E-Power Inc 20-F for FY2021
E-Power Inc. (EPOW)
About this 20-F
E-Power Inc filed this 20-F on May 2, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $7.41M
- down 68.0% from $23.18M a year earlier
- Net loss
- $8.4M
- compared with net income of $12.09M a year earlier
- Diluted EPS
- $23,638,751.00
- up 40.7% from $16,800,000.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
OR
For the fiscal year ended
OR
OR
Date of event requiring this shell company report:
For the transition period from _________ to _____________.
Commission file number:
| (Exact name of Registrant as Specified in its Charter) |
| (Jurisdiction of Incorporation or Organization) |
| Haidian District, People’s Republic of +861082967728 | ||
| (Address of Principal Executive Offices) |
| Haidian District, People’s Republic of + | ||
| (Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person) |
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital stock as of the close of the period covered by the annual report.
An aggregate of
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934. Yes ☐
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filer, ‘accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | 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 13(a) of the Exchange
Act.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| ☒ | ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board | ☐ | Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
TABLE OF CONTENTS
i
INTRODUCTION
We are a holding company incorporated in the Cayman Islands with no material operations of our own. We are not a Chinese operating company. Investors of our Ordinary Shares do not own any equity interests in the VIE, but instead own shares of a Cayman Islands holding company. Unless otherwise stated, as used in this annual report and in the context of describing our operations and consolidated financial information, “we,” “us,” “Company,” “GIOP”, or “our,” refers to Global Internet of People, Inc., a Cayman Islands holding company, and “VIE” refers to the variable interest entity (“VIE”), Global Mentor Board (Beijing) Information Technology Co., Ltd., or SDH.
Unless the context otherwise requires, in this annual report on Form 20-F, references to:
| ● | “Affiliated Entities” are to GIOP’s subsidiaries, and SDH and its subsidiaries; | |
| ● | “APP” are to our mobile application, “Shidonghui APP;” | |
| ● | “China” or the “PRC” are to the People’s Republic of China, excluding Taiwan and the special administrative regions of Hong Kong and Macau for the purposes of this annual report only; | |
| ● | “Enterprise Service Client” or “Enterprise Service Clients” are to small and medium-sized enterprises that have entered into service agreements with us for customized enterprise services; | |
| ● | “Expert” or “Experts” are to individual(s) qualified and certified by us to provide services to Users and Members; | |
| ● | “GMB HK” are to “Global Mentor Board Information Technology Limited”, GIOP’s wholly-owned-subsidiary, a Hong Kong corporation. | |
| ● | “GMB (Hangzhou)” are to Global Mentor Board (Hangzhou) Technology Co., Ltd., a limited liability company organized under the laws of the PRC, SDH’s wholly owned subsidiary; | |
| ● | “GMB (Beijing)” are to Shidong (Beijing) Information Technology Co., Ltd., a limited liability company organized under the laws of the PRC and 51% of its equity interest is owned by SDH; | |
| ● | “GMB Culture” are to Shanghai Voice of Seedling Cultural Media Co., Ltd., a limited liability company organized under the laws of the PRC and 51% of its equity interest is owned by SDH; | |
| ● | “GMB Consulting” are to Global Mentor Board (Shanghai) Enterprise Management Consulting Co. Ltd., a limited liability company organized under the laws of the PRC and 51% of its equity interest is owned by SDH; | |
| ● | “GMB Linking” are to “Linking (Shanghai) Network Technology Co., Ltd., a limited liability company organized under the laws of the PRC; the 51% of its equity interest owned by SDH was transferred to a third party in July 2021; | |
| ● | “GIOP BJ” or “WFOE” are to GIOP’s wholly foreign owned subsidiary, Beijing Mentor Board Union Information Technology Co, Ltd., a limited liability company organized under the laws of the PRC; |
ii
| ● | “Member” or “Members” are to individual(s) and enterprise(s) who signed up for each of our three annual membership plans: Platinum, Diamond, Protégé; | |
| ● | “Mentor” or “Mentors” are to individual(s) invited by us to provide services to Users and Members; | |
| ● | “shares,” “Shares,” or “Ordinary Shares” are to the Ordinary Shares of the Company, par value US$0.0001 per share; | |
| ● | “SDH” or “the VIE” are to Global Mentor Board (Beijing) Information Technology Co., Ltd., a limited liability company organized under the laws of the PRC, which we control via a series of contractual arrangements among WFOE, SDH and shareholders of SDH; | |
| ● | “SDH New Energy” are to SDH(HK) New Energy Tech Co., Limited, GIOP’s wholly-owned-subsidiary, a Hong Kong corporation. | |
| ● | “Sunrise Guizhou” are to Sunrise (Guizhou) New Energy Material Co., Ltd, a limited liability company organized under the laws of the PRC and 51% of its equity interest is owned by GIOP; | |
| ● | “U.S.” are to the United States; | |
| ● | “User” or “Users” are to registered users of our APP; | |
| ● | “VIE” are to variable interest entity; | |
| ● | “Zhuhai Zibo” are to Zhuhai (Zibo) Investment Co., Ltd., a limited liability company organized under the laws of the PRC, SDH New Energy’s wholly owned subsidiary; | |
| ● | “Zhuhai Guizhou” are to Zhuhai (Guizhou) New Energy Investment Co., Ltd., a limited liability company organized under the laws of the PRC, SDH New Energy’s wholly owned subsidiary; |
| ● | “Zibo Shidong” are to Zibo Shidong Digital Technology Service Co., Ltd., a limited liability company organized under the laws of the PRC, SDH’s wholly owned subsidiary; |
| ● | “HK subsidiaries” are to GMB HK and SDH New Energy; and | |
| ● | “PRC subsidiaries” are to GIOP BJ, Zhuhai Zibo, Zhuhai Guizhou and their respective subsidiaries. |
As of the date of this annual report, substantially all of our business is conducted by SDH, the Company’s VIE entity in the PRC, and its subsidiaries, using RMB, the currency of China. Our consolidated financial statements are presented in United States dollars or US$. In this annual report, we refer to assets, obligations, commitments and liabilities in our consolidated financial statements in United States dollars or US$. These US$ references are based on the exchange rate of RMB to United States dollars, determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations and the value of our assets, including accounts receivable.
Unless expressly indicated herein to the contrary, all references to share amounts in this annual report give retroactive effect to share consolidations, the last of which was effected on April 24, 2020.
iii
FORWARD-LOOKING INFORMATION
This annual report on Form 20-F contains ‘forward-looking statements’ within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. Known and unknown risks, uncertainties and other factors, including those listed under “Item 3. Key Information—D. Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:
| ● | future financial and operating results, including revenues, income, expenditures, cash balances and other financial items; | |
| ● | our ability to execute our growth and expansion, including our ability to meet our goals; | |
| ● | current and future economic and political conditions; | |
| ● | the future growth of the Chinese knowledge sharing and enterprise service industries; | |
| ● | our ability to continue to operate through the VIE structure; | |
| ● | our capital requirements and our ability to raise any additional funds which we may require; | |
| ● | our ability to attract clients and further enhance our brand recognition; | |
| ● | our ability to hire and retain qualified management personnel and key employees in order to enable us to develop our business; | |
| ● | trends and competition in Chinese enterprise service and knowledge sharing industries; | |
| ● | impact of the novel COVID-19 outbreak on our business operations; and | |
| ● | other assumptions described in this annual report underlying or relating to any forward-looking statements. |
These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Other sections of this annual report include additional factors that could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors 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. You should read thoroughly this annual report and the documents that we refer to with the understanding that our actual future results may be materially different from, or worse than, what we expect. We qualify all of our forward-looking statements by these cautionary statements.
This annual report contains certain data and information that we obtained from various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. The insurance industry may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of the Ordinary Shares. In addition, the rapidly evolving nature of this industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.
The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we refer to in this annual report and exhibits to this annual report completely and with the understanding that our actual future results may be materially different from what we expect.
iv
PART I
We are a Cayman Islands holding company conducting a substantial portion of our operations in China through Global Mentor Board (Beijing) Information Technology Co., Ltd., a variable interest entity (“VIE”), and its subsidiaries. Investors of our Ordinary Shares are not investing in the VIE. Neither we nor our subsidiaries own any shares in the VIE. Instead, for accounting purposes, we control and receive the economic benefits of the VIE’s business operation through a series of contractual arrangements, also known as VIE Agreements, dated June 10, 2019, which enable us to consolidate the financial results of the VIE and its subsidiaries in our consolidated financial statements under U.S. GAAP. As a result of these contractual arrangements, which have not been tested in a court of law, under generally accepted accounting principles in the United States (“U.S. GAAP”), the assets and liabilities of the VIE are treated as our assets and liabilities and the results of operations of the VIE are treated in all aspects as if they were the results of our operations. PRC laws, regulations, and rules restrict and impose conditions on direct foreign investment in certain types of business, and we therefore operate these businesses in China through the VIE. We have evaluated the guidance in Financial Accounting Standards Board Accounting Standards Codification 810 and determined that we are regarded as the primary beneficiary of the VIE for accounting purposes, as a result of our direct ownership in WFOE and the provisions of the VIE Agreements. See “Item 3. Key Information — Contractual Agreements among WFOE, SDH and Its Shareholders” for a summary of these VIE Agreements.
We are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to the validity and enforcement of the VIE Agreements. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard. The VIE Agreements may not be effective in providing control over the VIE. The VIE structure is used to replicate foreign investment in China-based companies where Chinese law prohibits direct foreign investment in the operating companies. As a result, you will never directly hold equity interests in our PRC operating entities. We may also be subject to sanctions imposed by PRC regulatory agencies including Chinese Securities Regulatory Commission if we fail to comply with their rules and regulations. We may also be subject to PRC laws relating to, among others, data security and restrictions over foreign investments due to the complexity of the regulatory regime in China, and the recent statements and regulatory actions by the PRC government relating to data security may affect our remaining business operations in China or even our ability to offer securities in the United States. We are also subject to the risks and uncertainties about any future actions of the PRC government that could disallow the VIE structure, which would likely result in a material change in our operations. See “Risk Factors—Risks Related to Doing Business in China” and “Risk Factors—Risks Related to Our Corporate Structure.”
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
Item 3. KEY INFORMATION
We are a Cayman Islands holding company conducting a substantial portion of our operations in China through the VIE and its subsidiaries. Investors of our Ordinary Shares are investing in Global Internet of People, Inc., the holding company, and are not investing in the VIE in which the Company’s operations are conducted. Neither we nor our subsidiaries own any shares in the VIE. Instead, we control and receive the economic benefits of the VIE’s business operation through a series of contractual arrangements, also known as VIE Agreements, dated May 14, 2020. As a result of these contractual arrangements, which have not been tested in a court of law, under generally accepted accounting principles in the United States (“U.S. GAAP”), the assets and liabilities of the VIE are treated as our assets and liabilities and the results of operations of the VIE are treated in all aspects as if they were the results of our operations. Below is a summary of the VIE Agreements:
Exclusive Technical and Consulting Services Agreement
Pursuant to the Exclusive Technical and Consulting Services Agreement between SDH and WFOE (the “Exclusive Service Agreement”), WFOE provides SDH with technical support, consulting services, business support and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information. For services rendered to SDH by WFOE under the Exclusive Service Agreement, WFOE is entitled to collect a service fee approximately equal to SDH’s earnings before corporate income tax, i.e., SDH’s revenue after deduction of operating costs, expenses and other taxes, subject to adjustment based on services rendered and SDH’s operation needs.
This agreement became effective on June 10, 2019 and will remain effective unless otherwise terminated as required by laws or regulations, or by relevant governmental or regulatory authorities. Nevertheless, this agreement shall be terminated after all the equity interest in SDH held by its shareholders and/or all the assets of SDH have been legally transferred to WFOE and/or its designee in accordance with the Exclusive Option Agreement.
The CEO of WFOE, Mr. Haiping Hu, is currently managing SDH pursuant to the terms of the Exclusive Service Agreement. The Exclusive Service Agreement does not prohibit related party transactions. The Company’s audit committee is required to review and approve in advance any related party transactions, including transactions involving WFOE or SDH.
1
Equity Pledge Agreement
Under the Equity Pledge Agreement between WFOE, and shareholders of SDH, together holding 100% of the shares of SDH (“SDH Shareholders”), the SDH Shareholders pledged all of their equity interests in SDH to WFOE to guarantee the performance of SDH’s obligations under the Exclusive Service Agreement. Under the terms of the Equity Pledge Agreement, in the event that SDH or the SDH Shareholders breach their respective contractual obligations under the Exclusive Service Agreement, WFOE, as pledgee, will be entitled to certain rights, including, but not limited to, the right to collect dividends generated by the pledged equity interests. The SDH Shareholders also agreed that upon occurrence of any event of default, as set forth in the Equity Pledge Agreement, WFOE is entitled to dispose of the pledged equity interests in accordance with applicable PRC laws. The SDH Shareholders further agreed not to dispose of the pledged equity interests or take any actions that would prejudice WFOE’s interests without the prior written consent of WFOE.
The Equity Pledge Agreement is effective until: (1) the secured debt in the scope of pledge is cleared off; and (2) Pledgers transfer all the pledged equity interests to Pledgees according to the Exclusive Option Agreement, or other entity or individual designated by it.
The purposes of the Equity Pledge Agreement are to (1) guarantee the performance of SDH’s obligations under the Exclusive Service Agreement; (2) make sure the SDH Shareholders do not transfer or assign the pledged equity interests, or create or allow any encumbrance that would prejudice WFOE’s interests without WFOE’s prior written consent. In the event SDH breaches its contractual obligations under the Exclusive Service Agreement, WFOE will be entitled to dispose of the pledged equity interests.
Exclusive Option Agreement
Under the Exclusive Option Agreement, the SDH Shareholders irrevocably granted WFOE (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, part or all of their equity interests in SDH or the assets of SDH. The option price to be paid by WFOE to each shareholder of SDH is RMB10 (approximately US$1.47) or the minimum amount to the extent permitted under PRC law at the time when such transfer occurs.
Under the Exclusive Option Agreement, WFOE may at any time under any circumstances, purchase, or have its designee purchase, at its discretion, to the extent permitted under PRC law, all or part of the SDH Shareholders’ equity interests in SDH or the assets of SDH. The Exclusive Option Agreement, together with the Equity Pledge Agreement, the Exclusive Service Agreement, and Powers of Attorney, enable WFOE to exercise effective control over SDH.
The Exclusive Option Agreement remains effective until all the equity or assets of SDH is legally transferred under the name of WFOE and/or other entity or individual designated by it, or unilaterally terminated by WFOE with a 30-day written notice.
Powers of Attorney
Under each of the Powers of Attorney, the SDH Shareholders authorized WFOE to act on their behalf as their exclusive agent and attorney with respect to all rights as shareholders, including, but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including, but not limited to, the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer, and other senior management members of SDH.
The Powers of Attorney are irrevocable and continuously valid from the date of execution of the Powers of Attorney, so long as the SDH Shareholders own the equity interests of SDH.
Spousal Consent
Pursuant to the Spousal Consent, each spouse of the individual shareholders of SDH irrevocably agreed that the equity interest in SDH held by their respective spouses would be disposed of pursuant to the Equity Pledge Agreement, the Exclusive Option Agreement, and the Powers of Attorney. Each spouse of the shareholders agreed not to assert any rights over the equity interest in SDH held by their respective spouses. In addition, in the event that any spouse obtains any equity interest in SDH through the respective shareholder for any reason, he or she agreed to be bound by the contractual arrangements.
2
We have relied and expect to continue to rely on the VIE Agreements to control and operate the business of the VIE. The VIE Agreements, however, may not be as effective in providing us with the necessary control over the VIE and its operations. For example, the VIE and its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests. If we had direct ownership of the VIE, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of the VIE, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. Under the current VIE Agreements, however, we rely on the performance by the VIE and its shareholders of their respective obligations under the contracts to exercise control over the VIE. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard. Because of our corporate structure, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to the validity and enforcement of the VIE Agreements. The VIE Agreements may not be effective in providing control over the VIE. We may be also subject to sanctions imposed by PRC regulatory agencies including Chinese Securities Regulatory Commission if we fail to comply with their rules and regulations. We may also be subject to PRC laws relating to, among others, data security and restrictions over foreign investments due to the complexity of the regulatory regime in China, and the recent statements and regulatory actions by the PRC government relating to data security may affect our remaining business operations in China or even our ability to offer securities in the United States. From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, however, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy in the PRC legal system than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies, internal rules, and regulations (some of which are not published in a timely manner or at all) that may have retroactive effect and may change quickly with little advance notice. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainties over the scope and effect of our contractual, property (including intellectual property), and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations. See “Risk Factors—Risks Related to Doing Business in China,” and “Risk Factors—Risks Related to Our Corporate Structure.”
As of December 31, 2021 and 2020, the VIE accounted for an aggregate of 51.21% and 99.65%, respectively, of our consolidated total assets, 99% and100% respectively, of our consolidated total liabilities, and100% and 99.68% respectively, of our consolidated total net revenues. See our consolidated financial statements and the related notes in this annual report.
Our ability to pay dividends depends upon dividends paid by our operating entities. If the operating entity incurs debt on its own behalf, the instruments governing its debt may restrict its ability to pay dividends to us.
The operating entity in China will be permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with the Accounting Standards for Business Enterprise as promulgated by the Ministry of Finance of the PRC, or PRC GAAP. In accordance with PRC company laws, any consolidated VIEs in China must make appropriations from its after-tax profits to non-distributable reserve funds including (i) statutory surplus fund and (ii) discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the statutory surplus fund has reached 50% of the registered capital of the consolidated VIEs. Appropriation to discretionary surplus fund will be made at the discretion of the consolidated VIEs.
Pursuant to the law applicable to China’s foreign investment enterprises, an operating entity that is a foreign investment enterprise in the PRC has to make appropriation from its after-tax profit, as determined under PRC GAAP, to reserve funds including (i) general reserve fund, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered capital of the operating company. Appropriation to the other two reserve funds is at the discretion of the operating company in China.
As a Cayman Islands holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fund-raising activities to the operating entities (as a subsidiary) in China only through loans or capital contributions, and to the consolidated affiliated entity only through loans, in each case subject to the satisfaction of the applicable government registration and approval requirements. Before providing loans to the onshore entities (i.e. the PRC subsidiaries and VIE entities), we are required to make filings about details of the loans with SAFE in accordance with relevant PRC laws and regulations. The PRC subsidiaries and VIE entities that receive the loans are only allowed to use the loans for the purposes set forth in these laws and regulations. We are also subject to restrictions and limitations on our ability to distribute earnings from our businesses, including subsidiaries and/or consolidated VIEs, to our holding company and U.S. investors as well as the ability to settle amounts owed under the VIE agreements.
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
3
D. Risk Factors
An investment in our Ordinary Shares involves a high degree of risk. Before deciding whether to invest in our Ordinary Shares, you should consider carefully the risks described below, together with all of the other information set forth in this annual report. If any of these risks actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely affected, which could cause the trading price of our Ordinary Shares to decline, resulting in a loss of all or part of your investment. The risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business. You should only consider investing in our Ordinary Shares if you can bear the risk of loss of your entire investment.
Risks Related to Our Business
We have a limited operating history and are subject to the risks encountered by development-stage companies.
We have been in business since December 2014 as a consulting company, and our APP was released to the public in 2016. As a development-stage company, our business strategies and model are constantly being tested by the market and operating results, and we adjust allocation of our resources accordingly. As such, our business may be subject to significant fluctuations in operating results in terms of amounts of revenues and percentages of total with respect to the business segments.
We are, and expect for the foreseeable future to be, subject to all the risks and uncertainties, inherent in a development-stage business. As a result, we must establish many functions necessary to operate a business, including expanding our managerial and administrative structure, assessing and implementing our marketing program, implementing financial systems and controls and personnel recruitment. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies with a limited operating history. These risks and challenges are, among other things:
| ● | we operate in industries that are or may in the future be subject to increasing regulation by various governmental agencies in China; | |
| ● | we may require additional capital to develop and expand our operations which may not be available to us when we require it; | |
| ● | our marketing and growth strategy may not be successful; | |
| ● | our business may be subject to significant fluctuations in operating results; and | |
| ● | we may not be able to attract, retain and motivate qualified professionals. |
Our future growth will depend substantially on our ability to address these and the other risks described in this annual report. If we do not successfully address these risks, our business would be significantly harmed.
Our historical financial results may not be indicative of our future performance.
Our net revenue was $17,925,476, $23,181,084 for the years ended December 31, 2019, 2020, respectively. Our net income was $9,380,768, $11,957,287 for the years ended December 31, 2019 and 2020, respectively. However, our net revenue decreased to $7,409,272 and we incurred a net loss of $8,714,332 for the year ended December 31, 2021. As such, our limited history of operation makes it difficult to evaluate our future prospects. We may not be able to sustain growth or may not be able to grow our business at all.
If we cannot manage our growth effectively and efficiently, our results of operations or profitability could be adversely affected.
We intend to continue to expand our services and operations. In April 2022, we entered into an investment agreement with certain partners to form a joint venture dedicated to the production of high-grade lithium-ion power battery anode materials. Such expansion has placed, and will continue to place, substantial demands on our managerial, operational, technological and other resources. Our planned expansion will also place significant demands on us to maintain the quality of our services to ensure that our brand does not suffer as a result of any deviations, whether actual or perceived, in the quality of our services. In order to manage and support our growth, we must continue to improve our existing operational and administrative systems and our quality control, and recruit, train and retain additional qualified professionals as well as other administrative and sales and marketing personnel, particularly as we expand into new business ventures and launch new business initiatives. We may not be able to effectively and efficiently manage the growth of our operations, recruit and retain qualified personnel and integrate new expansion into our operations. As a result, our quality of service may deteriorate and our results of operations or profitability could be adversely affected.
4
We may not be successful in implementing important new strategic initiatives, which may have an adverse impact on our business and financial results.
There is no assurance that we will be able to implement important strategic initiatives in accordance with our expectations, which may result in an adverse impact on our business and financial results. For example, our latest strategic initiative, Yilong Projet, is designed to create growth, improve our results of operations and drive long-term shareholders value; however, our management may lack required experience, knowledge, insight, or human and capital resources to carry out the effective implementation to expand into new spaces outside of our current focuses. As such, we may not be able to realize our expected growth, and our business and financial results will be adversely impacted.
If we are not successful in selling inventory, we may have to sell the inventory at significantly reduced prices or may not be able to sell the inventory at all.
In late 2019, we started selling merchandises obtained through (1) fee exchange arrangements, through which we receive products in exchange for collection of membership fees and consulting fees earned from our customers, and (2) direct purchases from our customers and third parties based on market trend and demand. Our profitability in sale of merchandises depends on our ability to manage inventory levels and respond to shifts in consumer demand patterns. Overestimating customer demand for merchandises will likely result in the need to record inventory markdowns and sell excess inventory at clearance prices which would negatively impact our gross margins and operating results. Underestimating customer demand for merchandises can lead to inventory shortages, missed sales opportunities and negative customer experiences. Our gross margins could suffer if we are unable to effectively manage our inventory and sell merchandises at a significantly reduced price, which could have a material adverse effect on our results of operations and cash flows.
Increasing competition within our industries could have an impact on our business prospects.
The enterprise service and knowledge sharing are industries where new competitors can easily enter into since there are no significant barriers to entry. We also face many competitors in the knowledge sharing industry where a number of competitors have been in business longer than us. Competing companies may have significantly greater financial and other resources than we have and may offer services that are more attractive to prospective clients; increased competition would have a negative impact on both our revenues and our profit margins.
Interruption or failure of our own information technology and communication systems or those of third-party service providers we rely upon could impair our ability to provide products and services, which could damage our reputation and harm our results of operations.
Our ability to provide products and services, both online and offline, depends on the continuing operation of our information technology and communication systems. Any damage to or failure of our systems could interrupt our services. Service interruptions could reduce our revenue and profit and damage our brand if our systems are perceived to be unreliable. Our systems are vulnerable to damage or interruption as a result of terrorist attacks, wars, earthquakes, floods, fires, power loss, telecommunication failures, undetected errors or “bugs” in our software, computer viruses, interruptions in access to our platform through the use of “denial of service” or similar attacks, hacking or other attempts to harm our systems, and similar events. Some of our systems are not fully redundant, and our disaster recovery planning does not account for all possible scenarios.
Our servers, which are hosted at third-party or our own internet data centers, are vulnerable to break-ins, sabotage and vandalism. The occurrence of natural disasters or closure of an internet data center by a third-party provider without adequate notice could result in lengthy service interruptions. In addition, our domain names are resolved into internet protocol (IP) addresses by systems of third-party domain name registrars and registries. Any interruptions or failures of those service providers’ systems, which are beyond our control, could significantly disrupt our own services. If we experience frequent or persistent system failures on our platform, whether due to interruptions and failures of our own information technology and communications systems or those of third-party service providers that we rely upon, our reputation and brand could be severely harmed. The steps we take to increase the reliability and redundancy of our systems may cause us to incur heavy costs and reduce our operating margin, and may not be successful in reducing the frequency or duration of service interruptions.
We may be required to obtain and maintain additional approvals, licenses or permits applicable to our business, including our online business, which could have a material adverse impact on our business, financial conditions and results of operations.
Our business is subject to governmental supervision and regulation by the relevant PRC governmental authorities, including the Ministry of Commerce, or MOFCOM, the Ministry of Industry and Information Technology, or MIIT, the National Radio and Television Administration or NRTA, and other governmental authorities in charge of the relevant categories of services offered by us. Together, these government authorities promulgate and enforce regulations that cover many aspects of the operation of online services we provide on our APP, including entry into this online service industry, the scope of permissible business activities, licenses and permits for various business activities, and foreign investment.
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We currently hold an ICP License (the Administrative Measures on Internet Information Services, or the Internet Measures, promulgated by the State Council requires commercial internet content-related services operators to obtain a VATS (“value added telecommunications service”) License for internet content provision business, or the ICP License), and an Internet Culture Business Operating License. Although we do not currently believe we are required to hold any other licenses, we may be required to obtain additional licenses, permits or approval, given the significant uncertainties of the interpretation and implementation of certain regulatory requirements applicable to our business. See “Regulations— Regulations Related to Online Transmission of Audio-Visual Programs.”
As the internet industry in China is still at a relatively early stage of development, new laws and regulations may be adopted from time to time to address new issues that come to the authorities’ attention. Considerable uncertainties still exist with respect to the interpretation and implementation of existing and future laws and regulations governing our business activities. As of the date of this annual report, we are not aware of any other approvals, licenses, or permits that are material to our business operations that we have not, but may be required to, obtain; nor have we received any notice of warning or been subject to penalties or other disciplinary action from the relevant governmental authorities for lack of approvals and permits or noncompliance with regulations related to our current licenses. However, we cannot assure you that we will not be subject to any warning, investigations or penalties in the future. If the PRC government deems us as operating without proper approvals, licenses or permits, promulgates new laws and regulations that require additional approvals or licenses or impose additional restrictions on the operation of any part of our business, we may be required to apply for additional approvals, license or permits, or be subject to various penalties, including fines, termination or restrictions of the part of our business or revoking of our business licenses, which may materially and adversely affect our business, financial conditions and results of operations.
The successful operation of our online service depends upon the performance and reliability of the internet infrastructure and fixed telecommunication networks in China.
Our online service depends on the performance and reliability of the internet infrastructure in China. Almost all access to the internet is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the MIIT. In addition, the national networks in China are connected to the internet through international gateways controlled by the PRC government. These international gateways are the only channels through which a domestic user can connect to the internet. It is unpredictable whether a more sophisticated internet infrastructure will be developed in China. We may not have access to alternative networks in the event of disruptions, failures or other problems with China’s internet infrastructure. In addition, the internet infrastructure in China may not support the demands associated with continued growth in internet usage.
We rely on China Telecommunications Corporation, or China Telecom, and China United Network Communications Group Company Limited, or China Unicom, to provide us with network services and data center hosting services. We have limited access to alternative services in the event of disruptions, failures or other problems with the fixed telecommunications networks of these companies, or if these companies otherwise fail to provide the services. Any unscheduled service interruption could damage our reputation and result in a decrease in our revenues. Furthermore, we have no control over the costs of the services provided by these telecommunication companies. If the prices that we pay for telecommunications and internet services rise significantly, our gross margins could be adversely affected. In addition, if internet access fees or other charges to internet users increase, our user traffic may decrease, which in turn may harm our revenues.
Security breaches and improper access to or disclosure of our data or user data, or any system failure or compromise of our security, could harm our reputation and adversely affect our business.
Our business is prone to cyber-attacks seeking unauthorized access to our data or user data or to disrupt our ability to provide services. Any failure to prevent or mitigate security breaches and improper access to or disclosure of our data or user data, such as personal information, names, accounts, user IDs and passwords, and payment or transaction related information, could result in the loss or misuse of such data, which could cause a loss or give rise to liabilities to the owners of confidential information, such as our Users, Members, Experts, and Mentors. We also have encountered attempts to create false or undesirable user accounts, or take other actions on our platform for purposes such as spamming, spreading misinformation, or other objectionable ends. Such attacks may cause interruptions to the services we provide, degrade the user experience, cause users to lose confidence and trust in our products and services, impair our internal systems, or result in financial harm to us.
Affected users could initiate legal or regulatory actions against us in connection with any actual or perceived security breaches or improper disclosure of data, which could cause us to incur significant expense and liabilities or result in orders or consent decrees forcing us to modify our business practices. Such incidents or our efforts to remediate such incidents may also result in a decline in our user base or engagement levels. Any of these events could have a material and adverse effect on our business, reputation, or results of operations.
If we fail to hire, train or retain qualified managerial and other employees, our business and results of operations could be materially and adversely affected.
We place substantial reliance on the knowledge sharing and enterprise service industry experience and knowledge of our senior management team as well as their relationships with other industry participants. The loss of the services of one or more members of our senior management could hinder our ability to effectively manage our business and implement our growth strategies. Finding suitable replacements for our current senior management could be difficult, and competition for such personnel of similar experience is intense. If we fail to retain our senior management, our business and results of operations could be materially and adversely affected.
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Our personnel are critical to maintaining the quality and consistency of our services, brand and reputation. It is important for us to attract qualified managerial and other employees who have experience in consulting services and are committed to our service approach. There may be a limited supply of such qualified individuals. We must hire and train qualified managerial and other employees on a timely basis to keep pace with our rapid growth while maintaining consistent quality of services across our operations. We must also provide continuous training to our managerial and other employees so that they are equipped with up-to-date knowledge of various aspects of our operations and can meet our demand for high-quality services. If we fail to do so, the quality of our services may decrease, which in turn, may cause a negative perception of our brand and adversely affect our business.
If we fail to attract or retain qualified service providers, our business and results of operations could be materially and adversely affected.
Our core strength is the knowledge brought by our service providers, highlighted by their experiences, wisdom, industry know-how, and social connections. We rely heavily on the expertise of our service providers, including Mentors, Experts, and our consultants to maintain our core competence. As of March 2022, we had 739 Mentors, 1,176 Experts, and a team of full-time consultants as our knowledge sharing providers. Many of our Mentors are experienced leaders of successful and well-known corporations. Likewise, our Experts are outstanding professionals in their specialized fields, and our team of consultants is professionals with industrial experiences of more than five years. As our business scope increases, we expect to continue to invest significant resources in attracting and retaining service providers. Our ability to sustain our growth will depend on our ability to attract and retain qualified service providers. If we fail to attract or retain qualified service providers, our business and results of operations could be materially and adversely affected.
If we were to lose our certification as a National High Tech Enterprise, we could face higher tax rates than we currently pay for much of our revenues.
In October 2017, SDH was approved as a National High Tech Enterprise, which certificate was renewed in December 2020 and is valid for three years. This certification entitles SDH to a favorable tax rates of 15%, rather than the unified rate of 25% if it was not so certified. For the year ended December 31, 2020, the total taxes payable by SDH would have increased by $620,936 if SDH was not certified as a National High Tech Enterprise. In the event SDH were to lose the benefit of the favorable tax rate in the future, we could see significant increases in the amount of taxes we pay, meaning that our operating results could be materially harmed, even in the absence of a decrease in our operations.
Failure to maintain or enhance our brand or image could have a material and adverse effect on our business and results of operations.
We believe our SDH (“师董会”) brand is associated with a well-recognized knowledge sharing and enterprise services provider in the markets that we operate with online and offline services designed to suit our clients’ needs. Our brand is integral to our sales and marketing efforts. We have obtained trademark registrations for our brand SDH in the PRC. Our continued success in maintaining and enhancing our brand and image depends to a large extent on our ability to satisfy customer needs by further developing and maintaining quality of services across our operations, as well as our ability to respond to competitive pressures. If we are unable to satisfy clients’ needs or if our public image or reputation were otherwise diminished, our business transactions with our clients may decline, which could in turn adversely affect our results of operations.
Any failure to protect our trademarks and other intellectual property rights could have a negative impact on our business.
We believe our key trademark, “师董会,” for which we have obtained trademark protection in China, and 35 computer software copyrights and one artwork copyright, for which we have obtained protection with the Copyright Protection Centre of China (CPCC), and other intellectual property rights are critical to our success. Any unauthorized use of our trademarks or other intellectual property rights could harm our competitive advantages and business. Historically, China has not protected intellectual property rights to the same extent as the United States, and infringement of intellectual property rights continues to pose a serious risk of doing business in China. Monitoring and preventing unauthorized use are difficult. The measures we take to protect our intellectual property rights may not be adequate. Furthermore, the application of laws governing intellectual property rights in China and abroad is uncertain and evolving, and could involve substantial risks to us. If we are unable to adequately protect our brand, trademarks and other intellectual property rights, we may lose these rights and our business may suffer materially.
As internet domain name rights are not rigorously regulated or enforced in China, other companies may incorporate in their domain names elements similar in writing or pronunciation to the “师董会” trademarks or their Chinese equivalents. This may result in confusion between those companies and our company and may lead to the dilution of our brand value, which could adversely affect our business.
Risks Related to Our Corporate Structure
We control and receive the economic benefits of the business operations of the VIE through the VIE Agreements solely because we met the conditions for consolidation of the VIE under the U.S. GAAP for accounting purpose; however, the VIE Agreements have not been tested in a court of law and are subject to significant risks, as set forth in the following risk factors. For a description of these VIE Agreements, see “ITEM 4. INFORMATION ON THE COMPANY — C. Organizational Structure”.
If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
Foreign ownership of certain parts of our businesses including the value-added telecommunications services, or the VATS, is subject to restrictions under current PRC laws and regulations. For example, the ultimate foreign equity ownership in a VATS provider may not exceed 50%. Also, for a foreign investor contemplating to acquire any equity interest in a VATS business in China, it must satisfy a number of stringent performance and operational experience requirements. In addition, to conduct any VATS business in China, foreign investors have to set up foreign-invested enterprises and obtain a relevant telecommunications business operating license. See “Regulations—Regulations Related to Foreign Investment.”
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In light of the above restrictions and requirements, we currently operate our knowledge sharing and enterprise service platform through SDH, a VIE entity, through a series of contractual arrangements, as a result of which, under United States generally accepted accounting principles, the assets and liabilities of SDH are treated as our assets and liabilities and the results of operations of SDH are treated in all aspects as if they were the results of our operations. For a description of these contractual arrangements, see “Business—Contractual Arrangements between WFOE, SDH and Its Shareholders” and “Related Party Transactions—Contractual Arrangements with WFOE, SDH and Its Shareholders.”
In the opinion of our PRC legal counsel, Jincheng Tongda & Neal Law Firm (“JT&N”), based on its understandings of the relevant PRC laws and regulations, (i) the ownership structures of SDH in China and WFOE are not in violation of applicable PRC laws and regulations currently in effect; and (ii) each contracts among WFOE, SDH and its shareholders is legal, valid, binding and enforceable in accordance with its terms and applicable PRC laws. However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. Accordingly, the PRC regulatory authorities may ultimately take a view contrary to the opinion of our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or SDH are found to be in violation of any PRC laws or regulations, if the contractual arrangements among WFOE, SDH and its shareholders are determined as illegal or invalid by the PRC court, arbitral tribunal or regulatory authorities, or if we or SDH fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including:
| ● | revoking the business and/or operating licenses of WFOE or SDH; |
| ● | discontinuing or restricting the operations of WFOE or SDH; |
| ● | imposing conditions or requirements with which we, WFOE, or SDH may not be able to comply; |
| ● | requiring us, WFOE, or SDH to restructure the relevant ownership structure or operations which may significantly impair the rights of the holders of our Ordinary Shares in the equity of SDH; |
| ● | restricting or prohibiting our use of the proceeds from our initial public offering to finance our business and operations in China; and |
| ● | imposing fines. |
The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business. In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of SDH in our consolidated financial statements, if the PRC government authorities were to find our legal structure and contractual arrangements to be in violation of PRC laws and regulations. If the imposition of any of these government actions causes us to lose our right to direct the activities of SDH or our right to receive substantially all the economic benefits and residual returns from SDH and we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of SDH in our consolidated financial statements. Either of these results, or any other significant penalties that might be imposed on us in this event, would have a material adverse effect on our financial condition and results of operations.
We rely on contractual arrangements with SDH, a VIE entity, and its subsidiaries and shareholders for our China operations, which may not be as effective in providing operational control as direct ownership.
We have relied and expect to continue to rely on contractual arrangements with SDH, its subsidiaries and shareholders to operate our business in China. For a description of these contractual arrangements, see “Business—Contractual Arrangements between WFOE, SDH and Its Shareholders” and “Related Party Transactions— Contractual Arrangements with WFOE, SDH and Its Shareholders.” These contractual arrangements may not be as effective in providing us with control over SDH and its subsidiaries as direct ownership. We have no direct or indirect equity interests in SDH or any of its subsidiaries.
If we had direct ownership of SDH and its subsidiaries, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of SDH and its subsidiaries, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. But under the current contractual arrangements, as a legal matter, if SDH or any of its subsidiaries and shareholders fails to perform their obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements and rely on legal remedies under PRC law, including seeking specific performance or injunctive relief and claiming damages, which may not be effective. For example, if the shareholders of SDH were to refuse to transfer their equity interest in SDH to us or our designee when we exercise the call option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal action to compel them to fulfill their contractual obligations.
Many of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over our affiliated entities, and our ability to conduct our business may be negatively affected.
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The contractual arrangements we have entered into with SDH and its shareholders, and any other arrangements and transactions among related parties that we currently have or will have in future may be subject to scrutiny by the PRC tax authorities and they may determine that we owe additional taxes, which could substantially reduce our consolidated net income and the value of your investment.
Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable year when the transactions are conducted. We could face material and adverse tax consequences if the PRC tax authorities determine that the VIE contractual arrangements were not entered into on an arm’s-length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust the income of SDH in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by SDH for PRC tax purposes, which could in turn increase its tax liabilities without reducing WFOE’s tax expenses. In addition, the PRC tax authorities may impose late payment fees and other penalties on SDH for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if SDH’s tax liabilities increase or if it is required to pay late payment fees and other penalties.
Because we are a Cayman Islands holding company and conduct our business through the VIE in China, if we fail to comply with applicable PRC law, we could be subject to severe penalties and our business could be adversely affected.
We are a Cayman Islands holding company and operate a substantial portion of our business through the VIE in China through VIE Agreements, as a result of which, under United States generally accepted accounting principles, the assets and liabilities of the VIE are treated as our assets and liabilities and the results of operations of the VIE are treated in all respects as if they were the results of our operations. There are uncertainties regarding the interpretation and application of PRC laws, rules and regulations, including but not limited to the laws, rules and regulations governing the validity and enforcement of the VIE Agreements between WFOE and the VIE.
The Provisions Regarding Mergers and Acquisitions of Domestic Projects by Foreign Investors (the “M&A Rules”) requires an overseas special purpose vehicle that are controlled by PRC companies or individuals formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies using shares of such special purpose vehicle or held by its shareholders as considerations to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. However, the application of the M&A Rules remains unclear. If CSRC approval is required, it is uncertain whether it would be possible for us to obtain the approval. Any failure to obtain or delay in obtaining CSRC approval for such an offering would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies.
Furthermore, on July 10, 2021, the Cyberspace Administration of China (“CAC”) publicly issued the Measures for Cybersecurity Censorship (Revised Draft for Comments) aiming to, upon its enactment, replace the existing Measures for Cybersecurity Censorship. The draft measures extend the scope of cybersecurity reviews to data processing operators engaging in data processing activities that affect or may affect national security, including listing in a foreign country. If the enacted version of the draft measures mandates clearance of cybersecurity review and other specific actions to be completed by companies, we face uncertainties as to whether such clearance is required for our offerings and whether such clearance can be timely obtained, or at all.
If WFOE, the VIE or their ownership structure or the VIE Agreements are determined to be in violation of any existing or future PRC laws, rules or regulations, or WFOE or the VIE fail to obtain or maintain any of the required governmental permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including:
| ● | revoking the business and operating licenses of WFOE or the VIE; | |
| ● | discontinuing or restricting the operations of WFOE or the VIE; | |
| ● | imposing conditions or requirements with which we, WFOE, or the VIE may not be able to comply; | |
| ● | requiring us, WFOE, or the VIE to restructure the relevant ownership structure or operations which may significantly impair the rights of the holders of our ordinary shares in the equity of the VIE; and | |
| ● | imposing fines. |
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We cannot assure you that the PRC courts or regulatory authorities may not determine that our corporate structure and VIE Agreements violate PRC laws, rules or regulations. If the PRC courts or regulatory authorities determine that our contractual arrangements are in violation of applicable PRC laws, rules or regulations, the VIE Agreements will become invalid or unenforceable, and the VIE will not be treated as VIE entities and we will not be entitled to treat the VIE’s assets, liabilities and results of operations as our assets, liabilities and results of operations, which could effectively eliminate the assets, revenue and net income of the VIE from our balance sheet, which would most likely require us to cease conducting our business and would result in the delisting of our ordinary shares from the Nasdaq Capital Market and a significant impairment in the market value of our ordinary shares.
The shareholders of SDH may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
Almost all of our beneficiary owners hold equity interests in SDH. They may have conflicts of interest with us. Conflicts of interest may arise between the dual roles of them who are both shareholders of our Company and shareholders of SDH, the VIE. These shareholders may breach, or cause SDH to breach, or refuse to renew, the existing contractual arrangements we have with them and SDH, which would have a material and adverse effect on our ability to effectively control SDH and receive economic benefits from it. For example, the shareholders may be able to cause our agreements with SDH to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise any or all of these shareholders will act in the best interests of our Company or such conflicts will be resolved in our favor.
Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our Company, except that we could exercise our purchase option under the exclusive option agreements with these shareholders to request them to transfer all of their equity interests in SDH to a PRC entity or individual designated by us, to the extent permitted by PRC law. If we cannot resolve any conflicts of interest or disputes between us and those individuals, we would have to rely on legal proceedings, which may materially disrupt our business. There is also substantial uncertainty as to the outcome of any such legal proceeding.
Uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which has come into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation. For instance, under the Foreign Investment Law, “foreign investment’’ refers to the investment activities directly or indirectly conducted by foreign individuals, enterprises or other entities in China. Though it does not explicitly classify VIE Agreements as a form of foreign investment, there is no assurance that operation conducted by foreign investors or foreign-invested enterprises via contractual arrangement would not be interpreted as a type of indirect foreign investment activities under the definition in the future. In addition, the definition contains a catch-all provision which includes investments made by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the Stale Council to provide for VIE Agreements as a form of foreign investment. In any of these cases, it will be uncertain whether the VIE Agreements will be deemed to be in violation of the market access requirements for foreign investment under the PRC laws and regulations. Furthermore, if future laws, administrative regulations or provisions prescribed by the State Council mandate further actions to be taken by companies with respect to existing VIE Agreements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business operations.
Our executive officers, directors and affiliates own a significant percentage of our shares and will be able to exert significant control over matters subject to shareholder approval.
As of the date of this annual report, our executive officers, directors and affiliates beneficially own approximately 42% of our outstanding Ordinary Shares. Therefore, these stockholders will have the ability to influence us through their ownership positions. Further, our CEO and majority shareholder, Mr. Haiping Hu, has beneficial ownership of 6,820,887 Ordinary Shares. These shares represent ownership of approximately 28% of our Ordinary Shares as of the date of this annual report. These shareholders may be able to determine all matters requiring shareholder approval. For example, these shareholders, acting together, may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited transaction proposals or offers for our Ordinary Shares that you may believe are in your best interest as one of our shareholders.
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We may lose the ability to use and enjoy assets held by SDH that are material to the operation of certain portion of our business if SDH goes bankrupt or become subject to a dissolution or liquidation proceeding.
As part of our contractual arrangements with SDH, SDH and its subsidiaries hold certain assets that are material to the operation of certain portion of our business, including intellectual property and licenses. If SDH goes bankrupt and all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. Under the contractual arrangements, SDH may not, in any manner, sell, transfer, mortgage or dispose of their assets or legal or beneficial interests in the business without our prior consent. If SDH undergoes a voluntary or involuntary liquidation proceeding, independent third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
Because we are a Cayman Island company and all of our business is conducted in the PRC, you may be unable to bring an action against us or our officers and directors or to enforce any judgment you may obtain.
We are incorporated in the Cayman Islands and conduct our operations primarily in China. Substantially all of our assets are located outside of the United States. In addition, the majority of our directors and officers reside outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe we have violated your rights, either under United States federal or state securities laws or otherwise, or if you have a claim against us. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may not permit you to enforce a judgment against our assets or the assets of our directors and officers.
The SEC, the U.S. Department of Justice and other U.S. authorities may also have difficulties in bringing and enforcing actions against us or our directors or executive officers in the PRC. The SEC has stated that there are significant legal and other obstacles to obtaining information needed for investigations or litigation in China. China has recently adopted a revised securities law, and Article 177 of which provides, among other things, that no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without governmental approval in China, no entity or individual in China may provide documents and information relating to securities business activities to overseas regulators when it is under direct investigation or evidence discovery conducted by overseas regulators, which could present significant legal and other obstacles to obtaining information needed for investigations and litigation conducted in China.
As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with such corporate governance listing standards.
As a Cayman Islands exempted company listed on the Nasdaq Stock Market, we are subject to the Nasdaq listing standards. However, the Nasdaq Stock Market Rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Currently, we rely on home country practice with respect to certain aspects of our corporate governance. See “Item 16G. Corporate Governance.” Our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq listing standards applicable to U.S. domestic issuers given our reliance on the home country practice exception.
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Risks Related to Doing Business in China
The Chinese government exerts substantial influence over the manner in which we must conduct our business, and may intervene or influence our operations at any time, which could result in a material change in our operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors and, and cause the value of our Ordinary Shares to significantly decline or be worthless.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.
Furthermore, given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas, although we are currently not required to obtain permission from any of the PRC federal or local government authorities and have not received any denial to list on the U.S. exchange, it is uncertain when and whether we will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded, which could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors and cause the value of our securities to significantly decline or be worthless.
Recent greater oversight by the Cyberspace Administration of China over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our securities.
On December 28, 2021, 13 governmental departments of the PRC, including the Cyberspace Administration of China, or the CAC, issued the Cybersecurity Review Measures, which became effective on February 15, 2022. The Cybersecurity Review Measures provide that, in addition to critical information infrastructure operators (“CIIOs”) that intend to purchase Internet products and services, online platform operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review Measures require that an online platform operator which possesses the personal information of at least one million users must apply for a cybersecurity review by the CAC if it intends to be listed in foreign countries.
On November 14, 2021, the CAC published draft Regulations on the Network Data Security Administration (Draft for Comments) (the “Security Administration Draft”), which provides that data processing operators engaging in data processing activities that affect or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC. According to the Security Administration Draft, data processing operators who possess personal data of at least one million users or collect data that affects or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC. The deadline for public comments on the Security Administration Draft was December 13, 2021.
As of the date of this annual report, we have not received any notice from any authorities identifying our PRC subsidiaries, or the VIE and its subsidiaries as CIIOs, or requiring us to go through cybersecurity review or network data security review by the CAC. According to the Cybersecurity Review Measures and if the Security Administration Draft is enacted as proposed, we believe that the operations of our PRC subsidiaries, the VIE and its will not be affected and that we will not be subject to cybersecurity review and network data security review by the CAC, given that: (i) the VIE and its subsidiaries mainly provide business-oriented consulting services to small and medium-sized enterprises in the PRC, therefore are unlikely to be classified as CIIOs by the PRC regulatory agencies; (ii) according to the interpretation of the relevant laws by the CAC, for online platform operators who have listed in foreign countries before the effective date of Cybersecurity Review Measures, and who are not seeking a new listing (such as a secondary or dual listing) in foreign countries, a cybersecurity review is not required; (iii) since the VIE and its subsidiaries operate in the enterprise consulting industry, data processed in its business is unlikely to have a bearing on national security and therefore is unlikely to be classified as core or important data by the authorities. However, there remains uncertainty, as to how the Cybersecurity Review Measures and the Security Administration Draft will be interpreted or implemented by the authorities and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration Draft in the future. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we will take all reasonable measures and actions to comply with and to mitigate any adverse effect of such new laws, regulations, rules, or implementation and interpretation on us. We cannot guarantee, however, that we will not be subject to cybersecurity review and network data security review in the future. During such reviews, if required, our operations could be suspended or experience other disruptions. Further, cybersecurity review and network data security review could also result in negative publicity with respect to our Company and diversion of our managerial and financial resources, which could materially and adversely affect our business, financial conditions, and results of operations.
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The Draft Rules Regarding Overseas Listings were released by the CSRC for public comments; while such rules have not yet come into effect, the Chinese government may exert more oversight and control over overseas public offerings conducted by China-based issuers, which could significantly limit or completely hinder our ability to offer our Ordinary Shares to investors and could cause the value of our Ordinary Shares to significantly decline or become worthless.
On December 24, 2021, the China Securities Regulatory Commission, or the CSRC, and relevant departments of the State Council issued the Draft Rules Regarding Overseas Listings, which aim to regulate overseas securities offerings and listings by China-based companies, for public consultation. The Draft Rules Regarding Overseas Listing aim to lay out the filing regulation arrangement for both direct and indirect overseas listing and clarify the determination criteria for indirect overseas listing in overseas markers. Where an enterprise whose principal business activities are conducted in the PRC seeks to issue and list its shares in the name of an overseas enterprise based on equity, assets, income, or other similar rights and interests of the relevant PRC domestic enterprise, such activities are deemed an indirect overseas issuance and listing. According to the Draft Rules Regarding Overseas Listings, among other things, after making initial applications with overseas stock markets for initial public offerings or listings, or after the completion of issuance of overseas listed securities by the overseas listed issuer, all China-based companies shall file the required filing materials with the CSRC within three working days. See “Regulations—Regulations Related to Mergers and Acquisitions and Overseas Listings.” In addition, overseas offerings and listings may be prohibited for such China-based companies when any of the following applies: (i) if the intended securities offerings and listings are specifically prohibited by the laws, regulations, or provision of the PRC; (ii) if the intended securities offerings and listings may constitute a threat to, or endanger national security as reviewed and determined by competent authorities under the State Council in accordance with laws; (iii) if there are material ownership disputes over applicants’ equity interests, major assets, core technologies, or the others; (iv) if, in the past three years, applicants’ domestic enterprises, controlling shareholders, or de facto controllers have committed corruption, bribery, embezzlement, misappropriation of property, or other criminal offenses disruptive to the order of the socialist market economy, or are currently under judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations; (v) if, in the past three years, any directors, supervisors, or senior executives of applicants have been subject to administrative punishments for severe violations, or are currently under judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations; or (vi) other circumstances as prescribed by the State Council. The Draft Administrative Provisions further stipulate that a fine between RMB1 million and RMB10 million may be imposed if an applicant fails to fulfill the filing requirements with the CSRC or conducts an overseas offering or listing in violation of the Draft Rules Regarding Overseas Listings, and in cases of severe violations, a parallel order to suspend relevant businesses or halt operations for rectification may be issued, and relevant business permits or operational license revoked.
As of the date of this annual report, the Draft Rules Regarding Overseas Listings have been released for public comments only and have not been formally promulgated, and neither we nor our PRC subsidiaries, or the VIE and its subsidiaries have been required to complete the filing procedures. However, uncertainties remain as to its enactment or future interpretations and implementations. Our PRC counsel has advised us that, even if the final rules are promulgated as proposed in the current Draft Rules Regarding Overseas Listings, none of the situations that would clearly prohibit overseas offering and listings would apply to us. In addition, we would only need to submit the filing materials and no CSRC approval would be required under the proposed rules. Notwithstanding the above, our PRC counsel has further advised us that uncertainties still exist as to whether we, our PRC subsidiaries, or the VIE and its subsidiaries are required to obtain permissions from the Chinese government that is required to approve of our operations. In the event that we, our PRC subsidiaries, or the VIE and its subsidiaries are subject to the compliance requirements, we cannot assure you that any of these entities will be able to receive clearance for such compliance requirements in a timely manner, or at all. Any failure of our Company, our PRC subsidiaries, or the VIE and its subsidiaries to fully comply with new regulatory requirements may subject us to regulatory actions, such as fines, relevant businesses or operations suspension for rectification, revocation of relevant business permits or operational license, or other sanctions, which may significantly limit or completely hinder our ability to offer or continue to offer our Ordinary Shares, cause significant disruptions to our business operations, severely damage our reputation, materially and adversely affect our financial condition and results of operations and cause our Ordinary Shares to significantly decline in value or become worthless.
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A severe or prolonged downturn in the global or Chinese economy could materially and adversely affect our business and our financial condition.
Although the Chinese economy expanded well in the last two decades, the rapid growth of the Chinese economy has slowed down since 2012, and there is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the People’s Bank of China and financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in volatility in oil and other markets. There have also been concerns on the relationship among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes. 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. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition.
We face risks related to health epidemics such as the COVID-19 coronavirus outbreak first identified in Wuhan city at the end of 2019, and other outbreaks, which significantly disrupted our operations and may continue to adversely affect our business, financial condition and results of operations.
Our business has been significantly disrupted and may continue be materially and adversely affected by health epidemics such as the COVID-19 coronavirus outbreak first identified in Wuhan city at the end of 2019 and other outbreaks affecting the PRC. Our business operations depend on China’s overall economy and demand for our service, which could be disrupted by health epidemics. Prior to June 2020, due to the government restrictions, we were prevented from arranging offline activities, resulting in cancellations or postponements of study tours, forums and sponsorship advertising events, which adversely impacted the performance of our member services and enterprise services during the lock-down. For the year ended December 31, 2021, the revenues generated from our core businesses (member services, enterprise services and online services) decreased by approximately 76%, compared to the same period of the last year. A prolonged outbreak of the coronavirus or other adverse public health developments in China would likely have a material adverse effect on our business operations as such outbreak or other development could significantly impact the Chinese economy and our industry, disrupt our operations and adversely affect our business, financial condition and results of operations. The Company is operating in a rapidly changing environment so the extent to which COVID-19 may impact its business, operations and financial results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic, and governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic.
Because our business is dependent upon government policies that encourage a market-based economy, change in the political or economic climate in the PRC may impair our ability to operate profitably, if at all.
Although the PRC government has been pursuing a number of economic reform policies for more than two decades, the PRC government continues to exercise significant control over economic growth in the PRC. Because of the nature of our business, we are dependent upon the PRC government pursuing policies that encourage private ownership of businesses. We cannot assure you that the PRC government will pursue policies favoring a market-oriented economy or that existing policies will not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting political, economic and social life in the PRC.
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PRC laws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may materially and adversely affect our business and impede our ability to continue our operations.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. In fact, the PRC legal system is evolving rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. Furthermore, if China adopts more stringent standards with respect to environmental protection or social issues, which are increasingly becoming the focus globally, we may incur increased compliance cost or become subject to additional restrictions in our operations. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy in the PRC legal system than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainties over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.
For example, on July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued an announcement to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws. Since this announcement is relatively new, uncertainties still exist in relation to how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on companies like us.
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Because our business is conducted in RMB and the price of our Ordinary Shares is quoted in United States dollars, changes in currency conversion rates may affect the value of your investments.
Our business is conducted in the PRC, our books and records are maintained in RMB, which is the currency of the PRC, and the financial statements that we file with the SEC and provide to our shareholders are presented in United States dollars. Changes in the exchange rate between the RMB and dollar affect the value of our assets and the results of our operations in United States dollars. The value of the RMB against the United States dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changes in the economy of the PRC and the United States. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue and financial condition. Further, our Ordinary Shares offered by this annual report are denominated in United States dollars, we will need to convert the net proceeds we receive into RMB in order to use the funds for our business. Changes in the conversion rate between the United States dollar and the RMB will affect that amount of proceeds we will have available for our business.
Under the PRC Enterprise Income Tax Law, or the EIT Law, we may be classified as a “resident enterprise” of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders.
The EIT Law and its implementing rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” under PRC tax laws. The implementing rules promulgated under the EIT Law define the term “de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise. In April 2009, the State Administration of Taxation, or SAT, issued the Circular on Issues Concerning the Identification of Chinese-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance With the Actual Standards of Organizational Management, known as SAT Circular 82, which has been revised by the Decision of the State Administration of Taxation on Issuing the Lists of Invalid and Abolished Tax Departmental Rules and Taxation Normative Documents on December 29, 2017 and by the Decision of the State Council on Cancellation and Delegation of a Batch of Administrative Examination and Approval Items on November 8, 2013. Circular 82 has provided certain specific criteria for determining whether the “de facto management bodies” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met: (i) the places where senior management and senior management departments that are responsible for daily production, operation and management of the enterprise perform their duties are mainly located within the territory of China; (ii) financial decisions (such as money borrowing, lending, financing and financial risk management) and personnel decisions (such as appointment, dismissal, salary and wages) are made or need to be made by organizations or persons located within the territory of China; (iii) main property, accounting books, corporate seal, the board of directors and files of the minutes of shareholders’ meetings of the enterprise are located or preserved within the territory of China; and (iv) one half (or more) of the directors or senior management staff having the right to vote habitually reside within the territory of China.
We believe that GIOP is not a resident enterprise for PRC tax purpose. GIOP is not controlled by a PRC enterprise or PRC enterprise group and we do not meet some of the conditions outlined in the immediately preceding paragraph. For example, as a holding company, the key assets and records of GIOP, including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside the PRC. In addition, we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body”.
If we are deemed as a PRC “resident enterprise” by PRC tax authorities, we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25%, although dividends distributed to us from our existing PRC subsidiaries and any other PRC subsidiaries which we may establish from time to time could be exempt from the PRC dividend withholding tax due to our PRC “resident recipient” status. This could have a material and adverse effect on our overall effective tax rate, our income tax expenses and our net income. Furthermore, dividends, if any, paid to our shareholders may be decreased as a result of the decrease in distributable profits. In addition, if we were considered a PRC “resident enterprise”, any dividends we pay to our non-PRC investors, and the gains realized from the transfer of our Ordinary Shares may be considered income derived from sources within the PRC and be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty). It is unclear whether holders of our Ordinary Shares would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. This could have a material and adverse effect on the value of your investment in us and the price of our Ordinary Shares.
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There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.
Under the EIT Law and its implementation rules, the profits of a foreign invested enterprise generated through operations, which are distributed to its immediate holding company outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, a withholding tax rate of 10% may be lowered to 5% if the PRC enterprise is at least 25% held by a Hong Kong enterprise for at least 12 consecutive months prior to distribution of the dividends and is determined by the relevant PRC tax authority to have satisfied other conditions and requirements under the Double Tax Avoidance Arrangement and other applicable PRC laws.
However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or the SAT Circular 81, which became effective on February 20, 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. According to Circular on Several Issues regarding the “Beneficial Owner” in Tax Treaties, which became effective as of April 1, 2018, when determining an applicant’s status as the “beneficial owner” regarding tax treatments in connection with dividends, interests, or royalties in the tax treaties, several factors will be taken into account. Such factors include whether the business operated by the applicant constitutes actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax, grant tax exemption on relevant incomes, or levy tax at an extremely low rate. This circular further requires any applicant who intends to be proved of being the “beneficial owner” to file relevant documents with the relevant tax authorities. Our PRC subsidiaries is wholly owned by their respective HK based parent companies. However, we cannot assure you that our determination regarding our qualification to enjoy the preferential tax treatment will not be challenged by the relevant PRC tax authority or we will be able to complete the necessary filings with the relevant PRC tax authority and enjoy the preferential withholding tax rate of 5% under the Double Tax Avoidance Arrangement with respect to dividends to be paid by our PRC subsidiaries to our HK subsidiaries, in which case, we would be subject to the higher withdrawing tax rate of 10% on dividends received.
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries, the VIE and its subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
We are an offshore holding company conducting our operations in China through our PRC subsidiaries, the VIE and its subsidiaries. We may make loans to our PRC subsidiaries, the VIE and its subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Any capital contributions or loans that we, as an offshore entity, make to our PRC subsidiaries, are subject to PRC regulations. For example, loans to our PRC subsidiaries cannot exceed statutory limits and are subject to foreign exchange loan registrations. Our capital contributions to our PRC subsidiaries must be registered with the MOFCOM or its local counterpart. For more details, see “Regulation—Regulations Related to Foreign Debt.” and “Regulation—Regulations Related to Foreign Exchange.”
