his employment, for providing truthful information to a law enforcement officer relating to the possible commission of any federal offense. The Company encourages employees to report any retaliation for reporting violations of law to their human resources representative or the Chief Financial Officer in addition to the appropriate government authorities.
Responding to Improper Conduct
This Code will be enforced on a uniform basis for everyone, without regard to an employee’s position within the Company. If an employee violates the Company’s Code, he or she will be subject to disciplinary action. Supervisors and managers of a disciplined employee may also be subject to disciplinary action for their failure to properly oversee an employee’s conduct, or for retaliation against an employee who reports a violation(s).
The Company’s response to misconduct will depend upon a number of factors, including whether the improper behavior involved illegal conduct. Disciplinary action may include, but is not limited to, reprimands and warnings, probation, suspension, demotion, reassignment, reduction in salary or immediate termination. Employees should be aware that certain actions and omissions prohibited by the Code might be crimes that could lead to individual criminal prosecution and, upon conviction, to fines and imprisonment.
Employment Practices/ Equal Employment Opportunity
The Company strives to maintain a workplace free of discrimination or harassment. This includes, but is not limited to, discrimination or harassment based on race, color, sex, national origin, religion, age, sexual orientation, veteran status or disability. Retaliation against employees who report such conduct is illegal and will not be tolerated. The Company also strives to provide a safe working environment for all of its employees. Employees are encouraged to provide any thoughts or ideas on how to improve workplace safety by contacting your supervisor or your respective safety representative.
Waivers
Employees, officers and directors should understand that waivers or exceptions to our Code will be granted only in advance and only under exceptional circumstances. A waiver of this Code for any executive officer or director may be made only by the Board of Directors or a committee of the Board of Directors and must be promptly disclosed to shareholders in accordance with applicable law and exchange requirements.
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Exhibit 21.1
| Name of the Entity | Jurisdiction | |
| Elite Education International Co., Ltd. | BVI | |
| Quest Holdings International LLC | Ohio, US | |
| Miami International Education Center LLC | Ohio, US |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Elite Education Group International Limited:
We consent to the inclusion in the foregoing Registration Statement of Elite Education Group International Limited and its subsidiaries (collectively the “Company”) on the Form F-1 of our report dated on April 3, 2020 (except for Note 2 with regard to Restatement as to which the date is October 9, 2020, and for Note 9, 10 and 13 for the Retroactive adjustment for reverse stock split as to which the date is November 2, 2020), relating to our audits of the accompanying consolidated balance sheets of the Company as of September 30, 2019 and 2018, and the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity and cash flows for each of the two years in the period ended September 30, 2019.
We also consent to the reference to us under the caption “Experts” in the Registration Statement.
/s/ ZH CPA, LLC
Denver, Colorado
December 14, 2020
Exhibit 99.1
CHARTER OF THE AUDIT COMMITTEE
Membership
The Audit Committee (the “Committee”) of the board of directors (the “Board”) of Elite Education Group International Limited (the “Company”) shall consist of three or more directors. Each member of the Committee shall be independent in accordance with the requirements of Rule 10A-3 of the Securities Exchange Act of 1934, as amended, and the rules of the Nasdaq Stock Market. No member of the Committee can have participated in the preparation of the Company’s or any of its subsidiaries’ financial statements at any time during the past three years.
Each member of the Committee must be able to read and understand fundamental financial statements, including the Company’s balance sheet, income statement and cash flow statement. At least one member of the Committee must have past employment experience in finance or accounting, requisite professional certification in accounting or other comparable experience or background that leads to financial sophistication. At least one member of the Committee must be an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K. A person who satisfies this definition of audit committee financial expert will also be presumed to have financial sophistication.
The members of the Committee shall be appointed by the Board based on recommendations from the nominating and corporate governance committee of the Board. The members of the Committee shall serve for such term or terms as the Board may determine or until earlier resignation or death. The Board may remove any member from the Committee at any time with or without cause.
