Wetour Robotics Ltd F-1/A, filed Dec 3, 2024
Wetour Robotics Ltd (WETO)
As filed with the U.S. Securities and Exchange Commission on December 3, 2024.
Registration No. 333-269684
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 10 TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WEBUS INTERNATIONAL LIMITED
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
| Cayman Islands | 7389 | Not Applicable |
| (State or other jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer |
| incorporation or organization) | Classification Code Number) | Identification number) |
25/F, UK Center, EFC, Yuhang District
Hangzhou, China 311121
Tel: + 86(571) 58000026
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Cogency Global Inc.
122 East 42nd Street, 18th Floor
New York, NY 10168
(212) 947-7200
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
| Fang Liu, Esq. | Lawrence Venick, Esq. |
| VCL Law LLP | Loeb & Loeb LLP |
| 1945 Old Gallows Road | 2206-19 Jardine House |
| Suite 260 | 1 Connaught Place |
| Vienna, VA 22182 | Central, Hong Kong SAR |
| (703) 919-7285 | 852-3923-1111 |
Approximate date of commencement of proposed sale to the public: as soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to section 7(a)(2)(B) of the Securities Act. ¨
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, as amended, or until the registration statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a) may determine.
This Registration Statement contains two prospectuses, as set forth below.
| ● | Public Offering Prospectus. A prospectus to be used for the public offering of 2,000,000 Ordinary Shares of the Registrant (the “Public Offering Prospectus”) through the underwriter named on the cover page of the Public Offering Prospectus. | |
| ● | Resale Prospectus. A prospectus to be used for the resale by the Selling Shareholders of up to 1,750,000 Ordinary Shares of the Registrant (the “Resale Prospectus”). |
The Resale Prospectus is substantively identical to the Public Offering Prospectus, except for the following principal points:
| ● | they contain different outside and inside front covers and back covers; | |
| ● | the Offering section in the Prospectus Summary section from the Public Offering Prospectus on page 18 is deleted and replaced with a revised the Offering section on page Alt-1; | |
| ● | the Use of Proceeds section from the Public Offering Prospectus on page 63 is deleted and replaced with a revised the Use of Proceeds section on page Alt-4; | |
| ● | a Selling Shareholder section is included in the Resale Prospectus on page Alt-1; | |
| ● | the Underwriting section from the Public Offering Prospectus on page 146 is deleted and replaced with a Selling Shareholders Plan of Distribution section on page Alt-2; and | |
| ● | the Legal Matters section from the Public Offering Prospectus on page 154 is deleted and replaced with a revised the Legal Matters section on page Alt-4. |
The Registrant has included in this Registration Statement a set of alternate pages after the back-cover page of the Public Offering Prospectus (the “Alternate Pages”) to reflect the foregoing differences in the Resale Prospectus as compared to the Public Offering Prospectus. The Public Offering Prospectus will exclude the Alternate Pages and will be used for the public offering by the Registrant and the Selling Shareholders. The Resale Prospectus will be substantively identical to the Public Offering Prospectus except for the addition or substitution of the Alternate Pages and will be used for the resale offering by the Selling Shareholders.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS (Subject to Completion) Dated December 3, 2024
2,000,000 Ordinary Shares
WEBUS INTERNATIONAL LIMITED
This is the initial public offering of the Ordinary Shares of Webus International Limited, a Cayman Islands exempted company. We are offering 2,000,000 Ordinary Shares, par value $0.0001 per share (the “Ordinary Shares”), on a firm commitment basis, and we expect the initial public offering price of the Ordinary Shares to be between $4.00 and $5.00 per share. Currently, no public market exists for our Ordinary Shares. We have applied to have our Ordinary Shares listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “WETO.” We will not complete this offering unless we are so listed.
We are an “emerging growth company,” as that term is used in the Jumpstarts Our Business Startups Act of 2012 and will be subject to reduced public company reporting requirements.
We are, and following the completion of this offering, will continue to be a “controlled company” as defined under the Nasdaq Stock Market Rules because Mr. Zheng Jiahua, the chairman of our board of directors and his son, Mr. Zheng Nan our chief executive officer, will beneficially own 74.09% of our then issued and outstanding Ordinary Shares, assuming the underwriter does not exercise its over-allotment option. Therefore, we may elect not to comply with certain corporate governance requirements of Nasdaq. Currently, we do not plan to utilize the “controlled company” exemptions with respect to our corporate governance practice after we complete this offering.
On March 10, 2023, we issued an aggregate of 30,000,000 Ordinary Shares to each of the existing shareholders on a pro-rata basis. The additional issuance increased the number of issued and outstanding Ordinary Shares from 5,000,000 Ordinary Shares to 35,000,000 Ordinary Shares.
On October 31, 2024, we effected the below recapitalization: a reverse share split through the repurchase of 15,000,000 shares at $0.0001 per share from all shareholders ("Reverse Share Split"), that is, approximately 43% of ordinary shares was repurchased from every shareholder (with the fractional shares rounding off to the nearest whole share). The Reverse Share Split had no effect on any shareholders’ proportionate equity interest. The par value remained at $0.0001 per share following the Reverse Share Split, and the number of our issued and outstanding ordinary shares was reduced to 20,000,000 shares. As a result, the aggregate par value of the outstanding ordinary shares reduced, with the aggregate share subscription receivable correspondingly reduced. The Reverse Share Split has no effect on our total shareholders’ equity.
Investing in our Ordinary Shares is highly speculative and involves a significant degree of risk. See “Risk Factors” beginning on page 26 of this prospectus for a discussion of information that should be considered before making a decision to purchase our Ordinary Shares.
Webus International Limited (“Webus”, “we”, or the “Company”) is a Cayman Islands exempted company without any operation and our operations are conducted by (1) our wholly owned subsidiary Wetour Travel Tech, LLC in the United States; and (2) through 50% equity interest held by Zhejiang Xinjieni Technology Co., Ltd. (“WFOE”) in Zhejiang Youba Technology Co., Ltd., a limited liability company established under PRC law (the “VIE” or “Youba Tech”) and as beneficiary of the remaining 50% interests in Youba Tech through contractual arrangements with Youba Tech and Individual Registered Shareholders (“50% VIE Interests”). VIE interests are not considered as equal to equity interest and, this structure involves unique risks to investors. See “Risk Factors— Risks Related to Doing Business in China — Risks Related to Doing Business in China —Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations; — Uncertainties and quick change in the interpretation and enforcement of Chinese laws and regulations with little advance notice could result in a material and negative impact our business operation, decrease the value of our ordinary shares and limit the legal protections available to us; and — The Chinese legal system embodies uncertainties which could negatively affect our listing on Nasdaq and limit the legal protections available to you and us.”
In addition, the VIE is consolidated for accounting purpose only and Webus owns 50% equity interests and 50% VIE Interests in the VIE. Webus is not a Chinese operating company and does not conduct operations directly. PRC laws, regulations, and rules restrict and impose conditions on foreign investment in certain types of business, including value added telecommunication business, and we therefore operate these businesses in China through the VIE structure which provides investors with exposure to foreign investment in the Chinese operating companies where foreign investors are restricted by Chinese law from holding more than 50% equity interests in the operating companies. For a summary of these contractual arrangements, see “Corporate History and Structure — Contractual Arrangements with the VIE and Individual Registered Shareholders.” Investors are purchasing equity interests in Webus, the Cayman Islands exempted company, and are not purchasing, and may never directly hold, equity interests in the VIE. As used in this prospectus, “we,” “us,” or “our” refers to Webus and its subsidiaries and do not include the VIE and its subsidiary.
Our corporate structure is subject to risks relating to our contractual arrangements with the VIE and its individual shareholders. Such contractual arrangements have not been tested in any of the PRC courts. There are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to these contractual arrangements. If the PRC government finds these contractual arrangements non-compliant with the restrictions on direct foreign investment in the relevant industries, or if the relevant PRC laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish our interests in the VIE or forfeit our rights under the contractual arrangements. Webus and investors in the Ordinary Shares face uncertainty about potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with the VIE and, consequently, significantly affect the financial condition and results of operations of Webus. If we are unable to claim our right to control the assets of the VIE, the Ordinary Shares may decline in value as we hold 50% equity interests and 50% VIE Interests in the VIE. The PRC government could even disallow the VIE structure completely, which would likely result in a material adverse change in our operations and the Ordinary Shares may significantly decline in value. See “Risk Factors — Risks Related to Corporate Structure.”
There are legal and operational risks associated with being based in and having all operations in China through the VIE structure. The Chinese government took regulatory actions on certain U.S. listed Chinese companies and made statement that it will exert more oversight and control over offerings and listings by Chinese companies that are conducted overseas, such as those related to the use of variable interest entities and data security or anti-monopoly concerns. The VIE and its PRC subsidiary are located in China, and are subject to complex and evolving PRC laws and regulations. For example, we face regulatory risks relating to listings in the U.S., oversight on cybersecurity and data privacy.
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. On December 28, 2021, Cybersecurity Review Measures was published by Cyberspace Administration of China (the “CAC”), National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, Ministry of State Security, Ministry of Finance (the “MOF”), Ministry of Commerce, People’s Bank of China, State Administration of Radio and Television, China Securities Regulatory Commission, State Secrecy Administration and State Cryptography Administration, became effective on February 15, 2022, which provides that, Critical Information Infrastructure Operators (“CIIOs”) that purchase internet products and services and Data Processing Operators (“DPOs”) engaging in data processing activities that affect or may affect national security shall be subject to the cybersecurity review by the Cybersecurity Review Office. On November 14, 2021, CAC published the Administration Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measure (Draft)”, which requires cyberspace operators with personal information of more than one million users who want to list abroad to file a cybersecurity review with the Office of Cybersecurity Review. As of the date of this prospectus, these new laws and guidelines have not impacted the Company’s ability to conduct its business, accept foreign investments, or list and trade on a U.S. or other foreign exchange as the VIE and its PRC subsidiary hold far less than one million users’ personal information. The VIE and its PRC subsidiary provide customized car rental services and travel-related services and we believe the new data security or anti-monopoly laws and regulations in China do not apply to the Company, its subsidiaries, the VIE and its PRC subsidiary. However, any change in foreign investment regulations, and other policies in China or related enforcement actions by China government could result in a material change in the operations of the VIE and its PRC subsidiary and the value of our Ordinary Shares and could significantly limit our ability to offer our Ordinary Shares to investors or cause the value of our Ordinary Shares to significantly decline.
On February 17, 2023, the China Securities Regulatory Commission (the “CSRC”) released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “New Overseas Listing Rules”) with five interpretive guidelines, which came into effect on March 31, 2023. The New Overseas Listing Rules require Chinese domestic enterprises to complete filings with relevant governmental authorities and report related information under certain circumstances, such as: a) an issuer making an application for initial public offering and listing in an overseas market; b) an issuer making a subsequent overseas securities offering after having been listed on an overseas market; c) a domestic company seeking an overseas direct or indirect listing of its assets through single or multiple acquisition(s), share swap, transfer of shares or other means. According to the Notice on Arrangements for Overseas Securities Offering and Listing by Domestic Enterprises, published by the CSRC on February 17, 2023, a company that (i) has already completed overseas listing or (ii) has already obtained the approval for the offering or listing from overseas securities regulators or exchanges but has not completed such offering or listing before effective date of the new rules and also completes the offering or listing before September 30, 2023 will be considered as an existing listed company and is not required to make any filing until it conducts a new offering in the future. For the company that has already submitted offering and listing applications but not yet obtained the approvals from overseas securities regulators or exchanges shall choose to make its filing with the CSRC at a reasonable time but before the completion of the offering/listing. For the company that has already obtained CSRC approval for overseas listing or offering can continue its process during the valid term of the CSRC approval without additional filing and it shall make the filing pursuant to the new rules if it does not complete the offering or listing before the expiration of the original approval from CSRC.
On February 24, 2023, the CSRC, MOF, National Administration of State Secrets Protection and National Archives Administration of China jointly issued the Provisions on Strengthening the Confidentiality and Archive Management Work Relating to the Overseas Securities Offering and Listing, or the Confidentiality Provisions, which came into effect on March 31, 2023 with the New Overseas Listing Rules. The Confidentiality Provisions require that, among other things, (a) a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations.
Any overseas offering and listing made by an issuer that meets both the following conditions will be determined as indirect offering and listing in overseas market and, therefore, be subject to filing requirement: (i) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by domestic companies; and (ii) the main parts of the issuer’s business activities are conducted in the Mainland China, or its main places of business are located in the Mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in the Mainland China. The determination as to whether or not an overseas offering and listing by domestic companies is indirect, shall be made on substance over form basis. As of the date of this prospectus, we meet the conditions that will be determined as indirect offering and listing in overseas market and, based on AllBright’s advice, we are subject to filing requirement pursuant to the New Overseas Listing Rules, and, this offering and our listing on Nasdaq are therefore contingent on the completion of the filing procedures with the CSRC prior to our listing on Nasdaq. As we are required to file with the CSRC before the completion of this offering and may be required to obtain approval from any other PRC governmental authorities, if we cannot complete the filing with the CSRC in compliance with the New Overseas Listing Rules prior to our listing on Nasdaq, the CSRC may order rectification, issue warnings, and impose a fine between RMB1 million and RMB10 million on our PRC Subsidiaries, which could adversely and materially affect our business operations and financial outlook, and 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 such shares to become worthless. Webus submitted the filing documents for the filing under the New Overseas Listing Rules (the “Filing Documents”) to comply with our obligations under the New Overseas Listing Rules. On April 2, 2024, the CSRC informed us that we have completed the CSRC filing in compliance with the New Overseas Listing Rules.
Uncertainties in the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protection available to you and us, hinder our ability to offer or continue to offer our Ordinary Shares, result in a material adverse effect on our business operations, and damage our reputation, which might further cause our Ordinary Shares to significantly decline in value. See “Risk Factors — Risks Related to Doing Business in China.”
Our auditor, Marcum Asia CPAs LLP (formerly Marcum Bernstein & Pinchuk LLP), an independent registered public accounting firm headquartered in the United States, was not included in the determinations made by the Public Company Accounting Oversight Board (United States), or the PCAOB, on December 16, 2021. Additionally, on August 26, 2022, the PCAOB announced that it had signed a Statement of Protocol (the “Protocol”) with the CSRC and the MOF governing inspections and investigations of audit firms based in mainland China and Hong Kong. On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. On December 29, 2022, legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law. The Consolidated Appropriations Act contained, among other things, an identical provision to HFCAA, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two. Our auditor is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. As a result, we do not expect to be identified as a “Commission-Identified Issuer” under the HFCAA as of the date of this prospectus. However, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control, including positions taken by authorities of the PRC. The PCAOB is expected to continue to demand complete access to inspections and investigations against accounting firms headquartered in mainland China and Hong Kong in the future and has resumed regular inspections since March 2023. The PCAOB is required under the HFCAA to make its determination on an annual basis with regards to its ability to inspect and investigate completely accounting firms based in the mainland China and Hong Kong. The possibility of being a “Commission-Identified Issuer” and risk of delisting could continue to adversely affect the trading price of our securities. Should the PCAOB again encounter impediments to inspections and investigations in mainland China or Hong Kong as a result of positions taken by any authority in either jurisdiction, the PCAOB will make determinations under the HFCAA as and when appropriate. Although we believe that the Holding Foreign Companies Accountable Act and the related regulations do not currently affect us, we cannot assure you that there will not be any further implementations and interpretations of the Holding Foreign Companies Accountable Act or the related regulations, which might pose regulatory risks to and impose restrictions on us because of our operations in mainland China.
The VIE and its PRC subsidiary mainly conduct design, marketing, operation, and research and development activities in China, and we hold 50% equity interests and 50% VIE Interests in the VIE. As a result, almost all of the sales revenues are received by the VIE and its PRC subsidiary. Transfers of funds among the WFOE, the VIE and its PRC subsidiary are free of restrictions. Remittances of funds from the WFOE, the VIE and its PRC subsidiary to Webus are subject to review and conversion of Renminbi Yuan (“RMB”) to U.S. Dollar (“$”) through banks in China, which represents the State Administration of Foreign Exchange (“SAFE”) to monitor foreign exchange activities. Under the existing 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 SAFE by complying with certain procedural requirements with the banks. We have not declared or paid dividends in the past, nor any dividends or distributions were made by subsidiaries to us. Furthermore, as of the date of this prospectus, no transfers, dividends, or distributions have been made among us, our subsidiaries, and the VIE and its subsidiary. Our board of directors has complete discretion on whether to distribute dividends, subject to applicable laws. Currently, we do not have any current plan to declare or pay any cash dividends to the U.S. investors in the foreseeable future after this offering, or settle amounts owed to our agreements, including the VIE agreements, except to the agreements entered under normal business operation as discussed hereof. See “VIE Consolidation Schedule” and “Note 14 Condensed financial information of the parent company – Condensed statements of cash flows” in our financial statements appearing elsewhere in this prospectus. Please also refer to “Dividend Policy” on page 64. The cash transfer among us and our subsidiaries is intended to be made through dividends, capital contributions or intercompany loans between the holding company and its subsidiaries, if needed in the future. Funds may be paid by the VIE and its subsidiary to the WFOE as service fees according to the VIE agreements. The WFOE may remit cash to the VIE subject to review and conversion of RMB to U.S. Dollars through WFOE’s bank in China. As of the date of this prospectus, none of our subsidiaries has made any dividend payment or distribution to the holding company, and we have not made any dividends or distributions to U.S. investors. No cash generated from one subsidiary is used to fund another subsidiary’s operations, and we do not anticipate any difficulties or limitations on our ability to transfer cash between us and our subsidiaries outside mainland China. However, the transfer of cash in and out of mainland China is subject to review and procedures according to the requirements of the SAFE. Other than discussed above, we don’t have any cash management policies that dictate the amount of such funding among the Group and the VIE and its subsidiary.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
| Per Share | Total Without Over- Allotment Option |
Total With Full Exercise of Over- Allotment Option |
||||||||||
| Public offering price | $ | $ | $ | |||||||||
| Underwriting discount(1) | $ | $ | $ | |||||||||
| Proceeds to us, before expenses(2) | $ | $ | $ | |||||||||
| (1) | Represents underwriting discounts equal to 7% per Ordinary Share. |
| (2) | In addition to the underwriting discounts listed above, we have agreed to issue, upon closing of this offering, warrants to Network 1 Financial Securities, Inc., as representative of the several underwriters (the “Representative”), exercisable six (6) months after the date of closing of this offering and for a three-year period after the date of commencement of sales of Ordinary Shares in this offering, entitling the Representative to purchase 7% of the total number of Ordinary Shares sold in this offering (including any Ordinary Shares sold as a result of the exercise of the underwriters’ over-allotment option) at a per share price equal to 125% of the public offering price (the “Representative’s Warrants”). The registration statement of which this prospectus is a part also covers the Representative’s Warrants and the Ordinary Shares issuable upon the exercise thereof. See “Underwriting” for additional information regarding total underwriter compensation. |
We have granted the underwriters an option for a period of 45 days from the date of this prospectus to purchase up to 15% of the total number of our Ordinary Shares to be offered by us pursuant to this offering (excluding shares subject to this option), solely for the purpose of covering over-allotments, at the initial public offering price less the underwriting discount.
This offering is being conducted on a firm commitment basis. The underwriter is obligated to take and pay for all of the shares if any such shares are taken. The total underwriting discounts and commissions payable will be $560,000 based on an assumed offering price of $4.00 per share, which is the lower end of the range set forth on the cover page of this prospectus, and the total gross proceeds to us, before expenses and underwriting discounts and commissions, will be $8.00 million, assuming the underwriter does not exercise its over-allotment option. If we complete this offering, net proceeds will be delivered to our company on the closing date.
The underwriter expects to deliver the Ordinary Shares against payment as set forth under “Underwriting”, on or about [●], 2024.
The date of this prospectus is [●], 2024
About this Prospectus
This prospectus is part of a registration statement we filed with the SEC. We and the underwriter have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by us or on our behalf or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the Ordinary Shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to any person to whom it is not permitted to make such offer or sale. The information contained in this prospectus is current only as of the date on the front cover of the prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
Other Pertinent Information
Unless otherwise indicated or the context requires otherwise, references in this prospectus to:
| ● | "A&R memorandum and articles of association" are to the second amended and restated memorandum and articles of association of Webus to be adopted upon effectiveness of this prospectus; |
| ● | “China” or “PRC” are to the People’s Republic of China, including Hong Kong and Macau; however the only time such jurisdictions are not included in the definition of PRC and China is when we reference to the specific laws that have been adopted by the PRC. The term “Chinese” has a correlative meaning for the purpose of this prospectus; |
| ● | “Ordinary Shares” are to our Ordinary Shares, par value $0.0001 per share; |
| ● | “Webus,” “we,” “us,” “our,” “the holding company,” or the “Company” are to the registrant Webus International Limited., an exempted company incorporated under the laws of the Cayman Islands; |
| ● | “Youbus International” is to Youbus International Limited, a company formed under the laws of British Virgin Islands and a wholly-owned subsidiary of Webus; |
| ● | “Webus HK” is to Webus Hongkong Limited., a company formed under the laws of Hong Kong and a wholly-owned subsidiary of Youbus International; |
| ● | “WFOE” or “Xinjieni Tech” are to Zhejiang Xinjieni Technology Co., Ltd., a company formed under the laws of the PRC and a wholly owned subsidiary of Webus HK; |
| ● | “Youba Tech” or “VIE” are to Zhejiang Youba Technology Co., Ltd., a company organized under the laws of the PRC and the operating entity which has entered into the VIE Agreement with WFOE; |
| ● | “Individual Registered Shareholders” are to Zheng Jiahua and Wu Chunyun who collectively hold 50% of the equity interest of Youba Tech; |
| ● | “VIE and its subsidiary” are to Youba Tech and Webus Travel Agency; |
| ● | “Webus Travel Agency” is to Hangzhou Webus Travel Agency Co., Ltd., a company formed under the PRC and a wholly owned subsidiary of Youba Tech; |
| ● | “Wetour” is to Wetour Travel Tech, LLC, a Delaware company and a wholly-owned subsidiary of Webus; |
| ● | “shares”, “Shares” or “Ordinary Shares” as of the date hereof refer to our Ordinary Shares, par value $0.0001 per share; |
| ● | The “Group” is to Webus, Youbus International, Webus HK, and the WFOE, as a group; |
| ● | “RMB” or “¥” are to the legal currency of China; and |
| ● | “$”, “US$”, “USD” or “U.S. Dollars” are to the legal currency of the United States. |
A significant portion of our business is conducted by Youba Tech, the VIE in the PRC, and its subsidiary Webus Travel Agency, using Chinese yuan (the “RMB”), the legal currency of mainland China. Our consolidated financial statements are presented in RMB. The amounts for the fiscal years ended June 30, 2023 and 2024 are presented in U.S. dollars for convenience purpose. These dollar 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.
For the sake of clarity, this prospectus follows the Chinese naming convention of last name followed by first name. For example, the name of our Chairman will be presented as “Zheng Jiahua”.
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TABLE OF CONTENTS
You should rely only on the information contained in this prospectus or in any related free writing prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus or any free writing prospectus. We are offering to sell, and seeking offers to buy, the Ordinary Shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the Ordinary Shares.
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This summary highlights certain information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including our financial statements and related notes and the risks described under “Risk Factors” beginning on page 26. We note that our actual results and future events may differ significantly based upon a number of factors. The reader should not put undue reliance on the forward-looking statements in this document, which speak only as of the date on the cover of this prospectus. This prospectus contains information from an industry report commissioned by us and prepared by Shenzhen Zero Power Intelligence Co., Ltd. (the “ZPI”), an independent research firm, to provide information regarding our industry and our market position in China. We refer to this report as the ZPI report.
Who We Are
We are an emerging leader in China’s Collective Mobility Service (“CMS”) market that provides hassle-free and cost-effective mobility solutions with real-time AI-augmented online support and 24-7 itinerary management support through the VIE and its subsidiary and Wetour. The CMS utilizes privately-operated vans and buses to offer customers an alternative way to public transportation when traveling in large groups. Customers come to our platform for any type of CMS, from day-to-day commute, inter-city trips, business visits, and cross-provinces travel to guided tours and tailored vacation packages. Our diverse products and service portfolio covers budget, high-end, and customized offerings that appeal to both our individual and corporate customers.
Our Mission
Our mission is to make mobility easier and smarter by providing customers with customized commuter shuttle, charted car and bus, and travel services around the world through our global platform powered by big data and advanced algorithms.
Our Business
We are an exempted company incorporated in the Cayman Islands. As a holding company with no material operations, our operations were conducted by 1) our wholly-owned subsidiary Wetour in the United States; 2) our direct investment in Youba Tech and its subsidiary; and 3) through VIE Agreements with Youba Tech. This is an offering of the Ordinary Shares of the exempted company incorporated in the Cayman Islands. You are not 100% investing in, the VIE, as we hold 50% equity interests in Youba Tech and 50% VIE Interests in Youba Tech through VIE agreements. VIE Interests are not equity interest. Through the VIE Agreements among WFOE, Youba Tech and Individual Registered Shareholders, which have not been tested in a court of law, we are regarded as the primary beneficiary of Youba Tech for accounting purpose, and, therefore, we are able to consolidate the financial results of Youba Tech in our consolidated financial statements in accordance with U.S. GAAP. However, the VIE structure cannot completely replicate a foreign investment in China-based companies, as we only hold 50% equity interest in the VIE and its subsidiary and do not and may never hold the equity interests over 50% in the VIE and its subsidiary. Instead, the VIE structure provides contractual exposure to foreign investment in us. See “Corporate History and Structure — Contractual Arrangements with the VIE and Individual Registered Shareholders” for a summary of these VIE Agreements.
We operate on a business model of “Mobility-as-a-Service” (“MaaS”) to identify and solve inefficiencies associated with inflexible or low-quality mobility solutions for customers around the world under different scenarios with our comprehensive digital platforms. We offer customized commuter shuttle service, chartered car and bus service, packaged tour service and other services to our customers for business and leisure travels.
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Packaged tour service
We offer packaged tour service to customers inclusive of services like chartered bus service, itinerary route schedule, sightseeing tour guidance, accommodation arrangement, etc., and cater to different budgets and preferences. For the years ended June 30, 2023 and 2024, our revenue from the packaged tour service were RMB81,038,722 and RMB33,391,854 ($4,594,872), respectively.
Customized chartered car and bus service
We also provide customized chartered car and bus service to support a more flexible and less preplanned group travel demand which ranges from one day to several months. For the years ended June 30, 2023 and 2024, our revenue from the customized chartered car and bus service were RMB63,654,231 and RMB10,730,641 ($1,476,586), respectively.
Commuter shuttle service
We provide customized commuter shuttle service with digital platform monitoring, delivering daily transportation service from predetermined departure to destination during the contract period. For the years ended June 30, 2023 and 2024, our revenue from the commuter shuttle service were RMB9,507,054 and RMB1,853,926 ($255,108), respectively.
Others
We also provide our platform (“Webus Travel mini program”) users with cross-city ride-hailing service under relevant regulations in the PRC. For the years ended June 30, 2023 and 2024, our revenue from other service were RMB25,999 and nil, respectively.
Our Business Strategies
We intend to drive the growth of our business by executing on the following strategies:
| · | Further integrate our platform to a comprehensive ecosystem. We plan to continuously develop our platform into a comprehensive mobility ecosystem by building vertical integration within the platform for information flow and capital flow, external horizontal integration between our corporate customers, and end-to-end integration for complete product life cycle value chain. |
| · | Enhance Big Data and AI innovation. Strengthening technological innovation is one of our main strategic priorities to enhance the user experience. We will continue to attract, train and retain more talent in technology, research and development. As technologies and means for human-machine interactions continue to advance, we will strive to adapt to new technologies and formats with a view to becoming an intelligent travel assistant for our users. We will continue to invest in research and development activities by allocating certain portion of the net proceeds upon completion of listing. |
| · | Expand our customized tour and chartered car and bus services around the world. In March 2022, we have started offering customized tour service in North America under the brand name “Wetour”. We plan to vigorously develop the “Wetour” brand to build our global online customized chartered car and bus travel platform. We will focus on expanding services for Chinese outbound tourists after the pandemic and meeting the needs of overseas Chinese for car use and private customized travel. |
| · | Improve product content innovation capabilities. We will launch diversified and creative content formats: images, short videos, live broadcasts, and recommend the most relevant customized product content to our users. We plan to provide innovative content production tools and an efficient content reward mechanism to encourage users, professional travelers, Internet celebrities and the third-party social media platforms to jointly develop different customized travel itineraries and further increase user stickiness order rate of users on the platform. |
| · | Geographically broaden our service coverage. We plan to expand our service outside China by continuing to maintain strategic collaborations with large online travel platforms as their vertical business supplier, cooperating with local bus and car rental companies, and increasing online marketing and short video traffic advertising. |
| · | Pursue strategic alliances, acquisitions and investments. We plan to selectively seek acquisitions, investments, joint ventures and collaborations highly strategic and complementary to our business and operations. In particular, we may consider acquiring some customized travel service brands to complement our existing offerings and services. We will also strengthen our vertical integration and strategic partnerships with content providers to further expand our partner network. |
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Our Strengths
We believe the following strengths have contributed to our success:
| · | High degree of digitalization. Our self-developed internal business and user management platform enables all departments to better coordinate their work and effectively complete automatic online process of each order entry, order dispatch, settlement and invoicing. Our in-depth analysis of these accumulated data not only enables us to better understand user preferences and behavior and develop user-friendly products to assist users in making informed decisions, it also assists us in identifying potential target marketing and cross-selling opportunities. |
| · | Abundant and integrated resources. Since we started operation in 2019, we have accumulated abundant industry resources through our strategic relationship with our key suppliers. Our online channels include mobile apps; official websites; mini programs based on WeChat and Alipay, which have the two largest user base in China; interfaces with three major online travel agency platforms in China, Ctrip, Fliggy, and Tongcheng; and certified partnership with the prominent content publishing platform Xiaohongshu. We also work with large traditional travel agencies and online platforms around the world (such as Alaska Skylar Travel LLC, Alaska Aurora Travel LLC, Expedia TAAP, Viator Partner, and Mei Tour) as well as online bus booking platform gotobus. In addition, in mainland China, we have more than 11,000 dispatchable vehicles to satisfy our customers’ demand under different scenarios. Outside China, we have around 10,000 drivers providing customized chartered car and bus services. Our industry resources have paved the way for our competitive position in providing mobility solutions for Chinese-speaking customers around the world. |
| · | User-Centered Services. Since our inception, we have continued to focus on building user trust, and constantly improving the platform interface to provide users with a smooth, efficient and transparent booking experience. We provide 24/7 Chinese and English itinerary butler support to serve users in every aspect. We also provide one-stop after-sale support, including pre-trip alerts, major accident compensation, refund policy for special circumstances, and emergency support. |
| · | Diverse and highly customizable travel solutions for different service scenarios. Our diverse travel solutions can satisfy differentiated needs and requirements and assist us to attract increasing number of customers. We work closely with a wealth of drivers to design products that meet the individual needs of our customers and use our proprietary historical travel product pricing data, combined with car usage time, mileage, road conditions, and local consumption expenses to update and optimize our product pricing model in real time. |
| · | Experienced team. Our management team is experienced in corporate management with international vision and our operation team has specialized experience in collective mobility service market. Members of our technical team came from internet technology companies, travel agencies, and online travel platform companies. They bring their years of experiences with deep understanding of the industry and provide resources for customers and suppliers in various fields. |
Our Challenges
In 2020, we experienced the sudden impact caused by the COVID-19 global pandemic. In 2021, COVID-19 pandemic continued to impact our operations. In 2022, there have been outbreaks of the Omicron variant of the COVID-19 in China, and the government restrictions and temporary lockdowns in combating the pandemic. China began to modify its zero-COVID policy at the end of 2022, and most of the travel restrictions and quarantine requirements were lifted in December 2022, causing cases of COVID-19 to remain elevated across China and straining local healthcare systems. We have adjusted various aspects of our operations to adapt to travel demand fluctuations decreasing with elevated cases and surging with lifted restrictions. However, the situation in China has significantly improved since then, and the World Health Organization (“WHO”) declared that COVID-19 was no longer a public health emergency of international concern on May 4, 2023. We are continually monitoring the status of COVID-19 and its impact on our operations. For the years ended June 30, 2023 and 2024, we reported revenue of RMB154,226,006 and RMB45,976,421 ($6,326,566), respectively.
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To expand our market around the world, we may face intensive competition on price, quality of services, and technology. We may not be able to compete with traditional local and international travel agencies for customers, driver resources, strategic partners such as travel agencies, airlines, hotels and tourist attraction sites. We may be required to invest significant capital to access customers, driver resources and quality travel product supplier information.
Overall, we require additional capital to develop new products, enter into new markets and drive our future growth. However, we have difficulty obtaining sufficient financing from commercial banks in China as these traditional commercial banks prefer having real assets as collaterals for their loans. We have also assessed the capital market of China, and we believe that it is difficult for a company like us to seek for financing in China.
Our Competition
There are around a hundred online collective mobility service platforms in China and online collective mobility service market is highly fragmented.
Risk Factor Summary
Risks Related to Our Business and Industry
| · | The global coronavirus COVID-19 outbreak has caused significant disruptions to the travel industry, which we expect may have negative impact on our business, results of operations and financial condition. See “Risk Factors – Risks Related to Our Business and Industry - Pandemics (such as COVID-19), epidemics, or fear of spread of contagious diseases could disrupt the travel industry and our operations, which could materially and adversely affect our business, financial condition, and results of operations” on page 26 and “Our business may be negatively affected by the trend of remote working and flexible working schedules” on page 36. |
| · | We have a limited operating history in a competitive and rapidly evolving industry and incurred losses for the years ended June 30, 2023 and 2024. See “Risk Factors – Risks Related to Our Business and Industry - We have a limited operating history in a competitive and rapidly evolving industry; it may be difficult to evaluate our prospects, and we may not be able to effectively manage our growth on page 27 and “We incurred net losses for the years ended June 30, 2023 and 2024. We may not be able to generate sufficient operating cash flows and working capital. Failure to manage our liquidity and cash flows may materially and adversely affect our financial condition and results of operations. We may not be able to generate sufficient operating cash flows and working capital. Failure to manage our liquidity and cash flows may materially and adversely affect our financial condition and results of operations. As a result, we may need additional capital, and financing may not be available on terms acceptable to us, or at all” on page 27. |
| · | The growth of our business depends on our ability to accurately predict consumer trends and demand and successfully introduce new products and services and improve existing services. See “Risk Factors – Risks Related to Our Business and Industry - The growth of our business depends on our ability to accurately predict consumer trends and demand and successfully introduce new products and services and improve existing services” on page 28. |
| · | Any damage to our reputation or our brands may materially adversely affect our business, financial condition and results of operations. See “Risk Factors – Risks Related to Our Business and Industry - Any damage to our reputation or our brands may materially adversely affect our business, financial condition and results of operations” on page 30. |
| · | Our operation mainly concentrates in one geographic area and we have a substantial customer concentration. See “Risk Factors – Risks Related to Our Business and Industry - We are mainly concentrated in one geographic area, which increases our exposure to many of the risks enumerated herein. We have a substantial customer concentration, with a limited number of customers accounting for a substantial portion of our revenues in the past, and we cannot assure you that such concentration will not happen again in the future.” on page 31. |
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| · | The successful operation of our business depends on cooperation with third parties. See “Risk Factors – Risks Related to Our Business and Industry - The successful operation of our business depends substantially upon the cooperation of third parties that are not under our control” on page 28; “We rely on search engines, social networking sites and online streaming services to attract a meaningful portion of our users, and if those search engines, social networking sites and online streaming services change their listings or policies regarding advertising, or increase their pricing or suffer problems, it may limit our ability to attract new users” on page 28, and “Because we rely upon a third party to perform the payment processing for our customers, the failure or inability of the third party to provide these services could impair our ability to operate” on page 29. |
| · | Our projections, budgets, and revenues would be adversely affected by increases in labor costs, oil and natural gas prices. See “Risk Factors – Risks Related to Our Business and Industry - Increases in labor costs in the PRC may adversely affect the business and results of operations of us and the VIE” and “The price of oil and natural gas has historically been volatile. The ongoing Russian-Ukrainian War has increased the oil and natural gas prices substantially. If the price continues to increase, our drivers and bus fleet providers may be forced to adjust their prices upward. Our projections, budgets, and revenues would be adversely affected, potentially forcing us to make changes in our operations” on page 32. |
| · | Newly developed public transportation infrastructure may reduce the demand for our commuter shuttle and chartered bus services. See “Risk Factors – Risks Related to Our Business and Industry - Newly developed public transportation infrastructure may reduce the demand for our commuter shuttle and chartered car and bus services” on page 37. |
See “Risk Factors — Risks Related to Our Business” on page 26 for more detailed disclosures on these risks and uncertainties.
Risks Related to Corporate Structure
| · | We are an exempted company incorporated in the Cayman Islands. As a holding company with no material operations, our operations were conducted by 1) our wholly-owned subsidiary Wetour in the United States; 2) our direct investment in Youba Tech and its subsidiary; and 3) through VIE Agreements with Youba Tech. There are substantial uncertainties regarding such corporate structure. See “Risk Factors – Risks Related to Corporate Structure - Webus is a Cayman Islands exempted company operating in the United States and in China partially through its subsidiaries and partially through contractual arrangements with the VIE. Investors in the Ordinary Shares thus are not purchasing, and may never directly hold, 50% VIE Interests in the VIE. There are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to the agreements that establish the VIE structure for the majority of our and the VIE’s operations in China, including potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with the VIE and, consequently, significantly affect the financial condition and results of operations of Webus. If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations, and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish our interests in the VIE, which may materially and adversely affect our and the VIE’s operations and the value of your investment” on page 38. |
| · | We rely on contractual arrangements with the VIE and Individual Registered Shareholders for our and the VIE’s operations in China, which may not be as effective in providing operational control as direct ownership, and the VIE’s shareholders may fail to perform their obligations under the contractual arrangements. See “Risk Factors – Risks Related to Corporate Structure - We rely on contractual arrangements with the VIE and Individual Registered Shareholders for our and the VIE’s operations in China, which may not be as effective in providing operational control as direct ownership, and the VIE’s shareholders may fail to perform their obligations under the contractual arrangements” on page 39. |
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| · | The shareholders of the VIE may have conflicts of interests with us, which may materially and adversely affect our and the VIE’s business. See “Risk Factors – Risks Related to Corporate Structure - The shareholders of the VIE may have conflicts of interests with us, which may materially and adversely affect our and the VIE’s business.” on page 40. |
| · | Certain terms of the Contractual Arrangements may not be enforceable under PRC laws. See “Risk Factors – Risks Related to Corporate Structure - Certain terms of the Contractual Arrangements may not be enforceable under PRC laws” on page 41. |
| · | Our Contractual Arrangements may be subject to scrutiny of PRC tax authorities and additional tax may be imposed which may materially and adversely affect our and the VIE’s results of operation and value of your investment. See “Risk Factors – Risks Related to Corporate Structure - Our Contractual Arrangements may be subject to scrutiny of PRC tax authorities and additional tax may be imposed which may materially and adversely affect our and the VIE’s results of operation and value of your investment” on page 42. |
| · | We and the investors may face significant liquidity risks if the laws, regulations or government policies governing our corporate structure or operations change in the future. See “Risk Factors – Risks Related to Corporate Structure – The investors may face significant liquidity risks because of the VIE structure and being based in and having the majority of the Company’s operations in China” and “Risk Factors – Risks Related to Doing Business in China – To the extent cash or assets of our business, or of our PRC or Hong Kong subsidiaries, is in the PRC or Hong Kong, such cash or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong, due to interventions in or the imposition of restrictions and limitations by the PRC government to the transfer of cash or assets” on page 47. |
| · | If we exercise the option to acquire equity ownership and assets of the VIE, the ownership or asset transfer may subject us to certain limitations and substantial costs. See “Risk Factors – Risks Related to Corporate Structure - If we exercise the option to acquire equity ownership and assets of the VIE, the ownership or asset transfer may subject us to certain limitations and substantial costs” on page 40. |
| · | Substantial uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of the current corporate structure, corporate governance and business operations of us and the VIE. See “Risk Factors – Risks Related to Corporate Structure - Substantial uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of the current corporate structure, corporate governance and business operations of us and the VIE” on page 41. |
| · | We are a holding company and the investors will have ownership in a holding company that does not directly own all of its operation in China. We primarily rely on our WFOE and the VIE for the operation in PRC. We may rely on dividends to be paid by the WFOE to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, if needed in the future. Any limitation on the ability of WFOE to pay dividends to us could have a material adverse effect on our ability to pay dividends to our shareholders. See “Risk Factors – Risks Related to Corporate Structure - We are a holding company and the investors will have ownership in a holding company that does not directly own all of its operation in China. We primarily rely on our WFOE and the VIE for the operation in PRC. We may rely on dividends to be paid by the WFOE to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, if needed in the future. Any limitation on the ability of WFOE to pay dividends to us could have a material adverse effect on our ability to pay dividends to our shareholders” on page 42. |
See “Risk Factors— Risks Related to Corporate Structure” on page 38 for more detailed disclosures on these risks and uncertainties.
Risks Related to Doing Business in China
| · | Uncertainties exist as to our ability to use foreign currency, including the proceeds we received from this offering, and to capitalize or otherwise fund our PRC operations, which could materially and adversely affect our liquidity and our ability to fund and expand our business. See “Risk Factors – Risks Related to Doing Business in China - We must remit the offering proceeds to China before they may be used to benefit our business in China, the process of which may be time-consuming, and we cannot assure that we can finish all necessary governmental registration processes in a timely manner, which could materially and adversely affect our liquidity and our ability to fund and expand our business” on page 37. | |
| · | Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations. See “Risk Factors – Risks Related to Doing Business in China - Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations” on page 43. |
| · | The PRC legal system is a civil law system based on written statutes, where prior court decisions have limited precedential value. 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. As such, the enforcement of laws in the PRC legal system and rules and regulations in China may be subject to change. See “Risk Factors – Risks Related to Doing Business in China - Uncertainties and quick change in the interpretation and enforcement of Chinese laws and regulations with little advance notice could result in a material and negative impact on our business operation, decrease the value of our ordinary shares and limit the legal protections available to us. See “Risk Factors – Risks Related to Doing Business in China - Uncertainties and quick change in the interpretation and enforcement of Chinese laws and regulations with little advance notice could result in a material and negative impact on our business operation, decrease the value of our ordinary shares and limit the legal protections available to us” on page 43. |
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| · | The approval and/or other requirements of the CSRC or other PRC governmental authorities may be required in connection with this transaction under PRC rules, regulations or policies, and, if required, Webus cannot predict whether or how soon it will be able to obtain such approval. See “Risk Factors – Risks Related to Doing Business in China - The approval and/or other requirements of the CSRC or other PRC governmental authorities may be required in connection with this transaction under PRC rules, regulations or policies, and, if required, Webus cannot predict whether or how soon it will be able to obtain such approval” on page 44. |
| · | The Chinese government exerts substantial influence over the manner in which the VIE and its subsidiary must conduct their business activities. See “Risk Factors – Risks Related to Doing Business in China - The Chinese government exerts substantial influence over the manner in which the VIE and its subsidiary must conduct their business activities. If the Chinese government significantly regulates these entities’ business operations in the future and they are not able to substantially comply with such regulations, these entities’ business operations may be materially adversely affected and the value of our ordinary shares may significantly decrease” on page 45. |
| · | Substantial 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, business operations and financial results. See “Risk Factors – Risks Related to Doing Business in China - Substantial 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, business operations and financial results” on page 52. |
| · | Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions. See “Risk Factors – Risks Related to Doing Business in China - Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions” on page 49. |
| · | If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders. See “Risk Factors – Risks Related to Doing Business in China - If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders” on page 49. |
| · | Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China. See “Risk Factors – Risks Related to Doing Business in China - Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China” on page 50. |
| · | The Holding Foreign Companies Accountable Act, or HFCAA and the related regulations might pose regulatory risks to and impose restrictions on us because of our operations in mainland China. See “Risk Factors – Risks Related to Doing Business in China - The Holding Foreign Companies Accountable Act, or the HFCAA, and the related regulations are evolving quickly. Further implementations and interpretations of or amendments to the HFCAA or the related regulations, or a PCOAB’s determination of its lack of sufficient access to inspect our auditor, might pose regulatory risks to and impose restrictions on us because of our operations in mainland China. A potential consequence is that our Ordinary Shares may be delisted by the exchange. The delisting of our Ordinary Shares, or the threat of our Ordinary Shares being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct full inspections of our auditor deprives our investors of the benefits of such inspections” on page 50. |
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| · | The Chinese government may intervene or influence our operations at any time or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers and that such actions by the Chinese government could cause the value of our securities to significantly decline or be worthless. See “Risk Factors – Risks Related to Doing Business in China - Any change of regulations and rules by Chinese government including potential additional requirements on cybersecurity review, personal information protection, moving technology in and out of the PRC, or outbound data transfer may intervene or influence our operations in China at any time and any additional control over offerings conducted overseas and/or foreign investment in issuers with Chinese operations could result in a material change in our business operations and/or the value of our ordinary shares and could also significantly limit or completely hinder our ability to offer our ordinary shares to investors and cause the value of such securities to significantly decline or be worthless” on page 53. |
| · | On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “New Overseas Listing Rules”) with five interpretive guidelines, which came into effect on March 31, 2023. The New Overseas Listing Rules require Chinese domestic enterprises to complete filings with relevant governmental authorities and report related information under certain circumstances. See “Risk Factors – Risks Related to Doing Business in China - The required filing with China Securities Regulatory Commission (“CSRC”) in connection with this offering under New Overseas Listing Rules published in February 2023 was completed on April 2, 2024, but we cannot assure you that we will not be subject to additional requirements from the CSRC or other PRC regulatory agencies for offering, and we may face sanctions by the CSRC or other PRC regulatory agencies for failure to timely satisfy any such additional requirements” on page 55. |
See “Risk Factors—Risks Related to Doing Business in China” on page 43 for more detailed disclosures on these risks and uncertainties.
Risks Related to Our Ordinary Shares and This Offering
| · | There has been no previous public market for our shares prior to this offering, and if an active trading market does not develop you may not be able to resell our shares at or above the price you paid, or at all. See “Risk Factors—Risks Related to Our Ordinary Shares and This Offering - There has been no previous public market for our shares prior to this offering, and if an active trading market does not develop you may not be able to resell our shares at or above the price you paid, or at all” on page 56. |
| · | You may face difficulties in protecting your interests as a shareholder, as Cayman Islands law provides substantially less protection when compared to the laws of the United States and it may be difficult for a shareholder of ours to effect service of process or to enforce judgements obtained in the United States courts. See “Risk Factors—Risks Related to Our Ordinary Shares and This Offering - You may face difficulties in protecting your interests as a shareholder, as Cayman Islands law provides substantially less protection when compared to the laws of the United States and it may be difficult for a shareholder of ours to effect service of process or to enforce judgements obtained in the United States courts” on page 58. |
See “Risk Factors—Risks Related to Our Ordinary Shares and This Offering” on page 56 for more detailed disclosures on these risks and uncertainties.
In addition, please see “Risk Factors” beginning on page 26 of this prospectus, and other information included in this prospectus, for a discussion of these and other risks and uncertainties that we face.
Corporate History and Structure
Webus commenced its operations in August 2019 through Zhejiang Youba Technology Co., Ltd., a limited liability company formed in the PRC. Through Youba Tech and its subsidiary, Webus mainly offers customers travel related services, including customized commuter shuttle service, chartered car and bus service, packaged tour service and other services, through our comprehensive online platforms. Webus expanded its operations to United States in March 2022 through Wetour Travel Tech LLC, a limited liability company formed in United States. Webus formed its wholly-owned subsidiary Xinjieni Tech as a limited liability company in the PRC in August 2022. Through Xinjieni Tech’s direct investment in and contractual arrangements with Youba Tech, Webus conducts business operations in China.
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Webus underwent a series of restructuring transactions, which primarily included:
| · | In February 2022, Webus International Limited, Webus’ current ultimate holding company, was incorporated under the laws of the Cayman Islands. |
| · | In February 2022, Youbus International Limited was incorporated in the British Virgin Islands as a BVI business company. |
| · | In February 2022, Webus Hongkong Limited was incorporated in Hong Kong under the laws of Hong Kong. |
| · | In August 2022, Zhejiang Xinjieni Technology Co., Ltd., or Xinjieni Tech, was formed in the PRC as a wholly-owned subsidiary of Webus Hongkong Limited. |
| · | In September 2022, Xinjieni Tech acquired 50% equity interests in Youba Tech and entered into a series of contractual arrangements for 50% VIE Interests, with Youba Tech, as well as Individual Registered Shareholders. Through Xinjieni Tech, Webus obtained control over Youba Tech and its subsidiary Webus Travel Agency. |
The use of the VIE structure was to comply with applicable PRC laws and regulations that restrict foreign investment of companies involved in internet content provider services, including value-added telecommunications services in China. We can hold up to 50% equity interests in the VIE.
Additional Issuance
On March 10, 2023, we issued an aggregate of 30,000,000 Ordinary Shares to each of the existing shareholders on a pro-rata basis. The additional issuance increased the number of issued and outstanding shares from 5,000,000 Ordinary Shares to 35,000,000 Ordinary Shares.
Reverse Share Split
On October 31, 2024, we effected the below recapitalization: a reverse share split through the repurchase of 15,000,000 shares at $0.0001 per share from all shareholders ("Reverse Share Split"), that is, approximately 43% of ordinary shares was repurchased from every shareholder (with the fractional shares rounding off to the nearest whole share). The Reverse Share Split had no effect on any shareholders’ proportionate equity interest. The par value remained at $0.0001 per share following the Reverse Share Split, and the number of our issued and outstanding ordinary shares was reduced to 20,000,000 shares. As a result, the aggregate par value of the outstanding ordinary shares reduced, with the aggregate share subscription receivable correspondingly reduced. The Reverse Share Split has no effect on our total shareholders’ equity.
Corporate Structure
The following diagram illustrates our corporate structure, including our subsidiaries, the VIE and its subsidiary as of the date of this prospectus:
Contractual Arrangements with the VIE and Individual Registered Shareholders
Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunication business. We are a company registered in the Cayman Islands. Our PRC subsidiary, Xinjieni Tech, is considered a foreign-invested enterprise. To comply with PRC laws and regulations, the VIE primarily conduct business in China through the VIE and its subsidiary, based on a series of Contractual Arrangements. As a result of these Contractual Arrangements, we exert control over, and are deemed as the primary beneficiary of the VIE and its subsidiary and consolidate their operating results in our financial statements subject to the conditions that we have satisfied for consolidation of the VIE and its subsidiary under U.S. GAAP. Such conditions include that (i) we control the VIE through power to govern the activities which most significantly impact the VIE’s economic performance, (ii) we are contractually obligated to absorb losses of the VIE that could potentially be significant to the VIE, and (iii) we are entitled to receive benefits from the VIE that could potentially be significant to the VIE.
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The following is a summary of the Contractual Arrangements by and among WFOE, the VIE, and Individual Registered Shareholders. These Contractual Arrangements enable us to (i) exercise control over the VIE, (ii) receive substantially all of the economic benefits of the VIE, and (iii) have an exclusive option to purchase all or part of the equity interests in the VIE held by the VIE’s shareholders other than WFOE when and to the extent permitted by PRC law. Our control over the VIE and its subsidiary and our position of being the primary beneficiary of the VIE and its subsidiary for the accounting purpose are limited to the aforementioned conditions that we met for consolidation of the VIE and its subsidiary under U.S. GAAP.
| · | Exclusive Business Cooperation Agreement |
Pursuant to the Exclusive Business Cooperation Agreement, the VIE is obliged to pay service fee to WFOE for the exclusive services such as technical services, Internet technology support, business consulting, software development, information consulting, marketing consulting, product development and system maintenance. The service fee shall consist of 100% of the profit before tax of the VIE, after the deduction of all costs, expenses, taxes and other fee required under PRC laws and regulations. The VIE agrees not to accept the same or any similar services provided by any third party and shall not establish cooperation relationships similar to that formed by the Exclusive Business Cooperation Agreement with any third party, except with the prior written consent of WFOE. The VIE has unconditionally and irrevocably authorized WFOE or its designated person as its agent to (i) sign any necessary documents with third parties (including but not limited to customers and suppliers) on behalf of the VIE; and (ii) to handle all necessary documents and matters which will enable WFOE to exercise all or part of its rights under the Exclusive Business Cooperation Agreement on behalf of the VIE. WFOE shall have exclusive proprietary rights to and interests in any and all intellectual property rights developed or created by itself and the VIE. The Exclusive Business Cooperation Agreement shall remain effective unless terminated (i) in accordance with the provisions of the Exclusive Business Cooperation Agreement; or (ii) the entire equity interests held by Individual Registered Shareholders in the VIE have been transferred to WFOE or its designated person.
| · | Exclusive Call Option Agreement |
Pursuant to the Exclusive Call Option Agreement, the Individual Registered Shareholders have unconditionally and irrevocably granted WFOE or its designated purchaser the right to purchase all or part of their equity interests in the VIE (“Equity Call Option”). The purchase price payable by WFOE in respect of the transfer of equity interests upon exercise of the Equity Call Option shall be the higher of (a) the lowest price permitted under PRC laws and regulations or (b) the capital contribution in relation to the equity interests. If appraisal is required by the PRC laws and regulations at the time when WFOE exercises the Option, WFOE and the Individual Registered Shareholders shall make necessary adjustment to purchase price so that it complies with any and all then applicable PRC laws and regulations. WFOE or its designated purchaser shall have the right to purchase such proportion of equity interests in the VIE as it decides at any time. The Individual Registered Shareholders shall return any amount of purchase price they received in the event that WFOE acquires the equity interests in the VIE.
The Individual Registered Shareholders and the VIE have jointly and severally further undertaken to WFOE that, without the prior written consent of WFOE, they shall not (i) in any manner supplement, change or amend the constitutional documents of the VIE, increase or decrease its share capital, or change the structure of its registered capital in other manner; (ii) sell, pledge, transfer or otherwise dispose of any assets, business or lawful revenue or create encumbrance over the VIE; (iii) incur, inherit, guarantee or assume any debt, except for debts incurred in the ordinary course of business other than payables incurred by a loan and for debts disclosed to and agreed in writing by WFOE; (iv) cause the VIE to execute any material contract with a value above RMB100,000, except the contracts executed in the ordinary course of business; (v) cause the VIE to provide any person with any loan, credit or guarantee; (vi) cause or permit the VIE to merge, consolidate with, acquire or invest in any person, or sell assets of the VIE with a value above RMB100,000; (vii) cause the VIE to enter into any transaction which may have substantial impact on the assets, liabilities, business operation, shareholding structure and other legal rights of the VIE, except the contracts executed in the ordinary course of business; and (viii) in any manner distribute dividends to their shareholders, provided that upon the written request of WFOE, the VIE shall immediately distribute all distributable profits to its shareholders.
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The Exclusive Call Option Agreement shall remain effective unless terminated (i) in accordance with the provisions of the Exclusive Call Option Agreement or any other supplemental agreements; or (ii) the entire equity interests held by Individual Registered Shareholders in the VIE have been transferred to WFOE or its designated person.
| · | Exclusive Assets Option Agreement |
Pursuant to the Exclusive Assets Option Agreement, the VIE unconditionally and irrevocably granted an exclusive option to WFOE or its designated person to purchase all or any of its assets at the higher price of (a) the lowest price permitted under PRC laws and regulations or (b) the net book value of the assets. WFOE shall have absolute discretion as to when and in what manner to exercise the option to purchase assets of the VIE permitted by PRC laws and regulations. The Exclusive Assets Option Agreement shall remain effective unless terminated (i) in accordance with the provisions of the Exclusive Assets Option Agreement or any other supplemental agreements; or (ii) the entire equity interests held by the Individual Registered Shareholders in the VIE have been transferred to WFOE or its designated person.
| · | Power of Attorney |
Pursuant to the Power of Attorney, each of the Individual Registered Shareholders, irrevocably appoints WFOE, the authorized person or entity to exercise such shareholder’s rights in the VIE in accordance with PRC laws and the articles of the VIE, including without limitation to, the rights to (i) participate in shareholders meetings; (ii) the sale, transfer, pledge or disposition of the equity interest such shareholder holds in part or in whole; and (iii) designate and appoint, on behalf of such shareholder, the legal representative, the chairman, the executive director(s) and/or director(s), the supervisor(s), the general manger and other senior management members of the VIE. Without limiting the generality of the powers granted to WFOE, WFOE shall have the power and authority hereunder, on behalf of such shareholder, to execute the share transfer contracts stipulated in the Exclusive Call Option Agreement entered into among the VIE, WFOE and such shareholder and effect the terms of the Exclusive Call Option Agreement and Share Pledge Agreement. All the actions in connection with the equity interest held by such shareholder as conducted by WFOE shall be deemed as the actions of such shareholder, and all the documents related to the shareholding executed by WFOE shall be deemed to be executed by such shareholder.
| · | Share Pledge Agreement |
Pursuant to the Share Pledge Agreement, each of the Individual Registered Shareholders unconditionally and irrevocably pledged and granted first priority security interests over all of his/her/its equity interests in the VIE together with all related rights thereto to WFOE as security for performance of the Contractual Arrangements and all direct, indirect or consequential damages and foreseeable loss of interest incurred by WFOE as a result of any event of default on the part of the Individual Registered Shareholders, the VIE and all expenses incurred by WFOE as a result of enforcement of the obligations of the Individual Registered Shareholders and/or the VIE under the Contractual Arrangements. Upon the occurrence and during the continuance of an event of default (as defined in the Share Pledge Agreement), WFOE shall have the right to (i) require the Individual Registered Shareholders to immediately pay any amount payable under the Contractual Arrangements; or (ii) to exercise all such rights as a secured party under any applicable PRC law and the Share Pledge Agreement, including without limitations, being paid in priority with the equity interests.
The said share pledge under the Share Pledge Agreement takes effect upon the completion of registration with the relevant administrative department of industry and commerce and shall remain valid until after all the contractual obligations of the Individual Registered Shareholders and the VIE under the relevant Contractual Arrangements have been fully performed and all the outstanding debts of the Individual Registered Shareholders and/or the VIE under the relevant Contractual Arrangements have been fully paid.
| · | Spousal Consent |
Pursuant to each Spousal Consent, the respective spouse of the Individual Registered Shareholders has irrevocably undertaken that, including without limitation to, the spouse (i) has full knowledge of and has consented to the entering into of the Contractual Arrangements by the relevant Individual Registered Shareholder; (ii) is not entitled to any right with respect to the shares in the VIE and undertakes not to make any claims on the equity interest in the VIE; (iii) confirms that the Individual Registered Shareholders’ performance of the Contractual Arrangements and further modification or termination of the Contractual Arrangements will not require the respective spouse’s separate authorization or consent;; (iv) undertakes to execute all necessary documents and take all necessary actions to ensure the Contractual Arrangements (as amended from time to time) to be properly performed; (v) undertakes that if the respective spouse obtains any equity interest in the VIE for any reason, the respective spouse shall be bound by the Contractual Arrangements and abide by the obligations of the shareholders of the VIE under the Contractual Arrangements, and upon WFOE's or its designate third-party request, the respective spouse shall execute a series of written documents with substantially the same form and content as the Contractual Arrangements。
In the opinion of our PRC legal counsel, Allbright Law Offices
| · | the ownership structures of the VIE and our WFOE in China, both currently and immediately after giving effect to this offering, are not in violation of applicable PRC laws and regulations currently in effect; and |
| · | the contractual arrangements among our WFOE, the VIE and its shareholders governed by PRC law are currently valid and binding in accordance with applicable PRC laws and regulations currently in effect and do not result in any violation of the applicable PRC laws or regulations currently in effect. |
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However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of future PRC laws and regulations. Accordingly, the PRC regulatory authorities may ultimately take a view contrary to or otherwise different from 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 the VIE are found to be in violation of any existing or future PRC laws or regulations, or 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. See “Substantial uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of the current corporate structure, corporate governance and business operations of us and the VIE.”
Transfer of Cash to and From Our Subsidiaries and the VIE
Webus is incorporated in the Cayman Islands as a holding company with no actual operations and it currently conducts its business through its subsidiary in the U.S. and the VIE and its subsidiary in China.
We are permitted under the Cayman Islands laws to provide funding to our subsidiary in Hong Kong through loans or capital contributions without restrictions on the amount of the funds, subject to satisfaction of applicable government registration, approval and filing requirements. Webus HK is also permitted under the laws of Hong Kong to provide funding to Webus and Youbus International through dividend distribution without restrictions on the amount of the funds.
We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing instruments.
Subject to the Cayman Islands Companies Act and our A&R memorandum and articles of association, our board of directors may authorize and declare a dividend to shareholders at such time and of such an amount as they think fit if they are satisfied, on reasonable grounds, that immediately following the dividend the value of our assets will exceed our liabilities and we will be able to pay our debts as they become due.
Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us. The laws and regulations of the PRC do not currently have any material impact on transfer of cash from Webus to Webus HK or from Webus HK to Webus. There are no restrictions or limitation under the laws of Hong Kong imposed on the conversion of HK dollar into foreign currencies and the remittance of currencies out of Hong Kong or across borders and to U.S investors.
Current PRC regulations permit the VIE and its subsidiary to pay dividends to Webus HK only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of the VIE and its subsidiary is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.
Under existing PRC foreign exchange regulations, payment 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 SAFE by complying with certain procedural requirements. Therefore, the VIE and its subsidiary are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulations, such as the overseas investment registrations by our shareholders or the ultimate shareholders of our corporate shareholders who are PRC residents. Approval from, or registration with, appropriate government authorities is, however, required where the RMB 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 also at its discretion restrict access in the future to foreign currencies for current account transactions. Current PRC regulations permit our PRC subsidiaries to pay dividends to the Company only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. As of the date of this prospectus, there are no restrictions or limitations imposed by the Hong Kong government on the transfer of capital within, into and out of Hong Kong (including funds from Hong Kong to the PRC), except for transfer of funds involving money laundering and criminal activities. See “Risk Factors - Risks Related to Doing Business in China – To the extent cash or assets of our business, or of our PRC or Hong Kong subsidiaries, is in the PRC or Hong Kong, such cash or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong, due to interventions in or the imposition of restrictions and limitations by the PRC government to the transfer of cash or assets” on page 47.
To address persistent capital outflows and the RMB’s depreciation against the U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and SAFE have implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations, we may be unable to pay dividends on our Ordinary Shares.
A significant portion of the Company’s business is conducted through the VIE and its subsidiary. Funds may be paid by the VIE and its subsidiary to the WFOE as service fees pursuant to the VIE agreements. The Company may rely on dividends paid by the WFOE for its working capital and cash needs, including the funds necessary: (i) to pay dividends or cash distributions to its shareholders, (ii) to service any debt obligations and (iii) to pay operating expenses. Cash dividends, if any, on our Ordinary Shares will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10.0%.
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In order for us to pay dividends to our shareholders, we may rely on payments made from the VIE and its subsidiary to the WFOE, from the WFOE to Webus HK, from Webus HK to Webus International, and finally from Webus International to Webus. Certain payments from the WFOE to Webus HK are subject to PRC taxes, including business taxes and VAT. As of the date of this prospectus, the VIE and its subsidiary have not made any other transfers, loans, or distributions.
Pursuant to the Arrangement between 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, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC entity. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including, without limitation, that (a) the Hong Kong entity must be the beneficial owner of the relevant dividends; and (b) the Hong Kong entity must directly hold no less than 25% share ownership in the PRC entity during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong entity must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by the VIE and its subsidiary or the WFOE to Webus HK. As of the date of this prospectus, the WFOE currently does not have any plan to declare and pay dividends to Webus HK and we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. Webus HK intends to apply for the tax resident certificate when the WFOE plans to declare and pay dividends to Webus HK. When the WFOE plans to declare and pay dividends to Webus HK and when we intend to apply for the tax resident certificate from the relevant Hong Kong tax authority, we plan to inform the investors through SEC filings, such as a current report on Form 6-K, prior to such actions. See “Risk Factors - Risks Related to Our Corporate Structure - We are a holding company, and may rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our Ordinary Shares” on page 38.
The WFOE may rely on the service fees to be paid by the VIE and its subsidiary pursuant to the VIE agreements. There has been no cash flows and transfers of other assets among the holding company, its subsidiaries, and VIE and its subsidiary. The cash transfer among the holding company and its subsidiaries is intended to be made through dividends, capital contributions or intercompany loans between the holding company and its subsidiaries, if needed in the future. Currently, we do not have any intentions to distribute earnings or settle amounts owed to our agreements, including the VIE agreements, except to the agreements entered under normal business operation as discussed hereof. None of our subsidiaries and the VIE and its subsidiary has made any dividend payment or distribution to the holding company as of the date this prospectus, and we currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Neither the Company nor any of its subsidiaries or the VIE and its subsidiary has made any dividends or distributions to U.S. investors as of the date of this prospectus.
Current PRC regulations permit WFOE to pay dividends to those entities only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Therefore, under our current corporate structure, we rely on dividend payments or other distributions from WFOE to fund any cash and financing requirements we may have, including the funds necessary to pay dividends and other cash distributions to our shareholders or to service any debt we may incur. If WFOE incurs debt on its own behalf in the future, the instruments governing such debt may restrict their ability to pay dividends to us. In addition, WFOE is permitted to pay dividends to us only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC laws and regulations, WFOE is required to set aside a portion of its net income each year to fund a statutory surplus reserve until such reserve reaches 50% of its registered capital. This reserve is not distributable as dividends. As a result, WFOE is restricted in its ability to transfer a portion of its net assets to us in the form of dividends, loans or advances.
The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if the WFOE incur debt on its own in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments. If we are unable to receive funds from WFOE, we may be unable to pay cash dividends on our Ordinary Shares.
Cash dividends, if any, on our Ordinary Shares will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10%. A 10% PRC withholding tax is applicable to dividends payable to investors that are non-resident enterprises. Any gain realized on the transfer of Ordinary Shares by such investors is also subject to PRC tax at a current rate of 10% which in the case of dividends will be withheld at source if such gain is regarded as income derived from sources within the PRC.
Transferring cash through the VIE and its subsidiary is subject to risks due to the uncertainty of the interpretation and application of the PRC laws and regulations, including but not limited to regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the contractual arrangement with the VIE. We are also subject to the risks of the uncertainty that the PRC government could disallow the VIE structure, which would likely result in a material change in our operations, or a complete hindrance of cash flow through the VIE. The VIE Arrangements are less effective than direct ownership due to the inherent risks of the VIE structure. We may have difficulty in enforcing any rights we may have under the VIE Agreements with the Youba Tech and its founders and shareholders in the PRC since all VIE Agreements are governed by the PRC laws and require us to resolve all disputes through arbitration in the PRC, where the legal environment is uncertain and not as developed as in the United States. Moreover, the Chinese government has significant oversight and discretion over the conduct of Youba Tech’s business and may intervene or influence Youba Tech’s operations at any time with little advance notice, which could result in a material change in our operations and/or the cash flow through the VIE. Furthermore, the VIE Agreements may not be enforceable in China if the PRC authorities or courts are of the view that such VIE Agreements contravene with the PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event we are unable to enforce the VIE Agreements, we may not be able to exert effective influence over the VIE and the VIE’s ability to conduct its business may be materially and adversely affected.
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As an offshore holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fund-raising activities to WFOE and the VIE and its subsidiary only through loans or capital contributions, subject to the satisfaction of the applicable government registration and approval requirements. Before providing loans to WFOE or the VIE and its subsidiary, we will be required to make filings with details of the loans with the SAFE in accordance with relevant PRC laws and regulations. WFOE and the VIE and its subsidiary that receive the loans are only allowed to use the loans for the purposes set forth in these laws and regulations. Under regulations of the SAFE, Renminbi is not convertible into foreign currencies for capital account items, such as loans, repatriation of investments and investments outside of China, unless the prior approval of the SAFE is obtained and prior registration with the SAFE is made.
Recent Developments
A novel strain of coronavirus (COVID-19) was first reported in December 2019, which has spread rapidly to many parts of the world, including the US. The epidemic has resulted in quarantines, travel restrictions, and the temporary closure of offices and business facilities in mainland for the past few months from January to March 2020. In March 2020, the World Health Organization (“WHO”) declared the COVID-19 as a global pandemic. Given the rapidly expanding nature of the COVID-19 pandemic, and because all of our manufacturing operations are in China and the majority of our sales are generated by customers in the US, both of which have been significantly negatively impacted by the outbreak, our business, results of operations, and financial condition have been and will continue to be adversely affected.
The impacts of COVID-19 on our business, financial condition, and results of operations include, but are not limited to, the following:
| · | Temporary Closure of Office. In compliance with the government health emergency rules in place and in observation of the Chinese New Year national holiday, we temporarily closed our offices since January 24, 2020. |
| · | Temporary Shortage of Labor. Due to the travel restrictions imposed by the local governments, some of our employees were not able to get back to work since the Chinese New Year holiday in early 2020. The shortage may be gradually eased with the lifted travel restrictions and quarantine requirements. |
| · | Demand Fluctuations with Increased Cases and Lifted Travel Restrictions. We offer our customers travel related services and the current COVID-19 pandemic adversely affected Webus’ operations. Recently, there has been an increasing number of COVID-19 cases, including the COVID-19 Omicron variant cases, in multiple cities in China. We have adjusted various aspects of our operations to adapt to travel demand fluctuations decreasing with elevated cases and surging with lifted restrictions. |
In 2022, municipalities throughout China had reported cases of COVID-19 and in response, local governments enacted a strict zero-positive-case lockdown, resulting in a quarantine of the affected areas and disruption of commercial activities within those locales. China began to modify its zero-COVID policy at the end of 2022, and most of the travel restrictions and quarantine requirements were lifted in December 2022, causing cases of COVID-19 to remain elevated across China and straining local healthcare systems. Further, the extent of the disruption to businesses locally and internationally and the resulting financial impact that has already occurred and that may continue to occur cannot be reasonably estimated at this time.
The future impact of COVID-19 on our results of operations will depend on future developments and new information that may emerge regarding the duration and severity of the pandemic, new variants of the COVID-19, the efficacy and distribution of COVID-19 vaccines and actions taken by government authorities and other entities to contain COVID-19 and mitigate its impact, almost all of which are beyond our control. Since January 2023, the situation in China has improved greatly, and the WHO declared that COVID-19 was no longer a public health emergency of international concern on May 4, 2023. Our revenues decreased from RMB154,226,006 for the year ended June 30, 2023 to RMB45,976,421 ($6,326,566) for the year ended June 30, 2024. The decrease was mainly due to the significant decrease of revenue in the domestic market, which was primarily attributed to the adjustment in our business strategy to focus more on the overseas market, mainly due to (i) relatively lower gross margin rate of domestic market compared to overseas market; (ii) the difficulty of increasing return on investment in expanding the market share of domestic market particularly that is mainly comprised of middle and low-end consumer groups; (iii) the increasing demand for overseas tourism with the resumption of global communication and international flights in the post-epidemic eras. Nevertheless, we are continually monitoring the status of COVID-19 to assess any potential impact on our business. For a detailed description of the risks associated with the COVID-19 pandemic, see “Risk Factors—Risks Related to Our Business — Pandemics (such as COVID-19), epidemics, or fear of spread of contagious diseases could disrupt the travel industry and our operations, which could materially and adversely affect our business, financial condition, and results of operations.”
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Recent Regulatory Developments
PRC Regulatory Permissions
On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “New Overseas Listing Rules”), which came into effect on March 31, 2023. On the same date, the CSRC circulated Supporting Guidance Rules No. 1 through No. 5, Notes on the New Overseas Listing Rules, Notice on Administration Arrangements for the Filing of Overseas Listings by Domestic Enterprises and relevant CSRC Answers to Reporter Questions, or collectively, the Guidance Rules and Notice, on CSRC’s official website. Under the New Overseas Listing Rules and the Guidance Rules and Notice, domestic companies conducting overseas securities offering and listing, either directly or indirectly, shall complete filings with the CSRC pursuant to the New Overseas Listing Rules’ requirements within three working days following the submission of an initial public offering or listing application. Starting from March 31, 2023, domestic enterprises that have submitted valid applications for overseas offerings and listing but have not obtained the approval from relevant overseas regulatory authority or overseas stock exchange before March 31, 2023 can reasonably arrange the timing of filing applications and shall complete filings with the CSRC prior to their overseas offering and listings. Webus has submitted the Filing Documents for the filing under the New Overseas Listing Rules to comply with our obligations under the New Overseas Listing Rules. The content of our Filing Documents needs to be reviewed by the CSRC. On April 2, 2024, the CSRC informed us that we have completed the CSRC filing in compliance with the New Overseas Listing Rules.
Also, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the Opinions, which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Given the current PRC regulatory environment, it is uncertain when and whether our PRC subsidiaries or the VIE and its subsidiary, will be required to obtain permission from the PRC government in connection with our listing on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded.
As of the date of this prospectus, we are not a Critical Information Infrastructure Operator (“CIIO”) or a Data Processing Operator (“DPO”) as defined in Cybersecurity Review Measures published by the CAC, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, Ministry of State Security, Ministry of Finance, Ministry of Commerce, People’s Bank of China, State Administration of Radio and Television, China Securities Regulatory Commission, State Secrecy Administration and State Cryptography Administration on December 28, 2021 and took effect on February 15, 2022. We also don’t process personal data for more than one million individuals under Administration Measures for Cyber Data Security (Draft for Public Comments) published by CAC on November 14, 2021. Therefore, we are currently not covered by the permission and requirements from CAC or any other entity that is required to approve of the VIE’s operations, and we have received all requisite permissions to operate our business in China and no permission has been denied.
Although we are operating in an industry that limits foreign investment according to applicable laws which allows not more than 50% equity interests held by foreign investors, we believe that we are currently not required to obtain any approvals from Chinese government to offer our Ordinary Shares to foreign investors and list our Ordinary Shares on Nasdaq Stock Market, however, if we inadvertently conclude that such approvals are not required, or applicable laws, regulations, or interpretations change in China that require us to obtain such approval, it 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.