In light of the various requirements imposed by of PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals or filings on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries or the VIE or with respect to future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals on a timely basis or at all, our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
Government control in currency conversion may adversely affect our financial condition, our ability to remit dividends, and the value of your investment.
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company may rely on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have.
Under existing PRC foreign exchange regulations, Renminbi cannot be freely converted into any foreign currency, and conversion and remittance of foreign currencies are subject to PRC foreign exchange regulations. It cannot be guaranteed that under a certain exchange rate, we will have sufficient foreign exchange to meet our foreign exchange requirements. Under the current PRC foreign exchange control system, foreign exchange transactions under the current account conducted by us, including the payment of dividends, do not require advance approval from SAFE, but we are required to present documentary evidence of such transactions and conduct such transactions at designated foreign exchange banks within China that have the licenses to carry out foreign exchange business. Foreign exchange transactions under the capital account conducted by us, however, must be approved in advance by SAFE.
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Under existing foreign exchange regulations, we will be able to pay dividends in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, we cannot assure you that these foreign exchange policies regarding payment of dividends in foreign currencies will continue in the future.
In fact, in light of the flood of capital outflows of China in 2016 due to the weakening Renminbi, the PRC government has imposed more restrictive foreign exchange policies and stepped up scrutiny of major outbound capital movement including overseas direct investment. More restrictions and substantial vetting process are put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders regulated by such policies fails to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, it may be subject to penalties from the relevant PRC authorities. The PRC government may at its discretion further restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the Ordinary Shares. Our capital expenditure plans and our business, operating results and financial condition may be materially and adversely affected.
If we become directly subject to the scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation.
U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on us, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from growing our business. If such allegations are not proven to be groundless, we and our business operations will be severely affected and you could sustain a significant decline in the value of our stock.
The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC.
We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Our SEC reports and other disclosures and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review by the China Securities Regulatory Commission, a PRC regulator that is responsible for oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any review of us, our SEC reports, other filings or any of our other public pronouncements.
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The newly enacted Holding Foreign Companies Accountable Act and the Accelerating Holding Foreign Companies Accountable Act passed by the U.S. Senate, all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the Public Company Accounting Oversight Board of the United States (the “PCAOB”). These developments could add uncertainties to our offering and listing on the Nasdaq Capital Market, and Nasdaq may determine to delist our securities if the PCAOB determines that it cannot inspect or fully investigate our auditor.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in “Restrictive Market”, (ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.
On December 18, 2020, the “Holding Foreign Companies Accountable Act” was signed by President Donald Trump and became law. This legislation requires certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the PCAOB is unable to audit specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the PCAOB. Furthermore, if the PCAOB is unable to inspect the issuer’s public accounting firm for three consecutive years beginning in 2021, the issuer’s securities are banned from trade on a national exchange or through other methods.
On June 22, 2021, the U.S. Senate passed the “Accelerating Holding Foreign Companies Accountable Act”, which, if passed by the U.S. House of Representatives and signed into law by the President, would decrease the number of non-inspection years for foreign companies to comply with PCAOB audits from three to two years, thus reducing the time period before their securities may be prohibited from trading or delisted.
On November 5, 2021, the SEC approved the PCAOB’s Rule 6100, Board Determinations Under the “Holding Foreign Companies Accountable Act”. Rule 6100 provides a framework for the PCAOB to use to determine whether it is unable to inspect or investigate registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 2, 2021, The SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the Holding Foreign Companies Accountable Act (HFCAA). The rules apply to registrants the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate.
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On December 16, 2021, the PCAOB issued a report on its determinations that the Board is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, a Special Administrative Region of the People’s Republic of China (PRC), because of positions taken by PRC authorities in those jurisdictions (the “Determination”). The Board made these determinations pursuant to PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its responsibilities under the Holding Foreign Companies Accountable Act (HFCAA).
The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and potential investors to lose confidence in audit procedures and reported financial information and the quality of financial statements of China-based companies.
Our auditor, Friedman LLP, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, is headquartered in Manhattan, New York and registered with the PCAOB. Our auditor is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards, and has been inspected by the PCAOB on a regular basis, with the last inspection in June 2018. As such, as of the date of this annual report, our auditor is not subject to the Determinations announced by the PCAOB and our listing is not affected by the Holding Foreign Companies Accountable Act and related regulations. However, the recent developments would add uncertainties to our listing and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as related to the audit of our financial statements. Furthermore, there is a risk that our auditor cannot be inspected by the PCAOB in the future. The lack of inspection could cause trading in our securities to be prohibited under the Holding Foreign Companies Accountable Act, and, as a result, Nasdaq may determine to delist our securities, which may cause the value of our securities to decline or become worthless.
The failure to comply with PRC regulations relating to mergers and acquisitions of domestic entities by offshore special purpose vehicles may subject us to severe fines or penalties and create other regulatory uncertainties regarding our corporate structure.
On August 8, 2006, MOFCOM, joined by the CSRC, the State-owned Assets Supervision and Administration Commission of the State Council, the SAT, the State Administration for Industry and Commerce (the “SAIC”, currently known as the PRC State Administration for Market Regulation, or the SAMR), and State Administration of Foreign Exchange (“SAFE”), jointly promulgated regulations entitled the Provisions Regarding Mergers and Acquisitions of Domestic Entities by Foreign Investors (the “M&A Rules”), which took effect as of September 8, 2006, and as amended on June 22, 2009. These regulations, among other things, have certain provisions that require offshore special purpose vehicles formed for the purpose of acquiring PRC domestic companies and controlled directly or indirectly by PRC individuals and companies, to obtain the approval of MOFCOM prior to engaging in such acquisitions and to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock market. On September 21, 2006, the CSRC published on its official website a notice specifying the documents and materials that are required to be submitted for obtaining CSRC approval. The application of the M&A Rules with respect to our corporate structure remains unclear, with no current consensus existing among leading PRC law firms regarding the scope and applicability of the M&A Rules.
If the CSRC, MOFCOM, or another PRC regulatory agency determines that government approval was required for the VIE arrangement between WFOE and SDH, or if prior CSRC approval for overseas financings is required and not obtained, we may face severe regulatory actions or other sanctions from MOFCOM, the CSRC or other PRC regulatory agencies. In such event, these regulatory agencies may impose fines or other penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from overseas financings into the PRC, restrict or prohibit payment or remittance of dividends to us or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our Ordinary Shares. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to delay or cancel overseas financings, to restructure our current corporate structure, or to seek regulatory approvals that may be difficult or costly to obtain.
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PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase its registered capital or distribute profits to us, or may otherwise adversely affect us.
On July 4, 2014, SAFE issued the Circular on Issues Concerning Foreign Exchange Control over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or SAFE Circular 37, which became effective as of July 4, 2014 and has replaced the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles (“SAFE Circular 75”). According to SAFE Circular 37, prior registration with the local SAFE branch is required for PRC residents, including PRC individuals and PRC corporate entities as well as foreign individuals that are deemed as PRC residents for foreign exchange administration purpose, in connection with their direct or indirect contribution of domestic assets or interests to offshore companies, known as SPVs. SAFE Circular 37 further requires amendment to the SAFE registrations in the event of any changes with respect to the basic information of the offshore special purpose vehicle, such as change of a PRC individual shareholder, name and operation term, or any significant changes with respect to the offshore special purpose vehicle, such as increase or decrease of capital contribution, share transfer or exchange, or mergers or divisions. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future. In February 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, effective June 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of SAFE.
In addition to SAFE Circular 37 and SAFE Notice 13, our ability to conduct foreign exchange activities in China may be subject to the interpretation and enforcement of the Implementation Rules of the Administrative Measures for Individual Foreign Exchange promulgated by SAFE in January 2007 (as amended and supplemented, the “Individual Foreign Exchange Rules”). Under the Individual Foreign Exchange Rules, any PRC individual seeking to make a direct investment overseas or engage in the issuance or trading of negotiable securities or derivatives overseas must make the appropriate registrations in accordance with SAFE provisions, the failure of which may subject such PRC individual to warnings, fines or other liabilities.
All of our shareholders who are subject to the SAFE Circular 37 and Individual Foreign Exchange Rules have completed the initial registrations with the qualified banks as required by the regulations. However, we may not be informed of the identities of all the PRC residents holding direct or indirect interest in our company, and we have no control over any of our beneficial owners. Thus, we cannot provide any assurance that our current or future PRC resident beneficial owners will comply with our request to make or obtain any applicable registrations or continuously comply with all registration procedures set forth in these SAFE regulations. Such failure or inability of our PRC residents beneficial owners to comply with these SAFE regulations may subject us or our PRC residents beneficial owners to fines and legal sanctions, restrict our cross-border investment activities, or limit our PRC subsidiaries’ ability to distribute dividends to, or obtain foreign-exchange-dominated loans from, our company, or prevent us from being able to make distributions or pay dividends, as a result of which our business operations and our ability to distribute profits to you could be materially adversely affected.
Our contractual arrangements with SDH are governed by the laws of the PRC and we may have difficulty in enforcing any rights we may have under these contractual arrangements.
As all of our contractual arrangements with SDH are governed by the PRC laws and provide for the resolution of disputes through arbitration in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. Disputes arising from these contractual arrangements between us and SDH will be resolved through arbitration in China, although these disputes do not include claims arising under the United States federal securities law and thus do not prevent you from pursuing claims under the United States federal securities law. The legal environment in the PRC is not as developed as in the United States. As a result, uncertainties in the PRC legal system could further limit our ability to enforce these contractual arrangements, through arbitration, litigation and other legal proceedings remain in China, which could limit our ability to enforce these contractual arrangements and exert effective control over SDH. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over SDH, and our ability to conduct our business may be materially and adversely affected.
Increases in labor costs in the PRC may adversely affect our business and our profitability.
China’s economy has experienced increases in labor costs in recent years, which is expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our customers by increasing prices for our products or services, our profitability and results of operations may be materially and adversely affected.
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In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance to designated government agencies for the benefits of our employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract Law, that became effective in January 2008 and its implementing rules that became effective in September 2008 and its amendments that became effective in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations.
As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice does not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations could be materially and adversely affected.
We may be involved from time to time in legal proceedings and commercial or contractual disputes, which could have a material adverse effect on our business, results of operations and financial condition.
From time to time, we may be involved in legal proceedings and commercial disputes. Such proceedings or disputes are typically claims that arise in the ordinary course of business, including, without limitation, commercial or contractual disputes, and other disputes with customers and suppliers, intellectual property matters, tax matters and employment matters. There can be no assurance that such proceedings and claims, should they arise, will not have a material adverse effect on our business, results of operations and financial condition.
U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China.
The Securities and Exchange Commission (the “SEC”), the U.S. Department of Justice and other U.S. authorities may also have difficulties in bringing and enforcing actions against us or our directors or executive officers in the PRC. The SEC has stated that there are significant legal and other obstacles to obtaining information needed for investigations or litigation in China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in Hong Kong or other jurisdictions may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, China has recently adopted a revised securities law that became effective on March 1, 2020, Article 177 of which provides, among other things, that no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without governmental approval in China, no entity or individual in China may provide documents and information relating to securities business activities to overseas regulators when it is under direct investigation or evidence discovery conducted by overseas regulators. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, it could present significant legal and other obstacles to obtaining information needed for investigations and litigation conducted outside of China, which may further increase difficulties faced by you in protecting your interests.
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Risks Related to Our Ordinary Shares and the Trading Market
If we are a passive foreign investment company for United States federal income tax purposes for any taxable year, United States holders of our Ordinary Shares could be subject to adverse United States federal income tax consequences.
A non-United States corporation will be a passive foreign investment company, or PFIC, for United States federal income tax purposes for any taxable year if either (i) at least 75% of its gross income for such taxable year is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce or are held for the production of passive income. Based on the current and anticipated value of our assets and the composition of our income and assets, we do not expect to be a PFIC for United States federal income tax purposes for our current taxable year or in the foreseeable future. However, the determination of whether or not we are a PFIC according to the PFIC rules is made on an annual basis and will depend on the composition of our income and assets and the value of our assets from time to time. Therefore, changes in the composition of our income or assets or the value of our assets may cause us to become a PFIC. The determination of the value of our assets (including goodwill not reflected on our balance sheet) may be based, in part, on the quarterly market value of our Ordinary Shares, which is subject to change and may be volatile. It is possible that, for any subsequent year, more than 50% of our assets may be assets which produce passive income. We will make this determination following the end of any particular tax year.
Although the U.S. tax law with regards to VIEs is unclear, we are treating SDH as being owned by us for United States federal income tax purposes, not only because we control their management decisions, but also because we are entitled to the economic benefits associated with SDH, and as a result, we are treating SDH as our wholly-owned subsidiary for U.S. federal income tax purposes. For purposes of the PFIC analysis, in general, according to Section 1297(c) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), a non-U.S. corporation is deemed to own its pro rata share of the gross income and assets of any entity in which it is considered to own at least 25% of the equity by value. Although our Company does not technically own any stock in SDH there are numerous factors that give rise to a strong conclusion that its control of management decisions, the entitlement to economic benefits associated with SDH, and the inclusion of SDH as part of the consolidated group (Under Accounting Standards Codification (ASC) Topic 810, “Consolidation,” VIEs are generally consolidated with other related entities under common control) is so akin to our Company holding a stock interest in SDH that it is reasonable and consistent to consider our Company’s interest in SDH as a deemed stock interest. Therefore, the income and assets of SDH should be included in the determination of whether or not we are a PFIC in any taxable year. It is important to emphasize that there is little to no guidance other than the statute itself (Internal Revenue Code Section 1297(c)) and analogous portions of the code, treasury regulations and other accepted authorities and as such it is possible for the IRS to challenge the argument that the look through rule would apply in this case, especially since the statute explicitly says “stock”.
The classification of certain of our income as active or passive, and certain of our assets as producing active or passive income, and hence whether we are or will become a PFIC, depends on the interpretation of certain United States Treasury Regulations as well as certain IRS guidance relating to the classification of assets as producing active or passive income. Such regulations and guidance are potentially subject to different interpretations. If due to different interpretations of such regulations and guidance the percentage of our passive income or the percentage of our assets treated as producing passive income increases, we may be a PFIC in one or more taxable years.
If we are a PFIC for any taxable year during which a United States person holds Ordinary Shares, certain adverse United States federal income tax consequences could apply to such United States person.
For a more detailed discussion of the application of the PFIC rules to us and the consequences to U.S. taxpayers if we were or are determined to be a PFIC, see “Taxation—U.S. Federal Income Taxation—Passive Foreign Investment Company.”
U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS ABOUT THE PFIC RULES, THE POTENTIAL APPLICABILITY OF THESE RULES TO THE COMPANY CURRENTLY AND IN THE FUTURE, AND THEIR FILING OBLIGATIONS IF THE COMPANY IS A PFIC.
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We have identified several control deficiencies in our internal control over financial reporting. If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud.
The Securities and Exchange Commission, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting when the Company no longer qualifies as an emerging company. Our reporting obligations as a public company place a significant strain on our management, operational and financial resources and systems for the foreseeable future.
During the course of preparing our consolidated financial statements as of and for the years ended December 31, 2021, we identified a number of control deficiencies in our internal control over financial reporting. Many of the deficiencies noted below were communicated to us from our independent registered public accounting firm as observations, which stemmed from their audit. The deficiencies identified include: (1) a lack of formal internal controls over financial closing and reporting processes; (2) a lack of a formal risk assessment process; and (3) a lack of accounting policies and procedures manual that covers U.S. GAAP and SEC financial reporting requirements. As a result of the above, our management has concluded that, as of December 31, 2021, our disclosure controls and procedures were not effective.
We are taking a number of measures to tackle the control deficiencies identified, including: (1) preparing a comprehensive accounting policies and procedures manual that covers U.S. GAAP and SEC financial reporting requirements, and ensuring that accounting personnel are familiar with and follow the manual; (2) establishing a risk assessment process that complies with the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission; and (3) hiring additional personnel with external reporting experience, including knowledge of the SEC reporting requirements and U.S. GAAP, and investor relations personnel.
Effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our Ordinary Shares. Furthermore, we anticipate that we will incur considerable costs and devote significant management time and efforts and other resources to comply with Section 404 of the Sarbanes-Oxley Act.
We do not intend to pay dividends for the foreseeable future.
We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Ordinary Shares if the market price of our Ordinary Shares increases.
The market price of our Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.
The market price of our Ordinary Shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
| ● | actual or anticipated fluctuations in our revenue and other operating results; | |
| ● | the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; | |
| ● | actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; | |
| ● | announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; | |
| ● | price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; | |
| ● | lawsuits threatened or filed against us; and | |
| ● | other events or factors, including those resulting from war or incidents of terrorism, or responses to these events. |
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In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, shareholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.
As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, which may limit the information publicly available to our investors and afford them less protection than if we were an U.S issuer.
Nasdaq listing rules require listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to, and we may follow home country practice in lieu of the above requirements, or we may choose to comply with the above requirement within one year of listing. The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our board to consist of independent directors. Thus, although a director must act in the best interests of the Company, it is possible that fewer board members will be exercising independent judgment and the level of independent board oversight of the management of our company may decrease as a result. In addition, Nasdaq listing rules also require U.S. domestic issuers to have a compensation committee, a nominating/corporate governance committee composed entirely of independent directors, and an audit committee with a minimum of three members. Furthermore, Cayman law does not require that we obtain shareholder approval to issue 20% or more of our outstanding Ordinary Shares in a private offering.
As a foreign private issuer we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. 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 with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; |
| ● | 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 are required to file an annual report on Form 20-F within four months of the end of each fiscal year. 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 that would be made available to you were you investing in a U.S. domestic issuer.
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Anti-takeover provisions in our memorandum and articles of association may discourage, delay or prevent a change in control.
Some provisions in 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, including, among other things, the following:
| ● | provisions that permit our board of directors by resolution to issue classes of shares with preferred, deferred or other special rights or restrictions as the board of directors determine in their discretion, without any further vote or action by our shareholders. If issued, the rights, preferences, designations and limitations of any class of preferred shares could operate to the disadvantage of the outstanding ordinary shares the holders of which would not have any pre-emption rights in respect of such an issue of preferred shares. Such terms could include, among others, preferences as to dividends and distributions on liquidation, or could be used to prevent possible corporate takeovers; and |
| ● | provisions that restrict the ability of our shareholders holding in aggregate less than thirty percent (30%) of the outstanding voting shares in the company to call general meetings or annual general meetings and to include matters for consideration at shareholder meetings and the ability of our shareholders holding in aggregate of 10% of the outstanding voting shares to call for special meetings of shareholders. |
If we cannot satisfy the listing requirements and other rules of Nasdaq Capital Market, our securities may be delisted, which could negatively impact the price of our securities and your ability to sell them.
In order to maintain our listing on the Nasdaq Capital Market, we are required to comply with certain rules of Nasdaq Capital Market, including those regarding minimum stockholders’ equity, minimum share price and certain corporate governance requirements. Even if we initially meet the listing requirements and other applicable rules of the Nasdaq Capital Market, we may not be able to continue to satisfy these requirements and applicable rules. If we are unable to satisfy the Nasdaq Capital Market criteria for maintaining our listing, our securities could be subject to delisting.
If the Nasdaq Capital Market delists our securities from trading, we could face significant consequences, including:
| ● | a limited availability for market quotations for our securities; | |
| ● | reduced liquidity with respect to our securities; | |
| ● | a determination that our Ordinary Shares are a “penny stock,” which will require brokers trading in our Ordinary Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Ordinary Shares; | |
| ● | limited amount of news and analyst coverage; and | |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
You may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.
Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association and have been provided for in the amended articles and memorandum of association of the Company, subject to the restrictions described therein. Advance notice of at least twenty-one clear days is required for the convening of our annual general shareholders’ meeting and at least 14 clear days’ notice any other general meeting of our shareholders. A quorum required for a meeting of shareholders consists of at least one shareholder present or by proxy, representing not less than one-third in nominal value of the total issued voting shares in the Company. To the extent that shareholders hold in aggregate less than thirty percent (30%) of the outstanding voting shares in the Company, they cannot (a) call general meetings or annual general meetings; and (b) Include matters for consideration at shareholder meetings.
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ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
We, a Cayman holding company, operate a knowledge sharing and enterprise service platform through the VIE, or SDH, and its subsidiaries in the PRC, which we control via a series of contractual arrangements between WFOE and SDH. SDH (formerly known as Beijing Huatai Yihe Co., Ltd.) was established in 2014 as a limited company pursuant to PRC laws for the purpose of providing corporate consulting services.
SDH established a wholly owned subsidiary, GMB Hangzhou, on November 1, 2017 pursuant to PRC laws.
In 2017 and 2018, SDH also established three subsidiaries pursuant to PRC laws, which were GMB (Beijing), GMB Culture, GMB Consulting. SDH owns 51% of the equity interest of each of these three subsidiaries. Additionally, GMB Culture has a subsidiary Mentor Board Voice of Seeding (Shanghai) Cultural Technology Co., Ltd., and owns 60% of its equity interest.
On February 22, 2019, the holding company, GIOP, was established under the laws of the Cayman Islands. GIOP owns 100% of GMB HK, a Hong Kong company incorporated on March 22, 2019.
On June 3, 2019, GIOP BJ, or WFOE, was incorporated pursuant to PRC laws as a wholly foreign owned enterprise. GMB HK holds 100% of the equity interest in WFOE.
On October 16, 2020, SDH established another wholly owned subsidiary, Zibo Shidong, pursuant to PRC laws. See “Item 4C. Organizational Structure for a chart of our current structure.”
On February 11, 2021, the Company closed its initial public offering (“IPO”) of 6,720,000 ordinary shares, par value $0.0001 per share (the “Ordinary Shares”). The Ordinary Shares were priced at $4.00 per share, before underwriting discounts and offering expenses, resulting in gross proceeds of $26,880,000. The offering was conducted on a firm commitment basis. The Ordinary Shares commenced trading on The Nasdaq Capital Market under the ticker symbol “SDH” on February 9, 2021.
On February 19, 2021, ViewTrade Securities, Inc., as the representative of the underwriters in the initial public offering (“IPO”) of Global Internet of People, Inc. (the “Company”), exercised in full its option to purchase an additional 1,008,000 ordinary shares at a price of $4.00 per share. As a result, the Company raised gross proceeds of approximately $4,032,000, in addition to the previously announced IPO gross proceeds of approximately $26.88 million, before deducting underwriting discounts and other related expenses.
On February 11, 2021, our ordinary shares commenced trading on the Nasdaq Capital Market under the symbol “SDH.”
On October 8, 2021, GIOP established a wholly-owned-subsidiary, SDH New Energy, pursuant to Hong Kong laws.
On October 5, 2021, SDH New Energy established a wholly-owned-subsidiary, Zhuhai Zibo, pursuant to PRC laws.
On November 23, 2021, SDH New Energy established a wholly-owned-subsidiary, Zhuhai Guizhou, pursuant to PRC laws.
On November 8, 2021, Zhuhai Zibo established a 51%-owned subsidiary, Sunrise Guizhou.
Pursuant to PRC laws, each entity formed under PRC law shall have certain business scopes as submitted to the Administration of Industry and Commerce or its local counterpart. Pursuant to specific business scopes, approval by the relevant competent regulatory agencies may be required prior to commencement of business operations. As such, WFOE’s business scope is to primarily engage in: technology development, technology promotion, technology transfer, technical consultation, technical services; sales of self-developed products; business management consulting; corporate planning; conference services, organization of cultural and artistic exchange activities (excluding commercial performances); economic and trade consulting. Since the sole business of WFOE is to provide SDH with technical support, consulting services and other management services relating to its day-to-day business operations and management in exchange for a service fee approximately equal to SDH’s earnings before corporate income tax, i.e., SDH’s revenue after deduction of operating costs, expenses and other taxes, subject to adjustment based on services rendered and SDH’s operation needs, such business scope is necessary and appropriate under PRC laws. SDH, on the other hand, is also able to, pursuant to its business scope, provide a platform for our Members to obtain practical corporate guidance, financing sources, resource joining, assistance with corporate emergencies, support with public listings and other mutual assistance services.
We control SDH through contractual arrangements, which are described under “Business — Contractual Arrangements between WFOE, SDH and Its Shareholders.” GIOP is a holdings company with no business operation other than holding the shares in GMB HK, which is also a pass-through entity with no business operation.
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Our principal executive offices are located at (1) Room 350, 3rd Floor,Building 6,Yard 1, Shangdi 10th Street, Haidian District, Beijing and (2) 25th Floor, YiBai Shanshan Building, No.985 Dongfang Road, Pudong, Shanghai, and our phone number is +86 10-82967728 for the Beijing office and +86 21-68828790 for the Shanghai office. Our registered office in the Cayman Islands is located at Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands, and the phone number of our registered office is +1 345 945 3901. We maintain a corporate website at www.sdh365.com.
Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our agent for service of process in the United States is Cogency Global Inc., 122 East 42nd Street, 18th Floor, New York, NY 10168.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC using its EDGAR system.
See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Expenditures” for a discussion of our capital expenditures.
B. Business
We are a holding company incorporated in the Cayman Islands with no material operations of our own. We are not a Chinese operating company. Investors of our Ordinary Shares do not own any equity interests in the VIE, but instead own shares of a Cayman Islands holding company. The knowledge sharing and enterprise service platform operations are conducted in China by the VIE and its subsidiaries. We do not have any equity ownership of the VIE, instead, we control and receive the economic benefits of the VIE’s business operations through contractual arrangements, or “VIE Agreements” entered into among WFOE, SDH and SDH’s shareholders. The VIE Agreements are used to provide contractual exposure to foreign investment in China-based companies where Chinese law prohibits direct foreign investment in Chinese operating companies.
Under United States generally accepted accounting principles (“U.S. GAAP”), the Company is deemed to have a controlling financial interest in, and be the primary beneficiary of, the VIE for accounting purposes, because such contractual arrangements are designed so that the operations of the VIE are solely for the benefit of WFOE and, ultimately, the Company. As such, the Company is deemed to be the primary beneficiary of the VIE for accounting purposes and must consolidate the VIE. The VIE Agreements have not been tested in a court of law and may not be effective in providing control over the VIE, and we are subject to risks due to the uncertainty of the interpretation and application of the laws and regulations of the PRC, regarding the VIE, and the VIE structure, including, but not limited to, regulatory review of overseas listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the contractual arrangements with the VIE. We are also subject to the risk that the PRC government could disallow the VIE structure, which would likely result in a material change in our operations and, as a result, the value of our Ordinary Shares may depreciate significantly or become worthless. For a description of our corporate structure and VIE contractual arrangements, see “Corporate History and Structure.” See also “Risk Factors – Risks Related to Our Corporate Structure.”
We are also subject to legal and operational risks associated with being based in and having the majority of the Company’s operations in China. These risks may result in a material change in our operations, or a complete hindrance of our ability to offer or continue to offer our securities to investors, and could cause the value of such securities to significantly decline or become worthless. Recently, the PRC government initiated a series of regulatory actions and guidelines to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. As of the date of this annual report, neither we nor our PRC subsidiaries, or the VIE and its subsidiaries have been involved in any investigations on cybersecurity review initiated by any PRC regulatory authority, nor has any of them received any inquiry, notice, or sanction. As confirmed by our PRC counsel, as of the date of this annual report, we are not subject to cybersecurity review or network data security review by the CAC, when the Cybersecurity Review Measures became effective on February 15, 2022, or if the Security Administration Draft are enacted as proposed, since (i) the VIE and its subsidiaries mainly provide business-oriented consulting services to small and medium-sized enterprises in the PRC, therefore are unlikely to be classified as CIIOs by the PRC regulatory agencies; (ii) according to the interpretation of the CAC, for online platform operators who have listed in foreign countries before the effective date of Cybersecurity Review Measures, and who are not seeking a new listing (such as a secondary or dual listing) in foreign countries, a cybersecurity review is not required; (iii) since we are in the enterprise consulting industry, data processed in our business is unlikely to have a bearing on national security and therefore is unlikely to be classified as core or important data by the authorities. However, there remains uncertainty, as to how the Cybersecurity Review Measures and the Security Administration Draft will be interpreted or implemented by the authorities and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration Draft in the future. See “Risk Factors—Risks Related to Doing Business in China—Recent greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our securities.”
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Our securities may be prohibited from trading on a national exchange or over-the-counter trading market in the United States under the Holding Foreign Companies Accountable Act, if the Public Company Accounting Oversight Board, or PCAOB, determines that it cannot inspect or fully investigate our auditors for three consecutive years beginning in 2021. As a result, Nasdaq may determine to delist our securities and cause our securities’ value to decline or become worthless. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if passed by the U.S. House of Representatives and signed into law, would decrease the number of non-inspection years for foreign companies to comply with PCAOB audits from three to two, thus reducing the time period before their securities may be prohibited from trading or delisted. On December 16, 2021, the PCAOB issued a report on its determination that the PCAOB is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, a Special Administrative Region of the People’s Republic of China (PRC), because of positions taken by PRC authorities in those jurisdictions (the “Determinations”). Our auditor, Friedman LLP, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, is a PCAOB-registered public accounting firm headquartered in Manhattan, New York. Our auditor is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess an auditor’s compliance with the applicable professional standards, and has been inspected by the PCAOB on a regular basis, with the last inspection in June 2018. As such, as of the date of this annual report, our auditor is not subject to the Determinations and our listing is not affected by the Holding Foreign Companies Accountable Act and related regulations. However, there is a risk that our auditor cannot be inspected by the PCAOB in the future. The lack of inspection could cause trading in our securities to be prohibited under the Holding Foreign Companies Accountable Act, and, as a result, Nasdaq may determine to delist our securities, which may cause the value of our securities to decline or become worthless. See “Risk Factors - Risks Related to Doing Business in China - The newly enacted Holding Foreign Companies Accountable Act and the Accelerating Holding Foreign Companies Accountable Act passed by the U.S. Senate, all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the Public Company Accounting Oversight Board of the United States. These developments could add uncertainties to our offering and listing on Nasdaq Capital Market, and Nasdaq may determine to delist our securities if the PCAOB determines that it cannot inspect or fully investigate our auditor
As of the date of this annual report, we have not paid any dividends or made any distributions to our shareholders. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future. Under Cayman Islands law, the Company may pay dividends on its shares out of either profit or share premium amounts, provided that in no circumstance may a dividend be paid if such payment would result in the Company being unable to pay its debts as they become due in the ordinary course of business. If in the future we determine to pay dividends, in the absence of available profits or share premium, as a holding company, we will be dependent on receipt of funds from our HK subsidiaries, which will be dependent on dividend payments from our PRC subsidiaries. WFOE, in particular, will be dependent on payments from the VIE pursuant to the VIE Agreements for services rendered to the VIE under the Exclusive Business Cooperation Agreement. However, the VIE Agreements have not been tested in a court of law and may not be effective in providing control over the VIE, and we are subject to risks due to the uncertainty of the interpretation and application of the laws and regulations of the PRC. For restrictions and limitations on our ability to settle amounts with the VIE under the VIE Agreements, please see “Risk Factors — Risks Related to Our Corporate Structure.”
Current PRC regulations permit our PRC subsidiaries to pay dividends to our HK subsidiaries only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Cash dividends, if any, on our Ordinary Shares would be paid in U.S. dollars. The PRC government also imposes control on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from SAFE in the PRC as long as certain procedural requirements are met. Approval from appropriate government authorities is required if RMB is converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may, at its discretion, impose restrictions on access to foreign currencies for current account transactions and if this occurs in the future, we may not be able to pay dividends in foreign currencies to our shareholders. Furthermore, if our PRC entities incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. Due to the above restrictions, if we are unable to receive payments from our PRC operating entities, we will not be able to pay dividends to our investors, should we desire to do so in the future. For further details, see “Risk Factors - Government control in currency conversion may adversely affect our financial condition, our ability to remit dividends, and the value of your investment”, and “Risk Factors - PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries, the VIE and its subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” In contrast, there is presently no foreign exchange control or restrictions on capital flows into and out of Hong Kong. Hence, our HK subsidiaries are able to transfer cash without any limitation to our Cayman Islands holding company under normal circumstances. Cash proceeds raised from overseas financing activities, including the cash proceeds from our public offerings, may be transferred by us through our HK subsidiaries to our PRC subsidiaries via capital contribution and loans subject to applicable regulatory approvals, as the case may be. WFOE then may transfer funds to the VIE to meet the capital needs of its business operations.
Selected Condensed Consolidated Financial Schedule of GIOP and Its Subsidiaries and VIE
The following tables present selected condensed consolidated statements of operations and comprehensive (loss) income and selected condensed consolidated statements of cash flows for the fiscal years ended December 31, 2021, 2020 and 2019, and selected condensed consolidated balance sheets as of December 31, 2021, 2020 and 2019, of GIOP, its subsidiaries, the VIE and its subsidiaries, elimination, and consolidated information.
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Selected consolidated statements of operations data
| Year ended December 31, 2021 | ||||||||||||||||||||
| Parent | Consolidated affiliated entities | VIE consolidated entities | Inter-company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Revenues, net | - | - | 7,409,272 | - | 7,409,272 | |||||||||||||||
| Total cost and operating expenses | 1,010,536 | 127,627 | 13,681,122 | - | 14,819,285 | |||||||||||||||
| (Loss) profit from operations | (1,010,536 | ) | (127,627 | ) | (6,271,850 | ) | - | (7,410,013 | ) | |||||||||||
| (Loss) profit before income taxes | (3,021,789 | ) | (170,253 | ) | (5,865,989 | ) | 107,118 | (8,950,913 | ) | |||||||||||
| Net (loss) income | (3,021,789 | ) | (170,253 | ) | (5,629,408 | ) | 107,118 | (8,714,332 | ) | |||||||||||
| Year ended December 31, 2020 | ||||||||||||||||||||
| Parent | Consolidated affiliated entities | VIE consolidated entities | Inter-company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Revenues, net | 73,744 | - | 23,107,340 | - | 23,181,084 | |||||||||||||||
| Total cost and operating expenses | 50,000 | - | 8,405,024 | - | 8,455,024 | |||||||||||||||
| Profit (loss) from operations | 23,744 | - | 14,702,316 | - | 14,726,060 | |||||||||||||||
| Profit (loss) before income taxes | 28,203 | (1,995 | ) | 14,986,062 | - | 15,012,270 | ||||||||||||||
| Net income (loss) | 28,203 | (1,995 | ) | 11,931,079 | - | 11,957,287 | ||||||||||||||
| Year ended December 31, 2019 | ||||||||||||||||||||
| Parent | Consolidated affiliated entities | VIE consolidated entities | Inter-company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Revenues, net | - | - | 17,925,476 | - | 17,925,476 | |||||||||||||||
| Total cost and operating expenses | - | - | 7,153,162 | - | 7,153,162 | |||||||||||||||
| (Loss) profit from operations | - | - | 10,772,314 | - | 10,772,314 | |||||||||||||||
| (Loss) profit before income taxes | - | - | 10,969,869 | - | 10,969,869 | |||||||||||||||
| Net (loss) income | - | - | 9,380,768 | - | 9,380,768 | |||||||||||||||
Selected consolidated balance sheets data
| As of December 31, 2021 | ||||||||||||||||||||
| Parent | Consolidated affiliated entities | VIE consolidated entities | Inter-company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Total current assets | 7,776,218 | 9,932,297 | 16,864,942 | (227,899 | ) | 34,345,558 | ||||||||||||||
| Total non-current assets | 17,700,060 | 8,244,917 | 13,404,549 | (15,000,000 | ) | 24,349,526 | ||||||||||||||
| Total assets | 25,476,278 | 18,177,214 | 30,269,491 | (15,227,899 | ) | 58,695,084 | ||||||||||||||
| Total current liabilities | (211,430 | ) | (33,686 | ) | (1,703,665 | ) | 227,899 | (1,720,882 | ) | |||||||||||
| Total non-current liabilities | - | - | - | - | - | |||||||||||||||
| Total liabilities | (211,430 | ) | (33,686 | ) | (1,703,665 | ) | 227,899 | (1,720,882 | ) | |||||||||||
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| As of December 31, 2020 | ||||||||||||||||||||
| Parent | Consolidated affiliated entities | VIE consolidated entities | Inter-company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Total current assets | 125,386 | 14,360 | 28,246,141 | (128,282 | ) | 28,257,605 | ||||||||||||||
| Total non-current assets | - | - | 11,479,238 | - | 11,479,238 | |||||||||||||||
| Total assets | 125,386 | 14,360 | 39,725,379 | (128,282 | ) | 39,736,843 | ||||||||||||||
| Total current liabilities | - | - | (5,583,463 | ) | - | (5,583,463 | ) | |||||||||||||
| Total non-current liabilities | - | - | (3,196 | ) | - | (3,196 | ) | |||||||||||||
| Total liabilities | - | - | (5,586,659 | ) | - | (5,586,659 | ) | |||||||||||||
| As of December 31, 2019 | ||||||||||||||||||||
| Parent | Consolidated affiliated entities | VIE consolidated entities | Inter-company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Total current assets | - | - | 19,577,548 | (15,192 | ) | 19,562,356 | ||||||||||||||
| Total non-current assets | - | - | 7,405,352 | - | 7,405,352 | |||||||||||||||
| Total assets | - | - | 26,982,900 | (15,192 | ) | 26,967,708 | ||||||||||||||
| Total current liabilities | - | - | (6,866,325 | ) | - | (6,866,325 | ) | |||||||||||||
| Total non-current liabilities | - | - | (104,785 | ) | - | (104,785 | ) | |||||||||||||
| Total liabilities | - | - | (6,971,110 | ) | - | (6,971,110 | ) | |||||||||||||
Selected consolidated statements of cash flows data
| Year ended December 31, 2021 | ||||||||||||||||||||
| Parent | Consolidated affiliated entities | VIE consolidated entities | Inter-company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Net cash (used in) provided by operating activities | (1,015,145 | ) | (6,532,445 | ) | 2,314,408 | - | (5,233,182 | ) | ||||||||||||
| Net cash used in investing activities | (25,825,000 | ) | (8,244,917 | ) | (3,115,281 | ) | 15,090,000 | (22,095,198 | ) | |||||||||||
| Net cash provided by financing activities | 27,652,809 | 18,332,622 | - | (15,090,000 | ) | 30,895,431 | ||||||||||||||
| Year ended December 31, 2020 | ||||||||||||||||||||
| Parent | Consolidated affiliated entities | VIE consolidated entities | Inter-company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Net cash (used in) provided by operating activities | (21,896 | ) | 89,652 | 6,998,407 | - | 7,066,163 | ||||||||||||||
| Net cash used in investing activities | - | - | (6,493,837 | ) | 128,282 | (6,365,555 | ) | |||||||||||||
| Net cash provided by financing activities | 128,282 | - | 119,996 | (128,282 | ) | 119,996 | ||||||||||||||
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| Year ended December 31, 2019 | ||||||||||||||||||||
| Parent | Consolidated affiliated entities | VIE consolidated entities | Inter-company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Net cash provided by operating activities | - | - | 1,236,071 | - | 1,236,071 | |||||||||||||||
| Net cash used in investing activities | - | - | (3,525,061 | ) | - | (3,525,061 | ) | |||||||||||||
| Net cash provided by financing activities | - | - | 238,128 | - | 238,128 | |||||||||||||||
Transfer of Cash within Our Organization
Prior to the completion of our initial public offering in February 2021, the sources of funding of GIOP, its subsidiaries and the VIE primarily consisted of capital injection by shareholders and cash generated from operations.
After the completion of our initial public offering, GIOP made capital contributions to its subsidiaries.
For the fiscal year ended December 31, 2021, GIOP transferred the proceeds from its initial public offering in the amount of $15,000,000 to its subsidiary, Zhuhai Zibo, and the VIE provided interest-free loans of $90,000 to GIOP for professional fees related to the initial public offering.
For the fiscal year ended December 31, 2020, the VIE provided interest-free loans of $128,282 to GIOP for professional fees related to the initial public offering.
Overview
The VIE, or SDH, started as a consulting company providing enterprise services to small and medium-sized enterprises in the PRC in December 2014, and launched a peer-to-peer knowledge sharing and enterprise service platform in May 2016. Since then, SDH has continued to expand and improve its platform, where knowledge is shared, and services are requested and provided, both online, via a mobile application “Shidonghui App” (the “APP”), and offline, through local offices directly operated by us in Beijing, Shanghai and Hangzhou, as well as 51 local centers operated by some of SDH’s Members in 35 cities and 21 provinces throughout the PRC as of the date of this annual report. Our mission is to become a worldwide leading knowledge sharing and enterprise service platform.
According to the International Monetary Fund, the nominal GDP per capita in the PRC rose from $7,701 in 2014 to $ 12,363 in 2021, representing a CAGR of approximately 7%.A growing economy and generally positive market environment have created many entrepreneurial and high-growth enterprises, many of which need corporate services such as financial consulting and management training. In line with the trend of nominal GDP, the disposable income of urban residents in the PRC recorded an increase from 2014 to 2021, as there was a rise in overall household spending capabilities due the blooming economy. According to the National Bureau of Statistic of the PRC, the per capita disposable income of urban residents in the PRC increased from $4,305 in 2014 to $7,230 in 2021, representing a CAGR of 7.7%. Previously, our platform focused on providing enterprise services to enterprises and entrepreneurs, but we are actively expanding our service to individuals and families that seek advice and services relating to health, beauty, travel, fashion, housing, etc.
When SDH first launched its services, the aim was not only to continue providing enterprise services to PRC’s growing business communities, but also create a marketplace where qualified entities (individuals and enterprises) have opportunities to serve as providers, and receive rewards by sharing their knowledge with others on the platform. As of March 2022, our knowledge sharing and enterprise service ecosystem had 739 Mentors, 1,176 Experts, 1,551 Members, and 5.50 million Users. In addition to serving Users and Members, SDH continues to provide enterprise services to small and medium-sized enterprises in China through a dedicated team with seven full-time professional consultants, as well as Mentors and Experts. The providers (Mentors, Experts and consultants) are successful entrepreneurs, scientists, investors, and professionals with qualifications and achievements in major industries such as finance, energy, health care, technology, manufacturing and academia. Our core strength is the knowledge brought by our providers, highlighted by their experiences, wisdom, industry know-how, and social connections.
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SDH offers online services to Users on the APP, which was released to the public in May 2016, and offline services to Members. The number of Users, measured as the total of unique individuals who downloaded and registered to use our APP on their mobile devices, has increased from approximately 800,000 in December 2017 to approximately 5.5 million in March 2022. The number of Members, measured as the total number of active subscribers of the three annual memberships (platinum, diamond and protégé), has increased from 139 in May 2016 to 1,551 in March 2022. “Active subscribers” are those who signed on and made full payment to receive yearly Member services that were in effect (within the year period) at the time of measurement.
All of the Members are encouraged to become Users by downloading and registering on the APP to enjoy free online services, some Users also become Members in order to have access to our offline services. The services SDH currently offers to Users are (1) Questions and Answers (Q &A) Sessions and (2) streaming of audio and video courses and programs. The offline services SDH offers to Members are study tours and forums.
In late 2019, taking advantage of our knowledge of market demand and trends, as well as access to resources afforded to us by our knowledge sharing platform, SDH started procuring and offering merchandises for sale through its platform to clients and the general public. The merchandises are obtained through: (1) fee exchange arrangement, through which SDH receives products in exchange for collection of membership fees and consulting fees earned from customers at SDH’s discretion, and (2) direct purchases from customers and third parties based on market trend and demand. For the fiscal year ended December 31, 2019, $2,500,481 or 76% of the merchandises for sale were obtained through our fee exchange arrangement with our customers, and $786,791 or 24% were through direct purchases from our customers and third parties. For the year ended December 31, 2020, $2,302,274 or 85.05% of the merchandises for sale were obtained through our fee exchange arrangement with our customers, and $404,622 or 14.95% were through direct purchases from our customers and third parties. For the fiscal year ended December 31, 2021, $1,938,381 or 62.41% of the merchandises for sale were obtained through our fee exchange arrangement with our customers, and $1,167,292 or 37.59% were through direct purchases from our customers and third parties.
We generated net revenues of $17,925,476, $23,181,084 and $7,409,272 for the fiscal years 2019, 2020, and 2021, respectively. Our revenues were generated from the following:
| ● | fees generated from Member services, in the amount of $2,525,084, $872,629, and $498,330, or 14.09%, 3.76% and 6.73% of the net revenues of fiscal years 2019, 2020 and, 2021, respectively; | |
| ● | fees generated from enterprise services, in the amount of $15,210,675, $20,361,041, and $4,751,820, or 84.85%, 87.84%, and 64.13% of the net revenues of fiscal years 2019, 2020 and 2021, respectively; |
| ● | fees generated from sale of merchandises, in the amount of $9,568, $1,495,365 and $2,104,766, or 0.05%, 6.45%, and 28.41% of the net revenues of fiscal years 2019, 2020 and 2021, respectively; | |
| ● | fees generated from online services, in the amount of $66,304, $361,933, and $40,391, or 0.37%, 1.56% and 0.55% of the net revenues of fiscal years 2019, 2020 and 2021, respectively; and | |
| ● | fees generated from other services, in the amount of $113,845, $90,116, and $13,965, or 0.64%, 0.39%, and 0.18% of the net revenues of fiscal years 2019, 2020 and 2021, respectively. |
Recent Development
On April 2, 2022, Zhuhai Zibo, a wholly-owned subsidiary of GIOP, entered into an investment agreement (the “Agreement”) with the following parties to form a joint venture (the “JV”) dedicated to the production of high-grade lithium-ion power battery anode materials: Shanghai Huiyang Investment Co., Ltd. (“Huiyang”), Haicheng Shenhe Technology Co., Ltd. (“Shenhe”), Guizhou Yilong New Area Industrial Development Investment Guizhou Guangyao Management Partnership (“Guangyao”),Co., Ltd. (“Yilong Investment”), Hainan Fuhe Investment Management Partnership (“Fuhe”), and eight individuals who will be appointed to various management positions at the JV. Pursuant to the Agreement, Zhuhai Zibo owns 51% equity interest in the JV, and Huiyang, Shenhe, Yilong Investment, Guangyao and Fuhe each owns a stake of 12.50%, 12.50%, 4%, 10% and 5% in the JV, respectively. The eight individual shareholders of the JV together own an aggregated 5% equity interest in the JV. The Agreement and related transactions were approved by GIOP’s shareholders at an extraordinary general meeting of shareholders held on April 1, 2022.
The JV, Sunrise Guizhou, has been established in the New Materials Industrial Park of Yilong District, Xingyi City of Guizhou Province, with a total investment amount of up to RMB620 million ($98.13 million) and a total land area of approximately 266,800 square meters, for the production of high-grade lithium-iron power battery anode materials. Construction of the production facilities at the site is expected to be completed within 15 months after the JV obtains regulatory approvals for the construction of the production facilities. Zhuhai will be responsible for the operation of the JV, with the assistance and support of other shareholders of the JV. Yilong Investment is obliged to use reasonable efforts to obtain, on behalf of the JV, national-level tax incentives and favorable government treatments, and will coordinate with local financial institutions to provide financing to the JV. Yilong Investment shall also ensure that the production facilities have enough power supply in the form of clean energy, and will assist the JV in obtaining the required regulatory approvals for the construction and operation of the production facilities.
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Knowledge Sharing and Enterprise Service Platform Ecosystem
Members and Users
Members
Members can choose from three annual membership plans: Platinum, Diamond, and Protégé. Members enjoy services included in their respective membership plans. The following table presents the annual membership fees and the number of Members for each of the membership tiers, as of March 31, 2022:
| Membership Tiers | Annual Membership Fee | Number of Members | ||
| Platinum | RMB 16,800 (approximately US$2,435) | 917 | ||
| Diamond | RMB 98,000 (approximately US$14,203) | 601 | ||
| Protégé | RMB 500,000 (approximately US$72,464) | 33 |
Users
The APP is available in the PRC and elsewhere in the world where potential Users can access on the internet the http hyper-link provided for downloading/installing the APP on their mobile devices; anyone over the age of 18, with a mobile phone (IOS or Android) can download the APP and complete an online registration process to become a User. Currently, although SDH does not charge any fee to register for the APP, SDH does require Users to obtain a verification code via their mobile devices to register. Additionally, Users must agree to the Terms of Use in the form of a user agreement, which can be completed and submitted to us on the APP.
Since the inception of the APP in May 2016, the number of Users has increased steadily from year to year. As of March 31, 2022, SDH had approximately 5.5 million APP Users.
Mentors and Experts
Mentors
Mentors are leaders in their respective professional fields, all of them enjoy strong social influence due to their professional achievements and social status in China. The majority of Mentors are successful well-known entrepreneurs, executive officers of public companies, PE/VC partners, doctors, and artists, in a wide range of industries including academia, health care, financial service, energy, technology, manufacturing, etc. As of March 31, 2022, we had 739 Mentors, and all of them were hand-picked and invited by our management to join our platform.
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Below are some of the representative Mentors (not in any particular order):
| Name | Specialty | Credentials | ||
| Yang Wang, CEO of Cybernaut Investment Group | Finance and Business Management | Mr. Wang was former global Vice President and General Manager of China Development Center of IBM, responsible for big data, cloud computing and artificial intelligence. Currently, Mr. Wang is the CEO of Cybernaut, a company with 100 billion assets worldwide and is committed to investing in international technological innovation, industrial innovation, regional innovation and entrepreneurship, transformation and upgrading, and new business models. | ||
| Weigang Wang, Chairman of Board, Nuode Investment Co., Ltd. | Innovation and Entrepreneurship | Mr. Wang is the chairman of the board of Nuode Investment Co., Ltd. Mr. Wang enjoys the PRC State Council special allowance, a government subsidy granted to highly skilled professional and technical personnel who made outstanding contributions. Previously, Mr. Wang served as the dean of Sinosteel Anshan Thermo-Energy Research Institute, and was a professor at Beijing University of Science and Technology, Liaoning University of Science and Technology, and Anhui University of Technology. | ||
| Zhengming Feng, Managing Director of Softbank China Capital | Financial Services | Mr. Feng has been Managing Director of Softbank China Capital since December 2009, and was CEO of China Environmental Protection Technology Group (listed in Singapore) from September 2008 to December 2009. He was also Executive Director, Executive Deputy General Manager, and CFO of Tsinghua Tongfang Environment from January 2004 to September 2008. | ||
| Baozhong Li, Chairman of Shanghai Xiangzhong Investment Co., Ltd. and China Internet Insurance (Ningbo) Industrial Fund | Finance | Mr. Li currently serves as a director at Shanghai Xiangzhong Investment Co., Ltd. and Ningbo Zhonghu Technology Co., Ltd. Previously, Mr. Li served as the CEO of Haier Capital. Mr. Li earned a Master’s degree in Management of Agricultural Economy from Zhejiang University and an EMBA degree in Finance from Shanghai Advanced Institute of Finance. | ||
| Yanshi Jin, President of Beijing Xinxing Eaton Technology Service Co., Ltd. | Finance and Economics | Mr. Jin is the President of Beijing Xinxing Eaton Technology Service Co., Ltd., Chairman of the Board of Directors of the United Nations Blockchain Foundation, Director of the Fundamental Theory Research Center of the Capital University of China University of Political Science and Law, Director of the Financial Program of Peking University HSBC Business School; and Chief Economics of Xinhua Index Company Family. He was also elected as 2009 CCTV Annual Economic Persons Selection Committee Member, elected by China Securities Market as the “Most Influential People Award” for 20 years, and won the “First Financial Economics” Financial figures of the year in 2010. | ||
| Dr. Dexter Y Sun, Clinical Associate Professor of Neurology at the Cornell University School | Medicine | Dr. Sun is a clinical professor of Neurology, Weill Cornell Medical, the Chief Physician of New York Presbyterian Hospital-Weill Cornell Medicine and a visiting professor of Zhejian University School of Medicine. He is the former President of the Society of Chinese American Physician Entrepreneurs and Co-Chairman of Medical Advisory Board of Republican National Committee. He also serves as Member of Zhejiang University Alumni Association and Vice President of Zhejiang University School of Medicine Branch. |
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Experts
Experts are skilled and qualified in their specialized fields to provide advice and guidance to Users. Persons can become Experts through a certification process either on the APP or in-person at SDH’s local offices and centers. The certification process consists of three steps: (1) an applicant is required to demonstrate his or her expertise and qualifications by submitting an application along with supporting documents such as resume, publications, and school transcripts; (2) our team reviews and verifies the applicant’s qualifications and background information, based on which we make a determination on whether to approve the application; and (3) SDH enters into a service agreement with the approved applicant. As of March 31, 2022, we had 1,176 Experts.
Service Agreements with Our Mentors and Experts
Each of the Mentors and Experts, as a service provider on our platform, must enter into a service agreement with us that governs the rights and obligations of each party. The term of the service agreement is open and can be terminated by either party without any cause, and the services they provide to our Users and Members must be given exclusively on our platform, either online or offline, for which the fees generated are shared between SDH and the providers, usually at a 30/70 split, that is, we receive 30% and providers receive 70% of the fees. Under certain circumstances where providers generate additional fees such as registering new members, the providers will be entitled to a larger percentage of the fees generated, as decided between the parties on a case-by-case basis.
Local Centers
In order to better assist and service Members as well as promote its business, SDH established a number of local centers in major cities in China, predominant in the provinces in the Southern and Eastern China, where there are more economic activities. The local centers are used for business development and communications where local Members gather to share information, promote businesses, and organize events such as product promotions and lectures. The local centers are operated under our supervision by Diamond and Protégé Members, who must have access to office spaces of at least twenty square meters, and whose qualifications must be pre-approved by our management. SDH also enters into a service agreement with each of the local center operators. Currently, SDH does not pay any fees to the Members who operate local centers. As of March 31, 2022, SDH had 51 local centers located in 35 cities and 21 provinces.
Enterprise Service Consultants
SDH has a professional consulting team with seven full-time employees, who have at least five years of experience in their respective fields of professions, including finance, capital markets, marketing, public relations, sales, etc. The majority of our team previously worked in the technology or finance industries. See “Consulting” below.
Enterprise Service Clients
The majority of the Enterprise Service Clients are small and medium-sized enterprises located in the following provinces: Zhejiang, Shanxi, Guangdong, Shandong and Liaoning, as well as Shanghai City. For the fiscal year ended December 31, 2019, 2020, or 2021, no client accounted for more than 10% of our revenues.
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Services
Member Service
The chart below summarizes the services Members receive:
| Membership Tier | Service | |
| Platinum | seven SDH organized activities (study tours and forums) per year | |
| Diamond | seven SDH organized activities (study tours and forum) per year, during which Member may enjoy special seating assigned only to Diamond Members, and make presentations and sales pitches of his or her business, products and services | |
| Protégé | seven SDH organized activities (study tours and forum) per year, during which Member may enjoy special seating assigned only to Protégé Members, make presentations and sales pitches of his or her business, products and services, and communicate with Mentors and Experts in person at such activities |
During each of the study tours and forums, a number of Mentors and Experts, along with other business leaders, are invited to attend, give speeches and host discussion sessions at these activities. SDH compensates the attending Mentors and Experts with fees ranging from RMB5,000 (approximately US$725) to RMB20,000 (approximately US$2,899) depending on factors such as the size of the audience, the location of the activity and qualifications of the attending Mentors and Experts.
Member activities are open to non-members, who pay RMB3,000 (approximately US$427) for each activity. For the fiscal years 2019, 2020, and 2021, we generated fees from non-members in the amount of $113,845, $90,116, and $ 13,965 respectively.
Study Tours
Beginning in 2016, SDH started organizing study tours for our Members, and offered thirteen, four, and one study tours in 2019, 2020, and 2021, respectively. The number or the study tours in 2020 decreased because of restrictions imposed by the government due to the Covid-19 pandemic. These restrictions eased in the second half 2020 when SDH was able to resume study tours. The study tours are designed to provide trainings on real world business skills for entrepreneurs and executives. Each study tour generally lasts two days, in which a day and a half are dedicated to classroom style lecturing and discussions, while the remaining half day is spent on visiting the headquarters or facilities of successful enterprises. All participants are responsible for their own food, traveling and living accommodations throughout the study tours.
Below are some of our study tours given in the past:
| Dates | Location (City) | Enterprise Visited | ||
| April, 2021 | Jing Gangshan | Jing Gangshan red special training camp | ||
| November, 2020 | Zibo | Zibo Yuanshang Museum | ||
| September, 2020 | Jiangkou | Hubei Wudang Yangshengtang Ltd. | ||
| August, 2020 | Jian | Jinggangshang Training Center | ||
| June, 2020 | Hangzhou | Douyin Hagnzhou Center | ||
| July, 2019 | Liaocheng | Dong-E-E-Jiao Co Ltd | ||
| June, 2019 | Hangzhou | Wahaha Group | ||
| May,2019 | Guangzhou | Xuesong Group | ||
| August, 2018 | Quanzhou | 361 Degrees International Limited | ||
| July, 2018 | Taiyuan | Fenjiu Group | ||
| May, 2018 | Ningbo | Sunny Optical Technology (Group) Co., Ltd. and Ningbo Shanshan Co., Ltd. |
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Forums
SDH organizes large-scale forums (with more than 1,000 attendees) that last two to three days. The purpose of the forums is to share business intelligence with small and medium-sized enterprises and help them develop business plans and strategies. The themes of the forums are usually related to interpretation of newly published governmental policies, sharing of industry opportunities and perspectives on corporate transformation and growth. SDH held two large-scale forums in 2019, one in 2020. No large-scale forum was held due to Covid-19 restrictions.
Enterprise Service
In addition to providing services to Users and Members, SDH has been providing customized enterprise service to small and medium-sized enterprises in the PRC since its inception in 2014. Enterprise service is an integral part of its platform, and a number of the Enterprise Service Clients are also Members and Users.
Below are the three main enterprise services we provide:
Comprehensive Tailored Services
Comprehensive Tailored Service are geared towards small and medium-sized businesses, to provide tailored packaged services including conference and salon organizations, booth exhibition services, guidance by Mentors and Experts, and other value-added services, for the purpose of promoting and growing their businesses. Clients are required to enter into service agreements with us, which are individually negotiated based on the services and resources we provide. For 2019, the comprehensive enterprise service generated revenue in the amount of US$5,733,342 from 89 clients. For 2020, the comprehensive enterprise service generated revenue in the amount of US$13,345,880 from 80 clients. For 2021, the comprehensive enterprise service generated revenue in the amount of US$1,433,847 from 80 clients.
Consulting
A team of professional consultants provides enterprise consulting services and develops strategies and solutions for corporate reorganization, product promotion and marketing, industry supply chain integration, corporate governance, financing and capital structure, etc. the consulting services are customized to meet each client’s specific needs and requirements. The fees and payment structures are based on the specifics of the services we provide, such as the time and efforts required, the duration of the service, and are usually in the range of RMB20,000 (approximately US$2,898) to RMB80,000 (approximately US$11,594) for a one-time service charge, or monthly fees in the amounts of RMB10,000 (approximately US$1,449) to RMB20,000 (approximately US$2,898) for continued services.
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Sponsorship Advertising
Sponsorship advertising is a special form of advertising, generally referring to a publicity strategy adopted by enterprises in order to enhance their corporate and product image, as well as brand awareness and influence. SDH provides sponsorship advertising services for enterprise clients at various events, such as forums and study tours, in the following forms:
| ● | SDH displays the names and logos of the sponsor enterprises on the background and display boards. | |
| ● | The representatives of the sponsor enterprises are assigned to the VIP seating areas with name tags displaying their company names and logos. | |
| ● | The sponsor enterprises enjoy a certain number of tickets for an event, which can be used for sale or as gifts to their customers. | |
| ● | The names and logos of the sponsor company are displayed in the related advertisements and promotional materials for an event. | |
| ● | SDH uses products exclusively provided by the sponsor enterprise for an event. | |
| ● | The names and logos of the sponsor enterprise may also be displayed in programs and videos SDH produces such as “Haiping’s Meeting Room.” |
The fees we charge for sponsorship advertising is in the range of RMB500,000 (approximately US$72,463) to RMB2,000,000 (approximately US$289,855) per engagement, depending on several specific factors, such as the number of the participants, the location, and popularity of an event.
Sale of Merchandises
In late 2019, SDH started procuring and offering merchandises for sale through its platform to clients and the general public. The merchandises include Chinese tea, red wine, wellness products, gift cards, and others. Some of the merchandises for sale are obtained from Members and enterprise service clients through exchange for collection of membership fees and consulting fees. Such exchanges are non-routine and made at our discretion, based on a number of factors, including but not limited to, the market trend and demand for such merchandises, the profit margin expected to be realized from the sale of such merchandises, and the credit-worthiness of and the relationship with these clients. Other merchandises are sourced and purchased from customers directly at preferred prices or from third parties, based on our knowledge of current market trend and demand generated from our platform. We expect to continue to offer certain customers the option to exchange merchandises in lieu of membership fees and consulting fees at our discretion, which practice we believe is a win-win for us and our clients, though it will only serve as a non-routine practice that is supplemental to our business operation.