Purpose
The primary purpose of the Committee is to oversee the quality and integrity of the Company’s accounting and financial reporting processes and the audit of the Company’s financial statements. To fulfill this obligation, the Committee relies on:
| · | management for the preparation and accuracy of the Company’s financial statements; |
| · | management for establishing effective internal controls and procedures to ensure the Company’s compliance with accounting standards, financial reporting procedures and applicable laws and regulations; |
| · | management for establishing an effective anti-fraud program; and |
| · | the Company’s independent auditors for an unbiased, diligent audit or review, as applicable, of the Company’s financial statements. |
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Duties and Responsibilities
The Committee shall have the following authority and responsibilities:
1. To (a) select and retain an independent registered public accounting firm to act as the Company’s independent auditors for the purpose of auditing the Company’s annual financial statements, books, records, and accounts, (b) set the compensation of the Company’s independent auditors, (c) oversee the work done by the Company’s independent auditors, (d) terminate the Company’s independent auditors, if necessary, and (e) perform an annual evaluation of the performance of the independent auditors. The independent auditors shall report directly to the Committee.
2. To select, retain, compensate, oversee and terminate, if necessary, any other registered public accounting firm engaged for the purpose of preparing or issuing a report on the Company’s internal controls, or perform other audit, review or attest services for the Company.
3. To pre-approve all audit and permitted non-audit and tax services that may be provided by the Company’s independent auditors, and to establish such policies and procedures as the Committee deems necessary for the Committee’s pre-approval of permitted services by the Company’s independent auditors.
4. At least annually, to obtain and review a formal written statement by the Company’s independent auditors that describes all relationships between the firm and the Company or any of its subsidiaries, consistent with Independence Standards Board Standard 1; and to actively engage in a dialogue with the independent auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent auditors.
5. To assure the required rotation of the lead audit partner at the Company’s independent auditors.
6. To review and discuss with the Company’s independent auditors (a) all critical accounting policies and practices used by the Company; (b) all alternative treatments of financial information within generally accepted accounting principles (“GAAP”) that have been discussed with management, the ramifications of the use of such alternative treatments and the treatment preferred by the independent auditors; and (c) other material written communications between the independent auditors and management.
7. To review and discuss with the Company’s independent auditors any other matters required to be discussed by PCAOB Auditing Standards No. 16, Communications with Audit Committees.
8. To review and discuss with the Company’s independent auditors and management the Company’s annual audited financial statements (including the related notes), the form of audit opinion to be issued by the auditors on the financial statements and the disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to be included in the Company’s Annual Report before it is filed.
9. To recommend to the Board that the audited financial statements be included in the Company’s Annual Report and to produce the audit committee report required to be included in the Company’s proxy statement.
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10. To review and discuss with the Company’s independent auditors and management the Company’s quarterly financial statements and the disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to be included in the Company’s interim filings before they are filed.
11. To review and discuss with management the Company’s earnings press releases, including the type of information to be included and its presentation and the use of any pro forma or adjusted non-GAAP information, before their release to the public.
12. To establish and oversee procedures for: (a) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and (b) the confidential, anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters.
13. To review, approve and oversee any transaction between the Company and any related person.
14. To review and assess the Company’s financial risk management process, including the adequacy of the company’s overall financial control environment and controls in selected areas representing significant financial risk.
Outside Advisors
The Committee shall have the authority, in its sole discretion, to retain and obtain the advice and assistance of independent outside legal counsel and such other advisors as it deems necessary to fulfill its duties and responsibilities under this Charter. The Committee shall set the compensation and oversee the work of any outside legal counsel and other advisors.
The Committee shall receive appropriate funding from the Company, as determined by the Committee in its capacity as a committee of the Board, for the payment of compensation to the Company’s independent auditors, any other accounting firm engaged to perform services for the Company, any outside legal counsel and any other advisors to the Committee.
Structure and Operations
The Board shall designate a member of the Committee as the chairperson. The Committee shall meet no less than four times annually and more frequently as circumstances require. At least quarterly, the meetings of the Committee shall include an executive session of the Committee, absent members of management, and an executive session with the independent auditors. The Committee shall report regularly to the Board regarding its actions and make recommendations to the Board as appropriate. The Committee is governed by the same rules regarding meetings (including meetings in person or by telephone or other similar communications equipment), action without meetings, notice, waiver of notice, and quorum and voting requirements as are applicable to the Board.