Holding Foreign Company Accountable Act (“HFCAA”)
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA. An identified issuer will be required to comply with these rules if the SEC identifies it as having a “non-inspection” year under a process to be subsequently established by the SEC. In June 2021, the Senate passed the AHFCAA, which was signed into law on December 29, 2022, reducing the time period for the delisting of foreign companies under the HFCAA to two consecutive years instead of three years. If our auditor cannot be inspected by the Public Company Accounting Oversight Board, or the PCAOB, for two consecutive years, the trading of our securities on any U.S. national securities exchanges, as well as any over-the-counter trading in the U.S., will be prohibited. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely 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 issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA. The rules apply to registrants that 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 PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions.
| 15 |
On August 26, 2022, the PCAOB announced that it had signed the Protocol with the CSRC and the MOF governing inspections and investigations of audit firms based in mainland China and Hong Kong. On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. On December 29, 2022, legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law. The Consolidated Appropriations Act contained, among other things, an identical provision to HFCAA, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two. Our independent registered public accounting firm that issues the audit report included elsewhere in this prospectus, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditor, Marcum Asia CPAs LLP, is headquartered in Manhattan, New York, and is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. As a result, we do not expect to be identified as a “Commission-Identified Issuer” under the HFCAA as of the date of this prospectus. However, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control, including positions taken by authorities of the PRC. The PCAOB is expected to continue to demand complete access to inspections and investigations against accounting firms headquartered in mainland China and Hong Kong in the future and has resumed regular inspections since March 2023. The PCAOB is required under the HFCAA to make its determination on an annual basis with regards to its ability to inspect and investigate completely accounting firms based in the mainland China and Hong Kong. The possibility of being a “Commission-Identified Issuer” and risk of delisting could continue to adversely affect the trading price of our securities. Should the PCAOB again encounter impediments to inspections and investigations in mainland China or Hong Kong as a result of positions taken by any authority in either jurisdiction, the PCAOB will make determinations under the HFCAA as and when appropriate. 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 it relates to the audit of our financial statements. In the event it is later determined that the PCAOB is unable to inspect or investigate completely the Company’s auditor because of a position taken by an authority in a foreign jurisdiction, then such lack of inspection could cause trading in the Company’s securities to be prohibited under the HFCAA ultimately result in a determination by a securities exchange to delist the Company’s securities. In addition, under the HFCAA, our securities may be prohibited from trading on the Nasdaq or other U.S. stock exchanges if our auditor is not inspected by the PCAOB for two consecutive years, and this ultimately could result in our Ordinary Shares being delisted by and exchange. See “The Holding Foreign Companies Accountable Act, or the HFCAA, and the related regulations are evolving quickly. Further implementations and interpretations of or amendments to the HFCAA or the related regulations, or a PCOAB’s determination of its lack of sufficient access to inspect our auditor, might pose regulatory risks to and impose restrictions on us because of our operations in mainland China. A potential consequence is that our Ordinary Shares may be delisted by the exchange. The delisting of our Ordinary Shares, or the threat of our Ordinary Shares being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct full inspections of our auditor deprives our investors of the benefits of such inspections.” on page 50.
Foreign Private Issuer Status
We are a foreign private issuer within the meaning of the rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:
| · | we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company; |
| · | for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies; |
| · | we are not required to provide the same level of disclosure on certain issues, such as executive compensation; |
| · | we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; |
| · | we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and |
| 16 |
| · | our insiders are not required to comply with Section 16 of the Exchange Act requiring such individuals and entities to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction. |
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting and financial disclosure requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, (1) presenting only two years of audited financial statements and only two years of related management discussion and analysis of financial conditions and results of operations in this prospectus, (2) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), (3) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and (4) exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We intend to take advantage of these exemptions. As a result, investors may find investing in our Ordinary Shares less attractive.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. As a result, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of such extended transition period.
We could remain an emerging growth company for up to five years, or until the earliest of (1) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (2) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Ordinary Shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 months, or (3) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
Corporate Information
Our principal executive offices are located at 25/F,UK Center, EFC, Yuhang District, Hangzhou, China. Our telephone number at this address is +86(571)58000026. Our registered office in the Cayman Islands is located at Genesis Building, 5th Floor, Genesis Close, PO Box 446, Cayman Islands, KY1-1106. Our agent for service of process in the United States is Cogency Global Inc. located at 122 East 42nd Street, 18th Floor, New York, NY 10168. Cogency Global Inc.’s phone number is (212) 947-7200. Investors should contact us for any inquiries through the address and telephone number +86(571)58000026 of our principal executive offices.
Our websites are www.wetourglobal.com, www.webus.vip, www.weixiaoba.vip, and www.ubus.vip. The information contained on our website is not a part of this prospectus.
| 17 |
The Offering
| Securities being offered: | 2,000,000 Ordinary Shares on a firm commitment basis (or 2,300,000 Ordinary Shares if the underwriter exercises its over-allotment option in full). | ||
| Initial offering price: | The purchase price for the shares is expected to be between $4.00 and $5.00 per Ordinary Share. | ||
| Over-Allotment: | We have granted to the underwriters the option, exercisable for 45 days from the date of this prospectus, to purchase up to 300,000 additional Ordinary Shares. | ||
| Number of Ordinary Shares issued and outstanding before the offering: | 20,000,000 of our Ordinary Shares are issued and outstanding as of the date of this prospectus. | ||
| Number of Ordinary Shares issued and outstanding after the offering: | 22,000,000 Ordinary Shares (or 22,300,000 Ordinary Shares if the underwriters exercise their over-allotment option in full). | ||
| Use of proceeds: | We plan to use the net proceeds from this offering after deducting estimated offering expenses payable by us as follows, assuming an offering price of $4.00 per share, which is the lower end of the range set forth on the cover page of this prospectus: | ||
| ● | Approximately $3.0 million of the proceeds to set up our new subsidiary or representative office in the United States to enhance sales and service support for our customers, initiate future expansion in marketing and internet sales of self-branded products and acquire more talents; | ||
| ● | Approximately $2.0 million of the proceeds will be used for working capital of our China operations, including but not limited to sale and marketing expenses, and research and development expenses for our Wetour digital platform related products and services; and | ||
| ● | The remaining amount of the proceeds of this offering will be applied for general corporate and working capital purposes. | ||
| Lock-up | All of our directors and officers and shareholders of 5% or more of Ordinary Shares on a fully diluted basis immediately prior to the consummation of this offering have agreed with the underwriter, subject to certain exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our Ordinary Shares or securities convertible into or exercisable or exchangeable for our Ordinary Shares for a period of 180 days after the date of this prospectus. See “Shares Eligible for Future Sale” and “Underwriting” for more information. | ||
| Nasdaq Symbol: | WETO | ||
| Representative’s warrants: | We have agreed to issue, on the closing date of this offering, warrants (the “Representative’s Warrants”) to Network 1 Financial Securities, Inc., in an amount equal to 7% of the aggregate number of Ordinary Shares sold by us in this offering. The exercise price of the representative’s warrants is equal to 125% of the price of our Ordinary Shares offered hereby. The representative’s warrants are exercisable for a period of three (3) years after six (6) months from the closing date of this offering and will terminate on the third anniversary of the date of the commencement of sales of this offering. | ||
| Risk factors: | Investing in our Ordinary Shares involves a high degree of risk. As an investor you should not buy our Ordinary Shares unless you are able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 26. | ||
| 18 |
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary consolidated statements of operations and comprehensive loss data and summary consolidated statements of cash flows data for the years ended June 30, 2023 and 2024 and the summary consolidated balance sheets data as of June 30, 2023 and 2024 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. You should read this Summary Consolidated Financial Data and Operating Data section together with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
The following table presents our summary consolidated statements of operations and comprehensive loss for the periods indicated.
| For the years ended June 30, | ||||||||||||
| 2023 | 2024 | 2024 | ||||||||||
| RMB | RMB | $ | ||||||||||
| Revenues | 154,226,006 | 45,976,421 | 6,326,566 | |||||||||
| Cost of revenues | (145,998,264 | ) | (39,546,098 | ) | (5,441,724 | ) | ||||||
| Gross profit | 8,227,742 | 6,430,323 | 884,842 | |||||||||
| Operating expenses: | ||||||||||||
| Sales and marketing expenses | (14,656,903 | ) | (7,468,321 | ) | (1,027,675 | ) | ||||||
| General and administrative expenses | (10,428,318 | ) | (5,098,450 | ) | (701,570 | ) | ||||||
| Research and development expenses | (2,367,231 | ) | (1,331,037 | ) | (183,157 | ) | ||||||
| Total operating expenses | (27,452,452 | ) | (13,897,808 | ) | (1,912,402 | ) | ||||||
| Operating loss | (19,224,710 | ) | (7,467,485 | ) | (1,027,560 | ) | ||||||
| Other income/(expenses) | ||||||||||||
| Financial expenses, net | (788,073 | ) | (1,134,713 | ) | (156,142 | ) | ||||||
| Other income, net | 2,630,368 | 4,500,552 | 619,298 | |||||||||
| Total other income, net | 1,842,295 | 3,365,839 | 463,156 | |||||||||
| Loss before income tax expense | (17,382,415 | ) | (4,101,646 | ) | (564,404 | ) | ||||||
| Income tax (expense)/benefit | (248,419 | ) | 46,054 | 6,337 | ||||||||
| Net loss | (17,630,834 | ) | (4,055,592 | ) | (558,067 | ) | ||||||
| Other comprehensive income: | ||||||||||||
| Foreign currency translation adjustments, net of nil tax | 20,469 | 2,945 | 405 | |||||||||
| Total other comprehensive income | 20,469 | 2,945 | 405 | |||||||||
| Total comprehensive loss | (17,610,365 | ) | (4,052,647 | ) | (557,662 | ) | ||||||
| Loss per ordinary share | ||||||||||||
| Basic and diluted* | (0.88 | ) | (0.20 | ) | (0.03 | ) | ||||||
| Weighted average number of ordinary shares outstanding | ||||||||||||
| Basic and diluted* | 20,000,000 | 20,000,000 | 20,000,000 | |||||||||
*The shares and per share data are presented on a retroactive basis to reflect the Company’s recapitalization
| 19 |
The following table presents our summary consolidated cash flows for the periods indicated.
| For the years ended June 30, | ||||||||||||
| 2023 | 2024 | 2024 | ||||||||||
| RMB | RMB | $ | ||||||||||
| Net cash (used in)/provided by operating activities | (4,758,992 | ) | 55,031 | 7,573 | ||||||||
| Net cash used in investing activities | (795,635 | ) | (1,470,287 | ) | (202,318 | ) | ||||||
| Net cash provided by financing activities | 4,807,797 | 2,042,038 | 280,994 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 20,469 | 2,945 | 405 | |||||||||
| Net change in cash and cash equivalents | (726,361 | ) | 629,727 | 86,654 | ||||||||
| Cash and cash equivalents at beginning of the years | 2,877,541 | 2,151,180 | 296,012 | |||||||||
| Cash and cash equivalents at end of the years | 2,151,180 | 2,780,907 | 382,666 | |||||||||
| 20 |
The following table presents our summary consolidated balance sheets data for the dates indicated.
| As of June 30, | ||||||||||||
| 2023 | 2024 | 2024 | ||||||||||
| RMB | RMB | $ | ||||||||||
| Cash and cash equivalents | 2,151,180 | 2,780,907 | 382,666 | |||||||||
| Total current assets | 9,730,481 | 10,911,146 | 1,501,424 | |||||||||
| Total non-current assets | 35,262,516 | 34,022,282 | 4,681,622 | |||||||||
| Total current liabilities | 13,132,613 | 14,455,837 | 1,989,190 | |||||||||
| Total non-current liabilities | - | 2,669,854 | 367,384 | |||||||||
| Total shareholders' equity | 31,860,384 | 27,807,737 | 3,826,472 | |||||||||
| Total liabilities and shareholders' equity | 44,992,997 | 44,933,428 | 6,183,046 | |||||||||
Non-GAAP Financial Measures
In evaluating the business, we consider and use adjusted operating loss and adjusted net loss, each a non-GAAP financial measure, in reviewing and assessing our operating performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. We present these non-GAAP financial measures because they are used by our management to evaluate operating performance and formulate business plans. We believe that the non-GAAP financial measures help identify underlying trends in our business, provide further information about our results of operations, and enhance the overall understanding of our past performance and future prospects.
The non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. The non-GAAP financial measures have limitations as analytical tools. Our non-GAAP financial measures do not reflect all items of income and expense that affect our operations and do not represent the residual cash flow available for discretionary expenditures. Furthermore, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore their comparability may be limited. We compensate for these limitations by reconciling the non-GAAP financial measures to the nearest U.S. GAAP performance measure, all of which should be considered when evaluating performance. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.
We define non-GAAP operating loss as operating loss excluding share-based compensation expenses, non-GAAP net loss as net loss excluding share-based compensation expenses. The table below sets forth a reconciliation of our operating loss to non-GAAP operating loss, our net loss to non-GAAP net loss for the years indicated below:
| For the years ended June 30, | ||||||||||||
| 2023 | 2024 | 2024 | ||||||||||
| RMB | RMB | $ | ||||||||||
| Operating loss | (19,224,710 | ) | (7,467,485 | ) | (1,027,560 | ) | ||||||
| Adjusted for: Share-based compensation (net of tax effect of nil) | 12,880,986 | - | - | |||||||||
| Non-GAAP operating loss | (6,343,724 | ) | (7,467,485 | ) | (1,027,560) | ) | ||||||
| Net loss | (17,630,834 | ) | (4,055,592 | ) | (558,067 | ) | ||||||
| Adjusted for: Share-based compensation (net of tax effect of nil) | 12,880,986 | - | - | |||||||||
| Non-GAAP net loss | (4,749,848 | ) | (4,055,592 | ) | (558,067 | ) | ||||||
| 21 |
VIE Consolidation Schedule
The following table sets forth the summary consolidated balance sheets data as of June 30, 2023 and 2024, and the summary condensed consolidated statements of operations and cash flows for the years ended June 30, 2023 and 2024, of (i) the parent company, Webus International Limited; (ii) other subsidiaries, which include Youbus International Limited, Webus Hongkong Limited and Wetour Travel Tech LLC; (iii) WFOE, Zhejiang Xinjieni Technology Co., Ltd., and (iv) the VIE, Youba Tech, of which WFOE owns 50% direct equity interest and another 50% variable interests through the contractual agreements that makes WFOE the primary beneficiary of the VIE to consolidate the VIE and the VIE’s subsidiary Webus Travel Agency. Consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Our and the VIE’s historical results are not necessarily indicative of results expected for future periods. You should read this information together with our (including the consolidated VIEs’) consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
Consolidated Balance Sheets Schedule
| As of June 30, 2024 | ||||||||||||||||||||||||
| Parent | VIE and its consolidated subsidiary | WFOE | Other Subsidiaries | Elimination | Consolidated Total | |||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||
| Cash and cash equivalents | - | 1,207,617 | 3,078 | 1,570,212 | - | 2,780,907 | ||||||||||||||||||
| Accounts receivable | - | 329,773 | - | 1,319,523 | (764,443 | ) | 884,853 | |||||||||||||||||
| Amounts due from a related party | - | - | - | 111,341 | - | 111,341 | ||||||||||||||||||
| Deferred offering costs | - | 5,350,165 | - | - | - | 5,350,165 | ||||||||||||||||||
| Prepaid expenses and other current assets | - | 1,517,679 | - | 270,199 | (3,998 | ) | 1,783,880 | |||||||||||||||||
| Total current assets | - | 8,405,234 | 3,078 | 3,271,275 | (768,441 | ) | 10,911,146 | |||||||||||||||||
| Non-current assets: | ||||||||||||||||||||||||
| Property and equipment, net | - | 33,714,952 | - | - | - | 33,714,952 | ||||||||||||||||||
| Right-of-use assets | - | 307,330 | - | - | - | 307,330 | ||||||||||||||||||
| Investment in VIE | - | - | 27,176,624 | - | (27,176,624 | ) | - | |||||||||||||||||
| Investment in subsidiaries | 27,807,737 | - | - | - | (27,807,737 | ) | - | |||||||||||||||||
| Total non-current assets | 27,807,737 | 34,022,282 | 27,176,624 | - | (54,984,361 | ) | 34,022,282 | |||||||||||||||||
| TOTAL ASSETS | 27,807,737 | 42,427,516 | 27,179,702 | 3,271,275 | (55,752,802 | ) | 44,933,428 | |||||||||||||||||
| LIABILITIES | ||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||
| Short-term borrowings | - | 10,000,000 | - | - | - | 10,000,000 | ||||||||||||||||||
| Accounts payable | - | 903,083 | - | 282,044 | (773,908 | ) | 411,219 | |||||||||||||||||
| Deferred revenue | - | 805,087 | - | 1,816,315 | - | 2,621,402 | ||||||||||||||||||
| Income tax payable | - | - | - | 97,344 | - | 97,344 | ||||||||||||||||||
| Lease liabilities-current | - | 180,135 | - | - | - | 180,135 | ||||||||||||||||||
| Accrued expenses and other current liabilities | - | 726,280 | 4,000 | 419,455 | (3,998 | ) | 1,145,737 | |||||||||||||||||
| Total current liabilities | - | 12,614,585 | 4,000 | 2,615,158 | (777,906 | ) | 14,455,837 | |||||||||||||||||
| Non-current liabilities: | ||||||||||||||||||||||||
| Long-term borrowings | - | 2,200,000 | - | - | - | 2,200,000 | ||||||||||||||||||
| Lease liabilities-noncurrent | - | 55,454 | - | - | - | 55,454 | ||||||||||||||||||
| Other long-term liabilities | - | 414,400 | - | - | - | 414,400 | ||||||||||||||||||
| Total non-current liabilities | - | 2,669,854 | - | - | - | 2,669,854 | ||||||||||||||||||
| TOTAL LIABILITIES | - | 15,284,439 | 4,000 | 2,615,158 | (777,906 | ) | 17,125,691 | |||||||||||||||||
| Commitments and Contingencies | ||||||||||||||||||||||||
| SHAREHOLDERS’ (DEFICIT)/EQUITY | ||||||||||||||||||||||||
| Ordinary Shares | 12,720 | - | - | - | - | 12,720 | ||||||||||||||||||
| Additional paid-in capital | 65,063,327 | 65,063,327 | - | - | (65,063,327 | ) | 65,063,327 | |||||||||||||||||
| Share subscription receivable | (12,720 | ) | - | - | - | - | (12,720 | ) | ||||||||||||||||
| Retained earnings (accumulated deficit) | (37,278,750 | ) | (37,920,250 | ) | 27,175,702 | 632,957 | 10,111,591 | (37,278,750 | ) | |||||||||||||||
| Accumulated other comprehensive income | 23,160 | - | - | 23,160 | (23,160 | ) | 23,160 | |||||||||||||||||
| Total shareholders' equity | 27,807,737 | 27,143,077 | 27,175,702 | 656,117 | (54,974,896 | ) | 27,807,737 | |||||||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 27,807,737 | 42,427,516 | 27,179,702 | 3,271,275 | (55,752,802 | ) | 44,933,428 | |||||||||||||||||
| 22 |
| As of June 30, 2023 | ||||||||||||||||||||||||
| Parent | VIE and its consolidated subsidiary | WFOE | Other Subsidiaries | Elimination | Consolidated Total | |||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||
| Cash and cash equivalents | - | 1,761,499 | - | 389,681 | - | 2,151,180 | ||||||||||||||||||
| Accounts receivable | - | 203,789 | - | 92,135 | - | 295,924 | ||||||||||||||||||
| Deferred offering costs | - | 5,192,203 | - | - | - | 5,192,203 | ||||||||||||||||||
| Prepaid expenses and other current assets | - | 1,989,686 | - | 101,488 | - | 2,091,174 | ||||||||||||||||||
| Total current assets | - | 9,147,177 | - | 583,304 | - | 9,730,481 | ||||||||||||||||||
| Non-current assets: | ||||||||||||||||||||||||
| Property and equipment, net | - | 34,909,709 | - | - | - | 34,909,709 | ||||||||||||||||||
| Right-of-use assets | - | 352,807 | - | - | - | 352,807 | ||||||||||||||||||
| Investment in VIE | - | - | 38,274,058 | - | (38,274,058 | ) | - | |||||||||||||||||
| Investment in subsidiaries | 31,860,384 | - | - | - | (31,860,384 | ) | - | |||||||||||||||||
| Total non-current assets | 31,860,384 | 35,262,516 | 38,274,058 | - | (70,134,442 | ) | 35,262,516 | |||||||||||||||||
| TOTAL ASSETS | 31,860,384 | 44,409,693 | 38,274,058 | 583,304 | (70,134,442 | ) | 44,992,997 | |||||||||||||||||
| LIABILITIES | ||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||
| Short-term borrowings | - | 10,000,000 | - | - | - | 10,000,000 | ||||||||||||||||||
| Accounts payable | - | 410,925 | - | 226,763 | (226,763 | ) | 410,925 | |||||||||||||||||
| Deferred revenue | - | 638,951 | - | - | 226,763 | 865,714 | ||||||||||||||||||
| Income tax payable | - | 56,190 | - | - | 71,985 | 128,175 | ||||||||||||||||||
| Lease liabilities | - | 285,225 | - | - | - | 285,225 | ||||||||||||||||||
| Accrued expenses and other current liabilities | - | 1,442,574 | 6,750,000 | - | (6,750,000 | ) | 1,442,574 | |||||||||||||||||
| Total current liabilities | - | 12,833,865 | 6,750,000 | 226,763 | (6,678,015 | ) | 13,132,613 | |||||||||||||||||
| TOTAL LIABILITIES | - | 12,833,865 | 6,750,000 | 226,763 | (6,678,015 | ) | 13,132,613 | |||||||||||||||||
| Commitments and Contingencies | ||||||||||||||||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||
| Ordinary Shares | 12,720 | - | - | - | - | 12,720 | ||||||||||||||||||
| Additional paid-in capital | 65,063,327 | 65,063,327 | - | - | (65,063,327 | ) | 65,063,327 | |||||||||||||||||
| Share subscription receivable | (12,720 | ) | - | - | - | - | (12,720 | ) | ||||||||||||||||
| Retained earnings (accumulated deficit) | (33,223,158 | ) | (33,487,499 | ) | 31,524,058 | 336,326 | 1,627,115 | (33,223,158 | ) | |||||||||||||||
| Accumulated other comprehensive income | 20,215 | - | - | 20,215 | (20,215 | ) | 20,215 | |||||||||||||||||
| Total shareholders' equity | 31,860,384 | 31,575,828 | 31,524,058 | 356,541 | (63,456,427 | ) | 31,860,384 | |||||||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 31,860,384 | 44,409,693 | 38,274,058 | 583,304 | (70,134,442 | ) | 44,992,997 | |||||||||||||||||
| 23 |
Condensed Consolidated Statements of Operations Schedule
| For the year ended June 30, 2024 | ||||||||||||||||||||||||
| Parent | VIE and its consolidated subsidiary | WFOE | Other Subsidiaries | Elimination | Consolidated Total | |||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||
| Revenues | - | 21,874,310 | - | 26,630,631 | (2,528,520 | ) | 45,976,421 | |||||||||||||||||
| Cost of revenues | - | (18,335,542 | ) | - | (21,210,556 | ) | - | (39,546,098 | ) | |||||||||||||||
| Gross profit | - | 3,538,768 | - | 5,420,075 | (2,528,520 | ) | 6,430,323 | |||||||||||||||||
| Operating expenses | - | (11,967,525 | ) | - | (4,486,538 | ) | 2,556,255 | (13,897,808 | ) | |||||||||||||||
| Share of loss in VIE | - | - | (4,432,751 | ) | - | 4,432,751 | - | |||||||||||||||||
| Share of loss in subsidiaries | (4,055,592 | ) | - | - | - | 4,055,592 | - | |||||||||||||||||
| Total operating expenses | (4,055,592 | ) | (11,967,525 | ) | (4,432,751 | ) | (4,486,538 | ) | 11,044,598 | (13,897,808 | ) | |||||||||||||
| Income/(Loss) from operations | (4,055,592 | ) | (8,428,757 | ) | (4,432,751 | ) | 933,537 | 8,516,078 | (7,467,485 | ) | ||||||||||||||
| Total other income/(expenses), net | - | 3,924,741 | (922 | ) | (557,980 | ) | - | 3,365,839 | ||||||||||||||||
| Income tax (expense)/benefit | - | 71,265 | - | (25,211 | ) | - | 46,054 | |||||||||||||||||
| Net income/(loss) | (4,055,592 | ) | (4,432,751 | ) | (4,433,673 | ) | 350,346 | 8,516,078 | (4,055,592 | ) | ||||||||||||||
| For the year ended June 30, 2023 | ||||||||||||||||||||||||
| Parent | VIE and its consolidated subsidiary | WFOE | Other Subsidiaries | Elimination | Consolidated Total | |||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||
| Revenues | - | 152,148,255 | - | 2,077,751 | - | 154,226,006 | ||||||||||||||||||
| Cost of revenues | - | (144,327,050 | ) | - | (1,671,214 | ) | - | (145,998,264 | ) | |||||||||||||||
| Gross profit | - | 7,821,205 | - | 406,537 | - | 8,227,742 | ||||||||||||||||||
| Operating expenses | (12,880,986 | ) | (27,441,426 | ) | - | (11,026 | ) | - | (27,452,452 | ) | ||||||||||||||
| Share of loss in VIE | - | - | (17,901,634 | ) | - | 17,901,634 | - | |||||||||||||||||
| Share of loss in subsidiaries | (4,749,848 | ) | - | - | - | 17,630,834 | - | |||||||||||||||||
| Total operating expenses | (17,630,834 | ) | (27,441,426 | ) | (17,901,634 | ) | (11,026 | ) | 35,532,468 | (27,452,452 | ) | |||||||||||||
| Income/(loss) from operations | (17,630,834 | ) | (19,620,221 | ) | (17,901,634 | ) | 395,511 | 35,532,468 | (19,224,710 | ) | ||||||||||||||
| Total other income/(expenses), net | - | 1,895,021 | - | (52,726 | ) | - | 1,842,295 | |||||||||||||||||
| Income tax expense | - | (176,434 | ) | - | (71,985 | ) | - | (248,419 | ) | |||||||||||||||
| Net income/(loss) | (17,630,834 | ) | (17,901,634 | ) | (17,901,634 | ) | 270,800 | 35,532,468 | (17,630,834 | ) | ||||||||||||||
| 24 |
Condensed Consolidated Statement of Cash Flows Schedule
| For the year ended June 30, 2024 | ||||||||||||||||||||||||
| Parent | VIE and its consolidated subsidiary | WFOE | Other Subsidiaries | Elimination | Consolidated Total | |||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||
| Net cash (used in) / provided by operating activities | - | (1,125,633 | ) | 3,078 | 1,177,586 | - | 55,031 | |||||||||||||||||
| Net cash used in investing activities | - | (1,470,287 | ) | - | - | - | (1,470,287 | ) | ||||||||||||||||
| Net cash provided by financing activities | - | 2,042,038 | - | - | - | 2,042,038 | ||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | - | - | - | 2,945 | - | 2,945 | ||||||||||||||||||
| Net change in cash and cash equivalents | - | (553,882 | ) | 3,078 | 1,180,531 | - | 629,727 | |||||||||||||||||
| Cash and cash equivalents at beginning of the year | - | 1,761,499 | - | 389,681 | - | 2,151,180 | ||||||||||||||||||
| Cash and cash equivalents at end of the year | - | 1,207,617 | 3,078 | 1,570,212 | - | 2,780,907 | ||||||||||||||||||
| For the year ended June 30, 2023 | ||||||||||||||||||||||||
| Parent | VIE and its consolidated subsidiary | WFOE | Other Subsidiaries | Elimination | Consolidated Total | |||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||
| Net cash (used in) / provided by operating activities | - | (5,098,061 | ) | - | 339,069 | - | (4,758,992 | ) | ||||||||||||||||
| Net cash used in investing activities | - | (795,635 | ) | - | - | - | (795,635 | ) | ||||||||||||||||
| Net cash provided by financing activities | - | 4,807,797 | - | - | - | 4,807,797 | ||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | - | - | - | 20,469 | - | 20,469 | ||||||||||||||||||
| Net change in cash and cash equivalents | - | (1,085,899 | ) | - | 359,538 | - | (726,361 | ) | ||||||||||||||||
| Cash and cash equivalents at beginning of the year | - | 2,847,398 | - | 30,143 | - | 2,877,541 | ||||||||||||||||||
| Cash and cash equivalents at end of the year | - | 1,761,499 | - | 389,681 | - | 2,151,180 | ||||||||||||||||||
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An investment in our Ordinary Shares involves significant risks. You should carefully consider all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in our Ordinary Shares. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our Ordinary Shares could decline, and you may lose all or part of your investment.
Risks Related to Our Business and Industry
Pandemics (such as COVID-19), epidemics, or fear of spread of contagious diseases could disrupt the travel industry and our operations, which could materially and adversely affect our business, financial condition, and results of operations.
Global pandemics, epidemics in China or elsewhere in the world, or fear of spread of contagious diseases, such as Ebola virus disease (“EVD”), coronavirus disease 2019 (“COVID-19”), Middle East respiratory syndrome (“MERS”), severe acute respiratory syndrome (“SARS”), H1N1 flu, H7N9 flu, and avian flu could disrupt the travel and collective mobility service industry in China and elsewhere in the world, reduce or restrict demand for travel and travel-related products and services, or result in regional or global economic distress, which may materially and adversely affect our business, financial condition, and results of operations. Any one or more of these events or recurrence may adversely affect our sales results, or even for a prolonged period of time, which could materially and adversely affect our business, financial condition, and results of operations.
The COVID-19 pandemic adversely affected many aspects of our business, and we have experienced a significant decline in commute and travel demand resulting in significant user cancelations and refund requests and reduced new orders relating to commute and travel. The supply of domestic transportation was also adversely and significantly affected in response to comprehensive containment measures in China and other international regions. For example, in 2022, municipalities throughout China had reported cases of COVID-19 and in response, local governments enacted a strict zero-positive-case lockdown, resulting in a quarantine of the affected areas and disruption of commercial activities within those locales because of the temporary travel restrictions. As a result, our service capacity and operational efficiency were adversely affected again due to insufficient workforce and the necessity to comply with disease control protocols in our business facilities. Our suppliers’ abilities to timely deliver services and respond to rescheduling or cancelation requests were also adversely affected for similar reasons, especially those located in critical regions in China. In addition, our global customized chartered car and bus business were disrupted by the travel restrictions imposed on outbound Chinese travelers.
China began to modify its zero-COVID policy at the end of 2022, and most of the travel restrictions and quarantine requirements were lifted in December 2022. Although our business in China showed a strong recovery momentum, we cannot assure you that the COVID-19 pandemic can be eliminated or a similar outbreak will not occur again. In anticipation of the future overseas traveling demand, we have applied license for outbound travel services for international air ticket booking, visa application assistance, and other international travel related services. Although the situation in China has improved greatly since January 2023, and the WHO declared that COVID-19 was no longer a public health emergency of international concern on May 4, 2023, it is uncertain whether and when the overseas tourism market may be recovered. We are continually monitoring the status of COVID-19 to assess any potential impact on our business.
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We have noted Chinese travelers shifting their preferences towards emerging demand for short-haul travel, local trips, and domestic boutique and premium accommodation experiences. We have introduced novel products in order to capture these emerging trends and have proactively leveraged our live streaming function to promote local attractions and activities. However, we cannot assure you that these initiatives will be effective as expected, or that we will be able to act promptly to cater to the travelers’ emerging traveling preferences in the future. We will continue to monitor and evaluate the financial impacts on our financial condition, results of operations, and cash flows in future periods. In the event of prolonged impact of the COVID-19 pandemic on our financial condition and cash flows, we cannot assure you that additional financing will be available to us on reasonable terms, or at all, should we require it. The global spread of COVID-19 pandemic in a significant number of countries around the world, such as the United States, has resulted in, and may intensify, global economic distress, and the extent to which it may affect our financial condition, results of operations, and cash flows will depend on future developments, which are highly uncertain and cannot be predicted.
In addition, the recent financial turmoil leading to vitality in the financial and securities markets, especially since the COVID-19 pandemic, has generally made access to capital less certain and increased the cost of obtaining new capital. As we manage through the slowdown in our business due to the COVID-19 pandemic, we cannot assure you that additional financing will be available to us on reasonable terms, or at all.
We have a limited operating history in a competitive and rapidly evolving industry; it may be difficult to evaluate our prospects, and we may not be able to effectively manage our growth.
We commenced our operations in August 2019 through Youba Tech and we have a limited operating history in the CMS industry, which is competitive and rapidly evolving. We may have limited insight into trends that may develop and affect our business, and we may make errors in predicting and reacting to industry trends and evolving needs of our customers.
For the years ended June 30, 2023 and 2024, our revenues were RMB154,226,006 and RMB45,976,421 ($6,326,566), respectively. Our historical results and growth may not be indicative of our future performance, and we may fail to continue our growth or maintain our historical growth rates. If our products and services does not develop as we expect, or if we fail to continue to address the needs of our users, our business and financial conditions may be materially adversely affected.
In addition, we may not be able to effectively manage our growth. Our business expansion may increase the complexity of our operations and place a significant strain on our managerial, operational, financial and human resources. Our current and planned personnel, systems, procedures and controls may not be adequate to support our future operations. If we are not able to manage our growth effectively, our business and prospects may be materially and adversely affected.
We incurred net losses for the years ended June 30, 2023 and 2024. We may not be able to generate sufficient operating cash flows and working capital. Failure to manage our liquidity and cash flows may materially and adversely affect our financial condition and results of operations. As a result, we may need additional capital, and financing may not be available on terms acceptable to us, or at all.
We recorded net loss of RMB17,630,834 and RMB4,055,592 ($558,067) for the years ended June 30, 2023 and 2024, respectively. We have generated negative cash flows from operating activities of RMB4,758,992 for the year ended June 30, 2023, and positive cash flows from operating activities RMB55,031 ($7,573) for the year ended June 30, 2024. We can offer no assurance that we will operate profitably or that we will generate positive cash flows in the next twelve months, given our substantial expenses in relation to our revenue at this stage of our Company. Inability to collect our accounts receivable in a timely and sufficient manner, or the inability to offset our expenses with adequate revenue, may adversely affect our liquidity, financial condition and results of operations. Although we believe that our cash on hand and anticipated cash flows from operating activities will be sufficient to meet our anticipated working capital requirements and capital expenditures in the ordinary course of business for the next 12 months, we cannot assure you this will be the case.
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If and when we are unable to generate sufficient cash flows from operations to meet our working capital requirements and various operating needs, we may need to raise additional funds for our operations and such funds may not be available on commercially acceptable terms, if at all. If we are unable to raise funds on acceptable terms, we may not be able to execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements. This may seriously harm our business, financial condition and results of operations. If we are unable to achieve or maintain profitability, the market price of our shares may significantly decrease. In the event that the Company requires additional funding to finance its operations, the Company’s major shareholders have indicated their intent and ability to provide such financial support, however, there is no assurance such funding will be available when the Company needs it in the future.
The growth of our business depends on our ability to accurately predict consumer trends and demand and successfully introduce new products and services and improve existing services.
Our growth depends, in part, on our ability to successfully predict customers preferences and traveling demands. This, in turn, depends on our ability to predict and respond to evolving consumer trends, demands and preferences. The development and introduction of innovative new products and services involve considerable costs. Any new product or service may not generate sufficient customer interest and sales to become a profitable product or to cover the costs of its development and promotion and may negatively affect our operating results and damage our reputation. If we are not able to anticipate, identify or develop and market products to respond to the changes in the requirements and preferences of our customers, or if our new product introductions or repositioned products fail to gain consumer acceptance, we may not grow our business as anticipated, our sales may decline and our business, financial condition and results of operations may be materially adversely affected.
The successful operation of our business depends substantially upon the cooperation of third parties that are not under our control.
Although we have our proprietary mobile apps and websites for users to access our products and services, our user acquisition relies heavily on our mini programs built on platforms provided by WeChat and other third-party partners. If we lose our cooperation with third-party business partners owning the platforms where our mini programs are operated, for example, by unintentionally breaching the rules set by these third parties that lead to the suspension of our mini programs, our users may no longer access our products and services via the mini programs. Such events could damage our reputation significantly disrupt our operations, and subject us to liability, which could adversely affect our business, financial condition, and operating results.
We rely on search engines, social networking sites and online streaming services to attract a meaningful portion of our users, and if those search engines, social networking sites and online streaming services change their listings or policies regarding advertising, or increase their pricing or suffer problems, it may limit our ability to attract new users.
Many users locate our platform through internet search engines, such as Baidu, and advertisements on social networking sites and online streaming services, such as WeChat, Douyin and Xiaohongshu. If we are listed less prominently or fail to appear in search results for any reason, visits to our mini programs on WeChat and other third-party partners could decline significantly, and we may not be able to replace this traffic. Search engines revise their algorithms from time to time in an attempt to optimize their search results. If the search engines on which we rely for algorithmic listings modify their algorithms, we may appear less prominently or not at all in search results, which could result in reduced traffic to our website that we may not be able to replace. Additionally, if the costs of search engine marketing services, such as Baidu, increase, we may incur additional marketing expenses, we may be required to allocate a larger portion of our marketing spend to this channel or we may be forced to attempt to replace it with another channel (which may not be available at reasonable prices, if at all), and our business, financial condition and results of operations could be adversely affected.
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Furthermore, competitors may in the future bid on our brand names and other search terms that we use to drive traffic to our website. Such actions could increase our marketing costs and result in decreased traffic to our website. In addition, search engines, social networking sites and video streaming services may change their advertising policies from time to time. If any change to these policies delays or prevents us from advertising through these channels, it could result in reduced traffic to our website and sales of our solutions. Additionally, new search engines, social networking sites, video streaming services and other popular digital engagement platforms may develop in specific jurisdictions or more broadly that reduce traffic on existing search engines, social networking sites and video streaming services. If we are not able to achieve awareness through advertising or otherwise, we may not achieve significant traffic to our website.
Because we rely upon a third party to perform the payment processing for our customers, the failure or inability of the third party to provide these services could impair our ability to operate.
Because we do not possess an internal payment method given the difficulties of obtaining and maintaining a payment license, all payments by our clients are processed by third party payment service providers such as UnionPay, Alipay and WeChat Pay. These payment service providers are used by most e-commerce platforms for their convenience, reliability and cost-effectiveness. However, the payment processing business is highly regulated, and it is subject to a number of risks that could materially and adversely affect their abilities to provide payment processing services to us, including:
| · | increased regulatory focus and the requirement that it comply with numerous complex and evolving laws, rules and regulations; |
| · | increases in the costs to the third party, including fees charged by banks to process funds through the third parties, which could result in increased costs to us and to our participants; |
| · | dissatisfaction with the third parties’ services; |
| · | a decline in the use of the third parties’ services generally which could result in increases in costs to users such as us and our participants; |
| · | the ability of the third parties to maintain adequate security procedures to prevent the hacking or other unauthorized access to account and other information provided by us and the participants who use the system; |
| · | system failures or failure to effectively scale the system to handle large and growing transaction volumes; |
| · | the failure or inability of the third parties to manage funds accurately or the loss of funds by the third parties, whether due to employee fraud, security breaches, technical errors or otherwise; and |
| · | the failure or inability of these third parties to adequately manage business and regulatory risks. |
We rely on the convenience and ease of use that third party’s payment methods provide to our users. If the quality, utility, convenience or attractiveness of these payment services declines for any reason, the attractiveness of our services could be materially impaired. If we need to migrate to other third-party payment services for any reason, the transition could require considerable time and management resources, and the third-party payment services may not be as effective, efficient or well-received by our clients. Further, our clients may be reluctant to use a different payment system.
We may not be able to successfully implement our growth strategy on a timely basis or at all.
Our future success depends, in large part, on our ability to implement our growth strategy, including our expansion in and outside China. Our ability to implement this growth strategy depends, among other things, on our ability to:
| · | increase our brand recognition by effectively implementing our marketing strategy and advertising initiatives; |
| 29 |
| · | create and maintain brand loyalty; |
| · | develop new products and services that appeal to consumers; |
| · | identify and successfully enter and market our products and services in new geographic areas and market segments. |
We may not be able to successfully implement our growth strategy and may need to change our strategy from time to time. If we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful, our business, financial condition and results of operations may be materially adversely affected.
Any damage to our reputation or our brands may materially adversely affect our business, financial condition and results of operations.
We have long business relationships with our customers by maintaining high quality and quick service response. Our brand “微巴士” and “Wetour” have gained good reputation among our customers and suppliers. Our ability to strengthen our brand recognition and maintain our market position among the traditional and online travel agency platforms is critical for us to build and maintain relationships with our customers and suppliers. We have solidified our market position over the past years. In order to strengthen our brand recognition and maintain market position, we may need to increase our investments in marketing activities, product and service development, and user and supplier engagement, which may affect our operating margin.
Our market position and our ability to attract new users and continue to retain and engage our existing users also depends on our ability to continue to provide users with superior experiences. We have been consistently enhancing our technology, product, service, and content offerings, and user interfaces to offer a personalized, convenient, enjoyable, and inspirational user experience. We have also been continuously catering to our users’ diverse needs and evolving preferences. Any damage to our reputation or our brands may materially adversely affect our business, financial condition and results of operations.
We operate in a highly competitive industry and may lose market share or experience margin erosion if we are unable to compete effectively.
We compete on the basis of service quality and performance, brand awareness and loyalty, offering variety, reputation, price and promotional efforts. We compete with a significant number of companies of varying sizes, including divisions or subsidiaries of larger companies who may have greater financial resources and larger customer bases than we have. As a result, these competitors may be able to identify and adapt to changes in consumer preferences more quickly than us due to their resources and scale. They may also be more successful in marketing and selling their products, better able to increase prices to reflect cost pressures and better able to increase their promotional activity, which may impact us and the entire lockset manufacturing industry. If these competitive pressures cause our products to lose market share or experience margin erosion, our business, financial conditions and results of operations may be materially adversely affected.
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Our operations in China are concentrated in one geographic area, which increases our exposure to many of the risks enumerated herein.
As of June 30, 2024, our revenues from operations in China were primarily derived from operations of the VIE and its subsidiary in Zhejiang Province. Operating in a concentrated area increases the potential impact that many of the risks stated herein may have upon our ability to perform. For example, we have greater exposure to regulatory actions impacting Zhejiang Province, natural disasters in the geographic area, competition for services and suppliers available in the area. Due to the concentrated nature of our operations, we could experience any of the same conditions at the same time, resulting in a relatively greater impact on our results of operations than they might have on other companies that have a more diversified operation geographically. Any delays or interruptions of our services could have a material adverse effect on our financial condition and results of operations.
We face risks associated with managing operations in China, any of which could decrease our sales or earnings and could significantly limit or completely hinder our ability to offer our Ordinary Shares to investors and cause the value of such securities to significantly decline or be worthless.
A significant portion of our operations currently are conducted in China. There are a number of risks inherent in doing business in China, including the following: unfavorable political or economic factors; fluctuations in foreign currency exchange rates; potentially adverse tax consequences; unexpected legal or regulatory changes; lack of sufficient protection for intellectual property rights; difficulties in recruiting and retaining personnel, and managing international operations; and less developed infrastructure. Furthermore, changes in the political, economic and social conditions in China from which these risks are derived could make it more difficult to provide products and services to our customers. Our inability to manage these risks successfully could adversely affect our business and manufacturing operations and could significantly limit or completely hinder our ability to offer our Ordinary Shares to investors and cause the value of such securities to significantly decline or be worthless.
We have a substantial customer concentration, with a limited number of customers accounting for a substantial portion of our revenues in the past, and we cannot assure you that such concentration will not happen again in the future.
We derive a significant portion of our revenues from a few major customers for the year ended June 30, 2023, and top 10 customers accounted for approximately 43% our total revenues. For the year ended June 30, 2024, no customer accounted for more than 10% of our total revenues, and top 10 customers accounted for approximately 32% of our total revenues.
There are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of customers. For example, for the year ended June 30, 2024, the service contracts between the VIE and three major customers of the VIE’s commuter shuttle service expired, and two of the three customers decided not to renew the service contracts because of increased public transportation access to their workplaces, including a newly constructed subway station. Moreover, while the VIE is participating in the bidding process to renew the contract with the third customer, there is no guarantee that its bid will be accepted. Because of the aforementioned terminations and our strategic shift from the domestic market to overseas markets with higher gross margin rates, our revenue from the commuter shuttle service decreased by 80.5% from RMB9,507,054 for the year ended June 30, 2023 to RMB1,853,926 ($255,108) for the year ended June 30, 2024.
As we shift to the overseas market, we also significantly reduced the incentives and subsidies provided to certain major customers of the VIE’s packaged tour service and customized chartered bus service in China, mostly travel agencies and platforms. As a result, our revenue from the packaged tour service and customized chartered bus service for the year ended June 30, 2024 decreased by 58.8% and 83.1% compared to the same period.
We cannot guarantee you that we will be able to retain other major customers in China while we shift our focus to overseas markets. It is not possible for us to predict these major customers’ future level of demand for our products or the future demand for our products by these major customers in the end-user marketplace. If any of these major customers experience declining or delayed sales due to market, economic or competitive conditions, we could be pressured to reduce our prices or they could decrease the purchase quantity of our products, which could have a material adverse effect on our margins and financial position and could materially and negatively affect our revenues and results of operations. If any of our major customers terminates the purchase of our products, such termination would materially negatively affect our revenues, results of operations and financial condition.
Our operating results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our operating results, including the levels of our revenues, expenses, net (loss)/income and other key metrics, may vary significantly in the future due to a variety of factors, some of which are outside of our control, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results for any one period are not necessarily an indication of future performance. Fluctuations in results may adversely affect the market price of our Ordinary Shares. Factors that may cause fluctuations in our financial results include:
| · | our ability to attract new customers and retain existing customers; |
| · | changes in our mix of products and introduction of new products; |
| · | the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure; |
| · | the impact of competitors; |
| · | increases in our costs and expenses that we may incur to grow and expand our operations and to remain competitive; |
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| · | changes in the legal or regulatory environment or proceedings, including enforcement by government regulators, fines, orders or consent decrees; |
| · | the timing of expenses related to the development or acquisition of technologies or businesses; and |
| · | the additional costs related to being a public company |
Despite our marketing efforts, we may not be able to promote and maintain our brand in an effective and cost-efficient way and our business and results of operations may be harmed accordingly.
We believe that developing and maintaining awareness of our brand effectively is critical to attracting new and retaining existing customers. Successful promotion of our brand and our ability to attract quality customers depends largely on the effectiveness of our marketing efforts and the success of the channels we use to promote our products.
Increases in labor costs in the PRC may adversely affect the business and results of operations of us and the VIE.
The currently effective PRC Labor Contract Law was first adopted on June 29, 2007 and later amended on December 28, 2012. The PRC Labor Contract Law has reinforced the protection of employees who, under the PRC Labor Contract Law, have the right, among others, to have written employment contracts, to enter into employment contracts with no fixed term under certain circumstances, to receive overtime wages and to terminate or alter terms in labor contracts. Furthermore, the PRC Labor Contract Law sets forth additional restrictions and increases the costs involved with dismissing employees. To the extent that we and the VIE need to significantly reduce our and the VIE’s workforce, the PRC Labor Contract Law could adversely affect our and the VIE’s ability to do so in a timely and cost-effective manner, and our and the VIE’s results of operations could be adversely affected. In addition, for certain employees whose employment contracts include non-competition terms, the PRC Labor Contract Law requires us to pay monthly compensation after such employment is terminated, which will increase our and the VIE’s operating expenses.
We expect that our and the VIE’s labor costs, including wages and employee benefits, will continue to increase. Unless we and the VIE are able to pass on these increased labor costs to our and the VIE’s customers by increasing the prices of our and the VIE’s products and services, the financial condition and results of operations of us and the VIE would be materially and adversely affected.
The price of oil and natural gas has historically been volatile. The ongoing Russian-Ukrainian War has increased the oil and natural gas prices substantially. If the price continues to increase, our drivers and bus fleet providers may be forced to adjust their prices upward. Our projections, budgets, and revenues would be adversely affected, potentially forcing us to make changes in our operations.
Oil and natural gas prices historically have been volatile and likely will continue to be volatile in the future, especially given current world geopolitical conditions and ongoing Russian-Ukrainian war and the conflict in the Middle East. Cash flows from operations are highly dependent on the prices that we receive from our drivers and bus fleet providers. This price volatility could affect the amount of our cash flows available for capital expenditures and our ability to borrow money or raise additional capital. The volatility of the energy markets makes it difficult to predict future oil and natural gas price movements with any certainty. Increases in oil and natural gas prices affect our costs and pricing to customers. Unless we are able to pass on these increased labor costs to our and the VIE’s customers by increasing the prices of our and the VIE’s products and services, the financial condition and results of operations of us and the VIE would be materially and adversely affected.
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We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.
We regard our trademarks, trade names, know-how, proprietary technologies and similar intellectual property as critical to our success, and we rely on a combination of intellectual property laws and contractual arrangements, including confidentiality and non-compete agreements with our employees and others to protect our proprietary rights. See “Our Business—Intellectual Property” and “Regulation—Regulation on Intellectual Property Rights.” Thus, we cannot assure you that any of our intellectual property rights would not be challenged, invalidated, circumvented or misappropriated, or such intellectual property will be sufficient to provide us with competitive advantages.
It is often difficult to register, maintain and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality, invention assignment and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Preventing any unauthorized use of our intellectual property is difficult and costly and the steps we take may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. To the extent that our employees or consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related know-how and inventions. Any failure in protecting or enforcing our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.
We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.
We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate trademarks, patents, copyrights, know-how or other intellectual property rights held by third parties. We may be from time to time in the future be subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be third-party trademarks, patents, copyrights, know-how or other intellectual property rights that are infringed by our products, services or other aspects of our business without our awareness. Holders of such intellectual property rights may seek to enforce such intellectual property rights against us in China, the United States or other jurisdictions. If any third-party infringement claims are brought against us, we may be forced to divert management’s time and other resources from our business and operations to defend against these claims, regardless of their merits.
Additionally, the application and interpretation of China’s intellectual property right laws and the procedures and standards for granting trademarks, patents, copyrights, know-how or other intellectual property rights in China are still evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis. If we were found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. As a result, our business and results of operations may be materially and adversely affected.
From time to time we may evaluate and potentially consummate strategic investments or acquisitions, which could require significant management attention, disrupt our business and adversely affect our financial results.
We may evaluate and consider strategic investments, combinations, acquisitions or alliances to further increase the value of our marketplace and better serve our customers. These transactions could be material to our financial condition and results of operations if consummated. If we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we do consummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction.
Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including:
| · | difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business; |
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| · | inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits; |
| · | difficulties in retaining, training, motivating and integrating key personnel; |
| · | diversion of management’s time and resources from our normal daily operations; |
| · | difficulties in successfully incorporating licensed or acquired technology and rights into our product offerings; |
| · | difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations; |
| · | difficulties in retaining relationships with customers, employees and suppliers of the acquired business; |
| · | risks of entering markets in which we have limited or no prior experience; |
| · | regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business; |
| · | assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability; |
| · | failure to successfully further develop the acquired technology; |
| · | liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; |
| · | potential disruptions to our ongoing businesses; and |
| · | unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions. |
We may not make any investments or acquisitions, or any future investments or acquisitions may not be successful, may not benefit our business strategy, may not generate sufficient revenues to offset the associated acquisition costs or may not otherwise result in the intended benefits. In addition, we cannot assure you that any future investment in or acquisition of new businesses or technology will lead to the successful development of new or enhanced products or that any new or enhanced products, if developed, will achieve market acceptance or prove to be profitable.
Our business depends on the continued efforts of our senior management. If one or more of our key executives were unable or unwilling to continue in their present positions, our business may be severely disrupted.
Our business operations depend on the continued services of our senior management, particularly the executive officers named in this prospectus. While we have the ability to provide different incentives to our management, we cannot assure you that we can continue to retain their services. If one or more of our key executives were unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, our future growth may be constrained, our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected, and we may incur additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that any member of our management team will not join our competitors or form a competing business. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all.
The relative lack of public company experience of our management team may put us at a competitive disadvantage.
Our management team lacks public company experience, which could impair our ability to comply with legal and regulatory requirements such as those imposed by the Sarbanes-Oxley Act of 2002, (“Sarbanes-Oxley”). Our senior management does not have much experience managing a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our senior management may be unable to implement programs and policies in an effective and timely manner or that adequately respond to the increased legal, regulatory and reporting requirements associated with being a publicly traded company. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties, distract our management from attending to the management and growth of our business, result in a loss of investor confidence in our financial reports and have an adverse effect on our business and share price.
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We have adopted share option plans and terminated the plans in June 2023. There may be accounting impact in connection with the unrecognized share-based compensation expenses.
In connection with our restructuring and spin-off, we adopted our 2022 share incentive plan (the “2022 Plan”) to grant an aggregate of 470,000 restricted stock units (“RSUs”) at a unit purchase price of RMB1.00 to qualified management and employees in order to retain and motivate the management team and core employees to improve the Company's ability to create value and long-term competitiveness. Share-based compensation expenses of RMB3,390,941 were recognized for the RSUs during the year ended June 30, 2022. As of June 30, 2022, there was unrecognized share-based compensation expenses of RMB24,934,265 in relation to the RSUs which is expected to be recognized over a weighted average period of 3.71 years.
In June 2023, we terminated the share incentive plan, and for the unvested RSUs, all the remaining unrecognized compensation cost are required to be recognize on the termination date since the requisite service is expected to be rendered. Share-based compensation expenses of RMB12,880,986 were recognized for the RSUs for the year ended June 30, 2023. Share-based compensation expenses of RMB9,950,899 were accelerated recognized for the all the unvested RSUs due to the termination of 2022 share incentive plan. Although we do not believe the adjustment may have significant impact on our operations, such adjustment may result in changes in our financial results.
We lease our facilities from third parties and there is no assurance that we will be able to renew our leased facilities on favorable terms, or at all.
We currently lease the properties we use to operate our business. Our headquarters are located in Hangzhou comprising office premises of approximately 255.7 m2. The lease terms on these premises expire on September 16, 2025. If we are unable to renew the lease on favorable terms, or at all, we would be required to find new leased space, which space may be more expensive to lease than our current facilities. Also, the lease may be terminated early due to unexpected change of land usage by the local government.
Competition for employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business.
We believe our success depends on the efforts and talent of our employees, including engineering, risk management, information technology, financial and marketing personnel. Our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for highly skilled marketing, engineering, information technology, risk management and financial personnel is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.
In addition, we invest significant time and expenses in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements, and the quality of our products could diminish, resulting in a material adverse effect to our business.
If we cannot maintain our corporate culture as we grow, we could lose the innovation, collaboration and focus that contribute to our business.
We believe that a critical component of our success is our corporate culture, which we believe fosters innovation, encourages teamwork and cultivates creativity. As we develop the infrastructure of a public company and continue to grow, we may find it difficult to maintain these valuable aspects of our corporate culture. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives.
If we fail to implement and maintain an effective system of internal control, we may be unable to accurately report our operating results, meet our reporting obligations or prevent fraud.
Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Our management has not completed an assessment of the effectiveness of our internal control over financial reporting, and our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting.
Upon completion of this offering, we will become a public company in the United States subject to Section 404 of the Sarbanes-Oxley Act of 2002 which requires that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending June 30, 2025. In addition, once we cease to be an “emerging growth company” as such term is defined under the JOBS Act, and if the value of our non-affiliated float of our Ordinary Shares exceeds certain amounts, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.
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In the course of preparing and auditing our consolidated financial statements for the years ended June 30, 2023 and 2024, we and our independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting as of June 30, 2023 and 2024. According to the U.S. Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate to: (i) our lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements to properly address U.S. GAAP technical accounting issues and prepare and review financial statements and related disclosures in accordance with U.S. GAAP and reporting requirements set forth by the SEC; (ii) our lack of sufficient controls designed and implemented in IT environment and IT general control activities, mainly associated with areas of access logical security, system change management, IT operations and cyber security monitoring activities.
During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Generally, if we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets and harm our results of operations. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions.
A lack of insurance coverage could expose us to significant costs and business disruption.
We may not have acquired sufficient insurance to cover our business’s assets, property, and potential liability. We and the VIE do not maintain any liability insurance or property insurance policies covering equipment and facilities for injuries, death or losses due to fire, earthquake, flood or any other disaster, which we believe is consistent with market practice in China. Consistent with customary industry practice in China, we and the VIE do not maintain business interruption insurance, nor do we and the VIE maintain key-man life insurance. We do not have automobile or liability insurance coverage, and our drivers and vehicle fleet providers maintain automobile and liability insurance in compliance with PRC laws. The lack of insurance could leave our business inadequately protected from loss. If we were to incur substantial losses or liabilities due to fire, explosions, floods, other natural disasters or accidents, or business interruption, our results of operations could be materially and adversely affected.
Our business may be negatively affected by the trend of remote working and flexible working schedules.
The traditional on-site working model has been challenged by the remote working model since the beginning of the COVID-19 pandemic, and more employers may consider adopting remote working model or flexible working model. If more companies and government organizations adopt full or partial remote working models, their need for commute service will certainly reduce, which poses a risk to our business operations.
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Newly developed public transportation infrastructure may reduce the demand for our commuter shuttle and chartered car and bus services.
Our services provide an alternative mobility solution to traditional public transportation by offering efficient and tailor-made transportation and travel packages to our customers at competitive prices. This alternative solution may lose its appeal to our customers when public transportation like subways and high-speed trains expand its reach to places it did not touch in the past since most of our services are provided through buses and vans traveling on the increasingly crowded roads.
Because we conduct most of our operations in China, a country that constantly updates its public transportation infrastructures, we are facing serious competitions from newly established subway lanes, bus stops, and inter-city high-speed trains. Specifically, on April 26, 2022, the Central Financial and Economic Affairs Commission of China announced that the Chinese government would invest more in five areas, one of which is the transportation infrastructure. With more public transportation available to the public, our business may be negatively impacted if we cannot provide unique and irreplaceable services to our customers.
We must remit the offering proceeds to China before they may be used to benefit our business in China, the process of which may be time-consuming, and we cannot assure that we can finish all necessary governmental registration processes in a timely manner, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
The proceeds of this offering may be sent back to the PRC, and the process for sending such proceeds back to the PRC may be time-consuming after the closing of this offering.
In utilizing the proceeds of this offering, we, as an offshore holding company, are permitted under PRC laws and regulations to provide funding to our PRC Subsidiaries, which are treated as “foreign-invested enterprises” under PRC laws, through loans or capital contributions. However, loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of China’s SAFE and capital contributions to our PRC subsidiaries are subject to the requirement of making necessary registration with competent governmental authorities in the PRC.
We may be unable to use these proceeds to grow our business until our PRC subsidiaries receive such proceeds in the PRC. Any transfer of funds by us to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, are subject to approval by or registration or filing with relevant governmental authorities in China. Any foreign loans procured by our PRC subsidiaries is required to be registered with SAFE or its local branches or satisfy relevant requirements, and our PRC subsidiaries may not procure loans which exceed the difference between their respective total project investment amount and registered capital or two times (which may be varied year by year due to the change of PRC’s national macro-control policy) of the net worth of our PRC subsidiary. According to the relevant PRC regulations on foreign-invested enterprises in China, capital contributions to our PRC subsidiaries are subject to the filing with State Administration for Market Regulation in its local branches, the Ministry of Commerce in its local branches and registration with a local bank authorized by SAFE.
To remit the proceeds of the offering, we must take the steps legally required under the PRC laws, for example, we will open a special foreign exchange account for capital account transactions, remit the offering proceeds into such special foreign exchange account and apply for settlement of the foreign exchange. The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary materially.
In light of the various requirements imposed by 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 on a timely basis, if at all, with respect to future loans by us to our PRC subsidiary or with respect to future capital contributions by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from this offering and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity, our ability to fund and expand our business and our Ordinary Shares.
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Risks Related to Corporate Structure
Webus is a Cayman Islands exempted company operating in the United States and in China partially through its subsidiaries and partially through contractual arrangements with the VIE. Investors thus are not purchasing, and may never directly hold, 50% VIE Interests in the VIE. There are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to the agreements that establish the VIE structure for the majority of our and the VIE’s operations in China, including potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with the VIE and, consequently, significantly affect the financial condition and results of operations of Webus. If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations, and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish our interests in the VIE, which may materially and adversely affect our and the VIE’s operations and the value of your investment.
Current PRC laws and regulations impose certain restrictions and prohibitions on foreign ownership of companies that engage in value-added telecommunications business. Specifically, foreign ownership of a company providing value-added telecommunications services may not exceed 50%.
We are a company incorporated under the laws of the Cayman Islands, and Xinjieni Tech, our indirect wholly-owned PRC subsidiary, is considered a foreign-invested enterprise. In light of such status, it is illegal for us to hold 100% ownership of the VIE and its subsidiary through our subsidiaries or independently operate our and the VIE’s business of information services as they constitute value-added telecommunications services. As such, Xinjieni Tech, our WFOE, entered into the Contractual Arrangements with the VIE and Individual Registered Shareholders. These agreements include: (i) an exclusive business cooperation agreement, which enables us to receive substantially all of the economic benefits of the VIE, (ii) power of attorney and a share pledge agreement, which together with 50% equity interest held by Xinjieni Tech, provide us with control over the VIE, and (iii) an exclusive call option agreement, which provides us with the option to purchase the 50% equity interests in the VIE held by the Individual Registered Shareholders. The conditions we have satisfied for consolidation of the VIE and its subsidiary under U.S. GAAP include that (i) we control the VIE through power to govern the activities which most significantly impact the VIE’s economic performance, (ii) we are contractually obligated to absorb losses of the VIE that could potentially be significant to the VIE, and (iii) we are entitled to receive benefits from the VIE that could potentially be significant to the VIE. Only if we meet the aforementioned conditions for consolidation of the VIE and its subsidiary under U.S. GAAP, we will be deemed as the primary beneficiary of the VIE and its subsidiary, and the VIE and its subsidiary will be treated as our consolidated entities for accounting purposes.
As the Contractual Arrangements that establish the structure for operating our and the VIE’s business in the PRC have not been tested in any of the PRC courts, if the Contractual Arrangements are found to be in violation of any existing or any PRC laws or regulations in the future, or the PRC government finds that we, or any of the VIE fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities, including the MIIT, MOFCOM and STA, would have broad discretion in dealing with such violations, including:
| ● | revoking the business and operating licenses; |
| ● | discontinuing or restricting the operations; |
| ● | imposing fines or confiscating any of the income from us and the VIE that they deem to have been obtained through illegal operations; |
| ● | requiring us to restructure our and the VIE’s operations in such a way as to compel us to establish new entities, re-apply for the necessary licenses or relocate our and the VIE’s business, staff and assets; |
| ● | imposing additional conditions or requirements with which we and the VIE may not be able to comply; |
| ● | restricting or prohibiting the use of proceeds from the initial public offering or other financing activities to finance our and the VIE’s business and operations in the PRC; or |
| ● | taking other regulatory or enforcement actions that could be harmful to our and the VIE’s business. |
Any of these actions could cause significant disruption or result in a material change to our and the VIE’s business operations, and may materially and adversely affect our and the VIE’s business, financial condition and results of operations. 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 the VIE and its subsidiary in our (including the VIE) consolidated financial statements, if the PRC governmental authorities find the VIE’s legal structure and Contractual Arrangements to be in violation of PRC laws, rules and regulations. If any of these penalties results in our inability to direct the activities of the VIE or its subsidiary that most significantly impact its economic performance and/or our failure to receive the economic benefits from the VIE or its subsidiary, we may not be able to consolidate the VIE and/or its subsidiary into our (including the consolidated VIE) consolidated financial statements in accordance with U.S. GAAP. If we are unable to claim our right to control the assets of the VIE, our Ordinary Shares may decline in value or become worthless.
We are a holding company, and may rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay for the holding company expenses or pay dividends to holders of our Ordinary Shares.
We are a Cayman Islands holding company and conduct a significant portion of our business through the VIE and its subsidiary in China. We may rely on dividends to be paid by the WFOE to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. If the VIE and its subsidiary incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us.
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Under PRC laws and regulations, the WFOE may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises are required to set aside at least 10% of their accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital.
The VIE and its subsidiary generate primarily all of their revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of the VIE and its subsidiary to use their Renminbi revenues to pay dividends to us. The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of the VIE and its subsidiary to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
In addition, the Enterprise Income Tax Law, or EIT, and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated. Any limitation on the ability of the VIE and its subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
Pursuant to the Arrangement between 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, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC entity. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including, without limitation, that (a) the Hong Kong entity must be the beneficial owner of the relevant dividends; and (b) the Hong Kong entity must directly hold no less than 25% share ownership in the PRC entity during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong entity must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by the VIE and its subsidiary, or the WFOE, to its immediate holding company, Webus HK. As of the date of this prospectus, the WFOE currently does not have plan to declare and pay dividends to Webus HK and we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. Webus HK intends to apply for the tax resident certificate when the WFOE plans to declare and pay dividends to Webus HK. When the WFOE plans to declare and pay dividends to Webus HK and when we intend to apply for the tax resident certificate from the relevant Hong Kong tax authority, we plan to inform the investors through SEC filings, such as a current report on Form 6-K, prior to such actions.
We rely on contractual arrangements with the VIE and Individual Registered Shareholders for our and the VIE’s operations in China, which may not be as effective in providing operational control as direct ownership, and the VIE’s shareholders may fail to perform their obligations under the contractual arrangements.
Current PRC laws and regulations impose certain restrictions and prohibitions on foreign ownership of companies that engage in value-added telecommunications business. Specifically, foreign ownership of a company providing value-added telecommunications services may not exceed 50%. Due to the restrictions on foreign ownership of value-added telecommunications business in the PRC under PRC laws, we hold 50% equity interests of the VIE, and Xinjieni Tech, our WFOE, entered into the Contractual Arrangements with the VIE and Individual Registered Shareholders regarding the 50% VIE Interest. These agreements include: (i) an exclusive business cooperation agreement, which enables us to receive substantially all of the economic benefits of the VIE, (ii) power of attorney and a share pledge agreement, which together with 50% equity interest held by Xinjieni Tech, provide us with control over the VIE, and (iii) an exclusive call option agreement, which provides us with the option to purchase the 50% equity interests of the VIE held by Individual Registered Shareholders. The conditions we have satisfied for consolidation of the VIE and its subsidiary under U.S. GAAP include that (i) we control the VIE through power to govern the activities which most significantly impact the VIE’s economic performance, (ii) we are contractually obligated to absorb losses of the VIE that could potentially be significant to the VIE, and (iii) we are entitled to receive benefits from the VIE that could potentially be significant to the VIE. Only if we meet the aforementioned conditions for consolidation of the VIE and its subsidiary under U.S. GAAP, we will be deemed as the primary beneficiary of the VIE and its subsidiary, and the VIE and its subsidiary will be treated as our consolidated entities for accounting purposes.
Although we have been advised by our PRC legal counsel, Allbright Law Offices, that our Contractual Arrangements constitute valid and binding obligations enforceable against each party of such agreements in accordance with their terms, the Contractual Arrangements may not be as effective in providing control over the VIE as direct ownership. If we had more than 50% 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. However, under the current contractual arrangements, we rely on the performance by the VIE and its shareholders of their obligations under the contracts to exercise control over the VIE. The shareholders of the VIE may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate certain portion of business through the contractual arrangements with the VIE. All of these Contractual Arrangements are governed by and interpreted in accordance with PRC laws, and disputes arising from these Contractual Arrangements will be resolved through arbitration or litigation in the PRC. However, the legal system in the PRC is not as developed as in other jurisdictions, such as the United States. The Contractual Arrangements that establish the structure for operating our and the VIE’s business in the PRC have not been tested in any of the PRC courts and there are very few precedents and little official guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC laws. There remain significant uncertainties regarding the outcome of arbitration or litigation. These uncertainties could limit our ability to enforce these Contractual Arrangements. In the event we are unable to enforce these Contractual Arrangements or we experience significant delays or other obstacles in the process of enforcing these Contractual Arrangements, we may not be able to exert control over the VIE and may lose control over the assets owned by the VIE. Our control over the VIE is limited to the aforementioned conditions we have satisfied for consolidation of the VIE and its subsidiary under U.S. GAAP. Therefore, our contractual arrangements with the VIE may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be. Our financial performance may be adversely and materially affected as a result and we may not be eligible to consolidate the financial results of the VIE into our consolidated financial results.
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The shareholders of the VIE may have conflicts of interests with us, which may materially and adversely affect our and the VIE’s business.
We have designated individuals who are PRC nationals to be the shareholders of the VIE. These individuals may have conflicts of interest with us. As of the date of this prospectus, the VIE was owned by Zheng Jiahua and Wu Chunyun as to 50%. Conflicts of interest may arise between the roles of Zheng Jiahua, as director and/or senior management of our Company and as shareholders of the VIE as well as director and/or senior management of the VIE.
We rely on these individuals to abide by the laws of the Cayman Islands which impose fiduciary duties upon directors and officers of our Company. Such duties include the duty to act bona fide in what they consider to be in the best interest of our Company as a whole and not to place themselves in a position in which there is a conflict between their duties to our Company and their personal interests. On the other hand, PRC laws also provide that a director or a management officer owes a loyalty and fiduciary duty to the company he or she directs or manages. We cannot assure you that when conflicts arise, individual shareholders of the VIE will act in the best interest of our Company or that conflicts will be resolved in our favor. These individuals may breach or cause the VIE to breach the Contractual Arrangements. If we cannot resolve any conflicts of interest or disputes between us and these shareholders, we would have to rely on legal proceedings, which may be expensive, time-consuming and disruptive to our and the VIE’s operations. There is also substantial uncertainty as to the outcome of any such legal proceedings.
The investors may face significant liquidity risks because of the VIE structure and being based in and having the majority of the Company’s operations in China.
The VIE hold certain assets that are important to our operations, including permits, domain names and IP rights, among others. Under Contractual Arrangements, Individual Registered Shareholders may not voluntarily liquidate the VIE or approve them to sell, transfer, mortgage or dispose of their assets or legal or beneficial interests exceeding certain threshold in the business in any manner without our prior consent. However, in the event that the Individual Registered Shareholders breach this obligation and voluntarily liquidate the VIE, or the VIE declare winding up, or all or part of their assets become subject to liens or rights of third-party creditors, we and the VIE may be unable to continue some or all of our and the VIE’s operations, which could materially and adversely affect our and the VIE’s business, financial condition and results of operations. Furthermore, if the VIE undergo a voluntary or involuntary liquidation proceeding, their shareholders or unrelated third-party creditors may claim rights to some or all of its assets, hindering our and the VIE’s ability to operate our and the VIE’s business, which could materially and adversely affect our and the VIE’s business, financial condition and results of operations. We do not have priority pledges and liens against the assets of the VIE. If the VIE undergoes an involuntary liquidation proceeding, third-party creditors may claim rights to some or all of its assets and we may not have priority against such third-party creditors on the assets of the VIE. If the VIE liquidates, we may take part in the liquidation procedures as a general creditor under the PRC Enterprise Bankruptcy Law and recover any outstanding liabilities owed by the VIE to WFOE under the applicable agreement(s). Moreover, there are uncertainties exist in the interpretation and enforcement of the laws and regulations governing our corporate structure, and given the fact that we are a China-based company with the majority of the operations in China, the investors may face significant liquidity risks if new laws, regulations, or government policies in China prohibit us from using or transferring cash or other assets in the VIE.
If we exercise the option to acquire equity ownership and assets of the VIE, the ownership or asset transfer may subject us to certain limitations and substantial costs.
According to the Regulations for the Administration of Foreign-Invested Telecommunications Enterprises (the “FITE Regulations”), foreign investors are not allowed to hold more than 50% of the equity interests in a company providing value-added telecommunications services. Consequently, we may be ineligible to operate the VIE’s value-added telecommunication enterprises directly and may be forced to suspend the operations if the Contractual Arrangements are considered as invalid, which could materially and adversely affect the business, financial condition and results of operations of us and the VIE.
Pursuant to the Contractual Arrangements, WFOE or its designated person(s) has the irrevocable and exclusive right to purchase all or any part of the equity interests in the VIE from Individual Registered Shareholders at any time and from time to time in WFOE’s absolute discretion to the extent permitted by PRC laws. The consideration for the equity ownership shall be the higher of (a) the lowest price permitted under PRC laws and regulations or (b) the capital contribution in relation to the equity interests while the consideration for the assets shall be the higher of (a) the lowest price permitted under PRC laws and regulations or (b) the net book value of the assets.
The equity transfer may be subject to the approvals from, or filings with, the MIIT, MOFCOM and SAMR and/or their local competent branches. In addition, the equity transfer price may be subject to review and tax adjustment by the relevant tax authorities. The equity transfer price to be received by the VIE under the Contractual Arrangements may also be subject to enterprise income tax, and such tax amounts could be substantial. Accordingly, in the event that we exercise the option to acquire equity ownership and/or assets of the VIE, substantial costs may be incurred, which may adversely and materially affect our and the VIE’s financial performance.
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Certain terms of the Contractual Arrangements may not be enforceable under PRC laws.