Online Service
SDH provides Users two services on the APP: (1) Question and Answer (Q&A) Sessions and (2) Online Streaming of Courses and Programs. In addition, our APP has a community building function that facilitates relationship building on our platform. For example, our APP allows Users to share their “moments,” such as pictures and videos of their life experiences, via instant messaging, with other Users on the APP. Users may also “like” and/or comment on other User’s “moments.” In addition, Users may establish their own communities by creating and inviting other Users to join his or her group.
The APP
The APP was launched in May 2016, and runs on both IOS and Android devices. SDH strives to provide Users superb experiences on the APP and have established an in-house Information Technology team of eight employees dedicated to the development and support of our system. To date, SDH has registered 35 computer software copyrights with the Copyright Protection Centre of China (CPCC), in connection with the development of the APP. In October 2017, as a result of its efforts, SDH was certified by the State Intellectual Property Office (“SIPO”) as a national high-tech enterprise, which affords SDH a favorable tax rate of 15%, rather than the unified rate of 25% for the duration of the certification. The certification lasts for three years, and was renewed in 2020. As of March 31, 2022, the APP has been downloaded by approximately 5.5 million Users. The number of average monthly active Users was approximately 87,899 in 2020 and approximately 1,104 in 2021.
Questions and Answers (Q &A) Session
Mentors and Experts, as providers, are available to answer questions and share valuable personalized guidance and advice in a wide range of fields, including business management, health care, beauty, financial services, education, etc. Through a Q&A session, a User can submit questions on our APP to a chosen provider, who are listed on the APP under their specializing sectors, and receive a response within 72-hours. When a User submits a question on our APP, our customer service representatives and the chosen provider receive a text notification from our system immediately. Upon receipt of the text notification, a provider is required to respond within 72-hours, although most of the time the responses are provided in a much shorter time frame. If the response is delayed or unsatisfactory to the User, he or she may notify our customer service representatives who will contact the provider to follow-up with the User.
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Users must purchase top-up credits on our APP to pay for Q&A sessions. Providers set their own fees for Q&A sessions. At present, the average fee for a Q&A session is RMB31 (approximately US$4.38), which translates to 31 APP top-up credits. After each session concludes, credits are automatically awarded to the provider’s APP account and can be used for services on our APP or converted to RMB and paid out to the provider’s bank account linked with our APP. When submitting a question in a Q&A session, a User can also choose to share the Q&A session on the APP for a fee of one to five credits and earn credits when other Users access the shared Q&A session. The credits earned from the shared Q&A sessions are to be split 50/50 between the Users and us.
As of March 31, 2022, our APP completed a total of 9,864 Q&A sessions, and had about 941 daily accesses to shared Q&A sessions. Our providers generate about an average of RMB1,975 from answering questions in the Q&A sessions per month for the 24 months ended March 31, 2022.
Online Streaming of Video & Audio Courses and Programs
SDH provides video and audio courses and programs on the APP for on-demand and live streaming. At present, the APP has approximately 4,806 audio and 5,279 video courses and programs available for streaming. The majority of the courses and programs are business-oriented, which cover subjects such as entrepreneurship development, financial service, corporate governance, team management, marketing strategy, etc. We also provide some focused courses and programs that target special audience groups, such as parent-child education for new parents, and business school selection programs for graduate students. The majority of the online courses are sourced from third party content providers including professional content production companies and individuals.
At present, we release an average of 200 to 220 online courses and programs each month and have 2 to 3 online streaming sessions every week. As of March 31, 2022, approximately 39% of the courses and programs were produced and owned by our subsidiary, GMB Culture. We produce in-house video and audio courses and programs for streaming on our APP and several other internet content providers in China, such as Tencent, iQiyi, Youku, and Himalaya FM.
The other content on the APP were produced by third party content providers, including (1) approximately 42% by Beijing Winning at the Frontlines Cultural Exchange Co., Ltd. (“Beijing Winning”), (2) approximately 13% by individual content providers, such as our Mentors and Experts, and (3) the remaining 45% by other third party production companies including Beijing Binbin Youli Network Technology Co., Ltd., Shanghai Maokong Information Technology Co., Ltd., Beijing Friendship Culture Communication Co., Ltd., Asia United Education Technology Co., Ltd., Xiameng Xingfujia Co., Ltd., and Wuxi Ruijian Times Co., Ltd.
All content on the APP is copyrighted. SDH enters into licensing agreements with the third party content providers and has full rights to use and distribute the content on our APP. On May 30, 2016, SDH entered into a strategic cooperation agreement and a copyright authorization agreement, both for a term of five-years, with our main third party content provider, Beijing Winning. Pursuant to the agreements, SDH had non-exclusive right to use and distribute Beijing Winning’s productions on our platform without paying any upfront fee, and Beijing Winning had the right to all derivative profits, including consulting and speaking fees generated from engagements made with our Users. On November 2, 2019, SDH entered into an intangible assets purchase agreement with Beijing Winning to acquire 3,104 episodes of “Big Lecture Hall of Winner business management TV program” owned by Beijing Winning for a total price of RMB36,000,000 (approximately US$5,097,345). We agreed to pay the purchase price to Beijing Winning in seven installments from November 19, 2019 to February 2, 2020, and the full ownership of the purchased assets was transferred to us on November 19, 2019.
The agreements with the other third party content providers, including both individuals and professional production companies, grant us non-exclusive right to use and distribute the third party content in exchange for a specified percentage of profits generated by such content on our platform.
Prior to 2019, most of the online content was free for Users to enjoy because SDH mainly focused on growing the online knowledge sharing community. In November 2019, SDH started to implement a new fee structure for the online content. As of the date of this annual report, approximately 89%, or 9,026 online courses and programs require fees to access; while the remaining 1,059, or 11%, are still available for our Users to enjoy without any fees. Under the new fee structure, there are two paid content categories: (1) a la carte: Users are charged from RMB 9.9 to 299 per course or program; and (2) VIP annual subscription: Users are charged a yearly access fee of RMB299 for all of the VIP courses and programs. As of the date of the annual report, there are approximately 5,269 a la carte courses and programs, and 3,757 VIP courses and programs.
Other Services
Member activities, including study tours and forums, are also open to non-members, who pays a fixed fee of RMB3,000 (approximately US$427) for each activity. Fees are usually collected on site on the date of each activity. For the fiscal years 2019, 2020, and 2021, we generated fees from non-members in the amount of $113,845, $90,116 and $13,965, respectively.
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Regulation
This section set forth a summary of the principal PRC laws and regulations relevant to our business and operations in China.
Regulations Related to Internet Information Services
Among all of the applicable laws and regulations, the Telecommunications Regulations of the PRC, or the Telecom Regulations, promulgated by the PRC State Council on September 25, 2000 and most recently amended on February 6, 2016, is the primary governing law, which sets out the general framework for the provision of telecommunications services by domestic PRC companies. Under the Telecom Regulations, telecommunications service providers are required to procure operating licenses prior to their commencement of operations. The Telecom Regulations distinguish “basic telecommunications services” from VATS. VATS are defined as telecommunications and information services provided through public networks. The Telecom Catalogue was issued as an attachment to the Telecom Regulations to categorize telecommunications services as either basic or value-added. In February 2003, December 2015, and June 2019, the Telecom Catalogue was updated respectively, categorizing information services provided via fixed network, mobile network among others, as VATS.
The Administrative Measures on Telecommunications Business Operating Licenses was promulgated by the Ministry of Industry and Information Technology on March 1, 2009 and most recently amended on July 3, 2017, which set forth more specific provisions regarding the types of licenses required to operate VATS, the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses. Under these regulations, a commercial operator of VATS must first obtain a VATS License, from the MIIT or its provincial level counterparts, otherwise such operator might be subject to sanctions including corrective orders and warnings from the competent administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the websites may be ordered to close.
In September 2000, the State Council promulgated the Administrative Measures on Internet Information Services, or the Internet Measures, which was most recently amended on January 8, 2011. Under the Internet Measures, commercial internet content-related services operators shall obtain a VATS License for internet content provision business, or the ICP License, from the relevant government authorities before engaging in any commercial internet content-related services operations within China.
The VIE obtained the ICP License on July 2, 2019, which will remain effective for 5 years.
Regulations Related to Foreign Investment
Guidance Catalogue of Industries for Foreign Investment
Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment, or the Guidance Catalog, which was promulgated and is amended from time to time by Ministry of Commerce, or MOFCOM, and the National Development and Reform Commission, or NDRC. The Guidance Catalog lays out the basic framework for foreign investment in China, classifying businesses into three categories with regard to foreign investment: “encourage,” “restricted” and “prohibited.” Industries not listed in the catalog are generally deemed as falling into a fourth category “permitted” unless specifically restricted by other PRC laws.
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In addition, in June 2018 the MOFCOM and the NDRC promulgated the Special Management Measures (Negative List) for the Access of Foreign Investment, or the Negative List, which was most recently amended on December 27, 2021 and effective on January 1, 2022. The value-added telecommunications services (except for e-commerce, domestic conferencing, store-and-forward, and call center services), or the VATS, fall within the Negative List.
Pursuant to the Provisions on Administration of Foreign-Invested Telecommunications Enterprises promulgated by the State Council in December 2001 and most recently amended in March 29, 2022, or the FITE Regulations, the ultimate foreign equity ownership in a VATS provider may not exceed 50%. Moreover, for a foreign investor contemplating to acquire any equity interest in a VATS business in China, it must satisfy a number of stringent performance and operational experience requirements, including demonstrating good track records and experience in operating VATS business overseas.
In July 2006, Ministry of Information Industry, or the MII (the predecessor of the MIIT), released the Notice on Strengthening the Administration of Foreign Investment in and the Operation of Value-added Telecommunications Business, or the MII Notice, which requires foreign investors to set up foreign-invested enterprises and obtain a relevant telecommunications business operating license, to conduct any VATS business in China. Furthermore, under the MII Notice, domestic telecommunication enterprises may not rent, transfer or sell a telecommunications business operating license to foreign investors in any form, nor may they provide any resources, premises, facilities and other assistance in any form to foreign investors for their illegal operation of any telecommunications business in China. In addition, under the MII Notice, the relevant trademarks and domain names used by a foreign-invested VATS operator shall be legally owned by that operator (or its shareholders).
The Company engages in business activities that are VATS, and in light of the above restrictions and requirements, the Company relies on contractual arrangements between the WFOE and VIE to operate its business in China.
Foreign Investment Law
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law of the PRC, or the Foreign Investment Law, which came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law of the PRC, the Sino-foreign Cooperative Joint Venture Enterprise Law of the PRC and the Wholly Foreign-invested Enterprise Law of the PRC, together with their implementation rules and ancillary regulations. The organization form, organization and activities of foreign-invested enterprises shall be governed, among others, by the PRC Company Law and the PRC Partnership Enterprise Law. Foreign-invested enterprises established before the implementation of the Foreign Investment Law may retain the original business organization and so on within five years after the implementation of this Law.
The Foreign Investment Law is formulated to further expand opening-up, vigorously promote foreign investment and protect the legitimate rights and interests of foreign investors. According to the Foreign Investment Law, foreign investments are entitled to pre-entry national treatment and are subject to negative list management system. The pre-entry national treatment means that the treatment given to foreign investors and their investments at the stage of investment access shall not be less favorable than that of domestic investors and their investments. The negative list management system means that the state implements special administrative measures for access of foreign investment in specific fields. The Foreign Investment Law does not mention the relevant concept and regulatory regime of VIE structures. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation. See “Risk Factors—Risks Related to Our Corporate Structure—Uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”
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Foreign investors’ investment, earnings and other legitimate rights and interests within the territory of China shall be protected in accordance with the law, and all national policies on supporting the development of enterprises shall equally apply to foreign-invested enterprises. Among others, the state guarantees that foreign-invested enterprises participate in the formulation of standards in an equal manner and that foreign-invested enterprises participate in government procurement activities through fair competition in accordance with the law. Further, the state shall not expropriate any foreign investment except under special circumstances. In special circumstances, the state may levy or expropriate the investment of foreign investors in accordance with the law for the needs of the public interest. The expropriation and requisition shall be conducted in accordance with legal procedures and timely and reasonable compensation shall be given. In carrying out business activities, foreign-invested enterprises shall comply with relevant provisions on labor protection.
The Implementation Regulations of Foreign Investment Law of the PRC, adopted by the State Council on December 26, 2019 and came into effect on January 1, 2020, provides implementing measures and detailed rules to ensure the effective implementation of the Foreign Investment Law.
Regulations Related to Mobile Internet Applications Information Services
In addition to the telecommunications regulations and other regulations above, mobile Internet applications and application stores are specifically regulated by the Administrative Provisions on Mobile Internet Applications Information Services, or the App Provisions, which were promulgated by the Cyberspace Administration of China, or the CAC, on June 28, 2016, and became effective on August 1, 2016. Pursuant to the App Provisions, application information service providers shall obtain the relevant qualifications prescribed by laws and regulations, strictly implement their information security management responsibilities and carry out certain duties, including establishing and completing user information security protection mechanism and information content inspection and management mechanisms, protect users’ right to know and to choose in the process of usage, and to record and preserve users’ daily usage information for at least 60 days. Furthermore, internet application store service providers and internet application information service providers shall sign service agreements to determinate both sides’ rights and obligations.
In addition, on December 16, 2016, the MIIT promulgated the Interim Measures on the Administration of Pre-Installation and Distribution of Applications for Mobile Smart Terminals, or the App Interim Measures, which took effect on July 1, 2017. The App Interim Measures requires, among others, that internet information service providers must ensure that a mobile application, as well as its ancillary resource files, configuration files and user data can be uninstalled by a user on a convenient basis, unless it is a basic function software, which refers to a software that supports the normal functioning of hardware and operating system of a mobile smart device.
Neither the App Provisions nor the App Interim Measures, however, has further clarified the scope of “information services,” neither do they specify what “relevant qualification(s)” that an app owner/operator must obtain. In practice, operational activities of a company conducted through an app is currently subject to the supervisions of local departments of the Information Communications Administration, and often, the local departments differentiate the operational activities conducted through websites and through apps.
To comply with these laws and regulations, the VIE obtained the ICP License on July 2, 2019, which will remain effective for 5 years, we have also adopted and implemented strict information security policies and measures to protect our cyber security systems and customer information.
Regulations Related to Online Transmission of Audio-Visual Programs
On April 13, 2005, the State Council promulgated the Certain Decisions on the Entry of the Non-state-owned Capital into the Cultural Industry. On July 6, 2005, five PRC governmental authorities, including the Ministry of Culture, or the MOC, the State Administration of Radio, Film and Television, or the SARFT (the predecessor of the National Radio and Television Administration, or NRTA), the General Administration of Press and Publication, or the GAPP, the China Securities Regulatory Commission, or the CSRC and the MOFCOM, jointly adopted the Several Opinions on Canvassing Foreign Investment into the Cultural Sector. Under these provisions, non-state owned capital and foreign investors are prohibited from engaging in the business of distributing audio-visual programs through information networks.
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To further regulate the provision of audio-visual program services to the public via the internet, including through mobile networks, within the territory of the PRC, the SARFT and the MIIT jointly promulgated the Administrative Provisions on Internet Audio-Visual Program Service, or the Audio-Visual Program Provisions, on December 20, 2007, which took effect on January 31, 2008 and subsequently amended on August 28, 2015. Pursuant to the Audio-Visual Program Provisions, Internet audio-visual program services refer to activities of making, redacting and integrating audio-visual programs, providing them to the general public via the Internet, and providing platforms for uploading and spreading audio-visual programs. Providers of internet audio-visual program services are required to obtain the Audio-Visual License issued by SARFT, or complete certain registration procedures with SARFT. In general, providers of internet audio-visual program services must be either state-owned or state-controlled entities, and the business to be carried out by such providers must satisfy the overall planning and guidance catalog for internet audio-visual program service determined by SARFT. The VIE is neither state-owned nor state-controlled, therefore it is unlikely that it will be able to obtain the Audio-Visual License if required to do so. Whoever engages in Internet audio-visual program service without the license or registration, the competent authorities shall give it/him an admonition and order it/him to correct, and may impose a fine of not more than RMB30,000 (approximately US$4,348); if the circumstances are serious, a punishment shall be imposed in accordance with the provision of Article 47 of the Radio and Television Administration Regulation.
On May 21, 2008, SARFT issued a Notice on Relevant Issues Concerning Application and Approval of License for the Online Transmission of Audio-Visual Programs, as amended on August 28, 2015, which further set out detailed provisions concerning the application and approval process regarding the Audio-Visual License. Further, on March 31, 2009, SARFT promulgated the Notice on Strengthening the Administration of the Content of Internet Audio-Visual Programs, which reiterates the pre-approval requirements for the audio-visual programs transmitted via the internet, including through mobile networks, where applicable, and prohibits certain types of internet audio-visual programs containing violence, pornography, gambling, terrorism, superstition or other similarly prohibited elements.
On March 17, 2010, the SARFT issued the Internet Audio-visual Program Services Categories (Provisional), or the Provisional Categories, as amended on March 10, 2017. According to the Provisional Categories, there are four categories of internet audio-visual program services which are further divided into seventeen sub-categories. The third sub-category to the second category covers the making and editing of certain specialized audio-visual programs concerning, among other things, finance and educational content, and broadcasting such content to the general public online. However, there are still significant uncertainties relating to the interpretation and implementation of the Audio-Visual Program Provisions, in particular, the scope of “internet audio-visual programs”.
In addition, the Notice concerning Strengthening the Administration of the Streaming Service of Online Audio-Visual Programs promulgated by the State Administration of Press and Publication Radio, Film and Television, or the SAPPRFT (the predecessor of NRTA) on September 2, 2016 emphasizes that, unless a specific license is granted, audio-visual programs service provider is forbidden from engaging in live streaming on major political, military, economic, social, cultural and sports events. On November 4, 2016, the State Internet Information Office promulgated the Administrative Provisions on Internet Live-Streaming Services, or Internet Live-Streaming Services Provisions, which came into effect on December 1, 2016. According to the Internet Live-Streaming Services Provisions, an internet live-streaming service provider shall (a) establish a live-streaming content review platform; (b) conduct authentication registration of internet live-streaming issuers based on their identity certificates, business licenses and organization code certificates; and (c) enter into a service agreement with internet live-streaming services user to specify both parties’ rights and obligations.
On March 16, 2018, the SAPPRFT issued the Notice on Further Regulating the Transmission Order of Internet Audio-Visual Programs, which requires that, among others, audio-visual platforms shall: (i) not produce or transmit programs intended to parody or denigrate classic works, (ii) not re-edit, re-dub, re-caption or otherwise
On July 22, 2019, in the Beijing Municipal Radio and Television Bureau’s Q&A section of its official website, the Bureau responded to an inquiry submitted by an online education service provider, and confirmed that the offering of online audio and video courses or programs on websites or mobile applications for the purpose of improving the professional qualifications/skills of target audiences, does not fall into the activities regulated by the PRC Administrative Provisions on Internet Audio-Visual Program Services; therefore, the service provider is not required to obtain an Audio-Visual License. Currently, all of our online content on our APP are educational and training video and audio courses targeting specific groups of audiences, such as small and medium enterprise owners and graduate students, who use our online courses and programs to improve their professional qualifications and skills. Accordingly, based on the Bureau’s published interpretation, we believe we are not required to obtain an Audio-Visual License. However, given the significant uncertainties of the interpretation and implementation of Internet related regulations in the PRC, we cannot assure you that the competent PRC authorities will not ultimately take a view contrary to our opinion. See “Risk Factors—Risks Related to Our Business— We may be required to obtain and maintain additional approvals, licenses or permits applicable to our business, including our online business, which could have a material adverse impact on our business, financial conditions and results of operations.”
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Regulations Related to Information Security
Internet content in China is regulated and restricted from a state security standpoint. The Standing Committee of the National People’s Congress, or the SCNPC, enacted the Decisions on the Maintenance of Internet Security on December 28, 2000, which was amended on August 27, 2009, that may subject persons to criminal liabilities in China for any attempt to: (i) gain improper entry to a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information or (v) infringe upon intellectual property rights. In 1997, Ministry of Public Security, or the MPS, issued the Administration Measures on the Security Protection of Computer Information Network with International Connections, which were amended by the State Council on January 8, 2011 and prohibit using the Internet in ways which, among others, result in a leakage of state secrets or a spread of socially destabilizing content. The MPS has supervision and inspection powers in this regard, and relevant local security bureaus may also have jurisdiction. On December 13, 2005, the MPS promulgated Regulations on Technological Measures for Internet Security Protection, or the Internet Protection Measures, which took effect on March 1, 2006 and requires internet service providers to take proper measures including anti-virus, data back-up and other related measures, to keep records of certain information about its users (including user registration information, log-in and log-out time, IP address, content and time of posts by users) for at least 60 days, and to detect illegal information, stop transmission of such information, and keep relevant records. If an ICP License holder violates these measures, the PRC government may revoke its ICP License and shut down its websites.
In November 2016, the SCNPC promulgated the Cyber Security Law of the PRC, or the Cyber Security Law, which became effective on June 1, 2017 and requires network operators to perform certain functions related to cyber security protection and the strengthening of network information management. For instance, under the Cyber Security Law, network operators of key information infrastructure shall store within the territory of the PRC all the personal information and important data collected and produced within the territory of PRC and their purchase of network products and services that may affect national securities shall be subject to national cybersecurity review. On April 13, 2020, the CAC and other 11 Commissions, Ministries and Administrations, jointly issued the Measures for Cybersecurity Review, which took effect on June 1, 2020, to provide for more detailed rules regarding cybersecurity review requirements.
On March 13, 2019, the SAMR and the CAC jointly promulgated the Announcement on the Implementation of App Security Certification, or the Implementation Announcement, according to which, the China Cyber Security Review Technology and Certification Center shall be responsible for app security certification work, and app operators are encouraged to undergo such security certification voluntarily; search engines, app stores, among others, are encouraged to clearly mark and give priority to recommend certified apps. As an attachment to the Implementation Announcement, the Implementation Rules of App Security Certification, which came into effect on March 15, 2019, stipulated specific certification procedures, post-certification supervision and management of app security certifications.
On June 10, 2021, the SCNPR promulgated the Data Security Law of the PRC, or the Data Security Law, which took effect on September 1, 2021. Under the Data Security Law, data refers to any record of information that is kept electronically or otherwise, and data processing includes the collection, storage, use, processing, transmission, provision, and disclosure of data. Pursuant to the Data Security Law, any individual or entity shall only collect data in a legitimate and proper manner. A data security review mechanism will be established by the State, and any data processing activity that endangers or may endanger national security shall be subject to national security review. The security management for the cross-border transfer of important data collected and produced during operation by CIIOs or other data processors within the territory of the PRC shall be subject to the Cyber Security Law and other regulations and rules that promulgated by the CAC and the State Council. In case of any non-compliance under the Data Security Law, a data processor may be ordered to make corrections, and under certain serious circumstances, such as severe data divulgence, may be subject to penalties, including the revocation of business license or other permits.
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On December 28, 2021, 13 PRC authorities, including the NDRC, the MOFCOM, the MIIT, the CAC, and several other authorities jointly promulgated the revised Cybersecurity Review Measures, which came into effect on February 15, 2022. The Cybersecurity Review Measures provide that, in addition to CIIOs that intend to purchase Internet products and services, online platform operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review Measures require that an online platform operator which possesses the personal information of at least one million users must apply for a cybersecurity review by the CAC if it intends to be listed in foreign countries.
To comply with these laws and regulations, we have adopted security policies and measures to protect our cyber system and customer information.
Regulations Related to Internet Privacy Protection
Pursuant to the Internet Protection Measures, Internet services providers are prohibited from unauthorized disclosure of users’ information to any third parties unless such disclosure is required by the laws and regulations. They are further required to establish management systems and take technological measures to safeguard the freedom and secrecy of the users’ correspondences.
On December 28, 2012, the SCNPC promulgated the Decision on Strengthening Network Information Protection, which took into effect on the same date, to enhance the legal protection of information security and privacy on the internet. On July 16, 2013, the MIIT promulgated the Provisions on Protection of Personal Information of Telecommunication and Internet Users, which took into effect on September 1, 2013, to regulate the collection and use of users’ personal information in the provision of telecommunication services and internet information services in China and the personal information includes a user’s name, birth date, identification card number, address, phone number, account name, password and other information that can be used independently or in combination with other information for identifying a user.
On December 29, 2011, the MIIT promulgated the Several Provisions on Regulation of the Order of Internet Information Service Market, which took into effect on March 15, 2012. The Provisions stipulate that without the consent of users, internet information service providers shall not collect information relevant to the users that can lead to the recognition of the identity of the users independently or in combination with other information, nor shall they provide the information to others, unless otherwise provided by laws and administrative regulations.
On May 8, 2017, the Supreme People’s Court and the Supreme People’s Procuratorate released the Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Cases Involving Infringement of Citizens’ Personal Information, or the Interpretations, which took into effect on June 1, 2017. The Interpretations clarify several concepts regarding the crime of “infringement of citizens’ personal information” stipulated by Article 253A of the Criminal Law of the PRC, including “citizen’s personal information”, “provision”, and “unlawful acquisition”. Also, the Interpretations specify the standards for determining “serious circumstances” and “particularly serious circumstances” of this crime.
On January 23, 2019, the CAC, the MIIT, the MPS and the SAMR jointly issued the Notice on Special Governance of Illegal Collection and Use of Personal Information via Apps, which restates the requirement of legal collection and use of personal information, encourages app operators to conduct security certifications, and encourages search engines and app stores to clearly mark and recommend those certified apps.
On November 28, 2019, the CAC, MIIT, MPS and SAMR jointly issued the Measures to Identify Illegal Collection and Usage of Personal Information by APPs, which lists six types of illegal collection and usage of personal information, including “not publishing rules on the collection and usage of personal information” and “not providing privacy rules.”
On May 28, 2020, the NPC adopted the Civil Code of the PRC, or the Civil Code, which became effective on January 1, 2021 and abolished the General Rules of the Civil Law of the PRC. Pursuant to the Civil Code, the collection, storage, use, process, transmission, provision and disclosure of personal information should follow the principles of legitimacy, properness and necessity.
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On March 12, 2021, the CAC, the MIIT, the MPS and the SAMR jointly promulgated the Regulations on the Scope of Necessary Personal Information for Common Types of Mobile Internet Apps, which will become effective on May 1, 2021. According to these regulations, an app may not refuse a user from using its basic functional services if the user disagrees to provide unnecessary personal information. In particular, basic functional services of job hunting and recruitment applications are the "exchange of job hunting and recruitment information," and the necessary personal information includes mobile phone numbers of registered users and resumes provided by job seekers. Additionally, the regulations also apply to mini programs, which are apps developed and based on open platform interfaces and available to users without installation.
On August 20, 2021, the SCNPC adopted the Personal Information Protection Law of the PRC, or the PIP Law, which took effect on November 1, 2021. The PIP Law includes the basic rules for personal information processing, the rules for cross-border provision of personal information, the rights of individuals in personal information processing activities, the obligations of personal information processors, and the legal responsibilities for illegal collection, processing, and use of personal information. As the first systematic and comprehensive law specifically for the protection of personal information in the PRC, the PIP Law provides, among others, that (i) an individual’s consent shall be obtained to use sensitive personal information, such as biometric characteristics and individual location tracking, (ii) personal information operators using sensitive personal information shall notify individuals of the necessity of such use and impact on the individual’s rights, and (iii) where personal information operators reject an individual’s request to exercise his or her rights, the individual may file a lawsuit with a People’s Court.
To comply with these laws and regulations, we have required our customers to consent to our collecting and using of their personal information in order to receive our services, and established information security systems to protect customers’ privacy.
Regulations Related to Internet Culture Activities
On February 17, 2011, the MOC promulgated the Interim Administrative Provisions on Internet Culture, or the Internet Culture Provisions, which became effective on April1, 2011 and was amended on December 15, 2017. The Internet Culture Provisions require ICP services providers engaging in commercial “internet culture activities” to obtain an Internet Culture Business Operating License from the MOC. “Internet cultural activity” is defined in the Internet Culture Provisions as an act of provision of internet cultural products and related services, which includes (i) the production, duplication, importation, and broadcasting of the internet cultural products; (ii) the online dissemination whereby cultural products are posted on the internet or transmitted via the internet to end-users, such as computers, fixed-line telephones, mobile phones, television sets and games machines, for online users’ browsing, use or downloading; and (iii) the exhibition and comparison of the internet cultural products. In addition, “internet cultural products” is defined in the Internet Culture Provisions as cultural products produced, broadcast and disseminated via the internet, which mainly include internet cultural products specially produced for the internet, such as online music entertainment, online games, online shows and plays (programs), online performances, online works of art and online cartoons, and internet cultural products produced from cultural products such as music entertainment, games, shows and plays (programs), performances, works of art, and cartoons through certain techniques and duplicating those to internet for dissemination.
The VIE obtained an Internet Culture Business Operating License on February 3, 2019, which was updated on July 17, 2020 to cover the operation of online performances. The Internet Culture Business Operating License is effective for three years and SDH is currently in the process of renewing the license.
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Regulations Related to Consumer Rights Protection
The Consumer Rights and Interests Protection Law of the PRC, or the Consumer Protection Law, promulgated by the SCNPC on October 31, 1993 and most recently amended on October 25, 2013 (effective as of March 15, 2014), and the Online Trading Measures issued by the SAIC on January 26, 2014 (effective as of March 15, 2014), set out the obligations of business operators and the rights and interests of the customers. For example, business operators must guarantee the quality, function, usage, term of validity, personal or property safety requirement of the goods and services and provide customers with authentic information about the goods and services. Consumer whose legitimate rights and interests are harmed in the purchase of goods or receipt of services rendered through an online trading platform may seek compensation from the seller or the service provider.
On March 15, 2021, the SAMR promulgated the Measures for the Supervision and Administration of Online Trading, or New Online Trading Measures, which will come into effect on May 1, 2021 and replace the above original Online Trading Measure. The New Online Trading Measures also apply to all online commerce business conducted through information networks in general, with particular emphasis on transactions through online social networking and online live streaming. Under the New Online Trading Measures, online trading operators shall perform relevant compliance obligations, such as registration with the SAMR, protection of customers’ personal information and fair competition.
Additionally, the Civil Code, which became effective on January 1, 2021 and replaced the Tort Liability Law of the PRC, provides that both internet users and internet service providers may be liable for the wrongful acts of users who infringe the lawful rights of other parties. If an internet user utilizes internet services to commit a tortious act, the party whose rights are infringed may request the internet service provider to take measures, such as removing or blocking the content, or disabling the links thereto, to prevent or stop the infringement. If the internet service provider does not take necessary measures after receiving such notice, it shall be jointly liable for any further damages suffered by the rights holder. Furthermore, if an internet service provider fails to take necessary measures when it knows that an internet user utilizes its internet services to infringe the lawful rights and interests of other parties, it shall be jointly liable with the internet user for damages resulting from the infringement.
Regulations Related to Intellectual Property Rights
Copyright
The Copyright Law of the PRC, or the Copyright Law, which took effect on June 1, 1991, was amended in 2001, 2010 and 2020. The latest version will come into effect on June 1, 2021. Under the currently effective Copyright Law and its implementing regulations adopted in 2002 and amended in 2011 and 2013, Chinese citizens, legal persons, or other organizations will, whether published or not, enjoy copyright provides that Chinese citizens, legal persons, or other organizations shall, whether published or not, own copyright in their copyrightable works, which include, among others, works of literature, art, natural science, social science, engineering technology and computer software. Copyright owners enjoy certain legal rights, including right of publication, right of authorship and right of reproduction. The Copyright Law extends copyright protection to Internet activities, products disseminated over the Internet and software products. In addition, the Copyright Law provides for a voluntary registration system administered by the China Copyright Protection Center, or the CPCC. According to the Copyright Law, an infringer of the copyrights shall be subject to various civil liabilities, which include ceasing infringement activities, apologizing to the copyright owners and compensating the loss of copyright owner. Infringers of copyright may also subject to fines and/or administrative or criminal liabilities in severe situations.
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Pursuant to the Computer Software Copyright Protection Regulations promulgated by the State Council in 1991 and amended in 2001, 2011 and 2013 respectively, Chinese citizens, legal persons and other organizations shall enjoy copyright on software they develop, regardless of whether the software is released publicly. Software copyright commences from the date on which the development of the software is completed. The protection period for software copyright of a legal person or other organizations shall be 50 years, concluding on December 31 of the 50th year after the software’s initial release. The software copyright owner may go through the registration formalities with a software registration authority recognized by the State Council’s copyright administrative department. The software copyright owner may authorize others to exercise that copyright, and is entitled to receive remuneration.
Trademark
Trademarks are protected by the Trademark Law of the PRC, which was adopted in 1982 and subsequently amended in 1993, 2001, 2013 and 2019 as well as by the Implementation Regulations of the PRC Trademark Law adopted by the State Council in 1983 and as most recently amended on April 29, 2014. The Trademark Office under the SAIC handles trademark registrations. The Trademark Office grants a 10-year term to registered trademarks and the term may be renewed for another 10-year period upon request by the trademark owner. A trademark registrant may license its registered trademarks to another party by entering into trademark license agreements, which must be filed with the Trademark Office for its record. As with patents, the Trademark Law has adopted a first-to-file principle with respect to trademark registration. If a trademark applied for is identical or similar to another trademark which has already been registered or subject to a preliminary examination and approval for use on the same or similar kinds of products or services, such trademark application may be rejected. Any person applying for the registration of a trademark may not injure existing trademark rights first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through such party’s use.
Domain name
The domain names are protected under the Administrative Measures on the Internet Domain Names, or the Domain Name Measures, which was promulgated by the MIIT and became effective in November 2017. The MIIT is the major regulatory body responsible for the administration of the PRC internet domain names, under supervision of which China Internet Network Information Center, or the CNNIC, is responsible for the daily administration of CN domain names and PRC domain names. Pursuant to the Domain Name Measures, the registration of domain names adopts the “first to file” principle and the registrant shall complete the registration via the domain name registration service institutions. In the event of a domain name dispute, the disputed parties may lodge a complaint to the designated domain name dispute resolution institution to trigger the domain name dispute resolution procedure in accordance with the CNNIC Measures on Resolution of the Domain Name Disputes, file a suit to the People’s Court, or initiate an arbitration procedure.
Regulations Related to Foreign Exchange
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, promulgated by the State Council in 1996 and most recently amended in 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from State Administration of Foreign Exchange or SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate governmental authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans.
In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, or SAFE Circular 59, which was most recently amended in 2015 and substantially amends and simplifies the current foreign exchange procedures. Pursuant to SAFE Circular 59, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts, and guarantee accounts, the reinvestment of Renminbi proceeds derived by foreign investors in China, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously.
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In February 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Circular 13, pursuant to which, instead of applying for approval regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals may apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, may directly review the applications and conduct the registration.
In March 2015, SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or SAFE Circular 19. Pursuant to SAFE Circular 19, a foreign-invested enterprise may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution into the account). In addition, for the time being, foreign-invested enterprises are allowed to settle 100% of their foreign exchange capital on a discretionary basis. A foreign-invested enterprise shall truthfully use its capital for its own operational purposes within the scope of business. Where an ordinary foreign-invested enterprise makes domestic equity investment with the amount of foreign exchanges settled, the invested enterprise must first go through domestic re-investment registration and open a corresponding account for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is registered.
In June 2016, SAFE promulgated the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, pursuant to which, in addition to foreign currency capital, enterprises registered in China may also convert their foreign debts, as well as repatriated fund raised through overseas listing, from foreign currency to Renminbi on a discretional basis. SAFE Circular 16 also reiterates that the use of capital so converted shall follow “the principle of authenticity and self-use” within the business scope of the enterprise. According to SAFE Circular 16, the Renminbi funds so converted shall not be used for the purposes of, whether directly or indirectly, (i) paying expenditures beyond the business scope of the enterprises or prohibited by laws and regulations; (ii) making securities investment or other investments (except for banks’ principal-secured products); (iii) granting loans to non-affiliated enterprises, except as expressly permitted in the business license; and (iv) purchasing non-self-used real estate (except for the foreign-invested real estate enterprises).
In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records, and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Further, pursuant to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.
On October 23, 2019, SAFE issued the Circular of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, or SAFE Circular 28, which allows non-investment foreign-invested enterprises to make domestic equity investment with their capital funds in accordance with the law under the premise that such investment does not violate the existing special administrative measures (negative list) for foreign investment and the project invested in China is authentic and compliant. Pursuant to SAFE Circular 28, upon receiving the payment of consideration from a foreign investor for the equity transfer under foreign direct investment, the domestic transferor, with relevant registration certificates, can process the formalities for account opening, fund receipt, and foreign exchange settlement and use directly at the bank. The foreign investor’s deposit remitted from overseas or transferred from domestic accounts can be directly used for its lawful domestic capital contribution as well as domestic and overseas payment after the transaction is concluded.
On April 10, 2020, SAFE issued the Circular on Optimizing Administration of Foreign Exchange to Support the Development of Foreign-related Business, or SAFE Circular 8, pursuant to which, eligible enterprises are allowed to use the income under capital account, from such sources as capital funds, foreign debt and overseas listing, for domestic payment without having to provide supporting authentication materials to the banks for every transaction in advance, but the use of funds shall be true and compliant as well as conform to the existing administration regulations regarding use of income under capital account. The concerned bank shall conduct spot checking in accordance with the relevant requirements.
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Regulations Related to Dividend Distribution
The principal regulations governing the distribution of dividends paid by WFOEs include the Company Law of PRC, which applies to both PRC domestic companies and foreign-invested companies, and the Foreign Investment Law and its implementing rules, which apply to foreign-invested companies. Under these regulations, WFOEs in China may pay dividends only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. In addition, a WFOE in China is required to set aside at least 10% of its after-tax profits based on PRC accounting standards each year to its general reserves until its cumulative total reserve funds reaches 50% of its registered capital. These reserve funds, however, may not be distributed as cash dividends.
Regulations Related to Foreign Exchange Registration of Offshore Investment by PRC Residents
In July 2014, SAFE issued the Circular of the State Administration of Foreign Exchange on Issues concerning Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or SAFE Circular 37 which was most recently amended on June 15, 2018 and has replaced the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles (known as Circular 75). SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose vehicles, or “SPVs,” by PRC residents or entities to seek offshore investment and financing or conduct round trip investment in China. Under SAFE Circular 37, an SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate domestic or offshore assets or interests, while “round trip investment” refers to the direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. Circular 37 requires that, before making contribution into an SPV, PRC residents or entities are required to complete foreign exchange registration with SAFE or its local branch.
In February 2015, SAFE promulgated the SAFE Circular 13. SAFE Circular 13 has amended SAFE Circular 37 by requiring PRC residents or entities to register with qualified banks instead of SAFE or its local branch in connection with their establishment of an SPV.
In addition, pursuant to SAFE Circular 37, an amendment to registration or subsequent filing with qualified banks by such PRC resident is also required if there is a material change with respect to the capital of the offshore company, such as any change of basic information (including change of such PRC residents, change of name and operation term of the SPV), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. Failure to comply with the registration requirements as set forth in SAFE Circular 37 and SAFE Circular 13, misrepresent on or failure to disclose controllers of foreign-invested enterprises that are established by round-trip investment may result in bans on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliates, and may also subject relevant PRC residents to penalties under the Foreign Exchange Administration Regulations of the PRC.
Regulations Related to Foreign Debt
As an offshore holding company, we may make additional capital contributions to WFOE subject to approval from the local department of commerce and the SAFE, with no limitation on the amount of capital contributions. We may also make loans to WFOE subject to the approval from SAFE or its local office and the limitation on the amount of loans.
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By means of making loans, WFOE is subject to the relevant PRC laws and regulation relating to foreign debts. On January 8, 2003, the State Development Planning Commission, SAFE, and Ministry of Finance, or MOF, jointly promulgated the Circular on the Interim Provisions on the Management of Foreign Debts, or the Foreign Debts Provisions, which became effective on March 1, 2003, and was partially abolished on May 10, 2015. Pursuant to Foreign Debts Provisions, the total amount of foreign loans received by a foreign-invested company shall not exceed the difference between the total investment in projects as approved by the MOFCOM or its local counterpart and the amount of registered capital of such foreign-invested company. In addition, on January 12, 2017, the People’s Bank of China, or PBOC, issued the Circular on Full-Coverage Macro-Prudent Management of Cross-Border Financing, or the PBOC Circular 9, which sets out the statutory upper limit on the foreign debts for PRC non-financial entities, including both foreign-invested companies and domestic-invested companies, and the macro-prudential adjustment parameter is 1. Pursuant to the PBOC Circular 9, the foreign debt upper limit for both foreign-invested companies and domestic-invested companies is calculated as twice the net asset of such companies. As to net assets, the companies shall take the net assets value stated in their latest audited financial statement. On March 11, 2020, the PBOC and SAFE promulgated the Circular of the People’s Bank of China and the State Administration of Foreign Exchange on Adjusting the Macro-prudential Regulation Parameter for Full-covered Cross-border Financing, which provides that based on the current macro economy and international balance of payments, the macro-prudential regulation parameter as set forth in the PBOC Circular 9 is updated from 1 to 1.25.
The PBOC Circular 9 does not supersede the Foreign Debts Provisions. It provides a one-year transitional period from January 11, 2017, for foreign-invested companies, during which foreign-invested companies, such as WFOE, could adopt their calculation method of foreign debt upper limit based on either the Foreign Debts Provisions or the PBOC Circular 9. The transitional period ended on January 11, 2018. Upon its expiry, pursuant to the PBOC Circular 9, PBOC and SAFE shall reevaluate the calculation method for foreign-invested companies and determine what the applicable calculation method would be. As of the date of this annual report, neither the PBOC nor SAFE has promulgated and made public any further rules, regulations, notices, or circulars in this regard.
Regulations Related to Tax
Enterprise Income Tax
On March 16, 2007, the SCNPC promulgated the EIT Law, which was recently amended on December 29, 2018. On December 6, 2007, the State Council enacted the Regulations for the Implementation of the Enterprise Income Tax Law, which was amended on April 23, 2019. Under the EIT Law and relevant implementation regulations, both resident enterprises and non-resident enterprises are subject to the enterprise income tax so long as their income is generated within the territory of PRC. “Resident enterprises” are defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but are actually or in effect controlled from within the PRC. “Non-resident enterprises” are defined as enterprises that are organized under the laws of foreign countries and whose actual management is conducted outside the PRC, but have established institutions or premises in the PRC, or have no such established institutions or premises but have income generated from inside the PRC. Under the EIT Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is applied. If non-resident enterprises have not formed permanent establishments or premises in the PRC, or if they have formed permanent establishment or premises in the PRC but there is no actual relationship between the relevant income derived in the PRC and the established institutions or premises set up by them, however, enterprise income tax is set at the rate of 10% with respect to their income sourced from inside the PRC.
The EIT Law and its implementation rules permit certain “high and new technology enterprises strongly supported by the state” that independently own core intellectual property and meet statutory criteria, to enjoy a reduced 15% enterprise income tax rate.
According to the Administrative Rules for the Certification of High Tech Enterprises, effective on January 1, 2008 and amended on January 29, 2016 (effective as of January 1, 2016), for each entity accredited as High Tech Enterprise, such status is valid for three years if it meets the qualifications for High Tech Enterprise on a continuing basis during such period.
Value-Added Tax (“VAT”)
The Provisional Regulations of the PRC on Value-added Tax was promulgated by the State Council on December 13, 1993, and most recently amended on November 19, 2017. The Detailed Rules for the Implementation of the Provisional Regulations of the PRC on Value-added Tax (Revised in 2011) were promulgated by the MOF on December 25, 1993, and were recently amended on October 28, 2011 (collectively with the VAT Regulations, the VAT Law). On April 4, 2018, MOF and SAT jointly promulgated the Circular on Adjustment of Value-Added Tax Rates, or MOF and SAT Circular 32. On March 20, 2019, MOF, SAT and General Administration of Customs, or GAC, jointly issued a Circular on Relevant Polices for Deepening Value-added Tax Reform, or MOF, SAT and GAC Circular 39, which became effective from April 1, 2019. According to the abovementioned laws and circulars, all enterprises and individuals engaged in the sale of goods, the provision of processing, repair and replacement services, sales of services, intangible assets, real property and the importation of goods within the territory of the PRC are the taxpayers of VAT. The VAT tax rates generally applicable are simplified as 13%, 9%, 6% and 0%, and the VAT tax rate applicable to the small-scale taxpayers is 3%.
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Withholding Tax
The Enterprise Income Tax Law of the PRC provides that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends declared to non-PRC resident investors which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC.
Pursuant to an Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Incomes, or the Double Tax Avoidance Arrangement, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%. Based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or the SAT Circular 81, issued on February 20, 2009, by the SAT, however, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. According to the Circular on Several Questions regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018, by the SAT and took effect on April 1, 2018, when determining the applicant’s status of the “beneficial owner” regarding tax treatments in connection with dividends, interests or royalties in the tax treaties, several factors, including without limitation, whether the applicant is obligated to pay more than 50% of his or her income in 12 months to residents in third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will be analyzed according to the actual circumstances of the specific cases. This circular further provides that applicants who intend to prove his or her status of the “beneficial owner” shall submit the relevant documents to the relevant tax bureau according to the Announcement on Issuing the Measures for the Administration of Non-Resident Taxpayers’ Enjoyment of the Treatment under Tax Agreements.
Tax on Indirect Transfer
On February 3, 2015, the SAT issued the Circular on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or SAT Circular 7. Pursuant to SAT Circular 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises, may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include, inter alia, whether the main value of the equity interest of the relevant offshore enterprise derives directly or indirectly from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consist of direct or indirect investment in China or if its income is mainly derived from China; and whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure. According to SAT Circular 7, where the transferee fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. SAT Circular 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired on a public stock exchange. On October 17, 2017, the SAT issued the Circular on Issues of Tax Withholding regarding Non-PRC Resident Enterprise Income Tax, or SAT Circular 37, which further elaborates the relevant implemental rules regarding the calculation, reporting and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless, there remain uncertainties as to the interpretation and application of SAT Circular 7. SAT Circular 7 may be determined by the tax authorities to be applicable to our offshore transactions or sale of our shares or those of our offshore subsidiaries where non-resident enterprises, being the transferors, were involved.
Regulations Related to Employment and Social Welfare
Employment
The Labor Law of the PRC, which was promulgated on July 5, 1994, effective since January 1, 1995, and most recently amended on December 29, 2018, the Labor Contract Law of the PRC, which was promulgated on June 29, 2007, and amended on December 28, 2012, and the Implementation Regulations of the Labor Contract Law of the PRC, which was promulgated on September 18, 2008, are the principal regulations that govern employment and labor matters in the PRC. Under the above regulations, labor contracts shall be concluded in writing if labor relationships are to be or have been established between employers and the employees. Employers are prohibited from forcing employees to work above certain time limit and employers shall pay employees for overtime work in accordance to national regulations. In addition, wages may not be lower than the local minimum wage. Employers must establish a system for labor safety and sanitation, strictly abide by state standards, and provide relevant education to its employees. Employees are also required to work in safe and sanitary conditions.
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Social Insurance and Housing Fund
Under the Social Insurance Law of the PRC that was promulgated by the SCNPC on October 28, 2010, and came into force as of July 1, 2011, and was most recently amended on December 29, 2018 (also the effective date), together with other laws and regulations, employers are required to pay basic pension insurance, unemployment insurance, basic medical insurance, employment injury insurance, maternity insurance, and other social insurance for its employees at specified percentages of the salaries of the employees, up to a maximum amount specified by the local government regulations from time to time. When an employer fails to fully pay social insurance premiums, relevant social insurance collection agency shall order it to make up for any shortfall within a prescribed time limit, and may impose a late payment fee at the rate of 0.05% per day of the outstanding amount from the due date. If such employer still fails to make up for the shortfalls within the prescribed time limit, the relevant administrative authorities shall impose a fine of one to three times the outstanding amount upon such employer.
In accordance with the Regulations on the Management of Housing Fund which was promulgated by the State Council in 1999 and most recently amended in March 2019 (which became effective as of March 24th 2019), employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds. Employer and employee are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary of the employee in the preceding year in full and on time.
Regulations Related to Mergers and Acquisitions and Overseas Listings
On August 8, 2006, six PRC governmental and regulatory agencies, including MOFCOM and the China Securities Regulatory Commission, or the CSRC, promulgated the Rules on Acquisition of Domestic Enterprises by Foreign Investors, or the M&A Rules, governing the mergers and acquisitions of domestic enterprises by foreign investors that became effective on September 8, 2006, and was amended on June 22, 2009. The M&A Rules, among other things, requires that offshore SPVs that are controlled by PRC companies or individuals and that have been formed for overseas listing purposes through acquisitions of PRC domestic interest held by such PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange.
Our PRC counsel has advised us that, based on its understanding of current PRC laws, rules, and regulations, and the M&A Rules, the CSRC approval is not required in the context of this offering because: (i) our PRC subsidiaries were established by means of direct investment rather than by mergers with or acquisitions of any PRC domestic companies as defined under the M&A Rules, and (ii) no explicit provision in the M&A Rules classifies the respective contractual arrangements among WFOE, SDH and its shareholders as a type of acquisition transaction falling under the M&A Rules. Notwithstanding the above opinion, our PRC counsel has further advised us that uncertainties still exist as to how the M&A Rules will be interpreted and implemented and its opinions summarized above are subject to any new laws, rules, and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. If the CSRC or other PRC regulatory agencies subsequently determine that prior CSRC approval was required, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. See “Risk Factors—Risks Related to Doing Business in China—The failure to comply with PRC regulations relating to mergers and acquisitions of domestic entities by offshore special purpose vehicles may subject us to severe fines or penalties and create other regulatory uncertainties regarding our corporate structure.”
On December 24, 2021, the CSRC and relevant departments of the State Council issued the Draft Rules Regarding Overseas Listings, which aim to regulate overseas securities offerings and listings by China-based companies, for public consultation. The Draft Rules Regarding Overseas Listing aim to lay out the filing regulation arrangement for both direct and indirect overseas listing and clarify the determination criteria for indirect overseas listing in overseas markers. Where an enterprise whose principal business activities are conducted in the PRC seeks to issue and list its shares in the name of an overseas enterprise based on equity, assets, income, or other similar rights and interests of the relevant PRC domestic enterprise, such activities are deemed an indirect overseas issuance and listing. According to the Draft Rules Regarding Overseas Listings, among other things, after making initial applications with overseas stock markets for initial public offerings or listings, or after the completion of issuance of overseas listed securities by the overseas listed issuer, all China-based companies shall file with the CSRC within three working days. For the initial public offerings or listings applicants, the required filing materials with the CSRC include (without limitation): (i) record-filing reports and related undertakings, (ii) compliance certificates, filing, or approval documents from the primary regulators of the applicants’ businesses (if applicable), (iii) security assessment opinions issued by related departments (if applicable), (iv) PRC legal opinions, and (v) the prospectus; while for overseas listed issuers who issue overseas listed securities, the required filing materials with the CSRC include (without limitation): (i) record-filing reports and related undertakings and (ii) PRC legal opinions. In addition, overseas offerings and listings may be prohibited for such China-based companies when any of the following applies: (i) if the intended securities offerings and listings are specifically prohibited by the laws, regulations or provision of the PRC; (ii) if the intended securities offerings and listings may constitute a threat to, or endanger national security as reviewed and determined by competent authorities under the State Council in accordance with laws; (iii) if there are material ownership disputes over applicants’ equity interests, major assets, core technologies, or the others; (iv) if, in the past three years, applicants’ domestic enterprises, controlling shareholders, or de facto controllers have committed corruption, bribery, embezzlement, misappropriation of property, or other criminal offenses disruptive to the order of the socialist market economy, or are currently under judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations; (v) if, in the past three years, any directors, supervisors, or senior executives of applicants have been subject to administrative punishments for severe violations, or are currently under judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations; or (vi) other circumstances as prescribed by the State Council. The Draft Administrative Provisions further stipulate that a fine between RMB1 million and RMB10 million may be imposed if an applicant fails to fulfill the filing requirements with the CSRC or conducts an overseas offering or listing in violation of the Draft Rules Regarding Overseas Listings, and in cases of severe violations, a parallel order to suspend relevant businesses or halt operations for rectification may be issued, and relevant business permits or operational license revoked. As of the date of this annual report, the Draft Rules Regarding Overseas Listings have been released for public comment only and have not been formally adopted, uncertainties remain as to its enactment or future interpretations and implementations. See “Risk Factors—Risks Related to Doing Business in China—The Draft Rules Regarding Overseas Listings were released by the CSRC for public consultation. While such rules have not yet come into effect, the Chinese government may exert more oversight and control over overseas public offerings conducted by China-based issuers, which could significantly limit or completely hinder our ability to offer or continue to offer our Ordinary Shares to investors and could cause the value of our Ordinary Shares to significantly decline or become worthless.”
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C. Organizational Structure
The following diagram illustrates our current corporate structure, which includes our significant subsidiaries as of the date of this annual report:
Contractual Arrangements among WFOE, SDH and Its Shareholders
Neither we nor our subsidiaries own any equity interest in SDH. Instead, we control and receive the economic benefits of SDH’s business operation through a series of contractual arrangements. WFOE, SDH and its shareholders entered into a series of contractual arrangements, also known as VIE Agreements, in June 2019. Pursuant to the VIE Agreements, WFOE holds the contractual right to control and operate the business of SDH. Therefore, pursuant to ASC 810, SDH has been included in the Company’s consolidated financial statements since June 2019.
Each of the VIE Agreements is described in detail below:
Exclusive Technical and Consulting Services Agreement
Pursuant to the Exclusive Technical and Consulting Services Agreement between SDH and WFOE (the “Exclusive Service Agreement”), WFOE provides SDH with technical support, consulting services, business support and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information. For services rendered to SDH by WFOE under the Exclusive Service Agreement, WFOE is entitled to collect a service fee approximately equal to SDH’s earnings before corporate income tax, i.e., SDH’s revenue after deduction of operating costs, expenses and other taxes, subject to adjustment based on services rendered and SDH’s operation needs.
This agreement became effective on June 10, 2019 and will remain effective unless otherwise terminated as required by laws or regulations, or by relevant governmental or regulatory authorities. Nevertheless, this agreement shall be terminated after all the equity interest in SDH held by its shareholders and/or all the assets of SDH have been legally transferred to WFOE and/or its designee in accordance with the Exclusive Option Agreement.
The CEO of WFOE, Mr. Haiping Hu, is currently managing SDH pursuant to the terms of the Exclusive Service Agreement. The Exclusive Service Agreement does not prohibit related party transactions. The Company’s audit committee is required to review and approve in advance any related party transactions, including transactions involving WFOE or SDH.
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Equity Pledge Agreement
Under the Equity Pledge Agreement between WFOE, and shareholders of SDH, together holding 100% of the shares of SDH (“SDH Shareholders”), the SDH Shareholders pledged all of their equity interests in SDH to WFOE to guarantee the performance of SDH’s obligations under the Exclusive Service Agreement. Under the terms of the Equity Pledge Agreement, in the event that SDH or the SDH Shareholders breach their respective contractual obligations under the Exclusive Service Agreement, WFOE, as pledgee, will be entitled to certain rights, including, but not limited to, the right to collect dividends generated by the pledged equity interests. The SDH Shareholders also agreed that upon occurrence of any event of default, as set forth in the Equity Pledge Agreement, WFOE is entitled to dispose of the pledged equity interests in accordance with applicable PRC laws. The SDH Shareholders further agreed not to dispose of the pledged equity interests or take any actions that would prejudice WFOE’s interests without the prior written consent of WFOE.
The Equity Pledge Agreement is effective until: (1) the secured debt in the scope of pledge is cleared off; and (2) Pledgers transfer all the pledged equity interests to Pledgees according to the Exclusive Option Agreement, or other entity or individual designated by it.
The purposes of the Equity Pledge Agreement are to (1) guarantee the performance of SDH’s obligations under the Exclusive Service Agreement; (2) make sure the SDH Shareholders do not transfer or assign the pledged equity interests, or create or allow any encumbrance that would prejudice WFOE’s interests without WFOE’s prior written consent. In the event SDH breaches its contractual obligations under the Exclusive Service Agreement, WFOE will be entitled to dispose of the pledged equity interests.
Exclusive Option Agreement
Under the Exclusive Option Agreement, the SDH Shareholders irrevocably granted WFOE (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, part or all of their equity interests in SDH or the assets of SDH. The option price to be paid by WFOE to each shareholder of SDH is RMB10 (approximately US$1.47) or the minimum amount to the extent permitted under PRC law at the time when such transfer occurs.
Under the Exclusive Option Agreement, WFOE may at any time under any circumstances, purchase, or have its designee purchase, at its discretion, to the extent permitted under PRC law, all or part of the SDH Shareholders’ equity interests in SDH or the assets of SDH. The Exclusive Option Agreement, together with the Equity Pledge Agreement, the Exclusive Service Agreement, and Powers of Attorney, enable WFOE to exercise effective control over SDH.
The Exclusive Option Agreement remains effective until all the equity or assets of SDH is legally transferred under the name of WFOE and/or other entity or individual designated by it, or unilaterally terminated by WFOE with a 30-day written notice.
Powers of Attorney
Under each of the Powers of Attorney, the SDH Shareholders authorized WFOE to act on their behalf as their exclusive agent and attorney with respect to all rights as shareholders, including, but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including, but not limited to, the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer, and other senior management members of SDH.
The Powers of Attorney are irrevocable and continuously valid from the date of execution of the Powers of Attorney, so long as the SDH Shareholders own the equity interests of SDH.
Spousal Consent
Pursuant to the Spousal Consent, each spouse of the individual shareholders of SDH irrevocably agreed that the equity interest in SDH held by their respective spouses would be disposed of pursuant to the Equity Pledge Agreement, the Exclusive Option Agreement, and the Powers of Attorney. Each spouse of the shareholders agreed not to assert any rights over the equity interest in SDH held by their respective spouses. In addition, in the event that any spouse obtains any equity interest in SDH through the respective shareholder for any reason, he or she agreed to be bound by the contractual arrangements.
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D. Property, Plants and Equipment
We currently maintain our headquarters in Beijing and Shanghai in the PRC. Our total office space is 4,416 square meters including both leased and owned properties. We lease 1,324 square meters of office space under four non-cancelable operating lease agreements with expiration dates through December 31, 2022. Operating lease expense amounted to $244,045, $352,645, and $379,355 for the years ended December 31, 2021, 2020 and 2019, respectively. In December 2019, the Company signed property purchase agreements to acquire four properties in Beijing with approximately an aggregate of 638 square meters of office space for a total consideration of US$2,991,492. The Company paid US$1,204,094 as a prepayment during the year ended December 31, 2019 and paid the rest of the consideration of US$1,787,398 and acquired the ownership of the properties in May 2020.
Future minimum lease payments under non-cancellable operating leases were as follows as of December 31, 2021:
| Year ending December 31, | ||||
| 2021 | $ | 103,408 | ||
ITEM 4.A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of the Company’s financial condition and results of operations is based upon and should be read in conjunction with the Company’s consolidated financial statements and their related notes included elsewhere in this annual report. This annual report contains forward-looking statements. See “Forward-Looking Information” in this annual report. In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. The Company caution you that its businesses and financial performance are subject to substantial risks and uncertainties.
Overview
The VIE, or SDH started operating as a consulting company providing enterprise services to small and medium-sized enterprises in the PRC in December 2014, and launched its peer-to-peer knowledge sharing and enterprise service platform in May 2016. Since then, SDH has continued to expand and improve its platform, where knowledge is shared and gained, and services are requested and provided. Operating its platform through its PRC operating entity, SDH and its subsidiaries, both on-line, via the mobile application “Shidonghui App” (the “APP”), and off-line, through its local offices in Beijing, Shanghai and Hangzhou, as well as 51 local centers operated by some of its members in 35 cities and 21 provinces throughout the PRC. SDH’s mission is to become a leading knowledge sharing and enterprise service platform in China.
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Substantially all of SDH’s operations are conducted in the PRC and all of the revenues are denominated in RMB. Foreign ownership of certain parts of its businesses including the value-added telecommunications services, or the VATS, is subject to restrictions under current PRC laws and regulations. See “Regulations—Regulations Related to Foreign Investment.” We have relied and expect to continue to rely on contractual arrangements with SDH, its subsidiaries and shareholders to operate the business in China. For a description of these contractual arrangements and uncertainties regarding the interpretation and application of current or future PRC laws and regulations, see “Business—Contractual Arrangements between WFOE, SDH and Its Shareholders.” and “Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.”.