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The chairperson and others on the Committee shall, to the extent appropriate, have contact throughout the year with senior management, other committee chairpersons, and other key Committee advisors, external and internal auditors, etc., as applicable, to strengthen the Committee’s knowledge of relevant current and prospective business issues.
The Committee shall review this Charter at least annually and recommend any proposed changes to the Board for approval.
Delegation of Authority
The Committee shall have the authority to delegate any of its responsibilities, along with the authority to take action in relation to such responsibilities, to one or more subcommittees as the Committee may deem appropriate in its sole discretion. The Chair may represent the entire Committee, as a subcommittee, with respect to functions of the Committee undertaken between meetings. Any actions of a subcommittee shall be presented to the full Committee at its next scheduled meeting.
Performance Evaluation
The Committee shall conduct an annual evaluation of the performance of its duties under this Charter and shall present the results of the evaluation to the Board. The Committee shall conduct this evaluation in such manner as it deems appropriate.
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Exhibit 99.2
CHARTER OF THE COMPENSATION COMMITTEE
Membership
The Compensation Committee (the “Committee”) of the board of directors (the “Board”) of Elite Education Group International Limited (the “Company”) shall consist of three or more directors. Each member of the Committee shall be independent in accordance with the rules of the Nasdaq Stock Market.
Each member of the Committee must qualify as “non-employee directors” for the purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as “outside directors” for the purposes of Section 162(m) of the Internal Revenue Code, as amended.
The members of the Committee shall be appointed by the Board based on recommendations from the nominating and corporate governance committee of the Board. The members of the Committee shall serve for such term or terms as the Board may determine or until earlier resignation or death. The Board may remove any member from the Committee at any time with or without cause.
Purpose
The purpose of the Committee is to carry out the responsibilities delegated by the Board relating to the review and determination of executive compensation.
Duties and Responsibilities
The Committee shall have the following authority and responsibilities:
1. To annually review and recommend for approval by the Board the corporate goals and objectives applicable to the compensation of the chief executive officer (“CEO”), evaluate at least annually the CEO’s performance in light of those goals and objectives, and recommend for approval by the Board, the CEO’s compensation level based on this evaluation. In evaluating and determining CEO compensation, to the extent applicable to the Company, the Committee shall consider the results of the most recent shareholder advisory vote on executive compensation (“Say on Pay Vote”) when such vote is required by Section 14A of the Exchange Act, as applicable to the Company. The CEO cannot be present during any voting or deliberations by the Committee on his or her compensation.
2. To review and recommend for approval by the Board the compensation of all other executive officers. In evaluating executive compensation, the Committee shall consider the results of the most recent Say on Pay Vote, to the extent applicable to the Company.
3. To review, approve and, when appropriate, recommend to the Board for approval, incentive compensation plans and equity-based plans, and where appropriate or required, recommend for approval by the shareholders of the Company, which includes the ability to adopt, amend and terminate such plans. The Committee shall also have the authority to administer the Company’s incentive compensation plans and equity-based plans, including designation of the employees to whom the awards are to be granted, the amount of the award or equity to be granted and the terms and conditions applicable to each award or grant, subject to the provisions of each plan. In reviewing and making recommendations regarding incentive compensation plans and equity-based plans, including whether to adopt, amend or terminate any such plans, the Committee shall consider the results of the most recent Say on Pay Vote, to the extent applicable to the Company.
4. To the extent such disclosure is required by the Exchange Act, to review and discuss with management the Company’s Compensation Discussion and Analysis (“CD&A”) and the related executive compensation information, recommend that the CD&A and related executive compensation information be included in the Company’s Annual Report and proxy statement and produce the compensation committee report on executive officer compensation required to be included in the Company’s proxy statement or Annual Report, if and to the extent applicable to the Company.
5. To review and make recommendations to the Board regarding any employment agreements and any severance arrangements or plans, including any benefits to be provided in connection with a change in control, for the CEO and other executive officers.
6. To review and discuss annually the Company’s compensation arrangements to determine whether they encourage excessive risk-taking and to evaluate compensation policies and practices that could mitigate any such risk.