The Contractual Arrangements provide for dispute resolution by way of arbitration in accordance with the arbitration rules of the Hangzhou Arbitration Commission in Hangzhou, Zhejiang Province, the PRC. The Contractual Arrangements contain provisions to the effect that the arbitral body may award remedies over the equity interests and/or assets of the VIE, injunctive relief and/or winding up of the VIE. In addition, the Contractual Arrangements contain provisions to the effect that courts in Hong Kong and the Cayman Islands are empowered to grant interim remedies in support of the arbitration pending the formation of an arbitral tribunal. However, we have been advised by our PRC legal counsel that the above-mentioned provisions contained in the Contractual Arrangements may not be enforceable. Under PRC laws, an arbitral body does not have the power to grant any injunctive relief or provisional or final winding-up order to preserve the assets of or any equity interest in the VIE in case of disputes. Therefore, such remedies may not be available to us, notwithstanding the relevant contractual provisions contained in the Contractual Arrangements. PRC laws allow an arbitral body to award the transfer of assets of or equity interests in the VIE in favor of an aggrieved party. In the event of non-compliance with such award, enforcement measures may be sought from the court. However, the court may or may not support the award of an arbitral body when deciding whether to take enforcement measures. Under PRC laws, courts of judicial authorities in the PRC generally would not grant injunctive relief or the winding-up order against the VIE as interim remedies to preserve the assets or equity interests in favor of any aggrieved party. Our PRC legal counsel is also of the view that, even though the Contractual Arrangements provide that courts in Hong Kong and the Cayman Islands may grant and/or enforce interim remedies or in support of arbitration, such interim remedies (even if so granted by courts in Hong Kong or the Cayman Islands in favor of an aggrieved party) may not be recognized or enforced by PRC courts. As a result, in the event that the VIE or any of Individual Registered Shareholders breaches any of the Contractual Arrangements, we may not be able to obtain sufficient remedies in a timely manner or at all, and our ability to exert control over the VIE subject to the conditions we have satisfied for consolidation of the VIE and its subsidiary under U.S. GAAP and conduct the VIE’s value-added telecommunications service could be materially and adversely affected. The conditions we have satisfied for consolidation of the VIE and its subsidiary under U.S. GAAP include that (i) we control the VIE through power to govern the activities which most significantly impact the VIE’s economic performance, (ii) we are contractually obligated to absorb losses of the VIE that could potentially be significant to the VIE, and (iii) we are entitled to receive benefits from the VIE that could potentially be significant to the VIE.
Substantial uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of the current corporate structure, corporate governance and business operations of us and the VIE.
On March 15, 2019, the Foreign Investment Law was formally adopted by the National People’s Congress, or the NPC, which became effective from January 1, 2020 and replaced the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign Contractual Joint Ventures and the Law on Foreign-Capital Enterprises to become the legal foundation for foreign investment in the PRC. However, the Foreign Investment Law does not explicitly stipulate the contractual arrangements as a form of foreign investment. The Foreign Investment Law is formulated to establish regulatory principles to foreign investment within the PRC, aiming to further expand opening-up, vigorously promote foreign investment and protect the legitimate rights and interests of foreign investors. Much detailed laws, regulations and rules relating to foreign investments are to be enacted by relevant regulatory authorities. As such, there are uncertainties regarding the evolution of the regulatory regime and the interpretation and implementation of current and any future PRC laws and regulations applicable to the foreign investment.
Conducting operations through contractual arrangements has been adopted by many PRC-based companies, including us, to obtain and maintain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions or prohibitions in China. The Foreign Investment Law stipulates that foreign investment includes foreign investors investing in China through any other methods under laws, administrative regulations, or provisions prescribed by the State Council. Therefore, there are possibilities that future laws, administrative regulations, or provisions of the State Council may stipulate contractual arrangements as a way of foreign investments, and then whether our Contractual Arrangements will be recognized as foreign investment, whether our Contractual Arrangements will be deemed to be in violation of the foreign investment access requirements and how our Contractual Arrangements will be handled are uncertain.
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In the extreme case-scenario, we and the VIE may be required to unwind the Contractual Arrangements and/or dispose of the VIE, which could have a material and adverse effect on our and the VIE’s business, financial condition and result of operations. In the event that our Company no longer has a sustainable business after the aforementioned unwinding of the Contractual Arrangements or disposal or when such measures do not comply with the Listing Rules or applicable laws, the relevant regulators may take enforcement actions against us which may have a material adverse effect on the trading of our Shares or even result in delisting of our Company.
Our Contractual Arrangements may be subject to scrutiny of PRC tax authorities and additional tax may be imposed which may materially and adversely affect our and the VIE’s results of operation and value of your investment.
Under PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We and the VIE could face material and adverse tax consequences if the PRC tax authorities determine that any service fees charged by us under the Exclusive Business Cooperation Agreement does not represent an arm’s length price and adjust any of the VIE’s income in the form of a transfer pricing adjustment. A transfer pricing adjustment could increase our and the VIE’s tax liabilities. In addition, the PRC tax authorities may impose late payment fees and other penalties to the VIE for under-paid taxes. Our and the VIE’s business, financial condition and results of operations may be materially and adversely affected if our and the VIE’s tax liabilities increase or if we and the VIE are found to be subject to late payment fees or other penalties.
We are a holding company and the investors will have ownership in a holding company that does not directly own all of its operation in China. We primarily rely on our WFOE and the VIE for the operation in PRC. We may rely on dividends to be paid by the WFOE to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, if needed in the future. Any limitation on the ability of WFOE to pay dividends to us could have a material adverse effect on our ability to pay dividends to our shareholders.
We are a holding company and the investors will have ownership in a holding company that does not directly own all of its operation in China. We rely on our WFOE and the VIE for the operation in PRC. Any benefits accrued to us because of the VIE are limited to the conditions we met for consolidation of the VIE under U.S. GAAP. Such conditions include that (i) we control the VIE through power to govern the activities which most significantly impact the VIE’s economic performance, (ii) we are obligated to absorb losses of the VIE that could potentially be significant to the VIE, and (iii) we are entitled to receive benefits from the VIE that could potentially be significant to the VIE. We are deemed as the primary beneficiary of the VIE, and the VIE are treated as our consolidated entities for accounting purpose. We may rely on dividends to be paid by the WFOE to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, if needed in the future. If WFOE incur debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. In addition, the income of WFOE in turn depends on the service fees paid by the VIE and the PRC tax authorities may require us to adjust our taxable income under the Contractual Arrangements in a manner that would materially and adversely affect its ability to pay dividends and other distributions to us. Current PRC laws and regulations permit our subsidiaries in China to pay dividends to us only out of its retained earnings, if any, determined in accordance with Chinese accounting standards and regulations and WFOE shall make up its losses of previous years when conducting outward remittance. Under the applicable requirements of PRC laws and regulations, WFOE is required to set aside at least 10% of its accumulated after-tax profits based on PRC accounting standards each year to fund certain statutory reserves until the accumulated amount of such reserve reaches 50% of its registered capital. At its discretion, WFOE may allocate a portion of its after-tax profits based on PRC accounting standards to its discretionary reserve fund, or its staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.
Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. See also “If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.”
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Risks Related to Doing Business in China
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations.
A significant portion of our operations are located in China. Accordingly, our business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.
The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies and change of enforcement practice of such rules and policies can change quickly with little advance notice. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant growth over the past four decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. Since 2012, China’s economic growth has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and materially and adversely affect our business and results of operations.
Uncertainties and quick change in the interpretation and enforcement of Chinese laws and regulations with little advance notice could result in a material and negative impact our business operation, decrease the value of our ordinary shares and limit the legal protections available to us.
The PRC legal system is based on written statutes, and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties. The enforcement of laws and that rules and regulations in China can change quickly with little advance notice and the risk that the Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China- based issuers, could result in a material change in our operations and/or the value of our ordinary shares.
We cannot rule out the possibility that the PRC government will institute a licensing regime or pre-approval requirement covering our industry at some point in the future. If such a licensing regime or approval requirement were introduced, we cannot assure you that we would be able to obtain any newly required license in a timely manner, or at all, which could materially and adversely affect our business and impede our ability to continue our operations.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, 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 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 uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations.
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The approval and/or other requirements of the CSRC or other PRC governmental authorities may be required in connection with this transaction under PRC rules, regulations or policies, and, if required, Webus cannot predict whether or how soon it will be able to obtain such approval.
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, purport to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange. The interpretation and implementation of the regulations remain unclear.
In addition, the PRC government authorities may strengthen oversight over offerings that are conducted overseas. For instance, on July 6, 2021, the relevant PRC governmental authorities promulgated the Opinions on Strictly Cracking Down on Illegal Securities Activities, which emphasized the need to strengthen the supervision over overseas listings by PRC companies. Effective measures, such as promoting the construction of relevant regulatory systems, are to be taken to deal with the risks and incidents of China-based overseas-listed companies, cybersecurity and data privacy protection requirements and similar matters. The Measures for Cybersecurity Review issued by the CAC and other related authorities on December 28, 2021 also required that, among others, “critical information infrastructure” or internet platform operator holding over one million users’ personal information to apply for a cybersecurity review before any listing at a foreign country. In addition, the relevant governmental authorities in the PRC may initiate cybersecurity review if such governmental authorities determine that an operator’s cyber products or services or data processing affect or may affect national security. The Measures for Security Assessment for Cross-border Data Transfer which took effect on September 1, 2022, stipulates that a data processor shall apply to the competent cyberspace department for security assessment and clearance of outbound data transfer in the event of outbound transfer of important data by a data processor, outbound transfer of personal information by an operator of critical information infrastructure or a data processor which has processed more than one million users’ personal data. These statements and regulations are recently issued and there remain substantial uncertainties about their interpretation and implementation. As of the date of this prospectus, Webus does not hold personal information of over one million users. Webus has not been considered as an “operator of critical information infrastructure” by competent authority, nor has Webus been informed by any PRC governmental authority of any requirement that Webus files for a cybersecurity review.
On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “New Overseas Listing Rules”) with five interpretive guidelines, which came into effect on March 31, 2023. Under the New Overseas Listing Rules and the guidance, domestic companies conducting overseas securities offering and listing, either directly or indirectly, shall complete filings with the CSRC pursuant to the New Overseas Listing Rules’ requirements within three working days following the submission of an initial public offering or listing application. Enterprises that have been listed overseas or satisfy all of the following conditions shall be deemed as “Existing Issuers” and are not required to complete the overseas listing filing immediately, but shall complete filings as required if they conduct refinancing or are involved in other circumstances that require filing with the CSRC: (i) the application for indirect overseas offering or listing shall have been approved by the relevant overseas regulatory authority or stock exchange prior to March 31, 2023, (ii) the enterprise is not required to reapply for the approval of the relevant overseas regulatory authority or stock exchange, and (iii) such overseas securities offering or listing shall be completed before September 30, 2023. Starting from March 31, 2023, domestic enterprises that have submitted valid applications for overseas offerings and listing but have not obtained the approval from relevant overseas regulatory authority or overseas stock exchange before March 31, 2023 can reasonably arrange the timing of filing applications and shall complete filings with the CSRC prior to their overseas offering and listings. The content of our Filing Documents needs to be reviewed by the CSRC.
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On February 24, 2023, the CSRC, Ministry of Finance of the PRC, National Administration of State Secrets Protection and National Archives Administration of China jointly issued the Provisions on Strengthening the Confidentiality and Archive Management Work Relating to the Overseas Securities Offering and Listing, or the Confidentiality Provisions, which came into effect on March 31, 2023 with the New Overseas Listing Rules. The Confidentiality Provisions require that, among other things, (a) a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. Any failure or perceived failure by the company, its PRC subsidiary to comply with the above confidentiality and archives administration requirements under the Confidentiality Provisions, and other PRC laws and regulations may result in the relevant entities being held legally liable by competent authorities, and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime.
According to the New Overseas Listing Rules, the domestic companies that have submitted valid applications for overseas offerings and listing but have not been approved from relevant overseas regulatory authorities or overseas stock exchanges before March 31, 2023 can reasonably arrange the timing of filing applications and shall complete filings with the CSRC prior to their overseas offering and listings. Based on the foregoing and the advice of our PRC counsel AllBright Law Offices, Webus believes that we may reasonably arrange the timing of filing applications and shall complete filings with the CSRC prior to our initial public offering since our registration statement on Form F-1 submitted to SEC has not been declared to be effective by the SEC prior to March 31, 2023. Webus has submitted the Filing Documents for the filing under the New Overseas Listing Rules to comply with our obligations under the New Overseas Listing Rules. On April 2, 2024, the CSRC informed us that we have completed the CSRC filing in compliance with the New Overseas Listing Rules. However, as the New Overseas Listing Rules are newly issued, there remains uncertainty as to how it will be interpreted or implemented, which may materially and adversely impact our results of operations and the value of our ordinary shares, may limit or completely hinder our ability to offer or continue to offer or continue to offer securities, including the securities being registered, to investors, and/or may cause the value of such securities to significantly decline or be worthless. The interpretations and implementation of the New Overseas Listing Rules remain uncertain in several respects at this time, considering that the New Overseas Listing Rules has just been released. Therefore, we cannot assure you that we will be able to complete such filings in a timely manner or even at all, which could impede our ability to offer or continue to offer securities, including the securities being registered, to investors. As of the date of this prospectus, none of Webus and its subsidiaries or the VIE and its subsidiary has received any notice, warning or sanctions regarding our planned overseas listing from the CSRC or any other PRC governmental authorities. However, if Webus later finds out that it was required to obtain such permissions or approvals in the future in connection with the listing or continued listing of Webus’ Ordinary Shares on a stock exchange outside of China, it is uncertain how long it will take for Webus to obtain such approval, and, even if Webus obtains such approval, the approval could be rescinded. Any failure to obtain or a delay in obtaining the necessary permissions from the PRC authorities to conduct offerings or list outside of Hong Kong or Mainland China may subject Webus to sanctions imposed by the PRC regulatory authorities, which could include fines and penalties, proceedings against Webus, and other forms of sanctions, and Webus’ ability to conduct its business, invest into China as foreign investments or accept foreign investments, or list on a U.S. or other overseas exchange may be restricted, and our business, reputation, financial condition, and results of operations may be materially and adversely affected.
The Chinese government exerts substantial influence over the manner in which the VIE and its subsidiary must conduct their business activities. If the Chinese government significantly regulates these entities’ business operations in the future and they are not able to substantially comply with such regulations, these entities’ business operations may be materially adversely affected and the value of Webus’ Ordinary Shares may significantly decrease.
The Chinese government exerts substantial control over virtually every sector of the Chinese economy through regulation and state ownership. The ability of the VIE and its subsidiary 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 Webus’ part to ensure its 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 Webus to divest itself of any interest Webus then holds in Chinese properties.
As such, the business operations of Webus, its subsidiaries, and the VIE and its subsidiary may be subject to various government and regulatory interference in the provinces in which these entities operate. Webus, its subsidiaries, and the VIE and its subsidiary could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. Webus may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. In the event that Webus, its subsidiaries, or the VIE and its subsidiary are not able to substantially comply with any existing or newly adopted laws and regulations, its business operations may be materially adversely affected and the value of Webus’ Ordinary Shares may significantly decrease.
Furthermore, the PRC government may strengthen oversight and control over offerings and/or listings that are conducted overseas and/or foreign investment in China-based issuers like Webus. Such actions taken by the PRC government authorities may intervene or influence operations of the VIE and its subsidiary at any time, which are beyond their control. Therefore, any such action may adversely affect the operations of the VIE and its subsidiary and result in material change in these entities’ operations and/or the value of Webus’ securities. In addition, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder Webus’ ability to offer or continue to offer securities to you and cause the value of such securities to significantly decline or be worthless.
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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 using the proceeds of this offering to make loans to or make additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
Under PRC laws and regulations, we are permitted to utilize the proceeds from this offering to fund our PRC subsidiaries by making loans to or additional capital contributions to our PRC subsidiaries, subject to applicable government registration and approval requirements.
Any loans to our PRC subsidiaries, which are treated as foreign-invested enterprises under PRC laws, are subject to PRC regulations and foreign exchange loan registrations. For example, loans by us to our PRC subsidiaries to finance its activities cannot exceed statutory limits and must be registered with the local counterpart of the State Administration of Foreign Exchange, or SAFE. The statutory limit for the total amount of foreign debts of a foreign-invested company is the difference between the amount of total investment as approved by China’s Ministry of Commerce (“MOFCOM”) or its local counterpart and the amount of registered capital of such foreign-invested company.
We may also decide to finance our PRC subsidiaries by means of capital contributions. These capital contributions must be filed with the MOFCOM or its local counterpart. In addition, SAFE issued a circular in September 2008, SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency registered capital into RMB by restricting how the converted RMB may be used. SAFE Circular 142 provides that the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and unless otherwise provided by law, may not be used for equity investments within the PRC. Although on July 4, 2014, SAFE issued the Circular of the SAFE on Relevant Issues Concerning the Pilot Reform in Certain Areas of the Administrative Method of the Conversion of Foreign Exchange Funds by Foreign-invested Enterprises, or SAFE Circular 36, which launched a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises in certain designated areas from August 4, 2014 and some of the restrictions under SAFE Circular 142 will not apply to the settlement of the foreign exchange capitals of the foreign-invested enterprises established within the designate areas and such enterprises mainly engaging in investment are allowed to use its RMB capital converted from foreign exchange capitals to make equity investment, our PRC subsidiaries are not established within the designated areas. On March 30, 2015, SAFE promulgated Circular 19, to expand the reform nationwide. Circular 19 came into force and replaced both Circular 142 and Circular 36 on June 1, 2015. Circular 19 allows foreign-invested enterprises to make equity investments by using RMB funds converted from foreign exchange capital. However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using RMB fund converted from its foreign exchange capitals for expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of a foreign-invested company. The use of such RMB capital may not be altered without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Violations of these Circulars could result in severe monetary or other penalties. These circulars may significantly limit our ability to use RMB converted from the net proceeds of this offering to fund the establishment of new entities in China by our PRC subsidiaries, to invest in or acquire any other PRC companies through our PRC subsidiaries, or to establish variable interest entities in the PRC.
In light of the various requirements imposed by 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 on a timely basis, if at all, with respect to future loans to our PRC subsidiaries or future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from this offering 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.
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PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase its registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law.
SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE Circular 37 was issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.
If our shareholders who are PRC residents or entities do not complete their registration as required, our PRC subsidiaries may be prohibited from distributing its profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our PRC subsidiaries. Moreover, failure to comply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.
To the extent cash or assets of our business, or of our PRC or Hong Kong subsidiaries, is in the PRC or Hong Kong, such cash or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong, due to interventions in or the imposition of restrictions and limitations by the PRC government to the transfer of cash or assets.
The transfer of funds and assets among Webus, Webus HK, the WFOE, the VIE and its subsidiary is subject to restrictions. The PRC government imposes controls on the conversion of the RMB into foreign currencies and the remittance of currencies out of the PRC. In addition, the PRC Enterprise Income Tax Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises, unless reduced under treaties or arrangements between the PRC central government and the governments of other countries or regions where the non-PRC-resident enterprises are tax resident.
As of the date of this prospectus, there are no restrictions or limitations imposed by the Hong Kong government on the transfer of capital within, into and out of Hong Kong (including funds from Hong Kong to the PRC), except for the transfer of funds involving money laundering and criminal activities. However, there is no guarantee that the Hong Kong government will not promulgate new laws or regulations that may impose such restrictions in the future.
Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.
A significant portion of our revenues and expenditures are denominated and presented in RMB, the amounts for the fiscal years ended June 30, 2023 and 2024 are presented in U.S. dollars for convenience purpose. As a result, fluctuations in the exchange rate between the U.S. dollar and RMB does not have much impact on our operations. However, the fluctuation may affect our financials in the terms of our U.S. dollar assets and the proceeds from this offering. Should RMB appreciate against other currencies, any future financings, which are to be converted from US dollar or other currencies into RMB, would be reduced and might accordingly hinder our business development due to the lessened amount of funds raised. On the other hand, in the event of the devaluation of RMB, the dividend payments of our Company, which are to be paid in US dollars after the conversion of the distributable profit denominated in RMB, would be reduced.
There remains significant international pressure on the PRC government to adopt a flexible currency policy. Any significant appreciation or depreciation of the RMB may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our Ordinary Shares in U.S. dollars. For example, to the extent that we need to convert U.S. dollars we receive from this initial public offering into RMB to pay our operating expenses, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the market price of our Ordinary Shares.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.
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Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.
The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. Under our current corporate structure, our company in the Cayman Islands 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, 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 SAFE by complying with certain procedural requirements. Therefore, our PRC subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulation, such as the overseas investment registrations by the beneficial owners of our Company who are PRC residents. But approval from or registration with appropriate government authorities is required where RMB 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 also at its discretion 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.
Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.
The VIE and its subsidiary are required under PRC laws and regulations to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of its employees up to a maximum amount specified by the local government from time to time at locations where operate its businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. As of the date of this prospectus, we believe that the VIE and its subsidiary have made employee benefit payments in material aspects. If the VIE and its subsidiary fail to make adequate payments in the future, it may be required by the social security premium collection agency to make or supplement contributions within a stipulated period, and shall be subject to a late payment fine computed from the due date at the rate of 0.05% per day; where payment is not made within the stipulated period, the relevant administrative authorities shall impose a fine ranging from one to three times the amount of the amount in arrears. If the VIE and its subsidiary are subject to fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.
Non-compliance with labor-related laws and regulations of the PRC may have an adverse impact on our financial condition and results of operation.
The VIE and its subsidiary have been subject to stricter regulatory requirements in terms of entering into labor contracts with its employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of its employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract Law, that became effective in January 2008 and was amended in December 2012 and became effective on July 1, 2013, and its implementing rules that became effective in September 2008, 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 the VIE and its subsidiary decide to terminate some of its employees or otherwise change its 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. We believe the VIE and its subsidiary current practice complies with the Labor Contract Law and its amendments. However, the relevant governmental authorities may take a different view and impose fines on us.
As the interpretation and implementation of labor-related laws and regulations are still evolving, our employment practices could violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If the VIE and its subsidiary are deemed to have violated relevant labor laws and regulations, the VIE and its subsidiary could be required to provide additional compensation to its employees and our business, financial condition and results of operations could be materially and adversely affected.
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Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one year and who have been granted options or other awards will be subject to these regulations when our Company becomes an overseas listed company upon the completion of this offering. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law. See “Regulations — Regulations of People’s Republic of China — Employee Stock Incentive Plan.”
If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a “de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall management of the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” 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 like us, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.
We believe we are not a PRC resident enterprise for PRC tax purposes. See “Taxation—People’s Republic of China Taxation.” However, the tax resident 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 some of our management members are based in or frequently travel to China, it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities determine that we or any of our subsidiaries outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, then we or such subsidiary could be subject to PRC tax at a rate of 25% on its world-wide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Furthermore, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, gains realized on the sale or other disposition of our Ordinary Shares may 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), if such gains are deemed to be from PRC sources. It is unclear whether non-PRC shareholders of our 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 we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our Ordinary Shares.
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Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China.
From time to time, the Company may receive requests from certain US agencies to investigate or inspect the Company’s operations, or to otherwise provide information. While the Company will be compliant with these requests from these regulators, there is no guarantee that such requests will be honored by those entities who provide services to us or with whom we associate, especially as those entities are located in China. Furthermore, an on-site inspection of our facilities in China by any of these regulators may be limited or entirely prohibited. Such inspections, though permitted by the Company and its affiliates, are subject to the unpredictability of Chinese law enforcement agencies, and may therefore be impossible to facilitate. According to Article 177 of the PRC Securities Law which became effective in March 2020, the securities regulatory authority of the State Council may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region, to implement cross-border supervision and administration and no overseas securities regulator is allowed to directly conduct an investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to overseas parties.
The Holding Foreign Companies Accountable Act, or the HFCAA, and the related regulations are evolving quickly. Further implementations and interpretations of or amendments to the HFCAA or the related regulations, or a PCOAB’s determination of its lack of sufficient access to inspect our auditor, might pose regulatory risks to and impose restrictions on us because of our operations in mainland China. A potential consequence is that our Ordinary Shares may be delisted by the exchange. The delisting of our Ordinary Shares, or the threat of our Ordinary Shares being delisted, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct full inspections of our auditor deprives our investors of the benefits of such inspections
The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. In accordance with the HFCAA, trading in securities of any registrant on a national securities exchange or in the over-the-counter trading market in the United States may be prohibited if the PCAOB determines that it cannot inspect or fully investigate the registrant’s auditor for three consecutive years beginning in 2021, and, as a result, an exchange may determine to delist the securities of such registrant. On June 22, 2021, the U.S. Senate passed the AHFCAA. On December 29, 2022, legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law. The Consolidated Appropriations Act contained, among other things, an identical provision to HFCAA, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two, thus reducing the time period before our securities may be prohibited from trading or delisted if our auditor is unable to meet the PCAOB inspection requirement.
On November 5, 2021, the SEC adopted the PCAOB rule to implement HFCAA, which provides a framework for the PCAOB to determine whether it is unable to inspect or investigate completely 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 issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA. The rules apply to registrants that 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 PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions.
On December 16, 2021, the PCAOB issued its determinations (the “Determination”) that they are unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong. The Determination includes lists of public accounting firms headquartered in mainland China and Hong Kong that the PCAOB is unable to inspect or investigate completely.
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On August 26, 2022, the PCAOB announced that it had signed the Protocol with CSRC and MOF governing inspections and investigations of audit firms based in mainland China and Hong Kong. The Protocol remains unpublished and is subject to further explanation and implementation. Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and the unfettered ability to transfer information to the SEC.
On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control, including positions taken by authorities of the PRC. The PCAOB is expected to continue to demand complete access to inspections and investigations against accounting firms headquartered in mainland China and Hong Kong in the future and has resumed regular inspections since March 2023. The PCAOB is required under the HFCAA to make its determination on an annual basis with regards to its ability to inspect and investigate completely accounting firms based in the mainland China and Hong Kong. Should the PCAOB again encounter impediments to inspections and investigations in mainland China or Hong Kong as a result of positions taken by any authority in either jurisdiction, the PCAOB will make determinations under the HFCAA as and when appropriate.
The enactment of the HFCAA and any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information could cause investors uncertainty for affected issuers and the market price of our Ordinary Shares could be adversely affected, and we could be delisted if our auditor is unable to meet the PCAOB inspection requirement.
The lack of access to PCAOB inspections prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China and Hong Kong. As a result, investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China and Hong Kong makes it more difficult to evaluate the effectiveness of these accounting firm’s audit procedures and quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections.
Our auditor, Marcum Asia CPAs LLP, an independent registered public accounting firm that is headquartered in the United States, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. As of the date of this prospectus, Marcum Asia CPAs LLP was not included in the list of identified firms in the PCAOB Determination issued on December 16, 2021. Therefore, we believe that the Holding Foreign Companies Accountable Act and the related regulations do not currently affect us. However, recent developments with respect to audits of China-based companies create uncertainty about the ability of Marcum Asia CPAs LLP to fully cooperate with a PCAOB request for audit working papers without the approval of the Chinese authorities, as Marcum Asia CPAs LLP’s audit working papers related to us are located in China. We can offer no assurance that we will be able to retain an auditor that would allow us to avoid a trading prohibition for our securities under the HFCAA. Furthermore, the recent developments would add uncertainties to our offering, 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 it relates to our audit. If it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction or any other reasons, the lack of inspection could cause the trading in our securities to be prohibited under the Holding Foreign Companies Accountable Act, and as a result Nasdaq may delist our securities. If our securities are unable to be listed on another securities exchange, such a delisting would substantially impair your ability to sell or purchase our securities when you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative impact on the price of our Ordinary Shares. Further, new laws and regulations or changes in laws and regulations in both the United States and China could affect our ability to list our Ordinary Shares on Nasdaq, which could materially impair the market for and market price for our securities.
Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.
The PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing SAT Circular 59 and Circular 698, which became effective in January 2008, and Circular 698 was abolished and void as of December 1, 2017.
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Under Circular 698, where a non-resident enterprise conducts an “indirect transfer” by transferring the equity interests of a PRC “resident enterprise” indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial purposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.
In February 2015, the SAT issued Circular 7 to replace the rules relating to indirect transfers in Circular 698. Circular 7 has introduced a new tax regime that is significantly different from that under Circular 698. Circular 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular 698 but also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, Circular 7 provides clearer criteria than Circular 698 on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. Circular 7 also brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.
We face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our Company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation and request our PRC subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed, under Circular 59 and Circular 7, and may be required to expend valuable resources to comply with Circular 59 and Circular 7 or to establish that we and our non-resident enterprises should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.
The PRC tax authorities have the discretion under SAT Circular 59, and Circular 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. Although we currently have no specific plans to pursue any acquisitions in China or elsewhere in the world, we may pursue acquisitions in the future that may involve complex corporate structures. If we are considered a non-resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authorities make adjustments to the taxable income of the transactions under SAT Circular 59 and Circular 7, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.
Substantial 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, business operations and financial results.
On March 15, 2019, the National People’s Congress approved 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, 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 and how it may impact the viability of our current corporate governance and business operations in China and financial results of the Company.
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Any change of regulations and rules by Chinese government including potential additional requirements on cybersecurity review, personal information protection, moving technology in and out of the PRC, or outbound data transfer may intervene or influence our operations in China at any time and any additional control over offerings conducted overseas and/or foreign investment in issuers with Chinese operations could result in a material change in our business operations and/or the value of our Ordinary Shares and could also significantly limit or completely hinder our ability to offer our Ordinary Shares to investors and cause the value of such securities to significantly decline or be worthless.
Our operation in China may be intervened or influenced by the new regulations and policies by Chinese government. For example, between July 2 and July 6, 2021, the CAC announced cybersecurity investigations of the business operations of certain U.S.-listed Chinese companies. On July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued “The Opinions on Severely Cracking Down on Illegal Securities Activities According to Law” (the “Opinions”). The Opinions emphasized the needs to strengthen the administration over illegal securities activities and the supervision over overseas listings by Chinese companies. According to the Opinions, Measures, including promoting the construction of relevant regulatory systems, will be taken to control the risks and manage the incidents from overseas listed Chinese companies.
On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “New Overseas Listing Rules”), which came to effect on March 31, 2023, pursuant to which, any direct or indirect offshore listing of PRC domestic enterprises shall be filed with the CSRC. The Measures provide that the determination as to whether a domestic company is indirectly offering and listing securities on an overseas market shall be made on a substance over form basis, and if the issuer meets the following conditions, the offering and listing shall be determined as an indirect overseas offering and listing by a Chinese domestic company: (i) the revenue, profit, total assets or net assets of the Chinese domestic entity is more than 50% of the related financials in the issuer’s audited consolidated financial statements for the most recent fiscal year; (ii) the senior managers in charge of business operation and management of the issuer are mostly Chinese citizens or with regular domicile in China, the main locations of its business operations are in China or main business activities are conducted in China.
On December 28, 2021, Cybersecurity Review Measures published by the CAC, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, Ministry of State Security, Ministry of Finance, Ministry of Commerce, People’s Bank of China, State Administration of Radio and Television, China Securities Regulatory Commission, State Secrecy Administration and State Cryptography Administration, effective on February 15, 2022, which provides that, Critical Information Infrastructure Operators (“CIIOs”) that intend to purchase internet products and services and Data Processing Operators (“DPOs”) engaging in data processing activities that affect or may affect national security shall be subject to the cybersecurity review by the Cybersecurity Review Office. In addition, CIIOs and DPOs that possess personal data of at least one (1) million users must apply for a review by the Cybersecurity Review Office, if they plan to conduct listings in foreign countries. On November 14, 2021, CAC published the Administration Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measure (Draft)”. Cyber Data Security Measure (Draft) provides that data processors shall apply for Cybersecurity Review for certain events, such as the merger, restructuring, division of an internet platform operator that holds a large amount of data relating to national security, economic development or public interests which affects or may affect the national security; overseas listing of a data processor that processes personal data for more than one million individuals; Hong Kong listing of a data processor that affects or may affect national security; other data processing activities that affect or may affect the national security. We are not an CIIO as defined in the Review Measures but we are probably deemed to be a DPO engaging in data processing activities. Currently, we do not believe we are obligated to apply for a cybersecurity review pursuant to the Cybersecurity Review Measures and Cyber Data Security Measure (Draft), as (i) we do not process personal data for more than one million individuals under Cyber Data Security Measure (Draft), and (ii) as of the date of this this prospectus, we have not received any notice from applicable PRC governmental authorities that the VIE may have carried out activities that affect or may affect national security. Furthermore, based on our business patterns and development plans, the number of individuals whose personal data is held by us is unlikely to reach the threshold of one million within the upcoming two years, and the personal data held by us is unlikely to affect national security. The existing PRC law and regulations does not explicitly require DPOs that have the personal information of more than one million users after listing to apply for cybersecurity review. AllBright further advises us that if in the future we reach the threshold of one million, or any competent government authorities determines that our data processing activities may affect national security, we may be subject to the cybersecurity review. If, at any time in the future, we reach the threshold of holding the personal information of more than one million users, we will voluntarily apply for Cybersecurity Review even though we are not explicitly required to do so. If we reach the threshold of holding the personal information of more than one million users after listing, we do not believe we will be subject to a Cybersecurity Review or must apply for such a review for any repeat registration statement, merger, restructuring, or other transaction based on AllBright’s advice.
Although we believe we would be approved by the CAC through the cybersecurity review, failure to pass such cybersecurity review and/or to comply with the data privacy and data security requirements raised during such cybersecurity review could subject us to penalties, damage its reputation and brand, and harm its business and results of operations. There may also be risks that we may not be able to continue our operations, which may lead to uncertainties of future financing by foreign investment or remaining listed and traded on an U.S. stock exchange.
Users of our US subsidiary, Wetour, are primarily overseas Chinese tourists, and the user data is stored in the United States, such data will not be subject to the Cyber Data Security Measure (Draft) and data security regulations. User of our PRC subsidiary, VIE and its subsidiary, are primarily domestic Chinese, and the user data is stored in the PRC, such data will be subject to the Cyber Data Security Measure (Draft) and data security regulations. In addition, outbound data transfer regulations may become applicable to the user data of our PRC subsidiary and the VIE and its subsidiaries if we ever transfer any data to places outside of the PRC.
On July 7, 2022, the CAC promulgated the Measures for Security Assessment for Outbound Data Transfer, which became effective on September 1, 2022. The Measures apply to the security assessment of Important Data and personal information collected and generated during operation within the territory of the People’s Republic of China and transferred abroad by a data handler. Specifically, the Measures for Security Assessment for Outbound Data Transfer to provide that where a data handler transfers data abroad under any of the following circumstances, it shall, through the local Cyberspace Administration at the provincial level, apply to the CAC for security assessment for the outbound data transfer: (1) a data handler who transfers Important Data abroad; (2) a critical information infrastructure operator, or a data handler processing the personal information of more than one million individuals, who, in either case, transfers personal information abroad; (3) a data handler who has, since January 1 of the previous year cumulatively transferred abroad the personal information of more than 100,000 individuals, or the sensitive personal information of more than 10,000 individuals, or (4) other circumstances where the security assessment for the outbound data transfer is required by the CAC.
On February 22, 2023, the CAC promulgated the Measures for the Standard Contract for Outbound Transfer of Personal Information, effective on June 1, 2023, provides the basic principles and requirements on the outbound transfer of personal information outside the PRC under the standard contract provided by the CAC. Pursuant to the Measures for the Standard Contract for Outbound Transfer of Personal Information, any personal information handler transferring personal information abroad by entering into the standard contract shall meet all of the following conditions and conduct a personal information protection impact assessment: (i) it is not a critical information infrastructure operator; (ii) it processes the personal information of less than 1 million individuals; (iii) it has cumulatively transferred abroad the personal information of less than 100,000 individuals since January 1 of the previous year; and (iv) it has cumulatively transferred abroad the sensitive personal information of less than 10,000 individuals since January 1 of the previous year. The Measures also provides that the personal information handler shall not carry out the outbound transfer until the standard contract enters into force, and shall file a record with the cyberspace authority at the provincial level within 10 working days from the effective date of the standard contract executed.
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As of the date of this prospectus, we have not transferred any user information to places outside of the PRC. We do not believe we will be subject to the Measures for Security Assessment for Outbound Data Transfer and the Measures for the Standard Contract for Outbound Transfer of Personal Information (the “outbound data transfer regulations”), considering (i) we do not anticipate reaching the threshold to trigger the requirements by the outbound data transfer regulations and (ii) we do not anticipate to transfer any user information outside of the PRC after the offering. As advised by AllBright, we are not currently subject to the outbound data transfer regulations because Chinese customers using our services must provide their information on Wetour’s website and applications, which were established and maintained in the U.S. Therefore, there is no data transferred across the border of PRC by us.
Furthermore, with the gradual relaxation of policies on the prevention and control of COVID-19 in the PRC, we anticipate outbound travel by PRC residents will increase significantly. Correspondingly, although we do not anticipate transferring any user information outside of the PRC after the offering, our PRC users may have the potential needs to make reservations inside PRC and enjoy travel services overseas. Under such circumstances, we may need to transfer user data outside of the PRC to Wetour or our overseas business partners to satisfy our PRC users’ needs and such user data is mainly the user’s information required for reservation such as the user’s name and contact information which we believe is not Important Data or sensitive personal information; if we cumulatively transfer abroad the personal information of PRC users, we believe we will be subject to the requirements by the outbound data transfer regulations.
In the circumstances we may be subject to such requirements, we believe we would obtain approval from the CAC. However, failure to pass such requirements and/or to comply with the data privacy and data security requirements could subject us to penalties, damage its reputation and brand, and harm its business and the results of operations. According to the Personal Information Protection Law, promulgated on August 20, 2021 by the Standing Committee of the National People’s Congress (“SCNPC”) and became effective on November 1, 2021, if we fail to comply with relevant regulations, regulatory agencies will order us to rectify such noncompliance, give us a warning, and the illegal gains shall be confiscated. Applications that illegally process personal information shall be ordered to suspend or terminate the provision of services. Those who refuse to make corrections shall be fined up to RMB1 million; A fine of not less than RMB10,000 but not more than RMB100,000 shall be imposed on the directly responsible supervisors and other directly responsible personnel. If the regulatory agencies find the above-mentioned illegal acts to be serious, the department responsible for personal information protection at or above the provincial level shall order rectification, confiscate the illegal gains, impose a fine of not more than RMB50 million or not more than 5% of the violator’s revenue in the last fiscal year and may also order the suspension of relevant business activities or the suspension of all business activities for rectification, notify the relevant competent department to revoke the relevant business license or revoke all the business licenses possessed by the violator. Under such circumstances, the directly responsible supervisors and other directly responsible personnel shall be fined not less than RMB100,000 but not more than RMB1 million, and they may be prohibited from serving as directors, supervisors, senior management personnel, and personal information protection personnel of relevant enterprises for a certain period of time. If a crime is constituted, criminal responsibility shall be pursued in accordance with the PRC law.
If we do not comply with the above regulations, including requirements on cybersecurity review, personal information protection, moving technology in and out of the PRC, or outbound data transfer, the regulatory agencies may also limit our ability to pay dividends outside of mainland China, delay or restrict the repatriation of the proceeds from this offering into mainland China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our securities. The CSRC, the CAC, or other PRC regulatory agencies may take additional actions requiring us, or advise us, to halt this offering before settlement and delivery of our Ordinary Shares. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur.
The PRC legal system is based in part on government policies, and new laws and regulations may be enacted from time to time, some of which may have a retroactive effect. Furthermore, substantial uncertainties exist regarding the interpretation and implementation of current and any future PRC laws and regulations. It is not certain whether any future regulations will impose restrictions on the business that we are currently engaging in China. As of the date of this prospectus, we have not received any notice from any authorities identifying us as a CIIO, DPO or requiring us to undertake a cybersecurity review or an outbound data transfer review by the CAC.
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We conduct our business primarily through our PRC subsidiaries and the VIE, and such operations in China are governed by PRC laws and regulations. Uncertainties regarding the enforcement of laws and the fact that rules and regulations in China can change quickly with little advance notice, along with the risk that the Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers could result in a material change in our operations, financial performance and/or the value of our ordinary shares or impair our ability to raise money.
The required filing with China Securities Regulatory Commission (“CSRC”) in connection with this offering under New Overseas Listing Rules published was completed on April 2, 2024, but we cannot assure you that we will not be subject to additional requirements from the CSRC or other PRC regulatory agencies for offering, and we may face sanctions by the CSRC or other PRC regulatory agencies for failure to timely satisfy any such additional requirements.
On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “New Overseas Listing Rules”) with five interpretive guidelines, which came into effect on March 31, 2023. The New Overseas Listing Rules require Chinese domestic enterprises to complete filings with relevant governmental authorities and report related information under certain circumstances, such as: a) an issuer making an application for initial public offering and listing in an overseas market; b) an issuer making a subsequent overseas securities offering after having been listed on an overseas market; c) a domestic company seeking an overseas direct or indirect listing of its assets through single or multiple acquisition(s), share swap, transfer of shares or other means.
According to the Notice on Arrangements for Overseas Securities Offering and Listing by Domestic Enterprises, published by the CSRC on February 17, 2023, a company that (i) has already completed overseas listing or (ii) has already obtained the approval for the offering or listing from overseas securities regulators or exchanges but has not completed such offering or listing before effective date of the new rules and also completes the offering or listing before September 30, 2023 will be considered as an existing listed company and is not required to make any filing until it conducts a new offering in the future. For the company that has already submitted offering and listing applications but not yet obtained the approvals from overseas securities regulators or exchanges shall choose to make its filing with the CSRC at a reasonable time but before the completion of the offering/listing. For the company that has already obtained CSRC approval for overseas listing or offering can continue its process during the valid term of the CSRC approval without additional filing and it shall make the filing pursuant to the new rules if it does not complete the offering or listing before the expiration of the original approval from CSRC.
On February 24, 2023, the CSRC, MOF, National Administration of State Secrets Protection and National Archives Administration of China jointly issued the Provisions on Strengthening the Confidentiality and Archive Management Work Relating to the Overseas Securities Offering and Listing, or the Confidentiality Provisions, which came into effect on March 31, 2023 with the New Overseas Listing Rules. The Confidentiality Provisions require that, among other things, (a) a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations.
Any overseas offering and listing made by an issuer that meets both the following conditions will be determined as indirect offering and listing in overseas market and, therefore, be subject to filing requirement: (i) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by domestic companies; and (ii) the main parts of the issuer’s business activities are conducted in the Mainland China, or its main places of business are located in the Mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in the Mainland China. The determination as to whether or not an overseas offering and listing by domestic companies is indirect, shall be made on substance over form basis. As of the date of this prospectus, we meet the conditions that will be determined as indirect offering and listing in overseas market and, based on AllBright’s advice, we are subject to filing requirement pursuant to the New Overseas Listing Rules, and, this offering and our listing on Nasdaq are therefore contingent on the completion of the filing procedures with the CSRC prior to our listing on Nasdaq. As we are required to file with the CSRC before the completion of this offering, if we cannot complete the filing with the CSRC in compliance with the New Overseas Listing Rules prior to our listing on Nasdaq, the CSRC may order rectification, issue warnings, and impose a fine between RMB1 million and RMB10 million on our PRC Subsidiaries. On April 2, 2024, the CSRC informed us that we have completed the CSRC filing in compliance with the New Overseas Listing Rules. However, as the New Overseas Listing Rules are newly issued, there remains uncertainty as to how it will be interpreted or implemented, and we may be required to obtain approval from any other PRC governmental authorities, which could adversely and materially affect our business operations and financial outlook, and 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 such shares to become worthless.
If we become subject to additional scrutiny, criticism and negative publicity involving U.S.-listed China-based companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, this offering and our reputation and could result in a loss of your investment in our Ordinary Shares, especially if such matter cannot be addressed and resolved favorably.
Recently, U.S. public companies that have substantial operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in some cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S.-listed China-based companies has decreased in value and, in some cases, has become virtually worthless. Some of these companies have been subject to shareholder lawsuits and SEC enforcement actions and have conducted 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 this offering. 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 may be a major distraction to our management. If such allegations are not proven to be groundless, our business operations will be severely hindered and your investment in our Ordinary Shares could be rendered worthless.
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The Chinese legal system embodies uncertainties which could negatively affect our listing on Nasdaq and limit the legal protections available to you and us.
The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value.
In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation since then has significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of China. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection Webus enjoys. These uncertainties may affect Webus’ judgment on the relevance of legal requirements and Webus’ ability to enforce its contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from Webus.
Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have a retroactive effect. As a result, we may not be aware of its violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.
New laws and regulations may be enacted from time to time and substantial uncertainties exist regarding the interpretation and implementation of current and any future PRC laws and regulations applicable to businesses of Webus and the VIE and its subsidiary. In particular, the PRC government may continue to promulgate new laws, regulations, rules and guidelines governing new economy companies with respect to a wide range of issues, such as intellectual property, unfair competition and antitrust, privacy and data protection, and other matters. Compliance with these laws, regulations, rules, guidelines, and implementations may be costly, and any incompliance or associated inquiries, investigations, and other governmental actions may divert significant management time and attention and our financial resources, bring negative publicity, subject us to liabilities or administrative penalties, or materially and adversely affect our business, financial condition, results of operations and the value of our ordinary shares.
Risks Related to Our Ordinary Shares and This Offering
There has been no previous public market for our shares prior to this offering, and if an active trading market does not develop you may not be able to resell our shares at or above the price you paid, or at all.
Prior to this public offering, there has been no public market for our Ordinary Shares. We have applied to have our Ordinary Shares listed on NASDAQ. If an active trading market for our Ordinary Shares does not develop after this offering, the market price and liquidity of our Ordinary Shares will be materially adversely affected. The public offering price for our Ordinary Shares will be determined by negotiations between us and the underwriter and may bear little or no relationship to the market price for our Ordinary Shares after the public offering. You may not be able to sell any Ordinary Shares that you purchase in the offering at or above the public offering price. Accordingly, investors should be prepared to face a complete loss of their investment.
Our Ordinary Shares may be thinly traded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
Assuming our Ordinary Shares begin trading on NASDAQ, our Ordinary Shares may be “thinly-traded,” meaning that the number of persons interested in purchasing our Ordinary Shares at or near bid prices at any given time may be relatively small or non-existent. This situation may be attributable to a number of factors, including the fact that we are relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. A broad or active public trading market for our Ordinary Shares may not develop or be sustained.
If we fail to meet applicable listing requirements, Nasdaq may delist our Ordinary Shares from trading, in which case the liquidity and market price of our Ordinary Shares could decline.
Assuming our Ordinary Shares are listed on Nasdaq, we cannot assure you that we will be able to meet the continued listing standards of Nasdaq in the future. If we fail to comply with the applicable listing standards and Nasdaq delists our Ordinary Shares, we and our Shareholders could face significant material adverse consequences, including:
| ● | a limited availability of market quotations for our Ordinary Shares; |
| ● | reduced liquidity for our Ordinary Shares; |
| ● | a determination that our Ordinary Shares are “penny stock”, which would 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; |
| ● | a limited amount of news about us and analyst coverage of us; and; |
| ● | a decreased ability for us to issue additional equity securities or obtain additional equity or debt financing in the future. |
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The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or pre-empts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because we expect that our Ordinary Shares will be listed on Nasdaq, such securities will be covered securities. Although the states are pre-empted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer listed on Nasdaq, our securities would not be covered securities and we would be subject to regulations in each state in which we offer our securities.
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 public offering price.
Recently, there have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public offerings, especially among companies with relatively smaller public floats. The public offering price for our Ordinary Shares will be determined through negotiations between the underwriters and us and may vary from the market price of our Ordinary Shares following our public offering. If you purchase our Ordinary Shares in our public offering, you may not be able to resell those shares at or above the public offering price. We cannot assure you that the public offering price of our Ordinary Shares, or the market price following our public offering, will equal or exceed prices in privately negotiated transactions of our shares that have occurred from time to time prior to our public offering. 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 services or features, technical innovations, acquisitions, strategic relationships, 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. |
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, stockholders have filed securities class action litigation following periods of market volatility. In the event that 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.
We may experience extreme stock price volatility, including any stock-run up, unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Ordinary Shares.
In addition to the risks addressed above, our Ordinary Shares may be subject to extreme volatility that is seemingly unrelated to the underlying performance of our business. In particular, our Ordinary Shares may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices, given that we will have relatively small public floats after this offering. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance, financial condition or prospects.
Holders of our Ordinary Shares may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our Ordinary Shares. As a result of this volatility, investors may experience losses on their investment in our Ordinary Shares. Furthermore, the potential extreme volatility may confuse the public investors of the value of our stock, distort the market perception of our stock price and our company’s financial performance and public image, negatively affect the long-term liquidity of our Ordinary Shares, regardless of our actual or expected operating performance. If we encounter such volatility, including any rapid stock price increases and declines seemingly unrelated to our actual or expected operating performance and financial condition or prospects, it will likely make it difficult and confusing for prospective investors to assess the rapidly changing value of our Ordinary Shares and understand the value thereof.
Volatility in our Ordinary Shares price may subject us to securities litigation.
The market for our Ordinary Shares may have, when compared to seasoned issuers, significant price volatility and we expect that our share price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.
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We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could harm our business.
In order to raise sufficient funds to enhance operations, we may have to issue additional securities at prices which may result in substantial dilution to our shareholders.
If we raise additional funds through the sale of equity or convertible debt, our current shareholders’ percentage ownership will be reduced. In addition, these transactions may dilute the value of Ordinary Shares issued and outstanding. We may have to issue securities that may have rights, preferences and privileges senior to our Ordinary Shares. We cannot provide assurance that we will be able to raise additional funds on terms acceptable to us, if at all. If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would have a material adverse effect on our business plans, prospects, results of operations and financial condition.
We are not likely to pay cash dividends in the foreseeable future.
We currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate. Should we determine to pay dividends in the future, our ability to do so will depend upon the receipt of dividends or other payments from our subsidiaries. Our subsidiaries may, from time to time, be subject to restrictions on their ability to make distributions to us, including restrictions on the conversion of RMB into US dollars or other hard currency and other regulatory restrictions.
You may face difficulties in protecting your interests as a shareholder, as Cayman Islands law provides substantially less protection when compared to the laws of the United States and it may be difficult for a shareholder of ours to effect service of process or to enforce judgements obtained in the United States courts.
Our corporate affairs are governed by our A&R memorandum and articles of association and by the Cayman Islands Companies Act (Revised) as may be supplemented or amended from time to time (“Companies Act”) and common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law. Decisions of the Privy Council (which is the final court of appeal for British Overseas Territories such as the Cayman Islands) are binding on a court in the Cayman Islands. Decisions of the English courts, and particularly the Supreme Court of the United Kingdom and the Court of Appeal are generally of persuasive authority but are not binding on the courts of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States, and provide significantly less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the United States federal courts. The Cayman Islands courts are also unlikely to impose liabilities against us in original actions brought in the Cayman Islands, based on certain civil liability provisions of United States securities laws.
Currently, a significant portion of our operations are conducted outside the United States, and a significant portion of our assets are also located outside the United States. All of our directors and officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States or any state in the United States.
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Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (other than the memorandum and articles of association and any special resolutions passed by such companies, and the register of mortgages and charges of such companies) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our A&R memorandum and articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
As a result of all of the above, our shareholders may have more difficulty in protecting their interests through actions against us or our officers, directors or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.
We are a foreign private issuer within the meaning of the rules under the Exchange Act. As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:
| · | we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company; |
| · | for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies; |
| · | we are not required to provide the same level of disclosure on certain issues, such as executive compensation; |
| · | we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; |
| · | we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and |
| · | we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction. |
We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to file reports on Form 6-K as a foreign private issuer. 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.
We are an “emerging growth company” within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
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As an “emerging growth company” under applicable law, we will be subject to reduced disclosure requirements. Such reduced disclosure may make our Ordinary Shares less attractive to investors.
For as long as we remain an “emerging growth company”, as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies. If some investors find our Ordinary Shares less attractive as a result, there may be a less active trading market for our Ordinary Shares and our share price may be more volatile.
We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.”
Upon consummation of this offering, we will incur significant legal, accounting and other expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and NASDAQ Capital Market, impose various requirements on the corporate governance practices of public companies. We are an “emerging growth company,” as defined in the JOBS Act and will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. 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 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.
Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company,” or until five years following the completion of our initial public offering, whichever is earlier, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we will be required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We will incur additional costs in obtaining director and officer liability insurance. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.
Four members of our management team will have substantial influence over our Company and their interests may not be aligned with the interests of our other shareholders.
Zheng Nan, our Chief Executive Officer and executive director of the board and Zheng Jiahua, our Chairman, currently own approximately 81.50% of our issued and outstanding Ordinary Shares and will beneficially own approximately 74.09% of our issued and outstanding Ordinary Shares upon completion of our initial public offering, assuming the underwriter does not exercise its over-allotment option. As a result of their significant shareholding, Zheng Nan and Zheng Jiahua have, and will continue to have, substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. They may take actions that are not in the best interests of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our Company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the market price of our Ordinary Shares. These actions may be taken even if they are opposed by our other shareholders. For more information regarding our principal shareholders and their affiliated entities, see “Principal Shareholders.”
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Following this offering, we may be a “controlled company” within the meaning of the NASDAQ Stock Market Rules and, as a result, may rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
We do not believe we are a “controlled company” as defined under the NASDAQ Stock Market Rules. However, in the event that four of our principal shareholders, Zheng Jiahua and Zheng Nan who will beneficially own more than 50% of our issued and outstanding Ordinary Shares following this offering, decide to act as a group, we may be deemed to be a “controlled company”. For so long as we are a controlled company under that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules, including:
| · | an exemption from the rule that a majority of our board of directors must be independent directors; an exemption from the rule that the compensation of our chief executive officer must be determined or recommended solely by independent directors; and |
| · | an exemption from the rule that our director nominees must be selected or recommended solely by independent directors. |
As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
If a limited number of participants in this offering purchase a significant percentage of the offering, the effective public float may be smaller than anticipated and the price of our Ordinary Shares may be volatile, which could subject us to securities litigation and make it more difficult for you to sell your shares.
As a Company conducting a relatively small public offering, we are subject to the risk that a small number of investors will purchase a high percentage of the offering. While the underwriter is required to sell shares in this offering to at least 300 round lot shareholders (a round lot shareholder is a shareholder who purchases at least 100 shares) and at least 50% the minimum required number of round lot holders must each hold unrestricted shares with a minimum market value of $2,500 in order to ensure that we meet the Nasdaq initial listing standards, we have not otherwise imposed any obligations on the underwriter as to the maximum number of shares they may place with individual investors. If, in the course of marketing the offering, the underwrites was to determine that demand for our shares was concentrated in a limited number of investors and such investors determined to hold their shares after the offering rather than trade them in the market, other shareholders could find the trading and price of our shares affected (positively or negatively) by the limited availability of our shares. If this were to happen, investors could find our shares to be more volatile than they might otherwise anticipate. Companies that experience such volatility in their stock price may be more likely to be the subject of securities litigation. In addition, if a large portion of our public float were to be held by a few investors, smaller investors may find it more difficult to sell their shares.
Cayman Islands economic substance requirements may have an effect on our business and operations.
The International Tax Co-operation (Economic Substance) Act (Revised) (the “Economic Substance Act”) came into force in the Cayman Islands in January 2019, introducing certain economic substance and related reporting requirements for in-scope Cayman Islands entities which are engaged in certain geographically mobile business activities ( “relevant activities”). As the Company is a Cayman Islands exempted company, its compliance obligations under the Economic Substance Act include filing annual notifications (and, if required, returns) with the Cayman Islands Tax Information Authority, in which the Company needs to report, among other things, whether or not it has carried out any relevant activities and, if so, whether or not it has satisfied the applicable economic substance test (as set out under the Economic Substance Act) in relation to such relevant activities (“ES Test”). It is anticipated that the Company will not be engaging in any relevant activities and will therefore not be required to meet the ES Test; or will otherwise only be engaged in a relevant activity in its capacity as a pure equity holding company such that it will be subject to a reduced ES Test under and in accordance with the Economic Substance Act. However, the Economic Substance Act has been subject to certain amendments since its commencement and, as it reflects a relatively new regime, it is anticipated that the Economic Substance Act may continue to evolve over time and may be subject to further amendments. Failure to satisfy applicable requirements as set out in the Economic Substance Act may subject the Company to enforcement action (including administrative penalties) under the Economic Substance Act.
If securities or industry analysts do not publish research or reports about our business, or if the publish a negative report regarding our Ordinary Shares, the price of our Ordinary Shares and trading volume could decline.
The trading market for our Ordinary Shares may depend in part on the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade us, the price of our Ordinary Shares would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of our Ordinary Shares and the trading volume to decline.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” 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:
| · | our goals and strategies; |
| · | our future business development, financial conditions and results of operations; |
| · | fluctuations in interest rates; |
| · | our expectations regarding demand for and market acceptance of our products and services; |
| · | projections of revenue, earnings, capital structure and other financial items; |
| · | competition in our industry; and |
| · | relevant government policies and regulations relating to our industry. |
| · | general economic and business conditions in the markets in which we operate |
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. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Regulation” and other sections in this prospectus. You should thoroughly read this prospectus and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.
This prospectus 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. Our 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 our Ordinary Shares. In addition, the rapidly changing nature of the collective mobility service 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 prospectus relate only to events or information as of the date on which the statements are made in this prospectus. 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 prospectus and the documents that we refer to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.
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We estimate that we will receive net proceeds from this offering of approximately $5.73 million, after deducting estimated underwriting discounts and commissions and the estimated offering expenses payable by us based upon an assumed initial offering price of $4.00 per ordinary share, which is the lower end of the range set forth on the cover page of this prospectus, assuming the underwriter does not exercise its over-allotment option. A $1.00 increase (decrease) in the assumed initial public offering price of $4.00 per share would increase (decrease) the net proceeds to us from this offering by approximately $1.84 million, after deducting the estimated underwriting discounts and commissions and estimated aggregate offering expenses payable by us and assuming no change to the number of Ordinary Shares offered by us as set forth on the cover page of this prospectus, provided, however, that in no case would we decrease the initial public offering price to less than $4.00 per share.
We plan to use:
Approximately $3.0 million of the proceeds to set up our new subsidiary or representative office in the United States to enhance sales and service support for our customers, initiate future expansion in marketing and internet sales of self-branded products and acquire more talents. Specifically, we will use $1.5 million of the proceeds to create and maintain service teams in top tourist destinations responsible for customer service, brand promotion, and managing local partners while expanding our service scope to include high-end customized products. To promote our brand and services, we intend to spend $1.5 million on advertisements on popular social media platforms.
Approximately $2.0 million of the proceeds will be used for the working capital of our China operations, including but not limited to sale and marketing expenses, and research and development expenses. We plan to spend $0.75 million on promoting our brand and services online, including increasing social media promotions on prominent platforms, working with various key opinion leaders and key opinion consumers, and creating a live streaming team. Another $0.75 million will be used to establish new stores and recruit research personnel to enhance our customer experience and improve our operating ecosystem through big data and AI-driven technologies. Additionally, we will work with more corporate clients and diversify our service partners to build strategic alliances and meet the client’s needs, of which the estimated cost is $0.5 million.
The remaining amount of the proceeds of this offering will be applied for general corporate and working capital purposes. Pending use of the net proceeds as discussed above, we intend to hold our net proceeds in short-term, interest-bearing, financial instruments or demand deposits.
All of the remaining of the proceeds will be immediately remitted to China following the completion of this offering to increase the registered capital of our PRC subsidiaries in China; provided, however, that in using the proceeds of this offering, we are permitted under PRC laws and regulations as an offshore holding company to provide funding to our wholly foreign-owned subsidiary in China only through loans or capital contributions, subject to the filing or approval of government authorities and limits on the amount of capital contributions and loans. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our WFOE in China or make additional capital contributions to our WFOE to fund its capital expenditures or working capital. For an increase of registered capital of our WFOE, we need to file such change of registered capital with the MOFCOM or its local counterparts. If we provide funding to our WFOE through loans, the total amount of such loans may not exceed the difference between the entity’s total investment as approved by the foreign investment authorities and its registered capital. Such loans must be registered with SAFE or its local branches. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. See “Risk Factors—Risks Related to Doing Business in China— We must remit the offering proceeds to China before they may be used to benefit our business in China, the process of which may be time-consuming, and we cannot assure that we can finish all necessary governmental registration processes in a timely manner, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”
The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. See “Risk Factors—Risks Related to Our Ordinary Shares and This Offering—We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.”
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We currently have no plans to declare or pay any dividends in the near future on our Ordinary Shares. We are an exempted company incorporated in the Cayman Islands. We may rely on the dividends and other distributions to be paid by the WFOE to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. Our subsidiaries are subject to the laws and regulations applicable to them and their articles of association in declaring and paying dividends to us. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See “Risk Factors - Risks Related to Our Business - We may rely on dividends to be paid by the WFOE to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, if needed in the future. Any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.” We currently are subject to restrictions on our ability to pay dividends. Were we able to declare dividends, such dividends could only be paid by us out of our distributable profits (that is, our accumulated realized profits less our accumulated realized losses) or other distributable reserves, as permitted under Cayman Islands law. Dividends cannot be paid out of our share capital. To the extent profits are distributed as dividends, such portion of profits will not be available to be reinvested in our operations. See “Description of Share Capital.” Dividends must be paid in accordance with the procedures and requirements specified in our Articles of Association. When recommending dividends, our directors must act in the general interest of all classes of shareholders and must not favor any one class at the expense of another in accordance with Cayman Islands law. The payment and the amount, form and frequency of any future dividends will depend on our results of operations, cash flows, financial condition, statutory, regulatory and contractual restrictions on the payment of dividends by us, future prospects and other factors that our directors may consider relevant. Our board of directors has discretion as to whether to distribute dividends and determine new dividend policies, subject to certain requirements of Cayman Islands law. Holders of our Ordinary Shares will be entitled to receive dividends pro rata according to the amounts of the Ordinary Shares they own.
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The following table sets forth our capitalization as of June 30, 2024:
· on an actual basis;
· on an adjusted basis to reflect the sale of 2,000,000 Ordinary Shares in this offering, at an assumed initial public offering price of $4.00 per share, which is the lower end of the range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
The adjustments reflected below are subject to change and are based upon available information and certain assumptions that we believe are reasonable. Total shareholders’ equity and total capitalization following the completion of this offering are subject to adjustment based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
| As of June 30, 2024 | ||||||||||||||||||||||||
| Actual | Pro Forma as adjusted not exercised)(1) | Pro Forma as adjusted exercised in full) (2) | ||||||||||||||||||||||
| RMB | $ | RMB | $ | RMB | $ | |||||||||||||||||||
| Long-term borrowings | 2,200,000 | 302,730 | 2,200,000 | 302,730 | 2,200,000 | 302,730 | ||||||||||||||||||
| Shareholders' equity | ||||||||||||||||||||||||
| Ordinary Shares ($0.0001 par value, 500,000,000 Ordinary Shares authorized, 20,000,000 Ordinary Shares issued and outstanding on an actual basis) (3) | 12,720 | 1,750 | 14,173 | 1,950 | 14,391 | 1,980 | ||||||||||||||||||
| Additional paid-in capital | 65,063,327 | 8,953,012 | 106,698,628 | 14,682,220 | 114,721,399 | 15,786,190 | ||||||||||||||||||
| Share subscription receivable | (12,720 | ) | (1,750 | ) | (12,720 | ) | (1,750 | ) | (12,720 | ) | (1,750 | ) | ||||||||||||
| Accumulated deficit | (37,278,750 | ) | (5,129,727 | ) | (37,278,750 | ) | (5,129,727 | ) | (37,278,750 | ) | (5,129,727 | ) | ||||||||||||
| Accumulated other comprehensive income | 23,160 | 3,187 | 23,160 | 3,187 | 23,160 | 3,187 | ||||||||||||||||||
| Total Shareholders’ Equity | 27,807,737 | 3,826,472 | 69,444,491 | 9,555,880 | 77,467,480 | 10,659,880 | ||||||||||||||||||
| Total Capitalization | 30,007,737 | 4,129,202 | 71,644,491 | 9,858,610 | 79,667,480 | 10,962,610 | ||||||||||||||||||
| (1) | In the event that the Underwriter’s over-allotment option is not exercised, pro forma as-adjusted total ordinary shares outstanding would be 22,000,000 shares, pro forma as-adjusted additional paid-in capital would be $14,682,220, and pro forma as-adjusted total equity would be $9,555,880, reflecting the sum of net proceeds in the amount of $5,729,408 and the actual equity of $3,826,472. |
| (2) | In the event that the Underwriter’s over-allotment option is exercised in full, pro forma as-adjusted total ordinary shares outstanding would be 22,300,000 shares, pro forma as-adjusted additional paid-in capital would be $15,786,190, and pro forma as- adjusted total equity would be $10,659,880, reflecting the sum of net proceeds in the amount of $6,833,408 and the actual equity of $3,826,472. |
| (3) | The shares and per share data are presented on a retroactive basis to reflect the recapitalization. |
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If you invest in our Ordinary Shares, you will incur immediate dilution since the public offering price per share you will pay in this offering is more than the net tangible book value per ordinary share immediately after this offering.
The net tangible book value of our Ordinary Shares as of June 30, 2024 was approximately $3.05 million, or $0.15 per share based upon 20,000,000 Ordinary Shares issued and outstanding. Net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities, divided by the total number of Ordinary Shares issued and outstanding. Tangible assets equal our total assets less deferred offering costs and right-of-use assets.
The dilution in net tangible book value per share to new investors, represents the difference between the amount per share paid by purchasers of shares in this offering and the pro forma net tangible book value per share immediately after completion of this offering. After giving effect to the sale of the 2,000,000 shares (or 2,300,000 ordinary shares if the underwriter’s over-allotment option is exercised in full) being sold pursuant to this offering at an assumed initial public offering price of $4.00 per share and after deducting underwriting discounts and commissions and expenses payable by us in the amount of $0.64 million, and estimated other offering expenses in the amount of approximately $1.63 million, including approximately $0.74 million deferred offering costs which had already paid as of June 30, 2024 , our pro forma net tangible book value would be approximately $9.51 million or $0.43 per share of Ordinary Shares (approximately $10.62 million or $0.48 per share of Ordinary Shares if the underwriter’s over-allotment option is exercised in full). This represents an immediate increase in net tangible book value of $0.28 per share to existing shareholders (or $0.33 per share if the underwriter’s over-allotment option is exercised in full) and an immediate dilution of $3.57 per share to new investors purchasing the shares in this offering (or $3.52 per share if the underwriter’s over-allotment option is exercised in full).
The following tables illustrate calculations on the pro forma net tangible book value per ordinary share:
Pro Forma as adjusted not exercised) | Pro Forma as adjusted exercised in full) | |||||||
| Original net tangible book value | $ | 3,047,975 | $ | 3,047,975 | ||||
| Add: Total proceeds to be received from IPO | 8,000,000 | 9,200,000 | ||||||
| Less: Underwriter's discount (7%) | (560,000 | ) | (644,000 | ) | ||||
| Underwriter's non-accountable expenses (1%) | (80,000 | ) | (92,000 | ) | ||||
| Other expenses related to IPO* | (1,630,592 | ) | (1,630,592 | ) | ||||
| Add: Deferred offering cost | 736,207 | 736,207 | ||||||
| Net tangible book value | $ | 9,513,590 | $ | 10,617,590 | ||||
| Ordinary shares | 22,000,000 | 22,300,000 | ||||||
| Net tangible book value per ordinary share | $ | 0.43 | $ | 0.48 | ||||
*Other expenses related to IPO included the deferred offering costs of $0.73 million that had already been paid as of June 30, 2024.
The following table illustrates this per share dilution:
No Exercise Allotment | Full Allotment | |||||||
| Initial public offering price per Ordinary Share | $ | 4.00 | $ | 4.00 | ||||
| Net tangible book value per Ordinary Share as of June 30, 2024 | $ | 0.15 | $ | 0.15 | ||||
| Increase in pro forma as adjusted net tangible book value per Ordinary Share attributable to new investors purchasing ordinary shares in this offering | $ | 0.28 | $ | 0.33 | ||||
| Pro forma net tangible book value per Ordinary Share immediately after this offering | $ | 0.43 | $ | 0.48 | ||||
| Amount of dilution in net tangible book value per Ordinary Share to new investors in the offering | $ | 3.57 | $ | 3.52 | ||||
The following charts illustrate our pro forma proportionate ownership, upon completion of this Offering by present shareholders and investors in this Offering, compared to the relative amounts paid by each. The charts reflect payment by present shareholders as of the date the consideration was received and by investors in this Offering at the offering price without deduction of commissions or expenses. The charts further assume no changes in net tangible book value other than those resulting from the offering.
No Exercise of Over-Allotment Option | Ordinary Shares Purchased | Total Consideration | Average Price per Ordinary Share | |||||||||||||||||
| Number | Percent | Amount | Percent | |||||||||||||||||
| (US$, except number of shares and percentages) | ||||||||||||||||||||
| Existing shareholders* | 20,000,000 | 91 | % | 8,954,762 | 53 | % | 0.45 | |||||||||||||
| New investors | 2,000,000 | 9 | % | 8,000,000 | 47 | % | 4.00 | |||||||||||||
| Total | 22,000,000 | 100 | % | 16,954,762 | 100 | % | 0.77 | |||||||||||||
*The shares and per share data are presented on a retroactive basis to reflect the recapitalization.
| Full Exercise of Over-Allotment Option | Ordinary Shares Purchased | Total Consideration | Average Price per Ordinary Share | |||||||||||||||||
| Number | Percent | Amount | Percent | |||||||||||||||||
| (US$, except number of shares and percentages) | ||||||||||||||||||||
| Existing shareholders* | 20,000,000 | 90 | % | 8,954,762 | 49 | % | 0.45 | |||||||||||||
| New investors | 2,300,000 | 10 | % | 9,200,000 | 51 | % | 4.00 | |||||||||||||
| Total | 22,300,000 | 100 | % | 18,154,762 | 100 | % | 0.81 | |||||||||||||
*The shares and per share data are presented on a retroactive basis to reflect the recapitalization.
The as adjusted information as discussed above is illustrative only.
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A significant portion of our business is conducted in China. Substantially all of our revenues are received and denominated in RMB. All our costs are paid and denominated in RMB and general administration costs are paid and denominated in RMB. Capital accounts of our financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the period. RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into United States dollars at the rates used in translation.
Amounts in USD are presented for the convenience of the reader and are translated at the rate of $1.00 = RMB7.2672, representing the noon buying rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board on June 28, 2024. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into USD at that rate, or at any other rate.
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ENFORCEABILITY OF CIVIL LIABILITIES
We were incorporated in the Cayman Islands in order to enjoy the following benefits:
| · | political and economic stability; |
| · | an effective judicial system; |
| · | a favorable tax system; |
| · | the absence of exchange control or currency restrictions; and |
| · | the availability of professional and support services. |
However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include, but are not limited to, the following:
The Cayman Islands has a less exhaustive body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors; and
Cayman Islands companies may not have standing to sue before the federal courts of the United States.
Our constitutional documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated. Currently, a significant portion of our operations are conducted in China, and substantially all of our assets are located in China. All of our officers are nationals or residents of jurisdictions in China and a substantial portion of their assets are located in China. As a result, it may make it more difficult for a shareholder or an investor to effect service of process within the United States upon these persons, or to enforce against us or our officers or directors with the judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States or any state in the United States.
We have appointed Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, NY 10168, as our agent to receive service of process with respect to any action brought against us in the United States in connection with this offering under the federal securities laws of the United States or of any State in the United States. Cogency Global Inc.’s phone number is (212) 947-7200.
Ogier (Cayman) LLP (“Ogier”), our counsel as to Cayman Islands law and Allbright Law Offices, our counsel as to PRC law, have advised us, respectively, that there is uncertainty as to whether the courts of the Cayman Islands and China, respectively, would:
| · | recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or |
| · | in original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the civil liability provisions of the federal securities laws of the United States or any state in the United States so far as the liabilities imposed by those provisions are penal in nature. |
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Cayman Islands
Ogier, our Cayman counsel, has informed us that it is uncertain whether the courts of the Cayman Islands will allow shareholders of our company to originate actions in the Cayman Islands based upon securities laws of the United States. In addition, there is uncertainty with regard to Cayman Islands law related to whether a judgment obtained from the U.S. courts under civil liability provisions of U.S. securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands company, such as our company. As the courts of the Cayman Islands have yet to rule on making such a determination in relation to judgments obtained from U.S. courts under civil liability provisions of U.S. securities laws, it is uncertain whether such judgments would be enforceable in the Cayman Islands. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive, given by a court of competent jurisdiction (the courts of the Cayman Islands will apply the rules of Cayman Islands private international law to determine whether the foreign court is a court of competent jurisdiction), and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
PRC
Allbright Law Offices, our counsel as to PRC law, has advised us that the recognition and enforcement of foreign judgments are subject to compliance with the PRC Civil Procedures Law and relevant civil procedure requirements in the PRC. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands.
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Corporate History and Structure
Corporate History
We were incorporated in the Cayman Islands on February 10, 2022. Youbus International Limited (“Youbus International”), our wholly-owned subsidiary, was incorporated in the British Virgin Islands on February 16, 2022. Webus Hongkong Limited (“Webus HK”), wholly-owned subsidiary of Youbus International, was incorporated in Hong Kong on February 22, 2022. Zhejiang Xinjieni Technology Co., Ltd. (“WFOE”), Webus HK’s wholly owned subsidiary, was organized pursuant to PRC laws on August 31, 2022. Our variable interest entity, Zhejiang Youba Technology Co., Ltd., which we refer to as Youba Tech, was established on August 16, 2019 in Hangzhou, Zhejiang Province pursuant to PRC laws. Webus Travel Agency Co., Ltd., wholly-owned subsidiary of Youba Tech, was established on August 27, 2020 in Hangzhou, Zhejiang Province pursuant to PRC laws. Webus expanded its operations to United States in March 2022 through Wetour Travel Tech LLC (“Wetour”), a limited liability company established in Delaware pursuant to Delaware laws.
On September 7, 2022, the Company consummated a reorganization pursuant to which, WFOE acquired 50% equity interests in Youba Tech and entered into a series of contractual arrangements for 50% VIE Interests with Youba Tech, as well as Individual Registered Shareholders. Such agreements are described under “Corporate History and Structure — Contractual Arrangements with the VIE and Individual Registered Shareholders”. Webus is a holding company with no business operation other than holding the shares in Youbus International and Youbus International is a pass-through entity with no business operation. WFOE is engaged in the business of managing the operation of Youba Tech and Webus Travel Agency.