Through the last two decades, a growing economy and a generally positive market environment have created many entrepreneurial and high-growth enterprises, many of which need corporate services such as financial consulting and management training. Likewise, as a result of China’s economic expansion, the Chinese population saw large increases of personal wealth.
When SDH launched its platform, the aim was not only to continue providing enterprise services to PRC’s growing business communities, but also create a marketplace where qualified entities (individuals and enterprises) have opportunities to serve as providers, and receive rewards by sharing their knowledge with others on the platform. As of March 31, 2022, SDH’s knowledge sharing and enterprise service ecosystem had 739 Mentors, 1,176 Experts, 1,551 Members, and approximately 5.50 million Users. In addition to serving the Users and Members, SDH continue to provide enterprise services to small and medium-sized enterprises in China, through a dedicated team with ten full-time professional consultants, as well as the Mentors and Experts. The providers (Mentors, Experts and consultants) are successful entrepreneurs, scientists, investors, and professionals with qualifications and achievements in major industries such as finance, energy, health care, and academia. SDH’s core strength is the knowledge brought by its providers, highlighted by their experiences, knowledge, industry know-how, and social connections.
On April 2, 2022, SDH’s subsidiary, Zhuhai (Zibo) Investment Co., Ltd. (“Zhuhai”) entered into an investment agreement with certain parties to form a joint venture (“JV”) dedicated to the production of high-grade lithium-ion power battery anode materials. The JV is established in the New Materials Industrial Park of Yilong District, Xingyi City of Guizhou Province, with a total investment amount of up to RMB620 million ($98.13 million) and a total land area of approximately 266,800 square meters, for the production of high-grade lithium-iron power battery anode materials.
Key Factors that Affect Operating Results
The Company believes the following key factors may affect the financial condition and results of operations:
SDH’s success depends on the ability to acquire clients effectively
The ability to increase our revenue largely depends on the ability to attract and engage potential clients, which include Users, Members, and Enterprise Service Clients. The sales and marketing efforts include those related to client acquisition and retention, and general marketing. The Company intend to continue to dedicate significant resources to sales and marketing efforts and constantly seek to improve the effectiveness of these efforts to grow the revenues.
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The client acquisition channels primarily include sales and marketing campaigns and existing client referrals. In order to acquire clients, the Company has made significant efforts in building mutually beneficial long-term relationships with local government and local business associations. In addition, the Company also market services through the influence of the founder and CEO, Mr. Haiping Hu, who is a well-known entrepreneur in China, and through social media platforms, such as WeChat and Weibo. If any of the current client acquisition channels becomes less effective, or if the Company is unable to continue to use any of these channels, the Company may not be able to attract new clients in a cost-effective manner or convert potential clients into active clients and may even lose the existing clients to the competitors. To the extent that the current client acquisition and retention efforts becomes less effective, service revenue may be significantly impacted, which would have a significant adverse effect on revenues, financial condition and results of operations.
A severe or prolonged slowdown in the global or Chinese economy could materially and adversely affect the Company’s business and the financial condition.
The rapid growth of the Chinese economy has slowed down since 2012 and such slowdown may continue in the future. There is considerable uncertainty over the trade conflicts between the United States and China and the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China; the withdrawal of these expansionary monetary and fiscal policies could lead to a contraction. There continue to be concerns over unrest and terrorist threats in the Middle East, Europe, and Africa, which have resulted in volatility in oil and other markets. There are also concerns about the relationship among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes. The eruption of armed conflict could adversely affect global or Chinese discretionary spending, either of which could have a material and adverse effect on the Company’s business, results of operation in financial condition. 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. Any severe or prolonged slowdown in the global or Chinese economy would likely materially and adversely affect the Company’s business, results of operations and financial condition. In addition, continued turbulence in the international markets may adversely affect the Company’s ability to access capital markets to meet liquidity needs.
Ability to attract and retain the Company’s qualified service providers
The Company rely heavily on the expertise of our service providers, including Mentors, Experts, and consultants to maintain the core competence. As of March 31, 2022, the Company had approximately 739 mentors, 1,176 experts, and a team of professional consultants as the Company’s knowledge sharing providers. Many of the mentors are experienced leaders of successful well-known corporations. Likewise, the Company’s experts are outstanding professionals in their specialized fields, the Company’s team of consultants is professionals with an average five years industrial experiences. Under their leadership, the Company had been able to achieve significant growth since it launched the knowledge sharing and enterprise service platform in 2016. As the business scope increases, the Company expect to continue to invest significant resources in hiring and retaining service providers. The ability to sustain growth will depend on the Company’s ability to attract and retain qualified service providers.
Impact from COVID-19
In early January of 2020, a novel coronavirus (“COVID-19”) outbreak took place in Wuhan, China. Subsequently, it has spread rapidly to Asia and other parts of the world. The COVID-19 outbreak has resulted in widespread economic disruptions in China, as well as stringent government measures by the Chinese government to contain its transmissions including quarantines, travel restrictions, and temporary closures of non-essential businesses in China and elsewhere.
Essentially all of SDH’s revenues and operations are generated in China. Consequently, the results of operations and financial performances have been affected materially for the year ended December 31, 2021. Due to the government restrictions, SDH was prevented from arranging offline activities generally for the year ended December 31, 2021, resulting in cancellations or postponements of study tours, forums and sponsorship advertising events, which adversely impacted the performance of SDH’s member services and enterprise services, especially sponsorship advertising services. In addition, due to widespread economic disruptions during the outbreak, demand for comprehensive tailored services and advertising services were also adversely affected. For the year ended December 31, 2021, SDH’s revenue from comprehensive tailored services decreased by $11,912,033 or 89.26%, revenue from sponsorship advertising services decreased by $4,864,137, or 73.72% as compared to the same period of 2020.
To mitigate the negative impact of the COVID-19 outbreak on SDH’s business, SDH managed to hold more small forums and salons to provide consulting services. Since May 2021, the corresponding revenue from consulting services increased by $1,166,949, or 280.09% as compared to the same period of 2020. SDH also continued to expand revenues from the sale of merchandise, which increased by $609,401 or 40.75% from sales of merchandises, as compared to the same period of 2020.
In addition, due to the outbreak of Omicron in early 2022, SDH made further assessment on the financial conditions of its clients, and the economic trends of regions affected by Omicron, such as Shanghai city. After this review, additional provisions were made for doubtful accounts for year ended December 31, 2021, which was $5,744,387, an increase of $3,935,498 or 217.56% as compared to the same period of 2020.
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Results of Operations
The following table summarizes the results of the Company’s operations during the year ended December 31, 2021, 2020 and 2019, respectively, and provides information regarding the dollar and percentage increase or decrease during such periods.
For the years ended December 31, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| REVENUE, NET | $ | 7,409,272 | $ | 23,181,084 | $ | 17,925,476 | ||||||
| COSTS AND OPERATING EXPENSES | ||||||||||||
| Service costs | 1,823,358 | 2,087,425 | 2,109,649 | |||||||||
| Cost of goods sold | 2,063,296 | 892,791 | - | |||||||||
| Selling expenses | 946,775 | 906,456 | 1,350,894 | |||||||||
| General and administrative expenses | 7,834,291 | 3,897,040 | 2,897,079 | |||||||||
| Research and development expenses | 2,151,565 | 671,312 | 795,540 | |||||||||
| Total costs and operating expenses | 14,819,285 | 8,455,024 | 7,153,162 | |||||||||
| (LOSS) PROFIT FROM OPERATIONS | (7,410,013 | ) | 14,726,060 | 10,772,314 | ||||||||
| OTHER (EXPENSES) INCOME, NET | ||||||||||||
| Investment losses | (2,118,453 | ) | (1,087 | ) | (23,799 | ) | ||||||
| Interest income | 173,173 | 214,460 | 212,285 | |||||||||
| Other income, net | 404,380 | 72,837 | 9,069 | |||||||||
| Total other (expenses) income, net | (1,540,900 | ) | 286,210 | 197,555 | ||||||||
| (LOSS) PROFIT BEFORE INCOME TAXES | (8,950,913 | ) | 15,012,270 | 10,969,869 | ||||||||
| Income taxes (benefit) provision | 236,581 | 3,054,983 | 1,589,101 | |||||||||
| NET (LOSS) INCOME | (8,714,332 | ) | 11,957,287 | 9,380,768 | ||||||||
| Less: net loss attributable to non-controlling interests | (311,072 | ) | (130,240 | ) | (365,617 | ) | ||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING SHAREHOLDERS | $ | (8,403,260 | ) | $ | 12,087,527 | 9,746,385 | ||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||
| Foreign currency translation adjustment | 700,316 | 2,076,303 | (283,074 | ) | ||||||||
| TOTAL COMPREHENSIVE (LOSS) INCOME | (8,014,016 | ) | 14,033,590 | 9,097,694 | ||||||||
| Less: comprehensive loss attributable to non-controlling interest | (321,522 | ) | (91,862 | ) | (366,392 | ) | ||||||
| COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING SHAREHOLDERS | $ | (7,692,494 | ) | $ | 14,125,452 | 9,464,086 | ||||||
| (LOSS) EARNINGS PER SHARE | ||||||||||||
| Basic and diluted | $ | (0.36 | ) | $ | 0.72 | $ | 0.58 | |||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | ||||||||||||
| Basic and diluted | 23,638,751 | 16,800,000 | 16,800,000 | |||||||||
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Revenues
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Revenues for the year ended December 31, 2021 and 2020 were derived from the following sources:
| For the year ended December 31, | |||||||||||||||||||||||||
| 2021 | % | 2020 | % | Change | % | ||||||||||||||||||||
| Member services | $ | 498,330 | 6.73 | % | $ | 872,629 | 3.76 | % | $ | (374,299 | ) | (42.89 | )% | ||||||||||||
| Enterprise service | |||||||||||||||||||||||||
| -Comprehensive tailored services | 1,433,847 | 19.35 | % | 13,345,880 | 57.57 | % | (11,912,033 | ) | (89.26 | )% | |||||||||||||||
| -Sponsorship advertising services | 1,734,390 | 23.41 | % | 6,598,527 | 28.47 | % | (4,864,137 | ) | (73.72 | )% | |||||||||||||||
| -Consulting services | 1,583,583 | 21.37 | % | 416,634 | 1.80 | % | 1,166,949 | 280.09 | % | ||||||||||||||||
| Online services | 40,391 | 0.55 | % | 361,933 | 1.56 | % | (321,542 | ) | (88.84 | )% | |||||||||||||||
| Sales of merchandises | 2,104,766 | 28.41 | % | 1,495,365 | 6.45 | % | 609,401 | 40.75 | % | ||||||||||||||||
| Other services | 13,965 | 0.18 | % | 90,116 | 0.39 | % | (76,151 | ) | (84.50 | )% | |||||||||||||||
| Revenues, net | $ | 7,409,272 | 100.00 | % | $ | 23,181,084 | 100.00 | % | $ | (15,771,812 | ) | (68.04 | )% | ||||||||||||
Revenues decreased by $15,771,812, or 68.04%, from $23,181,084 for the year ended December 31, 2020, to $7,409,272 for the year ended December 31, 2021. Revenues from Member services accounted for 6.73% of net revenues in year ended December 31, 2021, as compared to 3.76% in year ended December 31, 2020. Revenue from enterprise services accounted for 64.13% and 87.84% of net revenues for the years ended December 31, 2021 and 2020, respectively. Revenue from sales of merchandises accounted for 28.41% and 6.45% of net revenues for the years ended December 31, 2021 and 2020, respectively. The decrease in revenues was primarily attributable to the decrease in the revenue generated from comprehensive tailored services, sponsorship advertising services, member services and partially offset by the increase of revenue from consulting services and sales of merchandises.
Revenues from member services
SDH offers three tiers of membership services, Platinum, Diamond and Protégé, which differ in membership fees as well as the level of the services provided. Members pay a fixed fee for exchange of the right to participate in seven activities, including study tours and forums, within a typically one-year membership period.
Revenues from member services decreased by $374,299, or 42.89%, from $872,629 for the year ended December 31, 2020, to $498,330 for the year ended December 31, 2021. As the outbreak of the COVID-19, SDH was prevented from offering large offline activities, which resulted in a decreased demand for member services.
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Revenues from comprehensive tailored services
There are four major categories of SDH’s comprehensive tailored services. The following table presents the type of tailored services as well as their respective prices:
| Type of comprehensive tailored services | Pricing | |
| Conference and salon organization | RMB50,000 (approximately US$7,249) | |
| Booth exhibition services | RMB50,000 (approximately US$7,249) | |
| On-site mentors’ guidance | RMB50,000-100,000 (approximately US$7,249-US$14,498) | |
| Other additional services | RMB10,000-200,000 (approximately US$1,450 -US$28,996) |
Revenues from comprehensive tailored services decreased by $11,912,033, or 89.26%, from $13,345,880 for the year ended December 31, 2020, to $1,433,847 for the year ended December 31, 2021. Due to the impact of COVID-19, the comprehensive tailored service revenues from individual customers and some of the enterprise customers became unstable, and the account receivable of these customers also became harder to collect. In addition, due to the continuous government restrictions on public gatherings in 2021, the demand of comprehensive tailored services for large conference and salon organization decreased.
Revenues from sponsorship advertising service
Sponsorship advertising is a special form of advertising, generally referring to a publicity strategy adopted by enterprises in order to enhance their corporate and product image, as well as brand awareness and influence. SDH provides sponsorship advertising services for enterprise clients at events SDH holds, such as forums and study tours.
Revenues from sponsorship advertising services decreased by $4,864,137, or 73.72% from $6,598,527 for the year ended December 31, 2020, to $1,734,390 for the year ended December 31, 2021, primarily due to the fact that offline forums and study tours were canceled due to the continuous government restrictions on public gatherings.
Revenues from consulting services
SDH provides consulting services to small and medium-sized enterprises to develop strategies and solutions for the following: corporate reorganization, product promotion and marketing, industry supply chain integration, corporate governance, financing and capital structure, etc. Revenues from consulting services increased by $1,166,949, or 280.09% from $416,634 for the year ended December 31, 2020, to $1,583,583 for the year ended December 31, 2021, primarily due to the fact that SDH managed to hold more small forums and salons to provide consulting services instead of large conferences.
Revenues from online services
SDH provides two types of online services to the Company’s APP Users, which are questions and answers (Q&A) sessions with chosen Mentors or Experts and online streaming of courses and programs. Top-up credits are paid by Users through SDH’s APP, using which Users can purchase the online services.
Revenue from online services decreased by $321,542, or 88.84% from $361,933 for the year ended December 31, 2020 to $40,391 for the year ended December 31, 2021. The decrease was primarily due to the fact that SDH offered more free streaming content to attract both existing and potential clients.
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Revenues from sales of merchandises
Revenues from the sale of merchandise increased by $609,401, or 40.75% from $1,495,365 for the year ended December 31, 2020 to $2,104,766 for the year ended December 31, 2021. The increase was primarily due to the fact that SDH organized more small trade conferences facilitating the sales of merchandises.
Costs and operating expenses
The following table sets forth the breakdown of the costs and operating expenses for the years ended December 31, 2021 and 2020:
| For the years ended December 31, | Change | |||||||||||||||||||||||
| 2021 | % | 2020 | % | Amount | % | |||||||||||||||||||
| Service costs | $ | 1,823,358 | 12.30 | % | $ | 2,087,425 | 24.69 | % | $ | (264,067 | ) | (12.65 | )% | |||||||||||
| Cost of goods sold | 2,063,296 | 13.92 | % | 892,791 | 10.56 | % | 1,170,505 | 131.11 | % | |||||||||||||||
| Selling expenses | 946,775 | 6.39 | % | 906,456 | 10.72 | % | 40,319 | 4.45 | % | |||||||||||||||
| General and administrative expenses | 7,834,291 | 52.87 | % | 3,897,040 | 46.09 | % | 3,937,251 | 101.03 | % | |||||||||||||||
| Research and development expenses | 2,151,565 | 14.52 | % | 671,312 | 7.94 | % | 1,480,253 | 220.50 | % | |||||||||||||||
| Total costs and operating expenses | 14,819,285 | 100.00 | % | 8,455,024 | 100.00 | % | 6,364,261 | 75.27 | % | |||||||||||||||
Service costs
The service costs primarily include (1) the cost of holding activities, such as venue rental fees, conference equipment fees, (2) professional and consulting fees paid to third parties for the activities; (3) the fees paid to Mentors and Experts; (4) labor costs; and (5) amortization cost of copyright. Service costs decreased by $264,067, or 12.65% for the year ended December 31, 2021 compared to same period in 2020, mainly due to: (1) the decrease of $255,000 in consulting service cost paid to third parties for the activities, which was mainly due to the fact that the cost control for outsource expenses; (2) the decrease of $253,913 in video maintenance service fee; and was partially offset by the increase in conference cost of $296,549, which was mainly because the Company held more small conferences due to the government limitation on the scale of conferences.
Cost of goods sold
The cost of goods sold were $2,063,296 and $892,791 for the years ended December 31, 2021 and 2020, respectively. Cost of goods sold is recognized when revenue from sales of merchandises is recognized. The significant increase of the cost of goods sold was due to sale of electrolytic copper, which incurred cost of goods sold of $2,000,332.
Selling expenses
The selling expenses of $946,775 for the year ended December 31, 2021 remained stable compared with $906,456 for the year ended December 31, 2020. Although the revenues for the year ended December 31, 2021 declined while compare to that for the year ended December 31, 2020, SDH spent more selling expenses to retain and attract customers.
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General and administrative expenses
The general and administrative expenses increased by $3,937,251 or 101.03%, from $3,897,040 for the year ended December 31, 2020 to $7,834,291 for the year ended December 31, 2021. Such increase was primarily due to (1) an increase of bad debt expenses of $2,376,268, which was mainly due to the fact that as SDH experienced a slow-down in the collection of accounts receivable resulting from impact from COVID-19 for the year ended December 31, 2021, the bad debt expenses increased; (2) increases of directors’ and officers’ liability insurance fee of $343,611, training consulting fees of $238,704, legal fees of $131,390, independent director fees of $103,368 and miscellaneous service fees of $383,147, including training fee, business consulting services, etc. In order to meet public company reporting and corporate governance requirements to meet all of the demands associated with being a public company, audit fee, management insurance and miscellaneous service fees, including training and general consulting services, increased for the year ended December 31, 2021.
Research and development expenses (“R&D expenses”)
Research and development expenses for the mobile application, the APP, increased by $1,480,253 or 220.50% from $671,312 for the year ended December 31, 2020 to $2,151,565 for the year ended December 31, 2021, primarily due to the fact that SDH hired more personnel to update and support the APP to meet Users’ increasing needs.
Other expenses (income), net
The total net other expenses were $1,540,900 for the year ended December 31, 2021, and the net of other income was $286,210 for the year ended December 31, 2020. The net of other expenses for the year ended December 31, 2021 was primarily consisted of the investment loss of $2,118,453 which was mainly attributed by the investment loss in a trust fund of $2,038,395, which was partially offset by the government subsidies received in the amounted of $413,422. The total net of other income for the year ended December 31, 2020 was primarily consisted of interest income of $214,460.
Income taxes provision
GIOP was incorporated in the Cayman Islands and under the laws of the Cayman Islands; the Company is not subject to tax on its income or capital gains. In addition, no Cayman Islands withholding tax will be imposed upon the payment of dividends by the Company to its shareholders.
GMB HK and New Energy HK are companies registered in Hong Kong, and are subject to income taxes within Hong Kong at the applicable tax rate on taxable income. From the years of assessment of 2019/2020 onwards, Hong Kong profit tax rates are 8.25% on assessable profits up to HK$2,000,000, (approximately US$257,874), and 16.5% on any part of assessable profits over HK$2,000,000. However, the Company did not have any assessable profits arising in or derived from Hong Kong for the years ended December 31, 2021 and 2020, therefore no provision for Hong Kong profits tax was made in these periods.
The PRC subsidiaries and VIE are subject to the PRC Enterprise Income Tax Laws (“EIT Laws”) with the statutory income tax rate of 25%. SDH obtained its “National High Tech Enterprise” (“NHTE”) certificate on October 25, 2017. SDH has completed the process of renewing the NHTE certificate in the first quarter of 2021. Therefore, SDH is eligible to enjoy a preferential tax rate of 15% from 2017 to 2023 to the extent it has taxable income under the EIT Laws.
On January 17, 2019, the PRC State Taxation Administration issued the notice on the scope of small-scale and low-profit corporate income tax preferential policies of the Ministry of Finance and the State Administration of Taxation, [2019] No. 13. According to which, the taxable income of a small-scale and low-profit enterprise, whose annual taxable income is not more than RMB1,000,000, approximately US$155,003, is reduced by 25% income, which essentially resulted in a favorable income tax rate of 5%. The qualifications of small-scale and low-profit enterprises were examined annually by the Tax Bureau. GMB Consulting was eligible to enjoy a preferential tax rate of 5% from 2018 to 2021.
The PRC income taxes benefit was $236,581 for the year ended December 31, 2021, primarily generated by the annual taxable loss. The income tax provision was $3,054,983 for the year ended December 31, 2020.
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Net (loss) income
As a result of the foregoing, SDH reported a net loss of $8,714,332 for the year ended December 31, 2021, compared to a net income of $11,957,287 for the year ended December 31, 2020.
Net loss attributable to non-controlling interest
Non-controlling interests are recognized to reflect the portion of their equity that is not attributable, directly or indirectly, to the Company as the controlling shareholder. As of December 31, 2021, for the Company’s consolidated subsidiaries, VIE and VIE’ s subsidiaries, non-controlling interests represent: a) a minority shareholder’s 49% ownership interest in Sunrise (Guizhou), GMB (Beijing), GMB Consulting, Nanyu Culture and Jiagui Haifeng; b) a minority shareholder’s 49% ownership interest in GMB Culture, which has a subsidiary called GMB Technology; c) a minority shareholder’s 25% ownership interest in Shidong Cloud, and 40% ownership interest in Shidong Trading. Net loss attributable to non-controlling interest was $311,072 and $130,240 for the years ended December 31, 2021 and 2020, respectively, mainly due to the net loss in GMB (Beijing), GMB Culture and GMB Technology.
Net loss (income) attributable to the Company
Net loss attributable to the Company was $8,403,260 for the year ended December 31, 2021, and net income was $12,087,527 for the year ended December 31, 2020.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Revenue
Revenues for the year ended December 31, 2020 and 2019 were derived from the following sources:
For the year ended December 31, | ||||||||||||||||||||||||
| 2020 | % | 2019 | % | Change | % | |||||||||||||||||||
| Member services | $ | 872,629 | 3.76 | % | $ | 2,525,084 | 14.09 | % | $ | (1,652,455 | ) | (65.44 | )% | |||||||||||
| Enterprise service | ||||||||||||||||||||||||
| -Comprehensive tailored services | 13,345,880 | 57.57 | % | 5,733,342 | 31.98 | % | 7,612,538 | 132.78 | % | |||||||||||||||
| -Sponsorship advertising services | 6,598,527 | 28.47 | % | 8,288,164 | 46.24 | % | (1,689,637 | ) | (20.39 | )% | ||||||||||||||
| -Consulting services | 416,634 | 1.80 | % | 1,189,169 | 6.63 | % | (772,535 | ) | (64.96 | )% | ||||||||||||||
| Online services | 361,933 | 1.56 | % | 66,304 | 0.37 | % | 295,629 | 445.87 | % | |||||||||||||||
| Sales of merchandises | 1,495,365 | 6.45 | % | 9,568 | 0.05 | % | 1,485,797 | 15528.81 | % | |||||||||||||||
| Other services | 90,116 | 0.39 | % | 113,845 | 0.64 | % | (23,729 | ) | (20.84 | )% | ||||||||||||||
| Revenues, net | $ | 23,181,084 | 100.00 | % | $ | 17,925,476 | 100.00 | % | $ | 5,255,608 | 29.32 | % | ||||||||||||
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Revenues increased by $5,255,608, or 29.32%, from $17,925,476 for the year ended December 31, 2019, to $23,181,084 for the year ended December 31, 2020. Revenues from Member services accounted for 3.76% of net revenues in year ended December 31, 2020, as compared to 14.09% in year ended December 31, 2019. Revenue from enterprise services accounted for 87.84% and 84.85% of net revenues for the years ended December 31, 2020 and 2019, respectively. Revenue from sales of merchandises accounted for 6.45% and 0.05% of net revenues for the years ended December 31, 2020 and 2019, respectively. The increase in revenues was primarily attributable to the increase in the revenue generated from comprehensive tailored services, sales of merchandises, and online services and partially offset by the decrease of revenue from sponsorship advertising services, member services and consulting services.
Revenues from member services
SDH offers three tiers of membership services, Platinum, Diamond and Protégé, which differ in membership fees as well as the level of the services provided. Members pay a fixed fee for exchange of the right to participate in seven activities, including study tours and forums, within a typical one-year membership period.
Revenues from member services decreased by $1,652,455, or 65.44%, from $2,525,084 for the year ended December 31, 2019, to $872,629 for the year ended December 31, 2020, primarily due to the fact that SDH put more efforts on the development of enterprise services and paid less attention to retaining existing members and developing new members that resulted in the decrease of the number of Members. There were 69 Platinum members, 54 Diamond members and 11 Protégé member for the year ended December 31, 2020, as compared to 144 Platinum members, 228 Diamond members and 7 Protégé member for the year ended December 31, 2019.
Revenues from comprehensive tailored services
There are four major categories of comprehensive tailored services. The following table presents the type of tailored services as well as their respective prices:
| Type of comprehensive tailored services | Pricing | |
| Conference and salon organization | RMB50,000 (approximately US$7,249) | |
| Booth exhibition services | RMB50,000 (approximately US$7,249) | |
| On-site mentors’ guidance | RMB50,000-100,000 (approximately US$7,249-US$14,498) | |
| Other additional services | RMB10,000-200,000 (approximately US$1,450 -US$28,996) |
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Revenues from comprehensive tailored services increased by $7,612,538, or 132.78%, from $5,733,342 for the year ended December 31, 2019, to $13,345,880 for the year ended December 31, 2020, primarily due to the fact that the demand of comprehensive tailored services among enterprise clients increased, especially mentors’ guidance on coping with challenges from COVID-19 in the year ended December 31, 2020, primarily due to the fact that (a) the demand of comprehensive tailored services among enterprise clients increased; (b) SDH put more efforts into comprehensive tailored services to meet clients’ needs, such as organizing large-scale conferences of hot topics and inviting Mentors and Experts with relevant experiences from specific industries. As a result, SDH entered into 93 contracts with a total amount of $6,152,554 in the fiscal year 2019, of which $5,060,069 was recognized as revenue for in the fiscal year 2019, while SDH signed 85 contracts with a total amount of $13,046,866 in the fiscal year 2020, all of which was recognized as revenue in the fiscal year 2020.
Revenues from sponsorship advertising service
Sponsorship advertising is a special form of advertising, generally referring to a publicity strategy adopted by enterprises in order to enhance their corporate and product image, as well as brand awareness and influence. SDH provides sponsorship advertising services for its enterprise clients at events, such as forums and study tours.
Revenues from sponsorship advertising services decreased by $1,689,637, or 20.39% from $8,288,164 for the year ended December 31, 2019, to $6,598,527 for the year ended December 31, 2020, primarily due to COVID-19 outbreak in early 2020, which prevented offline events from late January 2020 until the restriction was gradually lifted during the second quarter of 2020. There were only 9 offline events held for sponsorship advertising services for the year ended December 31, 2020, while there were 44 activities held for sponsorship advertising services for the year ended December 31, 2019. In addition, offline events held in 2020 were more extensive compared to those held in 2019, which recognized a higher-level amount as revenue par event.
Revenues from consulting services
SDH provides consulting services to small and medium-sized enterprises to develop strategies and solutions for the following: corporate reorganization, product promotion and marketing, industry supply chain integration, corporate governance, financing and capital structure, etc. Revenues from consulting services decreased by $772,535, or 64.96% from $1,189,169 for the year ended December 31, 2019, to $416,634 for the year ended December 31, 2020, primarily due to the fact that small and medium-sized enterprises’ business were adversely affected by COVID-19 and such enterprises have strengthened cost reduction.
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Revenues from online services
SDH provides two types of online services to its APP Users, which are questions and answers (Q&A) session with chosen Mentors or Experts and online streaming of courses and programs. Top-up credits are paid by Users through the Company’s APP, using which Users can purchase the online services.
For the Q&A session, the Company charges 30% of the Q&A fees as a facilitator of online services. The Company recognizes online service fees as revenue at completion of Q&A sessions on a net basis, as the Company merely provides a platform for Users and is not the primary obligor of the Q&A session, neither has risks and rewards as principal. Revenues from Q&A online services were $122,624 and $15,196 for the years ended December 31, 2020 and 2019, respectively, with a significant increase mainly caused by an increase in the numbers of Users.
For the online streaming of courses and programs, Users can either: (1) purchase a la carte courses and programs for unlimited streaming, or (2) subscribe as an annual VIP, which grants Users the access right to the SDH’s VIP courses and programs over the subscription period. Revenues generated from online streaming were $239,309 and $51,108 for the years ended December 31, 2020 and 2019, respectively, as this type of online service started in late 2019.
SDH believe that its knowledge sharing platform is capable of building and maintaining long-term relationships with the Users and SDH expect to improve User retention and daily activity levels on its APP. However, SDH do not expect the online services revenue will become a major revenue stream in the near future.
Revenues from sales of merchandises
SDH started to sell merchandises obtained through nonmonetary transactions with its clients or purchased from third parties at the end of 2019. SDH generated revenue from sales of merchandises of $1,495,365 and $9,568 for the years ended December 31, 2020 and 2019, respectively.
Revenues from other services
Other services fees are mainly derived from non-member participation of the study tours and forums at the service level of Platinum members. SDH charges non-members a fixed fee of RMB3,000 (approximately US$427), for each member activity.
Fees are usually collected on site at the date of each activity and revenues are recognized at the completion of such activity. Other services fees were $90,116, decreased by $23,729, or 20.84% as compared to the year ended December 31, 2019 due to less non-member participation and less availability of the study tours or forums.
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Costs and operating expenses
The following table sets forth the breakdown of costs and operating expenses for the years ended December 31, 2020 and 2019:
| For the years ended December 31, | Change | |||||||||||||||||||||||
| 2020 | % | 2019 | % | Amount | % | |||||||||||||||||||
| Service costs | $ | 2,087,425 | 24.69 | % | $ | 2,109,649 | 29.49 | % | $ | (22,224 | ) | (1.05 | )% | |||||||||||
| Cost of goods sold | 892,791 | 10.56 | % | - | - | 892,791 | 100 | % | ||||||||||||||||
| Selling expenses | 906,456 | 10.72 | % | 1,350,894 | 18.89 | % | (444,438 | ) | (32.90 | )% | ||||||||||||||
| General and administrative expenses | 3,897,040 | 46.09 | % | 2,897,079 | 40.50 | % | 999,961 | 34.52 | % | |||||||||||||||
| Research and development expenses | 671,312 | 7.94 | % | 795,540 | 11.12 | % | (124,228 | ) | (15.62 | )% | ||||||||||||||
| Total costs and operating expenses | 8,455,024 | 100.00 | % | 7,153,162 | 100.00 | % | 1,301,862 | 18.20 | % | |||||||||||||||
Service costs
Service costs primarily include (1) the cost of holding activities, such as venue rental fees, conference equipment fees, (2) professional and consulting fees paid to third parties for the activities; (3) the fees paid to Mentors and Experts; (4) labor costs; and (5) amortization cost of copyright. Service costs decreased by $22,224, or 1.05% for the year ended December 31, 2020 compared to same period in 2019, mainly due to the decrease of $919,581 in consulting service cost paid to third parties for the activities, and decrease of $159,434 in conference cost, which was partially offset by the increase in amortization of copyright of course videos of $920,698 and increase of $120,772 in labor costs for serving the activities. Offline events were not permitted during the outbreak of COVID-19 and SDH cancelled offline activities during the period from late January 2020 until May 2020. In lieu thereof, SDH organized Mentors’ knowledge sharing by video recording. There were only 5 offline activities held for the year ended December 31, 2020, while there were 44 offline activities held for the year ended December 31, 2019. The amortization of copyright of course videos increased due to the fact that they were obtained in late 2019.
Cost of goods sold
SDH started to sell merchandises at the end of 2019 and cost of goods sold were $892,791 and $nil for the years ended December 31, 2020 and 2019, respectively. Cost of goods sold consists of cost of inventories obtained through nonmonetary transactions with its clients and purchased from third parties. Cost of goods sold is recognized when revenue from sales of merchandises is recognized.
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Selling expenses
The selling expenses decreased by $444,438 or 32.90% from $1,350,894 for the year ended December 31, 2019 to $906,456 for the year ended December 31, 2020. The decrease in selling expenses was primarily attributable to a $203,637 decrease in salary and bonus paid to the sales staff for the year ended December 31, 2020 as compared to the same period in 2019, mainly due to less bonus paid to sales staff as SDH had significantly less offline activities for the year ended December 31, 2020 as compared to the same period in 2019.
General and administrative expenses
The general and administrative expenses increased by $999,961 or 34.52%, from $2,897,079 for the year ended December 31, 2019 to $3,897,040 for the year ended December 31, 2020. Such increase was primarily due to an increase in bad debt expenses of $1,360,902, as SDH experienced a slow-down in the collection of accounts receivable resulting from impact from COVID-19 for the year ended December 31, 2020.
Research and development expenses (“R&D expenses”)
Research and development expenses for SDH’s mobile application, the APP, decreased by $124,228 or 15.62% from $795,540 for the year ended December 31, 2019 to $671,312 for the year ended December 31, 2020, primarily due to the fact that SDH implemented department adjustment and optimization among R&D department to meet its Users’ need especially during the outbreak of COVID-19, therefore labor-related expense decreased by $156,550 from $411,359 for the year ended December 31, 2019 to $254,809 for the year ended December 31, 2020. SDH expect research and development expenses to continue to increase in the foreseeable future as SDH will increase the research and development of the APP.
Other income, net
Total net other income increased by $88,655 or 44.88% from $197,555 for the year ended December 31, 2019 to $286,210 for the year ended December 31, 2020. The increase in total net other income was primarily due to the fact that GMB Zibo received government subsidies from government of Zibo City totally amounted to $101,485 for the year ended December 31, 2020.
Income taxes provision
GIOP was incorporated in the Cayman Islands and under the current laws of the Cayman Islands; the Company is not subject to tax on its income or capital gains. In addition, no Cayman Islands withholding tax will be imposed upon the payment of dividends by the Company to its shareholders.
GMB HK is a company registered in Hong Kong, which is subject to income taxes within Hong Kong at the applicable tax rate on taxable income. From year of assessment of 2019/2020 onwards, Hong Kong profit tax rates are 8.25% on assessable profits up to HK$2,000,000, (approximately US$257,874), and 16.5% on any part of assessable profits over HK$2,000,000. However, the Company did not have any assessable profits arising in or derived from Hong Kong for the years ended December 31, 2020 and 2019, therefore no provision for Hong Kong profits tax was made in these periods.
SDH’s PRC subsidiaries in the PRC are subject to the PRC Enterprise Income Tax Laws (“EIT Laws”) with the statutory income tax rate of 25%. SDH obtained its “National High Tech Enterprise” (“NHTE”) certificate on October 25, 2017 and is eligible to enjoy a preferential tax rate of 15% from 2017 to 2023 to the extent it has taxable income under the EIT Laws. SDH has completed the process of renewing the NHTE certificate in the first quarter of 2021. In 2019 and 2020, its PRC subsidiary and VIE’s subsidiaries other than SDH and GMB (Hangzhou) are qualified as small-scale and low-profit enterprises, whose annual taxable income is less than RMB1,000,000 (approximately US$144,978), they were qualified to enjoy a favorable income tax rate of 5%.
Income taxes provision increased by $1,465,882 when comparing year ended December 31, 2020 to 2019, primarily due to increased taxable income for the year ended December 31, 2020.
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Net income
As a result of the foregoing, SDH reported a net income of $11,957,287 for the year ended December 31, 2020, compared to a net income of $9,380,768 for the year ended December 31, 2019.
Net loss attributable to non-controlling interest
Non-controlling interests are recognized to reflect the portion of their equity that is not attributable, directly or indirectly, to the Company as the controlling shareholder. For the Company’s consolidated subsidiaries, VIE and VIE’ s subsidiaries, non-controlling interests represent a minority shareholder’s 49% ownership interest in GMB (Beijing), GMB Culture, which has a majority-owned subsidiary called GMB Technology, GMB Consulting, GMB Linking as of December 31, 2020. Net loss attributable to non-controlling interest was $130,240 and $365,617 for the years ended December 31, 2020 and 2019, respectively.
Net income attributable to the Company
Net income attributable to the Company increased by $2,341,142, or 24.02% from $9,746,385 for the year ended December 31, 2019 to net income $12,087,527 for the year ended December 31, 2020.
Liquidity and Capital Resources
To date, SDH have financed its operations primarily through cash flows from operations, additional capital contributions from shareholders and the initial public offering’s proceeds. SDH plan to support future operations primarily from cash generated from operations.
As of December 31, 2021, SDH’s cash and cash equivalents amounted to $13,916,155 as compared to $10,966,012 and $9,439,106 as of December 31, 2020 and 2019. The accounts receivable from third parties was $6,861,672 as of December 31, 2021, as compared to $12,218,473 as of December 31, 2020. SDH’s deferred revenue amounted to $179,407 as of December 31, 2021, which is mainly derived from member services and comprehensive tailored services, such amounts will be recognized as revenue as its services were gradually provided, and significantly enhanced the working capital.
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SDH incurred losses from operations of $8,714,332 and had a negative cash flow from operating activities of $5,233,182 for the year ended December 31, 2021. These conditions may raise substantial doubt about its ability to continue as a going concern.
For the next 12 months from the issuance date of this report, SDH plans to implement various measures to boost revenue and control the cost and expenses. Such measures include: 1) improve the profitability of the business; 2) strictly control and reduce general and administrative expenses; and 3) seek for certain credit facilities. As of December 31, 2021, the working capital of SDH was $32,624,676.
SDH believe the above measures in the plans and its working capital as of December 31, 2021 will be adequate to meet the operation requirement in the next 12 months from the audited financial statements issuance date.
If SDH experience an adverse operating environment or incurred unanticipated capital expenditure requirements, or if SDH accelerate its growth, then additional financing may be required. No assurance can be given, however, that additional financing, if required, would be on favorable terms or available at all. Such financing may include the use of additional debt or the sale of additional equity securities. Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant dilutions to the existing shareholders.
Substantially all of SDH’s operations are conducted in the PRC and all of the revenues and the vast majority of expenses, cash and cash equivalents are denominated in RMB. As of December 31, 2021, 79.90% of cash and cash equivalents were held in China, and held by its VIE and VIE’s subsidiaries and denominated in Renminbi, while 20.10% of cash and cash equivalents were held in Hong Kong, and held by GIOP and GMB HK and denominated in US dollars. Although SDH consolidate the results of the VIE and its subsidiaries, SDH only have access to the assets or earnings of the VIE and their subsidiaries through the contractual arrangements with the VIE and its shareholders. See “Business — Contractual Arrangements between WFOE, SDH and Its Shareholders.”
A majority of the future revenues are likely to continue to be in the form of Renminbi. Under existing PRC foreign exchange regulations, Renminbi may be converted into foreign exchange for current account items, including profit distributions, interest payments and trade-and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, PRC subsidiaries are allowed to pay dividends in foreign currencies to the Company without prior SAFE approval by following certain routine procedural requirements. However, approval from or registration with competent government authorities is required where the Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future.
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As of December 31, 2021, the following were outstanding balances of cash and cash equivalents and short-term investments in each jurisdiction:
| Cash and cash equivalents | Short-term investments | Total | ||||||||||
| PRC | $ | 11,119,460 | $ | - | $ | 11,119,460 | ||||||
| Hong Kong | 2,012,519 | - | 2,012,519 | |||||||||
| Cayman Islands | 784,176 | 5,961,605 | 6,745,781 | |||||||||
| Total | $ | 13,916,155 | $ | 5,961,605 | $ | 19,877,760 | ||||||
Cash Flows
The following table sets forth a summary of cash flows for the periods indicated:
| For the years ended December 31, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Net cash (used in) provided by operating activities | $ | (5,233,182 | ) | $ | 7,066,163 | $ | 1,236,071 | |||||
| Net cash used in investing activities | (22,095,198 | ) | (6,365,555 | ) | (3,525,061 | ) | ||||||
| Net cash provided by financing activities | 30,837,261 | 119,996 | 238,128 | |||||||||
| Effect of foreign exchange rate on cash and cash equivalents | 141,322 | 706,302 | (168,316 | ) | ||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 3,650,203 | $ | 1,526,906 | $ | (2,219,178 | ) | |||||
Operating Activities
Net cash used in operating activities amounted to $5,233,182 for the year ended December 31, 2021. It was primarily due to a) a net loss of $8,714,332, adjusted by depreciation and amortization of $988,672, deferred tax benefits of $232,363, investment losses of $2,118,453, bad debt expense of $3,847,426 and amortization of operating lease right-of-use asset of $90,320; b) decrease in income tax payable of $3,696,654 due to the payment of income tax; c) increase in prepaid expenses and other current assets of $678,288 due to increase of prepayment for service fee of $1,054,240; d) increase of inventories of $331,491 and right-of-use asset of $211,213; e) and partially offset by decrease in accounts receivable of $1,729,006.
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Net cash provided by operating activities amounted to $7,066,163 for the year ended December 31, 2020. It was primarily due to a) a net income of $11,957,287, adjusted by depreciation and amortization of $865,426, investment losses of $1,087, bad debt expense of $1,514,559 and amortization of operating lease right-of-use asset of $359,551; b) increase in income taxes payable of $2,565,098 due to the increased taxable income for the year ended December 31, 2020; c) increase in accrued expenses and other current liabilities of $852,731 because of the IPO efforts and the expansion of the business for the year ended December 31, 2020; d) increase in inventories of $667,758 due to purchase from third parties; and partially offset by a) increase in accounts receivable of $8,385,804 because of the expansion of the business in the fiscal year 2020; b) decrease in deferred revenue of $322,534 because SDH received services fees in the fiscal year 2019 from customers for member services and comprehensive tailored services and other services have been rendered in the year ended December 31, 2020; c) increase in prepaid expenses and other current assets of $447,421.
Net cash provided by operating activities amounted to $1,236,071 for the year ended December 31, 2019. It was primarily due to a) a net income of $9,380,768, adjusted by depreciation and amortization of $167,876, investment losses of $23,799, bad debt expense of $151,246 and amortization of operating lease right-of-use asset of $328,289; b) increase in income taxes payable of $1,233,231 due to the increased taxable income for the year ended December 31, 2019; c) decrease in due from related parties of $708,988; d) increase in accrued expenses and other current liabilities of $669,873 because of the IPO efforts and the expansion of the business for the year ended December 31, 2019, and partially offset by a) increase in accounts receivable of $7,392,412 because of the expansion of the business in the fiscal year 2019; b) decrease in deferred revenue of $1,554,399 because SDH received services fees in the fiscal year 2018 from customers for member services and comprehensive tailored services and other services have been rendered in the year ended December 31, 2019; c) increase in prepaid expenses and other current assets of $1,051,597; d) increase in inventories of $823,817 due to purchase from third parties; e) net decrease in operating lease liabilities of $409,739.
Investing Activities
Net cash used in investing activities amounted to $22,095,198 for the year ended December 31, 2021. It was primarily due to a) prepayment for land use right, construction and equipment of $8,244,917; b) purchase of short-term investments of $8,000,000; c) interest-bearing loans to third party of 2,825,359; d) and purchase of long-term investments of $2,289,945.
Net cash used in investing activities amounted to $6,365,555 for the year ended December 31, 2020. It was primarily due to purchase of property of $1,723,543, purchase of intangible asset of $2,735,433, and purchase of long-term investments of $1,678,514.
Net cash used in investing activities amounted to $3,525,061 for the year ended December 31, 2019. It was primarily due to prepayments for property of $1,204,094, purchase of intangible asset of $2,188,061, and purchase of long-term investments of $184,098.
Financing Activities
Net cash provided by financing activities amounted to $30,837,261 for the year ended December 31, 2021, representing issuance of ordinary shares in connection with IPO, net of issuance cost of $27,504,639 and capital contributions from the non-controlling shareholders of $3,332,622.
Net cash provided by financing activities amounted to $119,996 for the year ended December 31, 2020, representing capital contributions from the controlling shareholders.
Net cash provided by financing activities amounted to $238,128 for the year ended December 31, 2019, representing capital contributions from the non-controlling shareholders.
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Trend Information
Other than as disclosed elsewhere in this annual report, SDH are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on net revenues, incomes from operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements as of December 31, 2021.
Contingencies
The Company may be involved in various legal proceedings, claims and other disputes arising from the commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of operations or liquidity. As of December 31, 2021, the Company was not aware of any litigations or lawsuits against them.
Contractual Obligations
As of December 31, 2021, except for operating lease obligations, the Company had no other contractual obligations.
The Company’s known contractual obligations as of December 31, 2021 were as follows:
| Payments due by period | ||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
| Contractual Obligations | ||||||||||||||||||||
| Operating Lease Obligations | $ | 103,408 | 103,408 | - | - | - | ||||||||||||||
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Inflation
Inflation does not materially affect the Company’s business or the results of its operations.
Seasonality
The nature of the Company’s business does not appear to be affected by seasonal variations.
Critical Accounting Policies and Management Estimates
The Company prepares the consolidated financial statements in accordance with U.S. GAAP. These accounting principles require the Company to make judgments, estimates and assumptions on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses during each fiscal period. The Company continually evaluate these judgments and estimates based on the own historical experience, knowledge and assessment of current business and other conditions, the expectations regarding the future based on available information and assumptions that the Company believe to be reasonable.
The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing the Company’s financial statements. The Company believes the following accounting policies involve the most significant judgments and estimates used in the preparation of its consolidated financial statements.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and judgments are based on historical information, information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Significant estimates required to be made by management, include, but are not limited to, the assessment of the allowance for doubtful accounts, depreciable lives of property and equipment, and realization of deferred tax assets. Actual results could differ from those estimates.
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Fair value measurements
The Company follows the provisions of ASC 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash, accounts receivable, due from related parties, short-term investments, prepaid expenses and other current assets, deferred revenue, income taxes payable, accounts payable, due to related parties, accrued expenses and other current liabilities approximate their fair value based on the short-term maturity of these instruments. The Company reports short-term investments at fair value and discloses the fair value of these investments based on level 2. The update does not have a significant impact on the Company’s consolidated Financial Statements.
The Company’s non-financial assets, such as property and equipment would be measured at fair value only if they were determined to be impaired.
Short-term investment
Short term investments consist of trading securities. The Company’s trading securities consist of the investment in the trust fund. The trading securities are classified as short-term investments on the consolidated balance sheets; the purpose to held the trading securities is for selling them in the near term and generating profits on short-term differences in price.
Investments classified as trading securities are carried at their fair values and the unrealized holding gains or losses from the changes in fair values are included in earnings.
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Accounts receivable, net
Accounts receivable mainly represent amounts due from clients in the ordinary course of business and are recorded net of allowance for doubtful accounts.
The Company mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and recorded based on management’s assessment of historical bad debts, creditworthiness and financial conditions of the clients, current economic trends and changes in client payment patterns. Past due accounts are generally written off against the allowance for bad debts only after all collection attempts have been exhausted and the potential for recovery is considered remote. The allowance was $ $5,744,387, $1,808,889 and $194,375 as of December 31, 2021, 2020 and 2019, respectively.
Inventories
The inventories as of December 31, 2021 and December 31, 2020 consisting of health service gift cards, learning course gift cards, Chinese tea, latex pillows and health care products, all of which are products available for sale, and are stated at the lower of cost and net realizable value.
Part of the Company’s inventories is obtained through nonmonetary transactions with its customers, which are entered into at the Company’s discretion to receive inventory in exchange of collection of account receivables due from the customers. The Company accounts for these nonmonetary exchanges based on the fair values of the assets involved. The cost of inventories acquired in exchange is initially measured at the fair value of the accounts receivable the Company surrendered to obtain them.
A valuation allowance is recorded to write down the cost of inventories to the estimated net realizable value, if lower, due to slow-moving or damaged products, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment. Net realizable value is determined by the estimated selling prices offset by estimated additional cost of goods sold, selling expenses and business taxes. There was no valuation allowance provided for the inventory for the year ended December 31, 2021, 2020 and 2019.
Lease
On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02 (FASB ASC Topic 842). The adoption of Topic 842 resulted in the presentation of operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheet. See Note 10 for additional information.
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange of a consideration. To assess whether a contract is or contains a lease, the Company assess whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all the economic benefits from the use of the asset and whether it has the right to control the use of the asset.
The right-of-use assets and related lease liabilities are recognized at the lease commencement date. The Company recognizes operating lease expenses on a straight-line basis over the lease term.
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Operating lease right-of-use of assets
The right-of-use of asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and less any lease incentive received.
Operating lease liabilities
Lease liability is initially measured at the present value of the outstanding lease payments at the commencement date, discounted using the Company incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise fixed lease payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee and any exercise price under a purchase option that the Company is reasonably certain to exercise.
Lease liability is measured at amortized cost using the effective interest rate method. It is remeasured when there is a change in future lease payments, if there is a change in the estimate of the amount expected to be payable under a residual value guarantee, or if there is any change in the Company assessment of option purchases, contract extensions or termination options.
Short-term leases and leases of low value assets
The Company has elected to not recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low value assets. Lease payments associated with these leases are expensed as incurred.
Property and equipment, net
Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is provided using the straight-line method over their expected useful lives, as follows:
| Electronic equipment | 3 years | |
| Furniture, fixtures and equipment | 3 years | |
| Vehicle | 3 years | |
| Office buildings | 30 years | |
| Leasehold improvement | The shorter of useful life and lease term |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of Operation and Comprehensive Income in other income or expenses.
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Intangible assets, net
The Company’s intangible assets represent the copyright of course videos purchased from a third party, including but not limited to course videos which cover subjects such as entrepreneurship development, financial service, corporate governance, team management, marketing strategy, etc. Intangible assets are stated at cost less accumulated amortization and amortized on a straight-line basis over their estimated useful lives. The estimated useful lives of intangible assets are determined to be 5 to 10 years in accordance with the period the Company estimates to generate economic benefits from such copyright.
Long-term investments
Equity method investments in investees represent the Company’s investments in privately held companies, over which it has significant influence but does not own a majority equity interest or otherwise control. The Company applies the equity method to account for an equity investment, in common stock or in-substance common stock, according to ASC 323 “Investment — Equity Method and Joint Ventures”.
An investment in in-substance common stock is an investment in an entity that has risk and reward characteristics that are substantially similar to that entity’s common stock. The Company considers subordination, risks and rewards of ownership and obligation to transfer value when determining whether an investment in an entity is substantially similar to an investment in that entity’s common stock.
Under the equity method, the Company’s share of the post-acquisition profits or losses of the equity investee is recognized in the consolidated income statements and its share of post-acquisition movements in accumulated other comprehensive income is recognized in shareholders’ equity. When the Company’s share of losses in the equity investee equals or exceeds its interest in the equity investee, the Company does not recognize further losses, unless the Company has incurred obligations or made payments or guarantees on behalf of the equity investee. Investment loss for long-term investments of $41,925, $1,087 and $23,799 were recorded in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019, respectively.
For other equity investments that do not have readily determinable fair values and over which the Company has neither significant influence nor control through investments in common stock or in-substance common stock, the Company accounts for these investments at cost minus any impairment, if necessary.
The Company continually reviews its investments in equity investees to determine whether a decline in fair value below the carrying value is other than temporary. The primary factors the Company considers in its determination are the length of time that the fair value of the investment is below the Company’s carrying value; the financial condition, operating performance and the prospects of the equity investee. If the decline in fair value is deemed to be other than temporary, the carrying value of the equity investee is written down to fair value. No impairment charges were recorded in investment losses in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019.
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Impairment of long-lived assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Company would recognize an impairment loss, which is the excess of carrying amount over the fair value of the assets, using the expected future discounted cash flows. No impairments of long-lived assets were recognized as of December 31, 2021 and 2020.
Revenue recognition
The Company early adopted the new revenue standard Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, starting January 1, 2017 using the modified retrospective method for contracts that were not completed as of January 1, 2017. The adoption of this ASC 606 did not have a material impact on the Company’s consolidated financial statements.
The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the company satisfies a performance obligation
The Company mainly offers and generates revenue from four kinds of services to its clients in China, member services, enterprise services, online services and other services. Enterprise services include comprehensive tailored services, sponsorship advertising services, and consulting services.
Revenue recognition policies for each type of the Company’s services are discussed as follows:
Member services
The Company offers three tiers of membership services, Platinum, Diamond and Protégé, which differ in membership fees as well as the level of the services provided. Members pay a fixed fee for exchange of the right to participate in organized activities offered by the Company, such as study tours and forums, typically within one-year membership period. Any non-participating activities will expire and not be refunded beyond the agreed-upon period. Each Member is entitled to choose from same activities offered by the Company for a total of seven times but different level of membership will receive different level of privileges at each activity, such as seating arrangement or private consultation opportunity etc.. The activities for Platinum Members are also open to non-members, who pay a pre-set fee for participating in a single activity, while the Company does not offer Diamond and Protégé services to non-members separately.
Each activity represents a separate performance obligation, which is typically 5 days or less. The Company uses an expected cost plus margin approach to estimate the standalone selling prices of each activity. As Members can benefit from each activity on their own in the same way and there is no material difference in the Company’s delivering costs, such as number of staffs involved and size of each activity. Therefore, membership fees are equally allocated to seven performance obligations when the Company determines transaction price of each performance obligation.
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The Company recognizes membership fees as revenue upon completion of each activity as the duration of each activity is short. Membership fees from non-participating activity will be recognized when the agreed-upon period has expired. Membership fees collected in advance are recorded as deferred revenue on the consolidated balance sheets.
Enterprise services
The Company charges its clients service fees for providing enterprise services, which mainly include comprehensive tailored services, sponsorship advertising services and consulting services.
Comprehensive tailored services
The comprehensive tailored services provide tailored packaged services to small and medium business, including conference and salon organization, booth exhibition services, on-site Mentors’ guidance, and other value-added services. The Company typically signs one-year framework agreements and a tailored services contract with the clients, which list the types of tailored services as ordered by the clients to fit their specific needs. Each tailored service is a separate performance obligation under ASC 606, as these performance obligations are distinct, the clients can benefit from each service on their own and the Company’s promises to deliver the services are separately identifiable from each other in the services contract. The performance of each tailored service is usually on a specific date designated by the clients.
The Company establishes a uniform list for the unit price of each type of tailored services with reference to quoted market prices. If no quoted market price is available, the price will be estimated by using an expected cost plus a margin approach.
The Company recognizes the price for each tailored service as revenue when the service has been provided on a specific date designated and the receipt of each tailored services is confirmed by the clients. If a client does not request certain items of the tailored services included in the services contract during the agreed-upon period, the Company will not refund the service fees and the revenue will be recognized upon expiration of service contracts. The tailored services fees collected before providing services are recorded as deferred revenue on the consolidated balance sheets.
Sponsorship advertising service
The Company provides sponsorship advertising service for its clients at certain activities it held, i.e. study tours and forums. The sponsorship advertising services are mainly to display banners with the clients’ information and distribute clients’ brochures through the activities, so that the clients can enhance their corporate and product image.
The fee the Company charges for sponsorship advertising service is depending on multiple specific factors, including number of event participants, location, public interest, etc. The Company considers all factors and determines pricing for each contract separately. The sponsorship advertising fees are recognized as revenue when services have been provided on a specific date designated and receipt of sponsorship advertising services are confirmed by clients. Sponsorship advertising fees collected before providing services are recorded as deferred revenue on the consolidated balance sheets.
Consulting services
The Company provides consulting services to small and medium-sized enterprises by helping them to develop strategies and solutions including: corporate reorganization, product promotion and marketing, industry supply chain integration, corporate governance, financing and capital structure, etc. The consulting services are tailored to meet each client’s specific needs and requirements.
Consulting fees are based on the specifics of the services provided, for instance, time and efforts required, relationship between the Company and the client, etc. The Company considers comprehensive factors and determines prices with reference to quoted market prices. If no quoted market price is available, price will be estimated by using an expected cost plus a margin approach.
Consulting fees are recognized as revenue when services have been provided and receipt of consulting services is confirmed by clients as the duration of services is short, typically one month or less. Consulting fees collected before providing any service are presented as deferred revenue on the consolidated balance sheets.
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Online services
The Company provides two types of online services to the Company’s APP Users, which are questions and answers (Q&A) session with chosen Mentors and online streaming of courses and programs. Top-up credits are paid by Users through the Company’s APP platform, using which Users can purchase the online services.
Users can raise questions to chosen Mentors or Experts with a fixed fee per Q&A session preset by Mentors or Experts. The Q&A session is usually provided by chosen Mentors or Experts within a course of a 72-hour period. The Company charges 30% of the Q&A fees as a facilitator of online services. The Q&A fees are allocated to the Company and chosen Mentors or Experts automatically by the APP on a 30%/70% split upon completion of Q&A sessions. The Company recognizes this online service fees as revenue at completion of Q&A sessions on a net basis, i.e., in the amount of 30% of allocated Q&A fees, as the Company merely provides a platform for its Users and is not the primary obligor of the Q&A session, neither has risks and rewards as principal.
Prior to 2019, most of the Company’s online content was free for User to enjoy because the Company mainly focused on growing the online knowledge sharing community. In November 2019, the Company started to implement a new fee structure for the Company’s online content, which grants Users the access to view various online courses and programs. Users can subscribe an annual VIP at a rate of RMB299. The VIP grants Users the access right to the Company’s VIP courses and programs over the subscription period. The Company recognizes the VIP annual subscription fees as revenue on a straight-line basis over VIP subscription period. Users can also purchase a la carte courses and programs at a rate from RMB 9.9 to 299 per course or program by top-up credits through the Company’s APP platform. The payment for a la carte course and program is not refundable. After the payment is collected by the Company, the Users obtain unlimited access to the courses and programs they purchased for without limitation. The Company recognizes the fees a la carte courses and programs as revenue at the point of time that Users obtain the access to the courses and programs.
Sales of merchandises
The Company started to sell merchandises since the end of 2019. The merchandises are obtained through nonmonetary transactions with its customers, which are entered into at the Company’s discretion to receive inventory in exchange of collection of account receivables due from the customers or purchased from third parties. The revenue from sales of merchandises are recognized at the amount to which it expects to be entitled on a gross basis at the point of time when clients obtain the control of the merchandises.
Other services
Other services fees are mainly derived from non-member participation of study tours and forums at the service level of Platinum Members. The Company charges non-members a fixed fee for each Member activity and the price for non-members is determined based on the allocated Member pricing for each activity. Fees are usually collected on site at the date of each activity and revenues are recognized at the completion of such activity.
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Service costs
Service costs primarily include (1) the cost of holding activity, such as venue rental fees, conference equipment fees, (2) professional and consulting fees paid to third parties for the Company’s activity; (3) the fees paid to Mentors and Experts; (4) labor costs; and (5) amortization cost of copyright.
Income taxes
The Company accounts for income taxes under ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures.
The Company believes there were no uncertain tax positions at December 31, 2020 and 2019. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months. The Company is not currently under examination by an income tax authority, nor has been notified that an examination is contemplated.
Recently issued accounting pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. The Company is an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGC can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses”, which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Further, the FASB issued ASU No. 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2020-02 to provide additional guidance on the credit losses standard. For all other entities, the amendments for ASU 2016-13 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. Adoption of the ASUs is on a modified retrospective basis. The Company will adopt ASU 2016-13 from January 1, 2023. The Company is in the process of evaluating the effect of the adoption of this ASU.
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Executive Officers
The following table sets forth information regarding our directors and executive officers as of the date of this annual report.
| Directors and Executive Officers | Age | Position/Title | ||
| Haiping Hu | 54 | Chief Executive Officer (“CEO”), Chairman of the Board of Director | ||
| Chao Liu | 41 | Chief Financial Officer (“CFO”) | ||
| Chenming Qi | 51 | Chief Operating Officer (“COO”) | ||
| Haiwei Zuo | 39 | Director | ||
| Ligang Lu | 53 | Independent Director | ||
| Xiang Luo | 52 | Independent Director | ||
| Allen J. Morrison | 63 | Independent Director |
Mr. Haiping Hu has been our CEO and Chairman since February 2019, and he has served as CEO and Chairman of SDH since December 2014. From August 2004 to January 2018, he was CEO and Vice Chairman of Shanshan Holdings Co., Ltd, which is mainly engaged in the production of lithium-ion battery parts, such as lithium-ion capacitors, battery pack, and charging pile, and providing new energy services such as new energy vehicle operation and energy management services, etc. From January 1996 to July 2004, he served as Vice President of Shanshan Group Co., Ltd. Since 2002, Shanshan Holdings Co., Ltd. has ranked among the top 500 Chinese companies in successive years. Mr. Hu holds a bachelor’s degree in Chemical Automation and a master’s degree in Chemical Engineering from Zhejiang University. Nicknamed “General Hu Haiping on Horseback,” Mr. Hu has more than 20 years of experience as founder and executive, and is a well-known entrepreneur in China.