7. To review and recommend to the Board for approval the frequency with which the Company will conduct Say on Pay Votes, to the extent applicable to the Company, taking into account the results of the most recent shareholder advisory vote on frequency of Say on Pay Votes to the extent applicable to the Company and required by Section 14A of the Exchange Act, and review and approve the proposals regarding the Say on Pay Vote and the frequency of the Say on Pay Vote to be included in the Company’s proxy statement.
8. The Committee shall discuss with the Audit Committee of the Board, the Committee’s assessment of the Company’s performance of its annual objectives for the purpose of confirming the accuracy of the Company’s financial statements, including compensation reserves and accruals.
9. To review director compensation for service on the Board and Board committees at least once a year and to recommend any changes to the Board.
Outside advisors
The Committee shall have the authority, in its sole discretion, to select, retain and obtain the advice of a compensation consultant as necessary to assist with the execution of its duties and responsibilities as set forth in this Charter. The Committee shall set the compensation and oversee the work of the compensation consultant. The Committee shall have the authority, in its sole discretion, to retain and obtain the advice and assistance of outside legal counsel and such other advisors as it deems necessary to fulfill its duties and responsibilities under this Charter.
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The Committee shall set the compensation and oversee the work of its outside legal counsel and other advisors. The Committee shall receive appropriate funding from the Company, as determined by the Committee in its capacity as a committee of the Board, for the payment of compensation to its compensation consultants, outside legal counsel and any other advisors. However, the Committee shall not be required to implement or act consistently with the advice or recommendations of its compensation consultant, outside legal counsel or other advisor to the Committee, and the authority granted in this Charter shall not affect the ability or obligation of the Committee to exercise its own judgment in fulfillment of its duties under this Charter.
The Committee may select a compensation consultant, outside legal counsel or other advisors only after taking into consideration all relevant factors, including the following: (i) the provision of other services to the Company by the person that employs the compensation consultant, outside legal counsel or other advisor; (ii) the amount of fees received from the Company by the person that employs the compensation consultant, outside legal counsel or other advisor, as a percentage of the total revenue of the person that employs the compensation consultant, outside legal counsel or other advisor; (iii) the policies and procedures of the person that employs the compensation consultant, outside legal counsel or other advisor that are designed to prevent conflicts of interest; (iv) any business or personal relationship of the compensation consultant, outside legal counsel or other advisor with a member of the compensation committee; (v) any stock of the Company owned by the compensation consultant, outside legal counsel or other advisor; and (vi) any business or personal relationship of the compensation consultant, outside legal counsel, other advisor or the person employing the advisor with an executive officer of the Company. The Committee may retain, or receive advice from, any compensation advisor they prefer, including ones that are not independent, after considering the above factors.
The Committee is not required to assess the independence of any compensation consultant or other advisor that acts in a role limited to consulting on any broad-based plan that does not discriminate in scope, terms or operation in favor of executive officers or directors and that is generally available to all salaried employees or providing information that is not customized for a particular company or that is customized based on parameters that are not developed by the consultant or advisor, and about which the consultant or advisor does not provide advice.
The Committee shall evaluate whether any compensation consultant retained or to be retained by it has any conflict of interest in accordance with Item 407(e)(3)(iv) of Regulation S- K.
Structure and operations
The Board shall designate a member of the Committee as the chairperson. The Committee shall meet as often as it deems necessary to perform its responsibilities. The Committee shall report regularly to the Board regarding its actions and make recommendations to the Board as appropriate. The Committee is governed by the same rules regarding meetings (including meetings in person or by telephone or other similar communications equipment), action without meetings, notice, waiver of notice, and quorum and voting requirements as are applicable to the Board.
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The Committee may invite such members of management to its meetings as it deems appropriate. However, the Committee shall meet regularly without such members present, and in all cases the CEO and any other such officers shall not be present at meetings at which their compensation or performance is discussed or determined. The Committee shall review this Charter at least annually and recommend any proposed changes to the Board for approval.
Delegation of authority
The Committee shall have the authority to delegate any of its responsibilities, along with the authority to take action in relation to such responsibilities, to one or more subcommittees as the Committee may deem appropriate in its sole discretion. The Chair may represent the entire Committee, as a subcommittee, with respect to functions of the Committee undertaken between meetings. Any actions of a subcommittee shall be presented to the full Committee at its next scheduled meeting.