As of the date of this prospectus, we conduct our business operations by the VIE and its subsidiary which consist of Youba Tech and its subsidiary Webus Travel Agency in China and our wholly owned subsidiary Wetour in United States.
Controlled Subsidiaries
| Controlled Subsidiaries |
Equity
interest directly or indirectly held by our company |
Place
of Incorporation |
Date
of Incorporation | |||
| Zhejiang Xinjieni Technology Co., Ltd. (“WFOE”) | Webus HK holds 100% equity interest | PRC | August 31, 2022 | |||
Wetour Travel Tech LLC (“Wetour”) |
Webus holds 100% equity interest | Delaware, U.S.A | March 16, 2022 |
The VIE and its subsidiary
| The
VIE and its Subsidiary |
Equity
interest directly or indirectly held by our company |
Equity
interest not directly or indirectly held by our company |
Place
of Incorporation |
Date
of Incorporation | ||||
| Zhejiang Youba Technology Co., Ltd. (“Youba Tech”) | WFOE holds 50% equity interest | Mr. Zheng Jiahua and Mr. Wu Chunyun holds 45.56% and 4.44% respectively | People’s Republic of China | August 16, 2019 | ||||
Hangzhou Webus Travel Agency Co., Ltd. ("Webus Travel Agency”) |
WFOE indirectly holds 50% equity interest | Mr. Zheng Jiahua and Mr. Wu Chunyun indirectly holds 45.56% and 4.44% respectively | People’s Republic of China | August 27, 2020 |
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Corporate Structure
The following diagram illustrates our corporate structure, including our subsidiaries, the VIE and its subsidiary as of the date of this prospectus:
Contractual Arrangements with the VIE and Individual Registered Shareholders
Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunication business. We are a company registered in the Cayman Islands. Our PRC subsidiary, Xinjieni Tech, is considered a foreign-invested enterprise. To comply with PRC laws and regulations, the VIE primarily conduct business in China through the VIE and its subsidiary, based on a series of Contractual Arrangements. As a result of these Contractual Arrangements, we exert control over, and are deemed as the primary beneficiary of the VIE and its subsidiary and consolidate their operating results in our financial statements subject to the conditions that we have satisfied for consolidation of the VIE and its subsidiary under U.S. GAAP. Such conditions include that (i) we control the VIE through power to govern the activities which most significantly impact the VIE’s economic performance, (ii) we are contractually obligated to absorb losses of the VIE that could potentially be significant to the VIE, and (iii) we are entitled to receive benefits from the VIE that could potentially be significant to the VIE.
The following is a summary of the Contractual Arrangements by and among WFOE, the VIE, and Individual Registered Shareholders. These Contractual Arrangements enable us to (i) exercise control over the VIE, (ii) receive substantially all of the economic benefits of the VIE, and (iii) have an exclusive option to purchase all or part of the equity interests in the VIE held by the VIE’s shareholders other than WFOE when and to the extent permitted by PRC law. Our control over the VIE and its subsidiary and our position of being the primary beneficiary of the VIE and its subsidiary for the accounting purpose are limited to the aforementioned conditions that we met for consolidation of the VIE and its subsidiary under U.S. GAAP.
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• Exclusive Business Cooperation Agreement
Pursuant to the Exclusive Business Cooperation Agreement, the VIE is obliged to pay service fee to WFOE for the exclusive services such as technical services, Internet technology support, business consulting, software development, information consulting, marketing consulting, product development and system maintenance. The service fee shall consist of 100% of the profit before tax of the VIE, after the deduction of all costs, expenses, taxes and other fee required under PRC laws and regulations. The VIE agrees not to accept the same or any similar services provided by any third party and shall not establish cooperation relationships similar to that formed by the Exclusive Business Cooperation Agreement with any third party, except with the prior written consent of WFOE. The VIE has unconditionally and irrevocably authorized WFOE or its designated person as its agent to (i) sign any necessary documents with third parties (including but not limited to customers and suppliers) on behalf of the VIE; and (ii) to handle all necessary documents and matters which will enable WFOE to exercise all or part of its rights under the Exclusive Business Cooperation Agreement on behalf of the VIE. WFOE shall have exclusive proprietary rights to and interests in any and all intellectual property rights developed or created by itself and the VIE. The Exclusive Business Cooperation Agreement shall remain effective unless terminated (i) in accordance with the provisions of the Exclusive Business Cooperation Agreement; or (ii) the entire equity interests held by Individual Registered Shareholders in the VIE have been transferred to WFOE or its designated person.
• Exclusive Call Option Agreement
Pursuant to the Exclusive Call Option Agreement, the Individual Registered Shareholders have unconditionally and irrevocably granted WFOE or its designated purchaser the right to purchase all or part of their equity interests in the VIE (“Equity Call Option”). The purchase price payable by WFOE in respect of the transfer of equity interests upon exercise of the Equity Call Option shall be the higher of (a) the lowest price permitted under PRC laws and regulations or (b) the capital contribution in relation to the equity interests. If appraisal is required by the PRC laws and regulations at the time when WFOE exercises the Option, WFOE and the Individual Registered Shareholders shall make necessary adjustment to purchase price so that it complies with any and all then applicable PRC laws and regulations. WFOE or its designated purchaser shall have the right to purchase such proportion of equity interests in the VIE as it decides at any time. The Individual Registered Shareholders shall return any amount of purchase price they received in the event that WFOE acquires the equity interests in the VIE.
The Individual Registered Shareholders and the VIE have jointly and severally further undertaken to WFOE that, without the prior written consent of WFOE, they shall not (i) in any manner supplement, change or amend the constitutional documents of the VIE, increase or decrease its share capital, or change the structure of its registered capital in other manner; (ii) sell, pledge, transfer or otherwise dispose of any assets, business or lawful revenue or create encumbrance over the VIE; (iii) incur, inherit, guarantee or assume any debt, except for debts incurred in the ordinary course of business other than payables incurred by a loan and for debts disclosed to and agreed in writing by WFOE; (iv) cause the VIE to execute any material contract with a value above RMB100,000, except the contracts executed in the ordinary course of business; (v) cause the VIE to provide any person with any loan, credit or guarantee; (vi) cause or permit the VIE to merge, consolidate with, acquire or invest in any person, or sell assets of the VIE with a value above RMB100,000; (vii) cause the VIE to enter into any transaction which may have substantial impact on the assets, liabilities, business operation, shareholding structure and other legal rights of the VIE, except the contracts executed in the ordinary course of business; and (viii) in any manner distribute dividends to their shareholders, provided that upon the written request of WFOE, the VIE shall immediately distribute all distributable profits to its shareholders.
The Exclusive Call Option Agreement shall remain effective unless terminated (i) in accordance with the provisions of the Exclusive Call Option Agreement or any other supplemental agreements; or (ii) the entire equity interests held by Individual Registered Shareholders in the VIE have been transferred to WFOE or its designated person.
• Exclusive Assets Option Agreement
Pursuant to the Exclusive Assets Option Agreement, the VIE unconditionally and irrevocably granted an exclusive option to WFOE or its designated person to purchase all or any of its assets at the higher price of (a) the lowest price permitted under PRC laws and regulations or (b) the net book value of the assets. WFOE shall have absolute discretion as to when and in what manner to exercise the option to purchase assets of the VIE permitted by PRC laws and regulations. The Exclusive Assets Option Agreement shall remain effective unless terminated (i) in accordance with the provisions of the Exclusive Assets Option Agreement or any other supplemental agreements; or (ii) the entire equity interests held by the Individual Registered Shareholders in the VIE have been transferred to WFOE or its designated person.
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• Power of Attorney
Pursuant to the Power of Attorney, each of the Individual Registered Shareholders, irrevocably appoints WFOE, the authorized person or entity to exercise such shareholder’s rights in the VIE in accordance with PRC laws and the articles of the VIE, including without limitation to, the rights to (i) participate in shareholders meetings; (ii) the sale, transfer, pledge or disposition of the equity interest such shareholder holds in part or in whole; and (iii) designate and appoint, on behalf of such shareholder, the legal representative, the chairman, the executive director(s) and/or director(s), the supervisor(s), the general manger and other senior management members of the VIE. Without limiting the generality of the powers granted to WFOE, WFOE shall have the power and authority hereunder, on behalf of such shareholder, to execute the share transfer contracts stipulated in the Exclusive Call Option Agreement entered into among the VIE, WFOE and such shareholder and effect the terms of the Exclusive Call Option Agreement and Share Pledge Agreement. All the actions in connection with the equity interest held by such shareholder as conducted by WFOE shall be deemed as the actions of such shareholder, and all the documents related to the shareholding executed by WFOE shall be deemed to be executed by such shareholder.
• Share Pledge Agreement
Pursuant to the Share Pledge Agreement, each of the Individual Registered Shareholders unconditionally and irrevocably pledged and granted first priority security interests over all of his/her/its equity interests in the VIE together with all related rights thereto to WFOE as security for performance of the Contractual Arrangements and all direct, indirect or consequential damages and foreseeable loss of interest incurred by WFOE as a result of any event of default on the part of the Individual Registered Shareholders, the VIE and all expenses incurred by WFOE as a result of enforcement of the obligations of the Individual Registered Shareholders and/or the VIE under the Contractual Arrangements. Upon the occurrence and during the continuance of an event of default (as defined in the Share Pledge Agreement), WFOE shall have the right to (i) require the Individual Registered Shareholders to immediately pay any amount payable under the Contractual Arrangements; or (ii) to exercise all such rights as a secured party under any applicable PRC law and the Share Pledge Agreement, including without limitations, being paid in priority with the equity interests.
The said share pledge under the Share Pledge Agreement takes effect upon the completion of registration with the relevant administrative department of industry and commerce and shall remain valid until after all the contractual obligations of the Individual Registered Shareholders and the VIE under the relevant Contractual Arrangements have been fully performed and all the outstanding debts of the Individual Registered Shareholders and/or the VIE under the relevant Contractual Arrangements have been fully paid.
• Spousal Consent
Pursuant to each Spousal Consent, the respective spouse of the Individual Registered Shareholders has irrevocably undertaken that, including without limitation to, the spouse (i) has full knowledge of and has consented to the entering into of the Contractual Arrangements by the relevant Individual Registered Shareholder; (ii) is not entitled to any right with respect to the shares in the VIE and undertakes not to make any claims on the equity interest in the VIE; (iii) confirms that the Individual Registered Shareholders’ performance of the Contractual Arrangements and further modification or termination of the Contractual Arrangements will not require the respective spouse’s separate authorization or consent;; (iv) undertakes to execute all necessary documents and take all necessary actions to ensure the Contractual Arrangements (as amended from time to time) to be properly performed; (v) undertakes that if the respective spouse obtains any equity interest in the VIE for any reason, the respective spouse shall be bound by the Contractual Arrangements and abide by the obligations of the shareholders of the VIE under the Contractual Arrangements, and upon WFOE's or its designate third-party request, the respective spouse shall execute a series of written documents with substantially the same form and content as the Contractual Arrangements.
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In the opinion of our PRC legal counsel, Allbright Law Offices
| • | the ownership structures of the VIE and our WFOE in China, both currently and immediately after giving effect to this offering, are not in violation of applicable PRC laws and regulations currently in effect; and |
| • | the contractual arrangements among our WFOE, the VIE and its shareholders governed by PRC law are currently valid and binding in accordance with applicable PRC laws and regulations currently in effect and do not result in any violation of the applicable PRC laws or regulations currently in effect. |
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 or otherwise different from 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 the VIE are found to be in violation of any existing or future PRC laws or regulations, or 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. See “Risk Factors — Risks Related to Corporate Structure — Substantial uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of the current corporate structure, corporate governance and business operations of us and the VIE.”
Financial Significance of VIE
Under PRC law, we may provide funding to our WFOE only through capital contributions or loans, and to only through loans, subject to satisfaction of applicable government registration and approval requirements. We may rely on dividends to be paid by the WFOE to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, if needed in the future. Our WFOE enjoys the economic interest in the operations of the VIE in the form of service fees under the contractual arrangements among our WFOE, the VIE, and shareholders of the VIE. For risks relating to the fund flows of our China operations, see “Risk Factors — Risks Related to Doing Business in China — PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans to our PRC subsidiaries or VIE or to make additional capital contributions to WFOE, which could materially and adversely affect our and the VIE’s liquidity and our and the VIE’s ability to fund and expand our and the VIE’s business operations.” and “Risk Factors — Risks Related to Corporate Structure — We are a holding company and the investors will have ownership in a holding company that does not directly own all of its operation in China. We rely on our WFOE and the VIE for the operation in PRC. We may rely on dividends to be paid by the WFOE to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, if needed in the future. Any limitation on the ability of WFOE to pay dividends to us could have a material adverse effect on our ability to pay dividends to our shareholders.”
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management discussion and analysis of financial condition and results of operations contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this prospectus. We assume no obligation to update forward-looking statements or the risk factors. You should read the following discussion in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus.
Overview
We are an exempted company incorporated in the Cayman Islands. As a holding company with no material operations, our operations were conducted by (1) our wholly-owned subsidiary Wetour in the United States; (2) our direct investment in Youba Tech and its subsidiary; and (3) through VIE Agreements with Youba Tech. This is an offering of the Ordinary Shares of the exempted company incorporated in the Cayman Islands. You are not 100% investing in, the VIE, as we hold 50% equity interests in Youba Tech and 50% VIE Interests in Youba Tech through VIE agreements. VIE Interests are not considered as equity interest. Through the VIE Agreements among WFOE, Youba Tech and Individual Registered Shareholders, which have not been tested in a court of law, we are regarded as the primary beneficiary of Youba Tech for accounting purpose, and, therefore, we are able to consolidate the financial results of Youba Tech in our consolidated financial statements in accordance with U.S. GAAP. However, the VIE structure cannot completely replicate a foreign investment in China-based companies, as we only hold 50% equity interest in the VIE and its subsidiary and do not and may never hold the equity interests over 50% in the VIE and its subsidiary. Instead, the VIE structure provides contractual exposure to foreign investment in us. See “Corporate History and Structure — Contractual Arrangements with the VIE and Individual Registered Shareholders” for a summary of these VIE Agreements.
We operate on a business model of “Mobility-as-a-Service” (“MaaS”) to identify and solve inefficiencies associated with inflexible or low-quality mobility solutions for customers around the world under different scenarios with our comprehensive digital platforms. We offer packaged tour service, customized chartered bus service, and commute shuttle service to our customers for business and leisure travels.
Key Factors Affecting Our Results
We believe the key factors affecting our financial condition and results of operations include the followings:
Our ability to improve user experience and diversify service offerings
We have been constantly endeavoring to improve user experience through technology and innovation capabilities, in particular in transportation. By further leveraging our growing database and powerful data analysis capabilities, we are able to more precisely analyze user behavior and intent, provide personalized service matching and help users make fast and informed decisions. We have made, and will continue to make, significant investments to improve our technology infrastructure and enhance user experience.
Our results of operations have been, and will continue to be, affected by the size and diversity of our service offerings. Since our inception, we have introduced various value-added services built around our customers’ travel needs and have successfully expanded our service offerings. These efforts have effectively helped us attract more users and broaden revenue channels, thus driving our business and revenue growth.
Our ability to retain and expand our collaborations with suppliers
We have experienced rapid growth as we have built strong collaborations with various suppliers. As a high ranking and trusted partner with many traditional and online travel agencies, local tourist attraction sites, hotels and vehicle fleet providers, we are able to offer our tailored packages at competitive prices as compared to the prevailing market rate, which have attracted a growing number of customers and resulted in a significant increase in revenues. As we expect to continue the growth momentum, our results of operations will continue to be affected by our ability to retain and expand our strategic partnership with these suppliers.
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Our ability to control costs and expenses and enhance operational efficiency
Our results of operations have been, and will continue to be, affected by our ability to control costs and expenses and enhance our operational efficiency. Selling and marketing expenses have historically represented a large portion of our total costs and expenses. Advertising and marketing expenses, consisting primarily of online and offline advertisements, general and administrative expenses, and research and development expenses are important components of our costs. We have been always mindful of the balance between rapid business expansion and costs and expenses. We will continue to make efforts to manage our customer acquisition cost and improve our customer retention rate. In addition, as our business grows, we will continue to further improve our operational efficiency by developing technologies and infrastructure across different business functions. We expect to achieve greater operating leverage and increase the productivity of our personnel, allowing us to acquire customers and suppliers more cost-effectively and achieve higher operational efficiency.
Key Operating Metrics
Our management regularly reviews a number of metrics to evaluate our business, measure our performance, identify trends, formulate financial projections and make strategic decisions. The main metrics we consider are the results for the years ended June 30, 2023 and 2024 as set forth in the table below.
Results of Operations
The following tables set forth a summary of our consolidated results of operations for the years ended June 30, 2023 and 2024, in absolute amount and as a percentage of our revenues. This information should be read together with our consolidated financial statements and related notes included elsewhere in this prospectus. The results of operations in any period are not necessarily indicative of the results that may be expected for any future period.
| For the years ended June 30, | ||||||||||||||||||||
| 2023 | 2024 | |||||||||||||||||||
| RMB | % | RMB | $ | % | ||||||||||||||||
| Revenues | 154,226,006 | 100.0 | 45,976,421 | 6,326,566 | 100.0 | |||||||||||||||
| Cost of revenues | (145,998,264 | ) | (94.7 | ) | (39,546,098 | ) | (5,441,724 | ) | (86.0 | ) | ||||||||||
| Gross profit | 8,227,742 | 5.3 | 6,430,323 | 884,842 | 14.0 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Sales and marketing expenses | (14,656,903 | ) | (9.5 | ) | (7,468,321 | ) | (1,027,675 | ) | (16.2 | ) | ||||||||||
| General and administrative expenses | (10,428,318 | ) | (6.8 | ) | (5,098,450 | ) | (701,570 | ) | (11.1 | ) | ||||||||||
| Research and development expenses | (2,367,231 | ) | (1.5 | ) | (1,331,037 | ) | (183,157 | ) | (2.9 | ) | ||||||||||
| Total operating expenses | (27,452,452 | ) | (17.8 | ) | (13,897,808 | ) | (1,912,402 | ) | (30.2 | ) | ||||||||||
| Operating loss | (19,224,710 | ) | (12.5 | ) | (7,467,485 | ) | (1,027,560 | ) | (16.2 | ) | ||||||||||
| Other income/(expenses) | ||||||||||||||||||||
| Financial expenses, net | (788,073 | ) | (0.5 | ) | (1,134,713 | ) | (156,142 | ) | (2.5 | ) | ||||||||||
| Other income, net | 2,630,368 | 1.7 | 4,500,552 | 619,298 | 9.8 | |||||||||||||||
| Total other income, net | 1,842,295 | 1.2 | 3,365,839 | 463,156 | 7.3 | |||||||||||||||
| Loss before income tax expense | (17,382,415 | ) | (11.3 | ) | (4,101,646 | ) | (564,404 | ) | (8.9 | ) | ||||||||||
| Income tax (expense)/benefit | (248,419 | ) | (0.2 | ) | 46,054 | 6,337 | 0.1 | |||||||||||||
| Net loss | (17,630,834 | ) | (11.5 | ) | (4,055,592 | ) | (558,067 | ) | (8.8 | ) | ||||||||||
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Key Components of Results of Operations
Revenues
We generate revenues primarily from packaged tour service and customized chartered car and bus service. For the years ended June 30, 2023 and 2024, our revenues were RMB154,226,006 and RMB45,976,421 ($6,326,566), respectively. We offer packaged tour service to customers inclusive of services like chartered bus service, itinerary route schedule, sightseeing tour guidance, accommodation arrangement, etc. Customized chartered car and bus services are provided by us to support a more flexible and less pre-planned group travel demand which ranges from one day to several months. For commute shuttle service, we provide customers with daily transportation service from predetermined departure to destination.
Cost of revenues
Our cost of packaged tour services primarily consists of the procurement cost of hotel rooms, meals and other local services such as sightseeing costs for packages, entrance fees to museums and attractions and local transportation costs. Cost of commute shuttle service, customized chartered car and bus service includes costs directly related to delivering transportation services inclusive of payments to fleet operators for vehicle rental fees and petrol costs, and other miscellaneous expenses for operation.
Selling and marketing expenses
Our selling and marketing expenses primarily consist of staff cost, depreciation expenses, advertising fees, share-based compensation expenses, rent fees, entertainment fees etc.
General and administrative expenses
Our general and administrative expenses primarily consist of professional service fees, staff cost, depreciation expenses, share-based compensation expenses, rent fees, office fees etc.
Research and development expenses
Our research and development (“R&D”) expenses primarily consist of staff cost, share-based compensation expenses and technology service expenses, etc.
Taxation
Cayman Islands
We are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, and we are not subject to income or capital gains taxes. Additionally, upon payments of dividends by us to its shareholders, no Cayman withholding tax will be imposed.
British Virgin Islands
Our subsidiary, Youbus International Limited is incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, Youbus International Limited is not subject to tax on income or capital gains. Additionally, upon payments of dividends by us to its shareholders, no BVI withholding tax will be imposed.
Hong Kong
Our subsidiary, Webus Hongkong Limited is incorporated in Hong Kong and is subject to Hong Kong profits tax rate. Under the two-tiered profits tax rates regime, the first 2,000,000 Hong Kong Dollar (“HKD”) of profits of the qualifying group entity will be taxed at 8.25%, and profits above HKD2,000,000 will be taxed at 16.5%. Additionally, upon payments of dividends by us to its shareholders, no HK withholding tax will be imposed. No provision for Hong Kong profits tax has been made in the consolidated financial statements as it has no assessable profit for the years ended June 30,2023 and 2024.
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PRC
Under the PRC Enterprise Income Tax Law (the “EIT Law”), the standard enterprise income tax rate for domestic enterprises and foreign invested enterprises is 25%. The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management body” is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The Implementing Rules of the EIT Law merely define the location of the “de facto management body “as” the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, property, of a non-PRC company is located.” Based on a review of surrounding facts and circumstances, we do not believe that it is likely that its operations outside of the PRC should be considered as a resident enterprise for the PRC tax purposes for the years ended June 30, 2023 and 2024.
For qualified small and low-profit enterprises, from January 1, 2022 to December 31, 2022, 12.5% of the first RMB 1.0 million of the assessable profit before tax is subject to preferential tax rate of 20% and the 25% of the assessable profit before tax exceeding RMB 1.0 million but not exceeding RMB 3.0 million is subject to preferential tax rate of 20%. From January 1, 2023 to December 31, 2027, 25% of the first RMB 3.0 million of the assessable profit before tax is subject to the tax rate of 20%. For the years ended June 30, 2023 and 2024, some PRC subsidiaries are qualified small and low-profit enterprises as defined, and thus are eligible for the above preferential tax rates for small and low-profit enterprises.
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 15%. The HNTE certificate is effective for a period of three years. An entity could re-apply for the HNTE certificate when the prior certificate expires. Youba obtained its HNTE status in December 2021, and was entitled to the preferential income tax rate of 15% for the years ended December 31, 2021, 2022 and 2023. For the year ended June 30, 2024, Youba was qualified as a small-scale and low-profit enterprise and entitled to a preferential tax rate of 5%.
United States
Our subsidiary incorporated in the U.S. is subject to a combined of federal income tax of 21% and state income tax of 8.7% depending upon taxable income from Delaware state. The US subsidiary had no income from Delaware state for the years ended June 30, 2023 and 2024. As a result, the U.S. subsidiary is subject to an income tax rate of 21% for the years ended June 30, 2023 and 2024. It had taxable income of RMB342,784 and RMB403,291 and income tax expense of RMB71,985 and RMB25,211 was recorded for the years ended June 30, 2023 and 2024, respectively.
Comparison of Years Ended June 30, 2023 and 2024
Revenues
Our revenues decreased by 70.2% from RMB154,226,006 for the year ended June 30, 2023 to RMB45,976,421 ($6,326,566) for the year ended June 30, 2024. The following table sets forth a breakdown of our revenues, each expressed in the absolute amount and as a percentage of our total revenues, for the periods indicated.
| For the Years Ended June 30, | ||||||||||||||||||||||||
| 2023 | 2024 | Variance | ||||||||||||||||||||||
| RMB | % | RMB | $ | % | % | |||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Packaged tour service | 81,038,722 | 52.5 | 33,391,854 | 4,594,872 | 72.7 | (58.8 | ) | |||||||||||||||||
| Domestic | 73,181,985 | 47.4 | 10,006,080 | 1,376,882 | 21.8 | (86.3 | ) | |||||||||||||||||
| Oversea | 7,856,737 | 5.1 | 23,385,774 | 3,217,990 | 50.9 | 197.7 | ||||||||||||||||||
| Customized chartered car and bus service | 63,654,231 | 41.3 | 10,730,641 | 1,476,586 | 23.4 | (83.1 | ) | |||||||||||||||||
| Domestic | 56,895,187 | 36.9 | 898,028 | 123,573 | 2.0 | (98.4 | ) | |||||||||||||||||
| Oversea | 6,759,044 | 4.4 | 9,832,613 | 1,353,013 | 21.4 | 45.5 | ||||||||||||||||||
| Commute shuttle service | 9,507,054 | 6.2 | 1,853,926 | 255,108 | 3.9 | (80.5 | ) | |||||||||||||||||
| Domestic | 9,507,054 | 6.2 | 1,853,926 | 255,108 | 3.9 | (80.5 | ) | |||||||||||||||||
| Others | 25,999 | - | - | - | - | (100.0 | ) | |||||||||||||||||
| Domestic | 25,999 | - | - | - | - | (100.0 | ) | |||||||||||||||||
| Total revenues | 154,226,006 | 100.0 | 45,976,421 | 6,326,566 | 100.0 | (70.2 | ) | |||||||||||||||||
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Our revenues from packaged tour service decreased by 58.8% from RMB81,038,722 for the year ended June 30, 2023 to RMB33,391,854 ($4,594,872) for the year ended June 30, 2024, primarily attributable to the decrease of RMB63,175,905 ($8,693,294) in domestic market, partly offset by the increase of RMB15,529,037 ($2,136,867) in overseas market. The significant decrease of revenue in the domestic market was primarily attributed to the adjustment in our business strategy to focus more on packaged tour service in the overseas market, mainly due to (i) relatively lower gross margin rate of packaged tour service in domestic market compared to overseas market, mostly ranging from 2% to 4%; (ii) the difficulty of increasing return on investment in expanding the market share of domestic market particularly that is mainly comprised of middle and low-end consumer groups; (iii) the increasing demand for overseas tourism with the resumption of global communication and international flights in the post-epidemic eras. Therefore, for the commercial consideration of optimizing long-term financial indicators and adjusting brand positioning, we adjusted our business strategy to focus more on packaged tour service in the overseas market with a higher gross margin rate. The surge in revenue from in the overseas market was primarily attributable to approximately 440.6% growth in the number of customer orders, which is further explained by: (i) the expansion in collaboration scale with local agents to obtain more customer resources; (ii) the rapid development of North American market and the active expansion in Japan market, which contributed continuous revenue growth in the year ended June 30, 2024; (iii) as gradual recovery from the adverse impact of the COVID-19 such as quarantines and travel restrictions since December 2022, the demand of oversea tour presenting an increase trend; (iv) our ability to cater to different budgets and preferences, which we provided different types of packaged tour service by integrating the transportation, accommodation, entertainment, meals and tour guide resources; and (v) the pricing of our packaged tour service with creative itinerary route schedule service was more attractive to customers compared to average pricing of similar customized service. The growth rate of customer order number does not align with the revenues growth rate as sales price varies from different orders, which is subject to specific service contents of each order.
Our revenues from customized chartered bus service decreased by 83.1% from RMB63,654,231 for the year ended June 30,2023 to RMB10,730,641 ($1,476,586) for the year ended June 30, 2024, primarily attributable to the decrease of RMB55,997,159 ($7,705,466) in domestic market, partly offset by the increase of RMB3,073,569 ($422,937) in overseas market. The decrease of revenue in the domestic market was primarily attributed to the adjustment in our business strategy to focus more on customized chartered bus service in the overseas market, mainly due to (i) relatively lower gross margin rate of customized chartered bus service in domestic market compared to overseas market, mostly ranging from 4% to 13%; (ii) the difficulty of increasing return on investment in expanding the market share of domestic market particularly that is mainly comprised of middle and low-end consumer groups; (iii) the increased demand for overseas tourism with the resumption of global communication and international flights in the post-epidemic eras. Therefore, for the commercial consideration of optimizing long-term financial indicators and adjusting brand positioning, we adjusted our business strategy to focus more on customized chartered bus service in the overseas market with a higher gross margin rate. The surge in revenue from the overseas market was primarily attributable to approximately 86.8% growth in the number of customer orders, which is further explained by the rapid development of Asia market and North America market which contributed continuous revenue growth in the year ended June 30, 2024. The growth rate of customer order number does not align with the revenues growth rate as sales price varies from different orders, which is subject to specific service contents of each order. We also maintain long-term cooperation agreement with our fleet operators to ensure there is sufficient vehicles and drivers for business expansion.
In December 2022, China has declared to treat COVID-19 as Category B disease, and authorities dropped quarantine measures against people infected with coronavirus and stopped identifying close contacts or designating high-risk and low-risk areas. Moreover, on May 4, 2023, the WHO declared that COVID-19 was no longer a public health emergency of international concern. By the end of January 2024, China had signed visa-free agreements with 23 countries. As a result, we expect there will be a steady growth in oversea tourism demand in the long-term. Our high-end packaged tour service in overseas market with relatively higher gross margin is proved to be a new growth point in the operation result for the year ended June 30, 2024.
Our revenues from commuter shuttle service decreased by 80.5% from RMB9,507,054 for the year ended June 30, 2023 to RMB1,853,926 ($255,108) for the year ended June 30, 2024, primarily attributable to the termination in collaboration with three major customers and our strategic decision to downsize the operation of commuter shuttle service.
Cost of revenues
Our cost of revenues decreased by 72.9% from RMB145,998,264 for the year ended June 30, 2023 to RMB39,546,098 ($5,441,724) for the year ended June 30, 2024. The following table sets forth a breakdown of our cost of revenues by revenue streams, expressed as an absolute amount and as a percentage of the total cost of revenues, for the periods indicated.
| For the Years Ended June 30, | ||||||||||||||||||||||||
| 2023 | 2024 | Variance | ||||||||||||||||||||||
| RMB | % | RMB | $ | % | % | |||||||||||||||||||
| Cost of revenues: | ||||||||||||||||||||||||
| Packaged tour service | 77,726,975 | 53.2 | 28,558,499 | 3,929,781 | 72.2 | (63.3 | ) | |||||||||||||||||
| Domestic | 71,287,056 | 48.8 | 9,652,591 | 1,328,241 | 24.4 | (86.5 | ) | |||||||||||||||||
| Oversea | 6,439,919 | 4.4 | 18,905,908 | 2,601,540 | 47.8 | 193.6 | ||||||||||||||||||
| Customized chartered car and bus service | 60,228,876 | 41.3 | 8,518,335 | 1,172,162 | 21.6 | (85.9 | ) | |||||||||||||||||
| Domestic | 54,609,169 | 37.5 | 782,788 | 107,715 | 2.0 | (98.6 | ) | |||||||||||||||||
| Oversea | 5,619,707 | 3.8 | 7,735,547 | 1,064,447 | 19.6 | 37.7 | ||||||||||||||||||
| Commute shuttle service | 8,042,413 | 5.5 | 2,469,264 | 339,781 | 6.2 | (69.3 | ) | |||||||||||||||||
| Domestic | 8,042,413 | 5.5 | 2,469,264 | 339,781 | 6.2 | (69.3 | ) | |||||||||||||||||
| Others | - | - | - | - | - | N/A* | ||||||||||||||||||
| Domestic | - | - | - | - | - | N/A* | ||||||||||||||||||
| Cost of revenues | 145,998,264 | 100.0 | 39,546,098 | 5,441,724 | 100.0 | (72.9 | ) | |||||||||||||||||
*N/A represents not applicable
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Our cost of revenues for packaged tour service decreased by 63.3% from RMB77,726,975 for the year ended June 30, 2023 to RMB28,558,499 ($3,929,781) for the year ended June 30, 2024, primarily attributable to the decrease in cost related to fleet and tour operators, generally in line with our revenues form packaged tour service. Our cost of revenues for customized charted bus service decreased by 85.9% from RMB60,228,876 for the year ended June 30, 2023 to RMB8,518,335 ($1,172,162) for the year ended June 30, 2024, primarily attributable to the decrease in cost related to fleet operators, which was generally in line with the decrease in revenue from customized chartered bus service. Our cost of revenues for commuter shuttle service decreased by 69.3% from RMB8,042,413 for the year ended June 30, 2023 to RMB2,469,264 ($339,781) for the year ended June 30, 2024. The decrease was primarily attributable to the decrease in cost related to fleet operators.
Gross profit and margin
The following table sets forth a breakdown of our gross profit, margin by revenue streams, expressed as an absolute amount and as a percentage of the total gross profit for the periods indicated.
| For the Years Ended June 30, | ||||||||||||||||||||||||||||
| 2023 | 2024 | |||||||||||||||||||||||||||
| RMB | Margin | % | RMB | $ | Margin | % | ||||||||||||||||||||||
| Gross profit and margin | ||||||||||||||||||||||||||||
| Packaged tour service | 3,311,747 | 4.1 | % | 40.3 | 4,833,355 | 665,091 | 14.5 | % | 75.2 | |||||||||||||||||||
| Domestic | 1,894,929 | 2.6 | % | 23.1 | 353,489 | 48,641 | 3.5 | % | 5.5 | |||||||||||||||||||
| Oversea | 1,416,818 | 18.0 | % | 17.2 | 4,479,866 | 616,450 | 19.2 | % | 69.7 | |||||||||||||||||||
| Customized chartered bus service | 3,425,355 | 5.4 | % | 41.6 | 2,212,306 | 304,424 | 20.6 | % | 34.3 | |||||||||||||||||||
| Domestic | 2,286,018 | 4.0 | % | 27.8 | 115,240 | 15,858 | 12.8 | % | 1.7 | |||||||||||||||||||
| Oversea | 1,139,337 | 16.9 | % | 13.8 | 2,097,066 | 288,566 | 21.3 | % | 32.6 | |||||||||||||||||||
| Commute shuttle service | 1,464,641 | 15.4 | % | 17.8 | (615,338 | ) | (84,673 | ) | (33.2 | )% | (9.5 | ) | ||||||||||||||||
| Domestic | 1,464,641 | 15.4 | % | 17.8 | (615,338 | ) | (84,673 | ) | (33.2 | )% | (9.5 | ) | ||||||||||||||||
| Others | 25,999 | 100.0 | % | 0.3 | - | - | N/A* | % | - | |||||||||||||||||||
| Domestic | 25,999 | 100.0 | % | 0.3 | - | - | N/A* | % | - | |||||||||||||||||||
| Total | 8,227,742 | 5.3 | % | 100.0 | 6,430,323 | 884,842 | 14.0 | % | 100.0 | |||||||||||||||||||
*N/A represents not applicable
As a result of the foregoing, we recorded a gross profit of RMB8,227,742 and RMB6,430,323 ($884,842) for the years ended June 30, 2023 and 2024, respectively, representing a gross profit margin of 5.3% and 14.0%. The increase in the gross profit margin rate was primarily attributable to the increase in the proportion of gross profit from packaged tour service and customized chartered bus service with the higher margin rate among all revenue streams. The gross margin rate of packaged tour service and customized chartered bus service was approximately 14.5% and 20.6% for the year ended June 30, 2024, both of which showed increase compared to the prior year, which was primarily attributable to the revenue growth with higher margin rate in North America Market and Japan Market. The increase in the gross margin rate of our packaged tour service resulted from a strategic shift towards focusing on the overseas market with a higher gross margin rate. This shift led to an increase of 197.7% in the number of orders from the overseas market for our packaged tour service. The rapid growth of these services has accumulated a steady customer base and increased our bargain power against suppliers to achieve cost-effective performance. We would continuously adjust pricing dynamically to ensure we have an edge in competitive pricing in similar service offerings as customers’ loyalty to our service offerings and preference to online order placement is gradually established. The gross profit margin rate on commute shuttle service was negative, mainly due to our active downsizing of the operation, which subsequently impacted our bargaining power with suppliers, resulting in a failure to reduce the cost of revenue in line with the decrease in revenue of commute shuttle service. We scaled down our operations of commute shuttle service to better concentrate our resources, optimize our structure, and respond to market changes. We would continuously seek new growth points to improve our gross margin.
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Operating expenses
Our operating expenses decreased by 49.4% from RMB27,452,452 for the year ended June 30, 2023 to RMB13,897,808 ($1,912,402) for the year ended June 30, 2024, primarily due to the following:
Selling and marketing expenses
The following table sets forth a breakdown of our sales and marketing expenses by categories, expressed as an absolute amount and as a percentage of the total selling and marketing expenses, for the periods indicated.
| For the Years Ended June 30, | ||||||||||||||||||||||||
| 2023 | 2024 | Variance | ||||||||||||||||||||||
| RMB | % | RMB | $ | % | % | |||||||||||||||||||
| Sales and marketing expenses | ||||||||||||||||||||||||
| Share-based compensation expenses | 10,081,427 | 68.8 | - | - | - | (100.0 | ) | |||||||||||||||||
| Staff cost | 2,176,730 | 14.9 | 2,178,525 | 299,775 | 29.2 | 0.1 | ||||||||||||||||||
| Depreciation expenses | 688,580 | 4.7 | 1,953,903 | 268,866 | 26.2 | 183.8 | ||||||||||||||||||
| Advertising expenses | 1,198,214 | 8.2 | 2,389,652 | 328,827 | 32.0 | 99.4 | ||||||||||||||||||
| Rental expenses | 116,900 | 0.8 | 119,568 | 16,453 | 1.6 | 2.3 | ||||||||||||||||||
| Entertainment expenses | 135,911 | 0.9 | 525,513 | 72,313 | 7.0 | 286.7 | ||||||||||||||||||
| Others | 259,141 | 1.7 | 301,160 | 41,441 | 4.0 | 16.2 | ||||||||||||||||||
| Total sales and marketing expenses | 14,656,903 | 100.0 | 7,468,321 | 1,027,675 | 100.0 | (49.0 | ) | |||||||||||||||||
Our selling and marketing expenses decreased by 49.0% from RMB14,656,903 for the year ended June 30, 2023 to RMB7,468,321 ($1,027,675) for the year ended June 30, 2024, primarily due to a decrease of RMB10,081,427 ($1,387,251) in share-based compensation expenses as a result of the cancellation of 2022 Equity Incentive Plan on June 12, 2023, no such expenses were recorded for the year ended June 30, 2024 and was offset by (1) an increase of RMB1,265,323 ($174,114) in depreciation expenses due to the change in the use of the building from management office to client reception center since January 2023 and the related depreciation was charged to sales and marketing expenses instead of general and administrative expense since then; and (2) an increase of RMB1,191,438 ($163,947) in advertising expenses for branding due to the need of business development.
General and administrative expenses
The following table sets forth a breakdown of our general and administrative expenses by categories, expressed as an absolute amount and as a percentage of the total general and administrative expenses, for the periods indicated.
| For the Years Ended June 30, | ||||||||||||||||||||||||
| 2023 | 2024 | Variance | ||||||||||||||||||||||
| RMB | % | RMB | $ | % | % | |||||||||||||||||||
| General and administrative expenses | ||||||||||||||||||||||||
| Share-based compensation expenses | 3,388,065 | 32.5 | - | - | - | (100.0 | ) | |||||||||||||||||
| Professional service expenses | 3,380,389 | 32.4 | 2,446,078 | 336,592 | 48.1 | (27.6 | ) | |||||||||||||||||
| Staff cost | 1,964,820 | 18.8 | 1,793,064 | 246,734 | 35.2 | (8.7 | ) | |||||||||||||||||
| Depreciation expenses | 1,051,302 | 10.1 | 223,138 | 30,705 | 4.4 | (78.8 | ) | |||||||||||||||||
| Office expenses | 242,145 | 2.3 | 319,246 | 43,930 | 6.3 | 31.8 | ||||||||||||||||||
| Rental expenses | 172,635 | 1.7 | 107,611 | 14,808 | 2.1 | (37.7 | ) | |||||||||||||||||
| Others | 228,962 | 2.2 | 209,313 | 28,801 | 3.9 | (8.6 | ) | |||||||||||||||||
| Total general and administrative expenses | 10,428,318 | 100.0 | 5,098,450 | 701,570 | 100.0 | (51.1 | ) | |||||||||||||||||
Our general and administrative expenses decreased by 51.1% from RMB10,428,318 for the year ended June 30, 2023 to RMB5,098,450 ($701,570) for the year ended June 30, 2024, primarily due to (1) a decrease of RMB3,388,065 ($466,213) in share-based compensation expenses due to the cancellation of 2022 Equity Incentive Plan on June 12, 2023, and no such expenses recorded for the year ended June 30, 2024; (2) a decrease of RMB934,311 ($128,565) in professional service expenses, as a result of the decrease in audit service fees and IPO listing advisory fees; (3) a decrease of RMB828,164 ($113,959) in depreciation expenses as the same reason explained in prior section for the increase of depreciation expenses related to sales and marketing expenses.
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Research and development expenses
The following table sets forth a breakdown of our research and development expenses by categories, expressed as an absolute amount and as a percentage of the total research and development expenses, for the periods indicated.
| For the Years Ended June 30, | ||||||||||||||||||||||||
| 2023 | 2024 | Variance | ||||||||||||||||||||||
| RMB | % | RMB | $ | % | % | |||||||||||||||||||
| Research and development expenses | ||||||||||||||||||||||||
| Staff cost | 2,501,395 | 105.7 | 860,477 | 118,406 | 64.7 | (65.6 | ) | |||||||||||||||||
| Share-based compensation expenses | (588,506 | ) | (24.9 | ) | - | - | - | 100.0 | ||||||||||||||||
| Technology service expenses | 258,653 | 10.9 | 359,501 | 49,469 | 27.0 | 39.0 | ||||||||||||||||||
| Others | 195,689 | 8.3 | 111,059 | 15,282 | 8.3 | (43.2 | ) | |||||||||||||||||
| Total research and development expenses | 2,367,231 | 100.0 | 1,331,037 | 183,157 | 100.0 | (43.8 | ) | |||||||||||||||||
Our research and development expenses decreased by 43.8% from RMB2,367,231 for the year ended June 30, 2023 to RMB1,331,037 ($183,157) for the year ended June 30, 2024. The decrease was primarily attributable to a decrease of RMB1,640,918 ($225,798) in staff cost, as a result of the optimization in headcounts of our research and development personnel; and was offset by an increase of RMB588,506 ($80,981) in share-based compensation expenses due to the reverse of previous accrued expenses when forfeiture occurred, and the fact that the 2022 Equity Incentive Plan was also cancelled later in June 2023, thus no such expenses were recorded for the year ended June 30, 2024.
Total other income, net
Total other income, net increased from RMB1,842,295 for the year ended June 30, 2023 to RMB3,365,839 ($463,155) for the year ended June 30, 2024. The increase was primarily attributable to an increase of RMB2,005,269 ($275,934) in government grants; and was offset by an increase of RMB240,647 ($33,114) in interest expenses due to the increase of bank borrowings.
Income tax (expense)/benefit
We incurred income tax expense of RMB248,419 since our PRC subsidiary, Webus Travel Agency and our U.S. subsidiary, Wetour had taxable income for the year ended June 30, 2023. We incurred income tax benefit of RMB46,054 ($6,337) for the year ended June 30, 2024, mainly due to the effect of adjusting the net operating loss in previous periods.
Net loss
As a result of the foregoing, we recorded net loss of RMB17,630,834 and RMB4,055,592 ($558,067) for the years ended June 30, 2023 and 2024, respectively.
Liquidity and Capital Resources
Our primary sources of liquidity have been through operational sources of cash and financing fund from banks and related parties. As of June 30, 2023, and 2024, we had cash and cash equivalents of RMB2,151,180 and RMB2,780,907 ($382,666) respectively.
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Our liquidity is based on our ability to enhance its operating cash flow position, obtain capital financing from equity interest investors and borrow funds to fund its general operations and capital expenditure. Our ability to continue as a going concern is dependent on management’s ability to execute its business plan successfully, which includes increasing market acceptance of our products to boost its sales volume to achieve economies of scale while applying more effective marketing strategies and cost control measures to better manage operating cash flow position and obtaining funds from outside sources of financing to generate positive financing cash flows. We would also further consider financing from bank credit or shareholder capital injection to enhance capital turnover and liquidity position if necessary.
Historically, we obtained a line of credit of RMB7,000,000 from Rural Commercial Bank on June 24, 2022, which will expire on June 23, 2027, and we also obtained another line of credit of RMB5,200,000 from Rural Commercial Bank on September 8, 2022, which will expire on September 7, 2027. As of June 30, 2024, we borrowed RMB12,200,000 from these two lines of credit, of which RMB10,000,000 were short-term borrowings, and RMB2,200,000 were long-term borrowings. Subsequently, we have renewed the borrowings under the line of credit of RMB7,000,000. We also obtained an additional revolving credit loan, with a maturity date of February 15, 2025, from Hangzhou United Bank of RMB3,000,000 signed on August 16, 2024 and have already borrowed the short-term borrowing of RMB3,000,000 from this credit loan on August 19, 2024. (Please refer to Note 15 for more information regarding this short-term borrowing.) Since all these borrowings are revolving loans, therefore, we can continuously renew revolving loans within the unexpired credit limit to avoid a large amount of cash outflow due to the repayment obligation of short-term borrowings. Thus, we would not incur a large amount of cash outflow due to the repayment obligation of short-term borrowings.
Since the current financial factors raise doubt about our ability to continue as a going concern, the management has made mitigation plans to alleviate liquidity pressure, including:
| (i) | On April 17, 2024, we entered into a funding support agreement with Mr. Zheng Nan, one of our major shareholders, in which Mr. Zheng Nan promised to provide a line of credit in the amount up to RMB6,000,000 ($825,627) and up to RMB10,000,000 ($1,376,046) as a guarantee for our future bank credit applications. This agreement will expire on December 31, 2025. We can rely on Mr. Zheng Nan’s funding support to ensure the sufficiency of our cash flow through the next twelve months since the issuance of the consolidated financial statements. |
| (ii) | On September 6, 2024, Hangzhou United Bank and Mr. Zheng Nan entered into an agreement to grant us a line of credit of up to RMB25,000,000 ($3,440,114), secured by one of Mr. Zheng Nan’s real estates of RMB50,000,000 ($6,880,229), with a five-year term from September 6, 2024 to September 5, 2029. As of the date of this prospectus, we have withdrawn RMB17,000,000 ($2,339,278) short-term borrowings from this line of credit. Refer to Exhibits 10.14 & 10.15. We can continually renew revolving loans within the unexpired credit limits after the repayment of short-term borrowings. |
| (iii) | We are continually making efforts to improve operating efficiency and reducing discretionary spending, including: (1) optimization in research and development (“R&D”) headcount, (2) reduction in initial R&D development expenditures, and (3) reduction in overall operating staff cost due to the adjustment in our business strategy to focus more on oversea market with a higher gross margin rate and actively scale down domestic market operations resulting the decrease in overall operating staff headcount. |
We have evaluated that it is probable the management’s mitigation plans related to the lines of credit from banks and the funding support from a major shareholder would be effectively implemented, pursuant to the contractual obligations as stipulated in the executed agreement we have entered with the relevant party, which can alleviate the condition that give rise to substantial doubt on going concern for the next twelve months since the issuance of the consolidated financial statements.
Note 1(d) to the financial statements discloses all of the matters of which we are aware that are relevant to our ability to continue as a going concern for a reasonable period of time (defined as the time within one year after the date that the financial statements are issued, or available to be issued, where applicable), including significant conditions and events, and management's plans to mitigate the adverse effects of such conditions and events. There is no approved plan for liquidation and liquidation is not being forced by any other party. As such, we believe that the going concern basis of accounting is appropriate.
The following table sets forth a summary of our cash flows for the periods presented:
| For the Years Ended June 30, | ||||||||||||
| 2023 | 2024 | |||||||||||
| RMB | RMB | $ | ||||||||||
| Summary Consolidated Cash Flow Data: | ||||||||||||
| Net cash (used in)/provided by operating activities | (4,758,992 | ) | 55,031 | 7,573 | ||||||||
| Net cash used in investing activities | (795,635 | ) | (1,470,287 | ) | (202,318 | ) | ||||||
| Net cash provided by financing activities | 4,807,797 | 2,042,038 | 280,994 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 20,469 | 2,945 | 405 | |||||||||
| Net change in cash and cash equivalents | (726,361 | ) | 629,727 | 86,654 | ||||||||
| Cash and cash equivalents at beginning of the years | 2,877,541 | 2,151,180 | 296,012 | |||||||||
| Cash and cash equivalents at end of the years | 2,151,180 | 2,780,907 | 382,666 | |||||||||
Operating activities
Net cash provided by operating activities was RMB55,031 ($7,573) for the year ended June 30, 2024, which primarily reflected our net loss of RMB4,055,592 ($558,067) as mainly adjusted for depreciation and amortization of property and equipment of RMB2,187,449 ($301,003), amortization of right-of-use assets of RMB281,066 ($38,676), and loss on disposal of property and equipment of RMB10,458 ($1,439). Adjustment for changes in operating assets and liabilities primarily consisted of (1) an increase of RMB1,755,688 ($241,591) in deferred revenue mainly due to the increased orders with prepayments from customers for overseas tour service, (2) an increase of RMB584,700 ($80,457) in accrued expenses and other current liabilities mainly due to the increase of advertising expenses payable and refundable security deposits, (3) a decrease of RMB307,294 ($42,284) in prepaid expenses and other current assets mainly due to the decrease in prepaid payments to suppliers; and was partially offset by (1) an increase of RMB588,929 ($81,039) in accounts receivable due to the increase in unsettled orders on the third-party travel platform, (2) a decrease of RMB285,225 ($39,248) in lease liabilities mainly due to the payment for lease expenses and (3) an increase of RMB111,341 ($15,321) in amounts due from a related party, due to the increase of travel service payments collected through Zheng Nan’s fund account on a digital payment platform Zelle.
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Net cash used in operating activities was RMB4,758,992 for the year ended June 30, 2023, which primarily reflected our net loss of RMB17,630,834 as mainly adjusted for share-based compensation of RMB12,880,986, depreciation and amortization of property and equipment of RMB1,792,256 and amortization of right-of-use assets of RMB263,898. Adjustment for changes in operating assets and liabilities primarily consisted of a decrease of RMB3,596,797 in accounts payable due to timely payments; a decrease of RMB1,278,805 in deferred revenue, a decrease of RMB352,234 in accrued expenses and other current liabilities and a decrease of RMB210,121 in lease liabilities; and partially offset by a decrease of RMB2,769,371 in accounts receivable; a decrease of RMB475,113 in prepaid expenses and other current assets, primarily due to the enhanced management on receivables collection and an increase of RMB128,175 income tax payable .
Investing activities
Net cash used in investing activities for the year ended June 30, 2024 was RMB1,470,287 ($202,318) primarily attributable to (1) the expenditure on property improvement for our client reception center and the purchase of a vehicle of RMB1,470,287 ($202,318), (2) the purchase of short-term investments of RMB523,000 ($71,967), (3) the loan to a related party of RMB400,000 ($55,042), and net off by (4) the redemption of short-term investments of RMB523,000 ($71,967) and (5) the collection from loan to a related party of RMB400,000 ($55,042).
Net cash used in investing activities for the year ended June 30, 2023 was RMB795,635 primarily attributable to the expenditure on property improvement for our client reception center.
Financing activities
Net cash provided by financing activities for the year ended June 30, 2024 was RMB2,042,038 ($280,994), primarily attributable to (1) proceeds from short-term borrowings with banks of RMB10,000,000 ($1,376,046), (2) proceeds from long-term borrowings with banks of RMB2,200,000 ($302,730) and (3) proceeds from an interest-free loan from a related party of RMB300,000 ($41,281), partially offset by the repayments of short-term borrowings with banks of 10,000,000 ($1,376,046), the repayments of the interest-free loan from a related party of RMB300,000 ($41,281), and an increase of RMB157,962 ($21,736) in deferred offering cost.
Net cash provided by financing activities for the year ended June 30, 2023 was RMB4,807,797, primarily attributable to proceeds from short-term borrowings with banks of RMB13,000,000 and proceeds from short-term borrowings with a third party of RMB3,000,000, partially offset by the repayments of short-term borrowings with banks of RMB3,000,000, repayments of short-term borrowings with a third party of RMB3,000,000 and an increase of RMB5,192,203 in deferred offering cost.
Capital Expenditures
We had capital expenditures of RMB795,635 and RMB1,470,287 ($202,318) for the years ended June 30, 2023 and 2024 mainly for vehicles, office equipment and property improvement.
Contractual Obligations
The following table sets forth our contractual obligations as of June 30, 2024:
| Payment due to schedule | ||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | |||||||
| Office rental | 242,387 | 186,731 | 55,656 | - | ||||||
| Bank borrowings | 12,200,000 | 10,000,000 | 2,200,000 | - | ||||||
| Installment payment payable for Vehicles | 548,800 | 134,400 | 268,800 | 145,600 | ||||||
Operating lease agreements represent non-cancellable operating leases for our office space.
Other than those shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of June 30, 2024.
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Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us, or engages in leasing, hedging or product development services with us.
Holding Company Structure
The Company is our holding company and has no material operations of its own. We conduct a substantial majority of our operations through our operating subsidiaries in China and a minority of our business outside China through Wetour Tech LLC. As a result, the Company’s ability to pay dividends depends largely upon dividends paid by our subsidiaries including our PRC subsidiaries. If our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our subsidiaries in China are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries in China are required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, our subsidiaries in China may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at its discretion, and may allocate a portion of their after-tax profits based on PRC accounting standards to a discretionary surplus fund at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.
Critical Accounting Policies, Judgments and Estimates
We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates and assumptions on our own historical data and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates and assumptions on an ongoing basis.
The critical accounting policies, judgments and estimates that we believe to have the most significant impact on our consolidated financial statements are described below, which should be read in conjunction with our consolidated financial statements and accompanying notes and other disclosures included in this prospectus. When reviewing our financial statements, you should consider:
| ● | our selection of critical accounting policies; |
| ● | the judgments and other uncertainties affecting the application of such policies; |
| ● | the sensitivity of reported results to changes in conditions and assumptions. |
We consider an accounting policy to be critical if they require a higher degree of judgment than others in their application. Our significant accounting policies includes revenue recognition, impairment of long-lived assets, income taxes and share-based compensation, which are fully described in Note 2 – Summary of Significant Accounting Policies to our consolidated financial statements.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. We consider our critical accounting estimates include (i) provision of allowance = for credit losses; (ii) estimated useful lives of property and equipment and impairment of long-lived assets and (iii) valuation of deferred tax assets as follows:
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Provision of allowance for credit losses
Our accounts receivable and deposits in prepaid expenses and other current assets are within the scope of ASC 326. We estimated allowance for expected credit losses to reserve for potentially uncollectible receivable amounts periodically. We consider factors in assessing the collectability of the accounts receivable and related receivables and deposits in prepaid expenses and other current assets, such as historical distribution of the aging of the amounts due, historical collections data of the customers, creditworthiness, forward-looking adjustments to assess the credit risk characteristics. Additionally, external data and macroeconomic factors are also considered. We estimated the allowance by segmenting in-scope financial assets into groups based on their shared credit risk characteristics and the aging of the underlying receivables, and assessed the expected credit loss rate for each group periodically. If there is strong evidence indicating that the accounts receivable is likely to be unrecoverable, we also make specific allowance in the period in which there is strong evidence that a loss is determined to be probable. We would consider factors such as the customer’s financial condition and liquidity, the customer’s willingness and ability to settle payment and historical and subsequent collections data in making specific allowance. Our estimate of the key assumptions did not change significantly throughout the periods presented. Receivable balances are written off after all collection efforts have been exhausted.
Valuation of deferred tax assets
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. Deferred tax assets are reduced by a valuation allowance when, based upon the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
When we determine and quantify the valuation allowances, we consider such factors as projected future taxable income, the availability of tax planning strategies, the historical taxable income and losses in prior years, and future reversals of existing taxable temporary differences. The assumptions used in determining projected future taxable income require significant judgment. Actual operating results in future years could differ from our current assumptions, judgments and estimates. Changes in these estimates and assumptions may materially affect the tax position measurement and financial statement recognition.
Estimated useful lives of property and equipment and impairment of long-lived assets
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets with no residual value. The estimated useful lives are as follows:
| Category | Estimated useful lives | |
| Building | 20 years | |
| Electronic equipment | 3 years | |
| Office equipment | 3 years | |
| Vehicles | 5 years | |
| Leasehold and property improvement | 3-5 years |
Long-lived assets are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will affect the future use of the assets) indicate that the carrying amount may not be fully recoverable or that the useful life is shorter than we had originally estimated. When these events occur, we evaluate the impairment by comparing carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, we recognize an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We will qualify as an “emerging growth company” and under the JOBS Act will be allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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We are an emerging growth company as defined by JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of extended transition periods for complying with new or revised accounting standards. This allows us to delay adoption of certain accounting standards until those standards would otherwise apply to private companies. We elected to take advantage of the extended transition periods.
Internal Control over Financial Reporting
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. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We have elected to take advantage of such exemptions.
In the course of preparing and auditing our consolidated financial statements included elsewhere in this prospectus, we and our independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting. The material weaknesses identified relates to: (i) our lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements to properly address U.S. GAAP technical accounting issues and prepare and review financial statements and related disclosures in accordance with U.S. GAAP and reporting requirements set forth by the SEC; (ii) our lack of sufficient controls designed and implemented in IT environment and IT general control activities, mainly associated with areas of access logical security, system change management, IT operations and cyber security monitoring activities.
We have implemented and plan to implement a number of measures to address these two material weaknesses:
| · | We are in the process of establishing clear roles and responsibilities for accounting and financial reporting staff to address accounting and financial reporting issues, and we added additional professionals for our financial reporting team in 2023; |
| · | We hired a consulting firm with U.S. GAAP experience to strengthen our financial reporting function; |
| · | We are continuing to further expedite and streamline our reporting process and develop our U.S. GAAP and SEC reporting process to allow early detection, prevention and resolution of potential financial reporting and U.S. GAAP issues, and have established an ongoing program to provide sufficient and appropriate training for financial reporting and accounting personnel, especially training related to U.S. GAAP and SEC reporting requirement. |
| · | We are strengthening the supervision and controls on the IT functions, including the enhancement of IT security policies and procedures setup, logical security, data backup and cyber security training. |
Quantitative and Qualitative Disclosures about Market Risks
Foreign currency exchange rate risk
Renminbi is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of Renminbi into other currencies. The value of Renminbi is subject to changes in central government policies, international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. Our cash and cash equivalents denominated in Renminbi amounted to RMB2,847,398 and RMB1,210,695 ($166,597) as of June 30, 2023 and 2024, respectively.
Substantially all of our revenues, purchases and expenditures are denominated in RMB and U.S dollar. Changes in the exchange rate between the U.S. dollar and Renminbi will affect the value of the proceeds from this offering in Renminbi terms. We estimate that we will receive net proceeds of approximately $5.73 million from this offering, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us, based on an initial offering price of $4.00 per share and assume no exercise of the underwriter’s over-allotment option. For example, if we convert $5.73 million of the net proceeds from this offering into Renminbi, a 10% appreciation of the Renminbi against the U.S. dollar, from a rate of RMB7.2672 to $1.00 to a rate of RMB6.5405 to $1.00, will result in a decrease of RMB4.16 million ($0.57 million) of the net proceeds from this offering. Conversely, a 10% depreciation of the Renminbi against the U.S. dollar, from a rate of RMB7.2672 to $1.00 to a rate of RMB7.9939 to $1.00, will result in an increase of RMB4.16 million ($0.57 million) of the net proceeds from this offering.
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Interest rate risk
We are exposed to interest rate risk on our interest-bearing assets and liabilities. As part of our asset and liability risk management, we review and take appropriate steps to manage our interest rate exposures on our interest-bearing assets and liabilities. We have not been exposed to material risks due to changes in market interest rates, and not used any derivative financial instruments to manage the interest risk exposure during the years ended June 30, 2023 and 2024.
Inflation risk
Inflationary factors, such as increases in personnel and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of sales revenue if the revenues do not increase with such increased costs.
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 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.
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All the information and data presented in this section have been derived from the ZPI report commissioned by us in April 2024 unless otherwise noted. ZPI has advised us that the statistical and graphical information contained herein is drawn from its database and other sources. The following discussion contains projections for future growth, which may not occur at the rates that are projected or at all.
Overview of Tourism Service Industry
The travel services industry is defined as a comprehensive sector primarily engaged in attracting and hosting visitors, providing a range of tourism-related services. These services often include transportation, sightseeing, accommodations, dining, shopping, and entertainment, and may sometimes extend to experiences, conferences, and wellness services. Based on tourism resources and facilities, the industry offers these services to meet the needs of tourists and foster the development of tourism.
Travel services can be categorized by destination into domestic and international travel. They can also be segmented by service type into private group tours for 2-8 people and open-group tours organized by travel companies or agencies, as well as individual arrangements made by travelers themselves.
Industry Classification
Classification by Service Type
| · | Private groups are usually customized travel services for less than 2-8 people, can be independent into a group, with a special car guide; Provide personalized service, the itinerary is designed by the senior team, customers can adjust during the play, in the whole process before, during and after the trip, the tour butler provides exclusive services. |
| · | Individual groups refer to tourists from all over the country (one or more people) organized by tourism company or well-known travel agency, through a unified arrangement including hotel rooms, catering, transportation, tickets and tour guide services, to form a larger travel team to travel. This kind of travel mode is economical and regular, and is the travel mode chosen by most tourists. |
| · | Free travel refers to the tourists themselves to plan, arrange their own travel itinerary, choose their own transportation, catering, attractions and other aspects of tourism. Compared with the traditional group tour, the independent tour is more free and flexible, and can meet the personalized and diversified needs of tourists. In independent travel, tourists usually decide the time, place and method of travel by themselves, and do not rely on the arrangement and organization of travel agencies. |
Classification by Destination
| · | Domestic tourism refers to the tourism activities carried out within the country. It covers many forms of tourism, including but not limited to sightseeing, holidays, adventures and cultural exchanges. Domestic travel is characterized by its convenience and economy, and it is also closer to the local culture and lifestyle. The destinations of domestic travel are varied and can be cities, villages, natural landscapes or cultural sites. Visitors can be their own citizens or foreigners who have lived in the country for a long time. |
| · | Outbound tourism, also known as overseas tourism in a broad sense, refers to the travel activities to other countries or regions with passports, including border Tours, Hong Kong and Macao Tours and overseas Tours. It involves applying for a visa, choosing a means of transportation, booking a hotel, planning a trip and so on. The forms of outbound travel are becoming more and more diverse, not only the traditional group tour, but also self-help tour, customized tour and other emerging ways. |
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Classification by Customer Group
| · | High-End vs. Economy. High-end travel customers pursue luxury, comfort and unique travel experiences, are not sensitive to price, and pay attention to service and quality while economy tourism customers pay more attention to the cost performance of tourism products, choose relatively affordable tourism products |
| · | Themed Travel vs. Business Travel. Themed travel customers will choose a specific travel theme, such as photography tourism, food tourism, adventure tourism, etc. while business travel clients travel for work or business study, focusing on business services and meeting facilities.. |
| · | Ages. Young customers are more interested in new, interesting and distinctive travel experiences, and pay attention to the affordability of travel; Middle-aged customers usually have a stable income and may prefer destinations with historical and cultural heritage; and Elderly customers may prefer nostalgia, wellness or group travel. |
Overview of Domestic Tourism Service Market in China
In 2019, China’s domestic tourism market exhibited robust growth. The number of domestic tourists reached 6.06 billion, marking an 8.4% increase year-over-year. Revenue from tourism also saw significant growth, achieving 5.73 trillion yuan, an increase of 11.7% compared to the previous year. These figures underscore the immense potential and vitality of the Chinese tourism market.
The year 2020 saw a downturn in China’s tourism sector due to the global pandemic. Particularly in the third quarter, the number of organized domestic tours and the volume of tourists substantially declined. However, with effective pandemic control measures, along with supportive government policies and market recovery, the tourism sector gradually regained its momentum.
By 2021, the total domestic tourism reached 3.246 billion visits, a 12.8% increase year-over-year. Tourism spending also surged to 2.92 trillion yuan, up 31.0% from the previous year. Although these figures were lower than those of 2019, the recovery trajectory is commendable given the impact of the pandemic.
Entering 2023, the Chinese tourism market experienced a significant resurgence. Domestic trips totaled 489,100, which was an increase of 23.61 billion visits compared to the same period last year, representing a 93.3% year-over-year growth. Domestic tourism revenue (total tourism consumption) reached 4.91 trillion yuan, an increase of 2.87 trillion yuan or 140.3% compared to the previous year, substantially reversing the slump since 2020. Additionally, when compared to the pre-pandemic year of 2019, tourism revenue in 2023 recovered to 85.69% of the levels seen during the same period, narrowing the gap and highlighting the resilience and potential of domestic tourism consumption.
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Unit: Trillion RMB National Bureau of Statistics
Travel Consumer Demographics Analysis
When examining the age demographics of consumers, individuals born in the 1980s and 1990s are leading in travel expenditures, accounting for 31% and 24% of travel activities, respectively. Since the beginning of 2023, the influence of the post-2000 generation in the travel market has progressively increased, now representing 16% of total travelers. This shift underscores the growing significance of younger generations as key contributors to travel spending.
2023 Annual Tourism Consumption Report
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China Domestic Tourism Services Market Analysis: 2019-2028
Over the period from 2019 to 2028, the overall scale of the domestic tourism services market in China has demonstrated a fluctuating growth trend. Despite challenges posed by the pandemic and other factors, the Chinese tourism market has exhibited strong resilience and potential.
Moving forward, with the continuous support of policies and the progressive recovery of the market, coupled with ongoing innovations in the tourism industry, the domestic tourism services market in China is expected to maintain a stable growth trajectory.
Source: ZPI
Domestic Private Group Services
The market for private group travel services has exhibited a robust growth trend in recent years and is expected to maintain a high growth rate in the coming years. With the continual expansion of China's outbound tourism market and the rise of middle-to-high-end consumer groups, private group tours are becoming increasingly popular due to their personalized and high-quality service features. Moreover, providers of private group services are continuously innovating their service models and enhancing the quality of their offerings to meet the diverse needs of travelers.
According to the "2023 Annual Tourism Consumption Report," private group tours accounted for 24% of the total number of trips booked in the tourism products segment. In 2023, revenue from private group tours reached RMB1.18 trillion, and it is projected to increase to RMB1.45 trillion by 2028.
Source: ZPI
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Key Drivers of Domestic Private Group Tour Services
| · | Consumer Upgrading and the Rise of the Middle Class. With the continual expansion of the middle class, their travel demands are becoming increasingly diversified and personalized. Compared to traditional group tours, they show a preference for travel options that offer high-quality, personalized experiences. Private group tour services precisely meet this demand by providing tailored travel experiences that cater to the nuanced preferences of the middle class. |
| · | Growing Demand for Family Travel. living standards improve, more families have the economic capacity for travel. People are willing to invest in high-quality leisure experiences for their family members. Private group tours, known for their high quality, align well with the needs of family travelers. These services also emphasize interaction and communication among family members, allowing them to engage in activities together, share experiences, and enhance their mutual understanding and relationships. |
| · | Safety and Privacy Considerations. Private group tours often operate in smaller, more manageable group sizes, allowing for more refined management and service delivery. This structure enables quick responses to safety issues or emergencies, ensuring the utmost safety for travelers. Private group tours implement stringent controls in itinerary planning, transportation, and accommodation choices. Besides safety, these services protect the privacy of travelers by limiting group sizes and strengthening information security measures. |
| · | Development of Information Technology. The widespread application of big data technology enables private group tour services to more accurately understand consumer needs and tailor unique travel itineraries for each traveler. The prevalence of online payment systems and electronic guide technologies also provides more convenient operation methods for these services. |
| · | Rise of Content-Sharing Social Media Platforms. Platforms such as Xiaohongshu (Little Red Book) and Douyin (TikTok) enable rapid dissemination of travel-related information to a broad audience, helping service providers better understand consumer needs and optimize their products and services. On these platforms, users can share their private group tour experiences, reviews, and sentiments, enhancing the brand influence of the service providers. Additionally, endorsements and reviews by influencers and opinion leaders on these platforms significantly promote the private group tour market. |
Overview of China's Outbound Tourism Market
Amidst China's economic growth and consumer upgrade, the number of outbound tourists has continually increased, with per capita spending per trip remaining high, which has fostered the development of the country's outbound tourism market. However, impacted by the pandemic, there was a significant decline in the scale of the outbound tourism market since 2020. Nevertheless, with strong government support and gradual pandemic control, the market began to recover from the first half of 2023. During the Spring Festival period in 2024, approximately 6.83 million cross-border travels were recorded, with about 3.6 million outbound and 3.23 million inbound travels, nearly reaching the levels of the same period in 2019. A joint report by EternityX and Tongcheng Travel titled "2024 Forecast of Chinese Residents' Outbound Travel Demand Trends" revealed that 63.9% of respondents plan to travel abroad within the next year, with over 40% planning more than two outbound trips in 2024. According to the China Tourism Academy, the number of outbound travelers is expected to reach 130 million by 2024. From 2019 to 2023, the size of China's outbound tourism market increased from USD 254.6 billion to USD353.2 billion, with an annual compound growth rate of approximately 8.52%. In the forecast period, driven by the gradual recovery from the pandemic, China's outbound tourism market is expected to grow from USD 464.2 billion in 2024 to USD 799.6 billion by 2028, with a compound annual growth rate of approximately 14.56%.
Source: ZPI
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Drivers of the Chinese Outbound Tourism Market
| · | Increase in Disposable Income. As China's economy continues to develop and consumer spending evolves, there has been a notable increase in per capita disposable income in recent years. This increase in purchasing power has led more individuals to opt for international travel and to spend more on travel services, thereby driving demand in the outbound tourism industry. |
| · | Growth in Outbound Tourist Numbers. Since 2020, the number of outbound tourists significantly decreased due to the pandemic, resulting in a considerable contraction of the outbound tourism market. However, with the gradual recovery from the pandemic and the reopening of borders, the number of outbound tourists is expected to rise swiftly, potentially reigniting growth in the outbound tourism market. |
| · | Rise of Content-Sharing Social Media Platforms. With the advancement of mobile internet, social media platforms have gained popularity among consumers. Platforms like Xiaohongshu (Little Red Book) have attracted a vast number of users to share their thoughts and experiences. These content-sharing platforms have become effective sales channels for travel products due to influencers and key opinion leaders recommending products and services, significantly propelling the rapid development of the outbound tourism market. |
| · | Increasing Demand for Premium Services. Underpinned by steady economic growth and upgraded consumer spending, there is a growing demand for enhanced travel experiences in outbound tourism. For instance, consumers now prefer reputable and regular charter services over uncomfortable modes of transport like buses or privately operated charter services. These quality charter services ensure a comfortable ride, safety, and are often accompanied by qualified guides who provide insights into local history and attractions. |
Analysis of the Chinese-Language Private Tour Services Market Abroad
Chinese-language private tour services abroad cater specifically to tourists traveling to destinations outside China, offering tours and charter services primarily in Chinese. These services emphasize personalization, customization, and privacy. Unlike traditional group tours, private tours typically consist of a small number of tourists with itineraries, sightseeing, and accommodations tailored to their preferences. Chinese-language services are a key feature, ensuring that tourists can communicate seamlessly with guides and service providers, enhancing their understanding and experience of international travel.
Overview of the Chinese-Language Private Tour Services Market
From a global perspective, as the global economy recovers and living standards improve, the tourism market continues to grow, particularly in Asia. China, as the largest outbound tourism market in Asia, is experiencing ongoing increases in both the number of outbound tourists and their spending power. In 2023, the market size for Chinese-language private tour services abroad was USD 14.1 billion. With the expected rise in outbound travel and the growing demand for Chinese-language services, the market is projected to reach USD 29.3 billion by 2028.
Source: ZPI
Market Size and Forecast of Overseas Chinese Private Group Tour Services by Chartered Vehicles
In 2023, the market size of overseas Chinese private group tour services via chartered vehicles is estimated to be around USD 8.7 billion. As outbound travel demand among Chinese tourists continues to grow, there is a corresponding increase in demand for travel products that offer services in Chinese. This trend has encouraged more travel service providers to incorporate Chinese language services to cater to the needs of Chinese tourists. Compared to traditional group tours, private group tours with chartered vehicles offer a superior travel experience and services, meeting the individualized needs of travelers. Consequently, the market for overseas Chinese private group tour services via chartered vehicles is expected to maintain rapid growth in the coming years. By 2028, it is projected that the market will reach approximately USD 18.1 billion.