Ms. Chao Liu has served as our CFO since February 2019, and as the CFO of SDH since January 2016. From June 2012 to June 2015, she was the head of the accounting department of Beijing Meanfang Institute of Physics and Technology, which is engaged in manufacturing gas instruments that are widely used in petrochemical, cement, chemical fertilizer, agriculture, military, medical, environmental protection, scientific research and other fields, Beijing Meanfang Spectrum Technology Co., Ltd., which is engaged in manufacturing and selling spectrum instruments, and Beijing Zhongchuang Technology Co., Ltd., which is engaged in providing interactive marketing technology solutions for brand customers and advertising agents. From May 2008 to December 2015, she was the comptroller of Beijing Hongri Dongsheng Decoration Co., Ltd., which provides decoration services to customers and Beijing Sunshine Season Network Technology Company, which provides network maintenance services to its customers. From November 2003 to November 2014, she served as supervisor of the accounting department of Beijing Haixinyuan Food Co., Ltd. which is engaged in the manufacture and sale of cold candies, pastries and cold drinks and Beijing Haixinyuan Guest House Co., Ltd., which provides hoteling services to its customers. Ms. Liu studied finance at Beijing Language and Culture University and graduated in January 2016. She has a strong understanding of international accounting and tax policies.
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Mr. Chenming Qi has served as our COO since February 2019, and as the COO and director of SDH since July 2017. From May 2014 to June 2017, Mr. Qi served as the Vice President of the sales division of 360 Enterprise Security Group, which specializes in providing enterprise-level network security technologies, products and services to government, enterprises, education, finance and other institutions and organizations. He co-founded Netgod Information Technology (Beijing) Co., Ltd, which is engaged in enterprise-level network security technologies, products and services in 2006, and served as a vice president of operations from June 2006 to May 2017. He served as the deputy general manager of Lenovo Information Security Division from April 2004 to June 2006. From March 2002 to March 2004, he was the sales director of Hampoo (China) Management Consulting Company, which is engaged in management consulting, IT planning, information implementation, etc. Mr. Qi graduated from Tianjin University with a master’s degree in Precision Instrument Engineering in March 1996. We believe that Mr. Qi, with over twenty years of experience in team building and enterprise management, is qualified to serve as our COO.
Mr. Haiwei Zuo has served as our director since February 2019, and as Vice Chairman of SDH since December 2014. From September 2013 to December 2014, he served as the Dean of Beijing Huatai Weiye Management Science and Technology Research Institute. From March 2009 to September 2013, he served as the CEO of Beijing Naked in Frontier Cultural Exchange Co., Ltd., which is engaged in producing TV program content that is in category of business and financial management. He studied business administration at the China Agricultural University and graduated in July 2019.
Mr. Xiang Luo was appointed as our director on March 11, 2022. Mr. Luo holds a PhD in Business Administration from Bulacan State University in Philippines, and has over twenty years of experience working at various senior positions at the United Nations and other international organizations, including the International Economic Development Council. Since June 2020, Mr. Luo has served as the co-chair of Global Steering Committee of Carbon Neutral Action (GSCCNA), an international non-governmental organization that provides strategic advice on special purpose financing, green technical and systematic solutions to achieving the Sustainable Development Goals (SDG) under the United Nations’ sustainable development agenda and climate change planning. From November 2014 to December 2019, Mr. Lou served as the head of the China Office of the United Nations Office for Project Services (UNOPS), responsible for the overall coordination of strategic planning, project financing and management, team capacity building, public advocacy, risk management and performance evaluation, of various projects.
Dr. Allen J. Morrison was appointed as our director upon the closing of our IPO. Dr. Morrison has served as a professor of global management at the Thunderbird School at Arizona State University, in Phoenix, AZ, since January 1, 2015. While at Thunderbird, Dr. Morrison served as the school’s CEO and Director General until June 30, 2018. Prior to his position at Thunderbird, Dr. Morrison was a professor at the International Institute for Management Development (IMD) in Lausanne, Switzerland from July 2012 to December 2014. While at IMD, he served as the Kristian Gerhard Jebsen Chair of Responsible Leadership and Director of the IMD Global CEO Center. In addition, Dr. Morrison served as professor at a number of business schools, including INSEAD in Singapore and the U.S.A. from July 2008 to July 2012, IMD in Lausanne, Switzerland from July 2004 to June 2008, the Richard Ivey School of Business in London, Ontario from July 1998 to June 2004, and as a visiting professor at the University of California, Los Angeles (UCLA) in 1998 and the China European International Business School in Shanghai, China in 1998. Dr. Morrison has held additional administrative positions including Director of Executive Development at INSEAD (North America), and Associate Dean at the Ivey Business School. Dr. Morrison graduated with a Doctor of Philosophy degree from the University of South Carolina, in 1989, a Master of Business Administration (MBA) degree from the Richard Ivey Business School, University of Western Ontario, London, Ontario in 1985, and a Bachelor of Arts, Cum Laude (International Relations), from Brigham Young University, Utah in 1983. Dr. Morrison is the author/co-author of 12 business management and corporate governance books published from 1990 to 2020. He is also a frequent contributor of business management articles to journals such as Harvard Business Review, Strategic Management Journal, Asia Pacific Business Review, and Sloan Management Review.
Mr. Ligang Lu was appointed as our director upon the closing of our IPO. Since January 2011, Mr. Lu has been the auditor director and group supervisor of Shanshan Holdings Co. Ltd. which is mainly engaged in the production of lithium-ion battery parts, such as lithium-ion capacitors, battery pack, and charging pile, and providing new energy services such as new energy vehicle operation and energy management services, etc. From January 2003 to January 2011, he held several positions at Hebei Hualong Riqing Noodle Industry Group Co., Ltd., which is mainly engaged in noodle manufacturing, including audit manage and chief financial officer. From September 1990 to January 2003, he was the audit office director of Sinosteel Xingji Group, which is engaged in steel productions, sales, distributions related services. Mr. Lu holds a bachelor’s degree in Financial Auditing and Accounting from Hebei University of Economics and Business (formerly Hebei University of Finance and Economics). In May 2001, Mr. Lu was certified as senior auditor and accountant by China Human Resources Bureau of Hebei Province, and became a Certified Internal Auditor (“CIA”) by International Registered Institute of Internal Auditors (USA).
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B. Compensation of Directors and Executive Officers
The following table sets forth certain information with respect to compensation for the year ended December 31, 2021, earned by or paid to our chief executive officers.
Summary Compensation Table
| Name and Principal Position | Year | Salary (US$) | Bonus | Stock Awards | Option | Non-Equity | Deferred | Other | Total | ||||||||||||||||||||||||||
| Haiping Hu | 2021 | 47276 | 47276 | ||||||||||||||||||||||||||||||||
| CEO of the Company and SDH | |||||||||||||||||||||||||||||||||||
| Chao Liu | 2021 | 34628 | 34628 | ||||||||||||||||||||||||||||||||
| CFO of the Company and SDH | |||||||||||||||||||||||||||||||||||
| Chenming Qi | 2021 | 26087 | 26087 | ||||||||||||||||||||||||||||||||
| COO of the Company and SDH | |||||||||||||||||||||||||||||||||||
For the year ended December 31, 2021, SDH paid the above compensations to our executive officers.
Agreements with Named Executive Officers
We enter into employment agreements with our executive officers. Pursuant to employment agreements, we agree to employ each of our executive officers for a specified time period, which will be renewed upon both parties’ agreement thirty days before the end of the current employment term. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, including but not limited to the commitments of any serious or persistent breach or non-observance of the terms and conditions of the employment, conviction of a criminal offense, willful disobedience of a lawful and reasonable order, fraud or dishonesty, receipt of bribery, or severe neglect of his or her duties. An executive officer may terminate his or her employment at any time with a two-month prior written notice. Each executive officer has agreed to hold, both during and after the employment agreement expires, in strict confidence and not to use or disclose to any person, corporation or other entity without written consent, any confidential information.
Compensation of Directors
For the fiscal year 2021, we compensated our directors for their services in the aggregated amount of $103,395.
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C. Board Practices
Board of Directors
Our board of directors consists of five directors.
Duties of Directors
Under Cayman Islands law, our directors owe fiduciary duties at common law, including, but not limited to a duty to act honestly, in good faith and with a view to our best interests. When exercising powers or performing duties as a director, our directors also have a duty to exercise the care, diligence and skills that a reasonable director would exercise in comparable circumstances, taking into account, without limitation, the nature of the company, the nature of the decision, the position of the director and the nature of the responsibilities undertaken by him. In exercising the powers of a director, our directors must exercise their powers for a proper purpose and shall not act or agree to the company acting in a manner that contravenes our amended and restated memorandum and articles of association or the Companies Act (2021 Revision) of the Cayman Islands.
Generally, we have the right to seek damages if a duty owed by our directors is breached.
The functions and powers of our board of directors include, among others:
| ● | appointing officers and determining the term of office of the officers; |
| ● | exercising the borrowing powers of the company and mortgaging the property of the company; and |
Terms of Directors and Executive Officers
Each of our directors holds office until a successor has been duly elected and qualified unless the director was appointed by the board of directors, in which case such director holds office until the next following annual meeting of shareholders at which time such director is eligible for reelection. All of our executive officers are appointed by and serve at the discretion of our board of directors.
Qualification
There is currently no shareholding qualification for directors.
Insider Participation Concerning Executive Compensation
Our board of directors, which was comprised of five directors, with the assistance of the Compensation Committee, makes all determinations regarding executive officer compensation.
Committees of the Board of Directors
We have established three committees under the board of directors: the audit committee, the compensation committee and the corporate governance and nominating committee, and adopt a charter for each of the committees. Each committee’s members and functions are described below.
Audit Committee. Our audit committee, formed upon the closing of our IPO, consists of Mr. Ligang Lu, Mr. Xiang Luo and Mr. Allen J. Morrison, with Mr. Ligang Lu serving as the chairman of our audit committee. We have determined that Mr. Ligang Lu, Mr. Xiang Luo and Mr. Allen J. Morrison satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Securities Exchange Act. Prior to our IPO, our board also determined that Ligang Lu qualifies as an audit committee financial expert within the meaning of the SEC rules or possesses financial sophistication within the meaning of the Nasdaq Listing Rules. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:
| ● | selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; |
| ● | reviewing with the independent auditors any audit problems or difficulties and management’s response; |
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| ● | reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; |
| ● | discussing the annual audited financial statements with management and the independent auditors; |
| ● | reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; |
| ● | annually reviewing and reassessing the adequacy of our audit committee charter; |
| ● | such other matters that are specifically delegated to our audit committee by our board of directors from time to time; |
| ● | meeting separately and periodically with management and the independent auditors; and |
| ● | reporting regularly to the full board of directors. |
Compensation Committee. Our compensation committee, formed upon the closing of our IPO, consists of Mr. Xiang Luo, Mr. Ligang Lu and Mr. Allen J. Morrison. Mr. Ligang Lu is the chairman of our compensation committee. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:
| ● | reviewing and recommending to the board with respect to the total compensation package for our chief executive officer; |
| ● | approving and overseeing the total compensation package for our executives other than the chief executive officer; |
| ● | reviewing and making recommendations to the board with respect to the compensation of our directors; and |
| ● | reviewing periodically and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans. |
Corporate Governance and Nominating Committee. Our corporate governance and nominating committee, formed upon the closing of our IPO, consists of Mr. Ligang Lu and Mr. Allen J. Morrison. Mr. Xiang Luo is the chairman of our corporate governance and nominating committee. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:
| ● | identifying and recommending to the board nominees for election or re-election to the board, or for appointment to fill any vacancy; |
| ● | reviewing annually with the board the current composition of the board in light of the characteristics of independence, skills, experience and availability of service to us; |
| ● | identifying and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as the corporate governance and nominating committee itself; |
| ● | advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any corrective action to be taken; and |
| ● | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
D. Employees
We had a total of 106, 134, and 96 full-time employees as of December 31, 2019, 2020 and 2021, respectively. As of March 31, 2022, we had 78 full-time employees. We had 40, 9, 21 and 8 employees located in Shanghai, Beijing, Hangzhou, and Zibo, respectively. The following table sets forth the numbers of our employees by areas of business as of March 31, 2022:
| Department | Number of Employees | |||
| Senior Management | 5 | |||
| Human Resources & Administration | 11 | |||
| Sales & Marketing | 25 | |||
| Business & Consulting | 1 | |||
| Customer Service | 5 | |||
| Information Technology | 7 | |||
| Research & Development | 13 | |||
| Finance | 11 | |||
| Total | 78 | |||
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Generally, we enter into standard employment contracts with our officers, managers, and other employees. According to these contracts, all of our employees are prohibited from engaging in any other employment during the period of their employment with us. None of our employees is a member of a labor union and we consider our relationship with our employees to be good.
E. Share Ownership
Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our Ordinary Shares as of April 30, 2022 by:
| ● | each of our directors and executive officers; and |
| ● | each of our principal shareholders who beneficially own more than 5% of our total outstanding Ordinary Shares. |
The calculations in the table below are based on 24,528,000 Ordinary Shares issued and outstanding as of April 30, 2022.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
| Name and Address of Beneficial Owner* |
Ordinary Shares Beneficially Owned |
|||||||
| Number | % | |||||||
| Director and Executive Officers: | ||||||||
| Haiping Hu (1) | 6,820,887 | 27.81 | % | |||||
| Chao Liu | 0 | % | ||||||
| Chenming Qi (3) | 2,517,481 | 10.26 | % | |||||
| Haiwei Zuo (4) | 1,085,282 | 4.43 | % | |||||
| Ligang Lu | 0 | 0 | % | |||||
| Xiang Luo | 0 | 0 | % | |||||
| Allen J. Morrison | 0 | 0 | % | |||||
| Directors and Executive Officers as a group (7 persons) | 10,423,650 | 42.50 | % | |||||
| 5% Beneficial Owners** | ||||||||
| GMB Wisdom Sharing Platform Co., Ltd. (1) | 6,820,887 | 27.81 | % | |||||
| GMB Information Technology Co., Ltd. (4) | 1,085,282 | 4.43 | % | |||||
| GMB Culture Communication Co., Ltd. (2) | 2,712,883 | 11.06 | % | |||||
| GMB Resource Services Co., Ltd (3) | 2,517,481 | 10.26 | % | |||||
| * | Unless otherwise indicated, the business address of each of the individuals is Room 350, 3rd Floor,Building 6,Yard 1, Shangdi 10th Street, Haidian District, Beijing, The PRC. |
| ** | The principal office of each of the 5% beneficial owners are located at Start Chambers, Wickham’s Cay II, P.O. Box 2221, Road Town, Tortola, British Virgin Islands. |
| (1) | Haiping Hu, our CEO and chairman of the Board, beneficially owns 6,820,887 Ordinary Shares through his 100% ownership of GMB Wisdom Sharing Platform Co., LTD. |
| (2) | Representing 2,712,883 Ordinary Shares held by GMB Culture Communication Co., Ltd, a British Virgin Islands company. Ertao Zhao, Yidong Zhang, Xiaoli Chen serve as the directors of GMB Culture Communication Co., Ltd. and share the dispositive and voting power of the shares held by GMB Culture. |
| (3) | Representing 2,517,481 Ordinary Shares Held by GMB Resource Services Co., Ltd., a British Virgin Islands company. Our COO Chenming Qi and Cunyou Li, Jinhai Ying, Gesheng Fei, each of whom serves as a director of GMB Resource Services Co., share the dispositive and voting power of the shares held by GMB Resources. |
| (4) | Haiwei Zuo, our director, beneficially owns 1,085,282 Ordinary Shares through his 100% ownership of GMB Information Technology Co., Ltd., a British Virgin Islands company. |
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
B. Related Party Transactions
Contractual Arrangements between WFOE and Gansu QLS
See “Item 4. Information on the Company—C. Organizational Structure.”
Material Transactions with Related Parties
On February 22, 2019, the Company issued an aggregate of 1,000,000 Ordinary Shares to ten BVI companies, each owned by shareholders of SDH, including some of our executive officers and directors, in connection with entering into the VIE contractual arrangements, in a private transaction under the laws of the Cayman Islands, with 406,005 Ordinary Shares issued to GMB Wisdom Sharing Platform Co., Ltd, all of which are beneficially owned by Haiping Hu; 161,500 Ordinary Shares issued to GMB Culture Communication Co., Ltd, 5,258 Ordinary Shares of which are beneficially owned by Chao Liu; 149,800 Ordinary Shares issued to GMB Resource Services Co., Ltd., 45,500 of which are beneficially owned by Chenming Qi; 64,600 Ordinary Shares issued to GMB Information Technology Co., Ltd., beneficially owned by Haiwei Zuo.
On August 8, 2019, the Company issued an additional 27,000,000 Ordinary Shares to its existing shareholders, in connection with the proposed initial public offering, in a private transaction under the laws of the Cayman Islands, with 10,962,135 Ordinary Shares issued to GMB Wisdom Sharing Platform Co., Ltd, all of which are beneficially owned by Haiping Hu; 4,359,987 Ordinary Shares issued to GMB Culture Communication Co., Ltd, 141,966 Ordinary Shares of which are beneficially owned by Chao Liu; 4,045,950 Ordinary Shares issued to GMB Resource Services Co., Ltd., 1,228,500 of which are beneficially owned by Chenming Qi; 1,744,200 Ordinary Shares issued to GMB Information Technology Co., Ltd., beneficially owned by Haiwei Zuo.
Loans to Related Parties
Mr. Haiping Hu, the Company’s CEO and Chairman of the board of director, entered into three loan agreements with the Company for non-secured and non-interesting bearing loans. On June 19, 2019, Mr. Hu paid the US$262,269 balance of the loans to the Company.
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On January 25, 2018, Ms. Hui Qi, an immediate family member of Mr. Chenming Qi, entered into a loan agreement with the Company for a non-secured and non-interest bearing loan in the amount of RMB2,000,000 (approximately US$291,409), which was due on June 30, 2019. On April 25, 2019, Ms. Qi paid the RMB2,000,000 (approximately US$291,409) balance of the loan to the Company.
On November 27, 2019, the Company paid the audit fee and other professional fee of Bally Corp (“Bally”), a company controlled by Mr. Haiping Hu, of $12,250 on behalf of Bally in the form of a non-secured and non-interest bearing loan, which is due on June 30, 2020. As of December 31, 2019, the outstanding balance of the loan was $12,250. On April 23, 2020, Bally paid the balance of the loan to the Company. On February 24, 2020, the Company paid the audit fee and other professional fee of Bally of $5,168 on behalf of Bally in the form of a non-secured and non-interest bearing loan, which was due on December 31, 2020. On September 4, 2020, Bally paid the $5,168 balance of the loan to the Company.
On March 23, 2020, the Company transferred $15,182, $15,182 and $15,181 to GMB Wisdom Sharing Platform Co., Ltd. (“GMB Wisdom”), GMB Culture Communication Co., Ltd. (“GMB Culture”) and GMB Resource Services Co., Ltd. (“GMB Resource”), respectively, which are shareholders of GIOP, to meet the minimum deposit required by banks. The loans to GMB Wisdom, GMB Culture and GMB Resource are non-secured and non-interest bearing, and are due on December 31, 2020. On September 28, 2020, GMB Wisdom, GMB Culture and GMB Resource paid the balance of the loan to the Company.
Loans from Related Parties
On June 19, 2018, Beijing Yihe Business Technology Co., Ltd. (“Yihe Beijing”), a non-controlling shareholder of GMB (Beijing), paid the rental fee of $49,442 on behalf of GMB (Beijing) in the form of a non-secured and non-interest bearing loan, which is due on June 30, 2019. On June 26, 2019, the Company paid the RMB 339,335 (approximately US$49,442) balance of the loan to Yihe Beijing.
Sales to Related Parties
The Company provided comprehensive tailored services to Zhifang (Shanghai) Marketing Management Co., Ltd. (“Zhifang Marketing”), a non-controlling shareholder of GMB Consulting. For the years ended December 31, 2020, 2019 and 2018, total revenue from Zhifang Marketing were $nil, $95,181 and 92,204, respectively.
For the year ended December 31, 2021, the Company sold medical wine of $666 to Zhuhai Investment.
Purchase from Related Parties
Ningbo Zhuhai Investment Co., Ltd. (“Zhuhai Investment”) is a company controlled by Mr. Haiping Hu. For the years end December 31, 2020, 2019 and 2018, the Company leased office space from Zhuhai Investment for a fee of RMB667,158 (approximately US$96,695), RMB517,450 (approximately US$75,009) and RMB126,413 (approximately US$18,420), respectively. As of December 31, 2018, the outstanding balance of the rent was RMB126,413 (approximately US$18,420). On June 25, 2019, the Company paid the balance of the rent to Zhuhai Investment. As of December 31, 2019, the prepaid expense of the rent to Zhuhai Investment was RMB13,086 (approximately US$ 1,876). As of December 31, 2020, the prepaid expense of the rent to Zhuhai Investment was RMB1,013,823 (approximately US$155,378). As of December 31, 2021, the prepaid expense of the rent to Zhuhai Investment was RMB162,794 (approximately US$25,534).
The Company also purchased professional services from Zhifang Marketing, Taiyuan Ruihaojia Enterprise Management Consulting Co., Ltd. (“Taiyuan Ruihaojia”) and Yihe Beijing. The Company’s former director Mr. Xiaoli Chen owns 33% share of Taiyuan Ruihaojia. For the years ended December 31, 2020, 2019 and 2018, the Company paid Zhifang Marketing $27,175, $291,533 and $1,939, respectively, and paid Taiyuan Ruihaojia $nil, $90,150 and $111,798, respectively. For the years ended December 31, 2020, the Company purchased professional services from Yihe Beijing for a fee of $69,134. As of December 31, 2020 and 2021, the prepaid expense of professional services purchased from Yihe Beijing was $12,184 and nil. The balance was recognized as service costs when the Company accepts the services from Yihe Beijing.
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Employment Agreements and Indemnification Agreements
See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers.”
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See Item 18 for our audited consolidated financial statements.
Legal Proceedings
We are not currently involved in any material legal or administrative proceedings. From time to time, we may be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Such legal or administrative claims and proceedings, even if without merit, could result in the expenditure of financial and management resources and potentially result in civil liability for damages.
Dividend Policy
We do not have any present plan to pay any cash dividends on our Ordinary Shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We rely principally on dividends from our PRC subsidiaries for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us.
Our board of directors has discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our board of directors may deem relevant.
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B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING
A. Offering and Listing Details
Our Ordinary Shares have been listed on the Nasdaq Capital Market since February 9, 2021. Our Ordinary Shares trade under the symbol “SDH.”
B. Plan of Distribution
Not applicable.
C. Markets
Our Ordinary Shares have been listed on the Nasdaq Global Market since February 9, 2021. Our Ordinary Shares trade under the symbol “SDH.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
We are an exempted company with limited liability incorporated under the laws of the Cayman Islands and our affairs are governed by our Amended and Restated Memorandum and Articles of Association, as amended and restated from time to time, and Companies Act (2021 Revision) of the Cayman Islands, which we refer to as the Companies Act below, and the common law of the Cayman Islands.
The following are summaries of material provisions of our Amended and Restated Memorandum and Articles of Association and the Companies Act insofar as they relate to the material terms of our Ordinary Shares.
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Board of Directors
See “Item 6. Directors, Senior Management and Employees.”
Ordinary Shares
General
Our authorized share capital is US$50,000 divided into 500,000,000 Ordinary Shares, par value US$0.0001 per share.
Dividends
Subject to the provisions of the Companies Act and any rights attaching to any class or classes of shares under and in accordance with the Company’s shareholders may, by ordinary resolution, declare dividends but no such dividend shall exceed the amount recommended by the directors.
Subject to the requirements of the Companies Act regarding the application of a company’s share premium account and with the sanction of an ordinary resolution, dividends may also be declared and paid out of any share premium account. The directors when paying dividends to shareholders may make such payment either in cash or in specie.
Unless provided by the rights attached to a share, no dividend shall bear interest.
Voting Rights
Subject to any rights or restrictions as to voting attached to any shares, unless any share carries special voting rights, on a show of hands every shareholder who is present in person and every person representing a shareholder by proxy shall have one vote. On a poll, every shareholder who is present in person and every person representing a shareholder by proxy shall have one vote for each share of which he or the person represented by proxy is the holder. In addition, all shareholders holding shares of a particular class are entitled to vote at a meeting of the holders of that class of shares. Votes may be given either personally or by proxy.
Variation of Rights of Shares
Whenever our capital is divided into different classes of shares, the rights attaching to any class of share (unless otherwise provided by the terms of issue of the shares of that class) may be varied either with the consent in writing of the holders of not less than two-thirds of the issued shares of that class, or with the sanction of a resolution passed by a majority of not less than two-thirds of the holders of shares of the class present in person or by proxy at a separate general meeting of the holders of shares of that class.
Unless the terms on which a class of shares was issued state otherwise, the rights conferred on the shareholder holding shares of any class shall not be deemed to be varied by the creation or issue of further shares ranking pari passu with the existing shares of that class or the creation or issue of one or more classes of shares with or without preferred, deferred or other special rights or restrictions (including, without limitation, the creation of Shares with enhanced or weighted voting rights), whether in regard to dividend, voting, return of capital or otherwise.
Transfer of Ordinary Shares
Subject to the restrictions contained in our articles, any shareholder may transfer all or any of his shares by an instrument of transfer in the usual or common form or in a form prescribed by any Designated Stock Exchange (as defined under our articles) or in any other form approved by our board of directors and may be under hand or by electronic machine imprinted signature or by such other manner of execution as our board of directors may approve from time to time.
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Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
| ● | the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; |
| ● | the instrument of transfer is in respect of only one class of shares; |
| ● | the instrument of transfer is properly stamped, if required; |
| ● | in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; |
| ● | the shares transferred are fully paid up and free of any lien in our favor; and |
| ● | a fee of such maximum sum as the Nasdaq may determine to be payable, or such lesser sum as our directors may from time to time require, is paid to us in respect thereof. |
If our directors refuse to register a transfer, they are required, within three months after the date on which the instrument of transfer was lodged, to send to the transferee notice of such refusal. This, however, is unlikely to affect market transactions of the ordinary shares purchased by investors. Since our ordinary shares are listed on the Nasdaq, the legal title to such ordinary shares and the registration details of those ordinary shares in our register of members remain with DTC/Cede & Co. All market transactions with respect to those ordinary shares will then be carried out without the need for any kind of registration by the directors, as the market transactions will all be conducted through the DTC systems.
The registration of transfers of shares or of any class of shares may, after compliance with any notice requirement of any Designated Stock Exchange (as defined under our articles), be suspended and our register of members be closed at such times and for such periods (not exceeding in the whole thirty (30) days in any year) as our board of directors may determine.
Inspection of Books and Records
Holders of our Ordinary Shares will have no general right under the Companies Act to inspect or obtain copies of our register of members or our corporate records (other than the register of mortgages).
General Meeting of Shareholders
As a Cayman Islands exempted company, we are not obligated by the Companies Act to call shareholders’ annual general meetings; accordingly, we may, but shall not be obliged to, in each year hold a general meeting as an annual general meeting. Any annual general meeting held shall be held at such time and place as may be determined by our board of directors. All general meetings other than annual general meetings shall be called extraordinary general meetings.
The directors may convene general meetings whenever they think fit. General meetings shall also be convened on the written requisition of one or more of the shareholders entitled to attend and vote at our general meetings who (together) hold not less than 10 percent of the rights to vote at such general meeting in accordance with the notice provisions in the articles, specifying the purpose of the meeting and signed by each of the shareholders making the requisition. If the directors do not convene such meeting for a date not later than 21 clear days' after the date of receipt of the written requisition, those shareholders who requested the meeting may convene the general meeting themselves within three months after the end of such period of 21 clear days in which case reasonable expenses incurred by them as a result of the directors failing to convene a meeting shall be reimbursed by us.
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At least 7 days’ notice of a general meeting shall be given to shareholders entitled to attend and vote at such meeting. The notice shall specify the place, the day and the hour of the meeting and the general nature of that business.
A quorum shall consist of the presence (whether in person or represented by proxy) of one or more shareholders holding shares that represent not less than one-third of the outstanding shares carrying the right to vote at such general meeting.
If, within half an hour from the time appointed for the general meeting, or at any time during the meeting, a quorum is not present, the meeting, if convened upon the requisition of shareholders, shall be cancelled. In any other case it shall stand adjourned to the same day in the next week, at the same time and place, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the shareholder present shall be a quorum
The chairman may, with the consent of a meeting at which a quorum is present, adjourn the meeting. When a meeting is adjourned for ten days or more, notice of the adjourned meeting shall be given in accordance with the articles.
At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before, or on, the declaration of the result of the show of hands) demanded by one or more shareholders present in person or by a proxy who together hold not less than fifteen per cent of the paid up capital of the Company entitled to vote. Unless a poll is so demanded, a declaration by the chairman as to the result of a resolution and an entry to that effect in the minutes of the meeting, shall be conclusive evidence of the outcome of a show of hands, without proof of the number or proportion of the votes recorded in favor of, or against, that resolution.
If a poll is duly demanded it shall be taken in such manner as the chairman directs and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.
In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded, shall be entitled to a second or casting vote.
Directors
We may by ordinary resolution, from time to time, fix the maximum and minimum number of directors to be appointed. Under the Articles, we are required to have a minimum of three directors.
A director may be appointed by ordinary resolution or by the directors. Any appointment may be to fill a vacancy or as an additional director.
The remuneration of the directors shall be determined by the shareholders by ordinary resolution, except that the directors shall be entitled to such remuneration as the directors may determine.
Unless removed or re-appointed, each director shall be appointed for a term expiring at the next-following annual general meeting or upon any specified event or after any specified period in a written agreement between the Company and the director, if any. Our directors will be elected by an ordinary resolution of our shareholders.
A director may be removed by ordinary resolution.
A director may at any time resign or retire from office by giving us notice in writing.
Subject to the provisions of the articles, the office of a director may be terminated forthwith if:
| (a) | becomes bankrupt or makes any arrangement or composition with his creditors generally; |
| (b) | is found to be or becomes of unsound mind; or |
| (c) | resigns his office by notice in writing to the Company. |
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Each of the compensation committee and the nominating and corporate governance committee shall consist of at least three directors and the majority of the committee members shall be independent within the meaning of Section 5605(a)(2) of the NASDAQ Listing Rules. The audit committee shall consist of at least three directors, all of whom shall be independent within the meaning of Section 5605(a)(2) of the NASDAQ Listing Rules and will meet the criteria for independence set forth in Rule 10A-3 of the Exchange Act.
Powers and Duties of Directors
Subject to the provisions of the Companies Act, our amended and restated memorandum and articles, our business shall be managed by the directors, who may exercise all our powers. No prior act of the directors shall be invalidated by any subsequent alteration of our amended and restated memorandum or articles. However, to the extent allowed by the Companies Act, shareholders may by special resolution validate any prior or future act of the directors which would otherwise be in breach of their duties.
The directors may delegate any of their powers to any committee consisting of one or more persons who need not be shareholders and may include non-directors so long as the majority of those persons are directors; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the directors. Our board of directors has established an audit committee, compensation committee, and nomination and corporate governance committee.
The board of directors may establish any local or divisional board of directors or agency and delegate to it its powers and authorities (with power to sub-delegate) for managing any of our affairs whether in the Cayman Islands or elsewhere and may appoint any persons to be members of a local or divisional board of directors, or to be managers or agents, and may fix their remuneration.
The directors may from time to time and at any time by power of attorney or in any other manner they determine appoint any person, either generally or in respect of any specific matter, to be our agent with or without authority for that person to delegate all or any of that person’s powers.
The directors may from time to time and at any time by power of attorney or in any other manner they determine appoint any person, whether nominated directly or indirectly by the directors, to be our attorney or our authorized signatory and for such period and subject to such conditions as they may think fit. The powers, authorities and discretions, however, must not exceed those vested in, or exercisable, by the directors under the articles.
The board of directors may remove any person so appointed and may revoke or vary the delegation.
A director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with the Company shall declare the nature of his interest at a meeting of the directors. A general notice given to the directors by any director to the effect that he is a member of any specified Company or firm and is to be regarded as interested in any contract or transaction which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made or transaction so consummated. A director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the directors at which any such contract or transaction or proposed contract or transaction shall come before the meeting for consideration.
Capitalization of Profits
The Company may upon the recommendation of the directors by ordinary resolution authorize the directors to capitalize any sum standing to the credit of any of the Company's reserve accounts (including share premium account and capital redemption reserve fund) or any sum standing to the credit of the profit and loss account or otherwise available for distribution and to appropriate such sums to shareholders in the proportions in which such sum would have been divisible amongst them had the same been a distribution of profits by way of dividend and to apply such sum on their behalf in paying up in full unissued shares for allotment and distribution credited as fully paid up to and amongst them in the proportion aforesaid.
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Liquidation Rights
If we are wound up, the shareholders may, subject to the articles and any other sanction required by the Companies Act, pass a special resolution allowing the liquidator to do either or both of the following:
(a) to divide in specie among the shareholders the whole or any part of our assets and, for that purpose, to value any assets and to determine how the division shall be carried out as between the shareholders or different classes of shareholders; and
(b) to vest the whole or any part of the assets in trustees for the benefit of shareholders and those liable to contribute to the winding up.
The directors have the authority to present a petition for our winding up to the Grand Court of the Cayman Islands on our behalf without the sanction of a resolution passed at a general meeting.
Exempted Company
We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:
| ● | is not required to make its register of members open to inspection by shareholders; |
| ● | does not have to hold an annual general meeting; |
| ● | may issue shares with no par value; |
| ● | may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance); |
| ● | may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
| ● | may register as a limited duration company; and |
| ● | may register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on that shareholder’s shares of the company, except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil.
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” or elsewhere in this annual report.
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D. Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulation— Regulations Relating to Foreign Exchange.”
E. Taxation
The following summary of the Cayman Islands, PRC and U.S. federal income tax considerations of an investment in the Ordinary Shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summary does not deal with all possible tax considerations relating to an investment in the Ordinary Shares, such as the tax considerations under U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of China and the United States.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation, and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us or holders of our Ordinary Shares levied by the government of the Cayman Islands, except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of Ordinary Shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of Ordinary Shares, nor will gains derived from the disposal of Ordinary Shares be subject to Cayman Islands income or corporation tax.
As an exempted company, the Company has received a tax exemption certificate from the Financial Secretary of the Cayman Islands pursuant to the Tax Concessions Law (Revised) of the Cayman Islands, containing an undertaking that in the event of any change to the foregoing, the Company, for a period of twenty years from the date of the grant of the undertaking (such date of grant being 1 August 2019), will not be chargeable to tax in the Cayman Islands on its income or its capital gains arising in the Cayman Islands or elsewhere.
People’s Republic of China Taxation
Enterprise Income Tax and Withholding Tax
We are a holding company incorporated in the Cayman Islands and we gain substantial income by way of dividends paid to us from our PRC subsidiaries. The EIT Law and its implementation rules provide that China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its equity holders that are non-resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a preferential tax rate or a tax exemption.
Under the EIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise,” which means that it is treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. Although the implementation rules of the EIT Law define “de facto management body” as a managing body that actually, comprehensively manage and control the production and operation, staff, accounting, property and other aspects of an enterprise, the only official guidance for this definition currently available is set forth in SAT Circular 82, which provides guidance on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises.
According to SAT Circular 82 (the Circular on Issues Concerning the Identification of Chinese-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance With the Actual Standards of Organizational Management), a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met: (i) the places where senior management and senior management departments that are responsible for daily production, operation and management of the enterprise perform their duties are mainly located within the territory of China; (ii) financial decisions (such as money borrowing, lending, financing and financial risk management) and personnel decisions (such as appointment, dismissal and salary and wages) are made or need to be made by organizations or persons located within the territory of China; (iii) main property, accounting books, corporate seal, the board of directors and files of the minutes of shareholders’ meetings of the enterprise are located or preserved within the territory of China; and (iv) half (or more) of the directors or senior management staff having the right to vote habitually reside within the territory of China.
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We believe that GIOP is not a resident enterprise for PRC tax purpose. GIOP is not controlled by a PRC enterprise or PRC enterprise group and we do not meet some of the conditions outlined in the immediately preceding paragraph. For example, as a holding company, the key assets and records of GIOP, including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside the PRC. In addition, we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, we will continue to monitor our tax status.
If the PRC tax authorities determine that GIOP is a PRC resident enterprise for enterprise income tax purposes, we would be subject to PRC enterprise income on our worldwide income at the rate of 25%. Furthermore, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises. In addition, non-resident enterprise shareholders may be subject to a 10% PRC withholding tax on gains realized on the sale or other disposition of our ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to dividends or gains realized by non-PRC individuals, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of the Company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that GIOP is treated as a PRC resident enterprise.
See “Risk Factors — Risks Related to Doing Business in China — Under the PRC Enterprise Income Tax Law, or the EIT Law, we may be classified as a “resident enterprise” of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders.”
Value-added Tax
According to the VAT Laws, MOF and SAT Circular 32 (the Circular of the Ministry of Finance and the State Administration of Taxation on Adjustment of Value-Added Tax Rates), and MOF, SAT and GAC Circular 39 (the Announcement on Policies for Deepening the VAT Reform), all enterprises and individuals engaged in the sale of goods, the provision of processing, repair and replacement services, sales of services, intangible assets, real property and the importation of goods within the territory of the PRC are the taxpayers of VAT. The VAT tax rates generally applicable are simplified as 13%, 9%, 6% and 0%, and the VAT tax rate of 3% is applicable to small-scale taxpayers. The VAT tax rates applicable to our PRC subsidiaries and consolidated affiliates are as follows: 6% on services for SDH, GMB (Hangzhou) and Mentor Board Voice of Seeding (Shanghai) Cultural Technology Co., Ltd.; 3% for small-scale taxpayers including GMB (Beijing), GMB Culture, GMB Consulting and GMB Linking and GIOP BJ.
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United States Federal Income Tax Considerations
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; | |
| ● | persons that elect to mark their securities to market; | |
| ● | U.S. expatriates or former long-term residents of the U.S.; | |
| ● | governments or agencies or instrumentalities thereof; | |
| ● | 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 power or value (including by reason of owning our Ordinary Shares); | |
| ● | persons who acquired our Ordinary Shares pursuant to the exercise of any employee share option or otherwise as compensation; | |
| ● | persons holding our Ordinary Shares through partnerships or other pass-through entities; | |
| ● | beneficiaries of a Trust holding our Ordinary Shares; or | |
| ● | persons holding our Ordinary Shares through a Trust. |
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Material Tax Consequences Applicable to U.S. Holders of Our Ordinary Shares
The following sets forth the material U.S. federal income tax consequences related to the ownership and disposition of our Ordinary Shares. This description does not deal with all possible tax consequences relating to ownership and disposition of our Ordinary Shares or U.S. tax laws, other than the U.S. federal income tax laws, such as the tax consequences under non-U.S. tax laws, state, local and other tax laws.
The following brief description applies only to U.S. Holders (defined below) that hold Ordinary Shares as capital assets and that have the U.S. dollar as their functional currency. This brief description is based on the federal income tax laws of the United States in effect as of the date of this annual report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as well as judicial and administrative interpretations thereof available on or before such date. 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 Ordinary 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 for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
If a partnership (or other entities treated as a partnership for United States federal income tax purposes) is a beneficial owner of our Ordinary Shares, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partnerships and partners of a partnership holding our Ordinary Shares are urged to consult their tax advisors regarding an investment in our Ordinary Shares.
An individual is considered a resident of the U.S. for federal income tax purposes if he or she meets either the “Green Card Test” or the “Substantial Presence Test” described as follows:
The Green Card Test: You are a lawful permanent resident of the United States, at any time, if you have been given the privilege, according to the immigration laws of the United States, of residing permanently in the United States as an immigrant. You generally have this status if the U.S. Citizenship and Immigration Services issued you an alien registration card, Form I-551, also known as a “green card.”
The Substantial Presence Test: If an alien is present in the United States on at least 31 days of the current calendar year, he or she will (absent an applicable exception) be classified as a resident alien if the sum of the following equals 183 days or more (See §7701(b)(3)(A) of the Internal Revenue Code and related Treasury Regulations):
| 1. | The actual days in the United States in the current year; plus |
| 2. | One-third of his or her days in the United States in the immediately preceding year; plus |
| 3. | One-sixth of his or her days in the United States in the second preceding year. |
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Taxation of Dividends and Other Distributions on our Ordinary Shares
Subject to the passive foreign investment company (PFIC) rules (defined below) 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). With respect to corporate U.S. Holders, 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 PFIC (defined 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. Because there is no income tax treaty between the United States and the Cayman Islands, clause (1) above can be satisfied only if the Ordinary Shares are readily tradable on an established securities market in the United States. 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 certain exchanges, which presently include the Nasdaq. 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 annual report.
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 Ordinary 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 generally be eligible for reduced tax rates. 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 which will generally limit the availability of foreign tax credits.
Passive Foreign Investment Company Considerations
A non-U.S. corporation, such as our company, will be classified as a PFIC for U.S. federal income tax purposes for any taxable year if, applying applicable look-through rules, either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income (the “asset test”). For this purpose, cash and assets readily convertible into cash are categorized as passive assets and the company’s goodwill and other unbooked intangibles not reflected on its balance sheet are taken into account. Passive income generally includes, among other things, dividends, interest, income equivalent to interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.
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Based upon our current and projected income and assets, including the proceeds we received from our initial public offering and the value of our Ordinary Shares, we do not expect to be a PFIC for the current taxable year or the foreseeable future. However, no assurance can be given in this regard because the determination of whether we are or will become a PFIC for any taxable year is a factual determination made annually that will depend, in part, upon the composition and classification of our income and assets. Furthermore, fluctuations in the market price of our Ordinary Shares may cause us to be classified as a PFIC for the current or future taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and other unbooked intangibles, may be determined by reference to the market price of our Ordinary Shares from time to time (which may be volatile). In addition, the composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised in our initial public offering. Under circumstances where our revenue from activities that produce passive income significantly increases relative to our revenue from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase.
If we are a PFIC for any year during which a U.S. Holder holds our Ordinary Shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our Ordinary Shares, unless we were to cease to be a PFIC and the U.S. Holder were to make a “deemed sale” election with respect to the Ordinary Shares.
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 under Section 3406 of the US Internal Revenue Code with at a current flat 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. We do not intend to withhold taxes for individual shareholders. However, transactions effected through certain brokers or other intermediaries may be subject to withholding taxes (including backup withholding), and such brokers or intermediaries may be required by law to withhold such taxes.
Under the Hiring Incentives to Restore Employment Act of 2010, certain U.S. Holders are required to report information relating to our Ordinary Shares, subject to certain exceptions (including an exception for Ordinary Shares held in accounts maintained by certain financial institutions), by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold Ordinary Shares. Failure to report such information could result in substantial penalties.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
105
H. Documents on Display
We previously filed with the SEC registration statement on Form F-1 (File Number 333-233745), as amended, to register our Ordinary Shares in relation to our initial public offering, which was completed on February 11, 2021.
We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual reports on Form 20-F, and other information with the SEC. All information filed with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov or inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
I. Subsidiary Information
For a listing of our subsidiaries, see “Item 4C. Organizational Structure” for a chart of our current structure.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to interest rate risk while we have short-term bank loans outstanding. Although interest rates for our short-term loans are typically fixed for the terms of the loans, the terms are typically twelve months and interest rates are subject to change upon renewal.
Credit Risk
Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. We manage credit risk through in-house research and analysis of the Chinese economy and the underlying obligors and transaction structures. We identify credit risk collectively based on industry, geography and customer type. In measuring the credit risk of our sales to our customers, we mainly reflect the “probability of default” by the customer on its contractual obligations and consider the current financial position of the customer and the current and likely future exposures to the customer.
Liquidity Risk
We are also exposed to liquidity risk which is risk that it we will be unable to provide sufficient capital resources and liquidity to meet our commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, we will turn to other financial institutions and related parties to obtain short-term funding to cover any liquidity shortage.
Foreign Exchange Risk
While our reporting currency is the U.S. dollar, almost all of our consolidated revenues and consolidated costs and expenses are denominated in RMB. All of our assets are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between the U.S. dollar and RMB. If the RMB depreciates against the U.S. dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
106
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Material Modifications to the Rights of Security Holders
See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged.
Use of Proceeds
The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number: 333-233745) in relation to the initial public offering of 6,720,000 Ordinary Shares at an initial public offering price of $4.00 per Ordinary Share. Our initial public offering closed on February 11, 2021. The registration statement was declared effective by the SEC on February 5, 2021. ViewTrade Securities, Inc. was the representative of the underwriters for our initial public offering. On February 19, 2021, Network 1 Financial Securities, Inc. exercised the over-allotment option in full to purchase an additional 1,008,000 Ordinary Shares.
We received net proceeds of approximately $24.61 million, after deducting underwriting discounts and estimated offering expenses payable by us. The total expense incurred for our Company’s account in connection with our initial public offering was approximately $2.28 million, which included approximately $2.02 million in underwriting discounts for the initial public offering and approximately $0.26 million in other costs and expenses for our initial public offering. None of the transaction expenses included payments to directors or officers of our Company or their associates, persons owning more than 10% or more of our equity securities or our affiliates. None of the net proceeds we received from the initial public offering were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates. As of the date of this annual report, we have used $15 million from our initial public offering as the registered capital for our newly established subsidiary, Sunrise Guizhou. We intend to use the remaining proceeds from our initial public offering as disclosed in our registration statement on Form F-1. Our management, however, will have significant flexibility and discretion to apply the net proceeds from our initial public offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as disclosed previously.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of December 31, 2021, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). There are inherent limitations to the effectiveness of any disclosure controls and procedures system, including the possibility of human error and circumventing or overriding them. Even if effective, disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives.
Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2021 and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, failed to provide reasonable assurance that the information we are required to disclose in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management to allow timely decisions regarding required disclosures.
107
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In the course of preparing our consolidated financial statements for the year ended December 31, 2021, we identified several control deficiencies, which include significant deficiencies, in our internal control over financial reporting as of December 31, 2021. The deficiencies identified include: (1) a lack of formal internal controls over financial closing and reporting processes; (2) a lack of a formal risk assessment process; and (3) a lack of accounting policies and procedures manual that covers U.S. GAAP and SEC financial reporting requirements. Based on this evaluation, our management has concluded that our internal control over financial reporting was not effective as of December 31, 2021.
We are taking a number of measures to tackle the control deficiencies identified, including: (1) preparing a comprehensive accounting policies and procedures manual that covers U.S. GAAP and SEC financial reporting requirements, and ensuring that accounting personnel are familiar with and follow the manual; (2) establishing a risk assessment process that complies with the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission; and (3) hiring additional personnel with external reporting experience, including knowledge of the SEC reporting requirements and U.S. GAAP, and investor relations personnel.
However, we cannot assure you that we will remediate our control deficiencies in a timely manner. The process of designing and implementing an effective financial reporting system 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 financial reporting system that is adequate to satisfy our reporting obligation. See “Item 3. Key Information—D. Risk Factors—We have identified several control deficiencies in our internal control over financial reporting. If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud.” Additionally, we cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses.
Attestation Report of the Registered Public Accounting Firm
As a company with less than $1.07 billion in revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, in the assessment of the emerging growth company’s internal control over financial reporting. This annual report on Form 20-F does not include an attestation report of our registered public accounting firm because we are an emerging growth company.
Changes in Internal Control
Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16. [RESERVED]
Not applicable.
ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERT
Prior to the closing of our IPO, our board of directors determined that Mr. Ligang Lu, chairman of our audit committee and an independent director (under the standards set forth in Nasdaq Stock Market Rule 5605(a)(2) and Rule 10A-3 under the Exchange Act), is an audit committee financial expert.
ITEM 16.B. CODE OF ETHICS
Prior to the closing of our IPO, our board of directors adopted a code of business conduct and ethics that applies to all of our directors, officers, employees, including certain provisions that specifically apply to our principal executive officer, principal financial officer or controller and any other persons who perform similar functions for us. A copy of our code of business conduct and ethics can be accessed at http://sdh365.com/IR/.
108
ITEM 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Friedman LLP, our independent registered public accounting firm, for the periods indicated.
| Year Ended December 31, | ||||||||
| Services | 2021 | 2020 | ||||||
| US$ | US$ | |||||||
| Audit fees(1) | 290,000 | 280,000 | ||||||
| Audit related fees(2) | 10,000 | 10,000 | ||||||
| Tax Fees(3) | - | - | ||||||
| Other fees(4) | - | - | ||||||
| Total | 300,000 | 290,000 | ||||||
Note:
| (1) | “Audit fees” means the aggregate fees billed for professional services rendered by our principal accounting firm for the audit of our annual financial statements and the review of our comparative interim financial statements. |
| (2) | “Audit-related fees” means the aggregate fees billed for professional services rendered by our principal accounting firm for the assurance and related services, which mainly included the audit and review of financial statements and are not reported under “Audit fees” above. |
| (3) | “Tax fees” means the aggregate fees billed for professional services rendered by our principal accounting firm for tax compliance, tax advice and tax planning. |
| (4) | “Other fees” means the aggregate fees incurred in each of the fiscal years listed for the professional tax services rendered by our principal accounting firm other than services reported under “Audit fees,” “Audit-related fees” and “Tax fees.” |
The policy of our audit committee is to pre-approve all audit and non-audit services provided by Friedman LLP, our independent registered public accounting firm including audit services, audit-related services, tax services, and other services as described above.
ITEM 16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 16.F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16.G. CORPORATE GOVERNANCE
As a Cayman Islands company listed on the Nasdaq Capital Market, we are subject to the Nasdaq Capital Market corporate governance listing standards. However, Nasdaq Capital Market rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq Capital Market corporate governance listing standards.
NASDAQ Listing Rule 5635 generally provides that shareholder approval is required of U.S. domestic companies listed on the NASDAQ Capital Market prior to issuance (or potential issuance) of securities (i) equaling 20% or more of the company’s common stock or voting power for less than the greater of market or book value (ii) resulting in a change of control of the company; and (iii) which is being issued pursuant to a stock option or purchase plan to be established or materially amended or other equity compensation arrangement made or materially amended. Notwithstanding this general requirement, NASDAQ Listing Rule 5615(a)(3)(A) permits foreign private issuers to follow their home country practice rather than these shareholder approval requirements. The Cayman Islands do not require shareholder approval prior to any of the foregoing types of issuances. The Company, therefore, is not required to obtain such shareholder approval prior to entering into a transaction with the potential to issue securities as described above. Prior to the closing of our IPO, the Board of Directors of the Company elected to follow the Company’s home country rules as to such issuances and will not be required to seek shareholder approval prior to entering into such a transaction.
Other than those described above, there are no significant differences between our corporate governance practices and those followed by U.S. domestic companies under Nasdaq Capital Market corporate governance listing standards.
ITEM 16.H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16.I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
109
PART III
ITEM 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements of China Liberal Education Holdings Limited are included at the end of this annual report.
ITEM 19. EXHIBITS
110
| * | Filed herewith. |
| ** | Furnished herewith. |
111
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| Global Internet of People, Inc. | ||
| By: | /s/ Haiping Hu | |
| Name: | Haiping Hu | |
| Title: | Chairman, Chief Executive Officer, and Director | |
| Date | May 2, 2022 | |
112
GLOBAL INTERNET OF PEOPLE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Global Internet of People, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Global Internet of People, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2021, 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 December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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 audits 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 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.
/s/
May 2, 2022
We have served as the Company’s auditor since 2018.
F-2
GLOBAL INTERNET OF PEOPLE, INC.
CONSOLIDATED BALANCE SHEETS
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Due from related parties | ||||||||
| Short-term investment | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Restricted cash | ||||||||
| Long term prepayments and other non-current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Long-term investments | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deferred tax assets | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | ||||||||
| Deferred revenue | ||||||||
| Income taxes payable | ||||||||
| Operating lease liabilities, current | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Operating lease liabilities, non-current | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITES | ||||||||
| EQUITY | ||||||||
| Ordinary shares ( | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserves | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income | ||||||||
| Total shareholders’ equity attributable to controlling shareholders | ||||||||
| Non-controlling interests | ||||||||
| TOTAL EQUITY | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-3
GLOBAL INTERNET OF PEOPLE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| For the years ended December 31, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| REVENUE, NET | $ | $ | $ | |||||||||
| COSTS AND OPERATING EXPENSES | ||||||||||||
| Service costs | ||||||||||||
| Cost of goods sold | - | |||||||||||
| Selling expenses | ||||||||||||
| General and administrative expenses | ||||||||||||
| Research and development expenses | ||||||||||||
| Total costs and operating expenses | ||||||||||||
| (LOSS) PROFIT FROM OPERATIONS | ( | ) | ||||||||||
| OTHER (EXPENSES) INCOME | ||||||||||||
| Investment losses | ( | ) | ( | ) | ( | ) | ||||||
| Interest income | ||||||||||||
| Other income, net | ||||||||||||
| Total other (expenses) income | ( | ) | ||||||||||
| (LOSS) PROFIT BEFORE INCOME TAXES | ( | ) | ||||||||||
| Income taxes (benefit) provision | ( | ) | ||||||||||
| NET (LOSS) INCOME | ( | ) | ||||||||||
| Less: net loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING SHAREHOLDERS | $ | ( | ) | $ | ||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||
| TOTAL COMPREHENSIVE (LOSS) INCOME | ( | ) | ||||||||||
| Less: comprehensive loss attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||
| COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING SHAREHOLDERS | $ | ( | ) | $ | ||||||||
| (LOSS) EARNINGS PER SHARE | ||||||||||||
| Basic and diluted | $ | ( | ) | $ | $ | |||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | ||||||||||||
| Basic and diluted * | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GLOBAL INTERNET OF PEOPLE, INC.
CONSOLIDATION STATEMENTS OF CHANGES IN EQUITY
| Ordinary shares | Additional paid-in | Statutory | Retained | Accumulated other comprehensive | Total equity attributable to controlling | Non-controlling | Total | |||||||||||||||||||||||||||||
| Shares | Amount | Capital | reserves | earnings | (loss) income | shareholders | interests | equity | ||||||||||||||||||||||||||||
| Balance at January 1, 2019 | $ | $ | $ | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||||
| Capital contributions from shareholders | - | |||||||||||||||||||||||||||||||||||
| Net income | - | ( |
) | |||||||||||||||||||||||||||||||||
| Statutory reserves | - | ( |
) | |||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||||
| Capital contributions from shareholders | - | |||||||||||||||||||||||||||||||||||
| Net income | - | ( |
) | |||||||||||||||||||||||||||||||||
| Statutory reserves | - | ( |
) | |||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Issued shares of ordinary shares, net of offering cost | ||||||||||||||||||||||||||||||||||||
| Capital contributions from non-controlling interests | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Statutory reserves | - | ( |
) | |||||||||||||||||||||||||||||||||
| Disposal of subsidiary | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( |
) | |||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
F-5
GLOBAL INTERNET OF PEOPLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the years ended December 31, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net (loss) income | $ | ( | ) | $ | ||||||||
| Adjusted to reconcile net income to cash provided by operating activities | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Deferred tax benefits | ( | ) | ( | ) | ( | ) | ||||||
| Investment losses | ||||||||||||
| Bad debt expense | ||||||||||||
| Amortization of right-of-use assets | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||||||
| Due from related parties | ( | ) | ||||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||||||
| Inventories | ( | ) | ( | ) | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ( | ) | ||||||
| Accounts payable | - | ( | ) | |||||||||
| Income taxes payable | ( | ) | ||||||||||
| Deferred revenue | ( | ) | ( | ) | ( | ) | ||||||
| Right-of-use asset | ( | ) | ||||||||||
| Due to related parties | ( | ) | ||||||||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||||||
| Cash flows from investing activities | ||||||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Disposal of property and equipment | ||||||||||||
| Prepayment for leasehold improvement | ( | ) | ||||||||||
| Prepayment for land use right and construction | ( | ) | ||||||||||
| Prepayment for property acquisition | ( | ) | ||||||||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||||||
| Loans to third parties | ( | ) | ( | ) | ||||||||
| Prepaid for investment | ( | ) | ||||||||||
| Purchase of long-term investments | ( | ) | ( | ) | ( | ) | ||||||
| Purchase of short-term investments | ( | ) | ||||||||||
| Redemption of short-term investments | ||||||||||||
| Disposal of subsidiary | ( | ) | ||||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Proceeds from capital contributions by controlling shareholders | ||||||||||||
| Proceeds from issuance of ordinary shares in connection with initial public offering, net of issuance cost | ||||||||||||
| Proceeds from capital contributions by non-controlling shareholders | ||||||||||||
| Net cash provided by financing activities | ||||||||||||
| Effect of foreign exchange rate on cash and cash equivalents | ( | ) | ||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||||||
| Cash, cash equivalents and restricted cash, end of year | $ | $ | $ | |||||||||
| Cash, cash equivalents and restricted cash, end of year | ||||||||||||
| Less: Non-current restricted cash | ||||||||||||
| Cash and cash equivalents, end of year | ||||||||||||
| Supplemental disclosure of cash flow information | ||||||||||||
| Cash paid for income tax | $ | $ | $ | |||||||||
| Supplemental non cash transactions | ||||||||||||
| Operating lease right-of-use assets obtained in exchange of operating lease liabilities | $ | $ | $ | |||||||||
| Inventories obtained in exchange for accounts receivable | $ | $ | $ | |||||||||
| Inventories obtained in exchange for deferred revenue | $ | $ | $ | |||||||||
| Long term investment obtained in exchange for accounts receivable | $ | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
GLOBAL INTERNET OF PEOPLE, INC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND BUSINESS DESCRIPTION
Global Internet of People, Inc. (“GIOP”) is a limited liability company established under the laws of the Cayman Islands on February 22, 2019. It is a holding company with no business operation.
On March 22, 2019, GIOP incorporated Global Mentor Board Information Technology Limited (“GMB HK”), a limited liability company formed in accordance with laws and regulations of Hong Kong. GMB HK is currently not engaging in any active business and merely acting as a holding company of Beijing Mentor Board Union Information Technology Co, Ltd. (“GIOP BJ” or “WFOE”). GIOP BJ or WFOE was incorporated by GMB HK as a Foreign Enterprise in China on June 3, 2019.
Global Mentor Board (Beijing) Information Technology Co., Ltd. (“SDH”) is a limited liability company incorporated on December 5, 2014 under the laws of China. In 2017 and 2018, SDH established several subsidiaries in China, including Global Mentor Board (Hangzhou) Technology Co., Ltd. (“GMB (Hangzhou)”), Global Mentor Board (Shanghai) Enterprise Management Consulting Co., Ltd. (“GMB Consulting”), Linking (Shanghai) Network Technology Co., Ltd. (“GMB Linking”), Shanghai Voice of Seedling Cultural Media Co., Ltd. (“GMB Culture”), which has a majority owned subsidiary Mentor Board Voice of Seedling(Shanghai) Cultural Technology Co., Ltd. (“GMB Technology”), Shidong (Beijing) Information Technology Co., Ltd. (“GMB (Beijing)”), Zibo Shidong Digital Technology Co., Ltd. (“GMB Zibo”) and its major owned subsidiaries Shidong Trading Service (Zhejiang) Co., Ltd (“Shidong Trading”) and Shanghai Jiagui Haifeng Technology Co., Ltd. (“Jiagui Haifeng”), and Shanghai Nanyu Culture Communication Co., Ltd. SDH(“Nanyu Culture”) and its subsidiaries are primarily engaged in providing peer-to-peer knowledge sharing and enterprise services to clients in the PRC.
As described below, GIOP, through a restructuring which is accounted for as a reorganization of entities under common control (the “Reorganization”), became the ultimate parent entity of its subsidiaries and its variable interest entity (“VIE”), SDH. Accordingly, GIOP consolidates SDH’s operations, assets and liabilities. GIOP, its subsidiaries, VIE and VIE’s subsidiaries, are collectively hereinafter referred as the “Company”.
Reorganization
On June 10, 2019, GIOP BJ or WFOE entered into a series of contractual arrangements with the owners of SDH. These agreements include an Exclusive Technical and Consulting Service Agreement, an Exclusive Service Agreement, an Exclusive Option Agreement and Powers of Attorney (collectively “VIE Agreements”). Pursuant to the above VIE Agreements, WFOE has the exclusive right to provide SDH with comprehensive technical support, consulting services and other services in relation to the Principal Business during the term of this Agreement. All the above contractual arrangements obligate WFOE to absorb a majority of the risk of loss from business activities of SDH and entitle WFOE to receive a majority of their residual returns. In essence, WFOE is the primary beneficiary of SDH. Therefore, SDH should be considered as a VIE under the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 “Consolidation”.