Performance evaluation
The Committee shall conduct an annual evaluation of the performance of its duties under this Charter and shall present the results of the evaluation to the Board. The Committee shall conduct this evaluation in such manner as it deems appropriate.
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Exhibit 99.3
CHARTER OF THE NOMINATING COMMITTEE
Membership
The Nominating Committee (the “Committee”) of the board of directors (the “Board”) of Elite Education Group International Limited (the “Company”) shall consist of three or more directors. Each member of the Committee shall be independent in accordance with the rules of the Nasdaq Stock Market. The members of the Committee shall be appointed by the Board. The members of the Committee shall serve for such term or terms as the Board may determine or until earlier resignation or death. The Board may remove any member from the Committee at any time with or without cause.
Purpose
The purpose of the Committee is to carry out the responsibilities delegated by the Board relating to the Company’s director nominations process and procedures, developing and maintaining the Company’s corporate governance policies and any related matters required by the federal securities laws.
Duties and responsibilities
The Committee shall have the following authority and responsibilities:
1. To determine the qualifications, qualities, skills, and other expertise required to be a director and to develop, and recommend to the Board for its approval, criteria to be considered in selecting nominees for director (the “Director Criteria”).
2. To identify and screen individuals qualified to become members of the Board, consistent with the Director Criteria. The Committee shall consider any director candidates recommended by the Company’s shareholders pursuant to the procedures set forth in the Company’s Memorandum and Articles of Association and proxy statement. The Committee shall also consider any nominations of director candidates validly made by shareholders in accordance with applicable laws, rules and regulations and the provisions of the Company’s charter documents.
3. To make recommendations to the Board regarding the selection and approval of the nominees for director to be submitted to a shareholder vote at the annual meeting of shareholder.
4. To annually review and assess the adequacy of the Company’s corporate governance policies and procedures and the Company’s Code of Ethics, and it shall recommend any proposed changes to the Board for approval. The Committee also shall consider corporate governance issues that arise from time to time and develop appropriate recommendations and policies for the Board regarding such matters.
5. To review the Board’s committee structure and composition and to make recommendations to the Board regarding the appointment of directors to serve as members of each committee and committee chairperson annually.
6. If a vacancy on the Board and/or any Board committee occurs, to identify and make recommendations to the Board regarding the selection and approval of candidates to fill such vacancy either by election by shareholders or appointment by the Board.
Outside advisors
The Committee shall have the authority, in its sole discretion, to select, retain and obtain the advice of a director search firm as necessary to assist with the execution of its duties and responsibilities as set forth in this Charter. The Committee shall set the compensation and oversee the work of the director search firm. The Committee shall have the authority, in its sole discretion, to retain and obtain the advice and assistance of outside legal counsel and such other advisors as it deems necessary to fulfill its duties and responsibilities under this Charter. The Committee shall set the compensation and oversee the work of its outside legal counsel and other advisors. The Committee shall receive appropriate funding from the Company, as determined by the Committee in its capacity as a committee of the Board, for the payment of compensation to its compensation consultants, outside legal counsel and any other advisors.
Structure and operations
The Board shall designate a member of the Committee as the chairperson. The Committee shall meet as often as it deems necessary to perform its responsibilities. The Committee shall report regularly to the Board regarding its actions and make recommendations to the Board as appropriate. The Committee is governed by the same rules regarding meetings (including meetings in person or by telephone or other similar communications equipment), action without meetings, notice, waiver of notice, and quorum and voting requirements as are applicable to the Board. The Committee shall review this Charter at least annually and recommend any proposed changes to the Board for approval.
Delegation of authority
The Committee shall have the authority to delegate any of its responsibilities, along with the authority to take action in relation to such responsibilities, to one or more subcommittees as the Committee may deem appropriate in its sole discretion. The Chair may represent the entire Committee, as a subcommittee, with respect to functions of the Committee undertaken between meetings. Any actions of a subcommittee shall be presented to the full Committee at its next scheduled meeting.