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Source: ZPI
Key Drivers of the Overseas Chinese Private Tour Services Market
| · | Growth in Outbound Tourism Demand from Chinese Travelers. With the sustained development of China's economy and the continuous improvement in living standards, the demand for outbound tourism among Chinese travelers has shown unprecedented growth. This trend has created significant opportunities for the market of overseas Chinese private tour services. As the number of outbound travelers continues to rise, Chinese tourists are increasingly seeking diversified travel services. They are moving away from traditional group tours and free independent travel, preferring personalized and customized travel services instead. Travelers are increasingly seeking to immerse themselves in local cultures and establish closer connections with locals, aiming to gain more unique and memorable travel experiences. |
| · | Cultural and Language Needs. During their travels abroad, cultural and language barriers often pose significant challenges for tourists. Overseas Chinese private tour services enable Chinese travelers to better understand and integrate into local cultures. Fulfilling these cultural and language needs not only enhances the travel experience for tourists but also further drives the development of the market for overseas Chinese private tour services. |
| · | Enhancement of Service Quality. In today’s highly competitive tourism market, service quality has become a key weapon for travel service providers competing for market share. For overseas Chinese private tour services, providing high-quality, personalized experiences is at the core of their competitive advantage. A strong reputation and positive word-of-mouth further drive the development of this market segment, allowing it to stand out in a competitive environment. |
| · | Advancements in Information Technology. The application of internet technology enables travel service providers to establish global online service platforms for real-time interaction and communication with consumers. Through online booking, payment, and review functionalities, consumers can more conveniently access travel services, while providers can collect and analyze consumer behavior data in real-time, gaining a more accurate understanding of consumer needs and preferences. Digital marketing has also become a crucial method for travel service providers to expand their market. Through social media, short videos, and other digital marketing channels, providers can more visually showcase their products and services, attracting more consumer attention and interest. Additionally, digital marketing enables precise targeting and filtering of potential customer groups, enhancing marketing effectiveness and conversion rates. |
| · | Brand Building and Business Model Innovation. The introduction of intelligent services has become key to enhancing the tourist experience. The application of big data and artificial intelligence technologies plays a crucial role in precisely analyzing tourist needs and offering customized travel solutions. Furthermore, brand development and marketing promotions are essential for travel service providers to gain a competitive edge. Strengthening brand development, improving brand recognition, and reputation enables providers to attract more potential consumers. Additionally, utilizing diverse marketing tools such as social media marketing and short video marketing helps providers to better promote their products and services, attracting more customers. |
| · | Policy Environment and International Cooperation. Governments worldwide have recognized the importance of tourism for economic growth, cultural exchange, and enhancing international influence, leading to the introduction of various policies to promote the development of the tourism industry. These policies not only benefit the prosperity of the entire tourism sector but also provide a more stable and favorable development environment for the overseas Chinese private group tour service market. Measures like visa facilitation, tourism tax incentives, and infrastructure development have increased the customer base for these services, boosted tourists' willingness to spend, and provided more comprehensive support services. Data from the China Consular Service Network indicate that as of early October 2023, China had mutual visa exemption agreements with 153 countries and regions, an increase of 7 since 2019. |
| · | Advancements in Information Technology. The application of internet technology enables travel service providers to establish global online service platforms for real-time interaction and communication with consumers. Through online booking, payment, and review functionalities, consumers can more conveniently access travel services, while providers can collect and analyze consumer behavior data in real-time, gaining a more accurate understanding of consumer needs and preferences. Digital marketing has also become a crucial method for travel service providers to expand their market. Through social media, short videos, and other digital marketing channels, providers can more visually showcase their products and services, attracting more consumer attention and interest. Additionally, digital marketing enables precise targeting and filtering of potential customer groups, enhancing marketing effectiveness and conversion rates. |
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Overview of China's Collective Mobility Travel Services Market
Market Size of China's Collective Mobility Travel Services from 2019 to 2028
Collective Mobility travel refers to the transportation of passengers in groups using passenger vehicles with more than seven seats, excluding municipal buses used for public transit. The primary use cases for Collective Mobility travel services include customized business travel charters, intercity express services, and others.
In terms of total expenditure, China's Collective Mobility travel services market reached RMB90.17 billion in 2023, with an annual compound growth rate of approximately 2.38% from 2019 to 2023. The market was significantly impacted by the COVID-19 outbreak and government lockdown measures in 2020, causing the market size to decrease to RMB48.10 billion. The year 2020 also saw a decrease in online penetration rates, marking the lowest point in recent years.
With the gradual recovery from the pandemic beginning in the first half of 2023, travel activities are returning to normal levels. Supported by advantages in economics, efficiency, and energy-saving, the Collective Mobility travel services market is projected to reach RMB188.18 billion by 2028. The expected compound annual growth rate from 2024 to 2028 is approximately 15.04%.
Source: ZPI
Market Drivers for China's Online Ride-Hailing Services
| · | Application of Advanced Technologies. Online concentrated ride-hailing providers are benefiting from the rapid development and successful application of technologies such as big data and cloud computing, enhancing operational efficiency and expanding their user base. For instance, by gathering individual boarding details and employing ant colony algorithms along with thermodynamic charts, optimal commuting routes can be established, reducing unnecessary stops and saving travel time, thus enhancing travel efficiency. Improved service quality will further propel market growth. |
| · | Favorable Regulatory Environment. Given the environmental benefits of reducing pollution and saving energy, the Chinese government encourages the adoption of green and collective travel modes. For example, the Ministry of Transport, in collaboration with other governmental bodies, issued the "Green Travel Action Plan (2019-2022)," which supports collective travel. Additionally, the promoted "Internet + travel" initiative also offers high-quality transportation services to the public. |
| · | Shift in Consumer Behavior Towards Concentrated Ride-Hailing. The outbreak of COVID-19 may alter consumer behavior in choosing transportation means. Compared to larger public transport options like high-speed trains and airplanes, concentrated ride-hailing services accommodate fewer passengers, thus reducing the risk of virus exposure and infection. Moreover, these services provide more convenience, comfort, and flexibility, making them a preferred alternative to larger public transport modes, which in turn drives market growth. |
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Our Mission
Our mission is to make mobility easier and smarter by providing customers with customized commuter shuttle, charted car and bus, and travel services around the world through our global platform powered by big data and advanced algorithms.
Overview
We are an exempted company incorporated in the Cayman Islands. As a holding company with no material operations, our operations were conducted by 1) our wholly-owned subsidiary Wetour in the United States; 2) our direct investment in Youba Tech and its subsidiary; and 3) through VIE Agreements with Youba Tech. This is an offering of the Ordinary Shares of the exempted company incorporated in the Cayman Islands. You are not 100% investing in, the VIE, as we hold 50% equity interests in Youba Tech and 50% VIE Interests in Youba Tech through VIE agreements. VIE Interests are not considered as equity interest. Through the VIE Agreements among WFOE, Youba Tech and Individual Registered Shareholders, which have not been tested in a court of law, we are regarded as the primary beneficiary of Youba Tech for accounting purpose, and, therefore, we are able to consolidate the financial results of Youba Tech in our consolidated financial statements in accordance with U.S. GAAP. However, the VIE structure cannot completely replicate a foreign investment in China-based companies, as we only hold 50% equity interest in the VIE and its subsidiary and do not and may never hold the equity interests over 50% in the VIE and its subsidiary. Instead, the VIE structure provides contractual exposure to foreign investment in us. See “Corporate History and Structure — Contractual Arrangements with the VIE and Individual Registered Shareholders” for a summary of these VIE Agreements.
We operate on a business model of “Mobility-as-a-Service” (“MaaS”) to identify and solve inefficiencies associated with inflexible or low-quality mobility solutions for customers around the world under different scenarios with our comprehensive digital platforms. We offer customized commuter shuttle service, chartered car and bus service, packaged tour service and other services to our customers for business and leisure travels.
We are dedicated to serving the collective mobility market in China and beyond. Since our inception, the VIE and its subsidiary have received awards at national, provincial and municipal levels, such as Asian Games Pass Smart Travel Partner (other partners include Alipay, Citizen Card, Nuwu Culture); National High-Tech Enterprise; Zhejiang Hi-Tech Small and Medium Enterprise; recommended partner for Zhejiang Province Artificial Intelligence City Project; and partner for Hangzhou City Brain Digital Travel Project. The VIE and its subsidiary are also recognized as Hangzhou Songcheng Scenic Area first-class agency; Hangzhou star hotel first-level contracting agency to partner with hotels like Oaks Crowne Plaza, Cordis Hotel, and InterContinental; and first class cooperative partner for Hangzhou representative offices in multiple provinces.
Our Business Strategies
We intend to drive the growth of our business by executing on the following strategies:
| · | Further Integrate our platform to a comprehensive ecosystem. We have built our and the VIE’s competitive advantage with an AI-augmented platform. We plan to continuously develop our platform into a comprehensive mobility ecosystem by building vertical integration within the platform for information flow and capital flow, external horizontal integration between our corporate customers, and end-to-end integration for complete product life cycle value chain. |
| · | Enhance Big Data and AI Innovation. Business travel is increasingly driven by technology. Strengthening technological innovation is one of our main strategic priorities to enhance the user experience. By further leveraging our growing travel-related database and powerful data analysis capabilities, we are able to more precisely analyze user behavior and intent, provide personalized service matching and help users make fast and informed decisions. We will continue to attract, train and retain more talent in technology, research and development. As technologies and means for human-machine interactions continue to advance, we will strive to adapt to new technologies and formats with a view to becoming an intelligent travel assistant for our users by investing a portion of the net proceeds of this offering in research and development activities. |
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| · | Expand our customized tour and chartered car and bus services around the world. In March 2022, we have started offering customized tour service in North America under the brand name “Wetour.” We plan to vigorously develop the “Wetour” brand to build our global online customized chartered car and bus travel platform. We will focus on expanding services for Chinese outbound tourists after the pandemic and meeting the needs of overseas Chinese for car use and private customized travel. To build the “Wetour” brand, we plan to 1) increase the exposure and popularity of the “Wetour” brands on new media channels such as Xiaohongshu and through precise marketing and promotion at railway stations and airport terminals; 2) build one-stop customized chartered car and bus platform for international travel with online booking for scenic spots around the world and local experience travel routes to integrate air travel, car service, lodging and touring for customers; 3) expand our partnership with major online travel agencies such as Ctrip, Fliggy, and Expedia to establish new online channels to attract more customers; and 4) provide more diversified international travel solutions for Chinese corporate customers by cooperating with international and local travel agencies, high-end membership organizations, bank wealth management departments and international airlines. |
| · | Improve product content innovation capabilities. We plan to drive continued business growth by enhancing our content production and distribution capabilities. Content is an integral part of our business, especially for customized travel business. We will launch diversified and creative content formats: images, short videos, live broadcasts, and recommend the most relevant customized product content to our users. We plan to provide innovative content production tools and an efficient content reward mechanism to encourage users, professional travelers, Internet celebrities and the third party social media platforms to jointly develop different customized travel itineraries and further increase user stickiness order rate of users on the platform. |
| · | Geographically broaden our service coverage. The service we provide outside of China has achieved the highest revenue growth rate. Our revenues generated from services outside China grew approximately 127% from RMB14,615,781 for the year ended June 30, 2023 to RMB33,218,387 ($4,571,003) for the year ended June 30, 2024. We plan to expand our global service and platform by continuing to maintain strategic collaborations with large online travel platforms as their vertical business supplier, cooperating with local fleet drivers and tourist guides, and increasing online marketing and short video traffic advertising. |
| · | Pursue strategic alliances, acquisitions and investments. We plan to selectively seek acquisitions, investments, joint ventures and collaborations highly strategic and complementary to our business and operations. In particular, we may consider acquiring some customized travel service brands to complement our existing offerings and services. We will also strengthen our vertical integration and strategic partnerships with content providers to further expand our partner network. In an effort to further improve our user traffic, we may also consider establishing strategic partnerships with large online travel platforms such as Ctrip, Fliggy, Expedia. |
Our Strengths
We believe the following strengths have contributed to our success:
· | High Degree of Digitalization. To ensure the high operation efficiency and superior consumer experience, we have applied digital technology in all our operating scenarios. Our self-developed internal business and user management platform enables all departments to better coordinate their work and effectively complete automatic online process of each order entry, order dispatch, settlement and invoicing. Our in-depth analysis of these accumulated data not only enables us to better understand user preferences and behavior and develop user-friendly products to assist users in making informed decisions, it also assists us in identifying potential target marketing and cross-selling opportunities. In addition, our unique cloud bidding dispatching system can dispatch orders to drivers in batches according to the price suggested by the system. Our car and bus drivers can make real-time feedback quotations according to their own circumstances. The process can improve car usage efficiency and adjust the sales price of the product more accurately. |
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| · | Abundant and Integrated Industry Resources. Since we started operation in 2019, we have accumulated abundant industry resources through our strategic relationship with our key suppliers. Our online channels include mobile apps; official websites; mini programs based on WeChat and Alipay, which have the two largest user base in China; interfaces with three major online travel agency platforms in China, Ctrip, Fliggy, and Tongcheng; and certified partnership with the prominent content publishing platform Xiaohongshu. We also work with large traditional travel agencies and online platforms around the world (such as Alaska Skylar Travel LLC, Alaska Aurora Travel LLC, Expedia TAAP, Viator Partner, and Mei Tour) as well as online bus booking platform gotobus. In addition, in mainland China, we have more than 11,000 dispatchable vehicles to satisfy our customers’ demand under different scenarios. Outside China, we have around 10,000 drivers providing customized chartered car and bus services. Our industry resources have paved the way for our competitive position in providing mobility solutions for Chinese-speaking customers around the world. |
| · | User-Centered Services. It has always been our priority to provide excellent service to our customers with genuine care. Since our inception, we have continued to focus on building user trust, and constantly improving the platform interface to provide users with a smooth, efficient and transparent booking experience. We provide 24/7 Chinese and English itinerary butler support to serve users in every aspect. We also provide one-stop after-sale support, including pre-trip alerts, major accident compensation, refund policy for special circumstances, and emergency support. |
| · | Diverse and Highly Customizable Travel Solutions for Different Service Scenarios. Our travel solutions are creative and highly customizable with a variety of themed travel routes to meet the needs of different customers. We constantly cooperate with travel enthusiasts to update thousands of customized routes in around the world and update our product contents on the platform in real time according to season changes and the actual situation of the scenic spots. Compared with traditional travel agencies and online group tour platforms, we provide users with more customization options and personalized adjustments with better, in depth, and more suitable travel experience. Unlike other travel industry participants, we provide transportation services in diverse scenarios such as chartered cars and buses with chauffeurs and tourist guides, customized small group day trips, school field trips, business travels, etc. Our diverse travel solutions can satisfy differentiated needs and requirements and assist us in attracting an increasing number of customers, particularly Chinese-speaking customers who want in-depth travel experience but face language barriers. We work closely with a wealth of drivers and tourist sites to design products that meet the individual needs of our customers and use our proprietary historical travel product pricing data, taking into account of car usage time, mileage, road conditions, and local consumption expenses to update and optimize our product pricing model in real time. |
| · | Experienced Team. We have a management and operation team with extensive industry experience. Our management team is experienced in corporate management with international vision and our operation team has specialized experience in providing travel and chartered vehicle services around the world. They bring their years of experiences with deep understanding of the industry and provide resources for customers and suppliers in various fields. |
Our Challenges
In 2020, we experienced the sudden impact caused by the COVID-19 global pandemic. In 2021, COVID-19 pandemic continued to impact our operations. In 2022, there have been outbreaks of the Omicron variant of the COVID-19 in China, and the government restrictions and temporary lockdowns in combating the pandemic. China began to modify its zero-COVID policy at the end of 2022, and most of the travel restrictions and quarantine requirements were lifted in December 2022, causing cases of COVID-19 to remain elevated across China and straining local healthcare systems. We have adjusted various aspects of our operations to adapt to travel demand fluctuations decreasing with elevated cases and surging with lifted restrictions. However, the situation in China has significantly improved since then, and the WHO declared that COVID-19 was no longer a public health emergency of international concern on May 4, 2023. Our revenues decreased by 70.2% from RMB154,226,006 for the year ended June 30, 2023 to RMB45,976,421 ($6,326,566) for the year ended June 30, 2023. The decrease was mainly due to the significant decrease of revenue in the domestic market, which was primarily attributed to the adjustment in our business strategy to focus more on the overseas market, mainly due to (i) relatively lower gross margin rate of domestic market compared to overseas market; (ii) the difficulty of increasing return on investment in expanding the market share of domestic market particularly that is mainly comprised of middle and low-end consumer groups; (iii) the increasing demand for overseas tourism with the resumption of global communication and international flights in the post-epidemic eras. We are continually monitoring the status of COVID-19 and its impact on our operations.
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To expand our market around the world, we may face intensive competition on price, quality of services, and technology. We may not be able to compete with traditional international travel agencies for customers, driver resources, strategic partners such as travel agencies, airlines, hotels and tourist attraction sites. We may be required to invest significant capital to access customers, driver resources and quality travel product supplier information.
Overall, we require additional capital to develop new products, enter into new markets and drive our future growth. However, we have difficulty obtaining sufficient financing from commercial banks in China as these traditional commercial banks prefer having real assets as collaterals for their loans. We have also assessed the capital market of China, and we believe that it is difficult for a company like us to seek for financing in China.
Our Competition
There are approximately a hundred online collective mobility service platforms in China and online collective mobility service market is highly fragmented. The online collective mobility service platforms are categorized in two types based on their business models. Self-operated platforms like Youba Tech provide collective mobility service to end users by collaborating with fleet providers and generate revenues from transportation fares. They typically use real time travel data analytics technology to improve vehicle usage efficiency and travel safety. Dealmaking facilitation platforms, on the other hand, provide collective mobility service to end users by matching customers’ demand with vehicle supply and generate revenues from matching service fees. Their business model requires less assets and less fleet management. However, these platforms may not be able to compete with self-operated platforms in terms of consistent service quality, travel safety and vehicle usage efficiency.
Our Online Platforms
We deliver our CMS product offerings primarily through our online platforms, which predominately comprise (i) our WeChat-based mini programs and other third-party partners, (ii) our mobile apps, and (iii) our websites.
| · | Mini programs. We primarily operate our self-developed mini programs predominantly on Tencent’s WeChat platform, which can be accessible by WeChat users from the drop-down list of the favorite or most frequently used mini programs in WeChat. WeChat is one of the largest social media platforms in China in terms of user base. Our mini programs direct WeChat users to our interfaces where the functions mirror our own mobile apps and websites, and enable WeChat users to, among other things, browse, compare and purchase our travel products, and receive push notifications such as pre-trip alerts, all within WeChat without leaving the app or downloading additional apps. Moreover, by using our mini programs, WeChat users authorize us to access, collect, and store data in our database to provide services and perform data-analysis and other functions to improve our services. We believe that the simplicity of accessing our WeChat-based mini programs not only grows our user traffic and engagement but also enriches services offered to WeChat users. We also operate our mini programs on platforms such as Taobao, Ctrip, and Xiaohongshu to tap into their users and search traffic. Although our major third-party partner, WeChat, does not charge commissions on transactions initiated on its platform, Taobao and Ctrip respective commissions are 2.5% and 4.0%. However, the revenues derived from Taobao and Ctrip only account for no more than 1% of our total revenues in the year ended June 30, 2023. The revenues derived from Taobao and Ctrip account for 5% and 7% of our total revenues in the year ended June 30, 2024, respectively. Unlike other third-party partners, Xiaohongshu serves purely as a promotion site to direct interested users to our own mini-program and does not charge commissions for that. |
| · | Mobile Apps and Websites. Our users can reach us through our mobile apps which are available on both Android and iOS operating systems and our proprietary websites, www.wetourglobal.com, www.webus.vip, www.weixiaoba.vip, and www.ubus.vip. Both of our mobile apps and websites are built to enable access to our full travel product offerings with clear and functional interfaces. |
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Our Service Offerings
Packaged Tour Service
Our packaged tour service offers tailored packages to both individuals and group travelers, which include chartered bus service, itinerary consultation, sightseeing tour guide, accommodation arrangement. Our revenues from packaged tour service were RMB81,038,722 and RMB33,391,854 ($4,594,872) for the years ended June 30, 2023 and 2024, respectively. It accounted for approximately 52.5% and 72.7% of our total revenues for the corresponding fiscal years 2023 and 2024. We started the customizable travel service first in domestic market in December 2020 and expanded to the North America market in March 2022. We now provide services in a dozen more countries, including Japan, Korea, Singapore, and the United Arab Emirates. In line with our expectation, our revenues generated from international packaged tour services greatly increased from RMB7,856,737 to RMB23,385,774 ($3,217,990) for the years ended June 30, 2023 and 2024 and accounted for 9.7% and 70.0% of our total revenues from packaged tour service, respectively.
Customized Chartered Car and Bus Service
The customized chartered car and bus services are our answer to the demand for more flexible and less preplanned group travel, which ranges from one-day trips to several months of inter-province travel for both corporate customers and individual customers. We started the customized chartered car and bus service in March 2021. Through collective business development, we successfully utilized the industry resources from our major corporate customers, who have profound transportation industry experience and access to the local customer base. We also maintain long-term business relationships with our vehicle fleet operators to ensure there are sufficient vehicles and drivers for business expansion. Through the collaboration with our partners and fleet operators, we have connected travelers’ demand with transportation solutions, resulting in an increase in revenues from customized chartered car and bus service. Our revenues from customized chartered car and bus service decreased from RMB63,654,231 for the year ended June 30, 2023 to RMB10,730,641 ($1,476,586) for the year ended June 30, 2024, accounting for approximately 41.3% and 23.4% of our total revenues respectively. Starting from March 2022, with the impact of the COVID-19 global pandemic gradually faded away, we increased the offering of customized chartered car and bus service for customers travel outside of China by inviting local drivers join our online platform. Our revenues from customized chartered car and bus service provided outside of China grew approximately 45.5% from RMB6,759,044 for the year ended June 30, 2023 to RMB9,832,613 ($1,353,013) for the year ended June 30, 2024.
Our Mobile App
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Our User Scenarios
We provide transportation services in diverse scenarios such as business travel vehicles, tourist buses, family travels, group travels, wedding travels, school field trips, etc. Our diverse travel solutions can satisfy differentiated needs and requirements and assist us to attract increasing number of customers.
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China Market
To cater to different budgets and preferences, we provide different types of customized travel service by providing compressive services to cover transportation, accommodation, entertainment, meals and tour guide. Our offerings cover 5-seat cars to 55-seat buses to meet the needs for corporate conferences, school spring and fall field trips, corporate retirees entertainment and retreat events, employee team building events, business travels, weddings, exhibitions, and tournaments. In addition, as a high ranking and trusted partner with many traditional and online travel agencies, local tourist attraction sites, hotels and vehicle fleet providers, we are able to offer our tailored packages at competitive prices as compared to the prevailing market rate, which have attracted a growing number of customers.
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Our WeChat Mini Programs
Global Market
We operate our online customized chartered travel platform around the world under the brand “Wetour” and the Wetour app. We provide customized travel solutions to Chinese customers around the world, providing car services with Chinese-speaking drivers and tour guides. Our offerings include airport pickups and drop-offs in cities around the globe, single-day chartered vehicles, customized multi-day tours and premium small group tours, and. As a result, as of June 30, 2024, our Wetour platform has collaborated with more than 10,000 Chinese-speaking full-time drivers to cover over 80 popular urban areas around the world.
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Our International Travel Mobile App
Commuter Shuttle Service
The customers of our commuter shuttle service are predominately corporate entities who use our shuttle to transport their employees between predetermined starting points and destinations on a daily basis. We serve large corporate customers such as industrial parks, or enterprises in Zhejiang and its vicinity with our digitally administered shuttle buses, featuring online collection of boarding and boarding demand data, background heat map analysis, and automatic generation of optimal routes, boarding and boarding sites. Passengers purchase tickets online on the mini program or mobile app and websites, scan the QR code to check the ticket and get on the shuttle. Both our platform and customers can obtain real-time shuttle operation data to increase or decrease the number of shifts, pick-up and drop-off sites, and driving routes to optimize the operational efficiency of the bus line. Our revenues from commuter shuttle service decreased by approximately 80.5% from RMB9,507,054 for the year ended June 30, 2023 to RMB1,853,926 ($255,108) for the year ended June 30, 2024, primarily attributable to the termination in collaboration with two major customers. All revenues were contributed by the VIE and its subsidiary.
The following chart illustrates our commuter shuttle service to corporate customers:
Customers and Suppliers
Customers
We have a broad base of customers, which primarily consist of corporate customers such as enterprises, schools, industrial parks, and also other customers such as families and individuals. We have cultivated and maintained good relationships with our customers since our inception. We have a team of employees dedicated to enhancing our relationship with existing customers and developing relationships with prospective customers.
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Suppliers
Our suppliers primarily consist of fleets of buses, individual drivers, local tour agencies, online travel agencies, high speed railway stations, airports, hotels, online and mobile payment services, data storage, server hosting and bandwidth providers, and advertising and marketing service providers.
Marketing and Brand Awareness
Through a combination of online and offline marketing, brand promotion, and cross-marketing, we have created strong brands that are commonly associated in and outside China with customized mobility solutions. We will continue to use our focused marketing strategy to further enhance awareness of our brands and acquire new target users.
Brand Advertising
We conduct our brand campaigns through promotion activities in industrial parks, office buildings, and schools, advertising our brand on video streaming and new media platforms, logo displays on our cars and buses traveling at airports, railway stations, and bus stations, and designated parking spaces and billboards displaying our logos at our customers’ business locations. We also work with event organizers, and corporate customers in our marketing campaigns and embed our brand and travel products into event marketing channels. With these diverse channels, we believe that we have effective strategies to enhance brand awareness and user engagement and attract a new generation of users, and we have a unique advantage in our ability to develop truly multi-channel marketing solutions for global destinations.
Performance Advertising
We have contracted with Baidu, China’s leading online marketing channel, to prominently feature our websites and mobile application and to conduct public relations activities. We have also worked with prominent social media platforms to facilitate our services by redirecting their users to our mobile application and websites. In addition, we will be actively testing all kinds of innovative and rapidly growing mobile channels that may appeal to consumers.
Cross-Marketing
We have entered into cross-marketing arrangements with major PRC travel agencies and travel service platforms, e-commerce and internet companies, and other corporations. We are one of the top-rated travel service providers on Ctrip and Fliggy’s international travel segment.
Intellectual Property
Our intellectual property rights primarily include trademarks and domain names associated with the name “微巴士,” “未来巴士,” “优巴士” and “微途” and copyright and other rights associated with our websites, technology platform, booking software, and other aspects of our business. We regard our intellectual property as a critical factor contributing to our success, although we are not dependent on any patents, intellectual property related contracts or licenses other than some commercial software licenses available to the general public. We rely on trademark and copyright law, trade secret protection, and confidentiality agreements with our employees to protect our intellectual property rights. We require our employees to enter into agreements to keep confidential all information relating to our users, methods, business, and trade secrets during and after their employment with us. Our employees are required to acknowledge and recognize that all inventions, trade secrets, works of authorship, developments, and other processes made by them during their employment are our property.
As of June 30, 2024, we owned 26 registered trademarks, in various categories with the Trademark Office of the PRC Intellectual Property Administration and one registered trademark with the United States Patent and Trademark Office (“USPTO”). All of our trademarks were registered in or after 2018 and have an effective period of ten years.
As of June 30, 2024, we held 37 computer software copyrights and 1 other copyright registered with the PRC Copyright Administration. All of our copyrights were registered in or after 2020 and have an effective period of fifty years.
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As of June 30, 2024, we had four registered domain names in China, including www.wetourglobal.com, www.webus.vip, www.weixiaoba.vip, and www.ubus.vip, and we have full legal rights over these domain names. As of the date of this prospectus, all of our registered domain names were in effect.
Despite our and the VIEs’ efforts to protect ourselves from infringement or misappropriation of our and the VIEs’ intellectual property rights, unauthorized parties may attempt to copy or otherwise obtain and use our and the VIEs’ intellectual property. In the event of a successful claim of infringement and our and the VIEs’ failure or inability to develop non-infringing intellectual property or license the infringed or similar intellectual property on a timely basis, our and the VIEs’ business could be harmed. See “Risk Factors — Risks Related to Our Business and Industry— We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.” and “We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.”
Technology
Since our inception, we have been able to support the substantial growth of our online and offline data and transactions through our technology and infrastructure. We have built an information technology system architecture based on cloud-native technology that supports various aspects of our business, including our mobile apps, official websites, mini programs, and open platforms. Advanced artificial intelligence, big data analysis and other core technologies have enabled our platform to maintain a technical advantage over competing products for more than a year. Our technology provides efficient and accurate marketing tools, and optimizes operational efficiency based on user preference analysis and accurate needs. Our system also provides standardized information input for travel departure and destination, as well as alias and pinyin associated functions, to empower quick and accurate searches for matching places.
Data Privacy and Security
Data security is critical to our operations. We and the VIE are committed to protecting our and the VIE’s customers’ personal information and privacy. We and the VIE have established and implemented policy on data collection, processing and usage. We have internal rules and policies in place to govern how we use and analyze personal information. We have established protocols, technologies and internal control systems to ensure that such information is not improperly accessed and disclosed. Before accessing our products and services, users must accept our user agreement and terms, whereby they agree to our collection, use and disclosure of their information in a manner that complies with appropriate laws and regulations. Internally, we have adopted a data encryption system to ensure the safe storage and transmission of data to prevent any unauthorized public or third-party members from accessing or using our data in any unauthorized way.
Employees
As of June 30, 2024, we had 27 employees, including 5 in management and administration, 4 in our customer service center, 10 in sales and marketing, 4 in financial, and 4 in product development including supplier management personnel and technical support personnel.
As required by regulations in China, we participate in various employee social security plans that are organized by municipal and provincial governments for our PRC-based employees, including pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and housing provident fund. We are required under PRC law to make contributions to employee benefit plans occasionally for our PRC-based employees at specified percentages of their salaries, bonuses and certain allowances of such employees, up to a maximum amount specified by local governments in China. We believe that we maintain a good working relationship with our employees and contract workers, and we have not experienced material labor disputes in the past. None of our employees and contract workers is represented by labor unions.
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Our Facilities
Our customer service center, principal sales, marketing and development facilities and administrative offices are located on premises comprising approximately 255.7 square meters in Hangzhou, China. We currently lease our facilities in Hangzhou. The lease terms on these premises expire on September 16, 2025. Youba Tech also owns a building of approximately 172.3 square meters mainly used as customer service center. We believe that we will be able to obtain adequate facilities, principally through the leasing of appropriate properties, to accommodate our future expansion plans.
Insurance
We and the VIE do not maintain any liability insurance or property insurance policies covering equipment and facilities for injuries, death or losses due to fire, earthquake, flood or any other disaster, which we believe is consistent with market practice in China. Consistent with customary industry practice in China, we and the VIE do not maintain business interruption insurance, nor do we and the VIE maintain key-man life insurance. Our drivers and vehicle fleet suppliers provide vehicle and liability insurance in compliance with the PRC regulations.
Licenses and Approvals
The following table sets forth licenses and approvals that our WFOE and the VIE are required to obtain for our and the VIE’s operations in China as of the date of this prospectus:
| Name | Type | Licenses and Approvals | PRC
Regulatory Authority |
Expiration Date | ||||
| Zhejiang Xinjieni Technology Co., Ltd., | WFOE | Business License | Hangzhou Administration for Industry and Commerce Yuhang Branch | August 30, 2052 | ||||
| Zhejiang Youba Technology Co., Ltd., | VIE Entity | Value-added Telecommunications License | Zhejiang Provincial Communications Administration | October 21, 2026 | ||||
| E-Hailing Business Permit | Hangzhou Transport Bureau | June 1, 2026 | ||||||
| Hangzhou Webus Travel Agency Co., Ltd., | VIE Entity’s Principal Subsidiary | Travel Agency License | Zhejiang Department of Culture and Tourism | Long term |
Legal Proceedings
We are currently not a party to any material legal or administrative proceedings. We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.
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This section sets forth a summary of the most significant rules and regulations that affect the business activities of us and the VIE in China.
Regulations of People’s Republic of China
This section sets forth a summary of the most significant rules and regulations that affect our business activities in China through our wholly owned subsidiary.
Regulations Relating to Foreign Investment
Negative List of Industries for Foreign Investment
Investment activities in the PRC by foreign investors were 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 the 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: “encouraged,” “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. The NDRC and the MOFCOM promulgated the Special Administrative Measures (Negative List) for Foreign Investment Access (2021 Edition) (the “2021 National Negative List”) and the Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones (2021 Edition) (the “2021 FTZ Negative List”) (collectively the “2021 Negative Lists”) on December 27, 2021, which took effect on January 1, 2022. Industries listed on the 2021 Negative Lists are divided into two categories: restricted and prohibited. Industries not listed on the 2021 Negative Lists are generally deemed as constituting a third “permitted” category. The establishment of wholly foreign-owned enterprises is generally allowed in permitted industries. Some restricted industries are limited to equity or contractual joint ventures, while in some cases, Chinese partners are required to hold the majority interests in such joint ventures. In addition, projects falling under the restricted category are subject to higher-level government approvals. Foreign investors are not allowed to invest in industries in the prohibited category. Industries not listed in the Negative List are generally open to foreign investment unless specifically restricted by other PRC regulations. Any domestic enterprise engaging in businesses prohibited by the 2021 Negative Lists that lists, issues securities and trades shares overseas must obtain pre-approval consent from relevant competent regulator; overseas investors must not engage in the operation and management of the enterprise, and the percentage of foreign shareholding is subject to the relevant provisions in the administrative measures for domestic securities investments by foreign investors.
To comply with PRC laws and regulations, we rely on equity investment with our subsidiary to operate our business in China. See “Risk Factors—Risks Related to Our Corporate Structure—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 using the proceeds of this offering to make loans to or make additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”
Foreign Investment Law
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which became effective on January 1, 2020 and replace three existing laws on foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations. Furthermore, the Implementing Regulations of the Foreign Investment Law of the PRC, or the Implementing Regulations of FIL, was promulgated on December 26, 2019 and became effective on January 1, 2020. 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 invested enterprises in China. The Foreign Investment Law establishes the basic framework for the access to, and the promotion, protection and administration of foreign investments in view of investment protection and fair competition.
According to the Foreign Investment Law and the Implement the Implementing Regulations of FIL, “foreign investment” refers to investment activities directly or indirectly conducted by one or more natural persons, business entities, or otherwise organizations of a foreign country (collectively referred to as “foreign investor”) within China, and the investment activities include the following situations: (i) a foreign investor, individually or collectively with other investors, establishes a foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other like rights and interests of an enterprise within China; (iii) a foreign investor, individually or collectively with other investors, invests in a new project within China; and (iv) investments in other means as provided by laws, administrative regulations, or the State Council.
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The NDRC and the MOFCOM promulgated the Special Administrative Measures (Negative List) for Foreign Investment Access (2021 Edition) (the “2021 National Negative List”) and the Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones (2021 Edition) (the “2021 FTZ Negative List”) (collectively the “2021 Negative Lists”) on December 27, 2021, which took effect on January 1, 2022. Compared to the last Special Administrative Measures for Market Access of Foreign Investment (Negative List) promulgated by the NDRC and the MOFCOM in June 2020, the 2021 Negative Lists cuts down the number of items restricted or prohibited to foreign investors from 33 to 31, widening access to more industries and fields. However, the 2021 Negative Lists prescribe that any domestic enterprise engaging in businesses prohibited by the Negative Lists that lists, issues securities and trades shares overseas must obtain pre-approval consent from relevant competent regulator; overseas investors must not engage in the operation and management of the enterprise, and the percentage of foreign shareholding is subject to the relevant provisions in the administrative measures for domestic securities investments by foreign investors. The Foreign Investment Law provides that foreign invested entities operating in foreign restricted or prohibited industries will require market entry clearance and other approvals from relevant PRC governmental authorities. The current industry entry clearance requirements governing investment activities in the PRC by foreign investors are set out in 2021 Negative Lists.
Furthermore, the Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within five years after the implementing of the Foreign Investment Law.
In addition, the Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among other things, that local governments shall abide by their commitments to the foreign investors; foreign-invested enterprises are allowed to issue stocks and corporate bonds; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; mandatory technology transfer is prohibited; and the capital contributions, profits, capital gains, proceeds out of asset disposal, licensing fees of intellectual property rights, indemnity or compensation legally obtained, or proceeds received upon settlement by foreign investors within China, may be freely remitted inward and outward in RMB or a foreign currency. Also, foreign investors or the foreign investment enterprise should be subject to legal liabilities for failing to report investment information in accordance with the requirements.
Regulations Relating to Cyber Security and Data Security
Cyber Security Law
The SCNPC promulgated the Cyber Security Law in November 2016, which became effective in June 2017, to protect cyberspace security and order. Pursuant to the Cyber Security Law, any individual or organization using the network must comply with the Constitution and the applicable laws, follow the public order and respect social moralities, and must not endanger cyber security, or engage in activities by making use of the network that endanger the national security, honor and interests, or infringe on the fame, privacy, intellectual property and other legitimate rights and interests of others.
The Cyber Security Law sets forth various security protection obligations for network operators, which are defined as “owners and administrators of networks and network service providers”, including, among others, complying with a series of requirements of tiered cyber protection systems, verifying users’ real identity, localizing the personal information and important data gathered and produced by key information infrastructure operators during operations within the China and providing assistance and support to government authorities where necessary for protecting national security and investigating crimes.
Data Security Law
The Data Security Law of the PRC, which was promulgated by the SCNPC in June 2021 and took effect in September 2021, provides that China shall establish a data classification and grading protection system, formulate the important data catalogs to enhance the protection of important data. Processors of important data shall specify the person responsible for data security and management agencies to implement data security protection responsibilities. Relevant authorities will establish the measures for the cross-border transfer of important data. If any company violates the Data Security Law of the PRC to provide important data outside China, such company may be punished by administration sanctions, including penalties, fines, and/or suspension of relevant business or revocation of the business license.
The Opinions on Strictly Cracking Down on Illegal Securities Activities in Accordance with the Law, which were issued by the General Office of the State Council and another authority in July 2021, require to speed up the revision of legislation on strengthening the confidentiality and archives coordination between regulators related to overseas issuance and listing of securities, and improvement to the legislation on data security, cross-border data flow, and management of confidential information. On December 28, 2021, the Cyberspace Administration of China and other related authorities released the Measures for Cybersecurity Review, or the Cybersecurity Review Measures, which came into effect on February 15, 2022 and replaced the original Measures for Cybersecurity Review promulgated on April 13, 2020. The Cybersecurity Review Measures provides that, among others, an application for cyber security review shall be made by an issuer who is an internet platform operator before such issuer’s securities may be listed in a foreign country if the issuer possesses personal information of more than one million users, and that the relevant governmental authorities in the PRC may initiate cybersecurity review if such governmental authorities determine that an operator’s cyber products or services or data processing affect or may affect national security.
On November 14, 2021, the Cyberspace Administration of China promulgated the Network Data Security Administration Regulations (Draft for Comments) (the “Draft Data Security Regulations”), which propose to provide more detailed guidelines on the current rules on various aspects of data processing, including the processors’ announcement of data processing rules, obtaining consents and separate consents, security of important data and cross-border transfer of data, and further obligations of platform operators. Specifically, the Draft Data Security Regulations propose to provide that data processors conducting the following activities shall apply for cybersecurity review: (i) merger, reorganization or spin-off of internet platform operators that possess a large number of data resources related to national security, economic development and public interests that affects or may affect national security; (ii) listing abroad of data processors processing the personal information of more than one million users; (iii) listing in Hong Kong of data processors that affects or may affect national security; and (iv) other data processing activities that affect or may affect national security. The Draft Data Security Regulations also requires data processors processing over one million users’ personal information to comply with rules on processors of important data, including but not limited to carry out the data security assessment annually and file the report with competent authorities.
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The Company has an internal management system responsible for data security with designated supervisors. The supervisors lead regular data security evaluations and take all necessary measures to address any risks. In addition, all employees who may have access to the Company’s data are required to sign confidentiality agreements and attend data security training regularly. The Company also subscribes to cloud-based data services with a reputable provider for data storage, backup, risk monitoring, and recovery. Additionally, the Company deployed an enterprise-level data protection system for more elevated security.
The Measures for Security Assessment for Outbound Data Transfer
Users of our U.S. subsidiary, Wetour, are primarily Chinese tourists, and the user data is stored in the United States. Such data will be subject to the Cyber Data Security Measure (Draft) and data security regulations. In addition, outbound data transfer regulations may become applicable to user data of Wetour if we ever transfer any data to places outside of the PRC.
On July 7, 2022, the CAC promulgated the Measures for Security Assessment for Outbound Data Transfer, which became effective on September 1, 2022. The Measures apply to the security assessment of Important Data and personal information collected and generated during operation within the territory of the People’s Republic of China and transferred abroad by a data handler. Specifically, the Measures for Security Assessment for Outbound Data Transfer to provide that where a data handler transfers data abroad under any of the following circumstances, it shall, through the local Cyberspace Administration at the provincial level, apply to the CAC for security assessment for the outbound data transfer: (1) a data handler who transfers Important Data abroad; (2) a critical information infrastructure operator, or a data handler processing the personal information of more than one million individuals, who, in either case, transfers personal information abroad; (3) a data handler who has, since January 1 of the previous year cumulatively transferred abroad the personal information of more than 100,000 individuals, or the sensitive personal information of more than 10,000 individuals, or (4) other circumstances where the security assessment for the outbound data transfer is required by the CAC.
As of the date of this prospectus, we have not transferred any user information to places outside of the PRC. We do not believe we will be subject to the Measures for Security Assessment for Outbound Data Transfer, considering (i) we do not anticipate reaching the one million threshold to trigger the assessment by the CAC, and (ii) we do not anticipate to transfer any user information outside of the PRC after the offering. As advised by AllBright, we are not currently subject to the outbound data transfer regulations because outbound Chinese tourists using our services must provide their information on Wetour’s website and applications, which were established and maintained in the U.S. Therefore, there is no data transferred across the border of PRC by us.
Furthermore, with the gradual relaxation of policies on the prevention and control of COVID-19 in the PRC, we anticipate outbound travel by PRC residents will increase significantly. Correspondingly, although we do not anticipate transferring any user information outside of the PRC after the offering, our PRC users may have the potential needs to make reservations inside PRC and enjoy travel services overseas. Under such circumstances, we may need to transfer user data outside of the PRC to Wetour or our overseas business partners to satisfy our PRC users’ needs and such user data is mainly the user’s information required for reservation such as the user’s name and contact information which we believe is not Important Data or sensitive personal information; if we cumulatively transfer abroad the personal information of more than 100,000 PRC users, we believe we will be subject to assessment by the CAC.
In the circumstances we may be subject to such requirements, we believe we would obtain approval from the CAC. However, failure to pass such requirements and/or to comply with the data privacy and data security requirements could subject us to penalties, damage its reputation and brand, and harm its business and the results of operations. According to the Personal Information Protection Law, promulgated on August 20, 2021 by the Standing Committee of the National People’s Congress (“SCNPC”) and became effective on November 1, 2021, if we fail to comply with relevant regulations, regulatory agencies will order us to rectify such noncompliance, give us a warning, and the illegal gains shall be confiscated. Applications that illegally process personal information shall be ordered to suspend or terminate the provision of services. Those who refuse to make corrections shall be fined up to RMB1million; A fine of not less than RMB10,000 but not more than RMB100,000 shall be imposed on the directly responsible supervisors and other directly responsible personnel. If the regulatory agencies find the above-mentioned illegal acts to be serious, the department responsible for personal information protection at or above the provincial level shall order rectification, confiscate the illegal gains, impose a fine of not more than RMB50 million or not more than 5% of the violator’s revenue in the last fiscal year and may also order the suspension of relevant business activities or the suspension of all business activities for rectification, notify the relevant competent department to revoke the relevant business license or revoke all the business licenses possessed by the violator. Under such circumstances, the directly responsible supervisors and other directly responsible personnel shall be fined not less than RMB100,000 but not more than RMB1 million, and they may be prohibited from serving as directors, supervisors, senior management personnel, and personal information protection personnel of relevant enterprises for a certain period of time. If a crime is constituted, criminal responsibility shall be pursued in accordance with the PRC law.
If we do not comply with the above regulations, including requirements on cybersecurity review, personal information protection, moving technology in and out of the PRC, or outbound data transfer, the regulatory agencies may also limit our ability to pay dividends outside of mainland China, delay or restrict the repatriation of the proceeds from this offering into mainland China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our securities. The CSRC, the CAC, or other PRC regulatory agencies may take additional actions requiring us, or advise us, to halt this offering before settlement and delivery of our Ordinary Shares.
Regulations on Intellectual Property Rights
The PRC has adopted comprehensive legislation governing intellectual property rights, including copyrights, patents, trademarks and domain names.
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Copyright. Copyright in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC promulgated in February 2010 which took effect in April 2010 (the “Copyright Law”) which has been amended by SCNPC on November 11, 2020 and became effective on June 1, 2021, and related rules and regulations. Under the Copyright Law, the term of protection for copyrighted software of legal persons is 50 years and ends on December 31 of the 50th year from the date of first publishing of the software.
Patent. The Patent Law of the PRC promulgated in December 2008, which became effective in October 2009 and recently has been amended by SCNPC on October 17, 2020 and became effective on June 1, 2021, provides for patentable inventions, utility models and designs. An invention or utility model for which patents may be granted shall have novelty, creativity and practical applicability. The State Intellectual Property Office under the State Council is responsible for examining and approving patent applications. The protection period is 20 years for inventions and 10 years for utility models and designs, all of which commence from the date of application of patent rights under current Patent Law of the PRC. The protection period has been slightly amended in recent amendment which became effective on June 1, 2021. The terms of protection for invention and utility patents will still be 20 years and 10 years, respectively, in general. The term of protection for a design patent will be extended from 10 years to 15 years. In addition, for invention patents, in case it is only granted after 4 years or more from its filing date or 3 years or more after a request for substantive examination date, the applicant can request for an extension of protection term for any unreasonable delay.
Trademark. The Trademark Law of the PRC promulgated in August 2013 which took effect in May 2014 (the “Trademark Law”) and it was last amended on April 23, 2019 and the amendments became effective on November 11, 2019. Its implementation rules protect registered trademarks. The Trademark Office of National Intellectual Property Administration, PRC, formerly the PRC Trademark Office of the State Administration of Market Regulation is responsible for the registration and administration of trademarks throughout the PRC. The Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. The validity period of registered trademarks is 10 years from the date of approval of trademark application, and may be renewed for another 10 years provided relevant application procedures have been completed within 12 months before the end of the validity period.
Domain Name. Domain names are protected under the Administrative Measures for the Internet Domain Names of the PRC promulgated by the Ministry of Industry and Information Technology of the PRC effective on December 20, 2004 and the Administrative Measures for Internet Domain Names promulgated by Ministry of Industry and Information Technology(“MIIT”), effective on November 1, 2017 (the “Domain Name Measures”). MIIT is the major regulatory body responsible for the administration of the PRC internet domain names. The Domain Names Measures has adopted a “first-to-file” principle with respect to the registration of domain names.
Regulations on Environmental Protection and Work Safety
Regulations on Environmental Protection
Pursuant to the Environmental Protection Law of the PRC promulgated by the Standing Committee of the National People’s Congress (“SCNPC”) on December 26, 1989, amended on April 24, 2014 and effective on January 1, 2015, any entity which discharges or will discharge pollutants during the course of its operations or other activities must implement effective environmental protection safeguards and procedures to control and properly treat waste gas, waste water, waste residue, dust, malodorous gases, radioactive substances, noise vibrations, electromagnetic radiation and other hazards produced during such activities. The preparation of relevant development and utilization plans and the construction of the projects having impact on environment shall be subject to environmental impact assessment in accordance with the law. Furthermore, the enterprises and business operators on which the management system for the pollutants discharge permit and registration is implemented shall discharge pollutants according to their respective pollutants discharge permits or registrations and shall not discharge pollutants without obtaining a pollutants discharge permit or registration.
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Environmental protection authorities impose various administrative penalties on persons or enterprises in violation of the Environmental Protection Law. Such penalties include warnings, fines, orders to rectify within the prescribed period, orders to cease construction, orders to restrict or suspend production, orders to make recovery, orders to disclose relevant information or make an announcement, imposition of administrative action against relevant responsible persons, and orders to shut down enterprises. Any person or entity that pollutes the environment resulting in damage could also be held liable under the Civil Code of PRC. In addition, environmental organizations may also bring lawsuits against any entity that discharges pollutants detrimental to the public welfare. In addition, on May 28, 2020, National People’s Congress promulgated the Civil Code of PRC, which took effective on January 1, 2021, to replace the PRC Inheritance Law, Adoption Law, PRC Contract Law, the General Principles of the Civil Law of the PRC, the PRC Marriage Law, the PRC Guarantee Law, the PRC Property Law and the PRC Tort Liability Law. Seven parts are introduced in the Civil Code of PRC, including General Part, Right in Rem, Contracts, Personality Rights, Marriage and Family, Inheritance, Tort Liability.
The Law of the PRC on the Prevention and Control of Occupational Diseases, or the Occupational Diseases Prevention Law, promulgated by the SCNPC on October 27, 2001, became effective on May 1, 2002, and latest amended on December 29, 2018 is applicable to activities for the prevention and control of diseases contracted by the workers due to their exposure in the course of work to dust, radioactive substances and other toxic and harmful substances. Pursuant to the Occupational Diseases Prevention Law, the employer shall strictly abide by the national occupational health standards and implement the measures for occupational disease prevention and control in accordance with laws and regulations. Violation of the Occupational Diseases Prevention Law may result in the imposition of fines and penalties, the suspension of operation, an order to cease operation, and/or criminal liability in severe cases.
Regulations on Work Safety
Under relevant construction safety laws and regulations, including the Work Safety Law of the PRC which was promulgated by the SCNPC on June 29, 2002, amended on August 27, 2009, August 31, 2014 and June 10, 2021, and effective as of September 1, 2021, production and operating business entities must establish objectives and measures for work safety and improve the working environment and conditions for workers in a planned and systematic way. A work safety protection scheme must also be set up to implement the work safety job responsibility system. In addition, production and operating business entities must arrange work safety training and provide their employees with protective equipment that meets the national standards or industrial standards. Automobile and components manufacturers are subject to the aforementioned environment protection and work safety requirements.
Regulations Relating to Labor Protection
Labor Contract Law
The PRC Labor Contract Law, or the Labor Contract Law, which became effective on January 1, 2008 and was amended on December 28, 2012 and became effected on July 1, 2013, is primarily aimed at regulating rights and obligations of employer and employee relationships, including the establishment, performance and termination of labor contracts. Pursuant to the Labor Contract Law, 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 limits, and employers shall pay employees for overtime work in accordance to national regulations. In addition, employee wages shall be no lower than local standards on minimum wages and must be paid to employees in a timely manner.
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Interim Provisions on Labor Dispatch
Pursuant to the Interim Provisions on Labor Dispatch, or the Labor Dispatch Provisions, promulgated by the Ministry of Human Resources and Social Security on January 24, 2014, which became effective on March 1, 2014, dispatched workers are entitled to equal pay with full-time employees for equal work. Employers are allowed to use dispatched workers for temporary, auxiliary or substitutive positions, and the number of dispatched workers may not exceed 10% of the total number of employees.
Social Insurance and Housing Fund
Pursuant to the Social Insurance Law of the PRC implemented on July 1, 2011, amended on December 29, 2018 and became effective on the same day, employers are required to provide their employees in the PRC with welfare benefits covering pension insurance, unemployment insurance, maternity insurance, labor injury insurance and medical insurance. These payments are made to local administrative authorities. Any employer that fails to make social insurance contributions may be ordered to rectify the non-compliance and pay the required contributions within a prescribed time limit and be subject to a late fee. If the employer still fails to rectify the failure to make the relevant contributions within the prescribed time, it may be subject to a fine ranging from one to three times the amount overdue. In accordance with the Regulations on the Management of Housing Fund which was promulgated by the State Council in 1999 and last amended on March 24, 2019 and became effective on the same day, employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds. Employers and employees are also required to pay and deposit housing funds, which shall be the product of employees’ average monthly salaries of the previous year multiplied by the contribution rate of the housing provident fund of the employer. Where, in violation of the provisions of these Regulations, an employer is overdue in the contribution of, or underpays, the housing provident fund, the housing provident fund management center shall order it to make the contribution within a prescribed time limit; where the contribution has not been made after the expiration of the time limit, an application may be made to a people’s court for compulsory enforcement.
Employee Stock Incentive Plan
Pursuant to the Notice of Issues Related to the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Listed Company, or Circular 7, which was issued by the SAFE on February 15, 2012, employees, directors, supervisors, and other senior management who participate in any stock incentive plan of a publicly-listed overseas company and who are PRC citizens or non-PRC citizens residing in China for a continuous period of no less than one year, subject to a few exceptions, are required to register with SAFE through a qualified domestic agent, which may be a PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, the SAT has issued certain circulars concerning employee stock options and restricted shares. Under these circulars, employees working in the PRC who exercise stock options or are granted restricted shares will be subject to PRC individual income tax. The PRC subsidiaries of an overseas listed company are required to file documents related to employee stock options and restricted shares with relevant tax authorities and to withhold individual income taxes of employees who exercise their stock option or purchase restricted shares. If the employees fail to pay or the PRC subsidiaries fail to withhold income tax in accordance with relevant laws and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRC governmental authorities.
Regulations Relating to Taxes
Income Tax
The PRC Enterprise Income Tax Law, or the EIT Law, imposes a uniform enterprise income tax rate of 25% on all PRC resident enterprises, including foreign-invested enterprises, unless they qualify for certain exceptions. The enterprise income tax is calculated based on the PRC resident enterprise’s global income as determined under PRC tax laws and accounting standards. If a non-resident enterprise sets up an organization or establishment in the PRC, it will be subject to enterprise income tax for the income derived from such organization or establishment in the PRC and for the income derived from outside the PRC but with an actual connection with such organization or establishment in 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. In January 2016, the SAT, the Ministry of Science and Technology and the MOF jointly issued the Administrative Rules for the Certification of High and New Technology Enterprises specifying the criteria and procedures for the certification of High and New Technology Enterprises.
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On April 22, 2009, the SAT issued the Circular of the State Administration of Taxation on Issues Relating to Identification of PRC-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance With the De Facto Standards of Organizational Management, or the SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” 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 the SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC. Further to SAT Circular 82, on July 27, 2011, the SAT issued the Announcement of the State Administration of Taxation on Printing and Distributing the Administrative Measures for Income Tax on PRC-controlled Resident Enterprises Incorporated Overseas (Trial Implementation), or the SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and administration details for determination of resident status and administration on post-determination matters.
Value-added Tax
The Provisional Regulations of the PRC on Value-added Tax, the VAT Regulation, were promulgated by the State Council on December 13, 1993 and came into effect on January 1, 1994 which were subsequently amended from time to time. The Detailed Rules for the Implementation of the Provisional Regulations of the PRC on Value-added Tax (Revised in 2011) was promulgated by the MOF on December 25, 1993 and subsequently amended on December 15, 2008 and October 28, 2011, or collectively, the VAT Law. On November 19, 2017, the State Council promulgated the Decisions on Abolishing the Provisional Regulations of the PRC on Business Tax and Amending the Provisional Regulations of the PRC on Value-added Tax, or the Order 691. On April 4, 2018, MOF and SAT jointly promulgated the Circular on Adjustment of Value-Added Tax Rates, or Circular 32. According to the VAT Law, the Order 691 and the Circular 32, 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 16%, 10%, 6% and 0%, and the VAT tax rate applicable to the small-scale taxpayers is 3%.
Chinese Premier Li Keqiang on March 5, 2019 announced that the VAT of 16% and 10% that apply to the supply of certain goods and services would be reduced to 13% and 9%, respectively. These measures will leave three rates in place: 13%; 9%; and 6%, effective from April 1, 2019.
Dividend Withholding Tax
As we believe Webus is a non-resident for PRC tax purpose, dividends paid to it out of profits earned by PRC subsidiaries would be subject to 10% withholding tax, if no tax treaty is applicable. In addition, under the current tax treaty between the PRC and Hong Kong, if the foreign investor is incorporated in Hong Kong and qualifies as the beneficial owner, the applicable withholding tax rate may be reduced to 5%, if the investor holds at least 25% in the foreign-invested enterprise; or 10%, if the investor holds less than 25% in the foreign-invested enterprise.
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Regulations relating to Foreign Exchange
General Administration of Foreign Exchange
Under the PRC Foreign Currency Administration Rules promulgated on January 29, 1996 and most recently amended on August 5, 2008 and various regulations issued by the State Administration of Foreign Exchange of the PRC, or the SAFE and other relevant PRC government authorities, Renminbi is convertible into other currencies for current account items, such as trade-related receipts and payments and payment of interest and dividends. The conversion of Renminbi into other currencies and remittance of the converted foreign currency outside the PRC for of capital account items, such as direct equity investments, loans and repatriation of investment, requires the prior approval from the SAFE or its local office.
Payments for transactions that take place within the PRC must be made in Renminbi. Unless otherwise approved, PRC companies may not repatriate foreign currency payments received from abroad or retain the same abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks under the current account items subject to a cap set by the SAFE or its local office. Foreign exchange proceeds under the current accounts may be either retained or sold to a financial institution engaged in settlement and sale of foreign exchange pursuant to relevant SAFE rules and regulations. For foreign exchange proceeds under the capital accounts, approval from the SAFE is generally required for the retention or sale of such proceeds to a financial institution engaged in settlement and sale of foreign exchange.
Pursuant to the Circular of the SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, or the SAFE Circular 59, promulgated by SAFE on November 19, 2012, which became effective on December 17, 2012 and subsequently amended from time to time, approval of SAFE is not required for opening a foreign exchange account and depositing foreign exchange into the accounts relating to the direct investments. The SAFE Circular 59 also simplified foreign exchange-related registration required for the foreign investors to acquire the equity interests of Chinese companies and further improve the administration on foreign exchange settlement for foreign-invested enterprises.
The Circular on Further Simplifying and Improving the Foreign Currency Management Policy on Direct Investment, or the SAFE Circular 13, effective from June 1, 2015, cancels the administrative approvals of foreign exchange registration of direct domestic investment and direct overseas investment and simplifies the procedure of foreign exchange-related registration. Pursuant to the SAFE Circular 13, the investors shall register with banks for direct domestic investment and direct overseas investment.
The Circular on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or the SAFE Circular 19, which was promulgated by the SAFE on March 30, 2015 and became effective on June 1, 2015, provides that 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). Pursuant to the SAFE Circular 19, 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.
The Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or the SAFE Circular 16, which was promulgated by the SAFE and became effective on June 9, 2016, provides that enterprises registered in the PRC may also convert their foreign debts from foreign currency into Renminbi on self-discretionary basis. The SAFE Circular 16 also provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on self-discretionary basis, which applies to all enterprises registered in the PRC.
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In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profits from domestic entities to offshore entities, including (i) banks must check whether the transaction is genuine by reviewing board resolutions regarding profit distribution, original copies of tax filing records and audited financial statements, and (ii) domestic entities must retain income to account for previous years’ losses before remitting any profits. Moreover, pursuant to Circular 3, domestic entities must explain in detail the sources of capital and how the capital will be used, and provide board resolutions, contracts and other proof as a part of the registration procedure for outbound investment.
On October 23, 2019, SAFE issued Circular of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, or the Circular 28, which took effect on the same day. Circular 28 allows non-investment foreign-invested enterprises to use their capital funds to make equity investments in China, provided that such investments do not violate the effective special entry management measures for foreign investment (negative list) and the target investment projects are genuine and in compliance with laws. Since Circular 28 was issued only recently, its interpretation and implementation in practice are still subject to substantial uncertainties.
Pursuant to the SAFE Circular 13 and other laws and regulations relating to foreign exchange, when setting up a new foreign invested enterprise, the foreign invested enterprise shall register with the bank located at its registered place after obtaining the business license, and if there is any change in capital or other changes relating to the basic information of the foreign-invested enterprise, including without limitation any increase in its registered capital or total investment, the foreign invested enterprise must register such changes with the bank located at its registered place after obtaining approval from or completing the filing with competent authorities. Pursuant to the relevant foreign exchange laws and regulations, the above-mentioned foreign exchange registration with the banks will typically take less than four weeks upon the acceptance of the registration application.
According to the Foreign Investment Law, Measures for Reporting of Information on Foreign Investment, promulgated by MOFCOM, and State Administration for Market Regulation, or the SAMR on December 30, 2019 and became effective on January 1, 2020, the Administrative Rules on the Company Registration, which was promulgated by the State Council on June 24, 1994, became effective on July 1, 1994 and latest amended on February 6, 2016, and other laws and regulations governing the foreign invested enterprises and company registrations, the establishment of a foreign invested enterprise and any capital increase and other major changes in a foreign invested enterprise shall be registered with the SAMR, or its local counterparts, and investment information shall be submitted to the competent commerce authorities through the enterprise registration system and the National Enterprise Credit Information Publicity System, if such foreign invested enterprise does not involve special access administrative measures prescribed by the PRC government.
Based on the forgoing, if we intend to provide funding to our wholly foreign owned subsidiaries through a capital injection at or after their establishment, we must register the establishment thereof and any follow-on capital increase in our wholly foreign owned subsidiaries with the SAMR or its local counterparts, submit such information via the enterprise registration system and the National Enterprise Credit Information Publicity System and register such with the local banks for the foreign exchange related matters.
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Offshore Investment
Under the Circular of the State Administration of Foreign Exchange on Issues Concerning the Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or the SAFE Circular 37, issued by the SAFE and effective on July 4, 2014, PRC residents are required to register with the local SAFE branch prior to contributing assets or equity interests in an offshore special purpose vehicle, or SPV, which is defined as offshore enterprises directly established or indirectly controlled by PRC residents for investment and financing purposes, with the enterprise assets or interests they hold in China or overseas. The term “control” means obtain the operation rights, right to proceeds or decision-making power of a SPV through acquisition, trust, holding shares on behalf of others, voting rights, repurchase, convertible bonds or other means. An amendment to registration or subsequent filing with the local SAFE branch by such PRC resident is also required if there is any change in basic information of the offshore company or any material change with respect to the capital of the offshore company. At the same time, the SAFE has issued the Operation Guidance for the Issues Concerning Foreign Exchange Administration over Round-trip Investment regarding the procedures for SAFE registration under the SAFE Circular 37, which became effective on July 4, 2014 as an attachment of Circular 37.
Under the relevant rules, failure to comply with the registration procedures set forth in the SAFE Circular 37 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 PRC foreign exchange administration regulations.
Regulations on Dividend Distribution
The principal laws and regulations regulating the dividend distribution of dividends by foreign-invested enterprises in the PRC include the PRC Company Law, as amended in 1999, 2004, 2005, 2013 and 2018, and Foreign Investment Law and the Implement the Implementing Regulations of FIL which replaced the Wholly Foreign-owned Enterprise Law promulgated in 1986 and amended in 2000 and 2016 and its implementation regulations promulgated in 1990 and subsequently amended in 2001 and 2014, the PRC Equity Joint Venture Law promulgated in 1979 and subsequently amended in 1990, 2001 and 2016 and its implementation regulations promulgated in 1983 and subsequently amended in 1986, 1987, 2001, 2011 and 2014, and the PRC Cooperative Joint Venture Law promulgated in 1988 and amended in 2000, 2016 and 2017 and its implementation regulations promulgated in 1995 and amended in 2014 and 2017. Under the current regulatory regime in the PRC, foreign-invested enterprises in the PRC may pay dividends only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. A PRC company is required to set aside as statutory reserve funds of at least 10% of its after-tax profit, until the cumulative amount of such reserve funds reaches 50% of its registered capital unless laws regarding foreign investment provide otherwise. A PRC company shall not distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
Regulations Relating to M&A Rule and Overseas Listing in the PRC
On August 8, 2006, six PRC governmental and regulatory agencies, including MOFCOM and 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 revised on June 22, 2009. The M&A Rules, among other things, require that if an overseas company established or controlled by PRC companies or individuals, or PRC Citizens, intends to acquire equity interests or assets of any other PRC domestic company affiliated with the PRC Citizens, such acquisition must be submitted to MOFCOM for approval. The M&A Rules also requires that an offshore SPV that is controlled directly or indirectly by the PRC companies or individuals and that has been formed for overseas listing purposes through acquisitions of PRC domestic interest held by such PRC companies or individuals, shall obtain the approval of CSRC prior to overseas listing and trading of such SPV’s securities on an overseas stock exchange.
On February 17, 2023, the CSRC released the New Overseas Listing Rules with five interpretive guidelines, which came into effect on March 31, 2023. The New Overseas Listing Rules require Chinese domestic enterprises to complete filings with relevant governmental authorities and report related information under certain circumstances, such as: a) an issuer making an application for initial public offering and listing in an overseas market; b) an issuer making a subsequent overseas securities offering after having been listed on an overseas market; c) a domestic company seeking an overseas direct or indirect listing of its assets through single or multiple acquisition(s), share swap, transfer of shares or other means. According to the Notice on Arrangements for Overseas Securities Offering and Listing by Domestic Enterprises, published by the CSRC on February 17, 2023, a company that (i) has already completed overseas listing or (ii) has already obtained the approval for the offering or listing from overseas securities regulators or exchanges but has not completed such offering or listing before effective date of the new rules and also completes the offering or listing before September 30, 2023 will be considered as an existing listed company and is not required to make any filing until it conducts a new offering in the future. For the company that has already submitted offering and listing applications but not yet obtained the approvals from overseas securities regulators or exchanges shall choose to make its filing with the CSRC at a reasonable time but before the completion of the offering/listing. For the company that has already obtained CSRC approval for overseas listing or offering can continue its process during the valid term of the CSRC approval without additional filing and it shall make the filing pursuant to the new rules if it does not complete the offering or listing before the expiration of the original approval from CSRC.
On February 24, 2023, the CSRC, MOF, National Administration of State Secrets Protection and National Archives Administration of China jointly issued the Provisions on Strengthening the Confidentiality and Archive Management Work Relating to the Overseas Securities Offering and Listing, or the Confidentiality Provisions, which came into effect on March 31, 2023 with the New Overseas Listing Rules. The Confidentiality Provisions require that, among other things, (a) a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations.
Cayman Islands Data Protection
We have certain duties under the Data Protection Act (as revised) of the Cayman Islands, or the DPA, based on internationally accepted principles of data privacy.
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Privacy Notice
This privacy notice puts our shareholders on notice that through your investment into us you will provide us with certain personal information which constitutes personal data within the meaning of the DPA, or personal data.
Investor Data
We will collect, use, disclose, retain and secure personal data to the extent reasonably required only and within the parameters that could be reasonably expected during the normal course of business. We will only process, disclose, transfer or retain personal data to the extent legitimately required to conduct our activities of on an ongoing basis or to comply with legal and regulatory obligations to which we are subject. We will only transfer personal data in accordance with the requirements of the DPA, and will apply appropriate technical and organizational information security measures designed to protect against unauthorized or unlawful processing of the personal data and against the accidental loss, destruction or damage to the personal data.
In our use of this personal data, we will be characterized as a “data controller” for the purposes of the DPA, while our affiliates and service providers who may receive this personal data from us in the conduct of our activities may either act as our “data processors” for the purposes of the DPA or may process personal information for their own lawful purposes in connection with services provided to us.
We may also obtain personal data from other public sources. Personal data includes, without limitation, the following information relating to a shareholder and/or any individuals connected with a shareholder as an investor: name, residential address, email address, contact details, corporate contact information, signature, nationality, place of birth, date of birth, tax identification, credit history, correspondence records, passport number, bank account details, source of funds details and details relating to the shareholder’s investment activity.
Who this Affects
If you are a natural person, this will affect you directly. If you are a corporate investor (including, for these purposes, legal arrangements such as trusts or exempted limited partnerships) that provides us with personal data on individuals connected to you for any reason in relation your investment in us, this will be relevant for those individuals and you should transmit the content of this Privacy Notice to such individuals or otherwise advise them of its content.
How We May Use a Shareholder’s Personal Data
We may, as the data controller, collect, store and use personal data for lawful purposes, including, in particular: (i) where this is necessary for the performance of our rights and obligations under any agreements; (ii) where this is necessary for compliance with a legal and regulatory obligation to which we are or may be subject (such as compliance with anti-money laundering and FATCA/CRS requirements); and/or (iii) where this is necessary for the purposes of our legitimate interests and such interests are not overridden by your interests, fundamental rights or freedoms.
Should we wish to use personal data for other specific purposes (including, if applicable, any purpose that requires your consent), we will contact you.
Why We May Transfer Your Personal Data
In certain circumstances we may be legally obliged to share personal data and other information with respect to your shareholding with the relevant regulatory authorities such as the Cayman Islands Monetary Authority or the Tax Information Authority. They, in turn, may exchange this information with foreign authorities, including tax authorities.
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We anticipate disclosing personal data to persons who provide services to us and their respective affiliates (which may include certain entities located outside the US, the Cayman Islands or the European Economic Area), who will process your personal data on our behalf.
The Data Protection Measures We Take
Any transfer of personal data by us or our duly authorized affiliates and/or delegates outside of the Cayman Islands shall be in accordance with the requirements of the DPA.
We and our duly authorized affiliates and/or delegates shall apply appropriate technical and organizational information security measures designed to protect against unauthorized or unlawful processing of personal data, and against accidental loss or destruction of, or damage to, personal data.
We shall notify you of any personal data breach that is reasonably likely to result in a risk to your interests, fundamental rights or freedoms or those data subjects to whom the relevant personal data relates.
Contacting the Company
For further information on the collection, use, disclosure, transfer or processing of your personal data or the exercise of any of the rights listed above, please contact us through our websites at www.wetourglobal.com, www.webus.vip, www.weixiaoba.vip, and www.ubus.vip or through phone number +86-571-58000026.
Anti-Money Laundering—Cayman Islands
In order to comply with legislation and regulations aimed at the prevention of money laundering and terrorist financing, we may be required to adopt and maintain anti-money laundering and counter terrorist financing policies and procedures, and may require subscribers to provide evidence to satisfactorily identify and verify their identity, address and source of funds. Such customer due diligence can be simplified or enhanced depending on the risk rating given to the subscriber. Where permitted, and subject to certain conditions, we may also delegate the maintenance of our anti-money laundering and counter terrorist financing policies and procedures (including the acquisition of due diligence information) to a suitable third persons based in the Cayman Islands approved equivalent jurisdictions.
We reserve the right to request such information and evidence as is necessary to identify and verify the identity, address and source of funds of a subscriber. In the event of delay or failure on the part of the subscriber in producing any information and/or evidence required for identification or verification purposes, we may refuse to accept the application, in which case any funds received will be returned without interest to the account from which they were originally debited. We will not be liable for any loss suffered by a subscriber as a result of, or delay in processing, an application from a subscriber if such information and documentation requested has not been provided by the subscriber in a timely manner.
We also reserve the right to refuse to make any redemption payment to a shareholder if our directors or officers suspect or are advised that the payment of redemption proceeds to such shareholder might result in a breach of applicable anti-money laundering, counter terrorist financing or other applicable laws, regulations or guidance by any person in any equivalent jurisdiction, or if such refusal is considered necessary or appropriate to ensure our compliance with any such laws or regulations in any applicable jurisdiction.
If any person resident in the Cayman Islands knows or suspects or has reasonable grounds for knowing or suspecting that another person is engaged in criminal conduct or is involved with terrorism or terrorist financing and property and the information for that knowledge or suspicion came to their attention in the course of their business in the regulated sector, or other trade, profession, business or employment, the person will be required to report such knowledge or suspicion to (i) a nominated officer (appointed in accordance with the Proceeds of Crime Act (Revised) of the Cayman Islands) or the Financial Reporting Authority of the Cayman Islands, pursuant to the Proceeds of Crime Act (Revised) of the Cayman Islands , if the disclosure relates to criminal conduct or money laundering or (ii) to the Financial Reporting Authority or a police constable or a nominated officer (pursuant to the Terrorism Act (Revised) of the Cayman Islands), if the disclosure relates to involvement with terrorism or terrorist financing and terrorist property. Such a report shall not be treated as a breach of confidence or of any restriction upon the disclosure of information imposed by any enactment or otherwise. By subscribing for shares, the subscriber consents to the disclosure of any information about them to regulators and others upon request in connection with money laundering and similar matters both in the Cayman Islands and in other jurisdictions.
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Directors and Executive Officers
The following table sets forth information regarding our executive officers and directors as of the date of this prospectus:
| Name | Age | Position(s) | ||
| Zheng Jiahua | 51 | Chairman of the Board and Director | ||
| Zheng Nan* | 24 | Chief Executive Officer and Director Nominee | ||
| Wang Shijie | 46 | Chief Financial Officer | ||
| Wu Chunyun** | 50 | General Manager of Youba Tech | ||
| Chen Yizhou | 41 | Co-Chief Operating Officer | ||
| He Wenxin | 30 | Co-Chief Operating Officer | ||
| Yu Zhen (1)(2)(3)* | 37 | Independent Director Nominee, Chair of Nominating and Corporate Governance Committee | ||
| Ken He (1)(2)(3)* | 44 | Independent Director Nominee, Chair of Audit Committee | ||
| Wu Xin (1)(2)(3)* | 45 | Independent Director Nominee, Chair of Compensation Committee |
| (1) | Member of the Audit Committee |
| (2) | Member of the Compensation Committee |
| (3) | Member of the Nominating Committee |
| * | The individual has accepted appointments and consents to be in such position upon the effective date of the registration statement. |
| ** | Disclosed as the key employee and not as the executive officer or director of Webus |
Biography
Zheng Jiahua, Chairman of the Board of the Directors of the Company (the “Board”)
Mr. Zheng Jiahua has been the Chairman of the Board since Webus inception. He is the founder of the VIE and its subsidiary. Prior to founding the VIE, between 2011 and 2018, Mr. Zheng was the chairman of the board of Huzhou Xinhanrui Real Estate Co., Ltd., a company engages in real estate investment, where he was in charge of the company’s development strategies. Mr. Zheng has over 30 years of business experience with extensive resources both locally and regionally. He is particularly well versed in business strategies, corporate and government relations and crisis management. Mr. Zheng received his high school diploma from Yuhuang Huanghu High School in 1991. Mr. Zheng Jiahua is the father of our CEO Mr. Zheng Nan.
Zheng Nan, Chief Executive Officer and Director Nominee
Mr. Zheng Nan has been the CEO of Webus since February 2023. He accepted the appointment as the director of Webus effective upon the effective date of the registration statement. Mr. Zheng has been the CEO of the VIE since January 2021 and is responsible for the VIE’s operation, product offerings and management. From June 2019 to March 2020, Mr. Zheng was the Chief Operating Officer of Uway Inc., a college student career service platform he founded in June 2019 when he was about to start college. Uway Inc. built the “Linker” platform to provide flexible employment information for students on campus. Mr. Zheng completed his middle school in China and received his high school diploma in the United States. He obtained a bachelor’s degree at Babson College in Wellesley, Massachusetts. His education in the United States, entrepreneur endeavor and extensive global traveling experience enable him an in-depth understanding of packaged tour service and customized chartered car and bus service. Mr. Zheng Nan is the son of our Chairman Mr. Zheng Jiahua.