GIOP together with its wholly-owned subsidiary GMB HK and WFOE and its VIE and VIE’s subsidiaries were effectively controlled by the same shareholders before and after the reorganization and therefore the Reorganization is considered under common control. The consolidation of the Company has been accounted for at historical cost and prepared on the basis as if the Reorganization had become effective as of the beginning of the first period presented in the consolidated financial statements.
On December 22, 2021, GIOP BJ incorporated Shidong Cloud (Beijing) Education Technology Co., Ltd.
On October 8, 2021, GIOP incorporated SDH (HK) New Energy Tech Co., Ltd. (“SDH New Energy”), a limited liability company formed in accordance with laws and regulations of Hong Kong. SDH New Energy is acting as a holding company of Zhuhai (Zibo) Investment Co., Ltd (“Zhuhai Zibo”) and Zhuhai (Guizhou) New Energy Investment Co., Ltd. (“Zhuhai New Energy”).
Zhuhai Zibo and Zhuhai New Energy were incorporated by SDH New Energy as a Foreign Enterprise in China on October 5, 2021 and November 23, 2021, respectively.
In July, 2021, GMB Technology transferred all the shares of GMB Linking to another shareholder.
On November 8, 2021, Sunrise (Guizhou) New Energy Materials Co., Ltd (“Sunrise Guizhou”) was incorporated by Zhuhai Zibo.
F-7
The consolidated financial statements reflect the activities of GIOP and each of the following entities:
| Name | Date of Incorporation | Place of incorporation | Percentage of
effective ownership | Principal
Activities | ||||||
| Subsidiaries | ||||||||||
| Global Mentor
Board Information Technology Limited (“GMB HK”) | 2019 | |||||||||
| Beijing Mentor Board Union Information Technology Co, Ltd. (“GIOP BJ” or “WFOE”) | 2019 | |||||||||
| Shidong Cloud (Beijing) Education Technology Co., Ltd (“Shidong Cloud”) | ||||||||||
| SDH (HK) New Energy Tech Co., Ltd. (“SDH New Energy”) | ||||||||||
| Zhuhai (Zibo) Investment Co., Ltd. (“Zhuhai Zibo”) | ||||||||||
| Zhuhai (Guizhou) New Energy Investment Co., Ltd. (“Zhuhai New Energy”) | ||||||||||
| Sunrise (Guizhou) New Energy Materials Co., Ltd. (“Sunrise Guizhou”) | ||||||||||
| Variable Interest Entity (“VIE”) and subsidiaries of VIE | ||||||||||
| Global Mentor Board (Beijing)
Information Technology Co., Ltd. (“SDH” or “VIE”) | 2014 | |||||||||
| Global Mentor Board (Hangzhou)
Technology Co., Ltd. (“GMB (Hangzhou)”) | ||||||||||
| Global Mentor Board (Shanghai)
Enterprise Management Consulting Co., Ltd. (“GMB Consulting”) | 2017 | |||||||||
| Shanghai Voice of Seedling
Cultural Media Co., Ltd. (“GMB Culture”) | 2017 | |||||||||
| Shidong(Beijing)Information
Technology Co., LTD. (“GMB (Beijing)”) | 2018 | |||||||||
| Mentor Board Voice of Seeding
(Shanghai) Cultural Technology Co., Ltd. (“GMB Technology”) | 2018 | |||||||||
| Shidong Zibo Digital Technology Co., Ltd. (“GMB Zibo”) | ||||||||||
| Shidong Trading Service (Zhejiang) Co., Ltd. (“Shidong Trading”) | ||||||||||
| Shanghai Jiagui Haifeng Technology Co., Ltd. (“Jiagui Haifeng”) | | |||||||||
| Shanghai Nanyu Culture Communication Co., Ltd. (“Nanyu Culture”) | ||||||||||
The VIE contractual arrangements
Neither the Company nor the Company’s subsidiaries own any equity interest in SDH. Instead, The Company controls and receives the economic benefits of SDH’s business operation through a series of contractual arrangements. WFOE, SDH and its shareholders entered into a series of contractual arrangements, also known as VIE Agreements, in June 2019. Pursuant to the VIE Agreements, WFOE holds the contractual right to control and operate the business of SDH. Therefore, pursuant to ASC 810, SDH has been included in the Company’s consolidated financial statements since June 2019.
F-8
Each of the VIE Agreements is described in detail below:
Exclusive Technical and Consulting Services Agreement
Pursuant to the Exclusive Technical and Consulting Services Agreement between SDH and WFOE (the “Exclusive Service Agreement”), WFOE provides SDH with technical support, consulting services, business support and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information. For services rendered to SDH by WFOE under the Exclusive Service Agreement, WFOE is entitled to collect a service fee approximately equal to SDH’s earnings before corporate income tax, i.e., SDH’s revenue after deduction of operating costs, expenses and other taxes, subject to adjustment based on services rendered and SDH’s operation needs.
This agreement became effective on June 10, 2019 and will remain effective unless otherwise terminated as required by laws or regulations, or by relevant governmental or regulatory authorities otherwise terminated earlier in accordance with the provisions of this agreement or relevant agreements separately executed between the parties. Nevertheless, this agreement shall be terminated after all the equity interest in SDH held by its shareholders and/or all the assets of SDH have been legally transferred to WFOE and/or its designee in accordance with the Exclusive Option Agreement.
The CEO of WFOE, Mr. Haiping Hu, is currently managing SDH pursuant to the terms of the Exclusive Service Agreement. The Exclusive Service Agreement does not prohibit related party transactions. Upon the establishment of the audit committee at the consummation of this offering, the Company’s audit committee will be required to review and approve in advance any related party transactions, including transactions involving WFOE or SDH.
Equity Pledge Agreement
Under the Equity Pledge Agreement between WFOE,
and shareholders of SDH, together holding
The Equity Pledge Agreement is effective until: (1) the secured debt in the scope of pledge is cleared off; and (2) Pledgers transfer all the pledged equity interests to Pledgees according to the Equity Pledge Agreement, or other entity or individual designated by it.
The purposes of the Equity Pledge Agreement are to (1) guarantee the performance of SDH’s obligations under the Exclusive Service Agreement; (2) make sure the SDH Shareholders do not transfer or assign the pledged equity interests, or create or allow any encumbrance that would prejudice WFOE’s interests without WFOE’s prior written consent. In the event SDH breaches its contractual obligations under the Exclusive Service Agreement, WFOE will be entitled to dispose of the pledged equity interests.
Exclusive Option Agreement
Under the Exclusive Option Agreement, the SDH
Shareholders irrevocably granted WFOE (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, once or
at multiple times, at any time, part or all of their equity interests in SDH or the assets of SDH. The option price to be paid by WFOE
to each shareholder of SDH is RMB
Under the Exclusive Option Agreement, WFOE may at any time under any circumstances, purchase, or have its designee purchase, at its discretion, to the extent permitted under PRC law, all or part of the SDH Shareholders’ equity interests in SDH or the assets of SDH. The Equity Pledge Agreement, together with the Equity Pledge Agreement, the Exclusive Service Agreement, and Powers of Attorney, enable WFOE to be the primary beneficiary of SDH.
The Exclusive Option Agreement remains effective until all the equity or assets of SDH is legally transferred under the name of WFOE and/or other entity or individual designated by it, or unilaterally terminated by WFOE within 30-day prior written notice.
Powers of Attorney
Under each of the Powers of Attorney, the SDH Shareholders authorized WFOE to act on their behalf as their exclusive agent and attorney with respect to all rights as shareholders, including, but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including, but not limited to, the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer, and other senior management members of SDH.
The Powers of Attorney are irrevocable and continuously valid from the date of execution of the Powers of Attorney, so long as the SDH Shareholders own the equity interests of SDH.
F-9
Spousal Consent
Pursuant to the Spousal Consent, each spouse of the individual shareholders of SDH irrevocably agreed that the equity interest in SDH held by their respective spouses would be disposed of pursuant to the Equity Interest Pledge Agreement, the Exclusive Option Agreement, and the Powers of Attorney. Each spouse of the shareholders agreed not to assert any rights over the equity interest in SDH held by their respective spouses. In addition, in the event that any spouse obtains any equity interest in SDH through the respective shareholder for any reason, he or she agreed to be bound by the contractual arrangements.
Risks in relation to the VIE structure
GIOP believes that the contractual arrangements with its VIE and their respective shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the GIOP’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
| ● | revoke the business and operating licenses of the Company’s PRC subsidiary and VIE; |
| ● | discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiary and VIE; |
| ● | limit the Company’s business expansion in China by way of entering into contractual arrangements; |
| ● | impose fines or other requirements with which the Company’s PRC subsidiary and VIE may not be able to comply; |
| ● | require the Company or the Company’s PRC subsidiary and VIE to restructure the relevant ownership structure or operations; or |
| ● | restrict or prohibit the Company’s use of the proceeds of the additional public offering to finance. |
GIOP’s ability to conduct its wisdom sharing and enterprise consulting business may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result, GIOP may not be able to consolidate its VIE in its consolidated financial statements as it may lose the ability to receive economic benefits from the VIE. GIOP, however, does not believe such actions would result in the liquidation or dissolution of the Company, its PRC subsidiary and VIE.
Total assets and liabilities presented on the Company’s consolidated balance sheets and revenue, expense, net income presented on consolidated statement of operations and comprehensive income as well as the cash flow from operating, investing and financing activities presented on the consolidated statement of cash flows are substantially the financial position, operation and cash flow of the GIOP’s VIE and VIE’s subsidiaries. GIOP has not provided any financial support to SDH for the years ended December 31, 2021 and 2020. The following financial statements of the VIE and VIE’s subsidiaries were included in the consolidated financial statements as of December 31, 2021 and 2020 and for the year ended December 31, 2021,2020 and 2019:
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Due from related parties | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Long-term investments | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deferred tax assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Accounts payable | $ | $ | ||||||
| Deferred revenue | ||||||||
| Income taxes payable | ||||||||
| Operating lease liabilities, current | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Non-current liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
F-10
| For the years ended December, 31 | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Total net revenue | $ | $ | $ | |||||||||
| Net (loss) income | $ | ( | ) | $ | $ | |||||||
| For the years ended December, 31 | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Net cash provided by operating activities | $ | $ | $ | |||||||||
| Net cash used in investing activities | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net cash provided by financing activities | $ | $ | $ | |||||||||
Under the Contractual Arrangements with the consolidated
VIE, GIOP has the power to direct activities of the consolidated VIE and VIE’s subsidiaries through the WFOE, and can have assets
transferred freely out of the consolidated VIE and VIE’ subsidiaries without restrictions. Therefore, the Company considers that
there is no asset of the consolidated VIE and VIE’ subsidiaries that can only be used to settle obligations of the respective VIE
and VIE’ subsidiaries except for registered capital of VIE and VIE’ subsidiaries amounting to $
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied.
Principles of consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries, VIE and VIE’s subsidiaries for which the Company is the ultimate primary beneficiary.
A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power, has the power to appoint or remove the majority of the members of the board of directors, to cast a majority of votes at the meeting of the board of directors or to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
All transactions and balances between the Company, its subsidiaries, VIE and VIE’s subsidiaries have been eliminated upon consolidation.
Non-controlling interests
Non-controlling interests are recognized to reflect the portion of their equity that is not attributable, directly or indirectly, to the Company as the controlling shareholder. As of December 31, 2021, for the Company’s consolidated subsidiaries, VIE and VIE’ s subsidiaries, non-controlling interests represent: a) a minority shareholder’s 49% ownership interest in Sunrise Guizhou, GMB (Beijing), GMB Consulting, Nanyu Culture and Jiagui Haifeng; b) a minority shareholder’s 49% ownership interest in GMB Culture, which has a subsidiary called GMB Technology; c) a minority shareholder’s 25% ownership interest in Shidong Cloud, and 40% ownership interest in Shidong Trading.
As of December 31, 2020, for the Company’s
consolidated subsidiaries, VIE and VIE’ s subsidiaries, non-controlling interests represent a minority shareholder’s
Non-controlling interests are presented as a separate line item in the equity section of the Company’s Consolidated Balance Sheets and have been separately disclosed in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) to distinguish the interests from that of the Company.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and judgments are based on historical information, information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Significant estimates required to be made by management, include, but are not limited to, the assessment of the allowance for doubtful accounts, depreciable lives of property and equipment, and realization of deferred tax assets. Actual results could differ from those estimates.
F-11
Foreign currency translation
The Company’s principal country of operations is the PRC. The financial position and results of its operations are determined using RMB, the local currency, as the functional currency. The Company’s consolidated financial statements are reported using the U.S. Dollars (“US$” or “$”). The results of operations and the consolidated statements of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income (loss) included in consolidated statements of changes in shareholders’ equity. Gains and losses from foreign currency transactions are included in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).
The value of RMB against US$ and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of RMB may materially affect the Company’s financial condition in terms of US$ reporting. The following table outlines the currency exchange rates that were used in preparing the consolidated financial statements:
| December
31, 2021 |
December
31, 2020 |
December
31, 2019 | ||||
| Year-end spot rate | US$ |
US$ |
US$ | |||
| Average rate | US$ |
US$ |
US$ |
Fair value measurements
The Company follows the provisions of ASC 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash, restricted cash, accounts receivable, due from related parties, prepaid expenses and other current assets, deferred revenue, income taxes payable, accounts payable, due to related parties, accrued expenses and other current liabilities approximate their fair value based on the short-term maturity of these instruments.
The Company’s non-financial assets, such as property and equipment would be measured at fair value only if they were determined to be impaired.
As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of its certain fund investment. NAV is primarily determined based on information provided by external fund administrators. The Group’s investments valued at NAV as a practical expedient are private equity funds, which represent the short term investment on the balance sheet.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and demand deposits in accounts maintained with commercial banks, as well as highly liquid investments which are unrestricted as to withdrawal or use and are readily convertible to known amounts of cash. The interest incomes of highly liquid investments are reported in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). The Company maintains the bank accounts in Mainland China and Hong Kong. Cash balances in bank accounts in Mainland China and Hong Kong are not insured by the Federal Deposit Insurance Corporation or other programs.
Restricted cash
Restricted cash represent bank deposits with designated use, which cannot be withdrawn without certain approval or notice. Restricted cash, which matures in more than twelve months after the balance sheet date, is classified as noncurrent assets in the consolidated balance sheets.
Restricted cash classified as a long-term asset
on the Company’s consolidated balance sheets consists of cash equivalents restricted as to withdrawal or use. Such restricted cash
relates to an escrowed fund of listing companies. The escrowed fund shall be held by the Escrow Agent for the purpose of satisfying the
initial $
F-12
Short-term investments
The Company evaluates whether an investment is other-than-temporarily impaired based on the specific facts and circumstances. Factors that are considered in determining whether an other-than-temporary decline in value has occurred include the market value of the security in relation to its cost basis, the financial condition of the investee, and the intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment.
Accounts receivable, net
Accounts receivable mainly represent amounts due from clients in the ordinary course of business and are recorded net of allowance for doubtful accounts.
The Company mitigates the
associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established
and recorded based on management’s assessment of historical bad debts, creditworthiness and financial conditions of the clients,
current economic trends and changes in client payment patterns. Past due accounts are generally written off against the allowance for
bad debts only after all collection attempts have been exhausted and the potential for recovery is considered remote. The allowance was
$ $
Inventories
The inventories as of December 31, 2021 consisted of health service gift cards, learning course gift cards, Chinese tea, latex pillows and health care products, all of which are products available for sale, and are stated at the lower of cost and net realizable value.
Part of the Company’s inventories is obtained through fee exchange arrangements with its customers, which are entered into at the Company’s discretion to receive inventory in exchange of collection of account receivables and deferred revenue due from the customers. The Company accounts for these nonmonetary exchanges based on the fair values of the assets involved. The cost of inventories acquired in exchange is initially measured at the fair value of the accounts receivable the Company surrendered to obtain them.
A valuation allowance is recorded to write down the cost of inventories to the estimated net realizable value, if lower, due to slow-moving or damaged products, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment. Net realizable value is determined by the estimated selling prices offset by estimated additional cost of sale, selling expenses and business taxes. There was no valuation allowance provided for the inventory for the years ended December 31, 2021, 2020 and 2019.
Lease
On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02 (FASB ASC Topic 842). The adoption of Topic 842 resulted in the presentation of operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheet. See Note 10 for additional information.
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange of a consideration. To assess whether a contract is or contains a lease, the Company assess whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all the economic benefits from the use of the asset and whether it has the right to control the use of the asset.
The right-of-use assets and related lease liabilities are recognized at the lease commencement date. The Company recognizes operating lease expenses on a straight-line basis over the lease term.
Operating lease right-of-use of assets
The right-of-use of asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and less any lease incentive received.
Operating lease liabilities
Lease liability is initially measured at the present value of the outstanding lease payments at the commencement date, discounted using the Company incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise fixed lease payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee and any exercise price under a purchase option that the Company is reasonably certain to exercise.
Lease liability is measured at amortized cost using the effective interest rate method. It is remeasured when there is a change in future lease payments, if there is a change in the estimate of the amount expected to be payable under a residual value guarantee, or if there is any change in the Company assessment of option purchases, contract extensions or termination options.
Short-term leases
The Company has elected to not recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less. Lease payments associated with these leases are expensed as incurred.
F-13
Property and equipment, net
Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is provided using the straight-line method over their expected useful lives, as follows:
| Building | ||
| Electronic equipment | ||
| Furniture, fixtures and equipment | ||
| Vehicle | ||
| Leasehold improvements |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of Operation and Comprehensive Income in other income or expenses.
Intangible assets, net
The Company’s intangible assets represent
the copyright of course videos purchased from a third party, including but not limited to course videos which cover subjects such as entrepreneurship
development, financial service, corporate governance, team management, marketing strategy, etc. Intangible assets are stated at cost less
accumulated amortization and amortized on a straight-line basis over their estimated useful lives. The estimated useful lives of intangible
assets are determined to be
Long-term investments
Equity method investments in investees represent the Company’s investments in privately held companies, over which it has significant influence but does not own a majority equity interest or otherwise control. The Company applies the equity method to account for an equity investment, in common stock or in-substance common stock, according to ASC 323 “Investment — Equity Method and Joint Ventures”.
An investment in in-substance common stock is an investment in an entity that has risk and reward characteristics that are substantially similar to that entity’s common stock. The Company considers subordination, risks and rewards of ownership and obligation to transfer value when determining whether an investment in an entity is substantially similar to an investment in that entity’s common stock.
Under the equity method, the Company’s share of the post-acquisition
profits or losses of the equity investee is recognized in the consolidated income statements and its share of post-acquisition movements
in accumulated other comprehensive income is recognized in shareholders’ equity. When the Company’s share of losses in the
equity investee equals or exceeds its interest in the equity investee, the Company does not recognize further losses, unless the Company
has incurred obligations or made payments or guarantees on behalf of the equity investee. Investment loss for long-term investments of
$
For other equity investments that do not have readily determinable fair values and over which the Company has neither significant influence nor control through investments in common stock or in-substance common stock, the Company accounts for these investments at cost minus any impairment, if necessary.
The Company continually reviews its investments in equity investees to determine whether a decline in fair value below the carrying value is other than temporary. The primary factors the Company considers in its determination are the length of time that the fair value of the investment is below the Company’s carrying value; the financial condition, operating performance and the prospects of the equity investee. If the decline in fair value is deemed to be other than temporary, the carrying value of the equity investee is written down to fair value. No impairment charges were recorded in investment losses in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019.
Impairment of long-lived assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Company would recognize an impairment loss, which is the excess of carrying amount over the fair value of the assets, using the expected future discounted cash flows. No impairments of long-lived assets were recognized as of December 31, 2021 and 2020.
F-14
Revenue recognition
The Company recognizes revenue under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the company satisfies a performance obligation
The Company mainly offers and generates revenue from four kinds of services to its clients in China, member services, enterprise services, online services and other services. Enterprise services include comprehensive tailored services, sponsorship advertising services, and consulting services.
Revenue recognition policies for each type of the Company’s services are discussed as follows:
Member services
The Company offers three tiers of member services, Platinum, Diamond and Protégé, which differ in membership fees as well as the level of the services provided. Members pay a fixed fee for exchange of the right to participate in organized activities offered by the Company, such as study tours and forums, typically within one-year membership period. Any non-participating activities will expire and not be refunded beyond the agreed-upon period. Each member is entitled to choose from same activities offered by the Company for a total of seven times but different level of membership will receive different level of privileges at each activity, such as seating arrangement or private consultation opportunity etc. The activities for Platinum Members are also open to non-members, who pay a pre-set fee for participating in a single activity, while the Company does not offer Diamond and Protégé services to non-members separately.
Each activity represents a separate performance obligation, which is typically 5 days or less. The Company uses an expected cost plus margin approach to estimate the standalone selling prices of each activity. As Members can benefit from each activity on their own in the same way and there is no material difference in the Company’s delivering costs, such as number of staffs involved and size of each activity. Therefore, membership fees are equally allocated to seven performance obligations when the Company determines transaction price of each performance obligation.
The Company recognizes membership fees as revenue upon completion of each activity as the duration of each activity is short. Membership fees from non-participating activity will be recognized when the agreed-upon period has expired. Membership fees collected in advance are recorded as deferred revenue on the consolidated balance sheets.
Enterprise services
The Company charges its clients service fees for providing enterprise services, which mainly include comprehensive tailored services, sponsorship advertising services and consulting services.
Comprehensive tailored services
The comprehensive tailored services provide tailored packaged services to small and medium business, including conference and salon organization, booth exhibition services, on-site Mentors’ guidance, and other value-added services. The Company typically signs one-year framework agreements and a tailored services contract with the clients, which list the types of tailored services as ordered by the clients to fit their specific needs. Each tailored service is a separate performance obligation under ASC 606, as these performance obligations are distinct, the clients can benefit from each service on their own and the Company’s promises to deliver the services are separately identifiable from each other in the services contract. The performance of each tailored service is usually on a specific date designated by the clients.
The Company establishes a uniform list for the unit price of each type of tailored services with reference to quoted market prices. If no quoted market price is available, the price will be estimated by using an expected cost plus a margin approach.
The Company recognizes the price for each tailored service as revenue when the service has been provided on a specific date designated and the receipt of each tailored services is confirmed by the clients. If a client does not request certain items of the tailored services included in the services contract during the agreed-upon period, the Company will not refund the service fees and the revenue will be recognized upon expiration of service contracts. The tailored services fees collected before providing services are recorded as deferred revenue on the consolidated balance sheets.
F-15
Sponsorship advertising service
The Company provides sponsorship advertising service for its clients at certain activities it held, i.e. study tours and forums. The sponsorship advertising services are mainly to display banners with the clients’ information and distribute clients’ brochures through the activities, so that the clients can enhance their corporate and product image.
The fee the Company charges for sponsorship advertising service is depending on multiple specific factors, including number of event participants, location, public interest, etc. The Company considers all factors and determines pricing for each contract separately. The sponsorship advertising fees are recognized as revenue when services have been provided on a specific date designated and receipt of sponsorship advertising services are confirmed by clients. Sponsorship advertising fees collected before providing services are recorded as deferred revenue on the consolidated balance sheets.
Consulting services
The Company provides consulting services to small and medium-sized enterprises by helping them to develop strategies and solutions including: corporate reorganization, product promotion and marketing, industry supply chain integration, corporate governance, financing and capital structure, etc. The consulting services are tailored to meet each client’s specific needs and requirements.
Consulting fees are based on the specifics of the services provided, for instance, time and efforts required, etc. The Company considers comprehensive factors and determines prices with reference to quoted market prices. If no quoted market price is available, price will be estimated by using an expected cost plus a margin approach.
Consulting fees are recognized as revenue when services have been provided and receipt of consulting services is confirmed by clients as the duration of services is short, typically one month or less. Consulting fees collected before providing any service are presented as deferred revenue on the consolidated balance sheets.
Online services
The Company provides two types of online services to the Company’s APP Users, which are questions and answers (Q&A) session with chosen Mentors and online streaming of courses and programs. Top-up credits are paid by Users through the Company’s APP platform, using which Users can purchase the online services.
Users can raise questions to chosen Mentors or
Experts with a fixed fee per Q&A session preset by Mentors or Experts.
Prior to 2019, most of our online content
was free for our User to enjoy because we mainly focused on growing our online knowledge sharing community. In November 2019, we
started to implement a new fee structure for our online content, which grants Users the access to view various online courses and
programs. Users can subscribe an annual VIP at a rate of RMB
Other revenues
Other revenues are mainly generated from rendering of other services and sale of merchandises.
The Company sells merchandises and recognizes the revenue at the amount to which it expects to be entitled on a gross basis at the point of time when clients obtain the control of the merchandises.
Other services fees are mainly derived from non-member participation of study tours and forums at the service level of Platinum Members. The Company charges non-members a fixed fee for each Member activity and the price for non-members is determined based on our allocated Member pricing for each activity. Fees are usually collected on site at the date of each activity and revenues are recognized at the completion of such activity.
F-16
Service costs
Service costs primarily include (1) the cost of
holding events and activities, such as venue rental fees, conference equipment fees, (2) professional and consulting fees paid to third
parties for our activity; (3) the fees paid to Mentors and Experts; and (4) labor costs. Service costs were $
Income taxes
The Company accounts for income taxes under ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures.
The Company believes there were no uncertain tax positions at December 31, 2020 and 2019, respectively. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months. The Company is not currently under examination by an income tax authority, nor has been notified that an examination is contemplated.
(
The Company computes earnings per share (“EPS”)
in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital
structures to present basic and diluted EPS. Basic EPS are computed by dividing income available to ordinary shareholders of the Company
by the weighted average ordinary shares outstanding during the period. Diluted EPS takes into account the potential dilution that could
occur if securities or other contracts to issue ordinary shares were exercised and converted into ordinary shares. As of December 31,
2021 and 2020, the basic and diluted shares were
Comprehensive income
Comprehensive income consists of two components, net income and other comprehensive loss. Other comprehensive loss refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive loss consists of foreign currency translation adjustment resulting from the Company translating its financial statements from functional currency into reporting currency.
Significant risks
Currency risk
A majority of the Company’s expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other Company foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
The Company maintains certain bank accounts in
the PRC. On May 1, 2015, China’s new Deposit Insurance Regulation came into effect, pursuant to which banking financial institutions,
such as commercial banks, established in the PRC are required to purchase deposit insurance for deposits in RMB and in foreign currency
placed with them. Such Deposit Insurance Regulation would not be effective in providing complete protection for the Company’s accounts,
as its aggregate deposits are much higher than the compensation limit, which is RMB
Other than the deposit insurance mechanism in the PRC mentioned above, the Company’s bank accounts are not insured by Federal Deposit Insurance Corporation insurance or other insurance.
F-17
Concentration and credit risk
Financial instruments that potentially subject the Company to the concentration of credit risks consist of cash and short-term investments. The maximum exposures of such assets to credit risk are their carrying amounts as of the balance sheet dates. The Company deposits its cash and short-term investments with financial institutions located in jurisdictions where the subsidiaries are located. The Company believes that no significant credit risk exists as these financial institutions have high credit quality.
The
Company’s also exposure to credit risk associated with its trading and other activities is measured on an individual counterparty
basis, as well as by group of counterparties that share similar attributes. There was $
Interest rate risk
Fluctuations in market interest rates may negatively affect our financial condition and results of operations. The Company is exposed to floating interest rate risk on cash deposit and floating rate borrowings, and the risks due to changes in interest rates is not material. The Company has not used any derivative financial instruments to manage our interest risk exposure.
Other uncertainty risk
The Company’s major operations are conducted in the PRC. Accordingly, the political, economic, and legal environments in the PRC, as well as the general state of the PRC’s economy may influence the Company’s business, financial condition, and results of operations.
The Company’s major operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, this may not be indicative of future results.
Recently issued accounting pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. The Company is an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGC can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses”, which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Further, the FASB issued ASU No. 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2020-02 to provide additional guidance on the credit losses standard. For all other entities, the amendments for ASU 2016-13 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. Adoption of the ASUs is on a modified retrospective basis. The Company will adopt ASU 2016-13 from January 1, 2023. The Company is in the process of evaluating the effect of the adoption of this ASU.
F-18
NOTE 3 – ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following:
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
The movement of allowance of doubtful accounts is as follows:
| As of December 31, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Balance at beginning of the year | $ | $ | $ | |||||||||
| Current year addition | ||||||||||||
| Write-off | ( | ) | ||||||||||
| Foreign currency translation adjustments | ||||||||||||
| Balance at end of the year | $ | $ | $ | |||||||||
$
NOTE 4 – INVENTORIES, NET
Other than cash purchase, a portion of the Company’s inventories are obtained through fee exchange arrangements with its customers, which are entered into at the Company’s discretion to receive inventory in exchange for collection of accounts receivable due from the customers. These inventories are all commodities available for sale.
Inventories as of December 31, 2021 and 2020 consist of the following:
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Healthcare service gift cards | $ | $ | ||||||
| Chinese tea | ||||||||
| Learning course gift cards | ||||||||
| Latex pillows | ||||||||
| Healthcare products | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
No inventory valuation allowance was recorded for the fiscal years ended December 31, 2021, 2020 and 2019.
NOTE 5 – SHORT-TERM INVESTMENT
The Company entered into an investment agreement with Viner Total investment Fund (the “Fund”) to invest the Fund. The Fund is an exempted company incorporated in the Cayman Islands and managed by Mainstream Fund Services (HK). The Fund is invested in a wide range of instruments with no specific limitations. The redemption of such shares for cash can be made with a one-month advanced written notice (such advanced written notice period can be extended by the administrator).
The value of private equity fund are measured at fair value
with gains and losses recognized in earnings. As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent
to measure the fair value of the Fund. NAV is primarily determined based on information provided by external fund administrators. In February
2021, GIOP invested in the shares of Viner Total Investment Fund, with the total investment of $
F-19
NOTE 6 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
| As of December 31, | ||||||||||||
| 2021 | 2020 | |||||||||||
| Prepaid expenses | (1) | $ | $ | |||||||||
| Loans to third parties | (2) | |||||||||||
| Prepayment for investment | (3) | |||||||||||
| Other receivables | ||||||||||||
| Interest receivable | ||||||||||||
| Prepaid VAT | ||||||||||||
| Deposits for operating lease | ||||||||||||
| Deferred offering cost | - | |||||||||||
| Subtotal | ||||||||||||
| Allowance for other receivables | ( | ) | ( | ) | ||||||||
| Total | $ | $ | ||||||||||
| (1) |
| (2) |
| (3) |
F-20
NOTE 7 – LONG TERM PREPAYMENTS AND OTHER NON-CURRENT ASSETS
| As of December 31, | ||||||||||||
| 2021 | 2020 | |||||||||||
| Prepaid for land use right | (1) | |||||||||||
| Prepaid for construction and equipment | (1) | |||||||||||
| Loans to third party | (2) | |||||||||||
| Total | $ | $ | ||||||||||
| (1) |
| (2) |
Note 8 – PROPERTY AND EQUIPMENT, NET
Property and equipment, stated at cost less accumulated depreciation, consisted of the following:
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Building | $ | $ | ||||||
| Vehicles | ||||||||
| Electronic equipment | ||||||||
| Furniture, fixtures and equipment | ||||||||
| Leasehold improvements | ||||||||
| Subtotal | ||||||||
| Construction in progress | ||||||||
| Less: Accumulated depreciation | ||||||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense was $
NOTE 9 – INTANGIBLE ASSETS, NET
Intangible assets, stated at cost less accumulated amortization, consisted of the following:
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Copyrights of course videos | $ | $ | ||||||
| Less: accumulated amortization | ||||||||
| Intangible assets, net | $ | $ | ||||||
For the years ended December 31, 2021, 2020 and
2019, amortization expense amounted to $
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | $ |
F-21
NOTE 10 – LONG-TERM INVESTMENTS
The Company’s long-term investments consist of the following:
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Equity method investments: | ||||||||
| Shidong (Suzhou) Investment Co., Ltd. (“Suzhou Investment”) | $ | $ | ||||||
| Equity investments without readily determinable fair value: | ||||||||
| Shenzhen Jiazhong Creative Capital LLP (“Jiazhong”) | ||||||||
| Beijing Xingshuizhixing Technology Co., Ltd. (“Xingshuizhixing”) | ||||||||
| Zhejiang Wangxin Health Technology Co., Ltd. (“Wangxin”) | ||||||||
| Hangzhou Zhongfei Aerospace Health Management Co., Ltd. (“Zhongfei”) | ||||||||
| Shanghai Zhongren Yinzhirun Investment Management Partnership (“Yinzhirun”) | ||||||||
| Jiangxi Cheyi Tongcheng Car Networking Tech Co., Ltd.(“Cheyi”) | ||||||||
| Chengdu Zhongfuze Management LLP(“Zhongfuze”) | ||||||||
| Shanghai Outu Home Furnishings Co., Ltd. (“Outu”) | ||||||||
| Zhejiang Qianshier Household Co., Ltd.(“Qianshier”) | ||||||||
| Taizhoujia Menkou Auto Greengrocer’s Delivery Technology Co., Ltd. (“Taizhoujia”) | ||||||||
| Zhejiang Yueteng Information Technology Co., Ltd. (“Yueteng”) | ||||||||
| Shidong Funeng(Ruzhou) Industry Development Co., Ltd.( “Funeng”) | ||||||||
| Dongguan Zhiduocheng Car Service Co., Ltd. (“Car Service”) | ||||||||
| Beijing Yunshang E-commerce Co., Ltd. (“Yunshang E-commerce”) | ||||||||
| Total | $ | $ | ||||||
Equity method investments
Investment in Suzhou Investment
In December 2017, the Company acquired
Equity investments without readily determinable fair value
Investment in Jiazhong
In December 2020, the Company acquired
Investment in Xingshuizhixing
GM IT signed an investment agreement with Beijing
Zhitong Zhenye Technology Co., Ltd. and Li Jiyou to invest RMB
Investment in Wangxin
On April 11, 2021, GMB Zibo signed an equity transfer
agreement with Wangxin, which mainly provides health consulting service, to acquire its
Investment in Yinzhirun
In December 2016, the Company acquired
F-22
Investment in Yunshang E-commerce
In March 2017, the Company acquired
Investment in Car Service
In November 2017, the Company acquired
Investment in Funeng
In August 2019, the Company subscribed capital
with cash consideration of RMB
Investment in Zhongfuze
In September 2019, the Company acquired
Investment in Outu
In December 2019, the Company acquired
Investment in Taizhoujia
In June 2020, the Company acquired
Investment in Yueteng
In June 2020, the Company acquired
Investment in Qianshier
In December 2020, the Company acquired
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Investment in Zhongfei
In November 2020, the Company acquired
Investment in Cheyi
In November 2020, the Company acquired
NOTE 11 – LEASES
The Company’s VIE and VIE’s subsidiaries
lease office space under non-cancelable operating lease agreements with expiration dates in 2022 or 2023. The lease terms may include
options to extend or terminate the lease when it is reasonably certain the Company will exercise that option. Certain of the arrangements
have free rent periods or escalating rent payment provisions. Leases with an initial term of
As of December 31, 2021, the Company’s operating
leases had a weighted average remaining lease term of
The components of lease expense for the years ended December 31, 2021 and 2020 were as follows:
| Statement of Income Location | For the year ended December 31, 2021 | For the year ended December 31, 2020 | ||||||||
| Lease Costs | ||||||||||
| Operating lease expense | administrative expenses | $ | $ | |||||||
| Total lease expenses | $ | $ | ||||||||
Maturity of lease liabilities under the non-cancelable operating leases as of December 31, 2021 were as follows:
| Operating | ||||
| 2022 | $ | |||
| Total lease payments | ||||
| Less: interest | ||||
| Present value of lease liabilities | $ | |||
NOTE 12 – DEFERRED REVENUE
The details of deferred revenue are as follows:
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Advance from member services | $ | $ | ||||||
| Advance from enterprise services | ||||||||
| Total | $ | $ | ||||||
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NOTE 13– ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Components of accrued expenses and other current liabilities are as follows:
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| VAT payable | $ | $ | ||||||
| Accrued payroll and welfare | ||||||||
| Accrued expenses | - | |||||||
| Others | ||||||||
| Total | $ | $ | ||||||
NOTE 14 – TAXES
a. Value-Added Tax (“VAT”)
The Company is subject to VAT and related surcharges
in China for providing member services and other in-depth services.
All of the tax returns of the Company have been and remain subject to examination by the PRC tax authorities for five years from the date of filing.
b. Income tax
Cayman Islands
Under the current tax laws of the Cayman Islands, the Company is not subject to tax on its income or capital gains. In addition, no Cayman Islands withholding tax will be imposed upon the payment of dividends by the Company to its shareholders.
Hong Kong
In accordance with the relevant tax laws and regulations
of Hong Kong, a company registered in Hong Kong is subject to income taxes within Hong Kong at the applicable tax rate on taxable income.
China
The Company’s subsidiaries are incorporated
in the PRC, and are subject to the PRC Enterprise Income Tax Laws (“EIT Laws”) with the statutory income tax rate of
In accordance with the implementation rules of
EIT Laws, a qualified “High and New Technology Enterprise” (“HNTE”) is eligible for a preferential tax rate of
On January 17, 2019,
F-25
The components of the income tax (benefit) provision are as follows:
For
the years ended | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Current | ||||||||||||
| Cayman Islands | $ | $ | $ | |||||||||
| BVI | ||||||||||||
| Hong Kong | ||||||||||||
| China | ||||||||||||
| Deferred | - | - | ||||||||||
| Cayman Islands | ||||||||||||
| BVI | ||||||||||||
| Hong Kong | ||||||||||||
| China | ( | ) | ( | ) | ( | ) | ||||||
| Total | $ | ( | ) | $ | $ | |||||||
Reconciliation between
the (benefit) provision for income taxes computed by applying the PRC EIT rate of
| For the years ended December 31, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| (Loss) profit before income taxes | $ | ( | ) | $ | ||||||||
| PRC EIT rate | % | % | % | |||||||||
| Income taxes computed at statutory EIT rate | $ | ( | ) | $ | ||||||||
| Reconciling items: | ||||||||||||
| Effect of tax holiday and preferential tax rate | ( | ) | ( | ) | ||||||||
| Effect of non-deductible expense | ||||||||||||
| Super deduction of qualified R&D expenditures | ( | ) | ( | ) | ( | ) | ||||||
| Income tax (benefit) expense | $ | ( | ) | $ | ||||||||
| Effective tax rate | % | % | % | |||||||||
F-26
Deferred tax assets
According to PRC tax regulations, net operating losses can be carried forward to offset future operating income for five years. Significant components of deferred tax assets were as follows:
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Net operating loss carry forwards | $ | $ | ||||||
| Provision for doubtful debts | ||||||||
| Deferred tax assets, gross | ||||||||
| Less: Valuation allowance | ( |
) | ||||||
| Deferred tax assets, net | $ | $ | ||||||
The Company has accumulated operating loss of approximately
$
The Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the fiscal years ended December 31, 2021 and 2020, the Company had no unrecognized tax benefits.
For the Company’s operating subsidiaries, the tax years ended December 31, 2017, through December 31, 2021 remain open for statutory examination by PRC tax authorities.
NOTE 15 – RELATED PARTY BALANCE AND TRANSACTIONS
The following is a list of related parties which the Company has transactions with:
| (a) | Beijing Yihe Business Technology Co., Ltd. (“Yihe Beijing”), a | |
| (b) | Ningbo Zhuhai Investment Co., Ltd. (“Zhuhai Investment”), a company controlled by Mr. Haiping Hu. | |
| (c) | Bally, Corp. (“Bally”), a company controlled by Mr. Haiping Hu. | |
| (d) | Mr. Xuanming Wang, General Manager and legal representative of GMB (Hangzhou). | |
| (e) | Mr. Haiwei Zuo, Vice Chairman of the Board, |
F-27
| a. | Due from related parties |
As of December 31, 2021 and 2020, the balances of amount due from related parties were as follows:
| As of December 31, | ||||||||||||
| 2021 | 2020 | |||||||||||
| Due from related parties | ||||||||||||
| Bally | ||||||||||||
| Zhuhai Investment | (1) | |||||||||||
| Mr. Xuanming Wang | ||||||||||||
| Mr. Haiwei Zuo | ||||||||||||
| Yihe Beijing | (2) | |||||||||||
| Total | $ | $ | ||||||||||
| (1) |
| (2) |
| b. | Related party transactions |
The Company rent office spaces from Zhuhai Investment.
For the years ended December 31, 2021 and 2020, total rental fee to Zhuhai Investment were $
The Company sold medical wine of $
The Company also purchased professional services
from Yihe Beijing. For the years ended December 31, 2021 and 2020, service costs paid to Beijing Yihe were and $
F-28
NOTE 16 – SHAREHOLDERS’ EQUITY
Ordinary shares
GIOP was established under the laws of the Cayman
Islands on February 22, 2019. The authorized number of Ordinary Shares was
On April 2, 2020, the shareholders of the Company
unanimously authorize a one-for-0.
On April 24, 2020, the shareholders of the Company
unanimously authorize another one-for-0.
On February 11, 2021,
the Company closed its initial public offering (“IPO”) on Nasdaq. The Company offered
Non-controlling interest
Non-controlling interest consists of the following:
| As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| GMB (Beijing) | $ | $ | ||||||
| GMB Culture | ||||||||
| GMB Linking | ||||||||
| Jiagui Haifeng | ( | ) | ||||||
| Shidong Trading | ( | ) | ||||||
| GMB Consulting | ||||||||
| GMB Technology | ( | ) | ( | ) | ||||
| Sunrise Guizhou | ||||||||
| Total | $ | $ | ||||||
In July, 2021, GMB Technology transferred all the shares of GMB Linking to another shareholder with no gain or loss recognized.
Jiagui Haifeng was established by GMB Zibo and
Lifeng Wang in November, 2021.
Shidong Trading was established by GMB Zibo and
Xuanming Wang in April, 2021.
Sunrise Guizhou was established by Zhuhai (Zibo) Investment and five other companies in November, 2021.
For
the fiscal year ended December 31, 2021, SDH made capital contributions of $
The actual capital contributions made by SDH and the non-controlling shareholders for the fiscal year ended 2021 had no effect on SDH’s equity percentage in its seven subsidiaries.
Statutory reserves
In accordance with the Regulations on Enterprises
of PRC, the Company’s WFOE, VIE and VIE’s subsidiaries in the PRC are required to provide for statutory reserves, which are
appropriated from net profit as reported in the Company’s PRC statutory accounts.
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NOTE 17 – COMMITMENTS AND CONTINGENCIES
Contingencies
The Company may be involved in various legal proceedings, claims and other disputes arising from the commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of operations or liquidity. As of December 31, 2021 the Company was not aware of any litigations or lawsuits against it.
NOTE 18 – SEGMENT REPORTING
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments.
The Company uses the management approach to determine reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker (“CODM”) for making decisions, allocating resources and assessing performance. The Company’s CODM has been identified as the CEO, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company.
Based on the management’s assessment, the Company determined that it has only one operating segment and therefore one reportable segment as defined by ASC 280. The Company’s assets are substantially all located in the PRC and substantially all of the Company’s revenue and expense are derived in the PRC. Therefore, no geographical segments are presented.
The following table presents revenue by major revenue type for the years ended December 31, 2021, 2020 and 2019, respectively:
| For the years ended December 31, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Member services | $ | $ | $ | |||||||||
| Enterprise services | ||||||||||||
| -Comprehensive tailored services | ||||||||||||
| -Sponsorship advertising services | ||||||||||||
| -Consulting services | ||||||||||||
| Online services | ||||||||||||
| Other revenues | ||||||||||||
| Revenue, net | $ | $ | $ | |||||||||
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NOTE 19 – SUBSEQUENT EVENTS
On April 2, 2022, Zhuhai (Zibo) Investment entered into an investment agreement (the “Agreement”) with the following parties to form a joint venture, Sunrise Guizhou, dedicated to the production of high-grade lithium-ion power battery anode materials: Shanghai Huiyang Investment Co., Ltd. (“Huiyang”), Haicheng Shenhe Technology Co., Ltd. (“Shenhe”), Guizhou Yilong New Area Industrial Development Investment Co., Ltd. (“Yilong Investment”), Guizhou Guangyao Management Partnership (“Guangyao”),Hainan Fuhe Investment Management Partnership (“Fuhe”), and eight individuals who will be appointed to various management positions at Sunrise Guizhou.
The Agreement and related transactions were approved by SDH’s shareholders at an extraordinary general meeting of shareholders held on April 1, 2022.
Pursuant to the Agreement, Zhuhai (Zibo) Investment
will own
Sunrise Guizhou was established
in the New Materials Industrial Park of Yilong District, Xingyi City of Guizhou Province, with a total investment amount of up to RMB
F-31
Exhibit 4.13
Investment Agreement
April 2, 2022
Party A: Zhuhai (Zibo) Investment Co., Ltd
Residence: 15th floor of the Financial Center Building at 228 People’s West Road, Mashan Street Office, Zhangdian District, Zibo City, Shandong Province, the PRC
Party B: Shanghai Huiyang Investment Co.,Ltd
Residence: 25th floor, 985 Oriental Road, Pudong New Area, Shanghai, the PRC
Party C: Haicheng Shenhe Technology Co., Ltd
Residence: Yingluo Town, Haicheng District, Anshan City, Liaoning Province, the PRC
Party D: Guizhou Yilong New Area Industrial Development Investment Co., Ltd Residence: Yilong Red Star Pharmaceutical Industrial Park, Dingxiao town of Yilong New Area, southwest Guizhou Province, the PRC
Party E: Hainan Fuhe Investment Management Partnership
Residence: Room 1001, 3rd Floor, Hainan Ecological High-tech Park, Origin Town High-tech Industry Demonstration Zone, Chengmai County, Hainan Province , the PRC
Party F: Guizhou Guangyao Management Partnership
Residence: Lutun Town Joint Village Group II (next to Yilong Avenue) in Yilong New Area, southwest Guizhou Province, the PRC
Party G : WANG Li, with an address of No. 64, Hongtu Avenue, Nancheng District, Dongguan City, Guangdong Province, the PRC
Party H : ZENG Dongqing, with an address of Xianghua Group, Tuanjie Village, Tuanjiewei Township, Guiyang County, Hunan Province, the PRC
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Party I : REN Zhong, with an address of No. 75 Gaicha Road, Yunyan District, Guiyang City, Guizhou Province, the PRC
Party J : CHENG Chuanya, with an address of No. 1, Xinghe East Seventh Road, Danshui Street, Huiyang District, Huizhou, Guangdong Province, the PRC
Party K : XU Saiqin, with an address of Building 12, Rong’an Heyuan, Zhonghe Street, Yinzhou District, Ningbo City, Zhejiang Province, the PRC
Party L : SUN Yong, with an address of No. 1 Aiguo Taoyang Road, Lincheng Street, Dinghai District, Zhoushan City, Zhejiang Province, the PRC
Party M : WANG Gao, with an address of Bayi Group, Bayi Village, Babao Township, Dafang County, Guizhou Province, the PRC
Party N : SHEN Xinyi, with an address of No. 15, Xiamen Village, Gepo Town, Fuchuan Yao Autonomous County, Guangxi, the PRC
I. Project Overview
(I) Project name: Yilong New Area SDH 30,000 t/a high-grade power battery materials project (subject to registration with relevant government departments, hereinafter “Investment Project”).
(II) Project location: Qianxinan Yilong New Area New Materials Industrial Park
(III) Project scale: Phase 1 of the project aims to build a 30,000 t/a high-grade power battery materials Investment Project (the “Phase 1”). The project covers a total area of about 400 mu (266,800 Square meters), which is subject to measurement.
(IV) Project Investment: Total planned investment shall not exceed RMB 620 million.
(V) Project Company: All parties shall jointly fund the establishment of an independent legal person company (hereinafter “Project Company”), specifically responsible for the implementation of the Investment Project. Party A shall be responsible for operating the Project Company, and other parties shall assist the Project Company in the development of resources and other support. Party D shall sign the corresponding cooperation agreement in accordance with this Agreement on behalf of the state-owned company.
(VI) Construction Period: The project should be operating at full capacity within 15 months after the later of (i) Project Company’s planning and design plan has been approved by the relevant organs of Party A, (ii) the construction permit has been obtained in accordance with the law, and (iii) the project has passed the environmental assessment, energy assessment and approval, and reached the legal conditions for construction.
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II. Profile of the Project Company
(I) Contribution to the Project Company:
(1) The registered capital of the project company is as follows: Party A is a wholly-owned subsidiary of SDH in China, accounting for 51% of the registered capital, which is equal to its respective equity shares of the Project Company (“Shares”). Party B is designated to hold 12.5% of the Shares on behalf of the provincial new industrialization fund (the “Fund”). If the Fund subsequently decides not to participate, its Shares shall be acquired by other party or parties designated by Party A. Party C accounts for 12.5% of the Shares with its contribution of technology and intellectual property rights. Party D is a state-owned company of the local government of Guizhou Province and accounts for 4% of the Shares. Party E is designated to hold 5% of the Shares on behalf of the construction party. If Party E subsequently decides not to participate, its Shares shall be acquired by other party or parties designated by Party A.
Parties F to N represent the Project Company’s management and their Shares are collectively referred to as “Management Shares”. Party F is 100% owned by Ms. Huiyu Du, who will be appointed as the CEO of the Project Company. Party F accounts for 10% of the Shares. Parties G to N will be appointed to various high-level management positions of the Project Company. Party G accounts for 1.78%, Party H accounts for 1.50%, Party I accounts for 1.00%, Party J accounts for 0.40%, Party K accounts for 0.14%, Party L accounts for 0.10%, Party M accounts for 0.04%, and Party N accounts for 0.04%, of the Shares, respectively. Management Shares are subject to the vesting and redemption clause in paragraph (i).
Each Party shall contribute their pro-rata share to the Registered Capital as and when directed by Party A. If a Party shall fail to make the required contribtution within ten (10) calendar days of Party A’s written request, Party A shall have the option, but not the obligation, to acquire such defaulting Party’s interest in the Project Company at a price equal to the lesser of (i) the pro-rata cost of Shares already acquired and (ii) the fair market value of such Shares, as reasonably determined by Party A.
(i) Vesting and redemption clause
Management Shares shall be vested in four equal annual-installments starting on the first anniversary of the date of their contractual employment by the Project Company. If any Party holding the Management Shares leaves or is terminated from his/her position with the Project Company, then Party A shall have the option, but not the obligation, to acquire the respective unvested Shares of such Party at a price equal to the lesser of (i) pro rata cost of these Shares paid by such Party or (ii) the fair market value as reasonably determined by Party A.
| Shareholder’s name | Amount of capital (yuan) |
% of equity shares in the Project Company |
Type of capital | |||||||
| Party A | 126,480,000 | 51 | % | cash | ||||||
| Party B | 31,000,000 | 12.5 | % | cash | ||||||
| Party C | 31,000,000 | 12.5 | % | patent technology | ||||||
| Party D | 9,920,000 | 4 | % | cash | ||||||
| Party E | 12,400,000 | 5 | % | cash | ||||||
| Party F | 24,800,000 | 10 | % | cash | ||||||
| Party G | 4,414,400 | 1.78 | % | cash | ||||||
| Party H | 3,720,000 | 1.50 | % | cash | ||||||
| Party I | 2,480,000 | 1.00 | % | cash | ||||||
| Party J | 992,000 | 0.40 | % | cash | ||||||
| Party K | 347,200 | 0.14 | % | cash | ||||||
| Party L | 248,000 | 0.10 | % | cash | ||||||
| Party M | 99,200 | 0.04 | % | cash | ||||||
| Party N | 99,200 | 0.04 | % | cash | ||||||
| Total | 248,000,000 | 100 | % | |||||||
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(2) Party D and the Project Company are responsible for actively striving for the Fund to invest in the project by way of equity investment. The Fund’s share shall not exceed 12.5%. In any case, Party B shall, promptly upon the written request of PartyA, transfer its 12.5% interest of the Project Shares to the Fund or such other party or parties designated by Party A, in each case without the payment of any consideration to Party B.
(3) Party A has the option but not the obligation to purchase the 4% equity interest in the Project Company held by Party D within 5 years (specific purchase time shall be determined by Party A), at cost plus an annualized interest rate of not more than 4.65%.
(4) Total investment in fixed assets for the first phase of the project shall not exceed RMB 620 million yuan, with the Project Company contributing 40% of the total investment (RMB 248 million) and 60% (RMB 372 million) being funded by bank loans.
(II) Governance of the Project Company.The Project Company shall be governed by a board of direcotrs, which shall be comrprised of the members of the board of directors of Party A. No decision with respect to the management or operation of the Project Company may be taken without the express written approval of Party A. The Project Company shall provide each Party with a semi-annual financial report, which shall be audited by SDH’s auditors and provided to the Parties no later than 90 calender days after the end of the reporting period.
III. Construction Requirements
(I) Party A shall complete the relevant decision-making procedures as soon as possible after the signing of this Agreement, and submit to Party D in a timely manner the planning and design drawings of the Investment Project, the project promotion plan and other information, which shall be reviewed and approved by Party D. The project shall be planned and constructed in strict accordance with the red line map and planning requirements of the plot by the relevant construction authorities.
(II) The Project Company shall be responsible for the construction of the plant and ancillary facilities, and procurement of equipment for the Investment Project. Party D shall actively cooperate with the Project Company for project approval, energy-saving assessment, environmental assessment procedures and other production and operation-related procedures. The survey, design, construction and acceptance of the plant shall be carried out independently by the Project Company in accordance with the relevant laws and regulations. Party A shall provide assistance in implementation of audit and administrative approval.
(III) Party D shall coordinate in handling the “three simultaneous” safety formalities and “three simultaneous” environmental formalities, so as to ensure that the project’s construction and production and operation is not affected thereby.
IV. Benefit Analysis
(I) Based on the estimation of the Parties, the project is anticipated to achieve annual sales revenue of RMB 1.68 billion, net profit after tax of RMB 289 million and total tax payment of RMB 103.9 million after the project is completed and put into operation, and is expected to provide over 500 jobs.
V. Project Land
(I) The Project Company will acquire land through “tender, auction and sale” and other legal procedures after it is established. Nature of the land is for industrial use.
Price of the land shall be determined by the land resources authorities through legal procedures of “tender, auction and sale”, and the final price shall be based on the winning bid. Party D will actively coordinate and cooperate with the Project Company in the implementation of this Agreement to obtain the corresponding land use rights through “tender, auction and sale” and other legal procedures.
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(II) After acquiring the use right of the project land, the Project Company shall, within the period stipulated in the “State-owned Land Use Right Transfer Contract”, perform the agreed obligations and statutory obligations such as payment of land premium to the other party, and shall bear the corresponding liabilities for breach of contract.
(III) After the Project Company acquires the land use right through the legal procedures such as “tender, auction and sale”, Party A shall actively coordinate with relevant authorities to carry out land acquisition, demolition and relocation, etc.
Party D shall provide road, power, drainage, gas pipeline and telecommunication cable connections to the project land delivered by it to the Project Company, and bear all expenses incurred thereby. Party D shall be responsible for the roads, and the connection of power, drainage, gas pipeline and telecommunication cable inside the project land.
The Project Company shall bear the costs associated with the use of electricity, gas, telecommunication, etc.
(IV) Party D shall guarantee that the land delivered to the Project Company by the relevant government organs in accordance with “State-owned Land Use Right Transfer Contract” shall have completed the relevant procedures such as industrial land planning and land acquisition.
The Project Company shall enjoy the full right to use the land after getting the land ownership documents, and can build the relevant plants and industrial facilities as scheduled, and get the relevant construction land planning permit, construction project planning permit, construction permit and real estate ownership certificate etc. as scheduled according to the approval procedure.
VI. Policy Support
(I) Party D shall actively strive for the relevant national tax incentives for the Project Company for the development of the project.
(II) Party D shall be responsible for coordinating local financial institutions and providing relevant financing guarantee platforms or other financing assistance for the Project Company on conditions that it does not violate national policies and relevant regulations of the New Area.
(III) Based upon project construction needs, affordable housing already completed in Yilong New Area can be offered to the Project Company at the construction cost. The parties shall sign a separate agreement for related matters.
(IV) For electricity consumed in project production, Party D shall be responsible for coordinating the power company to connect the 110kv high-voltage power supply line to the project land, and guarantee power supply to the production of the Project Company.
(V) All electricity to be provided by Party D for the Investment Project shall all be clean energy, and the government shall be responsible for assisting in handling relevant procedures.
(VI) Party D shall actively support and assist Party A to connect with various financial institutions to handle financing for the Project Company.
(VII) SDH, the parent company of Party A, is a NASDAQ-listed company, and the project is in line with national laws and regulations for foreign investment, and Party D shall cooperate to report the Project Company as a provincial-level key project to the relevant project platform and strive for more foreign investment policy support. All of the Nasdaq listed Company’s (including Party A) obligations hereunder are subject to such company obtaining the approval of its shareholders, which Party A undertakes to collaborate with SDH to obtain as expeditiously as possible. Pending said shareholder approval, which Party A fully expects, without limiting the generality of the foregoing, any advanced payment made by Party A in connection with formation of the Project Company shall be returned to Party A if Party A’s parent company (SDH) is unable to obtain the required shareholder approval.
(VIII) If Project Company enters into labor contract for a year or more with college graduates who have not been employed within 2 years after leaving school, and pays social insurance premiums for them, Project Company shall be given social insurance subsidies for a maximum of 1 year.
(IX) Party D shall cooperate with Party A for the approval and related procedures necessary for construction, production and operation of the Project Company, with the relevant handling fees paid by the Project Company; coordinate with relevant authorities and handle issues that may arise in connection with project construction, production and operation, and maintain the normal construction, production and operation and legitimate rights and interests of the Project Company.
(X) Party D shall cooperate with the Project Company to handle the electricity and energy consumption indexes and environmental assessment approval procedures required to meet the integrated production of 30,000 tons of anode materials, and reserve energy consumption and emission indexes for Phase 2 production and construction.
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Signature of Party F:
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Signature of Party G:
| WANG Li | /s/ Wang Li |
Signature of Party H:
| ZENG Dongqing | /s/ ZENG Dongqing |
Signature of Party I:
| REN Zhong | /s/ REN Zhong |
Signature of Party J:
| CHENG Chuanya | /s/ CHENG Chuanya |
Signature of Party K:
| XU Saiqin | /s/ XU Saiqin |
Signature of Party L:
| SUN Yong | /s/ SUN Yong |
Signature of Party M:
| WANG Gao | /s/ WANG Gao |
Signature of Party N:
| SHEN Xinyi | /s/ SHEN Xinyi |
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Exhibit 4.14
Electronic supervision number: 5223282021B00341
State-owned Construction Land Use Right
Assignment Contract
|
By： Ministry of Natural Resources of the PRC State Administration for Industry and Commerce of the PRC |
Contract No: YL5223011CR-2021-55
State-owned Construction Land Use Right Assignment Contract
Contract number: YL5223011CR-2021-55
State-owned Construction Land Use Right
Assignment Contract
The parties to this contract:
Transferor: Natural Resources Bureau of Qianxinan Prefecture, Yilong New District Branch;
Mailing address: Building 1, Lutun Administrative Center, Longxin District ;
Postal Code: / ;
Tel: 0859-3521095 ;
Fax: / ;
Account Bank: / ;
Account: / .
Transferee: Sunrise (Guizhou) New Energy Materials Co., Ltd. ;
Mailing address: Group 2, Heying Village, Lutun Town, Yilong New District, Qianxinan Prefecture, Guizhou Province (next to Yilong Avenue) ;
Postal Code: / ;
phone: / ;
Fax: / ;
Account Bank: / ;
Account: / .
Chapter I General Provisions
Article 1 According to the “Property Law of the People’s Republic of China”, “Contract Law of the People’s Republic of China”, “Land Administration Law of the People’s Republic of China”, “Urban Real Estate Administration Law of the People’s Republic of China” and other laws, relevant administrative regulations and land supply policies, both parties are based on equality, voluntary, paid, good faith principle, to conclude this contract.
Article 2 The ownership of the transferred land belongs to the People’s Republic of China, and the transferor transfers the right to use state-owned construction land according to the authorization of the law. Underground resources and buried objects do not belong to the scope of the transfer of the right to use state-owned construction land.
Article 3 The transferee shall enjoy the rights to possess, use, benefit from, and dispose on the state-owned construction land obtained according to the law, and shall have the right to use the land to build buildings, structures and their ancillary facilities according to law.
Chapter II Delivery of Assigned Land and Payment of Assignment Price
Article 4 The number of the land to be transferred under this contract is No. 2021-72 , the total land area is 260,543 square meters, where project area is 260,543 square meters.
The land transferred under this contract is located in Lianxin Village, Longguang Town and Xinqiao Village, Xinqiao Town .
The plane boundary address of the land to be transferred under this contract is / ; See Annex 1 for the plane boundary map of the land to be transferred .
The vertical limit of the land to be transferred under this contract shall be determined by / as the upper limit, / as the lower limit, and the height difference is / m. See Annex 2 for the vertical boundaries of the land to be sold .
The space range of the land to be leased is the space range formed by the vertical plane formed by the above-mentioned boundary points and the upper and lower boundary elevation planes.
Article 5 The purpose of the land to be transferred under this contract is Industrial land .
Article 6 The transferor agrees to transfer the land to the transferee before June 10th,2022. The transferor agreed that the land should reach the conditions specified in this article at the time of delivery of the land. The land conditions specified in subparagraph ( 1 ) :
(1) The leveling of the site reaches /
;
The surrounding infrastructure reaches /
;
(2) Current land conditions /
2
.
Article 7 The term of assignment of the state-owned construction land use right under this contract is 50 years,/ shall be counted from the date of delivery of the land as stipulated in Article 6 of this contract; if the right to use state-owned construction land was originally allocated (leased) and the transfer procedures are completed, the transfer period shall be counted from the date of signing the contract.
Article 8 The transfer price of the state-owned construction land use right under this contract shall be RMB 44292310 yuan, which is RMB 170 yuan per square meter.
Article 9 The deposit for the land under this contract is RMB / yuan , the deposit should be used as the land transfer price.
Article 10 The transferee agrees to pay the transferor the transfer price of the state-owned construction land use right according to the provisions of item ( 2 ) as following :
(1) From the date of signing this contract, the transfer price of the state-owned construction land use right shall be paid off in one installment;
(2) The transfer price of the state-owned construction land use right shall be paid to the transferor in two installments according to the following time and amount.
2ndinstallment: RMB 22145000 yuan, payment deadline is March 21 , 2022. 1st installment: RMB 22147310 yuan , payment deadline is January 21 , 2022;
If the transfer price of the state-owned construction land use right is paid in installments, the transferee shall agree to pay the loan interest of the second and subsequent installments from the date of first installment. The interest rate is as announced by the People’s Bank of China.
Article 11 The transferee shall apply for the registration of the transfer of the right to use the state-owned construction land after paying off all the transfer price of land as agreed in this contract, showing the contract and the transfer price payment voucher and other relevant certification materials.
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Chapter III Land Development, Construction and Utilization
Article 12 The transferee agrees that the land development investment intensity under this contract shall be in accordance with the provisions of this article. / Item stipulates that:
(1) land under this contract is used for the construction of industrial projects, and the transferee agrees that the total investment in fixed assets of land under this contract shall not be lower than the approved or registered amount, RMB, the investment intensity shall not be lower than the capital case of RMB / yuan per square meter. The total fixed assets investment of the land construction project under this contract includes buildings, structures and their ancillary facilities, equipment investment and transfer price, etc.
(2) land under this contract is used for the construction of non-industrial projects, and the transferee undertakes that the total investment in the development of land under this contract shall not be less than RMB / yuan.
Article 13 If the transferee builds new buildings, structures and ancillary facilities within the scope of land under this contract, it shall comply with the planning conditions for the land to be transferred as determined by the planning management department of the city (county) government (see Annex 3 ). in:
The nature of the main building Industrial ;
the nature of ancillary buildings / ;
The total construction area is 260,543 square meters;
The building area ratio is not higher than / and not less than 0.70 ;
Building height not higher than / not less than / ;
The building density is not higher / not lower than 30% ;
Green space rate is not higher than 20% and not lower than / ;
Other land use requirements should strictly follow the planning requirements.
Article 14 The transferee agrees that the construction facilities of land under this contract shall be implemented in accordance with the provisions of item ( 1 ) of this article :
(1) land under this contract is used for the construction of industrial projects. According to the planning and design conditions determined by the planning department, the area of land assigned in this contract for the internal administrative office and living service facilities of the enterprise shall not exceed the area of / % the land, that is, not more than / square meter.The building area does not exceed / square meter. The transferee agrees not to construct non-productive facilities such as complete houses, expert buildings, hotels, guest houses and training centers within the scope of the land;
(2) land under this contract is used for the construction of residential projects. According to the planning and construction conditions determined by the planning and construction management department, the total number of residential buildings within the scope of the land transferred under this contract shall not be less than / set. Among them, the number of housing units with a building area of less than 90 square meters shall not be less than / set, the housing construction set type requirement is / . The proportion of housing area below 90 square meters in the total area of development and construction of the land within the scope of this contract shall not be less than / %. The affordable housing, low-rent housing and other government indemnificatory housing built within the scope of land under this contract, the transferee agrees to build it according to the provisions of / way to perform:
1 . handed over to the government;
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2 . repurchased by the government;
3 . It shall be implemented in accordance with the relevant government regulations on the construction and sales management of affordable housing;
4 . / .
Article 15 The transferee agrees to simultaneously construct the following supporting engineering projects within the land under this contract, and hand over them to the government free of charge after completion:
/
Article 16 The transferee agrees that the land construction project under this contract shall be started before June 30th 2023, and finished before June 30th 2026.
If the transferee cannot start construction on time, it shall apply to the transferor for extension of construction 30 days in advance. If the transferor agrees to extend the construction, the completion time of the project shall be extended accordingly, but the extension period shall not exceed one year.
Article 17 When the transferee builds in land under this contract, the water, gas, sewage and other facilities and the main line outside the land, the interface of the electricity substation and the introduction project shall be handled in accordance with the relevant regulations.
The transferee agrees that the various pipelines laid by the government for the needs of public utilities enter and exit, pass through, and pass through the transferred land, but if the use function of the transferred land is affected, the government or the public utility construction entity shall give reasonable compensation.
Article 18 The transferee shall use the land in accordance within the function and ratio of land stated in this contract, and shall not change it without authorization. During the assignment period, if it is necessary to change the land use stipulated in this contract, both parties agree to comply with the provisions of this article. Item ( 2 ) stipulates that:
(1) The transferor shall recover the right to use the construction land with compensation;
(2) Going through the approval procedures for changing the land use in accordance with the law, signing an agreement on the modification of the state-owned construction land use right assignment contract or re-signing the state-owned construction land use right assignment contract, and the transferee shall evaluate the market for the construction land use right under the new land use at the time of the approval change. The difference between the price and the assessed market price of the construction land use right under the original land use shall be paid for the transfer price of the state-owned construction land use right, and the land change registration shall be processed.
Article 19 During the term of use of land under this contract, the government reserves the right to adjust the planning of land under this contract. If the original plan is modified, the existing buildings on land will not be affected. When the buildings, structures and their ancillary facilities are remodeled, renovated or reconstructed, or when the time limit expires, the application for renewal must be carried out in accordance with the plan in effect at that time.
Article 20 The right to use state-owned construction land legally used by the transferee shall not be withdrawn by the transferor before the expiry of the term of use stipulated in this contract; under special circumstances, the right to use state-owned construction land needs to be withdrawn in advance according to social and public interests, the transferor shall apply for approval in accordance with legal procedures, and shall compensate the land user according to the value of the buildings, structures and their ancillary facilities on the ground at the time of recovery, the assessed market price of the right to use state-owned construction land for the remaining term, and the direct losses identified by the assessment.
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Chapter IV Transfer, Lease and mortgage of State-owned Construction Land Use Rights
Article 21 The transferee shall pay the transfer price of all the state-owned construction land use rights as agreed in this contract, and after receiving the state-owned land use certificate, has the right to transfer, lease or mortgage all or part of the state-owned construction land use rights under this contract . For the first transfer, it shall comply with the provisions of this article. The conditions set out in subparagraph ( 1 ) :
(1) Invest in development in accordance with this contract, and complete more than 25% of the total development investment;
(2) The investment and development are carried out in accordance with this contract, and the conditions for industrial land or other construction land have been formed.
Article 22 Contracts for assignment, lease and mortgage of the right to use state-owned construction land shall not violate the provisions of national laws and regulations and the stipulations in this contract.
Article 23 After the transfer of state-owned construction land use rights in whole or in part, the rights and obligations stated in this contract and the land registration documents will be transferred accordingly. The remaining years of state-owned construction land use rights is defined years of this contract minus years already used.
After the lease of all or part of the state-owned construction land use rights under this contract, the rights and obligations stated in this contract and the land registration documents shall still be borne by the transferee.
Article 24 If the right to use state-owned construction land is transferred or mortgaged, both parties to the transfer and mortgage shall apply to the natural resource management department for land change registration with this contract, the corresponding transfer and mortgage contract and the state-owned land use certificate.
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Chapter V Expiration of Term
Article 25 When the term of use stipulated in this contract expires, if the land user needs to continue to use the land under this contract, he shall submit a renewal application to the transferor no later than one year before the expiry date. The transferor shall approve to renew unless the land should be withdraw for the social public interests.
When the term of the right to use the land for residential construction expires, it shall be renewed automatically.
If the transferor agrees to renew the term, the land user shall go through the procedures for land use with compensation such as transfer and lease according to law, sign a new contract for land use such as transfer, lease, etc., and pay the land transfer price, rent and other land use fees.
Article 26 When the land transfer period expires and the land user applies for renewal, but the approval is not approved due to social and public interests, the land user shall return the state-owned land use certificate, and go through the cancellation registration of the state-owned construction land use right in accordance with the regulations, reclaimed by the transferor free of charge. The transferor and the land user agree that the buildings, structures and their ancillary facilities on the land under this contract shall be performed in accordance with the provisions of item ( 1 ) of this article :
(1) The above-ground buildings, structures and their ancillary facilities shall be recovered by the transferor, and corresponding compensation shall be given to the land user according to the residual value of the above-ground buildings, structures and their ancillary facilities at the time of recovery;
(2) The above-ground buildings, structures and their ancillary facilities shall be recovered by the transferor free of charge.
Article 27 When the land grant period expires and the land user does not apply for renewal, the land user shall return the state-owned land use certificate, and handle the cancellation registration of the state-owned construction land use right in accordance with the regulations, and the state-owned construction land use right shall be recovered by the transferor free of charge. The buildings, structures and their ancillary facilities on the land under this contract shall be recovered by the transferor free of charge, and the land user shall maintain the normal use of the above-ground buildings, structures and their ancillary facilities, and shall not destroy them artificially. If the above-ground buildings, structures and their ancillary facilities lose their normal use functions, the transferor may require the land user to move or dismantle the above-ground buildings, structures and their ancillary facilities, and restore the level of the site.
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Chapter VI Force Majeure
Article 28 If either party to the contract fails to perform part or all of this contract due to force majeure, it can be exempted from liability, but all necessary remedial measures should be taken under conditions to reduce losses caused by force majeure. Force majeure that occurs during the delay in performance by the parties does not have the effect of exemption from liability.
Article 29 The party in the event of force majeure shall notify the other party of the force majeure situation in writing by letter, telegram, fax, etc. within 7 days, and within 15 days after the occurrence of force majeure, submit to the other party that part or all of this contract cannot be performed or report and proof of delayed performance.
Chapter VII Liability for Breach of Contract
Article 30 The transferee shall, in accordance with this contract, pay the transfer price of the state-owned construction land use right on time. If the transferee fails to pay the transfer price of the state-owned construction land use right on time, from the date of overdue payment, the delayed payment shall be paid on a daily basis of 0.3 ‰ fine to the transferor. If the payment is delayed for more than 60 days, and not be paid after the transferor urges notice, then the transferor has the right to terminate the contract, and the transferee has no right to request the return of the deposit. The transferor may request the transferee to compensate for the loss.
Article 31 If the transferee terminates the investment and construction of the project due to its own reasons, and proposes to the transferor to terminate the performance of this contract and request the return of the land, the transferor shall, after reporting to the government that originally approved the land transfer plan for approval, follow the following agreements respectively, refund all or part of the transfer price (without interest)except the deposit stipulated in this contract, and recover the state-owned construction land use right. The transferor may also require the transferee to remove the built buildings, structures and their ancillary facilities, and restore the site level; however, if the transferor is willing to continue to use the existing buildings, structures and their ancillary facilities within the scope of the land, the transferee shall be compensated for:
(1) If the transferee applies to the transferor no less than 60 days before the end of first year of the construction start date as agreed in this contract , the transferor shall refund the transfer price paid by the transferee after deducting the deposit;
(2) If the transferee applies to the transferor no less than 60 days before the end of second year of the construction start date as agreed in this contract, the transferor shall deduct the deposit stipulated in this contract, as well as the land idle fee in accordance with the regulations, and the remaining paid price shall be returned to the transferee.
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Article 32 If the transferee causes the land to be left idle for a period of more than one year but less than two years, it shall pay the land idle fee according to law; if the land has been idle for two years and construction has not started, the transferor has the right to take back the right to use the state-owned construction land free of charge.
Article 33 If the transferee fails to start construction on the date agreed in this contract or delays to start, the transferee shall pay the transferor 0.3 ‰ of the total amount of transfer price for each day of delay. The transferor has the right to require the transferee to continue to perform the contract.
If the transferee fails to complete the project according to the date agreed in this contract or delays to complete,the transferee shall pay the transferor 0.3 ‰ of the total amount of transfer price for each day of delay. The transferor has the right to require the transferee to continue to perform the contract.
Article 34 If the total fixed assets investment, investment intensity and total development investment of the project do not meet the standards stipulated in this contract, the transferor may require the transferee to pay liquidated damages. The proportion of liquidated damages to the transfer price should be same as proportion of the actual investment to the agreed total investment.The transferee may be required to continue to perform the contract.
Article 35 If any one of the indicators such as the plot ratio and building density of land under this contract is lower than the minimum standard agreed in this contract, the transferor may request the transferee to pay liquidated damages based on the proportion of the actual difference to the agreed minimum standard. The transferor has the right to require the transferee to continue to perform this contract. If any one of the indicators such as building plot ratio and building density is higher than the highest standard stipulated in this contract, the transferor has the right to recover the area part higher than the agreed maximum standard, and has the right to require the transferee to pay liquidated damages equivalent to the same proportion of the transfer price according to the proportion of the actual difference to the agreed standard.
Article 36 If any one of the indicators, such as the green space ratio of the industrial construction project, the proportion of the land used for the internal administrative office and living service facilities of the enterprise, and the building area of the internal administrative office and living service facilities of the enterprise, exceeds the standard stipulated in this contract, the transferee shall pay the transferor liquidated damages of 0.1 ‰ of the total transfer price L, and the corresponding greening and building facilities shall be demolished by the transferee.
Article 37 If the transferee pays the transfer price of the state-owned construction land use right as agreed in this contract, the transferor must deliver the transferred land on time in accordance with the contract. If the transferor does not provide the transfer land on time and leads to the transferee’s possession of land under this contract postponed, the transferor shall pay liquidated damages of 0.1 ‰ of the total transfer price each day to the transferee. If the transferor delays the delivery of the land for more than 60 days and still fails to deliver the land after being urged by the transferee, the transferee has the right to rescind the contract, and the transferor shall return double the deposit to the transferee, as well as any other payment that has been paid. The transferee may request the transferor to compensate for the loss.
Article 38 If the transferor fails to deliver the land on time or the delivered land fails to meet the land conditions stipulated in this contract or unilaterally changes the land use conditions, the transferee has the right to require the transferor to perform its obligations in accordance with the stipulated conditions, and compensate the transferee for losses caused by the delay. The term count of the land use period begins after the land delivered meets the conditions stated in this agreement.
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Chapter VIII Applicable Law and Dispute Resolution
Article 39 The draft, validity, interpretation, performance and dispute resolution of this contract shall be governed by the laws of the People’s Republic of China.
Article 40 Disputes arising from the execution of this contract shall be resolved through negotiation between the two parties.If the negotiation fails, the dispute resolution shall be implemented according to item (2) of this article:
(1) Submit / Arbitration Commission Arbitration;
(2) File a lawsuit to the court in accordance with the law.
Chapter IX Supplementary Provisions
Article 41 The land transfer plan under this contract has been approved by the People’s Government of the Yilong New District Management Committee . This contract will take effect from the date of signing by both parties.
Article 42 Both parties to this contract guarantee that the names, mailing addresses, telephone numbers, fax numbers, account opening banks, agents, etc. filled in this contract are true and valid . If one party’s information changes, it shall notify the other party in writing within 15 days from the date of the change. Otherwise, it shall be responsible for the failure to inform the other party in time.
Article 43 This contract and its annexes consist of a total of 21 pages, and the Chinese version shall prevail.
Article 44 The price, amount, area and other items of this contract shall be expressed in uppercase and lowercase at the same time, and the amounts in uppercase and lowercase shall be consistent.
Article 45 Matters not covered in this contract can be agreed upon by both parties as an annex to the contract, which has the same legal effect as this contract.
Article 46 This contract is in triplicate , one copy for the transferor and two copies for the transferee.
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| Transferor (Seal): | Transferee (Seal): |
| Legal representative | Legal representative |
| (authorized agent) | ( authorized agent ) : |
| (signature): | (signature): |
December 24, 2021
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Attachment 1
Transfer Land Boundary Flat Plan
Scale bar: 1:
12
Attachment 2
Transfer Land Boundary Vertical Limit
Elevation system used:
Scale bar: 1 :
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Attachment 3
Land Map
Land No.:2021-72
2779.20-35523.75
Date: Nov 11,2021
14
Exhibit 4.15
Zibo Shidong Digital Technology Service Co, Ltd.
and
Lishui Huiwang Investment Partnership (Limited Partnership)
Hangzhou Wangxin Information Holdings Co., Ltd.
Wangxin Technology Innovation Industry Development Group Co., Ltd.
Of
Capital Increase Agreement
about
Zhejiang Wangxin Health Technology Co., Ltd.
February 20, 2021
Zhejiang Wangxin Health Technology Co., Ltd.
Capital Increase Agreement
This "Capital Increase Agreement" (hereinafter referred to as the "Agreement") was signed by the following parties in Hangzhou, Zhejiang Province on February 20, 2021:
(1)Zibo Shidong Digital Technology Service Co, Ltd. (hereinafter referred to as the "Subscriber") is a limited liability company legally established and validly existing in accordance with the laws of the People's Republic of China. Its registered address is Room 1501, 15th Floor, Financial Center Building, No. 228 West Renmin Road, Ma Shang, Zhangdian District, Zibo City, Shandong Province. Its legal representative is Shen Yuandong.
(2)Lishui Huiwang Investment Partnership (Limited Partnership) (hereinafter referred to as the "Original Shareholder"), is a limited partnership legally established and continued in accordance with the laws of the People's Republic of China, and its registered address is Room 308, No. 22 Tuanjie Road, Hongxing Street, Jingning Jinzu Autonomous County, Lishui City, Zhejiang Province. Its Executive Partner is Zhang Sigang.
(3)Hangzhou Wangxin Information Holdings Co., Ltd. (hereinafter referred to as the "Original Shareholder") is a limited liability company legally established and validly existing in accordance with the laws of the People's Republic of China. Its registered address is No. 2601-6, Building 4, New Shuangcheng Building,1785 Jianghan Road, Changhe Street, Binjiang District, Hangzhou City, Zhejiang Province. Its legal representative is Zhao Jian.
(4)Wangxin Technology Innovation Industry Development Group Co., Ltd. (hereinafter referred to as the "Original Shareholder") is a limited liability company legally established and validly existing in accordance with the laws of the People's Republic of China. Its registered address is Room 2401-1, Building 4, Wangxin Shuangcheng Building, No. 1785 Road,Jianghan, Changhe Street, Binjiang District, Hangzhou City, Zhejiang Province. Its legal representative is Zhang Sigang.
Each of the foregoing parties is referred to individually as a "Party" and collectively as the "Parties".
Zhejiang Wangxin Health Technology Co., Ltd. hereinafter referred to as the “target company”.
Given:
(1) As of the date of signing this agreement, the registered capital of the target company is RMB 50 million and the paid-in capital is RMB 0.
(2) The subscriber intends to subscribe for the new registered capital of the target company in accordance with the terms and conditions of this agreement, and the original shareholders and the target company are willing to accept the subscription of the registered capital of the target company by the subscriber and to increase the capital in accordance with the terms and conditions of this agreement (the following: referred to as "the capital increase").
After friendly negotiation, the parties have reached an agreement on the matters related to this capital increase on the basis of equality and mutual benefit as follows:
1. This Capital Increase
1.1 The pre-investment valuation of the target company for this investment is RMB 300 million, and its registered capital will be increased from RMB 50 million to RMB 51.1 million, with an additional registered capital of RMB 1.1 million (hereinafter referred to as "new capital contribution"). The subscriber contributed RMB 6.6 million (hereinafter referred to as the "investment fund") to subscribe for the above-mentioned new capital contribution, of which RMB 1.1 million was included in the registered capital of the target company, and the premium amount of RMB 5.5 million was included in the capital surplus of the target company.
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1.2 After the completion of this capital increase, the shareholding ratio of the subscriber in the target company is 2.15%.
2. Investment Payment
2.1 The Subscriber shall pay the investment funds through bank remittance to the bank account opened by the target company which has been notified in writing by the target company in advance.
2.2 The Subscriber shall bear the remittance fees, handling fees and other related miscellaneous fees charged by the paying bank for the investment payment, and the target company shall bear the remittance fees, handling fees and other related fees charged by the receiving bank for the investment payment.
3. Delivery Conditions
Payment of the investment under this Agreement is subject to the satisfaction of the following conditions precedent or waived in writing by the Subscriber:
3.1 As of the date of this Agreement, all representations and warranties under this Agreement are true, accurate, complete and not misleading.
4. Representations and Warranties
4.1 The original shareholders, the target company and the subscriber all make the following representations and warranties, and such representations and warranties are true, accurate and not misleading on the date of signing this agreement;
4.1.1 It is a legal entity legally established and validly existing in accordance with the law of the place where it is established, and can independently be the subject of litigation;
4.1.2 It has all the necessary capabilities, powers and authorizations to sign and perform this Agreement, and this Agreement constitutes a binding legal obligation on it;
4.1.3 Its execution and performance of this Agreement will not:
(1) Violating its business license (or its similar establishment documents), articles of association, partnership agreement or other binding organizational documents;
(2) Cause it to violate the contract, agreement or other legal document that is binding on it;
(3) Make it violate any laws, regulations, departmental rules, normative documents, orders or decisions of any administrative department, or rulings, awards or judgments of any arbitration institution or judicial department.
4.1.4 Unless otherwise stipulated in this Agreement, it is not required to obtain the consent, approval, permission or and authorization of any government department or third party for its execution of this Agreement, its performance of its obligations under this Agreement, or its execution and completion of this capital increase;
4.1.5 There are no lawsuits, arbitrations or other legal proceedings brought against it, pending or threatening to initiate or potentially affect the execution or performance of this Agreement.
5. Corporate Governance
5.1 After the completion of the delivery, all parties shall enjoy corresponding rights and undertake corresponding obligations according to their respective shareholding ratios in the target company. The parties agree to amend the articles of association of the target company according to the content of this agreement.
5.2 The shareholders' meeting is the highest authority of the target company and decides all major matters of the target company. Shareholders exercise their voting rights in proportion to their paid-in capital contributions. The powers of the shareholders' meeting mentioned in Article 37 of the Company Law must be approved by shareholders representing half of the voting rights. Among them, the resolutions to amend the articles of association of the company, increase or decrease the registered capital, and the resolutions of the merger, division, dissolution or change of the company form made by the shareholders meeting must be approved by the shareholders representing 2/3 of the voting rights.
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6. Confidential Policy
6.1 The meaning of "confidential information" in this agreement refers to the information related to this agreement and the various arrangements under this agreement, except for the disclosure made in accordance with the following provisions, neither party to this agreement shall disclose it to any third party. However, such confidential information shall not contain any information that is not known to the public as a result of a breach of this term.
6.2 The following shall not be regarded as a breach of confidentiality:
6.2.1 If a party discloses confidential information to it due to the requirements of government agencies, judicial agencies or securities regulatory authorities, the party shall disclose confidential information only within the scope of such requirements, and make every reasonable effort to seek protection orders, confidentiality treatment or other appropriate relief. In such cases, the disclosing party shall provide only those portions that are legally required to be disclosed, and shall use reasonable efforts to maintain the confidentiality of such information to the extent reasonably required by the non-disclosing party;
6.2.2 Disclosure to the extent mutually agreed in writing by the parties.
7. Liability for Breach of Contract and Compensation
All parties shall perform their obligations in accordance with their respective responsibilities stipulated in this agreement, otherwise the failure to perform the contract constitutes a breach of contract and shall bear the corresponding liability for breach of contract in accordance with the law.
8. Applicable Law and Dispute Resolution
8.1 The conclusion, validity, interpretation, performance and dispute resolution of this Agreement shall be governed by laws of People's Republic of China.
8.2 All disputes arising from or related to this Agreement shall be resolved through friendly negotiation by all parties; if the dispute cannot be resolved through negotiation, the dispute (including disputes concerning the validity or existence of this Agreement) shall be submitted to the court where the target company is located.
9. Notice
Notices given by either party under this Agreement shall be in writing. The address at which each party receives notices shall be based on the domicile and address stated in this Agreement. Notifications can be delivered in person or by express mail. A notice delivered by hand shall be deemed delivered on the day it is delivered by hand. A notice delivered by express mail shall be deemed delivered on the third day after it is issued (counting from the date of delivery), regardless of whether the notified party refuses to receive it or has no one to take over.
10. Legal Validity
10.1 The attachments made in accordance with the principles stipulated in this agreement are integral parts of this agreement and have the same legal effect as other parts of this agreement.
10.2 This Agreement is made in 5 copies, and each party holds one copy, which has the same effect. This Agreement will take effect from the date of signature by the legal representatives or their authorized representatives of all parties.
(No text below this page)
4
(There is no text on this page, it is the signing page of the Capital Increase Agreement )
Target Company:
Zhejiang Wangxin Health Technology Co., Ltd. (seal)
Legal representative or authorized representative (signature or seal):
Signing page of the Capital Increase Agreement of Zhejiang Wangxin Health Technology Co., Ltd.
5
(There is no text on this page, it is the signing page of the Capital Increase Agreement )
Subscriber:
Zibo Shidong Digital Technology Service Co, Ltd. (seal):
Legal representative or authorized representative (signature or seal):
Signing page of the Capital Increase Agreement of Zhejiang Wangxin Health Technology Co., Ltd.
6
(There is no text on this page, it is the signing page of the Capital Increase Agreement )
Original shareholder:
Lishui Huiwang Investment Partnership (Limited Partnership) (Seal)
Legal representative or appointed representative (signature or seal)
Signing page of the Capital Increase Agreement of Zhejiang Wangxin Health Technology Co., Ltd.
7
(There is no text on this page, it is the signing page of the Capital Increase Agreement )
Original shareholder:
Hangzhou Wangxin Information Holdings Co., Ltd. (seal):
Legal representative or appointed representative (signature and seal):
Signing page of the Capital Increase Agreement of Zhejiang Wangxin Health Technology Co., Ltd.
8
(There is no text on this page, it is the signing page of the Capital Increase Agreement )
Original shareholder:
Wangxin Technology Innovation Industry Development Group Co., Ltd. (seal)
Legal representative or appointed representative (signature or seal):
Signing page of the Capital Increase Agreement of Zhejiang Wangxin Health Technology Co., Ltd.
9
Exhibit 4.16
Global Mentor Board (Beijing) Information Technology Co, Ltd.
and
Beijing Zhitong Zhenye Technology Co., Ltd.
and
Li Jiyou
Beijing Tax Star Technology Co., Ltd.
Of
Investment Agreement
April 11 , 2021
Content
| Article 1 Definition | 2 |
| Article 2 Prerequisites for Investment | 3 |
| Article 3 Investment Plan | 3 |
| Article 4 Change Registration Procedures | 4 |
| Article 5 Equity Transfer | 4 |
| Article 6 Corporate Governance | 4 |
| Article 7 Non-compete | 6 |
| Article 8 Guarantees and Commitments | 6 |
| Article 9 Equity Repurchase | 7 |
| Article 10 Breach of Contract and Liability | 7 |
| Article 11 Modification, Cancellation and Termination of the Agreement | 8 |
| Article 12 Dispute Resolution | 9 |
| Article 13 Supplementary Provisions | 9 |
i
This agreement is made and signed by the following parties in 2021 April 11 at Beijing :
| (1) | Party A: Global Mentor Board (Beijing) Information Technology Co, Ltd. |
Address: Room 350, 3rd Floor, East District, Building 6, Yard 1, Shangdi 10th Street, Haidian District, Beijing
| (2) | Party B: |
Shareholder 1: Beijing Zhitong Zhenye Technology Co., Ltd.
Shareholder 2: Li Jiyou
| (3) | Party C: Beijing Tax Star Technology Co., Ltd. |
Company address: Unit 203, 2nd Floor, Building 5, District 3, Hanwei International Plaza, Building 186, South Fourth Ring West Road, Fengtai District, Beijing
Legal representative: Li Jiyou
Given:
| 1 | Party A is an enterprise established and existing under the laws of the People’s Republic of China. Global Global Mentor Board (Beijing) Information Technology Co, Ltd. is a national high-tech enterprises of information and technology, mainly in business of Internet information service, knowledge sharing service, enterprise ecological service, technology incubator, education and training service, investment and financing service, and industrial projects, etc. Founded by Hu Haiping, China’s top ten outstanding CEOs, executive vice president of Beijing Zhejiang Merchants Association, Glorious Zhejiang Merchants, and former CEO of Shanshan Group, it digitizes human wisdom through blockchain technology, so that the intangible wisdom can be evaluated, quantified, and available in platform trading. The goal of the company is to build the world’s leading intelligent trading platform. The company is US NASDAQ public listed with the stock ticker: SDH. |
| 2 | Party B is the shareholder of Party C, among which |
Party B Shareholder 1 holds 95 % of Party C’s equity,
Party B Shareholder 2 holds 5 % of Party C’s equity;
| 3 | Party C (Unified Social Credit Code: 911101083063849408 ) , the registered capital is RMB 10 million yuan, and the legal representative is : Li Jiyou . Its business scope is: online tax management system (hereinafter referred to as “Party C” or “Target Company”); |
| 4 | Based on the early investment communication and decision-making of Party A and Party B, Party A will directly invest in Party C. |
1
All the parties have reached an agreement through friendly communication as follows:
Article 1 definition
1.1 Unless the context of this Agreement otherwise requires, the following words have the following meanings:
|
parties or parties to the agreement |
Refers to the investor and target company and existing shareholders . |
| target company or company | Refers to Party C : Beijing Tax Star Technology Co., Ltd. |
| existing shareholders | the shareholders registered in the target company before this investment , namely Party B. |
| Party B | Party B 1 and Party B 2 refer to Beijing Zhitong Zhenye Technology Co., Ltd.and Li Jiyou , collectively referred to as Party B. |
| The actual controller | Li Jiyou |
| investor | Namely Party A : Global Mentor Board (Beijing) Information Technology Co, Ltd. |
| this agreement | means this Investment Agreement. |
| this investment | Refers to the parties to the agreement completing the equity investment in Party B in accordance with the terms of this agreement. |
| investment completed | the investor’s obligation to complete the investment of a total investment amount of RMB 416,670,000 in accordance with this agreement . |
|
net profit
|
Refers to the operating net profit of Party C,which is a audited by an accounting firm approved by Party A.. |
| entitlement | means any security interest, pledge, charge, lien (including but not limited to tax priority, rescission and subrogation), lease, license, indebtedness,priority,restrictive undertaking, condition or restriction of any kind, including but not limited to any restriction on use, voting, assignment, proceeds, or other exercise of any interest in ownership. |
| material adverse change | means any circumstance, change or effect concerning the business of the Company or the Company itself (including its controlled subsidiaries): such circumstance, change or effect alone or jointly with any other circumstance, change or effect of the Company: (a) on the business or the Company’s assets, liabilities (including, but not limited to, contingent liabilities), results of operations or financial condition that are or may be materially adversely affected, or (b) the Company’s ability to operate and conduct business in the manner in which it currently operates or conducts business have or may have serious adverse effects. |
| force majeure | Refers to events beyond the control of the parties to the agreement, unforeseeable, unavoidable or insurmountable, making the parties to this agreement partially or completely unable to perform this agreement. Such events include, but are not limited to, earthquakes, typhoons, floods, fires, wars, strikes, riots, government actions, changes in legal requirements or their application, or any other event that cannot be foreseen, avoided or controlled. |
| working day | Refers to the day other than Saturday, Sunday and statutory holidays stipulated by the government of the People’s Republic of China. |
| China | means the People’s Republic of China, and for the purpose of this Agreement, excludes Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan. |
| Yuan | Refers to the legal currency of the People’s Republic of China in RMB Yuan. |
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1.2 The headings of the terms of this Agreement are for convenience only and shall not affect the understanding of the terms of this Agreement.
1.3 “Party to the Agreement”, it means any of the parties to this Agreement .
Article 2 Preconditions for investment
2.1 The parties confirm that the payment of the investment price by Party A in accordance with this agreement is premised on the satisfaction of all the following conditions:
2.1.1 The representations, warranties and commitments of the parties to this agreement are true, accurate, complete and objective.
2.1.2 All parties agree to stipulate in the Articles of Association of Party C, in accordance with the terms of this agreement, including: investment plan terms, Party C governance terms, preemptive purchase, sale, liquidation, repurchase, Party C’s subsequent capital increase, etc.;
2.1.3 The annual performance numbers submitted by Party C in writing (2018, 2019 and 2020 ) are true and comprehensive , and the profit forecast is credible ;
2.1.4 All parties have agreed on the terms of this agreement and agreed to sign this agreement.
Article 3 Investment Plan
3.1 All parties confirm that the investment amount of Party A represents the post - investment valuation of Party C based on the forecast of future net profit , converted into RMB 200 million yuan ( ¥200000000 . 00 ) ( “post-investment valuation”), the valuation is based on the company’s profit forecast provided by Party B and Party C.
3.2 The registered capital of Party C is RMB (10 million) million yuan.
3.3 Party A valued Party C at a post-investment valuation of RMB 200 million ( ¥ 20000000.00 ) , and invest in Party C by RMB 8 million yuan (¥8000000.00 ) to obtain 4 % of the equity of Party C ’s company;
3.4 After the completion of this investment , the equity structure of Party C is shown in the table below:
| Shareholder name | Registered capital (ten thousand yuan) | Equity ratio | Type of capital | |||
| Beijing Zhitong Zhenye Technology Co., Ltd. | 950 | 91.2 % | currency | |||
| Li Jiyou | 50 | 4.8 % | currency | |||
| Global Mentor Board (Beijing) Information Technology Co, Ltd. | 41.667 | 4% | currency | |||
| total | 1041.667 | 100% |
3.5 All parties agree that Party A shall pay the first installment of investment of RMB 5 million to the account of Party C within 5 working days after the signing of the agreement, and the second installment of RMB 3 million within 15 working days after the signing of the agreement.
3.6 All parties agree that Party A ’s capital contribution obligations under this Agreement will be completed after Party A has paid the entire investment amount as agreed in Section 3.5 of this Agreement.
3.7 After Party A becomes a shareholder of the company, it shall enjoy all shareholder rights and assume corresponding shareholder obligations in accordance with the laws, this agreement and the Articles of Association of Party C.
3.8 If Party C is involved in the payable but unpaid taxes, registered capital , employee social insurance and housing provident fund debts before the completion of this investment (subject to the completion of the industrial and commercial registration change registration date) (except the debts that have been retrospectively adjusted ), it shall be borne by the existing shareholders of Party C.
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Article 4 Change Registration Procedures
4.1 All parties agree that Party B and Party C shall be responsible for handling the procedures for Party C’s equity change.
4.2 Party B and Party C shall complete the corresponding industrial and commercial registration and change registration procedures in accordance with the provisions of this Agreement, within 3 months from the date when Party A pays the investment to Party C’s account. Party A shall actively cooperate about the procedures.
4.3 Party C shall bear all the expenses required for the registration or filing procedures for industrial and commercial change .
Article 5 Equity Transfer
5.1 Without the written consent of Party A, Party B 1 shall not transfer more than 10% of its equity in Party C, and Party C’s controlling shareholder and actual controller shall not be changed.
5.2 Before Party C completes IPO or acquisition sale, if Party C issues new shares or other investment vehicles with equity nature to a third party, except equity incentives for Party C’s own staff, the following preconditions shall be met, including but not limited to:
(1) The investment valuation of the third party shall not be lower than the price of Party A’s investment this time (except if all the parties of this agreement agree);
(2) The third party shall recognize and abide the contents described in this agreement;
(3) Party A shall have the pre-emptive right of subscription when the capital is increased;
(4) If the third party has more favorable terms than this investment agreement (hereinafter referred to as “more favorable terms”), Party A is entitled to enjoy the same more favorable terms.
Article 6 Corporate Governance
6.1 All parties agree and guarantee that after the completion of this investment, Party C will set up a board of directors with 5 members, of which 1 director shall be recommended by Party A. All parties agree to vote in favor of the above-mentioned person nominated by Party A to be the director of the company at the first shareholders’ meeting held after the completion of the equity change.
6.2 All parties agree and guarantee that when the above-mentioned director nominated by Party A resigns or is dismissed, Party A shall continue to recommend and nominate a successor. If the director’s qualifications meet the relevant laws and regulations, all parties shall guarantee to vote in favor of such persons as directors of Party C at the relevant shareholders’ meeting .
6.3 The Articles of Association of Party C shall include and reflect the following matters as follows:
If it is a resolution of the board of directors, the resolution must be approved by more than half of the directors of Party C;
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If it is a resolution of the shareholders’ meeting, It must be approved by shareholders representing more than two-thirds (2/3) of the voting rights.
6.3.1 Any sale of Party C’s entire or transactions of substantially all assets including but not limited to: any merger, reorganization, sale of control, voluntary dissolution or liquidation, sale, change of company form, exclusive license of all or substantially all of Party C’s intellectual property rights to a third party, etc. ;
6.3.2 Mortgage the main operating assets of Party C and its controlled subsidiaries;
6.3.3 Increase or decrease the number of board of directors, the board of supervisors or any committee of the board of directors, and elect and replace directors and supervisors;
6.4 Party A enjoys the right to know and supervise the operation and management of Party C as a shareholder. Party A has the right to obtain Party C’s financial, management, operation, market or other information and materials. Party A has the right to make suggestions to the management of Party C and listen to the reports of the management of Party C on relevant matters. Party C shall provide Party A with the following materials and information on time:
6.4.1 Party C should provide its monthly and quarterly consolidated income statement and balance sheet to Party A, within 15 days from the last day of each month and within 30 days from the last day of the quarter. Party C should provide its semi-annual cash flow statement to Party A within 30 days from the end of each semi-annual;
6.4.2 Party C should provide its annual audit report to Party A within 120 days after the end of each fiscal year;
6.4.3 Party C should provide its annual business plan, annual budget and financial statements to Party A, within at least 15 days before the end of each fiscal year,;
6.4.4 Party B or Party C shall provide an opportunity for Party A and Party C to discuss and review relevant statements, reports, budgets and plans within 30 days after Party A receives the above statements or audit reports;
6.4.5 Party C should provide other statistical data, other financial and transaction information according to the content required by Party A, so that Party A can be properly informed of Party C’s information to protect its own interests. Whether to provide content involving commercial and core technical secrets is subject to consultation between the two parties.
5
Article 7 Non-compete
7.1 Without the written consent of Party A, Party B or Party C shall not independently establish or in any form (including but not limited to as shareholders, partners, directors, supervisors, managers, employees, agents, consultants, etc.) to join or with any other business entities that compete with the business of Party C.
7.2 Party B and Party C declare: As of the date of signing this agreement, Party B and Party C are not directly or indirectly controlled any other business entities that compete with the business of Party C. If any other business entities directly or indirectly controlled by Party B or Party C is engaged in business that constitutes or may constitute competition to Party C in the future, Party B and Party C promises to transfer or donate all such business to Party C within 30 working days from the date of discovery of such situation; if other methods are adopted, it must be approved by Party A in writing.
Article 8 Warranty and Commitment
The parties to this Agreement separately and not jointly represent, warrant and undertake as follows:
8.1 It is a legal representative duly established and validly existing in accordance with Chinese laws; or a citizen of the People’s Republic of China without dual nationality.
8.2 It has all and full rights and authorization to sign and perform this agreement, and has the capacity to sign this agreement in accordance with Chinese laws.
8.3 It warrants that all documents and materials it provides in connection with the signing of this Agreement are true, valid and complete.
8.4 The execution or performance of this Agreement shall not violate any material contract or agreement to which it is a party or binds itself or its related assets.
8.5 Its representative who signs this agreement has been fully authorized to sign this agreement according to a valid power of attorney or a valid legal representative certificate.
8.6 The representations, warranties and commitments made in this Agreement are true, correct and complete on the date this Agreement is signed, and remain true, correct and complete when and after this Agreement takes effect.
8.7 It warrants the full and proper performance of this Agreement in its entirety.
8.8 It warrants the confidentiality of the information contained in this Agreement, except for disclosures required by law or relevant regulatory bodies/authorities (as the case may be), and disclosures to intermediaries related to this Agreement.
6
Party B and Party C specifically undertake:
8.9 It has fully, detailed and timely disclosed to the relevant parties all the information and materials related to this investment that need to be known and mastered by all parties, and there are no major omissions, misleading and falsifications.
8.10 Party C’s signing, delivery and performance of this agreement will not violate the company’s Articles of Association, nor will it violate any contract, arrangement or understanding it has signed with a third party.
8.11 Except for the circumstances disclosed to Party A, as of the date of signing this Agreement, Party B and Party C have not had any major lawsuits or arbitrations with claims exceeding RMB 500,000, and have not received any lawsuits or applications in any form of notice for arbitration or administrative penalties.
Article 9 Share Repurchase
9.1 Choice of repurchase rights
After this round of investment, if Party C has any of the following major events, Party A has the right to request Party B to repurchase all the equity of Party C held by Party A, and the repurchase price is the principal of Party A’s investment:
9.1.1 Party C maliciously generates significant off-book sales revenue that Party A is not aware of;
9.1.2 Without the knowledge of Party A, the company transfers the company’s main operating property or business by means of merger, division, transfer, etc.;
9.1.3 The management or shareholders of Party C maliciously misappropriate company capital in violation of regulations;
9.1.4 Without the consent of Party A, the management or shareholders of Party C take advantage of their positions to seek business opportunities belonging to the company for themselves or others, or operate the same kind of business as Party C for themselves or for others;
9.1.5 Five years after the completion of the investment stipulated in this agreement, Party A has the right to request Party B to repurchase all the equity of Party C held by Party A ;
Article 10 Breach of Contract and Liability
10.1 After this agreement takes effect, all parties shall perform their obligations and agreements in a comprehensive, appropriate and timely manner in accordance with the provisions of this agreement and all annexes and schedules. The agreed terms shall constitute a breach of contract.
1 0 . 2 In the event of a breach of contract, the breaching party shall compensate the other parties for the losses caused by its breach of contract.
10.3 Failure to exercise or delay in exercising a right under this Agreement or the law does not constitute a waiver of that or other rights. The single or partial exercise of a right under this Agreement or the law does not prevent its further continued exercise of that or other rights.
7
Article 11 Modification, Cancellation and Termination of the Agreement
11.1 Any modification or change of this agreement shall be effected only after all parties to the agreement negotiate and sign a written agreement on the modification and change.
11.2 This Agreement shall be terminated in the following circumstances :
1 1 .2.1 Resolved by mutual agreement of all parties;
1 1 .2.2If either party breaches the contract and fails to make corrections within 10 working days from the date when the obeying party issues a written notice for correction, or there are two or more breaches in total, the obeying party has the right to unilaterally terminate this agreement; However, in this case, this agreement will only be terminated between the obeying party who proposes to terminate the agreement and the breaching party, while the other parties and the obeying party should still abide by and perform the relevant contents of this agreement;;
11.2.3 This agreement cannot be performed due to force majeure.
11.3 The party that proposes to rescind the agreement shall notify the other parties in writing, and the notice shall take effect when it reaches the other party .
11.4 After the termination of this agreement, the right of the obeying party to require the breaching party to pay compensation for losses will still be effective.
11.5 Neither party may assign its rights and obligations under this Agreement in whole and/or in part, unless all parties to this Agreement have reached consensus and reached a written agreement .
8
Article 12 Dispute Resolution
1 2 .1 The validity, interpretation and performance of this Agreement shall be governed by the laws of the People’s Republic of China.
1 2 .2 Any disputes arising from this agreement between the parties to this agreement shall be resolved through friendly negotiation first. If the negotiation fails, either party may submit the dispute to the court with jurisdiction in the place where the contract is signed ..
Article 13 Supplementary Provisions
13.1 Unless otherwise provided in this Agreement, each party shall pay its own costs and expenses related to the negotiation, drafting, execution and execution of this Agreement and the documents referred to in this Agreement. Party C shall bear the expenses related to the company’s investment verification, auditing, and industrial and commercial change registration .
1 3 .2 For matters not covered in this agreement, all parties may sign a supplementary document, which is an inseparable whole with this agreement and has the same legal effect as this agreement.
1 3 .3 This Agreement shall be established and become effective after all parties sign and seal it. This agreement is written in Chinese and is made in four copies . Each party holds one copy, and each copy has the same legal effect .
9
(There is no text below, it is the signature page of the Investment Agreement)
Party A : Global Mentor Board (Beijing) Information Technology Co, Ltd.
(Seal)
Legal representative or authorized signing representative:
Party B: Beijing Zhitong Zhenye Technology Co., Ltd.
( Seal )
(Signature) Li Jiyou
Party C: Beijing Tax Star Technology Co., Ltd.
(Seal)
Legal representative or authorized signing representative:
10
Exhibit 4.17
Loan Agreement
Lender：GLOBAL INTERNET OF PEOPLE，INC
Borrower：WAICHUN LOGISTICS TECHNOLOGY LIMITED
The Lender and the Borrower, through friendly negotiation, have reached this loan agreement of USD [825,000]. Both parties abide by this agreement
1. Loan Amount
The loan amount is USD [825,000].
2. Term of the Loan
The term of the loan is [12] months, from the date the loan reaches the borrower's account. The Borrower has the right to repay part or all of the loan principal in advance. The term of the loan can be extended if agreed and signed by both parties.
3. Loan interest
The loan interest under this agreement is [8]% per year, and the daily interest rate = annual interest rate / 365 days. The loan interest is calculated on a daily basis based on the actual loan period of the loaned principal. If the loaned funds arrive in the account in installments, the loan interest shall be calculated on a daily basis for each installment of the loaned principal based on its actual loan period.
When the Borrower repays part or all of the loan principal, the interest corresponding to the repayment principal shall be paid at the same time.
4. Use of Loan
The loan under this agreement is used for the borrower's daily business and investment, abide by law.
5. Liability for Breach of Contract
(1) If the borrower fails to repay the entire loan principal of the lender on time, the loan interest shall be calculated according to the bank loan interest rate of the same period from the overdue date until the day when the loan principal is fully repaid.
(2) If the borrower changes the use of the loan, it shall pay the lender a penalty according to the bank loan interest rate of the same period from the date of the change of the use until the date when the default situation is corrected.
(3) If the breaches of the above paragraphs (1) and (2) simultaneously, the liquidated damages shall be paid accumulatively.
6. Any disputes arising from the signing and performance of this agreement shall be resolved through friendly negotiation. If the negotiation cannot be resolved, either party may apply to Shenzhen Arbitration Commission for arbitration in Shenzhen.
7. This agreement is in duplicate, which will take effect immediately after both parties sign it. Each party holds one copy, which has the same legal effect.
(No text below)
Lender: (signature)
Borrower: (signature)
Date: May 10, 2021
Exhibit 4.18
Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
Shenzhen Jiazhong Innovation Investment Enterprise
(Limited Partnership)
Of
Partnership Agreement
Date of signing: June 1, 2021
Place of signing: Shenzhen, China
Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
Contents
| Interpretation | -1- |
| Formation of a limited partnership | -4- |
| 2.1 Basis for establishment | -5- |
| 2.2 The name of the limited partnership | -5- |
| 2.3 Main business premises | -5- |
| 2.4 Purpose of partnership. | -6- |
| 2.5 Scope of business | -6- |
| 2.6 Partners | -6- |
| 2.7 Partnership Term | -7- |
| 2.8 Investment Period | -7- |
| Contribution method, amount and term of investment | -7- |
| 3.1 Funding method | -7- |
| 3.2 Amount of capital contribution subscribed | -7- |
| 3.3 Payment of capital contributions | -8- |
| partner | .-9- |
| 4.1 Obligations of limited partners | -9- |
| 4.2 Rights of limited partners | -9- |
| 4.3 Cooling-off period for investment | -10- |
| 4.4 Return visit system | -10- |
| 4.5 General Partner Obligations | -10- |
| 4.6 Rights of the general partner | -10- |
| Execution of partnership affairs | -11- |
| 5.1 Conditions and selection procedures for executive partners | -11- |
| 5.2 The authority of the executive partner | -11- |
| 5.3 Binding effect of the actions of the executive partners on the partnership | -11- |
| 5.4 Appointment of the Executive Partner | -12- |
| 5.5 Investment Risk Prevention | -12- |
| 5.6 Post-investment continuous monitoring | -12- |
| 5.7 Liability of the executive partner | -12- |
| 5.8 Limitation of Liability . | -12- |
| 5.9 Identity Conversion | -13- |
| 5.10 Information Disclosure System | -13- |
| 5.11 Operation Maintenance Mechanism | -15- |
| Limited Partnership Fees | -16- |
| 6.1 Limited Partnership Fees | -16- |
| Investment Business. | -16- |
| 7.1 Purpose and method of investment | -16- |
| 7.2 Investment Restrictions | -16- |
| 7.3 Related party investment avoidance system | -16- |
| 7.4 Investment launch | -17- |
| Partner Meeting | -17- |
| 8.1 Partner Meeting | -17- |
| Allocation and loss sharing | -18- |
| 9.1 Assignment | -18- |
| 9.2 Income tax | -18- |
| 9.3 Losses and Obligations | -18- |
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
| REPRESENTATIONS AND WARRANTIES | -19- |
| 10.1 Representations and warranties of limited partners | -19- |
| 10.2 Representations and warranties of the general partner | -20- |
| Accounting and Reporting Systems | -20- |
| 11.1 No Escrow Instructions | -20- |
| 11.2 Fiscal Year | -20- |
| 11.3 Audit and Financial Reporting | -20- |
| 11.4 Access to financial books | -21- |
| Transfer of Equity . | -21- |
| 12.1 Transfer of partnership interests of limited partners | -21- |
| 12.2 Transfer of partnership interests of general partners | -22- |
| Occupation and Retirement | -22- |
| 13.1 Admission of limited partners | -22- |
| 13.2 Withdrawal of limited partners | -22- |
| 13.3 Withdrawal of the general partner | -22- |
| 13.4 Removal and replacement of executive partner | -23- |
| Inherit | -32- |
| Liability for breach of contract | -33- |
| Applicable Law and Dispute Resolution | -24- |
| 16.1 Applicable Law | -24- |
| 16.2 Dispute Resolution | -24- |
| Dissolution and Liquidation | -24- |
| 17.1 Dissolution. | -24- |
| 17.2 Liquidation | -24- |
| 17.3 Sequence of liquidation and settlement | -25- |
| Other conventions | -25- |
| 18.1 Written Notice | -25- |
| 18.2 Force Majeure | -27- |
| 18.3 Validity of attachments | -27- |
| 18.4 Effect of title | -27- |
| 18.5 FULL AGREEMENT | -27- |
| 18.6 Severability | -27- |
| 18.7 Confidentiality obligations . | -27- |
| 18.8 Consistency | -27- |
| 18.9 Share information backup | -27- |
| 18.10 Amendment to the Agreement | -39- |
| 18.11 Signature of the text | -28- |
| 18.12 Effectiveness and termination of the agreement | -28- |
-ii-
Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
Special Reminders and Instructions of Executive Partners
The executive partner makes the following special reminders and instructions to each partner:
1. The executive partner has been registered with the China Fund Industry Association as a partnership enterprise manager, and the manager registration code is: [P1006852];
2. The China Fund Industry Association’s registration and filing for the executive partner and the partnership does not constitute recognition of the executive partner’s investment ability and continuous compliance, and does not serve as a guarantee for the property safety of the partnership;
3. The executive partner has disclosed the relevant risks to each partner, and has understood each partner’s risk appetite, risk awareness and tolerance;
4. The executive partner undertakes to manage and use the partnership property in accordance with the principles of due diligence, honesty, prudence and diligence, and makes no commitment to the profitability and minimum returns of the partnership’s activities.
It is hereby stated.
-1-
Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
SPECIAL STATEMENT OF LIMITED PARTNERS
Each limited partner of the partnership enterprise specifically makes the following statement:
1. It is a qualified investor in compliance with the “Interim Measures for the Supervision and Administration of Private Investment Funds”, and disclosed to the final investor to the executive partner in accordance with the requirements of the “Interim Measures for the Supervision and Administration of Private Investment Funds”;
2. The source and purpose of its capital contribution for investment in partnership enterprises are in compliance with relevant state regulations;
3. It has fully understood and accepted the terms of this agreement and understands relevant rights and obligations;
4. It has fully understood the relevant laws and regulations and the risk-return characteristics of investing in the partnership, and is willing to bear the corresponding investment risks;
5. If it is a person, it has the civil capacity to make a decision to invest in the partnership; if it is an institution, its investment in the partnership has been fully authorized by its internal decision-making process;
6. It guarantees that the basic information about investment purposes, investment preferences, investment restrictions, property income and risk tolerance provided to the executive partner is true, complete, accurate and legal, and there is no major omission or misleading.
It is hereby stated.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
Partnership Agreement of Shenzhen Jiazhong Innovation
Investment Enterprise
(Limited Partnership)
In view of the fact that all parties to this agreement intend to initiate the establishment of a limited partnership to engage in equity investment activities in accordance with the Partnership Enterprise Law and other relevant laws and regulations, in order to clarify their respective rights and obligations, the parties have reached an agreement as follows:
Article 1 Interpretation
In this Agreement, unless the context requires otherwise, the following words have the meanings set out below:
Partnership Law:
Refers to the Partnership Enterprise Law of the People’s Republic of China, which was revised and adopted at the 23rd meeting of the Standing Committee of the Tenth National People’s Congress of the People’s Republic of China on August 27, 2006, and came into force on June 1, 2007.
“Supervision and Management Measures”:
Refers to the “Interim Measures for the Supervision and Administration of Private Investment Funds”, which was deliberated and adopted at the 51st Chairman’s Executive Meeting of the China Securities Regulatory Commission on June 30, 2014, and shall come into force on the date of promulgation.
Measures for the Administration of Information Disclosure:
Refers to the “Administrative Measures for Information Disclosure of Private Investment Funds”, promulgated by the Asset Management Association of China on February 4, 2016, and effective from the date of promulgation.
Partnership/The Partnership/Fund/The Fund:
Refers to Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership)
Partner:
means the general partner and the limited partner.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
General Partner:
Refers to the partners who are jointly and severally liable for the debts of the partnership enterprise. In this agreement, the general partner of the partnership is Shenzhen Zijingang Capital Management Co., Ltd. (hereinafter referred to as “Zijingang Capital”).
Executive partner:
Refers to the partner who executes the affairs of the partnership enterprise and conducts business operations on behalf of the partnership enterprise arising in accordance with the conditions and procedures specified in this agreement. In this agreement, the executive partner of the partnership is Shenzhen Zijingang Capital Management Co., Ltd.
Executive Partner Designated Representative:
Refers to the natural person representative appointed by the executive partner to sign relevant legal documents on behalf of the partnership to the outside world. In this agreement, the representative appointed by the executive partner is Chen Jun.
Limited partner:
Refers to the partners who bear limited liability for the debts of the partnership enterprise in accordance with the provisions of the law and the provisions of this agreement to the extent of their subscribed capital contributions.
Total subscribed capital contribution:
Refers to the total monetary capital contribution that all partners promise to pay to the partnership enterprise.
Contributions subscribed:
Refers to the monetary capital contribution that a partner promises to pay to the partnership.
Total paid-in capital contribution:
Refers to the total monetary capital contribution actually paid by all partners to the partnership enterprise.
Paid-in capital contribution:
Refers to the monetary capital contribution actually paid by a partner to the partnership enterprise.
Covenant partner:
It means the partner who doesn’t violate this agreement.
Defaulting Partner:
Refers to partners who fail to perform their capital contribution obligations and/or other obligations in accordance with this Agreement.
New Vision Angel Innovation Fund:
Refers to Shenzhen New Vision Angel Innovation Industry Investment Enterprise (Limited Partnership).
-4-
Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
Average annual return on investment:
For a partnership enterprise, it refers to the weighted annualized rate of return (calculated by simple interest) converted from the total profit of the partnership to the total capital contribution paid by all partners during the duration of the period. The average annual investment rate of return is calculated according to the following equation:
Among them: r is the average annual investment rate of return, which is the natural number of days from the date when the total paid-in capital contribution of the partnership enterprise is in place to the date when the partnership enterprise distributes cash for the ith time divided by 365. Fti is the amount of cash distributed by the partnership enterprise for the ith time, i is the sequential number of allocations by the partnership (i is 1 means the first time, i is 2 means the second time, and so on). n is the total number of allocations by the partnership (n is 1 means the partnership has only made one allocation , and n is 2, which means that the partnership has made 2 allocations, and so on).
Limited partnership fees:
means expenses borne by the partnership.
management fee:
Refers to the consideration paid by the Partnership to the Executive Partner for providing partnership management and other services to the Partnership.
Partnership Interest:
Refers to the rights and interests enjoyed by the partners in the partnership enterprise in accordance with the provisions of this agreement.
Person:
Refers to any legal or economic entity such as a natural person, partnership, company, etc.
Working day:
Refers to dates other than Chinese statutory holidays and weekends.
Currency/Cash:
Unless otherwise specified, the currency or cash in this agreement refers to RMB.
Article 2 Establishment of a Limited Partnership
2.1 Basis for establishment
The parties to the agreement agree to jointly establish a limited partnership in accordance with the Partnership Enterprise Law and other relevant laws and regulations as well as the terms and conditions stipulated in this agreement.
2.2 The name of the limited partnership
The name of the limited partnership is “Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership)”, hereinafter referred to as “partnership”.
2.3 Main business place
The main business place of the partnership is: A602, Innovation Plaza, No. 2007, Pingshan Avenue, Liulian Community, Pingshan Street, Pingshan District, Shenzhen.
The executive partner may decide to change the main business place of the partnership enterprise according to the business operation needs of the partnership enterprise, but shall notify all partners in writing, and each partner agrees to cooperate in signing the corresponding change registration documents and cooperate with the corresponding change registration procedures. The executive partner is authorized to sign and/or sign the relevant legal documents on behalf of the limited partner in accordance with this article and go through the industrial and commercial change registration procedures.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
2.4 Partnership Purpose
Purpose of the establishment of the partnership: This time, the capital will be increased to Shenzhen New Vision Angel Innovation Industry Investment Enterprise (Limited Partnership) with RMB 30 million, accounting for 12.00% of the shares of Shenzhen New Vision Angel Innovation Industry Investment Enterprise (Limited Partnership) after the capital increase.
2.5 Business Scope
The business scope of the partnership is: angel project investment; artificial intelligence industry investment; investment in the establishment of industries; medical industry investment; education consulting; new energy industry investment; data industry investment; ; Technical consultation, technical services and technology transfer of electronic products and information technology.
2.6 Partners
There are 10 partners in this partnership, including 1 general partner and 9 limited partners:
sequence No |
Partner type | Partner name | residence | Unified social credit code/person ID number | ||||
| 1 | general partner and executive partner | Shenzhen Zijingang Capital Management Co., Ltd. |
Room 201,Comprehensive Office Building A,Qianhai Shenzhen-Hong Kong Cooperation Zone Administration, No. 1, Lei Yue Mun Street, Shenzhen
|
914403003061539233 | ||||
| 2 | limited partner | Chen Jun |
Room 1801, Bao’an Mansion, Futian District, Shenzhen City, Guangdong Province
|
330106196808010410 | ||||
| 3 | limited partner |
Shenzhen Zijingang Ruitong Investment Enterprises (Limited Partnership) |
Room 3601, Wenbo Mansion, No. 2005, Lianhua Road, Community,Jinghua, Lianhua Street, Futian District, Shenzhen |
91440300MA5EJPXJ60 | ||||
| 4 | limited partner | Yang Jun |
Nanguang Road, Nanshan District, Shenzhen City, Guangdong Province Building C, Pinghai Pavilion, Vientiane New Park, No. 67 14A |
430482199004230039 | ||||
| 5 | limited partner | Lin Zhenfa |
Longhua City, Baoan District, Shenzhen City, Guangdong Province 23D, Building A, Building 13, Mingzhu Garden |
362402196503240010 | ||||
| 6 | limited partner | Zeng Xiaoping |
North of Nanshan Science and Technology Park, Shenzhen, Guangdong Province Tsinghua Unisplendour Information Port A, Langshan Road, District Building ninth floor |
362101196408170613 | ||||
| 7 | limited partner | Zheng Ning |
No. 1 Lanxi Valley, Shekou, Nanshan District, Shenzhen Phase 10 Building 10C |
320102195311212437 | ||||
| 8 | limited partner | Ren Haibin |
Building 9, Wener New Village, Xihu District, Hangzhou Unit 3, Room 401 |
332622197011070014 | ||||
| 9 | limited partner | Global Mentor Board (Beijing) Information Technology Co., Ltd. |
Room 208, 2nd Floor, Building 1, No. 28 Houtun Road, Haidian District, Beijing |
911101083271466422 | ||||
| 10 | limited partner | Li Fangli |
Guangshen Road, Bao’an District, Shenzhen City, Guangdong Province Room 5A, Building 4, Xigu Garden, Xixiang Duan |
430482198911131881 |
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
If there is a change in the limited partners of the partnership enterprise during the partnership period, corresponding amendments shall be made and the corresponding change registration procedures shall be completed. The executive partner is authorized to sign and/or sign the relevant legal documents on behalf of the limited partner in accordance with this article and go through the industrial and commercial change registration procedures.