Wang Shijie, Chief Financial Officer
Mr. Wang Shijie has been the CFO of Webus since February 2023. Mr. Wang has been the Chief Financial Officer of the VIE since September 2022. Mr. Wang has 8 years of accounting management and financial reporting experience. From April 2018 to August 2021, Mr. Wang was the Financial Manager and Operation Platform Manager of Hangzhou Liyixiang Digital Technology Co. Ltd., a digital technology company, where he was in charge of the company’s accounting management, financial reporting and general management of the platform’s operation. From January 2014 to April 2018, he was the Division Chief of General Management Division under the Financial Department at Zhongyuan University of Technology where he was responsible for the university’s accounting management and financial reporting. Mr. Wang received his Master’s degree in business administration from Zhongyuan University of Technology and Bachelor’s degree in auditing from Zhengzhou University. He holds a Certificate of Intermediate Accountant.
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Wu Chunyun, General Manager of Youba Tech
Mr. Wu Chunyun has been appointed as the General Manager of the VIE in August 2019 and is responsible for the company’s day-to-day operation and technology innovation. From July 2017 to August 2019, Mr. Wu served as CEO of Zhejiang Yinuo Technologies Co., Ltd., a one-stop chartered bus service provider. He oversaw the company’s product design and strategic development. Mr. Wu started his career at Alcatel-Lucent (formerly known as Lucent Technologies) and has extensive experience in digitalization and developing SaaS++ platforms. Mr. Wu received his bachelor’s degree in Radio Engineering and Wireless Communication from the Beijing University of Posts and Telecommunications in July 1996.
Chen Yizhou, Co-Chief Operating Officer
Mr. Chen Yizhou has been the Co-COO of Webus since February 2023. Mr. Chen has been the co-COO of the VIE since November 2020. From March 2016 to March 2020, Mr. Chen was the project manager and regional business manager of Zhejiang Hengsheng Changyun Technology Co., Ltd., an online transportation platform, where he was responsible for the company’s passenger transportation business. From July 2009 to March 2016, Mr. Chen was the Division Chief of Marketing Department of gotobus.com’s China Region. Gotobus.com is an online inter-city bus ticket booking platform serving the United States, Mexico, Canada and Europe. Mr. Chen received his bachelor’s degree in accounting from Dongguk University in the Republic of Korea. Mr. Chen has over 15 years of experience in bus transportation industry and has great resources in CMS and tourism industry.
He Wenxin, Co-Chief Operating Officer
Mr. He Wenxin has been the Co-COO of Webus since February 2023. Mr. He has been the co-COO of the VIE since June 2021. From September 2017 to August 2020, he was the general manager and sales manager of Hangzhou office of Shenzhen Kuaibangxing Technology Co., Ltd. The company is headquartered in Seattle, Washington with offices in Beijing and Hangzhou, offering SaaS ++ platform to small and medium sized travel agencies. Mr. He received his bachelor’s degree in international trade from Zhejiang Sci-Tech University Science and Art College.
Yu Zhen, Independent Director Nominee and Chair of Nominating Committee
Ms. Yu Zhen has been a faculty member of Zhejiang University of Finance and Economics since May 2017. From September 2019 to August 2020, she was a visiting scholar at Columbia University. Ms. Yu is experienced in corporate governance and is serving as or was an independent director at various companies. From March 2020 to January 2022, Ms. Yu served as an independent director of Sunlight Technology Holdings Limited, a public company listed on the Stock Exchange of Hong Kong (ticker: HK1950). She has been serving as an independent director at Zhejiang Zhongde Automatic Control Technology Co., Ltd. and Zhejiang Seng Smart Kitchen Appliance Co., Ltd. since November 2020 and June 2022, respectively. Ms. Yu received her Ph.D. degree in labor economics from Zhongnan University of Economics and Law in December 2016.
Ken He, Independent Director Nominee and Chair of Audit Committee
Mr. Ken He has more than 20 years of experience in the financial and accounting field. Mr. He has been serving as an independent director of the board of directors, chairman of audit committee and chairman of remuneration and appraisal committee of Fantawild Holdings Inc., a public company listed on the National Equities Exchange and Quotations of China (Ticker: 834793), since May 2022; an independent director of the board of directors, chairman of audit committee and chairman of nominating committee of 4399 Network Co., Ltd. since May 2022; an independent director of the board of directors of Moli Media Inc. since March 2021; and an independent director of the board of directors of Guangdong Sanyi Pharmaceutica Electronic Transaction Management Co., Ltd. since February 2020. Mr. He served as an independent director of the board of directors and chairman of audit committee of Hailiang Education Group Inc. from June 2015 to September 2022 and its chairman of special committee from February 2022 to September 2022. From June 2020 to November 2021, he served as independent director of the board of directors and chairman of audit committee of Ebang International Holdings Inc., a public company listed on Nasdaq (ticker: EBON). Mr. He is experienced and familiar with Chinese accounting standards, Hong Kong accounting standards, Australian accounting standards, international accounting standards and US GAAP, as well as the differences among them. Mr. He obtained a bachelor’s degree in management, majoring in accounting from Sun Yat-Sen University and obtained a master’s degree in applied finance from Macquarie University in 2003 and 2007, respectively. Mr. He is a Certified Public Accountant in US since March 2013, he also holds a Certified Public Accountant designation from the Chinese Institute of CPA since November 2007, a Certified Public Accountant designation from the Hong Kong Institute of CPA since May 2013, a Certified Practicing Accountant designation from the CPA Australia since February 2009, a Chartered Accountant designation from CA Australia and New Zealand since November 2023, and a Chartered Financial Analyst designation from the CFA Institute since September 2009.
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Wu Xin, Independent Director Nominee and Chair of Compensation Committee
Mr. Wu Xin has been a faculty member of Zhejiang University of Finance and Economics since December 2004 and currently serves as the Vice-Dean of the university’s China Academy of Financial Research. Mr. Wu has years of experience in corporate management and was an independent director of Tederic Machinery Co Ltd., a public company listed on the Shanghai Stock Exchange (ticker: 603289), from March 2019 to June 2020. Mr. Wu has served as the independent director at Zhejiang Dongwang Times Technology Co., Ltd., another public company listed on the Shanghai Stock Exchange (ticker: 600052), since July 2021. Additionally, he has been serving as an independent director of Ningbo Huaping Intelligent Control Technology Co., Ltd. since September 2020. Mr. Wu received his bachelor’s degree in international trade from Zhejiang Sci-Tech University in 2001. Mr. Wu later received a master’s degree in political economy in 2004 and his Ph.D. degree in labor economics in 2015 from Zhejiang University.
Employment Agreements, Director Agreements and Indemnification Agreements.
We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a fixed term and is renewable upon thirty-day notice to the Company by the executive officer. The executive officers are entitled to a fixed salary and social security benefits and other company benefits.
We may terminate an executive officer’s employment if (i) the executive officer is incapacitated by disease or non-worked-related injuries; (ii) he/she is incompetent to perform his/her obligations after professional training and position adjustment; and (iii) there is material change that makes it impossible to continue employment agreement. Such termination shall take effect 30 days after the delivery of the notice of termination by the Company and payment of extra one month’s salary. We may also terminate an executive officer’s employment for cause, at any time, without notice or remuneration, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or material breach of any term of any employment or other services, or non-competition agreements with the Company.
An executive officer may voluntarily terminate his/her employment for any reason and such termination shall take effect 30 days after the receipt by Company of the notice of termination. An executive officer may also terminate his/her employment for cause if the Company (i) failed to pay his/her salary or social security contribution in full; (ii) material breach of any term of the employment agreement; and (iii) committed fraud or coercion to force the executive officer to enter into the employment agreement.
During the fiscal years ended June 30, 2023 and 2024, we paid an aggregate of RMB1,248,513 and RMB1,115,035, respectively, in cash to our directors and executive officers. The VIE and its subsidiary are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.
We plan to enter into director agreements with each of our independent directors which agreements set forth the terms and provisions of their engagement.
In addition, we plan to enter into indemnification agreements with each of our directors and executive officers that provide such persons with additional indemnification beyond that provided in our A&R memorandum and articles of association.
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Compensation of Directors and Executive Officers
The following table shows the compensation paid by us for the years ended June 30, 2023 and 2024.
| Equity | All Other | |||||||||||||||||||
| Name/principal position | Year | Salary | Compensation | Compensation | Total Paid | |||||||||||||||
| Zheng Jiahua / Chairman | 2023 | ¥ | 308,075 | ¥ | - | ¥ | - | ¥ | 308,075 | |||||||||||
| 2024 | ¥ | 304,800 | ¥ | - | ¥ | - | ¥ | 304,800 | ||||||||||||
| Zheng Nan / CEO | 2023 | ¥ | 339,160 | ¥ | - | ¥ | - | ¥ | 339,160 | |||||||||||
| 2024 | ¥ | 92,712 | ¥ | - | ¥ | - | ¥ | 92,712 |
||||||||||||
| Wang Shijie / CFO | 2023 | ¥ | 148,569 | ¥ | - | ¥ | - | ¥ | 148,569 | |||||||||||
| 2024 | ¥ | 181,786 | ¥ | - | ¥ | - | ¥ | 181,786 | ||||||||||||
| Chen Yizhou / Co-COO | 2023 | ¥ | 268,130 | ¥ | - | ¥ | - | ¥ | 268,130 | |||||||||||
| 2024 | ¥ | 242,025 | ¥ | - | ¥ | - | ¥ | 242,025 | ||||||||||||
| He Wenxin / Co-COO | 2023 | ¥ | 184,578 | ¥ | - | ¥ | - | ¥ | 184,578 | |||||||||||
| 2024 | ¥ | 293,712 | ¥ | ¥ | ¥ | 293,712 | ||||||||||||||
| Ken He / independent director | 2023 | ¥ | - | ¥ | - | ¥ | - | ¥ | - | |||||||||||
| 2024 | ¥ | - | ¥ | - | ¥ | - | ¥ | - | ||||||||||||
| Wu Xin/ independent director | 2023 | ¥ | - | ¥ | - | ¥ | - | ¥ | - | |||||||||||
| 2024 | ¥ | - | ¥ | - | ¥ | - | ¥ | - | ||||||||||||
| Yu Zhen/ independent director | 2023 | ¥ | - | ¥ | - | ¥ | - | ¥ | - | |||||||||||
| 2024 | ¥ | - | ¥ | - | ¥ | - | ¥ | - | ||||||||||||
Board of Directors and Committees
Our Board currently consists of five directors. We have also established an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee prior to consummation of this offering. Each of the committees of the Board has the composition and responsibilities described below. We have determined that Ken He, Yu Zhen, and Wu Xin will satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Securities Exchange Act. Each Committee’s members and functions are described below.
Audit Committee
Ken He, Yu Zhen, and Wu Xin are members of our Audit Committee and Ken He is the Chairman. All members of our Audit Committee satisfy the independence standards promulgated by the SEC and by Nasdaq as such standards apply specifically to members of audit committees. We have determined that Ken He upon his appointment as an independent director will possess the accounting or related financial management experience that qualifies him as an “audit committee financial expert” as defined by the rules and regulations of the SEC.
We have adopted and approved a charter for the Audit Committee. In accordance with our Audit Committee Charter, our Audit Committee shall perform several functions, including:
| · | evaluate the independence and performance of, and assess the qualifications of, our independent auditor, and engage such independent auditor; |
| · | approve the plan and fees for the annual audit, quarterly reviews, tax and other audit-related services, and approve in advance any non-audit service to be provided by the independent auditor; |
| · | monitor the independence of the independent auditor and the rotation of partners of the independent auditor on our engagement team as required by law; |
| · | review the financial statements to be included in our Annual Report on Form 20-F and Current Reports on Form 6-K and review with management and the independent auditors the results of the annual audit and reviews of our quarterly financial statements; |
| · | oversee all aspects our systems of internal accounting control and corporate governance functions on behalf of the board; |
| · | review and approve in advance any proposed related-party transactions and report to the full Board on any approved transactions; and |
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| · | provide oversight assistance in connection with legal, ethical and risk management compliance programs established by management and the Board, including Sarbanes-Oxley Act implementation, and make recommendations to the Board regarding corporate governance issues and policy decisions. |
Compensation Committee
Wu Xin, Ken He, and Yu Zhen are members of our Compensation Committee and Wu Xin is the Chairman. All members of our Compensation Committee are qualified as independent under the current definition promulgated by Nasdaq. We have adopted and approved a charter for the Compensation Committee. In accordance with the Compensation Committee’s Charter, the Compensation Committee is responsible for overseeing and making recommendations to the Board regarding the salaries and other compensation of our executive officers and general employees and providing assistance and recommendations with respect to our compensation policies and practices. The Compensation Committee is responsible for, among other things:
| ● | To approve compensation principles that apply generally to Company employees; |
| ● | To make recommendations to the board of directors with respect to incentive compensation plans and equity based plans taking into account the results of the most recent rules to provide the shareholders with an advisory vote on executive compensation, generally known as “Say on Pay Votes” (Section 951 in The Dodd-Frank Wall Street Reform and Consumer Protection Act), if any; |
| ● | To administer and otherwise exercise the various authorities prescribed for the Compensation Committee by the Company’s incentive compensation plans and equity-based plans; |
| ● | To select a peer group of companies against which to benchmark/compare the Company’s compensation systems for principal officers elected by the board of directors; |
| ● | To annually review the Company’s compensation policies and practices and assess whether such policies and practices are reasonably likely to have a material adverse effect on the Company; |
| ● | To determine and oversee share ownership guidelines and share option holding requirements, including periodic review of compliance by principal officers and members of the board of directors; |
Nominating and Corporate Governance Committee
Yu Zhen, Ken He, and Wu Xin are members of our Nominating and Corporate Governance Committee and Yu Zhen is the Chairwoman. All members of our Nominating and Corporate Governance Committee are qualified as “independent” under the current definition promulgated by Nasdaq. We have adopted a charter for the Nominating and Corporate Governance Committee. In accordance with its charter, the Nominating and Corporate Governance Committee is responsible for identifying and proposing new potential director nominees to the board of directors for consideration and reviewing our corporate governance policies.
The Nominating and Corporate Governance Committee is responsible for, among other things:
| ● | Identify and screen individuals qualified to become Board members consistent with the criteria approved by the board of directors, and recommend to the board of directors director nominees for election at the next annual or special meeting of shareholders at which directors are to be elected or to fill any vacancies or newly created directorships that may occur between such meetings; |
| ● | Recommend directors for appointment to Board committees; |
| ● | Make recommendations to the board of directors as to determinations of director independence; |
| ● | Oversee the evaluation of the board of directors; |
| ● | Make recommendations to the board of directors as to compensation for the Company’s directors; and |
| ● | Review and recommend to the board of directors the Corporate Governance Guidelines and Code of Business Conduct and Ethics for the Company |
Director Independence
Our Board reviewed the materiality of any relationship that each of our directors has with us, either directly or indirectly. Based on this review, it is determined that Wu Xin, Ken He, and Yu Zhen are “independent directors” as defined by Nasdaq.
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Code of Business Conduct and Ethics, Insider Trading Policy, and Policy for the Recovery of Erroneously Awarded Compensation
We have adopted a code of business conduct and ethics that applies to all of our executive officers, directors and employees. The code of ethics codifies the business and ethical principles that govern all aspects of our business.
Prior to the effectiveness of the registration statement of which this prospectus is a part, we intend to adopt insider trading policy that applies to our directors, officers, and certain employees, and we also intend to adopt an executive compensation recovery policy that applies to our officers (collectively, “Policies”). The forms of the Policies are filed as exhibits to this registration statement.
Family Relationships
Mr. Zheng Jiahua, our Chairman, is the father of Mr., Zheng Nan, our CEO. Except for the foregoing family relationship, there are no family relationships among our other directors or executive officers.
Duties of Directors
Under Cayman Islands law, all of our directors owe three types of duties to us: (i) statutory duties, (ii) fiduciary duties, and (iii) common law duties. The Companies Act imposes a number of statutory duties on a director. A Cayman Islands director’s fiduciary duties are not codified, however, the courts of the Cayman Islands have held that a director owes the following fiduciary duties: (a) a duty to act in what the director bona fide considers to be in the best interests of the company, (b) a duty to exercise their powers for the purposes they were conferred, (c) a duty to avoid fettering his or her discretion in the future; and (d) a duty to avoid conflicts of interest and of duty. The common law duties owed by a director are those to act with skill, care and diligence that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and, also, to act with the skill, care and diligence in keeping with a standard of care commensurate with any particular skill they have which enables them to meet a higher standard than a director without those skills. In fulfilling their duty of care to us, our directors must ensure compliance with our amended and restated memorandum and articles. We have the right to seek damages where certain duties owed by any of our directors are breached. Our directors have all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:
| · | convening shareholders’ annual and extraordinary general meetings and reporting its work to shareholders at such meetings; |
| · | declaring dividends and distributions; |
| · | appointing officers and determining the term of office of the officers; |
| · | exercising the borrowing powers of our company and mortgaging the property of our company; |
| · | approving the transfer of shares in our company, including the registration of such shares in our share register; and |
| · | maintaining or registering a register of mortgages, charges, or other encumbrances of the company. |
Our company has the right to seek damages if certain duties owed by our directors are breached. A shareholder may in certain limited exceptional circumstances have the right to seek damages in our name if a duty owed by our directors is breached. You should refer to “Description of Share Capital—Differences in Corporate Law” for additional information on our standard of corporate governance under Cayman Islands law.
Terms of Directors and Officers
Our officers are elected by and serve at the discretion of the Board and the shareholders voting by ordinary resolution and may be removed by the Board. Our directors are not subject to a set term of office and hold office until the next general meeting called for the election of directors and until their successor is duly elected or such time as they die, resign or are removed from office by a shareholders’ ordinary resolution or the unanimous written resolution of all shareholders. A director will be removed from office automatically if, among other things, the director becomes bankrupt or makes any arrangement or composition with his creditors generally or, in the opinion of a registered medical practitioner by whom he is being treated, he becomes physically or mentally incapable of acting as a Director.
Share Incentive Plans
On January 20, 2022, the shareholders of Youba Tech, who are also the shareholders of the Company, approved the 2022 share incentive plan (the “2022 Plan”) to grant an aggregate of 470,000 restricted stock units (“RSUs”) at a unit purchase price of RMB1.00 to qualified management and employees in order to retain and motivate the management team and core employees to improve the Group's ability to create value and long-term competitiveness. In June 2023, we have terminated the 2022 Plan.
These RSUs were considered as non-vested shares under the definition of ASC 718-10-20 and subject to service condition, that is the grantees are required to provide services during the vesting period. Upon termination of employment in the form of resignation or dismissal due to incompetence or violation of company rules and regulations, the unvested restricted shares are forfeited. The Group accounts for forfeitures as a reduction of stock-based compensation expense when the forfeiture occurs.
On June 12, 2023, the unvested RSUs among 470,000 RSUs in aggregate granted under 2022 Equity Incentive Plan is resolved, as an ordinary resolution, that the cancellation of 2022 Equity Incentive Plan is approved by the Board of Directors of the Company. For the unvested RSUs, the requisite service is expected to be rendered. The Company considered it as a repurchase for no consideration and all remaining unrecognized compensation cost should be recognized on the cancellation date.
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The following table sets forth information regarding the beneficial ownership of our Ordinary Shares as of the date of this prospectus by our officers, directors, and 5% or greater beneficial owners of Ordinary Shares. There is no other person or group of affiliated persons known by us to beneficially own more than 5% of our Ordinary Shares.
We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Unless otherwise indicated, the person identified in this table has sole voting and investment power with respect to all shares shown as beneficially owned by him, subject to applicable community property laws.
The calculations in the table below are based on 20,000,000 Ordinary Shares issued and outstanding as of the date of this prospectus, and 2,000,000 Ordinary Shares issued and outstanding immediately after the completion of this offering, assuming the underwriter does not exercise its option to purchase additional Ordinary Shares.
Ordinary Shares Beneficially | Ordinary Shares Beneficially Owned After this Offering | |||||||||||||||
| Number of shares | Percentage of shares | Number of Shares | Percentage of Shares | |||||||||||||
| Directors and Executive Officers: | ||||||||||||||||
| Zheng Jiahua | 8,151,600 | 40.76 | % | 8,151,600 | 37.05 | % | ||||||||||
| Zheng Nan | 8,148,000 | 40.74 | % | 8,148,000 | 37.04 | % | ||||||||||
| Wang Shijie | - | - | - | - | ||||||||||||
| Chen Yizhou | - | - | - | - | ||||||||||||
| He Wenxin | - | - | - | - | ||||||||||||
| Wu Xin | - | - | - | - | ||||||||||||
| Ken He | - | - | - | - | ||||||||||||
| Yu Zhen | - | - | - | - | ||||||||||||
| 5% or Greater Shareholders: | ||||||||||||||||
| Micava Co., Ltd. | 8,151,600 | 40.76 | % | 8,151,600 | 37.05 | % | ||||||||||
| Annan Tech Co., Ltd. | 8,148,000 | 40.74 | % | 8,148,000 | 37.04 | % | ||||||||||
(1) Unless otherwise indicated, the business address of each of the individuals is 25/F, UK Center, EFC, Yuhang District, Hangzhou, China 311121.
(2) The number of Ordinary Shares beneficially owned prior to this offering represents 8,151,600 Ordinary Shares held by Micava Co., Ltd., a British Virgin Islands company, which is 100% owned by Zheng Jiahua. The registered address of Micava Co., Ltd. is Intershore Chambers, Road, Town, Tortol, British Virgin Islands.
(3) The number of Ordinary Shares beneficially owned prior to this offering represents 8,148,000 Ordinary Shares held by Annan Tech Co., Ltd., which is 100% owned by Zheng Nan. Annan Tech Co., Ltd. is a British Virgin Islands company. The registered address of Annan Tech Co., Ltd. is Intershore Chambers, Road, Town, Tortola, British Virgin Islands.
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Material Transactions with Related Parties
The table below sets forth the major related parties that had transaction with the Group, and their relationships with the Group as of June 30, 2022, 2023, and 2024:
| No. | Name of Related Parties | Relationships | ||
| 1 | Zheng Jiahua | Chairman of the Board of Directors | ||
| 2 | Zheng Nan | Chief executive officer | ||
| 3 | Hangzhou Yinuo Technology Co., Ltd. | Entity controlled by shareholders |
| (a) | The Group entered into the following transactions with related parties: |
| For the years ended June 30, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Nature | ||||||||||||
| Accounts received on behalf of the Group | ||||||||||||
| Zheng Nan (1) | - | - | 111,341 | |||||||||
| Loans from related parties | ||||||||||||
| Zheng Jiahua (2) | 3,749,500 | - | 300,000 | |||||||||
| Hangzhou Yinuo Technology Co., Ltd.(2) | 460,690 | - | - | |||||||||
| Repayment of loans from related parties | ||||||||||||
| Zheng Jiahua (2) | 3,750,000 | - | 300,000 | |||||||||
| Hangzhou Yinuo Technology Co., Ltd.(2) | 2,129,000 | - | - | |||||||||
| Loans to a related party | ||||||||||||
| Zheng Jiahua (2) | - | - | 400,000 | |||||||||
| Collection from loan to a related party | - | |||||||||||
| Zheng Jiahua (2) | - | 400,000 | ||||||||||
| (b) | The Group had the following balances with related parties: |
| As of June 30, | ||||||||||||
| 2022 | 2023 | 2024 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Amount due to a related party: | ||||||||||||
| Zheng Nan (1) | - | - | 111,341 | |||||||||
| Total | - | - | 111,341 | |||||||||
| (1) | Represents the travel service payments received through the platform fund account on Zelle, a digital payment platform, held by Mr. Zheng Nan, the Chief Executive Officer of the Group. |
| (2) | Represents the interest-free loans that the Group borrowed from or lent to the related parties, of which the amounts due from and amounts due to were all settled during the years ended June 30, 2022, 2023 and 2024. |
Employment Agreements, Director Agreements and Indemnification Agreements
See “Management—Employment Agreements, Director Agreements and Indemnification Agreements.”
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We are a Cayman Islands exempted company and our affairs are governed by our A&R memorandum and articles of association, as amended and restated from time to time, and the Companies Act and the common law of the Cayman Islands.
As of the date of this prospectus, our authorized share capital is $50,000 divided into 500,000,000 Ordinary Shares, par value of $0.0001 each. As of the date of this prospectus, 20,000,000 Ordinary Shares are issued and outstanding.
We will adopt the A&R memorandum and articles of association upon effectiveness of this registration statement.
The following are summaries of material provisions of our A&R memorandum and articles of association and the Companies Act insofar as they relate to the material terms of our Ordinary Shares that we expect will become effective upon effectiveness of this registration statement.
The following description of our share capital and provisions of our A&R memorandum and articles of association are summaries and are qualified by reference to the A&R memorandum and articles of association. Copies of these documents have been filed with the SEC as exhibits to our registration statement, of which this prospectus forms a part.
Under our A&R memorandum and articles of association, the objects of our Company are unrestricted and we have the full power and authority to carry out any object not prohibited by the law of the Cayman Islands.
Ordinary Shares
Dividends
Subject to the provisions of the Companies Act and any rights and restrictions of any other class or series of shares and in accordance with the A&R memorandum and articles of association: our board of directors may, from time to time, declare dividends or distributions on the shares issued and authorize payment of the dividends out of our lawfully available funds; and our shareholders may by, ordinary resolution, declare dividends but no such dividend shall exceed the amount recommended by the directors. Dividends may be declared and paid out of the profits of the Company, realized or unrealized, or from any reserve set aside from profits which the Directors determine is no longer needed. 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, the Board may also declare and pay dividends out of the share premium account or any other fund or account which can be authorized for this purpose in accordance with the Act, provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. “Share premium account,” represents the excess of the price paid to our company on issue of its shares over the par or “nominal” value of those shares, which is similar to the U.S. concept of additional paid in capital. The directors when paying dividends to shareholders may make such payment either in cash or in specie.
No dividend shall bear interest against the Company.
Unclaimed Dividend
A dividend that remains unclaimed for a period of six years after it became due for payment shall be forfeited to, and shall cease to remain owing by, the Company.
Voting Rights
The holders of our Ordinary Shares are entitled to one vote per share, including the election of directors. Voting at any meeting of shareholders is by show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded by the chairman of such meeting or by at least two shareholders having the right to vote on the resolutions or one or more shareholders present who together hold not less than ten percent of the voting rights of all those who are entitled to vote on the resolution. 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 not be entitled to a second or casting vote.
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At any general meeting of the Company, shareholders may participate in person, by proxy or by telephone or other electronic means.
As a matter of Cayman Islands law, (i) an ordinary resolution requires the affirmative vote of a simple majority of the shareholders who, being entitled to do so, attend and vote at a general meeting of the company; and (ii) a resolution is deemed to be a special resolution where it has been approved by either (i) at least two-thirds (or any higher threshold specified in a company's articles of association) of a company's shareholders who attend and vote at a general meeting for which notice specifying the intention to propose the resolution as a special resolution has been given; or (ii) if so authorized by a company’s articles of association, by a unanimous written resolution of all of the company’s shareholders. Under Cayman Islands law, some matters, such as amending the memorandum and articles, changing the name or resolving to be registered by way of continuation in a jurisdiction outside the Cayman Islands, require approval of shareholders by a special resolution.
There are no limitations on non-residents or foreign shareholders to hold or exercise voting rights on the Ordinary Shares imposed by foreign law or by the A&R memorandum and articles of association of our Company. However, no person will be entitled to vote at any general meeting or at any separate meeting of the holders of the Ordinary Shares unless the person is registered as of the record date for such meeting and unless all calls or other sums presently payable by the person in respect of Ordinary Shares in the Company have been paid.
Winding Up; Liquidation
Upon the winding up of our company, after the full amount that holders of any issued shares ranking senior to the Ordinary Shares as to distribution on liquidation or winding up are entitled to receive has been paid or set aside for payment, the holders of our Ordinary Shares are entitled to receive any remaining assets of our company available for distribution as determined by the liquidator. The shareholders may, subject to our post-offering amended and restated memorandum and articles of association 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.
Calls on Ordinary Shares and Forfeiture of Ordinary Shares
Subject to the terms of allotment, our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their Ordinary Shares including any premium and each shareholder shall (subject to receiving at least 14 clear days’ notice specifying when and where payment is to be made), pay to us the amount called on his shares. Shareholders registered as the joint holders of a share shall be jointly and severally liable to pay all calls in respect of the share. Any Ordinary Shares that have been called upon and remain unpaid are subject to forfeiture. No shareholder shall be entitled to vote at any general meeting unless all calls or other sums payable by such shareholder have been paid. Our board of directors may deduct from a dividend or any other amount payable to a person in respect of an ordinary share any amount due by that person to the Company on a call or otherwise in relation to an ordinary share. If a call remains unpaid after it has become due and payable the person from whom it is due and payable shall pay interest on the amount unpaid from the day it became due and payable until it is paid at the rate fixed by the terms of allotment of the share or in the notice of the call or if no rate is fixed, at the rate of ten percent per annum. The directors may, at their discretion, waive payment of the interest wholly or in part.
We have a first and paramount lien on all shares (whether fully paid up or not) registered in the name of a shareholder (whether solely or jointly with others). The lien is for all monies payable to us by the shareholder or the shareholder’s estate:
| (a) | either alone or jointly with any other person, whether or not that other person is a shareholder; and |
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| (b) | whether or not those monies are presently payable. |
At any time the directors may declare any share to be wholly or partly exempt from the lien on shares provisions of the A&R memorandum and articles of association.
We may sell, in such manner as the directors may determine, any share on which the sum in respect of which the lien exists is presently payable, if due notice that such sum is payable has been given (as prescribed by the A&R memorandum and articles of association) and, within 14 clear days of the date on which the notice is deemed to be given under the A&R memorandum and articles of association, such notice has not been complied with.
Any Ordinary Shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption and Purchase of Ordinary Shares
Subject to the provisions of the Companies Act and other applicable law and any rights for the time being conferred on the shareholders holding a particular class of shares, we may by action of our directors:
| (a) | issue shares that are to be redeemed or liable to be redeemed, at our option or the shareholder holding those redeemable shares, on the terms and in the manner our directors determine before the issue of those shares; |
| (b) | with the consent by special resolution of the shareholders holding shares of a particular class, vary the rights attaching to that class of shares so as to provide that those shares are to be redeemed or are liable to be redeemed at our option on the terms and in the manner which the directors determine at the time of such variation; and |
| (c) | purchase all or any of our own shares of any class including any redeemable shares on the terms and in the manner which the directors determine at the time of such purchase. |
We may make a payment in respect of the redemption or purchase of its own shares in any manner authorized by the Companies Act, including out of any combination of capital, our profits and the proceeds of a fresh issue of shares.
When making a payment in respect of the redemption or purchase of shares, the directors may make the payment in cash or in specie (or partly in one and partly in the other) if so authorized by the terms of the allotment of those shares or by the terms applying to those shares, or otherwise by agreement with the shareholder holding those shares.
Under the Companies Act, the redemption or repurchase of any share may be paid out of our Company’s profits or out of the proceeds of a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve). If the repurchase proceeds are paid out of our Company’s capital, our Company must, immediately following such payment, be able to pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act, no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding and (c) unless the manner of purchase (if not so authorized under the articles of association) has first been authorized by a resolution of our shareholders.
In addition, under the Companies Act, our Company may accept the surrender of any fully paid share for no consideration unless, as a result of the surrender, the surrender would result in there being no shares outstanding (other than shares held as treasury shares).
No Preemptive Rights
Holders of Ordinary Shares will have no pre-emptive or preferential right to purchase any securities of our company.
Variation of Rights Attaching to Shares
If at any time the share capital is divided into different classes of shares, all or any of the special rights attaching to any class (unless otherwise provided by the terms of issue of the shares of that class) may, subject to the provisions of the Companies Act and the A&R memorandum and articles, be modified or abrogated with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class. Consequently, the rights of any class of shares cannot be detrimentally altered without (a) the shareholders holding two thirds of the issued shares in that class consenting in writing to the variation; or (b) the variation being made with the sanction of a special resolution passed at a separate general meeting of the shareholders holding the issued shares in that class by a majority of two-thirds of the vote of all of the shares in that class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.
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Issuance of Additional Shares
Our A&R memorandum and articles of association authorizes our board of directors to issue additional Ordinary Shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares. The board of directors is empowered to designate and issue from time to time one or more classes and to fix and determine the relative rights, preferences, designations, qualifications, privileges, options, conversion rights, limitations and other special or relative rights of each such class or series so authorized. Such action could adversely affect the voting power and other rights of the holders of our Ordinary Shares or could have the effect of discouraging any attempt by a person or group to obtain control of us.
General Meetings 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 at least ten percent of the rights to vote at such general meeting in accordance with the notice provisions in the A&R memorandum and articles of association, 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. At least 5 clear days’ notice of an extraordinary general meeting and 5 clear days’ notice of an annual 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. In addition, if a resolution is proposed as a special resolution, the text of that resolution shall be given to all shareholders. Notice of every general meeting shall also be given to the directors and our auditors. Subject to the Companies Act and with the consent of the shareholders who, individually or collectively, hold at least 90 percent of the voting rights of all those who have a right to vote at a general meeting, a general meeting may be convened on shorter notice. 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 15 minutes 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 time and place seven days or to such other time or place as is determined by the directors. The chairman may, with the consent of a meeting at which a quorum is present, adjourn the meeting. When a meeting is adjourned for more than seven clear days, notice of the adjourned meeting shall be given in accordance with the articles.
Anti-Takeover Provisions
Some provisions of our A&R memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such shares without any further vote or action by our shareholders. However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our A&R amended and restated memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our Company.
Exempted Company
We are an exempted company incorporated 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 of 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:
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| · | does not have to file an annual return of its shareholders with the Registrar of Companies; |
| · | is not required to open its register of members for inspection to the public; |
| · | 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 the shares of the company. Upon the closing of this offering, we will be subject to reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. We currently intend to comply with the Nasdaq Rules in lieu of following home country practice after the closing of this offering. The Nasdaq Rules require that every company listed on the Nasdaq hold an annual general meeting of shareholders.
Register of Members
Under the Companies Act, we must keep a register of members and there should be entered therein:
| · | the names and addresses of our members, and, a statement of the shares held by each member, which: |
| o | distinguishes each share by its number (so long as the share has a number); |
| o | confirms the amount paid, or agreed to be considered as paid, on the shares of each member; |
| o | confirms the number and category of shares held by each member; and |
| o | confirms whether each relevant category of shares held by a member carries voting rights under the articles of association of the company, and if so, whether such voting rights are conditional |
| · | the date on which the name of any person was entered on the register as a member; and |
| · | the date on which any person ceased to be a member. |
Under Cayman Islands law, the register of members of our Company is prima facie evidence of the matters set out therein (i.e., the register of members will raise a presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members is deemed as a matter of Cayman Islands law to have legal title to the shares as set against its name in the register of members. Once our register of members has been updated, the shareholders recorded in the register of members will be deemed to have legal title to the shares set against their name.
If the name of any person is incorrectly entered in or omitted from our register of members or if there is any default or unnecessary delay in entering on the register the fact of any person having ceased to be a member of our Company, the person or member aggrieved (or any member of our Company or our Company itself) may apply to the Grand Court of the Cayman Islands for an order that the register be rectified. The Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.
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Warrants
There are no outstanding warrants to purchase any of our securities. We have agreed to issue to the Representative (defined below), on the closing date of this offering, warrants exercisable at a price equal to 125% of the public offering price of the Ordinary Shares offered hereby, to purchase 7% of the aggregate number of Ordinary Shares sold in this offering. See “Representative’s Warrant” on page 148 for more information about these warrants.
Options
15% Over-allotment.
Differences in Corporate Law
The Companies Act is modelled after that of the law of England and Wales but does not follow recent English law statutory enactments. In addition, the Companies Act differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the State of Delaware.
Mergers and Similar Arrangements
A merger of two or more constituent companies under Cayman Islands law requires a plan of merger or consolidation to be approved by the directors of each constituent company and authorization by (a) a special resolution of the shareholders and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association.
The written plan of merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands together with, among other things, a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.
A merger between a Cayman Islands parent company and its Cayman Islands subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman Islands subsidiary if a copy of the plan of merger is given to every member of that Cayman Islands subsidiary to be merged unless that member agrees otherwise. For this purpose, a subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are owned by the parent company.
The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
Save in certain limited circumstances, a dissenting shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares (which if not agreed between the parties will be determined by the Cayman Islands court) upon dissenting to a merger or consolidation provided that the dissenting shareholder complies strictly with the procedures set out in the Companies Acy. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.
Separate from the statutory provisions relating to mergers and consolidations, the Companies Act also contains statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must, in addition, represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
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| · | the statutory provisions as to the required majority vote have been met; |
| · | the shareholders have been fairly represented at the meeting in question; |
| · | the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and |
| · | the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act. |
The Companies Act also contains a statutory power of compulsory acquisition which may facilitate the "squeeze out" of dissentient minority shareholders upon a tender offer. When a tender offer is made and accepted by holders of 90.0% of the shares the subject of such offer within four months, the offeror may, within a two-month period commencing on the expiration of such four month period, give notice in the prescribed manner to any dissenting shareholders to require them to transfer such shares to the offeror on the terms of the offer, unless an application is made by the dissenting shareholder to the Court for an order otherwise within one month from the date on which the notice was given. An objection can be made to the Grand Court of the Cayman Islands but is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction by way of scheme of arrangement is thus approved and sanctioned or if a tender offer is made and accepted in accordance with the foregoing statutory procedures, the dissenting shareholder would have no rights comparable to appraisal rights, save that objectors to a takeover offer may apply to the Grand Court of the Cayman Islands for various orders that the Grand Court of the Cayman Islands has a broad discretion to make, which would otherwise ordinarily be available to dissenting shareholders of certain Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares where the vote of shareholders is required to approve the transaction.
Shareholders’ Suits
In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company and as a general rule, a derivative action may not be brought by a minority shareholder. However, based on English authorities, which may be persuasive authority in the Cayman Islands and be applied by a court in the Cayman Islands, the Cayman Islands courts can be expected (and have had occasion) to follow and apply the common law principles which laid out certain exceptions to the foregoing principle, including when:
| · | a company acts or proposes to act illegally or ultra vires and is therefore incapable of ratification by the shareholders; |
| · | the act complained of, although not ultra vires, could only be effected if duly authorized by more than a simple majority vote that has not been obtained; and |
| · | those who control the company are perpetrating a “fraud on the minority.” |
A shareholder may have a direct right of action against us where the individual rights of that shareholder have been infringed or are about to be infringed.
Indemnification of Directors and Executive Officers and Limitation of Liability
Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our A&R memorandum and articles of association permit indemnification of our officers and directors to the maximum extent permitted by law, for actions, losses, damages, costs and expenses incurred in their capacities as such unless such losses or damages arise from dishonesty or fraud of such directors or officers. This standard of conduct is similar to but little more lax than that required under the Delaware General Corporation Law for a Delaware corporation which permits indemnification if the person to be indemnified acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Delaware corporation, and, with respect to any criminal action or proceeding, such person to be indemnified had no reasonable cause to believe such person’s conduct was unlawful. In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our A&R memorandum and articles of association.
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Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties
Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction and base such director’s decision on such information. In doing so, a Delaware director is entitled to rely in good faith on corporation’s records and on information, opinions, reports or statements presented to the board by the company’s officers, employees or board committees, or by other parties as to matters the director reasonably believes are within such other parties’ professional or expert competence and who have been selected for the company with reasonable care. Further, Delaware corporations may include in their certificates of incorporation an exculpation provision for the benefit of its directors. At its maximum strength, such an exculpatory provision eliminates the personal liability of a director to the corporation or its shareholders for monetary damages for breaches of the duty of care (but not, among other things, breaches of the duty of loyalty). The duty of loyalty requires that a director act independently and in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation (the “Business Judgement Rule”). However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. To rebut the presumption, a party attempting to so rebut has the burden of presenting evidence that directors were at least grossly negligent in not becoming adequately informed or were motivated by interests other than those of the company’s shareholders as a whole (or acted in bad faith by consciously disregarding a known duty). Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company owes three types of duties to the company: (i) statutory duties, (ii) fiduciary duties, and (iii) common law duties. The Companies Act imposes a number of statutory duties on a director. A Cayman Islands director’s fiduciary duties are not codified, however the courts of the Cayman Islands have held that a director owes the following fiduciary duties (a) a duty to act in what the director bona fide considers to be in the best interests of the company, (b) a duty to exercise their powers for the purposes they were conferred, (c) a duty to avoid fettering his or her discretion in the future and (d) a duty to avoid conflicts of interest and of duty. The common law duties owed by a director of a Cayman Islands company are those to act with skill and care and diligence that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and, also, to act with the skill, care and diligence in keeping with a standard of care commensurate with any particular skill they have which enables them to meet a higher standard than a director without those skills. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities may be followed in the Cayman Islands. Under statute, our directors are subject to a number of statutory obligations, which provisions prescribe penalties for breach. The most serious of these involves dishonesty or the authorizing of illegal payments and carry both criminal and civil penalties. By way of example, material statutory provisions attracting penalties include where (1) the director wilfully authorizes or permits any distribution or dividend in contravention of the Companies Act; (ii) where the director knowingly or wilfully authorizes or permits any payment out of capital by a company for a redemption or purchase of its own shares when the company is insolvent; (iii) where there has been a failure to maintain the books of account, minutes of meetings, or the company’s statutory registers of members, beneficial ownership, mortgages and charges, or directors (which includes alternate directors); (iv) where there has been a failure to provide information or access to documents to specified persons as required by the Companies Act; and (v) where the director makes or authorizes a false annual return to the Registrar of Companies.
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Shareholder Action by Written Consent
Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our A&R memorandum and articles of association provide that shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.
Shareholder Proposals
Under the Delaware General Corporation Law, the by-laws may afford shareholders the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
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. These rights, however, may be provided in a company’s articles of association. Our A&R memorandum and articles of association allow our shareholders holding shares representing in aggregate at least 10% of our voting share capital in issue, to requisition a general meeting of our shareholders, in which case our directors are obliged to call such meeting. If the directors do not convene such meeting for a date not later than twenty-one 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 twenty-one 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. A quorum required for a meeting of shareholders consists of at least one shareholder present or by proxy, representing not less than one-third of the total issued shares carrying the right to vote at a general meeting of the Company. For these purposes, “clear days” means that period excluding (a) the day when the notice is given or deemed to be given and (b) the day for which it is given or on which it is to take effect.
Cumulative Voting
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our A&R memorandum and articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors
Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the issued and outstanding shares entitled to vote at an election of directors, unless the certificate of incorporation provides otherwise.
Subject to the provisions of our A&R memorandum and articles of association (which include the removal of a director by ordinary resolution), the office of a director may be terminated forthwith if (a) he is prohibited by the laws of the Cayman Islands from acting as a director, (b) he is made bankrupt or makes an arrangement or composition with his creditors generally, (c) he resigns his office by notice to us, (d) he only held office as a director for a fixed term and such term expires, (e) in the opinion of a registered medical practitioner by whom he is being treated he becomes physically or mentally incapable of acting as a director, (f) he is given notice by the majority of the other directors (not being less than two in number) to vacate office (without prejudice to any claim for damages for breach of any agreement relating to the provision of the services of such director), (g) he is made subject to any law relating to mental health or incompetence, whether by court order or otherwise, or (h) without the consent of the other directors, he is absent from meetings of directors for continuous period of six months.
Transactions with Interested Shareholders
The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
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Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into in the bona fide best interests of the company and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding up
Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under the Companies Act and our post-offering amended and restated memorandum and articles of association, the Company may be wound up by a special resolution of our shareholders, or if the winding up is initiated by our board of directors, by either a special resolution of our members or, if our company is unable to pay its debts as they fall due, by an ordinary resolution of our members. In addition, a company may be wound up by an order of the courts of the Cayman Islands. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Variation of Rights of Shares
Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class. Under Cayman Islands law and our A&R memorandum and articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class with the written consent 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 not less than two-thirds of such holders of the shares of that class as may be present in person or by proxy at a separate meeting of the holders of the shares of that class.
Amendment of Governing Documents
Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides for a greater required number of shares for approval. As permitted by Cayman Islands law, our A&R memorandum and articles of association may only be amended with a special resolution of our shareholders.
Rights of Non-resident or Foreign Shareholders
Our A&R memorandum and articles of association do not limit the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. However, no person will be entitled to vote at any general meeting or at any separate meeting of the holders of the Ordinary Shares unless the person is registered as of the record date for such meeting and unless all calls or other sums presently payable by the person in respect of our Ordinary Shares have been paid. In addition, there are no provisions in our A&R memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there was no established public trading market for our Ordinary Shares. We cannot assure you that a liquid trading market for our Ordinary Shares will develop on Nasdaq or be sustained after this offering. Future sales of substantial amounts of Ordinary Shares in the public market, or the perception that such sales may occur, could adversely affect the market price of our Ordinary Shares. Further, since a large number of our Ordinary Shares will not be available for sale shortly after this offering because of the contractual and legal restrictions on resale described below, sales of substantial amounts of our Ordinary Shares in the public market after these restrictions lapse, or the perception that such sales may occur, could adversely affect the prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have an aggregate of 22,000,000 Ordinary Shares issued and outstanding, assuming the underwriter does not exercise its option to purchase additional Ordinary Shares. The Ordinary Shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act.
As of the date of this prospectus, 20,000,000 Ordinary Shares held by existing shareholders are deemed “restricted securities” as that term is defined in Rule 144 and may not be resold except pursuant to an effective registration statement or an applicable exemption from registration, including Rule 144. A total of 16,299,600, or 81.50%, of our currently outstanding Ordinary Shares will be subject to “lock-up” agreements described below. Upon expiration of the lock-up period of 180 days after the date of this prospectus, outstanding shares will become eligible for sale, subject in most cases to the limitations of Rule 144.
The following table summarizes the total shares potentially available for future sale, assuming no exercise of the underwriter’s over-allotment option.
| Days After Date of this Prospectus |
Shares for Sale |
Comment | ||||
| Upon Effectiveness | 3,750,000 | Freely tradable shares sold in the offering and offered by the Selling Shareholders. | ||||
| Six months | 22,000,000 | Saleable after expiration of the lock-up. | ||||
Rule 144
In general, under Rule 144, beginning ninety days after the date of this prospectus, a person who is not our affiliate and has not been our affiliate at any time during the preceding three months will be entitled to sell any shares of our share capital that such person has held for at least six months, including the holding period of any prior owner other than one of our affiliates, without regard to volume limitations. Sales of our share capital by any such person would be subject to the availability of current public information about us if the shares to be sold were held by such person for less than one year.
Beginning ninety days after the date of this prospectus, our affiliates who have beneficially owned shares of our share capital for at least six months, including the holding period of any prior owner other than another of our affiliates, would be entitled to sell within any three-month period those shares and any other shares they have acquired that are not restricted securities, provided that the aggregate number of shares sold does not exceed the greater of:
| · | 1% of the number of shares of our authorized share capital then outstanding, which will equal 220,000 Ordinary Shares immediately after this offering (or 223,000 Ordinary Shares immediately after this offering if the underwriters exercise their over-allotment option in full); or |
| · | the average weekly trading volume in our Ordinary Shares on the listing exchange during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
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Sales under Rule 144 by our affiliates are generally subject to the availability of current public information about us, as well as certain “manner of sale” and notice requirements.
Lock-up Agreements
We and each of our officers, directors and shareholders holder of 5% or more of Ordinary Shares on a fully diluted basis immediately prior to the consummation of this offering have agreed, subject to certain exceptions, not to, directly or indirectly, offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, lend or otherwise dispose of, or enter into any swap or other transaction that is designed to, or could be expected to, result in the disposition of any of our Ordinary Shares or other securities convertible into or exchangeable or exercisable for our Ordinary Shares or derivatives of our Ordinary Shares (whether any such swap or transaction is to be settled by delivery of securities, in cash, or otherwise), owned by these persons prior to this offering or acquired in this offering or Ordinary Shares issuable upon exercise of options or warrants held by these persons until after 180 days following the date of this prospectus.
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The following discussion of material Cayman Islands, PRC and United States federal income tax consequences of an investment in our Ordinary Shares is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This discussion does not deal with all possible tax consequences relating to an investment in our Ordinary Shares, such as the tax consequences under state, local and other tax laws. To the extent that the discussion relates to matters of Cayman Islands tax law, it represents the opinion of Ogier, our Cayman Islands counsel. To the extent that the discussion relates to matters of PRC tax law, it represents the opinion of Allbright Law Offices, our Chinese counsel.
Cayman Islands Taxation
Under the law of the Cayman Islands as currently in effect, a holder of the securities who is not a resident of the Cayman Islands is not liable for Cayman Islands tax on dividends paid with respect to the securities and all holders of the securities are not liable to the Cayman Islands for tax on gains realized during that year on the sale or disposal of such Ordinary Shares. The Cayman Islands does not impose a withholding tax on dividends paid by a company incorporated or re-registered under the Companies Act.
There are no capital gains, gift or inheritance taxes levied by the Cayman Islands on companies incorporated under the Companies Act. In addition, shares of companies incorporated under the Companies Act are not subject to transfer taxes, stamp duties or similar charges.
There is no income tax treaty or convention currently in effect between the United States and the Cayman Islands or between China and the Cayman Islands.
The Company has been incorporated under the laws of the Cayman Islands as an exempted company with limited liability and, as such, has applied for and expects to receive an undertaking from the Financial Secretary of the Cayman Islands in the following form:
The Tax Concessions Act Undertaking as to Tax Concessions
In accordance with the provision of Section 6 of The Tax Concessions Act (Revised), the following undertaking may be given to the Company:
| 1. | That no law which is thereafter enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to the Company or its operations; and |
| 2. | In addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable: |
| 2.1 | On or in respect of the shares, debentures or other obligations of the Company; or |
| 2.2 | by way of the withholding in whole or part, of any relevant payment as defined in Section 6(3) of the Tax Concessions Act (Revised). |
These concessions shall be for a period of 20 years from the date of the relevant certificate issued by the Financial Secretary of the Cayman Islands.
People’s Republic of China Taxation
The following brief description of Chinese enterprise laws is designed to highlight the enterprise-level taxation on our earnings, which will affect the amount of dividends, if any, we are ultimately able to pay to our shareholders. See “Dividend Policy.”
We are an exempt 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.
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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 Notice 82, which provides guidance on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although Webus does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese-controlled offshore incorporated enterprise within the meaning of SAT Notice 82, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in SAT Notice 82 to evaluate the tax residence status of Webus and its subsidiaries organized outside the PRC.
According to SAT Notice 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 and salary and wages) are decided or need to be decided 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 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 Webus, 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. Accordingly, we believe that Webus and its offshore subsidiaries should not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in SAT Notice 82 were deemed applicable to us. 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.
The implementation rules of the EIT Law provide that, (i) if the enterprise that distributes dividends is domiciled in the PRC or (ii) if gains are realized from transferring equity interests of enterprises domiciled in the PRC, then such dividends or gains are treated as China-sourced income. It is not clear how “domicile” may be interpreted under the EIT Law, and it may be interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we are considered as a PRC tax resident enterprise for PRC tax purposes, any dividends we pay to our overseas shareholders which are non-resident enterprises as well as gains realized by such shareholders from the transfer of our shares may be regarded as China-sourced income and as a result become subject to PRC withholding tax at a rate of up to 10%. We are unable to provide a “will” opinion because AllBright Law Offices, our PRC counsel, believes that it is possible but highly unlikely that the Company and its offshore subsidiaries would be treated as a “resident enterprise” for PRC tax purposes because they do not meet some of the conditions outlined in SAT Notice 82. 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 as of the date of the prospectus. Therefore it is possible but highly unlikely that the income received by our overseas shareholders will be regarded as China-sourced income.
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See “Risk Factors — Risks Related to Doing Business in China — If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.”
Our company pays an EIT rate of 25% for WFOE. Any gain or loss recognized by you generally will be treated as United States source gain or loss. However, if we are treated as a PRC resident enterprise for PRC tax purposes and PRC tax were imposed on any gain, and if you are eligible for the benefits of the tax treaty between the United States and PRC, you may elect to treat such gain as PRC source gain under such treaty and, accordingly, you may be able to credit the PRC tax against your United States federal income tax liability.
United States Federal Income Tax Considerations
The following is a discussion of United States federal income tax considerations relating to the acquisition, ownership, and disposition of our Ordinary Shares by a U.S. Holder, as defined below, that acquires our Ordinary Shares in this offering and holds our Ordinary Shares as “capital assets” (generally, property held for investment) under the United States Internal Revenue Code of 1986, as amended (the “Code”). This discussion is based upon existing United States federal income tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service (the “IRS”) with respect to any United States federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion does not address all aspects of United States federal income taxation that may be important to particular investors in light of their individual circumstances, including investors subject to special tax rules (such as, for example, certain financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in securities that elect mark-to-market treatment, partnerships and their partners, tax-exempt organizations (including private foundations)), investors who are not U.S. Holders, investors that own (directly, indirectly, or constructively) 10% or more of our voting shares, investors that hold their Ordinary Shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction), or investors that have a functional currency other than the U.S. dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this discussion does not address any tax laws other than the United States federal income tax laws, including any state, local, alternative minimum tax or non-United States tax considerations, or the Medicare tax. Each potential investor is urged to consult its tax advisor regarding the United States federal, state, local and non-United States income and other tax considerations of an investment in our Ordinary Shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our Ordinary Shares that is, for United States federal income tax purposes, (i) an individual who is a citizen or treated as a tax resident of the United States, (ii) a corporation (or other entity treated as a corporation for United States federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise elected to be treated as a United States person under the Code.
If a partnership (or other entity 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.
The discussion set forth below is addressed only to U.S. Holders that purchase Ordinary Shares in this offering. Prospective purchasers are urged to consult their own tax advisors about the application of the U.S. federal income tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our Ordinary Shares.
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Taxation of Dividends and Other Distributions on our Ordinary Shares
Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to the Ordinary Shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). 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 passive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. 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 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 prospectus.
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 may be eligible for reduced tax rates on any such capital gains. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company (“PFIC”)
A non-U.S. corporation is considered a PFIC for any taxable year if either:
| • | at least 75% of its gross income for such taxable year is passive income; or |
| • | at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”). |
Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the shares. In determining the value and composition of our assets for purposes of the PFIC asset test, (1) the cash we raise in this offering will generally be considered to be held for the production of passive income and (2) the value of our assets must be determined based on the market value of our Ordinary Shares from time to time, which could cause the value of our non-passive assets to be less than 50% of the value of all of our assets (including the cash raised in this offering) on any particular quarterly testing date for purposes of the asset test.
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We must make a separate determination each year as to whether we are a PFIC. Depending on the amount of cash we raise in this offering, together with any other assets held for the production of passive income, it is possible that, for our 2023 taxable year or for any subsequent taxable year, at least 50% of our assets may be assets held for the production of passive income. We will make this determination following the end of any particular tax year. Although the law in this regard is unclear, we treat our consolidated entities, as being owned by us for United States federal income tax purposes, not only because we exercise effective control over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements. In particular, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our Ordinary Shares and because cash is generally considered to be an asset held for the production of passive income, our PFIC status will depend in large part on the market price of our Ordinary Shares and the amount of cash we raise in this offering. Accordingly, fluctuations in the market price of the Ordinary Shares may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in this offering. We are under no obligation to take steps to reduce the risk of our being classified as a PFIC, and as stated above, the determination of the value of our assets will depend upon material facts (including the market price of our Ordinary Shares from time to time and the amount of cash we raise in this offering) that may not be within our control. If we are a PFIC for any year during which you hold Ordinary Shares, the shares will continue to be treated as stock in a PFIC for all succeeding years during which you hold Ordinary Shares. However, if we cease to be a PFIC and you did not previously make a timely “mark-to-market” election as described below, you may avoid some of the adverse effects of the PFIC regime by making a “purging election” (as described below) with respect to the Ordinary Shares.
If we are a PFIC for your taxable year(s) during which you hold Ordinary Shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the Ordinary Shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the Ordinary Shares will be treated as an excess distribution. Under these special tax rules:
| • | the excess distribution or gain will be allocated ratably over your holding period for the Ordinary Shares; |
| • | the amount allocated to your current taxable year, and any amount allocated to any of your taxable year(s) prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and |
| • | the amount allocated to each of your other taxable year(s) will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the Ordinary Shares cannot be treated as capital, even if you hold the Ordinary Shares as capital assets.
A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment discussed above. If you make a mark-to-market election for first taxable year which you hold (or are deemed to hold) Ordinary Shares and for which we are determined to be a PFIC, you will include in your income each year an amount equal to the excess, if any, of the fair market value of the Ordinary Shares as of the close of such taxable year over your adjusted basis in such Ordinary Shares, which excess will be treated as ordinary income and not capital gain. You are allowed an ordinary loss for the excess, if any, of the adjusted basis of the Ordinary Shares over their fair market value as of the close of the taxable year. However, such ordinary loss is allowable only to the extent of any net mark-to-market gains on the Ordinary Shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the Ordinary Shares, are treated as ordinary income. Ordinary loss treatment also applies to any loss realized on the actual sale or disposition of the Ordinary Shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such Ordinary Shares. Your basis in the Ordinary Shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “— Taxation of Dividends and Other Distributions on our Ordinary Shares” generally would not apply.
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The mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including Nasdaq. If the Ordinary Shares are regularly traded on Nasdaq and if you are a holder of Ordinary Shares, the mark-to-market election would be available to you were we to be or become a PFIC.
Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold Ordinary Shares in any taxable year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 in each such year and provide certain annual information regarding such Ordinary Shares, including regarding distributions received on the Ordinary Shares and any gain realized on the disposition of the Ordinary Shares.
If you do not make a timely “mark-to-market” election (as described above), and if we were a PFIC at any time during the period you hold our Ordinary Shares, then such Ordinary Shares will continue to be treated as stock of a PFIC with respect to you even if we cease to be a PFIC in a future year, unless you make a “purging election” for the year we cease to be a PFIC. A “purging election” creates a deemed sale of such Ordinary Shares at their fair market value on the last day of the last year in which we are treated as a PFIC. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, you will have a new basis (equal to the fair market value of the Ordinary Shares on the last day of the last year in which we are treated as a PFIC) and holding period (which new holding period will begin the day after such last day) in your Ordinary Shares for tax purposes.
You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our Ordinary Shares and the elections discussed above.
Information Reporting and Backup Withholding
Dividend payments with respect to our Ordinary Shares and proceeds from the sale, exchange or redemption of our Ordinary Shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding. 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 the information could result in substantial penalties. You should consult your own tax advisor regarding your obligation to file Form 8938.
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We expect to enter into an underwriting agreement with Network 1 Financial Securities, Inc., as representative of the several underwriters named therein (the “Representative”), with respect to the Ordinary Shares in this offering. The Representative may retain other brokers or dealers to act as sub-agents on its behalf in connection with this offering and may pay any sub-agent a solicitation fee with respect to any securities placed by it. Under the terms and subject to the conditions contained in the underwriting agreement, we have agreed to issue and sell to the underwriters the number of Ordinary Shares as indicated below.
| Underwriters | Number of Ordinary Shares | |||
| Network 1 Financial Securities, Inc. | [●] | |||
| Total | 2,000,000 | |||
The underwriters are offering the Ordinary Shares subject to their acceptance of the Ordinary Shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the underwriters to pay for and accept delivery of the Ordinary Shares offered by this prospectus are subject to the approval of certain legal matters by their counsel and to other conditions. The underwriters are obligated to take and pay for all of the Ordinary Shares offered by this prospectus if any such Ordinary Shares are taken. However, the underwriters are not required to take or pay for the Ordinary Shares covered by the underwriters’ option to purchase additional Ordinary Shares described below.
Over-Allotment Option
We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase a maximum of 300,000 additional Ordinary Shares at the initial public offering price listed on the cover page of this prospectus, less underwriting discounts. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with this offering. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional Ordinary Shares as the number listed next to the underwriter’s name in the preceding table bears to the total number of Ordinary Shares listed next to the names of all underwriters in the preceding table.
Underwriting Discounts and Expenses
The underwriters have advised us that they propose to offer the Ordinary Shares to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession. The underwriters may allow, and certain dealers may reallow, a discount from the concession to certain brokers and dealers. After this offering, the public offering price, concession, and reallowance to dealers may be changed by the underwriters. No such change shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The Ordinary Shares are offered by the underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters have informed us that they do not intend to confirm sales to any accounts over which they exercise discretionary authority.
The following table shows the public offering price, underwriting discount, and proceeds, before expenses, to us. The information assumes either no exercise or full exercise by the underwriters of the over-allotment option.
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| Per Share | Total Without Over- Allotment Option | Total With Full Exercise of Over- Allotment Option | ||||||||||
| Public offering price | $ | 4.00 | $ | 8,000,000 | $ | 9,200,000 | ||||||
| Underwriting discount(1) | $ | 0.28 | $ | 560,000 | $ | 644,000 | ||||||
| Proceeds to us, before expenses(2) | $ | 3.72 | $ | 7,440,000 | $ | 8,556,000 | ||||||
| (1) | Represents an underwriting discount equal to 7% per share. The fees do not include the Representative’s Warrants or expense reimbursement provisions described below. Underwriting discounts to be paid by us are calculated based on the assumption that no investors in this offering are introduced by us. |
| (2) | In addition to the underwriting discounts listed above, we have agreed to issue, upon closing of this offering, warrants to Network 1 Financial Securities, Inc., as representative of the several underwriters (the “Representative”), exercisable six (6) months after the date of closing of this offering and for a three-year period after the date of commencement of sales of Ordinary Shares in this offering, entitling the representative to purchase 7% of the total number of Ordinary Shares sold in this offering (including any Ordinary Shares sold as a result of the exercise of the underwriters’ over-allotment option) at a per share price equal to 125% of the public offering price (the “Representative’s Warrants”). The registration statement of which this prospectus is a part also covers the Representative’s Warrants and the Ordinary Shares issuable upon the exercise thereof. See “Underwriting” for additional information regarding total underwriter compensation. |
We have agreed to pay to the underwriters by deduction from the net proceeds of the offering contemplated herein, a non-accountable expense allowance equal to one percent (1%) of the gross proceeds received by us from the sale of the shares.
We have agreed to pay expenses relating to the offering, including: (i) our legal and accounting fees and disbursements; (ii) the costs of preparing, printing, mailing, and delivering the registration statement, the preliminary and final prospectus contained therein and amendments thereto, post-effective amendments and supplements thereto, and the underwriting agreement and related documents (all in such quantities as the Representative may reasonably require); (iii) the costs of preparing and printing share certificates and warrant certificates; (iv) the costs of any “due diligence” meetings; (v) all reasonable and documented fees and expenses for conducting a net road show presentation; (vi) all filing fees and communication expenses relating to the registration of the shares to be sold in the offering with the SEC and the filing of the offering materials with FINRA; (vii) the reasonable and documented fees and disbursements of the Representative’s counsel up to $75,000; (viii) background checks of the Company’s officers and directors up to $15,000; (ix) preparation of bound volumes and mementos in such quantities as the Representative may reasonably request up to $2,500; (x) transfer taxes, if any, payable upon the transfer of securities from us to the Representative; and (xi) the fees and expenses of the transfer agent, clearing firm, and registrar for the shares; provided that the actual accountable expenses of the Representative shall not exceed $225,000. We are required to supply the Representative and its counsel, at our cost, with a reasonable number of bound volumes of the offering materials within a reasonable time after the closing of this offering as well as commemorative tombstones.
We paid an expense deposit of $75,000 to the Representative upon the execution of letter of intent between us and the Representative, paid an additional $50,000 upon the first confidential filing of this prospectus and will pay an additional $75,000 upon receipt of the public filing of this prospectus, for the Representative’s anticipated out-of-pocket expenses. Upon the closing of this offering, we will pay an additional $25,000 to the Representative. Any expense deposits will be returned to us to the extent the Representative’s out-of-pocket accountable expenses are not actually incurred in accordance with FINRA Rule 5110(g)(4)(A).
We estimate that expenses payable by us in connection with this offering, other than the underwriting discounts referred to above, will be $1,630,592, including a maximum aggregate reimbursement of $225,000 of Representative’s accountable expenses.
In addition, we agreed, during the engagement period of the Representative or until the consummation of this offering, whichever is earlier, not to negotiate with any other broker-dealer relating to a possible private and/or public offering of the securities without the written consent of the Representative, provided that the Representative is reasonably proceeding in good faith with preparation for this offering. Until the Underwriting Agreement is signed, we or the Representative may at any time terminate its further participation in this offering for any reason whatsoever, and we agree to reimburse the Representative for its actual reasonable accountable out-of-pocket expenses, up to a maximum of $225,000, incurred prior to the termination, less any advance and amounts previously paid to the Representative in reimbursement for such expenses; provided, however, that such fees shall be subject to FINRA Rule 5110(f)(2)(D)(ii) and shall not apply if and to the extent the Representative has advised us of the Representative’s inability or unwillingness to proceed with this offering.
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Representative’s Warrants
We have agreed to issue warrants to the representative or its designees (the “Representative’s Warrants”) to purchase a number of Ordinary Shares equal to seven percent (7%) of the total number of Ordinary Shares sold in this offering, including Ordinary Shares issued upon exercise of underwriter’s over-allotment option. Such Representative’s Warrants shall have an exercise price equal to 125% of the public offering price of the Ordinary Shares sold in this offering. The Representative’s Warrants are exercisable following six (6) months the date of commencement of sales of the offering and for a period of three years following the date of commencement of sales of the offering, in whole or in part. The Ordinary Shares underlying the Representative’s Warrants have resale registration rights including one demand at our expense and one demand at the holders’ expense and unlimited “piggy-back” rights for periods of three and three years, respectively, from the commencement of sales of this offering. In compliance with FINRA Rule 5110(g)(8), such registration rights are limited to demand and “piggy back” rights for periods of three and three years, respectively, from the date of commencement of sales of the offering of which this prospectus forms a part, and such demand rights may be exercised on only one occasion.
The Representative’s Warrants and the underlying Ordinary Shares are deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the commencement of sales of this offering. Pursuant to FINRA 5110(e)(1), these securities may not be sold, transferred, assigned, pledged or hypothecated, nor may they be the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the commencement of sales of this offering except to any underwriter and selected dealer participating in the offering and their officers or partners, registered persons of affiliates or as otherwise permitted under FINRA Rule 5110(e)(2).
Listing
We have applied to list our Ordinary Shares on the Nasdaq Capital Market under the symbol “WETO.”
Indemnification
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.
Lock-Up Agreements
We have agreed not to, for a period of 180 days from the effective date of the registration statement of which this prospectus is a part, offer, issue, sell, contract to sell, encumber, grant any option for the sale of, or otherwise dispose of, except in this offering, any of our Ordinary Shares or securities that are substantially similar to our Ordinary Shares, including any options or warrants to purchase our Ordinary Shares, or any securities that are convertible into or exchangeable for, or that represent the right to receive, our Ordinary Shares or any such substantially similar securities (other than pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date such lock-up agreement was executed), without the prior written consent of the underwriters.
Furthermore, each of our directors and executive officers has also entered into a similar lock-up agreement for a period of 180 days from the effective date of the registration statement of which this prospectus is a part, subject to certain exceptions, with respect to our Ordinary Shares and securities that are substantially similar to our Ordinary Shares.
The Representative has no present intention to waive or shorten the lock-up period; however, the terms of the lock-up agreements may be waived at its discretion. In determining whether to waive the terms of the lock-up agreements, the Representative may base its decision on its assessment of the relative strengths of the securities markets and companies similar to ours in general, and the trading pattern of, and demand for, our securities in general.
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Pricing of the Offering
Prior to this offering, there has been no public market for our Ordinary Shares. The initial public offering price of the Ordinary Shares has been negotiated between us and the underwriters. Among the factors considered in determining the initial public offering price of the Ordinary Shares, in addition to the prevailing market conditions, are our historical performance, estimates of our business potential and earnings prospects, an assessment of our management, and the consideration of the above factors in relation to market valuation of companies in related businesses.
Electronic Offer, Sale, and Distribution of Ordinary Shares
A prospectus in electronic format may be made available on the websites maintained by the underwriters or selling group members, if any, participating in this offering and the underwriters may distribute prospectuses electronically. The underwriters may agree to allocate a number of Ordinary Shares to selling group members for sale to their online brokerage account holders. The Ordinary Shares to be sold pursuant to internet distributions will be allocated on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or the underwriters, and should not be relied upon by investors.
Price Stabilization, Short Positions, and Penalty Bids
In connection with this offering, the underwriters may engage in transactions that stabilize, maintain, or otherwise affect the price of our Ordinary Shares. Specifically, the underwriters may sell more Ordinary Shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of Ordinary Shares available for purchase by the underwriters under option to purchase additional Ordinary Shares. The underwriters can close out a covered short sale by exercising the option to purchase additional Ordinary Shares or purchasing Ordinary Shares in the open market. In determining the source of Ordinary Shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of Ordinary Shares compared to the price available under the option to purchase additional Ordinary Shares. The underwriters may also sell Ordinary Shares in excess of the option to purchase additional Ordinary Shares, creating a naked short position. The underwriters must close out any naked short position by purchasing Ordinary Shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Ordinary Shares in the open market after pricing that could adversely affect investors who purchase in the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing our Ordinary Shares in this offering because such underwriter repurchases those Ordinary Shares in stabilizing or short covering transactions.
Finally, the underwriters may bid for, and purchase, our Ordinary Shares in market making transactions, including “passive” market making transactions as described below.
These activities may stabilize or maintain the market price of our Ordinary Shares at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue any of these activities at any time without notice. These transactions may be effected on the Nasdaq Capital Market, in the over-the-counter market, or otherwise.
Passive Market Making
In connection with this offering, the underwriters may engage in passive market making transactions in our Ordinary Shares on the Nasdaq Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the Ordinary Shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.
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Potential Conflicts of Interest
The underwriters and their affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own accounts and for the accounts of their customers and such investment and securities activities may involve securities and/or instruments of our Company. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Other Relationships
The underwriters and certain of their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing, and brokerage activities. Some of the underwriters and certain of their affiliates may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us and our affiliates, for which they may in the future receive customary fees, commissions, and expenses.
In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long, and/or short positions in such securities and instruments.
Stamp Taxes
If you purchase Ordinary Shares offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.
Selling Restrictions
No action has been taken in any jurisdiction (except in the United States) that would permit a public offering of the Ordinary Shares, or the possession, circulation or distribution of this prospectus or any other material relating to us or the Ordinary Shares, where action for that purpose is required. Accordingly, the Ordinary Shares may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the Ordinary Shares may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.
Australia. This prospectus is not a product disclosure statement, prospectus, or other type of disclosure document for the purposes of Corporations Act 2001 (Commonwealth of Australia) (the “Act”) and does not purport to include the information required of a product disclosure statement, prospectus, or other disclosure document under Chapter 6D.2 of the Act. No product disclosure statement, prospectus, disclosure document, offering material, or advertisement in relation to the offer of the Ordinary Shares has been or will be lodged with the Australian Securities and Investments Commission or the Australian Securities Exchange.
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Accordingly, (1) the offer of the Ordinary Shares under this prospectus may only be made to persons: (i) to whom it is lawful to offer the Ordinary Shares without disclosure to investors under Chapter 6D.2 of the Act under one or more exemptions set out in Section 708 of the Act, and (ii) who are “wholesale clients” as that term is defined in section 761G of the Act, (2) this prospectus may only be made available in Australia to persons as set forth in clause (1) above, and (3) by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (1) above, and the offeree agrees not to sell or offer for sale any of the Ordinary Shares sold to the offeree within 12 months after their issue except as otherwise permitted under the Act.
Canada. The Ordinary Shares may not be offered, sold, or distributed, directly or indirectly, in any province or territory of Canada other than the provinces of Ontario and Quebec or to or for the benefit of any resident of any province or territory of Canada other than the provinces of Ontario and Quebec, and only on a basis that is pursuant to an exemption from the requirement to file a prospectus in such province, and only through a dealer duly registered under the applicable securities laws of such province or in accordance with an exemption from the applicable registered dealer requirements.
Cayman Islands. This prospectus does not constitute a public offer of the Ordinary Shares, whether by way of sale or subscription, in the Cayman Islands. The Representative has represented and agreed that it has not offered or sold, and will not offer or sell, directly or indirectly, any Ordinary Shares to any member of the public in the Cayman Islands.
European Economic Area. In relation to each Member State of the European Economic Area that has implemented the Prospectus Directive, or a Relevant Member State, from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, or the Relevant Implementation Date, an offer of the Ordinary Shares to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to the Ordinary Shares that has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and the competent authority in that Relevant Member State has been notified, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of the Ordinary Shares to the public in that Relevant Member State at any time,
| ● | to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
| ● | to any legal entity that has two or more of (1) an average of at least 250 employees during the last financial year, (2) a total balance sheet of more than €43,000,000, and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; |
| ● | to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive; or |
| ● | in any other circumstances that do not require the publication by the company of a prospectus pursuant to Article 3 of the Prospectus Directive; |
provided that no such offer of Ordinary Shares shall result in a requirement for the publication by the company of a prospectus pursuant to Article 3 of the Prospectus Directive.
For purposes of the above provision, the expression “an offer of Ordinary Shares to the public” in relation to any Ordinary Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Ordinary Shares to be offered so as to enable an investor to decide to purchase or subscribe the Ordinary Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
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Hong Kong. The Ordinary Shares may not be offered or sold in Hong Kong by means of this prospectus or any other document other than (i) in circumstances that do not constitute an offer or invitation to the public within the meaning of the Companies (Cap.32, Laws of Hong Kong) or the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances that do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the Ordinary Shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), that is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to Ordinary Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder.
Malaysia. The shares have not been and may not be approved by the securities commission Malaysia, or SC, and this document has not been and will not be registered as a prospectus with the SC under the Malaysian capital markets and services act of 2007, or CMSA. Accordingly, no securities or offer for subscription or purchase of securities or invitation to subscribe for or purchase securities are being made to any person in or from within Malaysia under this document except to persons falling within any of paragraphs 2(g)(i) to (xi) of schedule 5 of the CMSA and distributed only by a holder of a capital markets services license who carries on the business of dealing in securities and subject to the issuer having lodged this prospectus with the SC within seven days from the date of the distribution of this prospectus in Malaysia. The distribution in Malaysia of this document is subject to Malaysian laws. Save as aforementioned, no action has been taken in Malaysia under its securities laws in respect of this document. This document does not constitute and may not be used for the purpose of a public offering or an issue, offer for subscription or purchase, invitation to subscribe for or purchase any securities requiring the approval of the SC or the registration of a prospectus with the SC under the CMSA.
Japan. The Ordinary Shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan, and Ordinary Shares will not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to any exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
People’s Republic of China. This prospectus may not be circulated or distributed in the PRC, and the Ordinary Shares may not be offered or sold, and will not be offered or sold to any person for re-offering or resale, directly or indirectly, to any resident of the PRC except pursuant to applicable laws and regulations of the PRC. For the purpose of this paragraph, PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.
Singapore. This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of our Ordinary Shares may not be circulated or distributed, nor may our Ordinary Shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or SFA, (ii) to a relevant person or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
Where our Ordinary Shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor as defined in Section 4A of the SFA) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor; shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Ordinary Shares under Section 275 of the SFA, except: (1) to an institutional investor (for corporations under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is or will be given for the transfer; or (3) where the transfer is by operation of law.
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Taiwan The Ordinary Shares have not been and will not be registered or filed with, or approved by, the Financial Supervisory Commission of Taiwan pursuant to relevant securities laws and regulations and may not be offered or sold in Taiwan through a public offering or in circumstances which constitute an offer within the meaning of the Securities and Exchange Act of Taiwan or relevant laws and regulations that require a registration, filing, or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorized to offer or sell the Ordinary Shares in Taiwan.
United Kingdom. An offer of the Ordinary Shares may not be made to the public in the United Kingdom within the meaning of Section 102B of the Financial Services and Markets Act 2000, as amended, or the FSMA, except to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities or otherwise in circumstances that do not require the publication by the company of a prospectus pursuant to the Prospectus Rules of the Financial Services Authority, or the FSA.
An invitation or inducement to engage in investment activity (within the meaning of Section 21 of FSMA) may only be communicated to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which Section 21 of FSMA does not apply to the company.
All applicable provisions of the FSMA with respect to anything done by the underwriters in relation to the Ordinary Shares must be complied with in, from or otherwise involving the United Kingdom.
Israel. This prospectus does not constitute a prospectus under the Israeli Securities Law, 5728-1968, and has not been filed with or approved by the Israel Securities Authority. In Israel, this prospectus may be distributed only to, and is directed only at, investors listed in the first addendum, or the Addendum, to the Israeli Securities Law, consisting primarily of joint investment in trust funds; provident funds; insurance companies; banks; portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange Ltd., underwriters, each purchasing for their own account; venture capital funds; entities with equity in excess of NIS 50 million and “qualified individuals,” each as defined in the Addendum (as it may be amended from time to time), collectively referred to as qualified investors. Qualified investors shall be required to submit written confirmation that they fall within the scope of the Addendum.
The address of Network 1 Financial Securities, Inc. is 2 Bridge Avenue, Suite 241 Red Bank, NJ 07701.
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EXPENSES RELATING TO THIS OFFERING
Set forth below is an itemization of the total expenses, excluding underwriting discounts and commissions and expenses, that we expect to incur in connection with this offering. With the exception of the SEC registration fee, the Financial Industry Regulatory Authority, or FINRA, filing fee and the Nasdaq listing fee, all amounts are estimates.
| Legal fees and other advisory expenses | $ | 897,189 | ||
| Accounting fees | 155,724 | |||
| Industry consulting fees | 70,178 | |||
| Printing and engraving expenses | 31,874 | |||
| Nasdaq Capital Market Listing Fee | 150,000 | |||
| SEC registration fee | 5,000 | |||
| FINRA filing fee | 5,000 | |||
| Transfer agent expenses | 15,000 | |||
| Miscellaneous expenses | 300,627 | |||
| Total Expenses | $ | 1,630,592 |
These expenses will be borne by us. Underwriting discounts and commissions will be borne by us in proportion to the numbers of Ordinary Shares sold in the offering.
The Company is being represented by VCL Law LLP, with respect to legal matters of United States federal securities law. The validity of the Ordinary Shares offered by this prospectus and legal matters as to Cayman Islands law will be passed upon for us by Ogier (Cayman) LLP. The Company is being represented by Allbright Law Offices with regard to PRC law. VCL Law LLP may rely upon Ogier with respect to all matters governed by Cayman Islands law and may rely upon AllBright Law Offices with respect to matters governed by PRC law. Loeb & Loeb LLP is acting as U.S. counsel for the underwriter. Beijing Yingke (Hangzhou) Law Firm is acting as the PRC counsel for the underwriter.
The consolidated financial statements as of and for each of the years ended June 30, 2023 and 2024 included in this registration statement have been audited by Marcum Asia CPAs LLP, an independent registered public accounting firm as stated in their report appearing herein. Such financial statements are included in reliance upon the report such firm given up on their authority as experts in accounting and auditing.
The office of Marcum Asia CPAs LLP is located at 7 Penn Plaza Suite 830, New York, NY 10001.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form F-1 under the Securities Act with respect to the Ordinary Shares described herein. This prospectus, which constitutes part of the registration statement, does not include all of the information contained in the registration statement. You should refer to the registration statement and its exhibits for additional information. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document. We anticipate making these documents publicly available, free of charge, on our websites at www.wetourvip.com, www.webus.vip, www.weixiaoba.vip, and www.ubus.vip as soon as reasonably practicable after filing such documents with the SEC. The information on our website is not incorporated by reference into this prospectus and should not be considered to be a part of this prospectus. We have included our website address as an inactive textual reference only.
You can read the registration statement and our future filings with the SEC, over the Internet at the SEC’s web site at http://www.sec.gov. You may also read and copy any document that we file with the SEC at its public reference room at 100 F Street, N.E., Washington, DC 20549.
You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Webus International Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Webus International Limited (the “Company”) as of June 30, 2023 and 2024, the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity and cash flows for each of the two years in the period ended June 30, 2024 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's 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 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Marcum Asia CPAs LLP
Marcum Asia CPAs LLP
We have served as the Company’s auditor since 2022
New York, NY
October 21, 2024, except for Note 11, as to which the date is November 13, 2024
| F-2 |
CONSOLIDATED BALANCE SHEETS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| As of June 30, | ||||||||||||
| 2023 | 2024 | 2024 | ||||||||||
| RMB | RMB | US$ Note 2 (e) | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents (including amounts of the consolidated VIEs of RMB1,761,499 and RMB1,207,617 as of June 30, 2023 and 2024, respectively) | 2,151,180 | 2,780,907 | 382,666 | |||||||||
| Accounts receivable (including amounts of the consolidated VIEs of RMB203,789 and RMB329,773 as of June 30, 2023 and 2024, respectively) | 295,924 | 884,853 | 121,760 | |||||||||
| Amounts due from a related party | - | 111,341 | 15,321 | |||||||||
| Deferred offering costs (including amounts of the consolidated VIEs of RMB5,192,203 and RMB5,350,165 as of June 30, 2023 and 2024, respectively) | 5,192,203 | 5,350,165 | 736,207 | |||||||||
| Prepaid expenses and other current assets (including amounts of the consolidated VIEs of RMB1,989,686 and RMB1,517,679 as of June 30, 2023 and 2024, respectively) | 2,091,174 | 1,783,880 | 245,470 | |||||||||
| Total current assets | 9,730,481 | 10,911,146 | 1,501,424 | |||||||||
| Non-current assets: | ||||||||||||
| Property and equipment, net (including amounts of the consolidated VIEs of RMB34,909,709 and RMB33,714,952 as of June 30, 2023 and 2024, respectively) | 34,909,709 | 33,714,952 | 4,639,332 | |||||||||
| Right-of-use assets (including amounts of the consolidated VIEs of RMB352,807 and RMB307,330 as of June 30, 2023 and 2024, respectively) | 352,807 | 307,330 | 42,290 | |||||||||
| Total non-current assets | 35,262,516 | 34,022,282 | 4,681,622 | |||||||||
| TOTAL ASSETS | 44,992,997 | 44,933,428 | 6,183,046 | |||||||||
| LIABILITIES | ||||||||||||
| Current liabilities: | ||||||||||||
| Short-term borrowings (including amounts of the consolidated VIEs of RMB10,000,000 and RMB10,000,000 as of June 30, 2023 and 2024, respectively) | 10,000,000 | 10,000,000 | 1,376,046 | |||||||||
| Accounts payable (including amounts of the consolidated VIEs of RMB410,925 and RMB903,083 as of June 30, 2023 and 2024, respectively) | 410,925 | 411,219 | 56,586 | |||||||||
| Deferred revenue (including amounts of the consolidated VIEs of RMB638,951 and RMB805,087 as of June 30, 2023 and 2024, respectively) | 865,714 | 2,621,402 | 360,717 | |||||||||
| Income tax payable (including amounts of the consolidated VIEs of RMB56,190 and nil as of June 30, 2023 and 2024, respectively) | 128,175 | 97,344 | 13,395 | |||||||||
| Lease liabilities-current (including amounts of the consolidated VIEs of RMB285,225 and RMB180,135 as of June 30, 2023 and 2024, respectively) | 285,225 | 180,135 | 24,787 | |||||||||
| Accrued expenses and other current liabilities (including amounts of the consolidated VIEs of RMB1,442,574 and RMB726,280 as of June 30, 2023 and 2024, respectively) | 1,442,574 | 1,145,737 | 157,659 | |||||||||
| Total current liabilities | 13,132,613 | 14,455,837 | 1,989,190 | |||||||||
| Non-current liabilities: | ||||||||||||
| Long-term borrowings (including amounts of the consolidated VIEs of nil and RMB2,200,000 as of June 30, 2023 and 2024, respectively) | - | 2,200,000 | 302,730 | |||||||||
| Lease liabilities-noncurrent (including amounts of the consolidated VIEs of nil and RMB55,454 as of June 30, 2023 and 2024, respectively) | - | 55,454 | 7,631 | |||||||||
| Other long-term liabilities (including amounts of the consolidated VIEs of nil and RMB414,400 as of June 30, 2023 and 2024, respectively) | - | 414,400 | 57,023 | |||||||||
| Total non-current liabilities | - | 2,669,854 | 367,384 | |||||||||
| TOTAL LIABILITIES | 13,132,613 | 17,125,691 | 2,356,574 | |||||||||
| Commitments and Contingencies | ||||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||
| Ordinary Shares (US$0.0001 par value per share; 500,000,000 and 500,000,000 shares authorized as of June 30, 2023 and 2024; 20,000,000 and 20,000,000 shares issued and outstanding as of June 30, 2023 and 2024, respectively*) | 12,720 | 12,720 | 1,750 | |||||||||
| Additional paid-in capital | 65,063,327 | 65,063,327 | 8,953,012 | |||||||||
| Share subscription receivable | (12,720 | ) | (12,720 | ) | (1,750 | ) | ||||||
| Accumulated deficit | (33,223,158 | ) | (37,278,750 | ) | (5,129,727 | ) | ||||||
| Accumulated other comprehensive income | 20,215 | 23,160 | 3,187 | |||||||||
| Total shareholders' equity | 31,860,384 | 27,807,737 | 3,826,472 | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDES’ EQUITY | 44,992,997 | 44,933,428 | 6,183,046 | |||||||||
| * | The shares and per share data are presented on a retroactive basis to reflect the Company’s recapitalization (Note 11). |
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| For the years ended June 30, | ||||||||||||
| 2023 | 2024 | 2024 | ||||||||||
| RMB | RMB | US$ Note 2 (e) | ||||||||||
| Revenues | 154,226,006 | 45,976,421 | 6,326,566 | |||||||||
| Cost of revenues | (145,998,264 | ) | (39,546,098 | ) | (5,441,724 | ) | ||||||
| Gross profit | 8,227,742 | 6,430,323 | 884,842 | |||||||||
| Operating expenses: | ||||||||||||
| Sales and marketing expenses | (14,656,903 | ) | (7,468,321 | ) | (1,027,675 | ) | ||||||
| General and administrative expenses | (10,428,318 | ) | (5,098,450 | ) | (701,570 | ) | ||||||
| Research and development expenses | (2,367,231 | ) | (1,331,037 | ) | (183,157 | ) | ||||||
| Total operating expenses | (27,452,452 | ) | (13,897,808 | ) | (1,912,402 | ) | ||||||
| Operating loss | (19,224,710 | ) | (7,467,485 | ) | (1,027,560 | ) | ||||||
| Other income/(expenses) | ||||||||||||
| Financial expenses, net | (788,073 | ) | (1,134,713 | ) | (156,142 | ) | ||||||
| Other income, net | 2,630,368 | 4,500,552 | 619,298 | |||||||||
| Total other income, net | 1,842,295 | 3,365,839 | 463,156 | |||||||||
| Loss before income tax expense | (17,382,415 | ) | (4,101,646 | ) | (564,404 | ) | ||||||
| Income tax (expense)/benefit | (248,419 | ) | 46,054 | 6,337 | ||||||||
| Net loss | (17,630,834 | ) | (4,055,592 | ) | (558,067 | ) | ||||||
| Other comprehensive income: | ||||||||||||
| Foreign currency translation adjustments, net of nil tax | 20,469 | 2,945 | 405 | |||||||||
| Total other comprehensive income | 20,469 | 2,945 | 405 | |||||||||
| Total comprehensive loss | (17,610,365 | ) | (4,052,647 | ) | (557,662 | ) | ||||||
| Loss per ordinary share | ||||||||||||
| Basic and diluted* | (0.88 | ) | (0.20 | ) | (0.03 | ) | ||||||
| Weighted average number of ordinary shares outstanding | ||||||||||||
| Basic and diluted* | 20,000,000 | 20,000,000 | 20,000,000 | |||||||||
| * | The shares and per share data are presented on a retroactive basis to reflect the Company’s recapitalization. (Note 11). |
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| Ordinary Shares | Additional paid-in | Share subscription | Accumulated | Accumulated other comprehensive | Total shareholders’ | |||||||||||||||||||||||
| Share* | Amount | capital | receivable | deficit | (loss)/income | equity | ||||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||||||
| Balance as of June 30, 2022 | 20,000,000 | 12,720 | 52,182,341 | (12,720 | ) | (15,592,324 | ) | (254 | ) | 36,589,763 | ||||||||||||||||||
| Share-based compensation** | - | - | 12,880,986 | - | - | - | 12,880,986 | |||||||||||||||||||||
| Net loss | - | - | - | - | (17,630,834 | ) | - | (17,630,834 | ) | |||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | 20,469 | 20,469 | |||||||||||||||||||||
| Balance as of June 30, 2023 | 20,000,000 | 12,720 | 65,063,327 | (12,720 | ) | (33,223,158 | ) | 20,215 | 31,860,384 | |||||||||||||||||||
| Net loss | - | - | - | - | (4,055,592 | ) | - | (4,055,592 | ) | |||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | 2,945 | 2,945 | |||||||||||||||||||||
| Balance as of June 30, 2024 | 20,000,000 | 12,720 | 65,063,327 | (12,720 | ) | (37,278,750 | ) | 23,160 | 27,807,737 | |||||||||||||||||||
| Balance as of June 30, 2024 (US$) | 20,000,000 | 1,750 | 8,953,012 | (1,750 | ) | (5,129,727 | ) | 3,187 | 3,826,472 | |||||||||||||||||||
| * | The shares and per share data are presented on a retroactive basis to reflect the Company’s recapitalization. (Note 11). |
| ** | 2022 Equity Incentive Plan was cancelled on June 12, 2023, and all remaining unrecognized compensation cost were recognized on the cancellation date. (Note 8) |
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| For the years ended June 30, | ||||||||||||
| 2023 | 2024 | 2024 | ||||||||||
| RMB | RMB | US$ Note 2 (e) | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | (17,630,834 | ) | (4,055,592 | ) | (558,067 | ) | ||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation and amortization | 1,792,256 | 2,187,449 | 301,003 | |||||||||
| Amortization of right-of-use assets | 263,898 | 281,066 | 38,676 | |||||||||
| Loss on disposal of property and equipment | - | 10,458 | 1,439 | |||||||||
| Share-based compensation | 12,880,986 | - | - | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | 2,769,371 | (588,929 | ) | (81,039 | ) | |||||||
| Amounts due from a related party | - | (111,341 | ) | (15,321 | ) | |||||||
| Prepaid expenses and other current assets | 475,113 | 307,294 | 42,284 | |||||||||
| Accounts payable | (3,596,797 | ) | 294 | 40 | ||||||||
| Deferred revenue | (1,278,805 | ) | 1,755,688 | 241,591 | ||||||||
| Income tax payable | 128,175 | (30,831 | ) | (4,242 | ) | |||||||
| Lease liabilities | (210,121 | ) | (285,225 | ) | (39,248 | ) | ||||||
| Accrued expenses and other liabilities | (352,234 | ) | 584,700 | 80,457 | ||||||||
| Net cash (used in)/provided by operating activities | (4,758,992 | ) | 55,031 | 7,573 | ||||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of property and equipment | (795,635 | ) | (1,470,287 | ) | (202,318 | ) | ||||||
| Purchase of short-term investments | - | (523,000 | ) | (71,967 | ) | |||||||
| Redemption of short-term investments | - | 523,000 | 71,967 | |||||||||
| Loan to a related party | - | (400,000 | ) | (55,042 | ) | |||||||
| Collection from loan to a related party | - | 400,000 | 55,042 | |||||||||
| Net cash used in investing activities | (795,635 | ) | (1,470,287 | ) | (202,318 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Proceeds from short-term borrowings with banks | 13,000,000 | 10,000,000 | 1,376,046 | |||||||||
| Repayments of short-term borrowings with banks | (3,000,000 | ) | (10,000,000 | ) | (1,376,046 | ) | ||||||
| Proceeds from long-term borrowings with banks | - | 2,200,000 | 302,730 | |||||||||
| Proceeds from short-term borrowings with a third party | 3,000,000 | - | - | |||||||||
| Repayments of short-term borrowings with a third party | (3,000,000 | ) | - | - | ||||||||
| Proceeds from loan from a related party | - | 300,000 | 41,281 | |||||||||
| Repayment of loan from a related party | - | (300,000 | ) | (41,281 | ) | |||||||
| Deferred offering costs | (5,192,203 | ) | (157,962 | ) | (21,736 | ) | ||||||
| Net cash provided by financing activities | 4,807,797 | 2,042,038 | 280,994 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 20,469 | 2,945 | 405 | |||||||||
| Net change in cash and cash equivalents | (726,361 | ) | 629,727 | 86,654 | ||||||||
| Cash and cash equivalents at beginning of the years | 2,877,541 | 2,151,180 | 296,012 | |||||||||
| Cash and cash equivalents at end of the years | 2,151,180 | 2,780,907 | 382,666 | |||||||||
| Supplemental cash flow information: | ||||||||||||
| Cash paid for income tax | 120,243 | 94,833 | 13,049 | |||||||||
| Refund of prepaid income tax | - | (109,908 | ) | (15,124 | ) | |||||||
| Cash paid for interest | 386,908 | 520,526 | 71,627 | |||||||||
| Supplemental schedule of non-cash item: | ||||||||||||
| Lease liabilities arising from obtaining right-of-use assets | 285,225 | 235,589 | 32,418 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 1. | Organization and principal activities |
| (a) | Principal activities |
Webus International Limited (the “Company” or “Webus”) was incorporated under the law of the Cayman Islands as an exempted company with limited liability on February 10, 2022. The Company, through its wholly-owned subsidiaries, variable interest entity (“VIE”) and VIE’s subsidiary (collectively, the “Group”), is principally engaged in the operation of commute shuttle service, customized chartered bus service and packaged tour service in the People’s Republic of China (the “PRC” or “China”) and the United States.
The Group operates on a business model of “Mobility-as-a-Service” to identify and solve inefficiencies associated with inflexible or low-quality public transportation and provide cost-efficient and customized mass transportation services under different scenarios with our comprehensive digital platforms. The Group started its business in 2019 and is in the process of expanding the services provided. The services provided by the Group mainly include: (i) packaged tour service, (ii) customized chartered bus service, (iii) commute shuttle service and (iv) other service.
| (b) | Organization |
Webus was incorporated as an ultimate holding company in the Cayman Islands on February 10, 2022, who owns 100% equity interest of Youbus International Limited (“Youbus International”) and Wetour Travel Tech LLC (“Wetour”). Webus Hongkong Limited (“Webus HK”) is a 100% wholly-owned subsidiary of Youbus International in Hongkong, who established a wholly-owned subsidiary, Zhejiang Xinjieni Technology Co., Ltd. (“Xinjieni Tech”), a wholly-owned foreign enterprise (“WFOE”) incorporated in PRC.
Zhejiang Youba Technology Co., Ltd. (“Youba Tech”) was established under the laws of the PRC on August 16, 2019 along with its subsidiary Hangzhou Webus Travel Agency Co., Ltd. (“Webus Travel Agency”) are the Group’s main operating entities in China. Prior to the Reorganization described below, Youba Tech was controlled by six individual shareholders, who were also the proportionate shareholders of Webus.
| (c) | Reorganization |
In anticipation of an initial public offering (“IPO”) of its equity securities, four shareholders of Youba Tech transferred their 50% equity interest in Youba Tech to WFOE, and another two shareholders owning the remaining 50% equity interest of Youba Tech entered to the VIE Agreements with Youba Tech and WFOE. The reorganization of the Company’s legal structure (“Reorganization”) was completed on September 7, 2022, which involved the following major events:
| · | Incorporation of Webus, Youbus International, Webus HK and WFOE. |
| · | Transfer of 1.85% equity interests of Youba Tech from one of its shareholders, Mr. Zheng Jiahua to a new individual shareholder, Mr. Zhang Yiqun, and transfer of 1.85% of shares owned by Mr. Zheng Jiahua in Webus to Mr. Zhang Yiqun concurrently, resulted in the same shareholding structure of Webus and Youba Tech; |
| · | Transfer of 50% equity interests of Youba Tech from four of its former shareholders to WFOE; |
| · | The remaining two shareholders (“Individual Registered Shareholders”) collectively owning another 50% equity interests of Youba Tech, Youba Tech and WFOE entered into a series of agreements inclusive of an Exclusive Business Cooperation Agreement, an Exclusive Call Option Agreement, an Exclusive Assets Option Agreement, Power of Attorney, a Share Pledge Agreement and Spousal Consent (collectively as the “VIE Agreements”) to provide WFOE with the power, rights and obligations equivalent owned by these two shareholders in all material respects of Youba Tech. |
| F-7 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 1. | Organization and principal activities (continued) |
Immediately before and after the Reorganization completed on September 7, 2022 as described above, Webus together with its wholly-owned subsidiaries Youbus International, Webus HK and WFOE and the VIE and VIE’s subsidiary were effectively controlled by the same shareholders; therefore, the reorganization was accounted for as a recapitalization. The accompanying consolidated financial statements have been prepared as if the current corporate structure has been in existence throughout the periods presented. The consolidation of the Company has been accounted for at historical cost at the beginning of the first period presented in the accompanying consolidated financial statements.
Details of the Company’s principal subsidiaries, VIE and VIE’s subsidiary are as follows.
| Name: | Date of incorporation | Place of incorporation | Percentage of direct or indirect ownership | Principal activities | ||||||
| Youbus International Limited (“Youbus International”) | February 16, 2022 | British Virgin Islands | 100 | % | Investment holding | |||||
| Webus Hongkong Limited (“Webus HK”) | February 22, 2022 | Hong Kong | 100 | % | Investment holding | |||||
| Wetour Travel Tech LLC (“Wetour”) | March 16, 2022 | The United States | 100 | % | Transportation services and packaged tour services | |||||
| Zhejiang Xinjieni Technology Co., Ltd. (“Xinjieni Tech” or “WFOE”) | August 31, 2022 | The PRC | 100 | % | Investment holding | |||||
| Zhejiang Youba Technology Co., Ltd. (“Youba Tech” or “VIE”) | August 16, 2019 | The PRC | 100 | % | Transportation services | |||||
| Hangzhou Webus Travel Agency Co., Ltd. (“Webus Travel Agency”) | August 27, 2020 | The PRC | 100 | % | Transportation services and packaged tour services | |||||
The described VIE Agreements are as follows:
Exclusive Business Cooperation Agreement: Pursuant to the Exclusive Business Cooperation Agreement, the VIE is obliged to pay service fee to WFOE for the exclusive services such as technical services, internet technology support, business consulting, software development, information consulting, marketing consulting, product development and system maintenance. The service fee shall consist of 100% of the profit before tax of the VIE, after the deduction of all costs, expenses, taxes and other fee required under PRC laws and regulations. The VIE agrees not to accept the same or any similar services provided by any third party and shall not establish cooperation relationships similar to that formed by this agreement with any third party, except with the prior written consent of WFOE. The VIE has unconditionally and irrevocably authorized WFOE or its designated person as its agent to (i) sign any necessary documents with third parties (including but not limited to customers and suppliers) on behalf of the VIE; and (ii) to handle all necessary documents and matters which will enable WFOE to exercise all or part of its rights under this agreement on behalf of the VIE. WFOE shall have exclusive proprietary rights to and interests in any and all intellectual property rights developed or created by itself and the VIE. This agreement shall remain effective unless terminated (i) in accordance with the provisions of this agreement; or (ii) the entire equity interests held by Individual Registered Shareholders in the VIE have been transferred to WFOE or its designated person.
| F-8 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 1. | Organization and principal activities (continued) |
Exclusive Call Option Agreement: Pursuant to the Exclusive Call Option Agreement, the Individual Registered Shareholders have unconditionally and irrevocably granted WFOE or its designated purchaser the right to purchase all or part of their equity interests in the VIE (“Equity Call Option”). The purchase price payable by WFOE in respect of the transfer of equity interests upon exercise of the Equity Call Option shall be the higher of (a) the lowest price permitted under PRC laws and regulations or (b) the capital contribution in relation to the equity interests. If appraisal is required by the PRC laws and regulations at the time when WFOE exercises the Option, WFOE and the Individual Registered Shareholders shall make necessary adjustment to purchase price so that it complies with any and all then applicable PRC laws and regulations. WFOE or its designated purchaser shall have the right to purchase such proportion of equity interests in the VIE as it decides at any time. The Individual Registered Shareholders shall return any amount of purchase price they received in the event that WFOE acquires the equity interests in the VIE.
The Individual Registered Shareholders and the VIE have jointly and severally further undertaken to WFOE that, without the prior written consent of WFOE, they shall not (i) in any manner supplement, change or amend the constitutional documents of the VIE, increase or decrease its share capital, or change the structure of its registered capital in other manner; (ii) sell, pledge, transfer or otherwise dispose of any assets, business or lawful revenue or create encumbrance over the VIE; (iii) incur, inherit, guarantee or assume any debt, except for debts incurred in the ordinary course of business other than payables incurred by a loan and for debts disclosed to and agreed in writing by WFOE; (iv) cause the VIE to execute any material contract with a value above RMB100,000, except the contracts executed in the ordinary course of business; (v) cause the VIE to provide any person with any loan, credit or guarantee; (vi) cause or permit the VIE to merge, consolidate with, acquire or invest in any person, or sell assets of the VIE with a value above RMB100,000; (vii) cause the VIE to enter into any transaction which may have substantial impact on the assets, liabilities, business operation, shareholding structure and other legal rights of the VIE, except the contracts executed in the ordinary course of business; and (viii) in any manner distribute dividends to their shareholders, provided that upon the written request of WFOE, the VIE shall immediately distribute all distributable profits to its shareholders.
This agreement shall remain effective unless terminated (i) in accordance with the provisions of this agreement or any other supplemental agreements; or (ii) the entire equity interests held by the Individual Registered Shareholders in the VIE have been transferred to WFOE or its designated person.
Exclusive Assets Option Agreement: Pursuant to the Exclusive Assets Option Agreement, the VIE unconditionally and irrevocably granted an exclusive option to WFOE or its designated person to purchase 50% of its assets at the higher price of (a) the lowest price permitted under PRC laws and regulations or (b) the net book value of the assets. WFOE shall have absolute discretion as to when and in what manner to exercise the option to purchase assets of the VIE permitted by PRC laws and regulations. This agreement shall remain effective unless terminated (i) in accordance with the provisions of this agreement or any other supplemental agreements; or (ii) the entire equity interests held by the Individual Registered Shareholders in the VIE have been transferred to WFOE or its designated person.
Power of Attorney: Pursuant to the Power of Attorney, each of the Individual Registered Shareholders, irrevocably appoints WFOE, the authorized person or entity to exercise such shareholder’s rights in the VIE in accordance with PRC laws and the articles of the VIE, including without limitation to, the rights to (i) participate in shareholders meetings; (ii) the sale, transfer, pledge or disposition of the equity interest such shareholder holds in part or in whole; and (iii) designate and appoint, on behalf of such shareholder, the legal representative, the chairman, the executive director(s) and/or director(s), the supervisor(s), the general manger and other senior management members of the VIE. Without limiting the generality of the powers granted to WFOE, WFOE shall have the power and authority hereunder, on behalf of such shareholder, to execute the share transfer contracts stipulated in the Exclusive Call Option Agreement entered into among the VIE, WFOE and such shareholders and effect the terms of the Exclusive Call Option Agreement and Share Pledge Agreement. All the actions in connection with the equity interest held by such shareholder as conducted by WFOE shall be deemed as the actions of such shareholder, and all the documents related to the shareholding executed by WFOE shall be deemed to be executed by such shareholder.
| F-9 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 1. | Organization and principal activities (continued) |
Share Pledge Agreement: Pursuant to the Share Pledge Agreement, each of the Individual Registered Shareholders unconditionally and irrevocably pledged and granted first priority security interests over all of his/her/its equity interests in the VIE together with all related rights thereto to WFOE as security for performance of the Contractual Arrangements and all direct, indirect or consequential damages and foreseeable loss of interest incurred by WFOE as a result of any event of default on the part of the Individual Registered Shareholders, the VIE and all expenses incurred by WFOE as a result of enforcement of the obligations of the Individual Registered Shareholders and/or the VIE under the Contractual Arrangements. Upon the occurrence and during the continuance of an event of default (as defined in this agreement), WFOE shall have the right to (i) require the Individual Registered Shareholders to immediately pay any amount payable under the Contractual Arrangements; or (ii) to exercise all such rights as a secured party under any applicable PRC law and this agreement, including without limitations, being paid in priority with the equity interests.
The said Share Pledge under this agreement takes effect upon the completion of registration with the relevant administrative department of industry and commerce and shall remain valid until after all the contractual obligations of the Individual Registered Shareholders and the VIE under the relevant Contractual Arrangements have been fully performed and all the outstanding debts of the Individual Registered Shareholders and/or the VIE under the relevant Contractual Arrangements have been fully paid.
Spousal Consent: Pursuant to the Spousal Consent, the respective spouse of the Individual Registered Shareholders has irrevocably undertaken that, including without limitation to, the spouse (i) has full knowledge of and has consented to the entering into of the Contractual Arrangements by the relevant Individual Registered Shareholder; (ii) is not entitled to any right with respect to the shares in the VIE and undertakes not to make any claims on the equity interest in the VIE; (iii) confirms that the Individual Registered Shareholders’ performance of the Contractual Arrangements and further modification or termination of the Contractual Arrangements will not require the respective spouse’s separate authorization or consent; (iv) undertakes to execute all necessary documents and take all necessary actions to ensure the Contractual Arrangements to be properly performed; (v) undertakes that if the respective spouse obtains any equity interest in the VIE for any reason, the respective spouse shall be bound by the Contractual Arrangements and abide by the obligations of the shareholders of the VIE under the Contractual Arrangements, and upon WFOE’s or its designate third-party request, the respective spouse shall execute a series of written documents with substantially the same form and content as the Contractual Arrangements.
The Company believes that Youba Tech is considered a VIE under Accounting Codification Standards (“ASC”) 810 “Consolidation”, because the equity investors in Youba Tech as a group no longer have the characteristics of a controlling financial interest through their equity investments. The Company further performs a qualitative assessment to determine whether the Company, through WFOE, is the primary beneficiary of VIE. A qualitative assessment begins with an understanding of the nature of the inherent risks in the entity which creates variability and which party absorbs this variability either through equity interest or contractual agreements. The Company’s assessment of the involvement with Youba Tech through a combination of 50% equity interest and the contractual arrangements reveals that the Company has the absolute power to direct the most significant activities that impact the economic performance of Youba Tech. WFOE is obligated to absorb all the expected loss from Youba Tech activities and receive all of Youba Tech’s expected residual returns. Therefore, the Company is deemed to be the primary beneficiary of Youba Tech and the financial positions, the operating results and cash flows of Youba Tech and its subsidiary are consolidated in the Company for financial reporting purposes.
| F-10 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 1. | Organization and principal activities (continued) |
Upon the completion of the Reorganization, Webus became the ultimate holding company of the Group. The Group is effectively controlled by the same group of shareholders before and after the Reorganization and therefore the Reorganization is considered as a recapitalization of these entities under common control. The consolidation of the Company and its subsidiaries, VIE and VIE’s subsidiary has been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying audited consolidated financial statements.
The carrying amounts of the assets, liabilities and the results of operations of the VIE and VIE’s subsidiary included in the Company’s consolidated balance sheets and statements of loss and comprehensive loss, which are prepared before eliminating the inter-company balances and transactions between the VIE and VIE’s subsidiary, the Company and its subsidiaries, are as follows:
| As of June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | 1,761,499 | 1,207,617 | ||||||
| Accounts receivable | 203,789 | 329,773 | ||||||
| Deferred offering costs | 5,192,203 | 5,350,165 | ||||||
| Prepaid expenses and other current assets | 1,989,686 | 1,517,679 | ||||||
| Total current assets | 9,147,177 | 8,405,234 | ||||||
| Non-current assets: | ||||||||
| Property and equipment, net | 34,909,709 | 33,714,952 | ||||||
| Right-of-use assets | 352,807 | 307,330 | ||||||
| Total non-current assets | 35,262,516 | 34,022,282 | ||||||
| TOTAL ASSETS | 44,409,693 | 42,427,516 | ||||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Short-term borrowings | 10,000,000 | 10,000,000 | ||||||
| Accounts payable | 410,925 | 903,083 | ||||||
| Deferred revenue | 638,951 | 805,087 | ||||||
| Income tax payable | 56,190 | - | ||||||
| Lease liabilities-current | 285,225 | 180,135 | ||||||
| Accrued expenses and other current liabilities | 1,442,574 | 726,280 | ||||||
| Total current liabilities | 12,833,865 | 12,614,585 | ||||||
| Non-current liabilities: | ||||||||
| Long-term borrowings | - | 2,200,000 | ||||||
| Lease liabilities-noncurrent | - | 55,454 | ||||||
| Other long-term liabilities | - | 414,400 | ||||||
| Total non-current liabilities | - | 2,669,854 | ||||||
| TOTAL LIABILITIES | 12,833,865 | 15,284,439 | ||||||
| Commitments and Contingencies | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Ordinary Shares | - | - | ||||||
| Additional paid-in capital | 65,063,327 | 65,063,327 | ||||||
| Accumulated deficit | (33,487,499 | ) | (37,920,250 | ) | ||||
| Total shareholders' equity | 31,575,828 | 27,143,077 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 44,409,693 | 42,427,516 | ||||||
| F-11 |
| For the years ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Revenues | 152,148,255 | 21,874,310 | ||||||
| Cost of revenues | (144,327,050 | ) | (18,335,542 | ) | ||||
| Gross profit | 7,821,205 | 3,538,768 | ||||||
| Operating expenses | (27,441,426 | ) | (11,967,525 | ) | ||||
| Loss from operations | (19,620,221 | ) | (8,428,757 | ) | ||||
| Other income, net | 1,895,021 | 3,924,741 | ||||||
| Income tax (expense)/benefit | (176,434 | ) | 71,265 | |||||
| Net loss | (17,901,634 | ) | (4,432,751 | ) | ||||
| For the years ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Net cash used in operating activities | (5,098,061 | ) | (1,125,633 | ) | ||||
| Net cash used in investing activities | (795,635 | ) | (1,470,287 | ) | ||||
| Net cash provided by financing activities | 4,807,797 | 2,042,038 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | - | - | ||||||
| Net change in cash and cash equivalents | (1,085,899 | ) | (553,882 | ) | ||||
| Cash and cash equivalents at beginning of the years | 2,847,398 | 1,761,499 | ||||||
| Cash and cash equivalents at end of the years | 1,761,499 | 1,207,617 | ||||||
| (d) | Capital resource and liquidity |
The Group has been incurring losses from operations since inception. The Group incurred net loss of RMB17,630,834 and RMB4,055,592 for the years ended June 30, 2023 and 2024, respectively. Accumulated deficits were RMB33,223,158 and RMB37,278,750 as of June 30, 2023 and 2024, respectively. Net cash used in operating activities were RMB4,758,992 for the year ended June 30, 2023 and net cash provided by operating activities was RMB55,031 for the year ended June 30, 2024. As of June 30, 2024, the Group had RMB2,780,907 in cash and cash equivalents and working capital deficiency of RMB3,544,691.
The Group’s liquidity is based on its ability to enhance its operating cash flow position, obtain capital financing from equity interest investors and borrow funds to fund its general operations and capital expenditure. The Group’s ability to continue as a going concern is dependent on management’s ability to execute its business plan successfully, which includes increasing market acceptance of the Group’s products to boost its sales volume to achieve economies of scale while applying more effective marketing strategies and cost control measures to better manage operating cash flow position and obtaining funds from outside sources of financing to generate positive financing cash flows.
Historically, the Group obtained a line of credit of RMB7,000,000 from Rural Commercial Bank signed on June 24, 2022, which will expire on June 23, 2027, and the Group obtained another line of credit of RMB5,200,000 from Rural Commercial Bank signed on September 8, 2022, which will expire on September 7, 2027. As of June 30, 2024, the Group borrowed RMB12,200,000 from these two lines of credit, of which RMB10,000,000 were short-term borrowings, and RMB2,200,000 were long-term borrowings. Subsequently, the Group has renewed the borrowings under the line of credit of RMB7,000,000. The Group also obtained an additional revolving credit loan, with a maturity date of February 15, 2025, from Hangzhou United Bank of RMB3,000,000 singed on August 16, 2024 and have already borrowed the short-term borrowing of RMB3,000,000 from this credit loan on August 19, 2024. (Please refer to Note 15 for more information regarding this short-term borrowing.) Since all these borrowings are revolving loans, therefore, the Group can continuously renew them within the unexpired credit limit to avoid a large amount of cash outflow due to the repayment obligation of short-term borrowings. Thus, the Group would not incur a large amount of cash outflow due to the repayment obligation of short-term borrowings.
Since the current financial factors raise doubt about the Group’s ability to continue as a going concern, the management has made mitigation plans to alleviate liquidity pressure, including:
| (i) | On April 17, 2024, the Group entered into a funding support agreement with Mr. Zheng Nan, one of the Group’s major shareholders, in which Mr. Zheng Nan promised to provide a line of credit in the amount up to RMB6,000,000 ($825,627) and up to RMB10,000,000 ($1,376,046) as a guarantee for the Grou’s future bank credit applications. This agreement will expire on December 31, 2025. The Group can rely on Mr. Zheng Nan’s funding support to ensure the sufficiency of the Group’s cash flow through the next twelve months since the issuance of the consolidated financial statements. |
| (ii) | On September 6, 2024, Hangzhou United Bank and Mr. Zheng Nan entered into an agreement to grant the Group a line of credit of RMB25,000,000 ($3,440,114), secured by one of Mr. Zheng Nan’s real estates of RMB50,000,000 ($6,880,229), with a five-year term from September 6, 2024 to September 5, 2029. As of the date of this prospectus, the Group has withdrawn RMB17,000,000 ($2,339,278) short-term borrowings from this line of credit. The Group can continually renew revolving loans within the unexpired credit limits after the repayment of short-term borrowings. |
(iii) | The Group is continually making efforts to improve operating efficiency and reducing discretionary spending, including: (1) optimization in research and development (“R&D”) headcount, (2) reduction in initial R&D development expenditures, and (3) reduction in overall operating staff cost due to the adjustment in the Group’s business strategy to focus more on oversea market with a higher gross margin rate and actively scale down domestic market operations resulting the decrease in overall operating staff headcount. |
The Group has evaluated that it is probable the management’s mitigation plans related to the lines of credit from banks and the funding support from a major shareholder would be effectively implemented, pursuant to the contractual obligations as stipulated in the executed agreement the Group have entered with the relevant party. Taking into consideration all these actions mentioned above, management concluded that the substantial doubt on the Group’s ability to continue as a going concern can be alleviated through the effective implementation of the plans, and it will be able to meet its payment obligations from operations and debt related commitments for the next twelve months from the issuance of the consolidated financial statements. Accordingly, the consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations.
| F-12 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 2. | Summary of significant accounting policies |
| (a) | Basis of presentation |
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Significant accounting policies followed by the Group in the preparation of the accompanying consolidated financial statements are summarized below.
| (b) | Principles of consolidation |
The consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIE and the VIE’s subsidiary. All intercompany transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
| (c) | Use of estimates |
The preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenues and expenses during the reported periods in the consolidated financial statements and accompanying notes. Significant accounting estimates include, but not limited to allowance for credit losses, useful lives and impairment of long-lived assets, accounting for deferred income taxes and valuation allowance for deferred tax assets. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the consolidated financial statements.
| (d) | Foreign currency translation |
The Group uses Renminbi (“RMB”) as its reporting currency. The functional currency of the Company and the Company’s subsidiaries incorporated in the British Virgin Islands, the United States and Hong Kong is United States dollars (“US$”), while the functional currency of the Company’s PRC subsidiaries is RMB. The determination of the respective functional currency is based on the criteria set out by ASC 830, Foreign Currency Matters.
Transactions denominated in foreign currencies other than functional currency are translated into the functional currency at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies other than functional currency are remeasured into the functional currency at the exchange rates prevailing at the balance sheet date. Non-monetary items that are measured in terms of historical cost in foreign currency are remeasured using the exchange rates at the dates of the initial transactions. Exchange gains or losses arising from foreign currency transactions are recorded in the consolidated statements of operations and comprehensive loss.
The financial statements of the Group’s non-PRC entities are translated from their respective functional currency into RMB. Assets and liabilities are translated into RMB using the applicable exchange rates at the balance sheet date. Equity accounts other than earnings generated in current period are translated into RMB at the appropriate historical rates. Revenues, expenses, gains and losses are translated into RMB using the average exchange rates for the relevant period. The resulting foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income in the consolidated statements of changes in shareholders’ equity and a component of other comprehensive income in the consolidated statement of operations and comprehensive loss.
| F-13 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 2. | Summary of significant accounting policies (continued) |
| (e) | Convenience translation |
The financial statements are stated in Renminbi (“RMB”), the currency of the country in which the Group’s PRC subsidiary, VIE and VIE’s subsidiaries operate. Amounts in US$ are presented for the convenience of the reader and are translated at the rate of US$1.00 = RMB7.2672, representing the noon buying rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board on June 28, 2024. No representation is made that the RMB amounts could have been, or could be, converted, realized, or settled into US$ at that rate, or at any other rate.
| (f) | Cash and cash equivalents |
Cash and cash equivalents consists of cash on hand, cash in banks and cash in third party payment platforms. As of June 30, 2023 and 2024, cash and cash equivalents balances were RMB2,151,180 and RMB2,780,907, respectively.
| (g) | Accounts receivable |
Accounts receivable are stated at the original amount less allowance for credit losses.
Accounts receivable is recognized in the period when the Group has provided services to its customers and when its right to consideration is unconditional. On July 1, 2023, the Group adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement on Credit Losses on Financial Instruments”, including certain subsequent amendments, transitional guidance and other interpretive guidance within ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11, ASU 2020-02 and ASU 2020-03 (collectively, including ASU 2016-13, “ASC 326”). ASC 326 introduces an approach based on expected losses to estimate the allowance for credit losses, which replaces the previous incurred loss impairment model. The Group uses aging schedule method in the current expected credit loss model (“CECL model”) to estimate the expected credit losses. The Group’s estimation of allowance for credit losses considers factors such as historical credit losses experience, age of receivable balances, current market conditions, reasonable and supportable forecasts of future economic conditions, in combination with assessing receivable collectability on an individual basis, and applying current situation adjustment. The Group concludes that there is no impact over the initial adoption of CECL model, which should be treated as cumulative-effect adjustment on accumulated deficits as of July 1, 2023. Accounts receivable balances are written off after all collection efforts have been exhausted.
There was immaterial provision for credit losses for the years ended June 30, 2023 and 2024.
| (h) | Deferred offering costs |
Deferred offering costs consist of legal, consulting, underwriting fees and other costs incurred through the balance sheet date that are directly related to the proposed public offering. These costs, together with the underwriting discounts and commissions, will be charged to additional paid-in capital, net against the gross proceeds, upon completion of the proposed public offering. Should the proposed public offering prove to be unsuccessful, these deferred costs, as well as additional expenses to be incurred, will be charged to operations. As of June 30, 2023 and 2024, the Company has recognized RMB5,192,203 and RMB5,350,165 ($736,207) deferred offering costs.
| (i) | Property and equipment, net |
Property and equipment are stated at cost less accumulated depreciation and impairment, if any, and depreciated on a straight-line basis over the estimated useful lives of the assets. Salvage value rate is determined to 5% based on the economic value of the Property and equipment at the end of the estimated useful lives as a percentage of the original cost. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its intended use. Estimated useful lives are as follows:
| Category | Estimated useful lives | |
| Building | 20 years | |
| Electronic equipment | 3 years | |
| Office equipment | 3 years | |
| Vehicles | 5 years | |
| Leasehold and property improvement | 3-5 years |
| (j) | Impairment of long-lived assets |
Long-lived assets are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will affect the future use of the assets) indicate that the carrying amount may not be fully recoverable or that the useful life is shorter than the Group had originally estimated. When these events occur, the Group evaluates the impairment by comparing carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Group recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. There was no impairment loss for the long-lived assets for the years ended June 30, 2023 and 2024, respectively.
| F-14 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 2. | Summary of significant accounting policies (continued) |
| (k) | Fair value measurement |
The Group applies a three-level valuation hierarchy for fair value measurements. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability. Level 3 inputs are unobservable inputs based on management’s assumptions used to measure assets and liabilities at fair value. Financial assets and liabilities of the Group primarily consist of cash and cash equivalents, accounts receivable, amount due from a related party, advance to suppliers, prepaid service fees, security deposits and others included in prepaid expenses and other current assets, short-term borrowings, accounts payable, deferred revenue, payroll payable, accrued security deposits and others included in accrued expenses and other current liabilities. For the aforementioned financial instruments included in current assets and liabilities, their carrying amount is approximate to their respective fair values because of the general short maturities.
| (l) | Leases |
The Group has elected the package of practical expedients, which allows the Group not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any expired or existing leases as of the adoption date. Lastly, the Group elected the short-term lease exemption for all contracts with lease terms of 12 months or less.
At inception of a contract, the Group 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 Group 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 Group recognizes operating lease expenses for lease payments on a straight-line basis over the lease term. The Group's lease agreements do not contain any material residual value guarantees or restricted covenants.
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 Group’s incremental borrowing rate. The Group’s lease payments included in the measurement of the lease liability only comprises fixed lease payments.
Lease liability is measured at amortized cost using the effective interest rate method. It is re-measured when there is a change in future lease payments.
| F-15 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 2. | Summary of significant accounting policies (continued) |
| (m) | Revenue recognition |
The Group’s revenues are mainly generated from packaged tour service, customized chartered bus service, and customized shuttle services.
The Group recognizes revenues pursuant to ASC 606, Revenue from Contracts with Customers (“ASC 606”). In accordance with ASC 606, revenues from contracts with customers are recognized when control of the promised goods or services is transferred to the Group’s customers, in an amount that reflects the consideration the Group expects to be entitled to in exchange for those goods or services, reduced by value added tax. A description of the principal revenue generating activities of Group is as follows:
Packaged tour service
The Group offers packaged tour service to customers inclusive of services like chartered bus service, itinerary route schedule, sightseeing tour guidance, accommodation arrangement, etc., which can cater to different budgets and preferences. The whole packaged tour service is determined as a single performance obligation with a fixed total consideration as the customers benefit from such a series of integrated travel resources, which are also not separately identifiable within the context of contracts. The Group recognizes revenue over the period of the tours because the customers simultaneously receive and consume the benefits provided by the Company as they complete the performance obligation.
Customized chartered bus service
The Group contracts with customers to provide customized chartered bus service to support a more flexible and less preplanned group travel demand which ranges from one day to several months. The Group establishes enforceable right and obligations upon the receipt of each ride order placed by the customers. Each order is regarded as a contract with explicit route and fixed consideration. The Group identifies only one performance obligation to provide service and recognizes revenue from chartered bus service over the service period of the order.
Commute shuttle service
The Group contracts with customers to provide customized commute shuttle service, delivering daily transportation service from predetermined departure to destination during the contract period. The Group identifies only one performance obligation in commute shuttle service which is to transport the passengers from departure to destination. The contract consideration is determined at a fixed total price or calculated by fixed unit price per route times of transportation. Revenue from service fees paid by corporate customers in commute shuttle services is recognized evenly or based on the actual bus rides reconciled with the customers regularly over the contract term, and revenue from ticket fees paid by individual passengers in commute shuttle services is recognized at a point in time when each ride is completed.
Others
The Group also provides platform (“Webus Travel mini program”) users with cross-city ride-hailing service under relevant regulations in the PRC. The Group determines it only has one performance obligation to provide the ride-hailing service and recognizes revenue at a point in time upon completion of the ride-hailing service.
| F-16 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 2. | Summary of significant accounting policies (continued) |
| (m) | Revenue recognition (continued) |
Principal versus agent considerations
The Group sign contracts with independent tour operators and fleet operators to provide packaged tour services, customized charted bus service, and commute shuttle service. The Group evaluates the presentation of revenue on a gross versus net basis based on whether it controls the service provided to the customers and is the principal in the transaction.
The Group considers itself a principal and recognizes revenue on a gross basis as it controls the services through the following key considerations:
| · | The Group reserves the right to assign the routes to the fleet operators for transportation services and directs the selected vendors to provide tour services on the Group’s behalf, and is responsible for accepting or rejecting the contracts or orders without involvement of fleet and tour operators in this process. The Group assumes responsibility for receiving and resolving the complaints over the quality of the service. |
| · | The Group has discretion in setting up the price. The fleet and tour operators are entitled to a fixed fee irrespective of the consideration the Group collects from the customers. |
| · | The Group bears the entire credit risk as the Group pays the consideration due to the operators irrespective of whether the customers have paid the service consideration to the Group. |
The following table disaggregates the Group’s revenue for the years ended June 30, 2023 and 2024:
| For the years ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| By revenue type | ||||||||
| Packaged tour service | 81,038,722 | 33,391,854 | ||||||
| Domestic | 73,181,985 | 10,006,080 | ||||||
| Oversea | 7,856,737 | 23,385,774 | ||||||
| Customized chartered bus service | 63,654,231 | 10,730,641 | ||||||
| Domestic | 56,895,187 | 898,028 | ||||||
| Oversea | 6,759,044 | 9,832,613 | ||||||
| Commute shuttle service | 9,507,054 | 1,853,926 | ||||||
| Domestic | 9,507,054 | 1,853,926 | ||||||
| Others | 25,999 | - | ||||||
| Domestic | 25,999 | - | ||||||
| Total | 154,226,006 | 45,976,421 | ||||||
Contract balances
The Group classifies its right to consideration in exchange for service transferred to a customer as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional as compared to a contract asset which is a right to consideration that is conditional upon factors other than the passage of time. The Group recognizes accounts receivable in its consolidated balance sheets when it performs a service in advance of receiving consideration and it has the unconditional right to receive consideration. A contract asset is recorded when the Group has transferred services to the customer before payment is received or is due. As of June 30,2023 and 2024, the Group did not record contract assets.
The contract liability represents the billings or cash received for services in advance of revenue recognition which is presented as deferred revenue and is recognized as revenue when all of the Group’s revenue recognition criteria are met. The Group’s deferred revenue amounted to RMB2,144,519, RMB865,714 and RMB2,621,402 as of June 30, 2022, 2023 and 2024, respectively. Revenue of RMB2,001,748 and RMB722,943 was recognized from the deferred revenue balance at the beginning of the period for the years ended June 30, 2023 and 2024, respectively.
| F-17 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 2. | Summary of significant accounting policies (continued) |
| (n) | Cost of revenues |
Cost of packaged tour service primarily consists of the procurement cost of hotel rooms, meals and other local services such as sightseeing costs for packages, entrance fees to museums and attractions and local transportation costs. Cost of customized chartered bus service, commute shuttle service and other revenues includes costs directly related to delivering transportation services, which include payments to fleet operators for vehicle rental fees and petrol costs, and other miscellaneous expenses for operation.
| (o) | Selling and marketing expenses |
Selling and marketing expenses mainly consist of staff cost, depreciation expenses, advertising fees, share-based compensation expenses, rent fees, entertainment fees etc.
| (p) | General and administrative expenses |
General and administrative expenses mainly consist of professional service fees, staff cost, depreciation expenses, share-based compensation expenses, rent fees, office fees etc.
| (q) | Research and development expenses |
Research and development expenses consist primarily of staff cost, share-based compensation expenses and technology service fees, etc.
| (r) | Government subsidy |
The Group receives subsidy from certain local governments. The government subsidy is recorded as other income when received with no further conditions to be met. For the years ended June 30, 2023 and 2024, the Group recognized government subsidy of RMB2,373,500 and RMB4,378,769 in other income, net, respectively, which were received in cash with all the required conditions complied. The government subsidy of RMB3,682,549 during the year ended June 30, 2024 was without any further condition. The Group may need to repay the government subsidy in the future but the Group has assessed the repayment is not probable of occurring and amount cannot be reasonably estimated as to the date of this financial statement.
| (s) | Share-based compensation |
The Group applies ASC 718, Compensation—Stock Compensation (“ASC 718”), to account for all of its share-based payments. In accordance with ASC 718, the Group determines whether an award should be classified and accounted for as a liability award or equity award. All of the Group’s grants of share-based awards were classified as equity awards and are recognized in the financial statements based on their grant date fair values.
The Group has elected to recognize compensation expense using the straight-line method for all awards granted with graded vesting based on service conditions. The Group has also elected to account for forfeitures as they occur. Previously recognized compensation cost for the awards is reversed in the period that the award is forfeited. The Group, with the assistance of an independent third-party valuation specialist, determined the fair value of the stock options granted.
When the award is cancelled without the concurrent grant of a replacement award, the cancellation should be treated as a settlement for no consideration and all remaining unrecognized compensation cost should be accelerated.
| F-18 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 2. | Summary of significant accounting policies (continued) |
| (t) | Income taxes |
The Group 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. Deferred tax assets are reduced by a valuation allowance when, based upon the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
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 Group’s operating subsidiaries in PRC are subject to examination by the relevant tax authorities. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB100,000. In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred.
| (u) | Commitments and contingencies |
In the normal course of business, the Group is subject to commitments and contingencies, including operating lease commitments, legal proceedings and claims arising out of its business that relate to a wide range of matters, such as government investigations and tax matters. The Group recognizes a liability for such contingency if it determines it is probable that a loss has occurred and a reasonable estimate of the loss can be made. The Group may consider many factors in making these assessments on liability for contingencies, including historical and the specific facts and circumstances of each matter.
| (v) | Loss per share |
In accordance with ASC 260, Earnings per Share, basic loss per share is computed by dividing net loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. For the calculation of diluted net loss per share, the weighted average number of ordinary shares is adjusted by the effect of dilutive potential ordinary shares, including unvested restricted shares, ordinary shares issuable upon the exercise of outstanding share options using the treasury stock method. The effect mentioned above is not included in the calculation of the diluted loss per share when inclusion of such effect would be anti-dilutive.
| (w) | Segment reporting |
The Group uses the management approach in determining its operating segments. The Group’s chief operating decision maker (“CODM”) identified as the Group’s Chief Executive Officer, relies upon the consolidated results of operations as a whole when making decisions about allocating resources and assessing the performance of the Group. As a result of the assessment made by CODM, the Group has only one reportable segment. The Group does not distinguish between markets or segments for the purpose of internal reporting. As the Group’s long-lived assets are substantially located in the PRC, no geographical segments are presented.
| F-19 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 2. | Summary of significant accounting policies (continued) |
| (x) | Recent accounting pronouncements |
The Group expects to be an emerging growth company (“EGC”) as defined by the Jumpstart Our Business Startups Act (“JOBS Act”). The JOBS Act provides that an EGC can take advantage of extended transition periods for complying with new or revised accounting standards. This allows an EGC to delay adoption of certain accounting standards until those standards would otherwise apply to private companies. The Group elected to take advantage of the extended transition periods. However, this election will not apply should the Group cease to be classified as an EGC.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision mark (“CODM”), an amount for other segment items by reportable segment and a description of its composition, all annual disclosures required by FASB ASU Topic 280 in interim periods as well, and the title and position of the CODM and how the CODM uses the reported measures. Additionally, this ASU requires that at least one of the reported segment profit and loss measures should be the measure that is most consistent with the measurement principles used in an entity’s consolidated financial statements. Lastly, this ASU requires public business entities with a single reportable segment to provide all disclosures required by these amendments in this ASU and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively. The Group is currently evaluating the impact the adoption of ASU 2023-06 will have on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-09.
Other accounting standards that have been issued by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Group does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial statements.
| 3. | Prepaid expenses and other current assets |
Prepaid expenses and other current assets consisted of the following:
| As of June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Advance to suppliers | 859,637 | 765,457 | ||||||
| Prepaid service fees | 728,137 | 254,426 | ||||||
| Security deposits | 175,714 | 317,649 | ||||||
| VAT receivables | 168,583 | 134,807 | ||||||
| Staff advance | 138,252 | 248,432 | ||||||
| Receivables from a third-party payment platform | - | 62,509 | ||||||
| Others | 20,851 | 600 | ||||||
| Total | 2,091,174 | 1,783,880 | ||||||
| F-20 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 4. | Property and equipment, net |
Property and equipment consisted of the following:
| As of June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Building(1) | 34,791,400 | 34,791,400 | ||||||
| Electronic equipment | 288,544 | 212,490 | ||||||
| Office equipment | 270,869 | 306,747 | ||||||
| Vehicles | - | 890,761 | ||||||
| Leasehold and property improvement | 1,771,349 | 1,771,349 | ||||||
| Total | 37,122,162 | 37,972,747 | ||||||
| Less: accumulated depreciation and amortization | (2,212,453 | ) | (4,257,795 | ) | ||||
| Property and equipment, net | 34,909,709 | 33,714,952 | ||||||
Depreciation and amortization expenses for the years ended June 30, 2023 and 2024 were RMB1,792,256 and RMB2,187,449, respectively.
| (1) | In June 2022, the building was transferred from Zheng Nan, a major shareholder of the Company as capital contribution to Youba Tech and the capital contribution was recognized as an increase to additional paid-in-capital. In the same month, the Company mortgaged this building in Hangzhou, China to obtain a line of credit in RMB7,000,000 from Rural Commercial Bank, with a three-year term from June 24, 2022 to June 23, 2025. On September 8, 2022, Youba Tech obtained line of credit of RMB5,200,000 from Rural Commercial Bank, with a five-year term from September 8, 2022 to September 7, 2027. The building is also pledged to secure for this line of credit. |
| 5. | Accrued expenses and other current liabilities |
Accrued expenses and other current liabilities consisted of the following:
| As of June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Leasehold improvement payments payable | 951,511 | - | ||||||
| Payroll payable | 471,689 | 545,361 | ||||||
| Accrued expenses | - | 249,028 | ||||||
| Refundable security deposits | 15,000 | 194,875 | ||||||
| Vehicle payments payable | - | 134,400 | ||||||
| Others | 4,374 | 22,073 | ||||||
| Total | 1,442,574 | 1,145,737 | ||||||
| F-21 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 6. | Borrowings |
Summary of borrowings is as following:
| Creditors | Annual Interest Rate | Maturity date | As of June 30, 2023 | As of June 30, 2024 | ||||||||||
| RMB | RMB | |||||||||||||
| Zhejiang Hangzhou Rural Commercial Bank (1) | 4.35 | % | August 2, 2023 | 4,000,000 | - | |||||||||
| Zhejiang Hangzhou Rural Commercial Bank (1) | 4.35 | % | September 8, 2023 | 3,000,000 | - | |||||||||
| Zhejiang Hangzhou Rural Commercial Bank (2) | 4.35 | % | June 28, 2024 | 3,000,000 | - | |||||||||
| Zhejiang Hangzhou Rural Commercial Bank(3) | 4.35 | % | July 30, 2024 | - | 4,000,000 | |||||||||
| Zhejiang Hangzhou Rural Commercial Bank(3) | 4.35 | % | September 4, 2024 | - | 3,000,000 | |||||||||
| Zhejiang Hangzhou Rural Commercial Bank(4) | 4.35 | % | June 17, 2025 | - | 3,000,000 | |||||||||
| Total short-term borrowings | 10,000,000 | 10,000,000 | ||||||||||||
| Zhejiang Hangzhou Rural Commercial Bank (5) | 4.35 | % | August 13, 2026 | - | 1,000,000 | |||||||||
| Zhejiang Hangzhou Rural Commercial Bank (5) | 4.35 | % | August 31, 2026 | - | 1,200,000 | |||||||||
| Total long-term borrowings | - | 2,200,000 | ||||||||||||
| (1) | On June 24, 2022, Youba Tech mortgaged a building of RMB34,791,400 to obtain a line of credit from Zhejiang Hangzhou Rural Commercial Bank in the amount of RMB7,000,000, with a three-year term from June 24, 2022 to June 23, 2027. On August 3, 2022, Youba Tech withdrew RMB4,000,000 from the line of credit of three-year term, with an effective annual interest rate of 4.35% and a term of 12 months, which was fully repaid on July 31, 2023. On September 9, 2022, Youba Tech withdrew RMB3,000,000 from the same line of credit of three-year term, with an effective annual interest rate of 4.35% and a term of 12 months, which was fully repaid on September 5, 2023. |
| (2) | On September 8, 2022, with the building of RMB34,791,400 for security pledge, Youba Tech obtained another line of credit from Zhejiang Zhangzhou Rural Commercial Bank in the amount of RMB5,200,000, with a five-year term from September 8, 2022 to September 7, 2027. On June 27, 2023, Youba Tech withdrew RMB3,000,000 from the line of credit of five-year term, with an effective annual interest rate of 4.35% and a term of 12 months, which was fully repaid on June 17, 2024. |
| (3) | On July 31, 2023, Youba Tech withdrew another RMB4,000,000 from the line of credit of three-year term with Zhejiang Hangzhou Rural Commercial Bank, with an effective annual interest rate of 4.35% and a term of 12 months, which was fully repaid on July 1, 2024. On September 5, 2023, Youba Tech withdrew another RMB3,000,000 from the same line of credit of three-year term, with an effective annual interest rate of 4.35% and a term of 12 months, which was fully repaid on August 29, 2024. |
| (4) | On June 17, 2024, Youba Tech withdrew another RMB3,000,000 from the line of credit of five-year term with Zhejiang Hangzhou Rural Commercial Bank, with an effective annual interest rate of 4.35% and a term of 12 months. |
| (5) | On August 14, 2023, Youba Tech withdrew RMB1,000,000 from the line of credit of five-year term with Zhejiang Zhangzhou Rural Commercial Bank, with an effective annual interest rate of 4.35% and a term of 3 years. On September 1, 2023, Youba Tech withdrew RMB1,200,000 from the same line of credit of five-year term, with an effective annual interest rate of 4.35% and a term of 3 years. |
Interest expenses for the years ended June 30, 2023 and 2024 were RMB386,908 and RMB521,706, respectively.
| F-22 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 7. | Related party transactions |
The table below sets forth the major related parties that had transactions with the Group, and their relationships with the Group as of June 30, 2023 and 2024:
| No. | Name of Related Parties | Relationships | ||
| 1 | Zheng Nan | Chief Executive Officer | ||
| 2 | Zheng Jiahua | Chairman of the Board of Directors | ||
| 3 | Hangzhou Yinuo Technology Co., Ltd. | Entity controlled by shareholders |
| (a) | The Group entered into the following transactions with a related party: |
| For the years ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Nature | ||||||||
| Accounts received on behalf of the Group | ||||||||
| Zheng Nan (1) | - | 111,341 | ||||||
| Loan from a related party | ||||||||
| Zheng Jiahua (2) | - | 300,000 | ||||||
| Repayment of loan from a related party | ||||||||
| Zheng Jiahua (2) | - | 300,000 | ||||||
| Loan to a related party | ||||||||
| Zheng Jiahua (2) | - | 400,000 | ||||||
| Collection from loan to a related party | ||||||||
| Zheng Jiahua (2) | - | 400,000 | ||||||
| (b) | The Group had the following balances with a related party as of June 30, 2023 and 2024: |
| As of June 30, | ||||||||
| Amounts due from a related party | 2023 | 2024 | ||||||
| RMB | RMB | |||||||
| Zheng Nan (1) | - | 111,341 | ||||||
| (1) | The balance was the travel service payments received through the platform fund account on Zelle, a digital payment platform, held by Mr. Zheng Nan, the Chief Executive Officer of the Group. |
| (2) | On November 15, 2023, the Company borrowed an interest-free loan from Zheng Jiahua of RMB300,000 with a maturity date of December 31, 2023, which was fully repaid on December 22, 2023.
On May 24, 2024, the Company extended an interest-free loan to Zheng Jiahua of RMB400,00 with a maturity date of June 20, 2024, which was fully collected on May 24, 2024. |
| 8. | Share-based compensation |
2022 equity incentive plan
On January 20, 2022, the shareholders of Youba Tech, who are also the shareholders of the Company after its establishment, approved the 2022 equity incentive plan (the “2022 Plan”) to grant an aggregate of 470,000 restricted stock units (“RSUs”) at a unit purchase price of RMB1.00 to qualified management and employees in order to retain and motivate the management team and core employees to improve the Group's ability to create value and long-term competitiveness.
The RSUs are subject to a four-year or five-year annual vesting schedule and shall vest evenly by month between anniversary date of January 31, 2023 (“Designated Date”), as follow:
| Vesting Schedule | Four-year Schedule | Five-year Schedule | ||||||
| Between 1st anniversary date and 2nd anniversary date of Designated Date | 20 | % | 10 | % | ||||
| Between 2st anniversary date and 3rd anniversary date of Designated Date | 20 | % | 10 | % | ||||
| Between 3rd anniversary date and 4th anniversary date of Designated Date | 30 | % | 20 | % | ||||
| Between 4th anniversary date and 5th anniversary date of Designated Date | 30 | % | 30 | % | ||||
| Between 5th anniversary date and 6th anniversary date of Designated Date | - | 30 | % | |||||
These RSUs were considered as nonvested shares under the definition of ASC 718-10-20 and subject to service condition, that is the grantees are required to provide services during the vesting period. Upon termination of employment in the form of resignation or dismissal due to incompetence or violation of company rules and regulations, the unvested restricted shares are forfeited. The Group accounts for forfeitures as a reduction of stock-based compensation expense when the forfeiture actually occurs.
| F-23 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 8. | Share-based compensation (continued) |
On June 12, 2023, the unvested RSUs among 470,000 RSUs in aggregate granted under 2022 Equity Incentive Plan is resolved, as an ordinary resolution, that the cancellation of 2022 Equity Incentive Plan is approved by the Board of Directors of the Company. For the unvested RSUs, the requisite service is expected to be rendered. The Company considered it as a repurchase for no consideration and all remaining unrecognized compensation cost should be recognized on the cancellation date.
The Group recognized share-based compensation of RMB12,880,986 and nil for the years ended June 30, 2023 and 2024, respectively. During the year ended June 30, 2023, share-based compensation expenses of RMB9,950,899 were accelerated recognized for the all of the unvested RSUs due to the cancellation of 2022 Equity Incentive Plan.
The allocation of total share-based compensation expenses is set forth as follows:
| For the years ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Sales and marketing expenses | 10,081,427 | - | ||||||
| General and administrative expenses | 3,388,065 | - | ||||||
| Research and development expenses | (588,506 | ) | - | |||||
| Total | 12,880,986 | - | ||||||
| F-24 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 9. | Taxation |
Cayman Islands
The Company is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, the Company is not subject to income or capital gains taxes. Additionally, upon payments of dividends by the Company to its shareholders, no Cayman withholding tax will be imposed.
British Virgin Islands (“BVI”)
Youbus International Limited is incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, Youbus International Limited is not subject to tax on income or capital gains. Additionally, upon payments of dividends by the Company to its shareholders, no BVI withholding tax will be imposed.
Hong Kong
Webus Hongkong Limited is incorporated in Hong Kong and is subject to Hong Kong profits tax rate. Under the two-tiered profits tax rates regime, the first 2,000,000 Hong Kong Dollar (“HKD”) of profits of the qualifying group entity will be taxed at 8.25%, and profits above HKD2,000,000 will be taxed at 16.5%. Additionally, upon payments of dividends by the Company to its shareholders, no HK withholding tax will be imposed. No provision for Hong Kong profits tax has been made in the consolidated financial statements as it has no assessable profit for the years ended June 30,2023 and 2024.
PRC
Under the PRC Enterprise Income Tax Law (the “EIT Law”), the standard enterprise income tax rate for domestic enterprises and foreign invested enterprises is 25%. The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management body” located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The Implementing Rules of the EIT Law merely define the location of the “de facto management body “as” the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, property, of a non-PRC company is located.” Based on a review of surrounding facts and circumstances, the Group does not believe that it is likely that its operations outside of the PRC should be considered as a resident enterprise for the PRC tax purposes for the years ended June 30, 2023 and 2024.
For qualified small and low-profit enterprises, from January 1, 2022 to December 31, 2022, 12.5% of the first RMB 1.0 million of the assessable profit before tax is subject to preferential tax rate of 20% and the 25% of the assessable profit before tax exceeding RMB 1.0 million but not exceeding RMB 3.0 million is subject to preferential tax rate of 20%. From January 1, 2023 to December 31, 2027, 25% of the first RMB 3.0 million of the assessable profit before tax is subject to the tax rate of 20%. For the years ended June 30, 2023 and 2024, some PRC subsidiaries are qualified small and low-profit enterprises as defined, and thus are eligible for the above preferential tax rates for small and low-profit enterprises.
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 15%. The HNTE certificate is effective for a period of three years. An entity could re-apply for the HNTE certificate when the prior certificate expires. Youba obtained its HNTE status in December 2021, and was entitled to the preferential income tax rate of 15% for the years ended December 31, 2021, 2022 and 2023. For the year ended June 30, 2024, Youba was qualified as a small-scale and low-profit enterprise and entitled to a preferential tax rate of 5%.
United States
The Company’s subsidiary incorporated in the U.S. is subject to a combined of federal income tax of 21% and state income tax of 8.7% depending upon taxable income from Delaware state. The US subsidiary had no income from Delaware state for the years ended June 30, 2023 and 2024. As a result, the U.S subsidiary is subject to an income tax rate of 21% for the years ended June 30, 2023 and 2024. It had taxable income of RMB342,784 and RMB403,291 and income tax expense of RMB71,985 and RMB25,211 was recorded for the years ended June 30, 2023 and 2024, respectively.
| F-25 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 9. | Taxation (continued) |
Income/(loss) before provision for income taxes is attributable to the following geographic locations:
| For the years ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| PRC | (17,725,199 | ) | (4,504,937 | ) | ||||
| United States | 342,784 | 403,291 | ||||||
| Total loss before income taxes | (17,382,415 | ) | (4,101,646 | ) | ||||
The following table sets forth current and deferred portion of income tax expense/(benefit) of the Company’s subsidiaries:
| For the years ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Current tax: | ||||||||
| PRC | 176,434 | (71,265 | ) | |||||
| United States | 71,985 | 25,211 | ||||||
| Total current tax | 248,419 | (46,054 | ) | |||||
| Deferred tax: | ||||||||
| PRC | - | - | ||||||
| United States | - | - | ||||||
| Total deferred tax | - | - | ||||||
| Total income tax expense/(benefit) | 248,419 | (46,054 | ) | |||||
A reconciliation between the Group’s actual provision for income taxes and the provision at the PRC, mainland statutory rate is as follows:
| For the years ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Net loss before income tax | (17,382,415 | ) | (4,101,646 | ) | ||||
| Income tax benefit at statutory tax rate of 25% | (4,345,604 | ) | (1,025,412 | ) | ||||
| Impact of different tax rates in other jurisdictions | (13,711 | ) | (18,513 | ) | ||||
| Additional deduction for R&D expenses | (591,808 | ) | (332,759 | ) | ||||
| Non-deductible share-based compensation expenses | 3,220,246 | - | ||||||
| Non-deductible entertainment expense | 22,017 | 93,262 | ||||||
| Effect of preferential tax rates | 208,460 | 1,660,278 | ||||||
| Deferred tax effect of tax rate change | 16,889 | 3,100,939 | ||||||
| Effect of deferred offering cost | - | (1,337,541 | ) | |||||
| Effect of NOL true up | - | 499,562 | ||||||
| Change in valuation allowance | 1,731,930 | (2,685,870 | ) | |||||
| Income tax expenses/(benefit) | 248,419 | (46,054 | ) | |||||
Deferred Taxes
The significant components of the net deferred tax assets are summarized below:
| As of June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Deferred tax assets: | ||||||||
| Tax losses | 4,457,813 | 1,916,057 | ||||||
| Accrued expenses | 207,951 | 57,287 | ||||||
| Lease liabilities | 42,784 | 11,779 | ||||||
| Valuation allowance | (4,655,627 | ) | (1,969,757 | ) | ||||
| Subtotal | 52,921 | 15,366 | ||||||
| Deferred tax liabilities: | ||||||||
| Right-of-use assets | (52,921 | ) | (15,366 | ) | ||||
| Subtotal | (52,921 | ) | (15,366 | ) | ||||
| Deferred tax assets, net | - | - | ||||||
| F-26 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 9. | Taxation (continued) |
Changes in valuation allowance are as follows:
| As of June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Balance at the beginning of the years | 2,906,808 | 4,655,627 | ||||||
| Additions of valuation allowance | 1,731,930 | 415,069 | ||||||
| Deferred tax effect of tax rate change | 16,889 | (3,100,939 | ) | |||||
| Balance at the end of the years | 4,655,627 | 1,969,757 | ||||||
According to PRC tax regulations, the PRC enterprise net operating loss can generally carry forward for no longer than five years, and HNTE’s net operating losses can be carried forward for no more than 10 years, starting from the year subsequent to the year in which the loss was incurred. Carryback of losses is not permitted. Total net operating losses (NOLs) carryforwards of the Group’s entities in mainland China is RMB 29,718,756 and RMB 38,321,142 as of June 30, 2023 and 2024, respectively. As of June 30, 2024, net operating loss carryforwards from PRC will expire in fiscal years 2028 through 2032, if not utilized. Due to uncertainties surrounding future utilization of deferred tax assets, the Group has recognized a valuation allowance of RMB4,655,627 and RMB1,969,757 as of June 30, 2023 and 2024, respectively.