The executive partner shall prepare a register book of all partners at its business place to record the name, domicile, subscribed capital contribution, paid-in capital contribution and other information deemed necessary; Changes in the above information shall be updated by the executive partner timely.
2.7 Partnership Term
The partnership is established from the date of issuance of the business license, and the partnership period is from April 30, 2020 to April 30, 2040. If the business period of the partnership enterprise’s industrial and commercial registration is inconsistent with this, the general partner shall independently decide to change the period to be consistent with the duration of existence at an appropriate time.
The executive partner has the right to extend the operation period of the partnership enterprise at its own discretion according to the operation conditions of the partnership enterprise. If the executive partner decides to extend the operation period of the partnership, each partner shall cooperate, including but not limited to signing the corresponding documents and cooperating in the industrial and commercial change registration. If the partnership enterprise still needs to extend the business period after the second extension, it must be approved by the partners’ meeting.
The executive partner is authorized to sign and/or sign the relevant legal documents on behalf of the limited partner in accordance with this article and go through the industrial and commercial change registration procedures.
2.8 Investment period
The “investment period” of this partnership is [five] years from the date when all partners of the partnership fully pay the subscribed capital contribution, and the partnership withdrawal period is [five] years from the date of the expiration of the investment period. If the investment period of the partnership enterprise is extended by the resolution of the partners’ meeting, the withdrawal period shall be extended accordingly.
No term in this Agreement shall be deemed to be a commitment to a limited partner of a fixed return. This Agreement and any attachments do not constitute any guarantees made by the Partnership, the General Partner and its affiliates with respect to the future business performance of the Partnership.
Article 3 Contribution Method, Amount and Period of Contribution
3.1 Funding method
All partners’ capital contributions are in RMB currency.
3.2 Amount of subscribed capital contribution
The minimum subscribed capital contribution of a limited partner is RMB one million yuan. If the competent authority of the partnership enterprise has specific requirements for this, it shall not be lower than the minimum amount required by the competent authority.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
The total subscribed capital contribution of all partners to the partnership enterprise is RMB 30.01 million. The details of each partner’s capital contribution are as follows:
sequence No | Partner type | Partner name | subscribed capital contribution (RMB 10,000 yuan) |
The proportion (%) | ||||
| 1 | General Partner and Executive Partner | Shenzhen Zijingang Capital Management Co., Ltd. | 1.00 | 0.033322% | ||||
| 2 | limited partner | Chen Jun | 700.00 | 23.325558% | ||||
| 3 | limited partner | Shenzhen Zijingang Ruitong Investment Enterprise (Limited Partnership) |
500.00 | 16.661113% | ||||
| 4 | limited partner | Yang Jun | 100.00 | 3.332223% | ||||
| 5 | limited partner | Lin Zhenfa | 200.00 | 6.664445% | ||||
| 6 | limited partner | Zeng Xiaoping | 200.00 | 6.664445% | ||||
| 7 | limited partner | Zheng Ning | 100.00 | 3.332223% | ||||
| 8 | limited partner | Ren Haibin | 100.00 | 3.332223% | ||||
| 9 | limited partner | Global Mentor Board (Beijing) Information Technology Co., Ltd. | 1000.00 | 33.322226% | ||||
| 10 | limited partner | Li Fangli | 100.00 | 3.332223% | ||||
| Total | 3001 | 100% |
3.3 Payment of Capital Contribution
3.3.1 Contribution
Each partner shall make a one-time payment of the subscribed capital contribution during the existence of the partnership enterprise, and the partner’s capital contribution shall be paid into the following bank account of the partnership enterprise.
The bank account information of the partnership is as follows:
Account name: Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) special account for raising
Account number: 8110 3010 1200 0542 626
Account Bank: China CITIC Bank Shenzhen Jingtian Sub-Branch
3.3.2 Agreement on failure to contribute capital on time
Any partner shall pay the subscribed capital contribution as agreed in the preceding paragraph.If any partner fails to pay the subscribed capital contribution in full within three working days overdue, it shall be deemed that the partner will automatically give up the qualification for capital contribution and automatically withdraw from the partnership. The advance payment that this partner has paid to the partnership enterprise according to the “Investment Subscription Agreement” shall not be refunded . The confiscated advance payment shall be used as other income of the partnership enterprise, and shall be distributed by all partners according to the proportion of paid-in capital contribution. The capital contribution share of the partner who voluntarily relinquishes the capital contribution qualification shall be separately raised by the executive partner in accordance with the law.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
Article 4 Partners
4.1 Obligations of limited partners
A limited partner shall not execute limited partnership affairs and shall not represent the partnership enterprise externally. No limited partner shall participate in the management or control of the investment business of the partnership enterprise and other activities, transactions and business conducted in the name of the partnership enterprise, shall not sign documents on behalf of the partnership enterprise, and shall not engage in other acts that bind the partnership enterprise.
Limited partners have the following obligations:
(1) Pay the capital on schedule in accordance with the stipulations of this agreement;
(2) To assume limited liability for the debts of the partnership enterprise to the extent of its subscribed capital contribution;
(3) Keep the relevant affairs of the partnership enterprise confidential;
(4) Not to engage in any activities that are detrimental to the interests of the partnership;
(5) Other obligations stipulated in this agreement and laws and regulations.
4.2 Rights of limited partners
The exercise of limited partner rights by a limited partner under the Partnership Law and this Agreement shall not be deemed to constitute a limited partner’s participation in the management or control of the investment business or other activities of the partnership, thereby causing the limited partner to be identified as a limited partner under the law or other provisions require general partners who are jointly and severally liable for the debts of the partnership.
Limited partners have the following rights:
(1) Supervise the execution of partnership affairs by the executive partner;
(2) Suggestions on the operation and management of the partnership enterprise;
(3) Participate in the partner meeting and exercise the corresponding voting rights;
(4) To understand the operating and financial status of the partnership enterprise, and to consult the financial information such as the partnership enterprise’s financial accounting books for situations involving self-interest;
(5) When the interests of the partnership enterprise are infringed upon, claim the rights or file a lawsuit against the responsible partner;
(6) When the executive partner is lazy in exercising his rights, urge him to exercise his rights or file a lawsuit in his own name for the benefit of the partnership enterprise;
(7) According to the stipulations of this agreement, enjoy the right to distribute the partnership interests;
(8) When the partnership enterprise is dissolved and liquidated, it shall participate in the distribution of the remaining property of the partnership enterprise according to the actual paid-in capital contribution;
(9) Other rights stipulated in this agreement and laws and regulations.
The rights of all limited partners in the partnership are not prioritized or inferior, and no limited partner has priority over other limited partners in terms of recovering the paid-in capital contribution and obtaining other properties that may be distributed by the partnership.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
4.3 Investment Cooling-off Period
4.3.1 The limited partner has a 24-hour investment cooling-off period. During the investment cooling-off period, the executive partner shall not take the initiative to contact the limited partner.
4.3.2 The investment cooling-off period shall be counted from the date of signing this agreement.
4.4 Return to Visit System
4.4.1 The executive partner shall instruct its personnel not engaged in fund sales and promotion business to conduct investment return visits to the limited partner by appropriate means such as recorded telephone calls, emails, and letters.
4.4.2 The executive partner shall set the content of the return visit in accordance with the provisions of the “Administrative Measures for the Raising Behavior of Private Investment Funds”.
4.4.3 The limited partner has the right to terminate this agreement before the successful return to visit of the executive partner.
4.4.4 If the limited partner cancels this agreement before the confirmation of the return visit, it shall issue a written notice to the executive partner; All subscription monies paid, if any.
4.4.5 Without the confirmation of the return to visit, the fund subscription fund paid by the limited partner shall not be transferred from the fundraising account to the fund property account or the custodial fund account, and the executive partner shall not invest and operate the subscription fund fund paid by the limited partner.
4.5 Obligations of General Partner
The general partner has the following obligations:
(1) Make decisions and implement investment in accordance with the purpose of the partnership. If it deviates from the purpose of partnership, the investment should be approved by the limited partners.
(2) Pay the capital on schedule in accordance with the stipulations of this agreement;
(3) Maintain the property of the partnership enterprise in accordance with the partnership agreement;
(4) Not to engage in investment activities that may damage the interests of the partnership;
(5) assume unlimited joint and several liability for the debts of the partnership enterprise;
(6) Keep the partnership affairs and investment operations in the partnership enterprise confidential;
(7) Other obligations stipulated in this agreement and laws and regulations.
4.6 General Partner Rights
The general partner has the following rights:
(1) Participate in or appoint proxies to participate in the partnership meeting in accordance with the law, and exercise the corresponding voting rights;
(2) enjoy the right to distribute partnership interests;
(3) When the partnership enterprise is liquidated, it shall participate in the distribution of the remaining property of the partnership enterprise according to its actual paid-in capital contribution;
(4) The general partner serving as the executive partner also enjoys the rights under Article 5.2.1 of this agreement;
(5) Other rights stipulated in this agreement and laws and regulations.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
Article 5 Execution of Partnership Affairs
5.1 Conditions and selection procedures for executive partners
5.1.1 The executive partner of a partnership enterprise shall meet the following conditions: be an institution registered within the territory of the People’s Republic of China; be a general partner of the partnership enterprise.
5.1.2 The executive partner shall be selected or replaced by the unanimous consent of all partners other than the executive partner.
5.1.3 In this agreement, all partners unanimously agree that the general partner Zijingang Capital shall serve as the executive partner of the partnership.
5.2 Authority of the executive partner
5.2.1 The executive partner has the exclusive and exclusive rights to execute partnership affairs as stipulated in the Partnership Enterprise Law and this Agreement, including but not limited to:
(1) Responsible for the investment, management, exit and other daily affairs of the partnership;
(2) Manage, maintain and dispose of the assets of the partnership, including but not limited to investment assets, non-investment assets, intellectual property, movable property, real estate, etc.;
(3) Take all actions necessary to maintain the legal existence of the partnership and carry out business activities as a partnership;
(4) To open, maintain and cancel the bank account of the partnership, and to issue cheques and other payment vouchers;
(5) Employ professionals, intermediaries and consultants to provide services to the partnership;
(6) Approving the transfer of limited partnership interests by limited partners;
(7) To negotiate, negotiate and reconcile with the other party to the dispute; to decide whether to file a lawsuit or respond to a lawsuit for the benefit of the partnership, conduct arbitration, etc.;
(8) Handle the tax-related matters of the partnership enterprise according to law;
(9) Signing documents on behalf of the partnership;
(10) Change the main business place of the partnership enterprise;
(11) Take other actions necessary to achieve the purpose of the partnership, maintain or strive for the legitimate rights and interests of the partnership;
(12) Other functions and powers conferred by this agreement and laws and regulations.
5.2.2 The executive partner establishes an investment decision-making committee. The investment decision-making committee is composed of 3 members and adopts a 3-vote approval system. The investment decision-making committee decides on the investment, management, and withdrawal of Shenzhen New Vision Angel Innovation Industry Investment Enterprise (Limited Partnership), as well as the appreciation of idle funds except for depositing in banks, purchasing treasury bonds, monetary funds, capital-guaranteed wealth management products, time deposits, and fixed-income products invest.
5.2.3 The executive partner shall set up a risk control committee. Before the approval of the risk control committee, the investment project cannot be submitted to the investment decision-making committee for decision-making.
5.2.4 Sincethe partnership is specially established for Shenzhen New Vision Angel Innovation Industry Investment Enterprise (Limited Partnership), the raised funds of the partnership will be invested in Shenzhen New Vision Angel Innovation at one time, except for daily expenses such as reserved management fees. Industrial Investment Enterprise (Limited Partnership).
5.3 Binding force of the actions of the executive partners on the partnership enterprise
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
All acts of the executive partner and his/her delegated representatives for the executive partnership, including business cooperation with any third party and negotiation on relevant matters, are binding on the partnership.
5.4 Representatives appointed by the executive partner
5.4.1 The executive partner shall designate its designated representative in writing to be responsible for the specific execution of partnership affairs. The executive partner shall ensure that its appointed representative independently executes the affairs of the partnership and abides by the provisions of this agreement.
5.4.2 The executive partner may decide to replace its appointed representative, but the replacement shall notify all partners in writing and go through the corresponding enterprise change registration procedures. For the purpose of handling the corresponding corporate change registration procedures, the executive partner is authorized to sign and/or sign all relevant legal documents on behalf of the limited partner in accordance with this article.
5.5 Investment Risk Prevention
To prevent investment risks, executive partners should:
5.5.1 Establish an authorization system and establish and improve authorization standards and procedures.
5.5.2 Establish a sound property separation system.
5.5.3 Establish and improve investment business control, ensure that investment decisions are strictly in accordance with laws and regulations, and meet the investment objectives, investment scope, investment strategy, investment portfolio and investment restrictions stipulated in this agreement.
5.5.4 Implement the requirements of the “Guidelines for Internal Control of Private Investment Fund Managers” and other relevant rules of the China Asset Management Association.
5.6 Continuous monitoring after investment
After the signing of this agreement, the executive partner shall:
5.6.1 Track the implementation of the terms of the agreement;
5.6.2 Supervise the financial status of the accused investment enterprise;
5.6.3 Participate in major business decisions of the invested enterprise.
5.7 Liability of the executive partner
The executive partner shall seek benefits for the partnership enterprise based on the principle of good faith. For the Executive Partner and its officers, employees, any person who is or has been a member of the Investment Committee (collectively, the “Indemnified Persons”) in connection with the partnership’s affairs, investments or otherwise in accordance with applicable law and this Agreement The Partnership shall indemnify and indemnify the Indemnified Persons from all losses, fines, costs and expenses suffered thereby, to the fullest extent permitted by applicable law, from any claim, action, arbitration, investigation, suffered or likely to be damage. For the avoidance of doubt, the foregoing remedies shall not apply to losses, fines, costs and expenses arising out of claims, lawsuits, arbitrations, investigations resulting from the willful or gross negligence of the indemnified persons. If the partnership enterprise suffers damage or assumes debts or liabilities due to the intentional or gross negligence of the executive partner, the executive partner shall be liable to the partnership enterprise for compensation.
5.8 Limitation of Liability
The executive partner does not guarantee the investment income of the limited partner. All distributions from the partnership to the partners are derived from the distributable assets of the partnership.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
5.9 Identity Conversion
Unless otherwise provided by law or a written decision reached by all partners unanimously, a limited partner cannot be transformed into an executive partner, and an executive partner cannot be transformed into a limited partner.
5.10 Information Disclosure System
The executive partner shall disclose information to other partners in accordance with the provisions of the “Administrative Measures for Information Disclosure” and the stipulations of this agreement.
5.10.1 Quarterly Information Disclosure
The executive partner shall disclose the following information to the limited partner within 10 working days from the end of each quarter:
(1) Basic information of the partnership, including but not limited to the net worth of the partnership, the main financial indicators of the partnership, and the investment portfolio;
(2) Information of the fund manager and custodian;
(3) Information on limited partners;
(4) The investment and operation of the partnership, including the investment projects and the funds invested;
(5) Details of the expenses of the partnership enterprise;
(6) Other special circumstances statement and manager’s report (if necessary).
5.10.2 Semi-annual information disclosure
(1) Basic information of the partnership enterprise, including but not limited to the total assets of the partnership enterprise at the end of the period, the net assets of the partnership enterprise at the end of the period, and the number of investors;
(2) Information of the fund manager and custodian;
(3) Information on limited partners;
(4) The investment and operation of the partnership, including the investment projects and the funds invested;
(5) Details of the expenses of the partnership enterprise;
(6) Other special circumstances statement and manager’s report (if necessary).
5.10.3 Annual Information Disclosure
The executive partner shall disclose the following information of the partnership enterprise to the limited partner within 4 months from the end of each year:
(1) Basic information of the partnership enterprise, including but not limited to the net value of the partnership enterprise at the end of the reporting period, and the total partnership share of the partnership enterprise;
(2) Description of the partnership, including investment objectives, investment strategies, investment scope, industries of interest, stages of interest, and other matters that need to be explained;
(3) Manager and custodian information;
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
(4) Information on limited partners;
(5) Information on outsourcing agencies, including accounting firms and registration agencies;
(6) The operation of the partnership, including the cumulative operation, the projects held and the funds invested;
(7) Main financial indicators, fund expenses and profit distribution;
(8) Changes in limited partners;
(9) Manager and custodian reports (if any);
(10) The audit report of the partnership enterprise;
(11) The investment and operation of the partnership enterprise and the use of leverage;
(12) The account information of the partners of the partnership enterprise, including the subscribed capital contribution, the paid-in capital contribution, the unpaid capital contribution and the total share of the partnership enterprise held by each partner at the end of the reporting period;
(13) Investment income distribution and loss assumption;
(14) The management fees and income share charged by the executive partner, including the basis for accrual, accrual method and payment method.
5.10.4 Information disclosure of major events
During the execution of partnership affairs by the executive partner, if the following events occur, the executive partner shall report to the other partners within two working days from the date of the occurrence of the event or the date of knowing the occurrence of the event:
(1) The name, registered address and organizational form of the partnership enterprise are changed;
(2) The purpose, investment scope and investment strategy of the partnership have undergone major changes;
(3) Change of executive partner or custodian (if any);
(4) The representative appointed by the executive partner or the actual controller of the executive partner has changed;
(5) Changes in management rates and custody rates;
(6). Changes in the income sharing matters of the partnership enterprise;
(7) The duration of the partnership enterprise is changed or extended;
(8) The partnership enterprise is liquidated;
(9) The occurrence of major related-party transactions;
(10) The fund’s stop-loss line or early warning line is touched;
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
(11) The representative, actual controller or senior management of the executive partner is suspected of major violations of laws and regulations or is under investigation by the regulatory authority or self-discipline management authority;
(12) Major lawsuits and arbitrations involving partnership management business, partnership property, and partnership trusteeship;
(13) Other executive partners or the partnership has any major matters that are in crisis or may endanger the interests of the partnership.
In addition to fulfilling the obligation of information disclosure in accordance with this paragraph, the executive partner shall also take effective remedial measures in a timely manner to minimize possible losses.
5.10.5 Information disclosure methods
The executive partner shall establish and improve the information disclosure control system, and assign a special person to be responsible for the management of information disclosure. The executive partner shall disclose various information of the partnership enterprise to other partners in accordance with the information disclosure content and disclosure frequency stipulated in this article. Information disclosure can take any one or more of the four methods of personal delivery, mail, e-mail, fax, etc. The specific method is selected by the executive partner.
The executive partner should also submit information through the private fund information disclosure backup platform designated by the China Fund Industry Association. The past performance of the executive partner and the operation of the private equity fund are subject to the data submitted by the executive partner to the private equity fund information disclosure backup platform.
All partners agree that the executive partner or other information disclosure obligor shall back up the fund information disclosure information in accordance with the provisions of the China Fund Industry Association.
5.10.6 Responsibility for Information Disclosure
If the executive partner fails to disclose information in accordance with the provisions of this article, other partners may complain or report to the China Fund Industry Association.
5.11 Operation Maintenance Mechanism
If the private fund manager is announced by the Asset Management Association of China as a lost institution or has been deregistered as a private fund manager, and one of the following conditions is met, the private fund manager shall be deemed to have objectively lost the ability to continue to manage the fund:
5.11.1. The private equity fund manager expressly no longer performs the duties of the private equity fund manager in writing and affixes the seal of the manager;
5.11.2. The legal representative/executive partner of the private equity fund manager expressly no longer performs the duties of the private equity fund manager;
5.11.3. Thirty days after any partner of the partnership enterprise sends a written notice to the private equity fund manager by email, letter, etc. and urges him to liquidate the fund, the private equity fund manager has not yet terminated the operation of the fund, initiates liquidation proceedings;
5.11.4. The private equity fund manager entered into liquidation due to the lawful dissolution, revocation, bankruptcy and other reasons. If the private fund manager objectively loses the ability to continue to manage the fund, the partners of the partnership enterprise have the right to convene a partner meeting and elect a partner representative according to the contract, and then negotiate with the private fund custodian for a follow-up disposal plan. The follow-up disposal plan includes but is not limited to the formation of a liquidation team, and the liquidation team negotiates the follow-up disposal arrangements with relevant parties (the lower-level asset management product managers or custodians, target companies, debtors, etc.). During this period, the private fund custodian shall still perform the obligation to keep the funds in the custody fund account in accordance with the contract.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
Article 6 Limited Partnership Fees
6.1 Limited Partnership Fees
6.1.1 The expenses directly borne by the partnership enterprise include the following expenses related to the establishment, operation, termination, dissolution and liquidation of the partnership enterprise:
(1) start-up fee;
(2) management fee;
(3) Custody fee (if any);
(4) Transaction taxes and fees related to investment projects;
(5) Audit fees, attorney fees, financial advisory fees, litigation fees and arbitration fees related to the investment project;
(6) Other expenses not listed above, but generally not included in the general partner’s daily operating expenses.
6.1.2 Start-up fee
Refers to the expenses related to the formation and establishment of a partnership enterprise, including preparation, subscription, legal, financial and other professional consulting fees.
6.1.3 Management fee
As consideration for the management and other services provided by the executive partner to the partnership, both parties agree that the partnership shall pay management fees to the executive partner during its existence in accordance with the following provisions:
During the partnership term of the partnership, no management fee will be charged at the partnership level.
6.1.4 The following expenses shall be borne by the executive partner with the management fee collected by himself:
(1) Expenses related to project collection, research, management, consulting, value-added services, etc.;
(2) Office rent, property management fee, water and electricity fee, communication fee, office facility fee of the executive partner;
(3) Expenses of the management team;
(4) Other daily operating expenses of the executive partner.
Article 7 Investment business
7.1 Purpose and method of investment
The investment purpose of the partnership is to invest in the New Vision Angel Innovation Fund.
The idle funds of the partnership enterprise can be deposited in banks, purchased treasury bonds, monetary funds, capital-guaranteed wealth management products, time deposits, fixed-income products, or other idle funds value-added investment approved by the investment decision-making committee of the executive partner.
7.2 Investment restrictions
7.2.1 No active investment in real estate or other fixed assets is allowed without the consent of the partner meeting.
7.2.2 Without the consent of the partners’ meeting, the partnership enterprise shall not raise debts or provide external guarantees during the existence of the partnership.
7.3 Related party investment avoidance system
7.3.1 The limited partner further agrees and recognizes that when the general partner and its affiliates manage multiple affiliated funds, although the partnership and such affiliated funds may have the conditions to invest in a certain investment target, the partnership and the These affiliated funds may not be able to invest in the investment target at the same time (for whatever reason), then the general partner and its affiliates have the right to use the collective investment vehicle with the previous date of establishment to invest in the investment target. Under such circumstances, such acts of the General Partner and its affiliates shall not be deemed to be any breach of this Agreement by the General Partner.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
7.3.2 The limited partner hereby acknowledges and agrees that the general partner and the general partner’s shareholders, partners, directors, senior management and related parties may conduct transactions or actions that may arise between the partnership and such personnel. Potential or actual conflict of interest. In any matter involving a potential or actual conflict of interest, the general partner will use his reasonable and subjective judgment on the interests of the partnership, and take measures that the general partner deems necessary or appropriate to resolve the conflict of interest.
7.3.3 For any related party transaction conducted by the partnership, the related party shall disclose its related relationship with the transaction to the partnership, and the related party shall not participate in the investment decision of the related party transaction, but all partners unanimously agree that the related party Except for participation in decision-making, and for the occurrence of connected transactions, the general partner shall promptly inform the limited partner.
7.4 Investment exit
Partnerships mainly withdraw profits through the initial public offering of stocks by the invested companies, and also exit through mergers and acquisitions, or management buybacks.
Article 8 Partners Meeting
8.1 Partner meeting
8.1.1 The partner meeting is the highest authority of the partnership, convened and chaired by the executive partner. The partners’ meeting discussed and decided on the following matters:
(1) Hear the annual report of the executive partner;
(2) Change the enterprise name of the partnership enterprise;
(3) Extending the partnership period of the partnership enterprise;
(4) Change the executive partner;
(5) Dissolution and liquidation of partnership enterprises;
(6) Amendments to other contents of the partnership agreement, except for the relevant contents of the matters that expressly authorize the executive partner to decide independently;
(7) Non-cash distribution;
(8) Laws, regulations and other matters that should be decided by the partners’ meeting as stipulated in this agreement.
8.1.2 When discussing the items in Section 8.1.1 at the partner meeting, a resolution can only be made by the partners who hold more than two-thirds of the total paid-in capital contribution. Matters that are unanimously agreed by all partners other than the business partner shall be agreed upon.
8.1.3 The executive partners shall convene the first partner meeting within three months from the date when each partner pays the full subscribed capital contribution to the partnership. The executive partner shall hold an annual partner meeting every year. Before the meeting, the executive partner shall notify all partners in writing ten working days in advance.
8.1.4 The executive partner or the limited partner representing more than one third of the total paid-in capital of the partnership enterprise may convene an interim partner meeting after being notified in writing ten working days in advance.
8.1.5 The meeting notice of the partner meeting shall at least include the following contents:
(1) The time and place of the meeting;
(2) the method of convening the meeting;
(3) The agenda of the meeting;
(4) Meeting materials necessary for voting;
(5) Contact person and contact information.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
Article 9 Distribution and Loss Sharing
9.1 Assignment
9.1.1 The cash income obtained by the partnership enterprise (cash income includes but not limited to interest, dividends, debt interest, bonus, equity transfer income, stock sale income, etc.) shall be distributed to the partners in accordance with the provisions of Section 9.1.
9.1.2 The specific allocation method is as follows:
(1) When the average annual investment rate of return of the partnership enterprise is less than 0, the distributable cash income obtained by the partnership enterprise shall be distributed according to the actual capital contribution ratio of each partner;
(2) When the average annual investment rate of return of the partnership is equal to or greater than 0, the distribution shall be made according to the following order and calculation formula:
The limited partners and general partners are allocated in accordance with the following agreements:
The distribution amount of each partner = the partner’s actual capital contribution ratio x (the total amount of distributable cash income of the partnership enterprise - the total amount of capital contribution paid by the partnership enterprise) x 100% - the investment income obtained;
9.1.3 Non-cash distributions:
Before the liquidation of the partnership, the executive partner shall do his best to realize the investment of the partnership and avoid non-cash distribution; however, if the executive partner decides that non-cash distribution is more in the interests of all partners, Then the executive partner may propose to the partner meeting to distribute in a non-cash way, which will be decided by the partner meeting.
(1) Before liquidation, for publicly traded and negotiable securities, the value of such securities shall be determined by the arithmetic average of the closing prices of such securities within 20 securities trading days prior to the date of the allocation decision.
(2) Before liquidation, for non-publicly traded and unlisted equity, assets, etc., the part of equity or assets shall be determined through the evaluation of the part of equity or assets by an intermediary agency with securities and futures-related business qualifications jointly designated by limited partners and general partners. its value.
9.1.4 When an executive partner makes a non-cash distribution to a partner, it is deemed to have made a cash distribution.
9.1.5 When a partnership enterprise conducts non-cash distribution, the executive partner shall be responsible for assisting each partner in handling the transfer registration procedures of the distributed assets, and assisting each partner in fulfilling the information involved in the transfer of such assets in accordance with relevant laws and regulations Disclosure obligations; partners who accept non-cash distributions can also entrust the executive partner to dispose of the non-cash assets allocated by them according to their instructions.
9.2 Income tax
According to the provisions of the Partnership Enterprise Law, a partnership enterprise is not the subject of income tax taxpayers. The income part of the funds distributed by the partners after the investment cost is recovered shall be declared and paid by each partner according to the relevant regulations. If the law requires partnership If the enterprise withholds and pays, the partnership will withhold and pay in accordance with the law.
9.3 Losses and Debt Assumptions
9.3.1 The losses of a partnership enterprise shall be shared by the partners according to the proportion of their paid-in capital contributions.
9.3.2 The limited partners shall be liable for the debts of the partnership enterprise within the limit of their subscribed capital contributions, and the general partners shall bear unlimited joint and several liability for the debts of the partnership enterprise.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
Article 10 Representations and Warranties
10.1 Representations and warranties of limited partners
10.1.1 The limited partners hereby undertake and warrant that:
(1) It is an unincorporated collective investment vehicle ( asset management plan, trust plan, contractual fund, etc.), or a Chinese natural person with full capacity for civil conduct;
(2) Its direct or indirect shareholders, partners, ultimate investors, and ultimate beneficiaries are all domestic-funded legal entities or natural persons of Chinese nationality, and the capital invested in the partnership does not include funds from outside China; there is no overseas capital/entity Have control or any form of affiliation through any structured arrangement over the funds used by such direct or indirect shareholders, partners, ultimate investors, and ultimate beneficiaries;
(3) If it is an entity, its signing this agreement, investing in a partnership enterprise, and fulfilling its capital contribution commitments in accordance with this agreement will not cause it to violate laws and regulations, its constitutional documents, other internal regulations, or have any rights to it under other agreements. any provision that is legally binding; it has entered into this agreement with a valid resolution and has been fully authorized (if applicable) in accordance with its internal procedures, and the person signing this agreement on its behalf has obtained its appropriate authorization;
(4) Except for the circumstances that have been disclosed to and accepted by the executive partner, it holds partnership interests for its own interests, and there is no entrustment, trust or nominee relationship on such interests, and Such circumstances will not change during the existence of the partnership without the consent of the executive partner;
(5) It has obtained the offering documents previously provided to it by the executive partner and has carefully read the contents of such documents, and has fully obtained the relevant risk disclosure contents, and has sufficient investment knowledge and experience to fully understand the participation in the partnership enterprise possible risks and have sufficient financial capacity to bear those risks;
(6) It decides to participate in the partnership enterprise based on its own independent judgment and does not rely on any advice provided by the executive partner or its management team, or any representations, warranties and agreements other than those stipulated in this agreement;
(7) It has carefully read this agreement and understood the exact meaning of the terms of this agreement, and there is no misunderstanding;
(8) The source of the capital contribution paid to the partnership enterprise is legal;
(9) If it is confirmed by the legal opinion issued by the relevant law firm that it believes that its own, direct or indirect shareholders, partners, ultimate investors, actual controllers and/or ultimate beneficiaries have any its authorized body) filing, the liquidation and dissolution of the partnership cause or will cause a material or substantial impediment, such limited partners within a reasonable time before the partnership applies for the filing or liquidation or dissolution or within a reasonable period recommended by the executive partner (latest at the latest). shall not exceed the time limit required in writing by the intermediary agency hired by the partnership enterprise) to rectify or withdraw from the partnership enterprise. The rectification plan or withdrawal method shall not affect the completion of filing or liquidation and dissolution of the partnership enterprise at that time. Sure;
(10) The data or information provided to the partnership and executive partner regarding its subject qualification and legal status is true, accurate, complete, legal and valid, and if such data or information changes, it will immediately notify the executive affairs partner;
(11) If it is an unincorporated collective investment vehicle (such as asset management plan, partnership enterprise, trust plan, etc.): if it should be filed according to applicable laws, it has been filed and promises not to violate applicable laws and regulations during the duration of the partnership. Relevant regulations or policies; if it is not required to be filed under applicable laws, it undertakes to disclose a list of all its nominees and equity owners (“beneficiaries”) as of the date of signing this agreement in the format required by the executive partner, and it undertakes to disclose The information contained in the checklist is true, accurate and complete in all respects. The number of beneficiaries, the source of funds, and the use of all its beneficiaries comply with applicable laws and relevant regulations or policies (including but not limited to the “Supervision and Administration Measures”). The beneficiaries hold their rights and interests for their own interests, and not for a trust, or nominee during the whole period term of the partnership. If requested by the executive partner, it will cause each of its beneficiaries to sign and provide the executive partner with confirmation documents similar to the aforementioned disclosure list and other documents reasonably required by the executive partner in accordance with the law; When executed, it becomes legally binding and enforceable against it, and, unless otherwise provided by law or this Agreement, has no right to rescind, terminate this Agreement, or withdraw its subscribed capital contribution, or withdraw any powers it conferred under this Agreement.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
10.1.2 If a limited partner violates the above-mentioned representations and warranties, it shall be deemed as a defaulting partner and shall be liable for the corresponding breach of contract in accordance with the stipulations of this agreement.
10.2 Representations and warranties of the general partner
The General Partner hereby undertakes and warrants that:
(1) They have carefully read this agreement and understand the exact meaning of the content of this agreement;
(2) The source of the capital contribution paid to the partnership enterprise is legal;
(3) The person who signed this agreement has made a valid resolution according to its internal procedures and obtained full authorization, and the person who signed this agreement on its behalf is its legal and effective representative;
(4) Signing this agreement will not cause it to violate its charter, internal governance system, any provisions that are legally binding on it, or its obligations under other agreements;
(5) It holds partnership interests for its own benefit, and there is no entrustment, trust or nominee relationship on such interests.
Article 11 Accounting and Reporting System
11.1 No custodian
Since the partnership is specially set up for investment in the target company, the raised funds of the partnership will be invested in the target company at one time except for a small amount of fees. For cost control, all partners agree that the partnership will not have a custodian. It is not entrusted to financial institutions for custody, and the fund manager manages by itself in accordance with the “Partnership Agreement”. The executive partner shall strictly abide by the financial management system to manage the monetary assets in the partnership account.
11.1.1 All the funds of the partnership enterprise are deposited into the partnership enterprise account, and all monetary income and expenditure activities during the existence of the partnership enterprise shall be conducted through the partnership enterprise account.
11.1.2 The payment to the partnership account shall be made with the unanimous consent of the executive partner and the limited partner with the first or second or third highest capital contribution.
11.1.3 The partnership enterprise has opened the online banking payment function, and the executive partner and the limited partner with the first, second or third highest capital contribution will jointly manage the daily fund transfer and management of the online banking system of the partnership enterprise account. It is completed by the executive partner and the limited partner with the first or second or third highest capital contribution.
11.1.4 The online inquiry function of the partnership enterprise account has been opened, and all partners have the right to inquire about the details of the partnership enterprise account. The executive partner shall promptly reply to the limited partner’s inquiries about the partnership enterprise account details.
11.1.5 If the executive partner fails to conduct income and expenditure operations on the partnership account as agreed, the executive partner shall be fully responsible for the losses caused thereby.
11.2 Fiscal Year
The fiscal year of a partnership enterprise is from January 1 to December 31 of the Gregorian calendar each year, but the first fiscal year is from the date of establishment of the partnership to December 31 of the current year.
11.3 Audit and Financial Reporting
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11.3.1 The executive partner shall maintain accounting books and prepare accounting statements that comply with the relevant laws and reflect the transaction items of the partnership within the statutory period.
11.3.2 The partnership shall audit the financial statements of the partnership by a qualified independent auditor after the end of each fiscal year.
11.3.3 The executive partner shall submit the partnership audit report to all partners within four months after the end of the fiscal year, including the following audited financial statements:
(1) Balance sheet;
(2) Profit and loss statement;
(3) Cash flow statement.
11.4 Check the financial books
A limited partner shall have the right to inspect and copy the accounting books of the partnership enterprise in person or by an agent within a reasonable time during normal working hours for legitimate matters related to the limited partnership interest held by him, but shall notify the executive in writing at least five days in advance. partner. The limited partners shall abide by the confidentiality procedures and regulations of the partnership in exercising their rights under this article.
Article 12 Transfer of Equity
12.1 Transfer of partnership interests of limited partners
12.1.1 The transfer of partnership interests by limited partners shall strictly comply with the provisions of this Agreement.
12.1.2 For the transfer of partnership rights and interests between limited partners, a written application shall be submitted to the executive partner, specifying the share of rights and interests to be transferred and the price to be transferred. The executive partner has the discretion to approve such applications. If the executive partner approves the transfer, the executive partner shall notify all limited partners in writing of the transfer of partnership interest thirty days in advance.
12.1.3 If a limited partner transfers partnership rights and interests to its affiliates or immediate family members (referring to spouses, parents, children, siblings, the same below), a written application shall be submitted to the executive partner, stating the share of rights and interests to be transferred and the plan to be transferred. transfer price. The executive partner has the discretion to approve such applications. If the executive partner approves the transfer, the executive partner shall notify all limited partners in writing of the transfer of partnership interest thirty days in advance.
12.1.4 Except for the transfer of partnership interests as described in Sections 12.1.2 and 12.1.3, if a limited partner (“Transferor”) intends to transfer its partnership interests, it shall submit a written application to the executive partner, stating The share of equity to be transferred and the price to be transferred. The executive partner has the discretion to approve such applications.
If the executive partner approves the transfer, the executive partner will send a written notice to all limited partners stating the share of interest to be transferred and the price to be transferred. Limited partners who intend to transfer such partnership interests shall reply in writing within 30 working days after receiving the notice.
The executive partner who fails to reply within the time limit shall be deemed to have waived the right of preemption. If two or more limited partners claim to exercise the right of first refusal, they shall negotiate to determine their respective transfer ratios; if the negotiation fails, the right of first refusal shall be exercised according to the proportion of their respective paid-in capital contributions at the time of transfer. The transferor must transfer the partnership interest at the proposed transfer price stated in the application. If all limited partners give up the right of first refusal, the executive partner has the right to send a written notice to the transferor within ten working days after the expiry of the above-mentioned thirty working days, and accept the transfer at the proposed transfer price stated in the application. Partnership Interest.
If the executive partner waives the right of priority, the transferor may transfer the partnership interest to a third party at the proposed transfer price stated in the transfer application. If the transferor intends to transfer the partnership interest at a price lower than the proposed transfer price stated in the transfer application, the transferor shall file a new application under this Article.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
12.1.5 If the transferor transfers the partnership interest to a third party other than the partner in accordance with this agreement, the proposed transferee (“proposed transferee”) shall submit to the executive partner a statement of its agreement to be bound by this agreement. and a letter of commitment to abide by this agreement, to undertake all the obligations of the transferor, and other documents, certificates and information that the executive partner deems appropriate; and the transferor or the proposed transferee shall undertake in writing to undertake the partnership arising from the transfer. All expenses incurred by the business.
12.1.6 When the partnership rights and interests are transferred in accordance with Section 12.1.1, Section 12.1.2, Section 12.1.3 and Section 12.1.4 of this Agreement, the executive partner shall be authorized in accordance with this Article and sign the agreement with the transferee The transferee shall accept the written documents of the above-mentioned partnership rights and go through the corresponding industrial and commercial change registration procedures.
12.2 Transfer of partnership interests of general partners
The partners agree that the general partner may assign part of his partnership interest in the partnership enterprise by himself. When the general partner transfers the partnership interest to a person other than the partner, the other partners agree to waive the right of first refusal.
Article 13 Joining and Withdrawing from Partnership
13.1 Entry of limited partners
13.1.1 The Fund implements closed operation. During the partnership period, the Fund will not introduce new limited partners through open subscription, but new limited partners can be introduced in accordance with the provisions of Article 12 above.
13.2 Withdrawal of limited partners
13.2.1 During the term of partnership, limited partners may not withdraw from the partnership. However, the deregistration or replacement of defaulting investors, the transfer of fund shares, and the natural withdrawal from the partnership stipulated in the Partnership Enterprise Law are excluded.
13.2.2 A limited partner shall, naturally, withdraw from the partnership when the following circumstances occur:
(1) Has its business license revoked, ordered to close down, or declared bankrupt;
(2) The limited partnership interests held are enforced by the court;
(3) Other circumstances that are deemed to be natural withdrawal from the partnership in accordance with the provisions of the Partnership Enterprise Law.
When a limited partner withdraws from the partnership in accordance with the above-mentioned agreement, the partnership shall not be dissolved accordingly. Other limited partners and general partners enjoy and exercise the right of preemption with reference to Article 12.1 of this agreement; if other limited partners and general partners give up the right of first refusal, the general partner has the right to accept a new limited partner to inherit the right of first refusal. Of course, the limited partnership interests of the withdrawing partner, or the total subscribed capital contribution of the partnership enterprise shall be reduced accordingly.
If the above-mentioned limited partners are forcibly withdrawn from the partnership or of course withdrawn from the partnership, the property share returned to the limited partners shall be the remaining balance after deducting the overdue interest and liquidated damages that should be paid from the paid-in capital contribution.
13.3 Withdrawal of general partner
13.3.1 The general partners hereby undertake, individually and not jointly, that unless otherwise expressly stipulated in this agreement, the general partners will always perform their duties under this agreement before the partnership enterprise is dissolved or liquidated in accordance with this agreement; Before the dissolution or liquidation, it will not request to withdraw from the partnership, nor transfer its limited partnership interests; nor will it take any action to dissolve or terminate its own initiative.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
13.3.2 The general partner shall, naturally, withdraw from the partnership when the following circumstances occur:
(1) Has its business license revoked, ordered to close down, or declared bankrupt;
(2) The limited partnership interests held are enforced by the court;
(3) Other circumstances stipulated in the Partnership Enterprise Law.
When the executive partner withdraws from the partnership in accordance with the above-mentioned agreement, unless the partnership company immediately accepts and appoints a new executive partner of the partnership company, the partnership company will enter the liquidation process.
13.4 Removal and replacement of executive partners
13.4.1 The partnership enterprise may remove the executive partner from the name of the executive partner when the partnership enterprise suffers major damage or assumes major debts or liabilities that the partnership enterprise cannot repay or resolve due to the intentional or gross negligence of the executive partner.
13.4.2 The following procedures shall be followed for the removal of the executive partner:
(1) Upon the proposal of the limited partners representing more than one-third of the total paid-in capital of the partnership and the submission of sufficient evidence to prove the occurrence of the circumstances described in Section 13.4.1, the partners meeting or the temporary partner meeting may discuss the matter. Removal of the executive partner.
(2) A resolution to remove the executive partner may be made by unanimous approval of all partners other than the executive partner.
13.4.3 If the partnership enterprise fails to make a resolution on the acceptance of a new executive partner at the time when the partners meeting makes a resolution to remove the executive partner, the partnership will enter the liquidation procedure.
13.4.4 Conditions for replacement of executive partner
The executive partner should be replaced due to the following reasons:
(1) Failure to perform the obligation of capital contribution in accordance with this agreement;
(2) During the operation of the partnership enterprise, the total investment capital of the partnership enterprise suffers a loss, and the amount of the loss after offsetting the profit and loss exceeds 30% of the total subscribed capital contribution.
13.4.5 The replacement of the executive partner shall follow the following procedures:
(1) The partners meeting makes a resolution on the acceptance of a new executive partner at the same time as the resolution to remove the executive partner;
(2) The new executive partner sign a written document confirming that he agrees to be bound by this agreement and perform the duties and obligations that should be performed by the executive partner as stipulated in this agreement.
13.4.6 From the date when all the procedures described in Section 13.4.5 are completed, the executive partner withdraws from the partnership, stops executing limited partnership affairs, and transfers the limited partnership affairs to the new executive partner approved by the partners’ meeting.
Article 14 Succession
14.1 When a natural person as a limited partner dies, is declared dead according to law, or a legal person or other organization as a limited partner terminates, with the approval of the executive partner, his successor or successor may legally obtain the limited partner’s participation in the partnership enterprise. Qualifications. However, if there are two or more heirs or successors in rights, the heirs or successors in rights shall determine through negotiation or other means one of the heirs or successors in rights to become the limited partner of the partnership enterprise. No heir or successor may become a limited partner of the partnership. If the partnership enterprise distributes the income for an undetermined period, the income that the original limited partner should enjoy shall be deposited in the partnership enterprise account, and the payment shall be made after the heir or the heir to the right of the limited partner is confirmed.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
14.2 In any of the following circumstances, the partnership enterprise shall convene a meeting of partners to discuss returning the limited partner’s property share to the limited partner’s heir or successor:
(1) The heir is unwilling to become a limited partner of the partnership;
(2) The heir is a person without capacity for civil conduct or a person with limited capacity for civil conduct;
(3) Other situations stipulated in this agreement that cannot become a limited partner.
14.3 In the event of the circumstance of Item 14.1 and Item 14.2, the executive partner shall be authorized in accordance with this article to sign and/or sign relevant legal documents on behalf of the limited partner to handle the industrial and commercial and other change procedures for the partnership enterprise.
Article 15 Liability for breach of contract
15.1 If a partner violates this agreement, he shall bear corresponding liability for breach of contract in accordance with the law or in accordance with the stipulations of this agreement.
15.2 If a partner fails to make capital contributions within the agreed time limit, he shall be liable in accordance with the provisions of Clause 3.3.
15.3 If this Agreement cannot be performed or cannot be fully performed due to a breach of contract by one party, the breaching party shall be liable for the breach of contract; in the case of multiple breaches, each party shall bear the respective liability for breach of contract according to the actual situation.
Article 16 Application of Law and Dispute Resolution
16.1 Applicable Law
This Agreement shall be governed by the laws of the People’s Republic of China.
16.2 Dispute Resolution
All disputes arising from and related to this Agreement shall first be resolved through friendly negotiation between the parties concerned. If the parties concerned cannot resolve the dispute through negotiation, either party shall submit the dispute to the South China International Economic and Trade Arbitration Commission for arbitration, and conduct arbitration in Shenzhen City through ordinary procedures in accordance with the arbitration rules implemented by the Commission when applying for arbitration. The arbitral award is final and binding on the parties.
Article 17 Dissolution and Liquidation
17.1 Dissolution
The partnership shall be dissolved when any of the following circumstances occurs:
17.1.1 The partnership term of the partnership enterprise expires;
17.1.2 The partners have not had a quorum for 30 days;
17.1.3 The executive partner is removed and the partnership does not accept a new executive partner;
17.1.4 The executive partner proposes and is approved by all partners;
17.1.5 The business license of the partnership enterprise is revoked;
17.1.6 Other reasons for dissolution specified in the Partnership Law and this Agreement occur.
17.2 Liquidation
17.2.1 The liquidator shall be the executive partner, but when the executive partner is dismissed for failing to perform due diligence, a person other than the executive partner shall be agreed upon by more than half of all partners.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
17.2.2 After the liquidator is determined, all unrealized assets of the partnership enterprise shall be managed by the liquidator, but if the liquidator is not the executive partner, the executive partner is obliged to help the liquidator to change the unrealized assets and liquidate them. During the period, the partnership will no longer pay management fees to the executive partner.
17.2.3 The liquidation period is one year, and the non-monetary assets that cannot be realized at the end of the liquidation period shall be distributed according to the distribution principles stipulated in Article 9.
17.3 Sequence of liquidation and settlement
17.3.1 When the partnership enterprise’s operation period expires or the liquidation is terminated, the partnership enterprise’s property shall be paid off and distributed in the following order:
(1) Pay the liquidation fee;
(2) pay the taxes owed;
(3) To pay off the debts of the partnership enterprise;
(4) Allocate among all partners in accordance with the distribution principles and procedures stipulated in this agreement.
Among them, items (1) to (2) must be repaid in cash. If the cash part is insufficient, the realization of other assets should be increased. Item (3) should be negotiated with the creditor on the method of repayment.
17.3.2 If the property of the partnership enterprise is not enough to pay off the debts of the partnership enterprise, the general partner shall bear unlimited joint and several liability for repayment to the creditors.
Article 18 Other Agreements
18.1 Written notice
18.1.1 Any notice related to this Agreement shall be effective only if it is delivered in writing, including but not limited to: personal delivery, post, fax, and email. The parties shall be served at the following address:
【Shenzhen Zijingang Capital Management Co., Ltd.】
Contact: 【Li Lan】
Contact address: [Room 201, Building A, Comprehensive Office Building, Qianhai Shenzhen-Hong Kong Cooperation Zone Administration, No. 1, Liyumen Street, Qianwan 1st Road, Qianhai Shenzhen-Hong Kong Cooperation Zone, Shenzhen]
E-mail: 【635321281@qq. com】
Tel: 【13798213304】
【Chen Jun】
Contact: 【Chen Jun】
Contact address: 【Room 1801, Bao’an Mansion, Futian District, Shenzhen City, Guangdong Province】
Email:【-】
Tel:【】
【Shenzhen Zijingang Ruitong Investment Enterprise (Limited Partnership)】
Contact: 【Li Lan】
Address: 【3601, Wenbo Building, No. 2005, Lianhua Road, Jinghua Community, Lianhua Street, Futian District, Shenzhen】
Email: 【-】
Tel: 【】
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
【Yang Jun】
Contact: 【Yang Jun】
Contact address: 【14A,Building C, Pinghai Pavilion, Vientiane New Park, No. 67, Nanguang Road, Nanshan District, Shenzhen, Guangdong Province】
E-mail: 【645969519@qq. com】
Tel: 【18666669591】
【Lin Zhenfa】
Contact: 【Lin Zhenfa】
Contact address: 【23D, Building A, Building 13, Mingzhu Garden, Longhua City, Bao’an District, Shenzhen City, Guangdong Province】
E-mail:【flsw63317@163.com】
Tel: 【13923858918】
【Zeng Xiaoping】
Contact: 【Zeng Xiaoping】
Address: 【Tsinghua Unisplendour Information Port A, Langshan Road, North District, Nanshan Science and Technology Park, Shenzhen City, Guangdong Province
Building ninth floor】
Email:【-】
Tel: 【13808857201】
【Zheng Ning】
Contact: 【Zheng Ning】
Contact address: [10C, Building 10, Phase I, Lanxi Valley, Shekou, Nanshan District, Shenzhen】
Email:【-】
Tel: 【13008836939】
【Ren Haibin】
Contact:【Ren Haibin】
Contact address: 【Room 401, Unit 3, Building 9, Wener New Village, Xihu District, Hangzhou】
Email:【-】
Tel: 【13805716106】
【Global Mentor Board (Beijing) Information Technology Co., Ltd.】
Contact person:【Global Mentor Board (Beijing) Information Technology Co., Ltd.】Contact address: 【Room 208, 2nd Floor, Building 1, Courtyard No. 28, Houtun Road, Haidian District, Beijing】
E-mail: 【2991653241@qq. com】
Telephone:【】
【Li Fangli】
Contact:【Li Fangli】
Address: 【Room 5A, Building 4, Xigu Garden, Duanxigu Garden, Guangshen Road, Bao’an District, Shenzhen, Guangdong Province】
Email:【-】
Tel: 【13823262077】
18.1.2 Any limited partner may change his correspondence address at any time by giving written notice to the partnership and the executive partner.
The general partner may change his address for service at any time by giving written notice to the limited partner.
18.1.3 Unless there is evidence that it has been received in advance:
(1) In the case of sending a special person to deliver, the person to be served shall sign (or seal) the receipt of delivery, and the date of receipt by the person to be served shall be the date of delivery;
(2) In the case of sending by post, the third working day from the date of delivery to the post office or courier company shall be the date of delivery;
(3) In the case of sending by e-mail or fax, the date of delivery is the date of delivery.
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18.2 Force Majeure
18.2.1 “Force Majeure” refers to all events that occur after the signing of this Agreement, are unforeseeable at the time of signing this Agreement, and whose occurrence and consequences cannot be avoided or overcome, preventing any party from performing in whole or in part. The above events include earthquakes, typhoons, floods, fires, wars, disruption of international or domestic transportation, actions of governments or public agencies (including major legal changes or policy adjustments), epidemics, civil unrest, strikes, and general international business practices Other events of force majeure. The mere lack of funds by one party is not a force majeure event.
18.2.2 If a force majeure event occurs, which affects one party’s performance of its obligations under this agreement, the performance shall be suspended within the delay period caused by the force majeure, and shall not be regarded as a breach of contract. The party claiming the occurrence of force majeure shall promptly notify the other party in writing and provide sufficient evidence to prove the occurrence and continuation of force majeure within 15 days thereafter.
18.2.3 In the event of a force majeure event, the partners shall immediately negotiate with each other to find a fair solution and shall make every reasonable effort to minimize the consequences of force majeure.
18.3 Effect of attachments
The annexes to this agreement, as an integral part of this agreement, have the same legal effect as this agreement.
18.4 Title effect
The headings of the various parts of this Agreement are provided for index convenience only, and the headings shall not constitute a definition, limitation or expansion of the scope of this Agreement and its provisions.
18.5 All Agreements
This agreement constitutes the entire agreement between the partners, and supersedes all previous agreements, offers, undertakings or memorandums concerning the partnership, and other oral and written agreements on fund raising and establishment.
18.6 Severability
If any provision of this Agreement or the application of that provision to any person or circumstance is held to be invalid, the validity of the remaining provisions or the provision to any other person or circumstance shall not be affected.
18.7 Confidentiality obligations
All parties to this Agreement shall strictly keep confidential the business secrets of other parties that they learn from the negotiation, signing and execution of this Agreement. The limited partners shall keep strictly confidential the business information of the partnership that they have learned through semi-annual reports, annual reports, access to financial books and partner meetings.
18.8 Consistency
In case of conflict between the contents of this partnership agreement and other agreements or documents between the partners, this partnership agreement shall prevail. If there are multiple versions of the partnership agreement and the contents conflict, the version filed with the China Fund Industry Association shall prevail.
18.9 Share Information Backup
All partners agree that the executive partner, the share registration agency or other share registration obligors shall perform the backup of the fund share registration (all partners) data in accordance with the provisions of the China Fund Industry Association.
18.10 Modifying the Agreement
18.10.1 The general partner may amend this agreement in the following ways: (1) When the amendment has an adverse impact on the economic or legal rights of one or more limited partners, the consent of such limited partners shall be obtained; (2) The general partner may make the amendment independently when the amendment does not adversely affect the economic or legal rights of the limited partner.
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
18.10.2 The LP shall notify the LP after signing the amendment to this Agreement or the revised agreement.
18.10.3 All limited partners further agree that, for the revision of matters stipulated in this agreement and the general partner has the right to decide independently, as well as the business registration/change registration documents owned by the partnership, the general partner shall, if permitted by laws and regulations, Can directly sign on behalf of all limited partners; for amendments to the content of the agreement on matters that should be voted on by the partners, the general partner can sign on behalf of all limited partners with the relevant partner voting certificate. If due to applicable law or the request of the government department, needs the signature of the limited partner in person, the limited partner shall cooperate; for the relevant amendments that should be made only with the consent of the limited partner or partner holding a specific share of capital contribution, the general partner shall Upon the prior written consent of the partners, they can sign on behalf of all partners as permitted by laws and regulations. If it is necessary for all partners to sign in person due to the requirements of applicable laws or government departments, all partners shall cooperate.
18.11 Signature of the text
The originals of this agreement are signed in duplicate, each party holds one copy, and the remaining originals are used for reporting to relevant agencies or departments, and all copies have the same legal effect.
18.12 Effectiveness and Termination of the Agreement
This Agreement shall come into force on the date signed by the parties. It shall be terminated after the liquidation of the partnership enterprise expires.
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[This page has no text, it is the signature page of the “Partnership Agreement of Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership)”]
Signed by: Shenzhen Zijingang Ruitong Investment Enterprise (Limited Partnership)
Legal representative or authorized representative:
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[This page has no text, it is the signature page of the “Partnership Agreement of Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership)”]
Signed by: Global Mentor Board (Beijing) Information Technology Co., Ltd.
Legal representative or authorized representative: (signature)
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
[This page has no text, it is the signature page of the “Partnership Agreement of Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership)”]
Signed by: Li Fangli
(signature)
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Signed by: Lin Zhenfa
(signature)
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Signed by: Chen Jun
(signature)
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
[This page has no text, it is the signature page of the “Partnership Agreement of Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership)”]
Signed by: Shenzhen Zijingang Capital Management Co., Ltd.
Legal representative or authorized representative: (signature)
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[This page has no text, it is the signature page of the “Partnership Agreement of Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership)”]
Signed by: Zheng Ning
(signature)
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Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership) Partnership Agreement
[This page has no text, it is the signature page of the “Partnership Agreement of Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership)”]
Signed by: Yang Jun
(signature)
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[This page has no text, it is the signature page of the “Partnership Agreement of Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership)”]
Signed by: Zeng Xiaoping
(signature)
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[This page has no text, it is the signature page of the “Partnership Agreement of Shenzhen Jiazhong Innovation Investment Enterprise (Limited Partnership)”]
Signed by: Ren Haibin
(signature)
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Exhibit 8.1
Principal Subsidiaries and Consolidated Affiliated Entities of the Registrant
| Name | Date of Incorporation | Place of Incorporation | Percentage of Effective Ownership | Principal Activities | ||||||
| Subsidiaries | ||||||||||
| Global Mentor Board Information Technology Limited | March 22, 2019 | HK | 100% | Holding company | ||||||
| Beijing Mentor Board Union Information Technology Co, Ltd. | June 3, 2019. | PRC | 100% | Holding company of WFOE | ||||||
| Shidong Cloud (Beijing) Education Technology Co., Ltd | December 12, 2021 | PRC | 75% | Educational Consulting | ||||||
| SDH (HK) New Energy Tech Co., Ltd. | October, 8, 2021 | Hongkong | 100% | Holding company | ||||||
| Zhuhai (Zibo) Investment Co., Ltd. | October 15, 2021 | PRC | 100% | New Energy Investment | ||||||
| Zhuhai (Guizhou) New Energy Investment Co., Ltd | November 8, 2021 | PRC | 100% | New Energy Investment | ||||||
| Sunrise (Guizhou) New Energy Materials Co., Ltd. | November 8, 2021 | PRC | 51% | Manufacture of Lithium Battery Materials | ||||||
| Variable Interest Entity (“VIE”) and subsidiaries of VIE | ||||||||||
| Global Mentor Board (Beijing) Information Technology Co., Ltd. (“SDH” or “VIE”) | December 5, 2014 | PRC | VIE | peer-to-peer knowledge sharing and enterprise service platform provider | ||||||
| Global Mentor Board (Hangzhou) Technology Co., Ltd. | November 1, 2017 | PRC | 100% | Consulting, training and tailored services provider | ||||||
| Global Mentor Board (Shanghai) Enterprise Management Consulting Co., Ltd. | June 30, 2017 | PRC | 51% | Consulting services provider | ||||||
| Shanghai Voice of Seedling Cultural Media Co., Ltd. | June 22, 2017 | PRC | 51% | cultural and artistic exchanges and planning, conference services provider | ||||||
| Shidong(Beijing)Information Technology Co., LTD. | June 19, 2018 | PRC | 51% | information technology services provider | ||||||
| Mentor Board Voice of Seeding (Shanghai) Cultural Technology Co., Ltd. | August 29, 2018 | PRC | 51% | Technical services provider | ||||||
| Shidong Zibo Digital Technology Co., Ltd. | October 16, 2020 | PRC | 100% | Technical services provider | ||||||
| Shidong Trading Service (Zhejiang) Co., Ltd. | April 19, 2021 | PRC | 60% | Sale of Merchandise | ||||||
| Shanghai Jiagui Haifeng Technology Co., Ltd. | November 29, 2021 | PRC | 51% | Business Incubation Services provider | ||||||
| Shanghai Nanyu Culture Communication Co., Ltd. | July 27, 2021 | PRC | 51% | Enterprise Information Technology Integration services provider | ||||||
Exhibit 12.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Haiping Hu, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Global Internet of People, Inc. (the “Company”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
| 4. | The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
| 5. | The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
Date: May 2, 2022
| By: | /s/ Haiping Hu | ||
| Name: | Haiping Hu | ||
| Title: | Chief Executive Officer | ||
Exhibit 12.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Chao Liu, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Global Internet of People, Inc. (the “Company”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
| 4. | The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
| 5. | The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent function): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
Date: May 2, 2022
| By: | /s/ Chao Liu | ||
| Name: | Chao Liu | ||
| Title: | Chief Financial Officer | ||
Exhibit 13.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Global Internet of People, Inc. (the “Company”) on Form 20-F for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Haiping Hu, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 2, 2022
| By: | /s/ Haiping Hu | ||
| Name: | Haiping Hu | ||
| Title: | Chief Executive Officer | ||
Exhibit 13.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Global Internet of People, Inc. (the “Company”) on Form 20-F for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chao Liu, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 2, 2022
| By: | /s/ Chao Liu | ||
| Name: | Chao Liu | ||
| Title: | Chief Financial Officer | ||