Unrecognized Tax Benefits
As of June 30, 2023 and 2024, the Group did not have any unrecognized uncertain tax positions and the Group does not believe that its unrecognized tax benefits will change over the next twelve months. For the years ended June 30, 2023 and 2024, the Company did not incur any interest and penalties related to potential underpaid income tax expenses. In general, the PRC tax authority has up to five years to conduct examinations of the Company’s tax filings. Accordingly, the tax years from 2019 to 2023 of the Company’s PRC subsidiaries remain open to examination by the taxing jurisdictions. The Company files income tax returns with the U.S. Internal Revenue Services (“IRS”) and those states where the Company has operations. The Company is subject to U.S. federal and state income tax examinations by the IRS and relevant state tax authorities. As of June 30, 2024, in the U.S., federal and state tax returns for the years 2021-2023 are subject to examination by the tax authorities. The Company is not currently under examination by any income tax authority, nor has it been notified of an impending examination. Since these net operating losses may be utilized in future periods, they remain subject to examination. As of June 30, 2024, the Company was not aware of any pending income tax examinations by U.S.
| F-27 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 10. | Leases |
The Group has operating leases mainly for office spaces.
Supplemental balance sheet information related to operating lease was as follows:
| As of June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Right-of-use assets | 616,705 | 588,396 | ||||||
| Amortization of right-of-use assets | (263,898 | ) | (281,066 | ) | ||||
| Right-of-use assets, net | 352,807 | 307,330 | ||||||
Lease liabilities-current | 285,225 | 180,135 | ||||||
| Lease liabilities, non-current | - | 55,454 | ||||||
| Total lease liabilities | 285,225 | 235,589 | ||||||
| Weighted average remaining lease term | 1.0 years | 1.2 years | ||||||
| Weighted average discount rate | 4.49 | % | 4.35 | % | ||||
Amortization expenses of right-of-use assets for the years ended June 30, 2023 and 2024 were RMB263,898 and RMB281,066, respectively.
For the years ended June 30, 2023 and 2024, the lease expense was as follows:
| For the years ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| RMB | RMB | |||||||
| Operating leases expense excluding short-term lease expense | 270,328 | 286,964 | ||||||
| Short-term lease expense | 171,281 | 32,655 | ||||||
| Total | 441,609 | 319,619 | ||||||
Because most of the leases do not provide an implicit rate of return, the Company used the incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.
The following is a schedule of future minimum payments under the Company’s operating leases as of June 30, 2024:
| For the years ending June 30, | RMB | |||
| 2025 | 186,731 | |||
| 2026 | 55,656 | |||
| Total lease payments | 242,387 | |||
| Less: imputed interest | (6,798 | ) | ||
| Total | 235,589 | |||
| F-28 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 11. | Ordinary shares |
Upon the establishment of Webus on February 10, 2022, the Company issued 50,000 ordinary shares, par value $1 per share to five BVI companies, which were wholly-owned by five individual shareholders, respectively, who were the proportionate former individual shareholders of Youba before the Reorganization. 925 ordinary shares owned by a shareholder were transferred to a new shareholder for the purpose of Reorganization.
On September 16, 2022, the Company effectuated the below recapitalization: (i) a 1 for 10,000 stock split on the Company's issued and outstanding ordinary shares, resulting in the 500,000,000 shares authorized and outstanding, and the par value was changed from $1 to $0.0001 after the stock split; (ii) the Company repurchased 495,000,000 shares from shareholders proportionate to original holding ratio, resulting in the 5,000,000 shares issued and outstanding after the recapitalization.
On March 10, 2023, the Company issued 30,000,000 additional Ordinary Shares to existing shareholders per the ratio of 1:7, which are identical to the previously issued 5,000,000 Ordinary Shares, with consideration receivable from the shareholders as a part of the recapitalization, resulting in the 35,000,000 Ordinary Shares issued and outstanding.
On October 31, 2024, the Company effected the below recapitalization: a reverse share split through the repurchase of 15,000,000 shares at $0.0001 per share from all shareholders ("Reverse Share Split"), that is, approximately 43% of ordinary shares was repurchased from every shareholder (with the fractional shares rounding off to the nearest whole share). The Reverse Share Split had no effect on any shareholders’ proportionate equity interest in the Company. The par value remained at $0.0001 per share following the Reverse Share Split, and the number of the Company’s issued and outstanding ordinary shares reduced to 20,000,000 shares. As a result, the aggregate par value of the outstanding ordinary shares reduced, with the aggregate share subscription receivable correspondingly reduced. The Reverse Share Split has no effect on the Company’s total shareholders’ equity.
As a result of the recapitalization, all share and per share data in the consolidated financial statements have been retrospectively adjusted to all periods presented.
The share subscription receivable presents the receivable for the issuance of ordinary shares of the Company and is reported as a deduction of equity and presented on a retroactive basis before the incorporation of the Company. Subscription receivable has no payment terms nor any interest receivable accrual.
| 12. | Restricted net assets |
The Group’s operations are conducted through its PRC subsidiaries, and the Group’s ability to pay dividends is primarily dependent on receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by its subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations, and after it has met the PRC requirements for appropriation to statutory reserves. Paid-in capital and additional paid-in capital of its subsidiaries included in the Group’s consolidated net assets are also non-distributable for dividend purposes.
In accordance with the Company Law of the PRC and the PRC regulations on enterprises with foreign investment, whether a domestic enterprise or a wholly owned foreign enterprise (“WFOE”) established in the PRC are both required to provide certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. Both a domestic enterprise and a WFOE are required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. All of the Company’s PRC consolidated subsidiaries are subject to the above mandated restrictions on distributable profits.
As a result of these PRC laws and regulations, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Group. As of June 30, 2023 and 2024, net assets restricted in the aggregate included in the Group’s consolidated net assets were RMB24,268,242 and RMB33,855,500, respectively.
| F-29 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 13. | Concentration of credit risk |
Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of accounts receivable. The Group conducts credit evaluations of its customers, and generally does not require collateral or other security from them. The Group evaluates its collection experience and long outstanding balances to determine the need for allowance for credit losses. The Group conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
The following table sets forth a summary of single customers which represent 10% or more of the Group's total accounts receivable:
| As of June 30, | ||||||||||||||||
| 2023 | 2024 | |||||||||||||||
| RMB | RMB | |||||||||||||||
| Percentage of the Group’s accounts receivable | Amount | % | Amount | % | ||||||||||||
| Customer A | 47,880 | 16 | * | * | ||||||||||||
| Customer B | 43,407 | 15 | * | * | ||||||||||||
| Customer C | * | * | 656,705 | 74 | ||||||||||||
| Customer D | * | * | 160,859 | 18 | ||||||||||||
| * | Represented the percentage below 10% |
For the years ended June 30, 2023 and 2024, no single customers accounted for 10% or more of the Group’s total revenues.
The following table sets forth a summary of single suppliers which represent 10% or more of the Group’s total accounts payable:
| As of June 30, | ||||||||||||||||
| 2023 | 2024 | |||||||||||||||
| RMB | RMB | |||||||||||||||
| Percentage of the Group’s accounts payable | Amount | % | Amount | % | ||||||||||||
| Supplier A | 55,950 | 14 | * | * | ||||||||||||
| Supplier B | 40,945 | 10 | 56,854 | 14 | ||||||||||||
| Supplier C | * | * | 256,310 | 62 | ||||||||||||
*Represented the percentage below 10%
The following table sets forth a summary of single suppliers which represent 10% or more of the Group's total purchases:
| For the years ended June 30, | ||||||||||||||||
| 2023 | 2024 | |||||||||||||||
| RMB | RMB | |||||||||||||||
| Percentage of the Group’s total purchases | Amount | % | Amount | % | ||||||||||||
| Supplier D | 15,440,699 | 11 | * | * | ||||||||||||
| Supplier E | 14,215,162 | 10 | * | * | ||||||||||||
| * | Represented the percentage below 10% |
| F-30 |
WEBUS INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for share and per share data)
| 14. | Condensed financial information of the parent company |
The Group performed a test on the restricted net assets of consolidated subsidiary in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e) (3), “General Notes to Financial Statements” and concluded that it was applicable for the Group to disclose the financial statements for the parent Company.
Condensed Balance Sheets
| As of June 30, | ||||||||||||
| 2023 | 2024 | 2024 | ||||||||||
| RMB | RMB | US$ Note 2 (e) | ||||||||||
| ASSETS | ||||||||||||
| Investment in subsidiaries | 31,860,384 | 27,807,737 | 3,826,472 | |||||||||
| TOTAL ASSETS | 31,860,384 | 27,807,737 | 3,826,472 | |||||||||
| LIABILITIES | ||||||||||||
| Deficit of investment in subsidiaries | - | - | - | |||||||||
| TOTAL LIABILITIES | - | - | - | |||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||
| Ordinary Shares (US$0.0001 par value per share; 500,000,000 and 500,000,000 shares authorized as of June 30, 2023 and 2024; 20,000,000 and 20,000,000 shares issued and outstanding as of June 30, 2023 and 2024, respectively *) | 12,720 | 12,720 | 1,750 | |||||||||
| Additional paid-in capital | 65,063,327 | 65,063,327 | 8,953,012 | |||||||||
| Share subscription receivable | (12,720 | ) | (12,720 | ) | (1,750 | ) | ||||||
| Accumulated deficit | (33,223,158 | ) | (37,278,750 | ) | (5,129,727 | ) | ||||||
| Accumulated other comprehensive income | 20,215 | 23,160 | 3,187 | |||||||||
| Total shareholders' equity | 31,860,384 | 27,807,737 | 3,826,472 | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDES’ EQUITY | 31,860,384 | 27,807,737 | 3,826,472 | |||||||||
| * | The shares and per share data are presented on a retroactive basis to reflect the Company’s recapitalization. . (Note 11). |
Condensed Statements of operations and comprehensive loss
| For the years ended June 30, | ||||||||||||
| 2023 | 2024 | 2024 | ||||||||||
| RMB | RMB | US$ Note 2 (e) | ||||||||||
| Operating expenses: | ||||||||||||
| Share-based compensation expenses | (12,880,986 | ) | - | - | ||||||||
| Share of loss in subsidiaries | (4,749,848 | ) | (4,055,592 | ) | (558,067 | ) | ||||||
| Loss from operations | (17,630,834 | ) | (4,055,592 | ) | (558,067 | ) | ||||||
| Income tax expense | - | - | - | |||||||||
| Net loss | (17,630,834 | ) | (4,055,592 | ) | (558,067 | ) | ||||||
Condensed Statements of Cash Flows
Webus, the parent company, had no cash activities for the years ended June 30, 2023 and 2024, respectively.
| 15. | Subsequent events |
New bank borrowings acquired
On July 31, 2024, Youba Tech obtained an additional short-term borrowing of RMB4,000,000 ($550,418) from the line of credit of RMB7,000,000 ($963,232) with a maturity date of June 23, 2025 and an annual interest rate of 4.35%. On August 29, 2024, Youba Tech obtained an additional short-term borrowing of RMB3,000,000 ($412,814) from the line of credit of RMB7,000,000 ($963,232) with a maturity date of June 23, 2025 and an annual interest rate of 4.35%.
Youba Tech obtained a revolving credit loan of RMB3,000,000 ($412,814) from Hangzhou United Bank signed on August 16, 2024, and on August 19, 2024, Youba Tech borrowed a short-term borrowing of RMB3,000,000 ($412,814) from this credit loan with a maturity date of February 15, 2025 and an interest rate of 3.65% per annum.
On September 6, 2024, Youba Tech obtained a line of credit from Hangzhou United Bank of RMB25,000,000 ($3,440,114) with a term of five years, which was secured by a mortgage on real estate owned by Zheng Nan, the Chief Executive Officer. On September 6, 2024, Youba Tech withdrew RMB7,000,000 ($963,232) from the line of credit with a term of one year and an interest rate of 3.65% per annum. On September 9, 2024, Youba Tech withdrew Bank of RMB10,000,000 ($1,376,046) from the same line of credit with a term of one year and an interest rate of 3.40% per annum.
Reverse share split
On October 31, 2024, the Company effected the below recapitalization: a reverse share split through the repurchase of 15,000,000 shares at $0.0001 per share from all shareholders ("Reverse Share Split"), that is, approximately 43% of ordinary shares was repurchased from every shareholder (with the fractional shares rounding off to the nearest whole share). The Reverse Share Split had no effect on any shareholders’ proportionate equity interest in the Company. The par value remained at $0.0001 per share following the Reverse Share Split, and the number of the Company’s issued and outstanding ordinary shares reduced to 20,000,000 shares. As a result, the aggregate par value of the outstanding ordinary shares reduced, with the aggregate share subscription receivable correspondingly reduced. The Reverse Share Split has no effect on the Company’s total shareholders’ equity.
The Group has evaluated subsequent events to the balance sheet date of June 30, 2024 through October 21, 2024, the date of issuance of the consolidated financial statements, other than those disclosed above, there were no other subsequent events occurred that would require recognition or disclosure in the Group’s consolidated financial statements.
| F-31 |
Until [●], 2024 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
WEBUS INTERNATIONAL LIMITED
1,750,000 Ordinary Shares
Prospectus dated [●], 2024
RESALE PROSPECTUS ALTERNATE PAGE
The information in this preliminary prospectus is not complete and may be changed. Neither we nor the Selling Shareholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
RESALE PROSPECTUS Dated [ ], 2024
Up to 1,750,000 Ordinary Shares to be Offered by the Selling Shareholders
WEBUS INTERNATIONAL LIMITED
This prospectus related to the resale of up to 1,750,000 ordinary shares, par value $0.0001 per share (the “Ordinary Shares”), of Webus International Limited, a Cayman Islands exempted company, by each shareholder named in this prospectus (the “Selling Shareholders”). We will not receive any of the proceeds from the sale of the Ordinary Shares by the Selling Shareholders. Prior to the underwritten primary offering, there has been no public market for our Ordinary Shares. We intend to list the Ordinary Shares on the Nasdaq Capital Market under the symbol “WETO.” However, there is no assurance that such an application will be approved, that this offering will be completed, and that the Ordinary Shares of Webus International Limited will be trading on the Nasdaq Capital Market. If the Nasdaq Capital Market does not approve our application for listing on the Nasdaq Capital Market, this offering will not be completed.
The sale of the Ordinary Shares by the Selling Shareholders is conditioned upon the successful completion of the sale of the Ordinary Shares by the Company in the underwritten primary offering. The successful listing of our shares on the Nasdaq Capital Market is a condition to both the closing of our underwritten primary offering and to this secondary offering by our selling shareholders. Following the listing of our Ordinary Shares on the Nasdaq Capital Market, the per share public offering price of the Ordinary Shares to be sold by the Selling Shareholders will be the then-prevailing market price.
The registration of the Selling Shareholders’ Ordinary Shares does not mean that the Selling Shareholders will offer or sell any Ordinary Shares. We will not receive any proceeds from any sale or disposition of Ordinary Shares by the Selling Shareholders. In addition, we will pay all fees and expenses incident to the registration of the resale of Ordinary Shares by the Selling Shareholders. The Selling Shareholders may offer their Ordinary Shares from time to time directly or through one or more broker-dealers or agents at market prices prevailing at the time of sale. However, the Selling Shareholders will not sell any Ordinary Shares until after the closing of the underwritten primary offering. The offering by the Selling Shareholders will remain open for 180 days following the date of this prospectus. Following the expiration of such 180 days period, we no longer intend to keep this registration statement effective. For additional information on the possible methods of sale that may be used by the Selling Shareholders, refer to the section of this prospectus entitled “Selling Shareholders — Plan of Distribution”.
We are an “emerging growth company,” as that term is used in the Jumpstarts Our Business Startups Act of 2012 and will be subject to reduced public company reporting requirements.
We are, and following the completion of the underwritten primary offering, will continue to be a “controlled company” as defined under the Nasdaq Stock Market Rules because Mr. Zheng Jiahua, the chairman of our board of directors and his son, Mr. Zheng Nan our chief executive officer, will beneficially own 74.09% of our then issued and outstanding Ordinary Shares, assuming the underwriter does not exercise its over-allotment option. Therefore, we may elect not to comply with certain corporate governance requirements of Nasdaq. Currently, we do not plan to utilize the “controlled company” exemptions with respect to our corporate governance practice after we complete this offering.
On March 10, 2023, we issued an aggregate of 30,000,000 Ordinary Shares to each of the existing shareholders on a pro-rata basis. The additional issuance increased the number of issued and outstanding Ordinary Shares from 5,000,000 Ordinary Shares to 35,000,000 Ordinary Shares.
On October 31, 2024, we effected the below recapitalization: a reverse share split through the repurchase of 15,000,000 shares at $0.0001 per share from all shareholders ("Reverse Share Split"), that is, approximately 43% of ordinary shares was repurchased from every shareholder (with the fractional shares rounding off to the nearest whole share). The Reverse Share Split had no effect on any shareholders’ proportionate equity interest. The par value remained at $0.0001 per share following the Reverse Share Split, and the number of our issued and outstanding ordinary shares was reduced to 20,000,000 shares. As a result, the aggregate par value of the outstanding ordinary shares reduced, with the aggregate share subscription receivable correspondingly reduced. The Reverse Share Split has no effect on our total shareholders’ equity.
Investing in our Ordinary Shares is highly speculative and involves a significant degree of risk. See “Risk Factors” beginning on page 26 of this prospectus for a discussion of information that should be considered before making a decision to purchase our Ordinary Shares.
Webus International Limited (“Webus”, “we”, or the “Company”) is a Cayman Islands exempted company without any operation and our operations are conducted by (1) our wholly owned subsidiary Wetour Travel Tech, LLC in the United States; and (2) through 50% equity interest held by Zhejiang Xinjieni Technology Co., Ltd. (“WFOE”) in Zhejiang Youba Technology Co., Ltd., a limited liability company established under PRC law (the “VIE” or “Youba Tech”) and as beneficiary of the remaining 50% interests in Youba Tech through contractual arrangements with Youba Tech and Individual Registered Shareholders (“50% VIE Interests”). VIE interests are not considered as equal to equity interest and, this structure involves unique risks to investors. See “Risk Factors— Risks Related to Doing Business in China — Risks Related to Doing Business in China —Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations; — Uncertainties and quick change in the interpretation and enforcement of Chinese laws and regulations with little advance notice could result in a material and negative impact our business operation, decrease the value of our ordinary shares and limit the legal protections available to us; and — The Chinese legal system embodies uncertainties which could negatively affect our listing on Nasdaq and limit the legal protections available to you and us.”
In addition, the VIE is consolidated for accounting purpose only and Webus owns 50% equity interests and 50% VIE Interests in the VIE. Webus is not a Chinese operating company and does not conduct operations directly. PRC laws, regulations, and rules restrict and impose conditions on foreign investment in certain types of business, including value added telecommunication business, and we therefore operate these businesses in China through the VIE structure which provides investors with exposure to foreign investment in the Chinese operating companies where foreign investors are restricted by Chinese law from holding more than 50% equity interests in the operating companies. For a summary of these contractual arrangements, see “Corporate History and Structure — Contractual Arrangements with the VIE and Individual Registered Shareholders.” Investors are purchasing equity interests in Webus, the Cayman Islands exempted company, and are not purchasing, and may never directly hold, equity interests in the VIE. As used in this prospectus, “we,” “us,” or “our” refers to Webus and its subsidiaries and do not include the VIE and its subsidiary.
Our corporate structure is subject to risks relating to our contractual arrangements with the VIE and its individual shareholders. Such contractual arrangements have not been tested in any of the PRC courts. There are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to these contractual arrangements. If the PRC government finds these contractual arrangements non-compliant with the restrictions on direct foreign investment in the relevant industries, or if the relevant PRC laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish our interests in the VIE or forfeit our rights under the contractual arrangements. Webus and investors in the Ordinary Shares face uncertainty about potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with the VIE and, consequently, significantly affect the financial condition and results of operations of Webus. If we are unable to claim our right to control the assets of the VIE, the Ordinary Shares may decline in value as we hold 50% equity interests and 50% VIE Interests in the VIE. The PRC government could even disallow the VIE structure completely, which would likely result in a material adverse change in our operations and the Ordinary Shares may significantly decline in value. See “Risk Factors — Risks Related to Corporate Structure.”
There are legal and operational risks associated with being based in and having all operations in China through the VIE structure. The Chinese government took regulatory actions on certain U.S. listed Chinese companies and made statement that it will exert more oversight and control over offerings and listings by Chinese companies that are conducted overseas, such as those related to the use of variable interest entities and data security or anti-monopoly concerns. The VIE and its PRC subsidiary are located in China, and are subject to complex and evolving PRC laws and regulations. For example, we face regulatory risks relating to listings in the U.S., oversight on cybersecurity and data privacy.
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. On December 28, 2021, Cybersecurity Review Measures was published by Cyberspace Administration of China (the “CAC”), National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, Ministry of State Security, Ministry of Finance (the “MOF”), Ministry of Commerce, People’s Bank of China, State Administration of Radio and Television, China Securities Regulatory Commission, State Secrecy Administration and State Cryptography Administration, became effective on February 15, 2022, which provides that, Critical Information Infrastructure Operators (“CIIOs”) that purchase internet products and services and Data Processing Operators (“DPOs”) engaging in data processing activities that affect or may affect national security shall be subject to the cybersecurity review by the Cybersecurity Review Office. On November 14, 2021, CAC published the Administration Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measure (Draft)”, which requires cyberspace operators with personal information of more than one million users who want to list abroad to file a cybersecurity review with the Office of Cybersecurity Review. As of the date of this prospectus, these new laws and guidelines have not impacted the Company’s ability to conduct its business, accept foreign investments, or list and trade on a U.S. or other foreign exchange as the VIE and its PRC subsidiary hold far less than one million users’ personal information. The VIE and its PRC subsidiary provide customized car rental services and travel-related services and we believe the new data security or anti-monopoly laws and regulations in China do not apply to the Company, its subsidiaries, the VIE and its PRC subsidiary. However, any change in foreign investment regulations, and other policies in China or related enforcement actions by China government could result in a material change in the operations of the VIE and its PRC subsidiary and the value of our Ordinary Shares and could significantly limit our ability to offer our Ordinary Shares to investors or cause the value of our Ordinary Shares to significantly decline.
On February 17, 2023, the China Securities Regulatory Commission (the “CSRC”) released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “New Overseas Listing Rules”) with five interpretive guidelines, which came into effect on March 31, 2023. The New Overseas Listing Rules require Chinese domestic enterprises to complete filings with relevant governmental authorities and report related information under certain circumstances, such as: a) an issuer making an application for initial public offering and listing in an overseas market; b) an issuer making a subsequent overseas securities offering after having been listed on an overseas market; c) a domestic company seeking an overseas direct or indirect listing of its assets through single or multiple acquisition(s), share swap, transfer of shares or other means. According to the Notice on Arrangements for Overseas Securities Offering and Listing by Domestic Enterprises, published by the CSRC on February 17, 2023, a company that (i) has already completed overseas listing or (ii) has already obtained the approval for the offering or listing from overseas securities regulators or exchanges but has not completed such offering or listing before effective date of the new rules and also completes the offering or listing before September 30, 2023 will be considered as an existing listed company and is not required to make any filing until it conducts a new offering in the future. For the company that has already submitted offering and listing applications but not yet obtained the approvals from overseas securities regulators or exchanges shall choose to make its filing with the CSRC at a reasonable time but before the completion of the offering/listing. For the company that has already obtained CSRC approval for overseas listing or offering can continue its process during the valid term of the CSRC approval without additional filing and it shall make the filing pursuant to the new rules if it does not complete the offering or listing before the expiration of the original approval from CSRC.
On February 24, 2023, the CSRC, MOF, National Administration of State Secrets Protection and National Archives Administration of China jointly issued the Provisions on Strengthening the Confidentiality and Archive Management Work Relating to the Overseas Securities Offering and Listing, or the Confidentiality Provisions, which came into effect on March 31, 2023 with the New Overseas Listing Rules. The Confidentiality Provisions require that, among other things, (a) a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations.
Any overseas offering and listing made by an issuer that meets both the following conditions will be determined as indirect offering and listing in overseas market and, therefore, be subject to filing requirement: (i) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by domestic companies; and (ii) the main parts of the issuer’s business activities are conducted in the Mainland China, or its main places of business are located in the Mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in the Mainland China. The determination as to whether or not an overseas offering and listing by domestic companies is indirect, shall be made on substance over form basis. As of the date of this prospectus, we meet the conditions that will be determined as indirect offering and listing in overseas market and, based on AllBright’s advice, we are subject to filing requirement pursuant to the New Overseas Listing Rules, and, this offering and our listing on Nasdaq are therefore contingent on the completion of the filing procedures with the CSRC prior to our listing on Nasdaq. As we are required to file with the CSRC before the completion of this offering and may be required to obtain approval from any other PRC governmental authorities, if we cannot complete the filing with the CSRC in compliance with the New Overseas Listing Rules prior to our listing on Nasdaq, the CSRC may order rectification, issue warnings, and impose a fine between RMB1 million and RMB10 million on our PRC Subsidiaries, which could adversely and materially affect our business operations and financial outlook, and 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 such shares to become worthless. Webus submitted the filing documents for the filing under the New Overseas Listing Rules (the “Filing Documents”) to comply with our obligations under the New Overseas Listing Rules. On April 2, 2024, the CSRC informed us that we have completed the CSRC filing in compliance with the New Overseas Listing Rules.
Uncertainties in the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protection available to you and us, hinder our ability to offer or continue to offer our Ordinary Shares, result in a material adverse effect on our business operations, and damage our reputation, which might further cause our Ordinary Shares to significantly decline in value. See “Risk Factors — Risks Related to Doing Business in China.”
Our auditor, Marcum Asia CPAs LLP (formerly Marcum Bernstein & Pinchuk LLP), an independent registered public accounting firm headquartered in the United States, was not included in the determinations made by the Public Company Accounting Oversight Board (United States), or the PCAOB, on December 16, 2021. Additionally, on August 26, 2022, the PCAOB announced that it had signed a Statement of Protocol (the “Protocol”) with the CSRC and the MOF governing inspections and investigations of audit firms based in mainland China and Hong Kong. On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. On December 29, 2022, legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law. The Consolidated Appropriations Act contained, among other things, an identical provision to HFCAA, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two. Our auditor is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. As a result, we do not expect to be identified as a “Commission-Identified Issuer” under the HFCAA as of the date of this prospectus. However, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control, including positions taken by authorities of the PRC. The PCAOB is expected to continue to demand complete access to inspections and investigations against accounting firms headquartered in mainland China and Hong Kong in the future and has resumed regular inspections since March 2023. The PCAOB is required under the HFCAA to make its determination on an annual basis with regards to its ability to inspect and investigate completely accounting firms based in the mainland China and Hong Kong. The possibility of being a “Commission-Identified Issuer” and risk of delisting could continue to adversely affect the trading price of our securities. Should the PCAOB again encounter impediments to inspections and investigations in mainland China or Hong Kong as a result of positions taken by any authority in either jurisdiction, the PCAOB will make determinations under the HFCAA as and when appropriate. Although we believe that the Holding Foreign Companies Accountable Act and the related regulations do not currently affect us, we cannot assure you that there will not be any further implementations and interpretations of the Holding Foreign Companies Accountable Act or the related regulations, which might pose regulatory risks to and impose restrictions on us because of our operations in mainland China.
The VIE and its PRC subsidiary mainly conduct design, marketing, operation, and research and development activities in China, and we hold 50% equity interests and 50% VIE Interests in the VIE. As a result, almost all of the sales revenues are received by the VIE and its PRC subsidiary. Transfers of funds among the WFOE, the VIE and its PRC subsidiary are free of restrictions. Remittances of funds from the WFOE, the VIE and its PRC subsidiary to Webus are subject to review and conversion of Renminbi Yuan (“RMB”) to U.S. Dollar (“$”) through banks in China, which represents the State Administration of Foreign Exchange (“SAFE”) to monitor foreign exchange activities. Under the existing 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 SAFE by complying with certain procedural requirements with the banks. We have not declared or paid dividends in the past, nor any dividends or distributions were made by subsidiaries to us. Furthermore, as of the date of this prospectus, no transfers, dividends, or distributions have been made among us, our subsidiaries, and the VIE and its subsidiary. Our board of directors has complete discretion on whether to distribute dividends, subject to applicable laws. Currently, we do not have any current plan to declare or pay any cash dividends to the U.S. investors in the foreseeable future after this offering, or settle amounts owed to our agreements, including the VIE agreements, except to the agreements entered under normal business operation as discussed hereof. See “VIE Consolidation Schedule” and “Note 14 Condensed financial information of the parent company – Condensed statements of cash flows” in our financial statements appearing elsewhere in this prospectus. Please also refer to “Dividend Policy” on page 64. The cash transfer among us and our subsidiaries is intended to be made through dividends, capital contributions or intercompany loans between the holding company and its subsidiaries, if needed in the future. Funds may be paid by the VIE and its subsidiary to the WFOE as service fees according to the VIE agreements. The WFOE may remit cash to the VIE subject to review and conversion of RMB to U.S. Dollars through WFOE’s bank in China. As of the date of this prospectus, none of our subsidiaries has made any dividend payment or distribution to the holding company, and we have not made any dividends or distributions to U.S. investors. No cash generated from one subsidiary is used to fund another subsidiary’s operations, and we do not anticipate any difficulties or limitations on our ability to transfer cash between us and our subsidiaries outside mainland China. However, the transfer of cash in and out of mainland China is subject to review and procedures according to the requirements of the SAFE. Other than discussed above, we don’t have any cash management policies that dictate the amount of such funding among the Group and the VIE and its subsidiary.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Prospectus dated [ ], 2024
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus or in any related free writing prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus or any free writing prospectus. We are offering to sell, and seeking offers to buy, the Ordinary Shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the Ordinary Shares.
RESALE PROSPECTUS ALTERNATE PAGE
THE OFFERING
| Securities being offered: | Up to 1,750,000 Ordinary Shares | |
| Offering price: | Once, and if, our Ordinary Shares are listed on the Nasdaq Capital Market and there is an established market for these resale shares, the Selling Shareholders may sell the resale shares from time to time at the market price prevailing on the Nasdaq Capital Market at the time of offer and sale, or at prices related to such prevailing market prices or in negotiated transactions or a combination of such methods of sale directly or through brokers. | |
| Use of proceeds: | We are not selling any Ordinary Shares covered by this prospectus. As such, we will not receive any of the proceeds from the sale of the Ordinary Shares by the Selling Shareholders named in this prospectus. | |
| Nasdaq Symbol: | WETO | |
| Risk factors: | Investing in our Ordinary Shares involves a high degree of risk. As an investor you should not buy our Ordinary Shares unless you are able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 26. |
We are registering the Selling Shareholders Shares. The Selling Shareholders are offering an aggregate of 1,750,000 Ordinary Shares. See “SELLING SHAREHOLDERS PLAN OF DISTRIBUTION.” The following table sets forth the name of the Selling Shareholders, the number of Ordinary Shares owned by the Selling Shareholders immediately prior to the date of this prospectus and the number of Ordinary Shares to be offered by the Selling Shareholders pursuant to this Resale Prospectus. The table also provides information regarding the beneficial ownership of our Ordinary Shares by the Selling Shareholders to reflect the sale of all of the shares offered under this Resale Prospectus.
Beneficial ownership is based on information furnished by the Selling Shareholders. Unless otherwise indicated and subject to community property laws where applicable, the Selling Shareholders named in the following table have, to our knowledge, sole voting and investment power with respect to the shares beneficially they own.
Alt-1
The Selling Shareholders have not had any position, office or other material relationship within past three years with the Company. The Selling Shareholders are not broker dealers or affiliates of a broker dealer. The Selling Shareholders do not have any agreement or understanding to distribute any of the Ordinary Shares being registered. The Selling Shareholders are offering to sell all their Ordinary Shares from time to time after the closing of the initial public offering by the Company. None of the Selling Shareholders or the natural controlling persons of the Selling Shareholders are in the business of underwriting securities.
| Name of the Selling Shareholders |
Ordinary Shares Beneficially Owned Prior to Offering |
Maximum Number of Ordinary Shares to be Sold |
Maximum Number of Ordinary Shares owned After Offering |
Maximum Percentage Ownership After Offering(1) |
||||||||||||
| Rocaso Co., Ltd(2) | 740,800 | 700,151 | 40,649 | 0.18 | % | |||||||||||
| Anyu Tech Co., Ltd.(3) | 740,800 | 700,151 | 40,649 | 0.18 | % | |||||||||||
| ZHANG YIQUN | 370,000 | 349,698 | 20,302 | 0.09 | % | |||||||||||
| (1) | assuming the underwriter does not exercise its over-allotment option |
| (2) | Rocaso Co., Ltd is a British Virgin Islands company 100% owned by Mr. Jiang Chen. The registered office of Rocaso Co., Ltd is Intershore Chambers, Road Town, Tortola, British Virgin Islands. |
| (3) | Anyu Tech Co., Ltd is a British Virgin Islands company 100% owned by Mr. Xu Siming. The registered office of Rocaso Co., Ltd is Intershore Chambers, Road Town, Tortola, British Virgin Islands. |
SELLING SHAREHOLDERS PLAN OF DISTRIBUTION
We are registering the Ordinary Shares of the Selling Shareholders to permit the resale of Ordinary Shares by the Selling Shareholders from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale of Ordinary Shares by the Selling Shareholders. We will bear all fees and expenses incident to the registration of the Ordinary Shares by the Selling Shareholders in the registration statement of which this prospectus forms a part. Network 1 Financial Securities, Inc. will not participate in this offering.
The Selling Shareholders may sell all or a portion of the Ordinary Shares beneficially owned by them and offered hereby from time to time directly or through one or more broker-dealers or agents at market prices prevailing at the time of sale. If the Ordinary Shares are sold through broker-dealers, the Selling Shareholders will be responsible for any commissions or agent’s commissions. The Ordinary Shares may be sold by Selling Shareholders in one or more transactions at prevailing market prices at the time of the sale. However, the Selling Shareholders will not sell any Ordinary Shares until after the closing of the underwritten primary offering. The offering by the Selling Shareholders will remain open for 180 days following the date of this prospectus. Following the expiration of such 180 period, we no longer intend to keep this registration statement effective. We do not have any contractual agreements with the Selling Shareholders requiring registration of their shares or otherwise. Instead, the Company has decided to register their shares for resale as a method for providing some liquidity to its prior private investors. These sales may be effected in transactions, which may involve crosses or block transactions:
| ● | on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale; | |
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | |
| ● | block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; | |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; | |
| ● | short sales; | |
| ● | in transactions through broker-dealers that agree with the Selling Shareholders to sell a specified number of such securities at a stipulated price per security; | |
| ● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; | |
| ● | a combination of any such methods of sale; or | |
| ● | any other method permitted pursuant to applicable law. |
The Selling Shareholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available, rather than under this prospectus. However, the Selling Shareholders will not sell any Ordinary Shares until after the closing of the primary underwritten initial public offering.
Alt-2
Under applicable rules and regulations under the Securities Exchange Act, as amended (the “Exchange Act”), any person engaged in the distribution of the shares of Ordinary Shares may not simultaneously engage in market making activities with respect to the shares of Ordinary Shares for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of Ordinary Shares by the Selling Shareholders or any other person. We will make copies of this prospectus available to the Selling Shareholders and have informed them of the need to deliver a copy of this prospectus at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act, as amended).
If the Selling Shareholders effect such transactions to or through broker-dealers or agents, such broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the Selling Shareholders or commissions from purchasers of Ordinary Shares from the Selling Shareholders for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of Ordinary Shares by the Selling Shareholders or otherwise, the Selling Shareholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of Ordinary Shares by the Selling Shareholders in the course of hedging in positions they assume. The Selling Shareholders may also sell Ordinary Shares short and deliver Ordinary Shares covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The Selling Shareholders may also loan or pledge Ordinary Shares to broker-dealers that in turn may sell such shares.
The Selling Shareholders may pledge or grant a security interest in some or all of the Ordinary Shares owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell Ordinary Shares from time to time pursuant to an amendment to this prospectus under applicable provision of the Securities Act, amending, if necessary, the list of Selling Shareholders to include the pledgee, transferee or other successors in interest as Selling Shareholders under this prospectus.
The Selling Shareholders and any broker-dealer participating in the distribution of Ordinary Shares may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of Ordinary Shares by the Selling Shareholders is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of Ordinary Shares being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the Selling Shareholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.
Under the securities laws of some states, Ordinary Shares may be sold by the Selling Shareholders in such states only through registered or licensed brokers or dealers. In addition, in some states the Selling Shareholders may not sell Ordinary Shares unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.
There can be no assurance that any Selling Shareholder will sell any or all of their Ordinary Shares registered pursuant to the registration statement, of which this prospectus forms a part.
The Selling Shareholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of Ordinary Shares by the Selling Shareholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of Ordinary Shares to engage in market-making activities with respect to such Ordinary Shares. All of the foregoing may affect the marketability of the Ordinary Shares and the ability of any person or entity to engage in market-making activities with respect to the Ordinary Shares by Selling Shareholders.
Once sold under the registration statement, of which this prospectus forms a part, the Selling Shareholders’ Ordinary Shares will be freely tradeable in the hands of persons other than our affiliates.
Alt-3
We will not receive any of the proceeds from the sale of our Ordinary Shares by the Selling Shareholders. In addition, Network 1 Financial Securities, Inc. will not receive any compensation from the sale of the Ordinary Shares by the Selling Shareholders. The Selling Shareholders will receive all of the net proceeds from the sales of Ordinary Shares offered by it under this prospectus. We have agreed to bear the expenses relating to the registration of the Ordinary Shares for the Selling Shareholders.
The validity of the Ordinary Shares offered by this prospectus and legal matters as to Cayman Islands law will be passed upon for us by Ogier (Cayman) LLP.
| Alt-4 |
RELIMINARY PROSPECTUS
Up to 1,750,000 Ordinary Shares to be Offered by the Selling Shareholders
[ ], 2024
Through and including [ ], 2024 (the 25th day after the date of this prospectus), all dealers effecting transactions in the Ordinary Shares, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. A&R memorandum and articles of association, which will become effective upon completion of this offering, provide to the extent permitted by law, we shall indemnify each existing or former secretary, director (including alternate director), and any of our other officers (including an investment adviser or an administrator or liquidator) and their personal representatives against:
| a) | all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by the existing or former secretary, director (including alternate director) or officer in or about the conduct of our business or affairs or in the execution or discharge of the existing or former secretary’s, director's (including alternate director's) or officer’s duties, powers, authorities or discretions; and |
| b) | without limitation to paragraph (a) above, all costs, expenses, losses or liabilities incurred by the existing or former secretary, director (including alternate director) or officer in defending (whether successfully or otherwise) any civil, criminal, administrative or investigative proceedings (whether threatened, pending or completed) concerning us or our affairs in any court or tribunal, whether in the Cayman Islands or elsewhere. |
No such existing or former secretary or officer, director (including alternate director) however, shall be indemnified in respect of any matter arising out of his own dishonesty.
To the extent permitted by law, we may make a payment, or agree to make a payment, whether by way of advance, loan or otherwise, for any legal costs incurred by an existing or former secretary, director (including alternate director) or any of our officers in respect of any matter identified in above on condition that the secretary, director (including alternate director) or officer must repay the amount paid by us to the extent that it is ultimately found not liable to indemnify the secretary, director (including alternate director) or that officer for those legal costs.
The Underwriting Agreement, the form of which has been filed as Exhibit 1.1 to this Registration Statement, will also provide for indemnification of us and our officers and directors.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 7. RECENT SALES OF UNREGISTERED SECURITIES.
On February 10, 2022, the Company issued an aggregate of 50,000 ordinary shares with par value of $1.00 per share to Zheng Jiahua, Micava Co., Ltd, and Realwood Co., Ltd.
On March 26, 2022 Zheng Jiahua transferred 2,273 ordinary shares with par value of $1.00 per share to Anyu Tech Co., Ltd, 2,273 ordinary shares with par value of $1.00 per share to Rocaso Co., Ltd and 13,636 ordinary shares with par value of $1.00 per share to Annan Tech Co., Ltd.
Micava Co., Ltd transferred 5,387 ordinary shares with par value of $1.00 per share to Annan Tech Co., Ltd on June 15, 2022 and 925 ordinary shares with par value of $1.00 per share to Zhang Yiqun on August 25, 2022. On June 15, 2022, Realwood Co., Ltd transferred 505 ordinary shares with par value of $1.00 per share to Annan Tech Co., Ltd, Anyu Tech Co., Ltd transferred 421 ordinary shares with par value of $1.00 per share to Annan Tech Co., Ltd and Rocaso Co., Ltd transferred 421 ordinary shares with par value of $1.00 per share to Annan Tech Co., Ltd.
On September 2, 2022 Micava Co., Ltd transferred 2,400 ordinary shares with par value of $1.00 per share to LC Multi Strategy SF6.
On September 16, 2022, the shareholders of the Company passed resolutions approving the subdivision of the authorized share capital of the Company and the repurchase of certain issued and outstanding ordinary shares of the Company. The effect of the repurchase of the shares is that an aggregate of 5,000,000 ordinary shares with par value of $0.0001 per share are held by Micava Co., Ltd., Annan Tech Co., Ltd. LC Multi Strategy SF6, Realwood Co., Ltd., Anyu Tech Co., Ltd., Rocaso Co., Ltd., Zhang Yiqun.
On March 10, 2023, we issued an aggregate of 30,000,000 Ordinary Shares to each of the existing shareholders on a pro-rata basis. The additional issuance increased the number of outstanding shares from 5,000,000 Ordinary Shares to 35,000,000 Ordinary Shares.
On October 31, 2024, we effected the below recapitalization: a reverse share split through the repurchase of 15,000,000 shares at $0.0001 per share from all shareholders ("Reverse Share Split"), that is, approximately 43% of ordinary shares was repurchased from every shareholder (with the fractional shares rounding off to the nearest whole share). The Reverse Share Split had no effect on any shareholders’ proportionate equity interest. The par value remained at $0.0001 per share following the Reverse Share Split, and the number of our issued and outstanding ordinary shares was reduced to 20,000,000 shares. As a result, the aggregate par value of the outstanding ordinary shares reduced, with the aggregate share subscription receivable correspondingly reduced. The Reverse Share Split has no effect on our total shareholders’ equity.
ITEM 8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
| II-1 |
See Exhibit Index beginning on page II-4 of this registration statement.
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the Consolidated Financial Statements or the Notes thereto.
ITEM 9. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Filing Fee Tables” or “Calculation of Registration Fee” table, as applicable, in the effective registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act (15 U.S.C. 77j(a)(3)) need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Item 8.A of Form 20-F if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3.
(5) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
| II-2 |
(6) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
| II-3 |
EXHIBIT INDEX
| ** | Previously filed |
| *** | Filed herewith |
| II-4 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing of the Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hangzhou, People’s Republic of China, December 3, 2024.
| WEBUS INTERNATIONAL LIMITED | ||
| By: | /s/ Zheng Nan | |
| Zheng Nan | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| II-5 |
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and as an attorney-in-fact with full power of substitution for him or her in any and all capacities to do any and all acts and all things and to execute any and all instruments that said attorney and agent may deem necessary or desirable to enable the registrant to comply with the Securities Act of 1933, as amended (the “Securities Act”), and any rules, regulations and requirements of the Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of Ordinary Shares of the registrant (the “Shares”), including, without limitation, the power and authority to sign the name of each of the undersigned in the capacities indicated below to the Registration Statement on Form F-1 (the “Registration Statement”) to be filed with the Securities and Exchange Commission with respect to such Shares, to any and all amendments or supplements to such Registration Statement, whether such amendments or supplements are filed before or after the effective date of such Registration Statement, to any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act, and to any and all instruments or documents filed as part of or in connection with such Registration Statement or any and all amendments thereto, whether such amendments are filed before or after the effective date of such Registration Statement; and each of the undersigned hereby ratifies and confirms all that such attorney and agent will do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Zheng Jiahua | Chairman of the Board of Directors | December 3, 2024 | ||
| Name: Zheng Jiahua | ||||
| /s/ Zheng Nan | Chief Executive Officer | December 3, 2024 | ||
| Name: Zheng Nan | (principal executive officer) | |||
| /s/ Wang Shijie | Chief Financial Officer (principal financial | December 3, 2024 | ||
| Name: Wang Shijie | and accounting officer) | |||
| /s/ Chen Yizhou | Co-Chief Operating Officer and Director | December 3, 2024 | ||
| Name: Chen Yizhou | ||||
| /s/ He Wenxin | Co-Chief Operating Officer and Director | December 3, 2024 | ||
| Name: He Wenxin | ||||
| II-6 |
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act of 1933 as amended, the undersigned, the duly authorized representative in the United States of America, has signed this registration statement thereto in New York on December 3, 2024.
| COGENCY GLOBAL INC. | ||
| Authorized U.S. Representative | ||
| By: | /s/ Colleen A. De Vries | |
| Name: Colleen A. De Vries | ||
| Title: Senior Vice President | ||
| II-7 |
Exhibit 1.1
WEBUS INTERNATIONAL LIMITED
UNDERWRITING AGREEMENT
[●], 202_
Network 1 Financial Securities, Inc.
2 Bridge Avenue, Suite 241
Red Bank, NJ 07701
Ladies and Gentlemen:
The undersigned, Webus International Limited, a Cayman Islands exempted company (the “Company”), hereby confirms its agreement (this “Agreement”) with Network 1 Financial Securities, Inc. (the “Underwriter”) to issue and sell to the Underwriter an aggregate of [●] Ordinary Shares, par value $0.0001, of the Company (“Shares”). The offering and sale of securities contemplated by this Agreement is referred to herein as the “Offering.”
1. Firm Shares; Additional Shares.
(a) Purchase of Firm Shares. On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Underwriter an aggregate of [●] Ordinary Shares (the “Firm Shares”) at a purchase price (net of underwriting discounts) of $[●] per Share. The Underwriter agrees to purchase from the Company the Firm Shares set forth opposite its name on Schedule A attached hereto and made a part hereof.
(b) Delivery of and Payment for Firm Shares. Delivery of and payment for the Firm Shares shall be made at 10:00 A.M., Eastern time, on the second (2nd) Business Day following the effective date of the Registration Statement (“Effective Date”), or at such time as shall be agreed upon by the Underwriter and the Company, at the offices of Loeb & Loeb LLP (the “Underwriter’s Counsel”) or at such other place as shall be agreed upon by the Underwriter and the Company. The hour and date of delivery of and payment for the Firm Shares is called the “Closing Date.” The closing of the payment of the purchase price for, and delivery of the Firm Shares through the facilities of DTC for the account of the Underwriter, is referred to herein as the “Closing.” Payment for the Firm Shares shall be made on the Closing Date by wire transfer in federal (same day) funds upon delivery to the Underwriter of the Firm Shares through the full fast transfer facilities of the Depository Trust Company (the “DTC”) for the account of the Underwriter. The Firm Shares shall be registered in such names and in such denominations as the Underwriter may request in writing at least two (2) Business Days prior to the Closing Date. The Company shall not be obligated to sell or deliver the Firm Shares except upon tender of payment by the Underwriter for all the Firm Shares.
(c) Additional Shares. The Company hereby grants to the Underwriter an option (the “Over-allotment Option”) to purchase up to an additional [●] Shares (the “Additional Shares”), representing fifteen percent (15%) of the Firm Shares sold in the Offering, in each case only for the purpose of covering over-allotments of such securities, if any.
(d) Exercise of Over-allotment Option. The Over-allotment Option granted pursuant to Section 1(c) hereof may be exercised in whole or in part at any time within 45 days after the Effective Date. The purchase price to be paid per Additional Share shall be equal to the price per Firm Share in Section 1(a). The Underwriter shall not be under any obligation to purchase any Additional Shares prior to the exercise of the Over-allotment Option. The Over-allotment Option granted hereby may be exercised upon written notice given at least two full business days prior to the exercise to the Company from the Underwriter setting forth the aggregate number of Additional Shares to be purchased by the Underwriter and the date and time for delivery of and payment for the Additional Shares (the “Option Closing Date”), which Closing Date shall not be later than five (5) full Business Days after the date of such written notice to purchase Additional Shares is given or such other time as shall be agreed upon by the Company and the Underwriter, at the offices of Underwriter’s Counsel or at such other place (including remotely by facsimile or other electronic transmission) as shall be agreed upon by the Company and the Underwriter. If such delivery and payment for the Additional Shares does not occur on the Closing Date, the Option Closing Date will be as set forth in the written notice. Upon exercise of the Over-allotment Option with respect to all or any portion of the Additional Shares, subject to the terms and conditions set forth herein, (i) the Company shall become obligated to sell to the Underwriter the number of Additional Shares specified in such notice and (ii) the Underwriter shall purchase from the Company that portion of the total number of Additional Shares then being purchased with the number of Firm Shares set forth in Schedule A opposite the name of such Underwriter bears to the total number of Firm Shares, subject, in each case, to such adjustment as the Underwriter, in its sole discretion, shall determine.
(e) Delivery of and Payment for Additional Shares. Payment for the Additional Shares shall be made on the Option Closing Date by wire transfer in federal (same day) funds, upon delivery to the Underwriter of the Additional Shares through the facilities of DTC for the account of the Underwriter. The Additional Shares shall be registered in such name or names and in such authorized denominations as the Underwriter may request in writing at least two (2) full Business Days prior to the Option Closing Date. The Company shall not be obligated to sell or deliver the Additional Shares except upon tender of payment by the Underwriter for the applicable Additional Shares. The Option Closing Date may be simultaneous with, but not earlier than, the Closing Date; and in the event that such time and date are simultaneous with the Closing Date, the term “Closing Date” shall refer to the time and date of delivery of the Firm Shares and Additional Shares.
The Firm Shares and the Additional Shares are hereinafter referred to collectively as the “Securities.”
2. Representations and Warranties of the Company. The Company represents and warrants to the Underwriter as of the Applicable Time (as defined below) and as of the Closing Date, as follows:
(a) Filing of Registration Statement.
(i) Pursuant to the Act.
(1) The Company has filed with the U.S. Securities and Exchange Commission (the “Commission”) a registration statement and an amendment or amendments thereto, on Form F-1 (File No. 333-[●]), including any related prospectus or prospectuses, for the registration of the Securities under the Securities Act of 1933, as amended (the “Act”), which registration statement and amendment or amendments have been prepared by the Company and conform, in all material respects, with the requirements of the Act and the rules and regulations of the Commission under the Act (the “Regulations”). Except as the context may otherwise require, such registration statement on file with the Commission at the time the registration statement becomes effective (including the prospectus, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A of the Regulations), is referred to herein as the “Registration Statement.
(2) The final prospectus in the form first furnished to the Underwriter for use in the Offering, is hereinafter called the “Prospectus.”
(3) The Registration Statement has been declared effective by the Commission on or prior to the date hereof. “Applicable Time” means 4:00 p.m. EDT, on [●] or such other time as agreed to by the Company and the Underwriter.
(ii) Registration under the Exchange Act. The Securities are registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Securities under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration except as described in the Registration Statement and Prospectus.
(iii) Listing on Nasdaq. The Shares will be approved for listing on the Nasdaq Capital Market (“Nasdaq”) by the Closing Date, subject to official notice of issuance, and the Company has taken no action designed to, or likely to have the effect of, terminating the listing of the Securities on Nasdaq nor has the Company received any notification that Nasdaq is contemplating revoking or withdrawing approval for listing of the Securities.
(b) No Stop Orders, etc. Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any order preventing or suspending the use of any preliminary prospectus (“Preliminary Prospectus”), the Prospectus or the Registration Statement or has instituted or, to the Company’s knowledge, threatened to institute any proceedings with respect to such an order.
(c) Disclosures in Registration Statement.
(i) 10b-5 Representation.
(1) The Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the Act and the Regulations.
(2) The Registration Statement, when it became effective, and any amendment or supplement thereto, did not contain and, at the Closing Date, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Prospectus when filed with the Commission does not contain and, at the Closing Date, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The representation and warranty made in this Section 2(c)(i)(2) does not apply to statements made or statements omitted in reliance upon and in conformity with written information with respect to the Underwriter furnished to the Company by the Underwriter expressly for use in the Registration Statement or Prospectus or any amendment thereof or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of the Underwriter consists solely of the disclosure contained in the “Underwriting” section of the Prospectus (collectively, the “Underwriter’s Information”).
(3) The General Disclosure Package (as defined below), when taken together as a whole with the Prospectus (collectively, the “Disclosure Materials”), does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Disclosure Materials based upon and in conformity with the Underwriter’s Information.
(ii) Prior Securities Transactions. No securities of the Company have been sold by the Company or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by, or under common control with the Company, except as disclosed in the Registration Statement and the Prospectus.
(d) Changes After Dates in Registration Statement.
(i) No Material Adverse Change. Since the end of the period covered by the latest audited financial statements included in the Registration Statement and the Prospectus, and except as otherwise specifically stated therein: (i) to the knowledge of the Company, there have been no events that have occurred that would have a Material Adverse Effect (as defined below); and (ii) there have been no material transactions entered into by the Company not in the ordinary course of business, other than as contemplated pursuant to this Agreement.
(ii) Recent Securities Transactions, etc. Since the end of the period covered by the latest audited financial statements included in the Registration Statement and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed in the Registration Statement and the Prospectus, the Company has not, other than with respect to options to purchase Ordinary Shares at an exercise price equal to the then fair market price of the Ordinary Shares, as determined by the Company’s board of directors, granted to employees, consultants or service providers: (i) issued any securities or incurred any material liability or obligation, direct or contingent, for borrowed money other than in the ordinary course of business; or (ii) declared or paid any dividend or made any other distribution on or in respect to its share capital.
(e) Independent Accountants. To the best of the Company’s knowledge, Marcum Asia CPAs LLP (“Marcum”), whose report is filed with the Commission as part of the Registration Statement, are independent registered public accountants as required by the Act and the Regulations.
(f) Financial Statements, etc. The financial statements, including the notes thereto and supporting schedules included in the Registration Statement and Prospectus, fairly present the financial position and the results of operations of the Company at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with United States generally accepted accounting principles (“GAAP”), consistently applied throughout the periods involved except as disclosed therein; and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. The Registration Statement discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration Statement and the Prospectus, (a) neither the Company nor any of its operating subsidiaries including subsidiaries indirectly or directly controlled through VIE Agreements (each, a “Subsidiary,” and together, the “Subsidiaries”), has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its share capital; (c) there has not been any change in the share capital of the Company or any of its Subsidiaries or any grants under any stock compensation plan and, (d) there has not been any material adverse change in the Company’s long-term or short-term debt.
(g) Authorized Capital; Options, etc. The Company has the duly authorized, issued and outstanding capitalization as set forth in the Registration Statement and the Prospectus. Based on the assumptions stated in the Registration Statement and the Prospectus, the Company will have on the Closing Date the adjusted capitalization set forth therein. Except as set forth in, or contemplated by, this Agreement, the Registration Statement and the Prospectus, on the Effective Date and on the Closing Date, there will be no options, warrants, or other rights to purchase or otherwise acquire any authorized, but unissued share capital of the Company or any security convertible into share capital of the Company, or any contracts or commitments to issue or sell share capital or any such options, warrants, rights or convertible securities.
(h) Valid Issuance of Securities, etc.
(i) Outstanding Securities. All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company.
(ii) Securities Sold Pursuant to this Agreement. The Securities have been duly authorized for issuance and sale and, when issued and paid for, will be validly issued, fully paid and non-assessable; the Securities are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; and all corporate action required to be taken for the authorization, issuance and sale of the foregoing Securities has been duly and validly taken. The Securities conform in all material respects to all statements with respect thereto contained in the Registration Statement.
(iii) Issuance of Securities. Upon issuance of Securities, and subject to full payment thereof by the Underwriter in accordance with the terms hereof, such Securities will be duly and validly issued, and the persons in whose names the Securities are registered will be entitled to the rights specified in the Securities, and upon the sale and delivery of these Securities, and payment therefor, pursuant to this Agreement, the persons in whose names the Securities are registered will acquire good, marketable and valid title to such Securities, free and clear of all pledges, liens, security interests, charges, claims or encumbrances of any kind.
(i) Registration Rights of Third Parties. Except as set forth in the Registration Statement and the Prospectus, no holders of any securities of the Company or any rights exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Act or to include any such securities in a registration statement to be filed by the Company.
(j) Validity and Binding Effect of This Agreement. This Agreement has been duly and validly authorized by the Company, and, when executed and delivered by or on behalf of the Company, will constitute, the valid and binding obligations of the Company, enforceable against the Company in accordance with its terms, except: (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; (ii) as enforceability of any indemnification or contribution provision may be limited under federal and state securities laws; and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought.
(k) No Conflicts. The execution, delivery, and performance by the Company of this Agreement, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms hereof do not and will not, with or without the giving of notice or the lapse of time or both: (i) result in a material breach of, or conflict with any of the terms and provisions of, or constitute a material default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any agreement or instrument to which the Company is a party; (ii) result in any violation of the provisions of the Company’s amended and restated memorandum and articles of association (as the same may be amended from time to time, the “Charter”); or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its properties or business as constituted as of the date hereof, except such violation or breach that would not reasonably be expected to have a material adverse effect on the assets, business, conditions, financial position or results of operations of the Company (a “Material Adverse Effect”).
(l) No Defaults; Violations. No default exists in the due performance and observance of any term, covenant or condition of any material license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other material agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the properties or assets of the Company is subject, except for such defaults that would not, singly or in the aggregate, result in a Material Adverse Effect to the Company and its Subsidiaries, taken as a whole, and that are not otherwise disclosed in the Registration Statement, the Prospectus or the Disclosure Materials. The Company is not in violation of any term or provision of its Charter, or in violation in any respect of any franchise, license, permit, applicable law, rule, regulation, judgment or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its properties or businesses, except for such defaults that would not, singly or in the aggregate, result in a Material Adverse Effect to the Company and its Subsidiaries, taken as a whole, and that are not otherwise disclosed in the Registration Statement, the Prospectus or the Disclosure Materials.
(m) Corporate Power; Licenses; Consents.
(i) Conduct of Business. Except as described in the Registration Statement and the Prospectus, the Company has all requisite corporate power and authority, and has all necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies that it needs as of the date hereof to conduct its business purpose as described in the Prospectus, except, in each case, as would not reasonably be expected to have a Material Adverse Effect.
(ii) Transactions Contemplated Herein. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof and thereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained. No consent, authorization or order of, and no filing with, any court, government agency or other body is required for the valid issuance, sale and delivery of the Securities and the consummation by the Company of the transactions and agreements contemplated by this Agreement and as contemplated by the Prospectus, except with respect to applicable federal and state securities laws and the rules and regulations of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the Nasdaq.
(n) D&O Questionnaires. To the Company’s knowledge, all information contained in the questionnaires (the “Questionnaires”) completed by each of the Company’s directors and officers named in the section “Management” in the Prospectus immediately prior to the Offering (the “Insiders”) and provided to the Underwriter is true and correct in all respects and the Company has not become aware of any information which would cause the information disclosed in the questionnaires completed by each Insider to become inaccurate and incorrect.
(o) Litigation; Governmental Proceedings. Except as disclosed in the Registration Statement and the Prospectus, there is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding pending or, to the Company’s knowledge, threatened against, or involving the Company or, to the Company’s knowledge, any executive officer or director that has not been disclosed in the Registration Statement and the Prospectus or in connection with the Company’s listing application for the listing of the Securities on Nasdaq.
(p) Good Standing. The Company has been duly incorporated, is validly existing and is in good standing under the laws of the Cayman Islands as of the date hereof, and is duly qualified to do business and is in good standing in each jurisdiction in which the conduct of the Company’s business requires such qualification, except where the failure to qualify would not reasonably be expected to have a Material Adverse Effect.
(q) Transactions Affecting Disclosure to FINRA.
(i) Finder’s Fees. Except as described in the Registration Statement and the Prospectus, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder’s, consulting or origination fee by the Company or any Insider with respect to the sale of the Securities hereunder or any other arrangements, agreements or understandings of the Company or, to the best of the Company’s knowledge, any of its shareholders that may affect the Underwriter’s compensation, as determined by FINRA.
(ii) Payments Within Twelve (12) Months. Except as described in the Registration Statement and the Prospectus, the Company has not made any direct or indirect payments (in cash, securities or otherwise) to: (i) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (ii) to any FINRA member; or (iii) to any person or entity that has any direct or indirect affiliation or association with any FINRA member, within the twelve months prior to the Effective Date, other than the prior payment of US$225,000 to the Underwriter, as provided hereunder in connection with the Offering.
(iii) FINRA Affiliation. To the Company’s knowledge, and except as may have been previously disclosed in writing to the Underwriter, no Insider or any beneficial owner of 10% or more of the Company’s outstanding Ordinary Shares has any direct or indirect affiliation or association with any FINRA member (as determined in accordance with the rules and regulations of FINRA).
(iv) Use of Proceeds. None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates inclusive of any FINRA member or its affiliates in any country or jurisdiction outside of the United States, except as specifically authorized herein.
(v) Information. All information provided by the Company in its FINRA Questionnaire to Underwriter Counsel specifically for use by Underwriter Counsel in connection with its Public Offering System filings (and related disclosure) with FINRA is true, correct and complete in all material respects.
(r) Foreign Corrupt Practices Act. Neither the Company nor, to the Company’s knowledge, any of the Insiders or employees of the Company or any other person authorized to act on behalf of the Company has, directly or indirectly, knowingly given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding.
(s) Officers’ Certificate. Any certificate signed by any duly authorized officer of the Company and delivered to you or to the Underwriter’s Counsel shall be deemed a representation and warranty by the Company to the Underwriter as to the matters covered thereby.
(t) Lock-Up Period.
(i) Each Insider (the “Lock-Up Parties”) has agreed, pursuant to an executed Lock-Up Agreement in the form attached hereto as Annex II, that for a period ending 180 days after the Effective Date (the “Lock-Up Period”), each such person and their respective affiliated parties shall not offer, pledge, sell, contract to sell, grant, lend or otherwise transfer or dispose of, directly or indirectly, any Securities or share capital of the Company, including Ordinary Shares, or any securities convertible into or exercisable or exchangeable for such Securities or share capital, without the consent of the Underwriter, with certain exceptions. The Underwriter may consent to an early release from the applicable Lock-Up period if, in its opinion, the market for the Securities would not be adversely impacted by sales and in cases of financial emergency of a Lock-up Party.
(ii) The Company, on behalf of itself and any successor entity, has agreed that, without the prior written consent of the Underwriter, it will not, for a period ending 180 days after the Effective Date, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of share capital of the Company or any securities convertible into or exercisable or exchangeable for shares of the Company; (ii) file or cause to be filed any registration statement with the Commission relating to the offering of any shares of the Company or any securities convertible into or exercisable or exchangeable for shares of the Company or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of share capital of the Company, whether any such transaction described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of the Company or such other securities, in cash or otherwise. The restrictions contained in this Section 2(t)(ii) shall not apply to (i) the Securities to be sold hereunder, (ii) the issuance by the Company of Securities upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof of, provided that the Underwriter has been advised in writing of such issuance prior to the date hereof, (iii) the issuance by the Company of option to purchase or shares of Securities, share capital or restricted share of the Company under any stock compensation plan of the Company outstanding on the date hereof, (iv) any registration statement on Form S-8, or (v) the issuance of securities in connection with mergers, acquisitions, joint ventures, licensing arrangements or any other similar non-capital raising transactions provided such shares are not registered pursuant to a registrations statement. For purposes of subclause (ii) in this paragraph, the Underwriter acknowledges that disclosure in the Registration Statement filed prior to the date hereof of any outstanding option or warrant shall be deemed to constitute prior written notice to the Underwriter.
(u) Subsidiaries. Exhibit 21.1 of the Registration Statement lists each Subsidiary and consolidated entity of the Company and sets forth the ownership of all of the Subsidiaries. The Subsidiaries are duly organized and in good standing under the laws of the place of organization or incorporation, and each such Subsidiary is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify would not reasonably be expected to have a Material Adverse Effect. The Company’s ownership and control of each Subsidiary and each Subsidiary’s ownership and control of other Subsidiaries, is as described in the Registration Statement, the Disclosure Materials and the Prospectus. The Company does not own or control, directly or indirectly, any corporation, association or entity, except as disclosed in the Registration Statement and the Prospectus. Each of the Company and its Subsidiaries has full corporate power and authority to own or lease, as the case may be, and to operate its properties and conduct its business as described in the Disclosure Materials and the Prospectus, and is duly qualified to do business under the laws of each jurisdiction which requires such qualification.
(v) Related Party Transactions. Except as disclosed in the Registration Statement and the Prospectus, there are no business relationships or related party transactions involving the Company or any other person required to be described in the Prospectus that have not been described as required.
(w) Board of Directors. The board of directors of the Company is comprised of the persons set forth under the section of the Prospectus captioned “Management.” The qualifications of the persons serving as board members and the overall composition of the board comply with the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder applicable to the Company and the rules of Nasdaq. At least one member of the board of directors of the Company qualifies as an “audit committee financial expert,” as such term is defined under the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder and the rules of Nasdaq. In addition, at least a majority of the persons serving on the board of directors of the Company qualify as “independent,” as such term is defined under the rules of Nasdaq.
(x) Sarbanes-Oxley Compliance. Except as described in the Registration Statement, the Disclosure Materials, and the Prospectus, the Company will be, on the Effective Date, in material compliance with the provisions of the Sarbanes-Oxley Act of 2002 applicable to it and has implemented or will implement such programs and taken reasonable steps to ensure the Company’s future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all the material provisions of the Sarbanes-Oxley Act of 2002.
(y) No Investment Company Status. The Company is not and, after giving effect to the Offering and sale of the Securities and the application of the net proceeds thereof as described in the Registration Statement and the Prospectus, will not be, an “investment company” as defined in the Investment Company Act of 1940, as amended.
(z) No Material Labor Disputes. No labor dispute with the employees of the Company or any of its Subsidiaries exists or, to the best of the Company’s knowledge, is imminent, which would result in a Material Adverse Effect.
(aa) Intellectual Property. Except as described in the Registration Statement and the Prospectus, the Company and each of its Subsidiaries owns or possesses or has valid rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and similar rights (“Intellectual Property”) necessary for the conduct of the business of the Company and its Subsidiaries as currently carried on and as described in the Registration Statement and the Prospectus, except for such Intellectual Property, the failure of which to own or possess, as the case may be, would not reasonably be expected to result in a Material Adverse Effect. To the Company’s knowledge, no action or use by the Company or any of its Subsidiaries will involve or give rise to any infringement of, or material license or similar fees for, any Intellectual Property of others, that would reasonably be expected to have a Material Adverse Effect on the Company and the Subsidiaries, taken as a whole, except as disclosed in the Registration Statement or the Prospectus. Neither the Company nor any of its Subsidiaries has received any notice alleging any such infringement or fee, except such infringement or fee that would not reasonably be expected to have a Material Adverse Effect on the Company or the Subsidiaries, taken as a whole.
(bb) Taxes. Each of the Company and its Subsidiaries has filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof. Each of the Company and its Subsidiaries has paid all taxes (as hereinafter defined) shown as due on such returns that were filed and has paid all material taxes imposed on or assessed against the Company or such subsidiary. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriter and to the knowledge of the Company, (i) no material issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company or its Subsidiaries, and (ii) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company or its Subsidiaries. The term “taxes” mean all federal, state, local, foreign, and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments, or charges of any kind whatever, together with any interest and any penalties, additions to tax, or additional amounts with respect thereto. The term “returns” means all returns, declarations, reports, statements, and other documents required to be filed with relevant taxing authorities in respect to taxes.
(cc) Data. The statistical, industry-related and market-related data included in the Registration Statement and the Prospectus are based on or derived from sources which the Company reasonably and in good faith believes are reliable and accurate, and such data agree with the sources from which they are derived. The Company has obtained the written consent to the use of such data from such sources to the extent necessary.
(dd) Board of Directors. The Company’s board of directors has validly appointed an audit committee whose composition satisfies the requirements of the rules and regulations of Nasdaq and the board of directors of the Company and/or audit committee has adopted a charter that satisfies the requirements of the rules and regulations of Nasdaq. Except as disclosed in the Registration Statement and the Prospectus, neither the board of directors of the Company nor the audit committee has been informed, nor is any director of the Company aware, of any 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.
(ee) No Integration. Neither the Company nor any of the Subsidiaries has, prior to the date hereof, made any offer or sale of any securities which are required to be “integrated” pursuant to the Act or the Regulations with the offer and sale of the Underwriter pursuant to the Registration Statement. Except as disclosed in the Registration Statement, neither the Company nor any of the Subsidiaries has sold or issued any Ordinary Shares or any securities convertible into, exercisable or exchangeable for Ordinary Shares, or other equity securities, or any rights to acquire any Ordinary Shares or other equity securities of the Company, during the six-month period preceding the date of the Prospectus, including but not limited to any sales pursuant to Rule 144A or Regulation D or S under the Act, other than Ordinary Shares issued pursuant to employee benefit plans, qualified stock option plans or the employee compensation plans or pursuant to outstanding options, rights or warrants as described in the Registration Statement.
(ff) Representation and Warranties.
(i) Organization. Each of its People’s Republic of China (“PRC”) subsidiaries have been duly organized and is validly existing as a company under the laws of the PRC, and their business license are in full force and effect; the Company has been duly qualified as a foreign invested enterprise with the following approvals and certificates: (A) Certificate of Filing and (B) Business License. Further, each of the Company, non-PRC subsidiaries have been duly organized and are validly existing as companies under the applicable laws of Hong Kong, the Cayman Islands, the British Virgin Islands (“BVI”) and the United States, and its business license are in full force and effect. 100% of the equity interests of the Subsidiaries are owned, directly or indirectly, by the Company as described in the Prospectus, and such equity interests are free and clear of all liens, encumbrances, equities or claims; the bylaws, the business license and other constituent documents of the Company and each Subsidiary comply in all material respects with the requirements of applicable laws of their applicable jurisdiction of incorporation and are in full force and effect; and the Company and Subsidiaries have full power and authority (corporate and other) and all consents, approvals, authorizations, permits, licenses, orders, registrations, clearances and qualifications of or with any governmental agency having jurisdiction over the Company and the Subsidiaries or any of their properties required for the ownership or lease of property by them and the conduct of their business in accordance with their registered business scope except for such that would not reasonably be expected to have a Material Adverse Effect and have the legal right and authority to own, use, lease and operate their assets and to conduct their business in the manner presently conducted and as described in the Prospectus.
Zhejiang Youba Technology Co., Ltd (“Youba Tech”), an enterprise established under the laws of the PRC controlled by Zhejiang Xinjieni Technology Co., Ltd., Mr. Zheng Jiahua, and Mr. Wu Chunyun (“Individual Registered Shareholders”) through the VIE Agreements (as defined below), and its direct subsidiaries has been duly organized and is validly existing as a limited liability company under the laws of the PRC, have the corporate power and authority to own their property and to conduct their business as described in the Pricing Disclosure Package and the Prospectus; 50% of the equity interests of Youba Tech is indirectly controlled by the Company; through the VIE Agreements, the Company exerts control over, and is deemed as the primary beneficiary of the remaining 50% interest of Youba Tech for accounting purpose as described in the Pricing Disclosure Package and the Prospectus (the “VIE Agreements”), and such equity interests are free and clear of all liens, encumbrances, equities or claims except for the pledge of the equity interests under the VIE Agreements and as described in the Pricing Disclosure Package and the Prospectus; and the articles of association, the business licenses and other constituent documents of Youba Tech comply in all material respects with the requirements of applicable laws of the PRC and are in full force and effect.
The Company and each of its Subsidiary have legal and valid title to all of its properties and assets, free and clear of all liens, charges, encumbrances, equities, claims, options and restrictions; each lease agreement to which it is a party is duly executed and legally binding; its leasehold interests are set forth in and governed by the terms of any lease agreements, and, to the best of the Company’s knowledge, such agreements are valid, binding and enforceable in accordance with their respective terms under application jurisdiction laws, except where the invalidity of such lease agreements would not reasonably be expected to have a Material Adverse Effect on the Company or the Subsidiaries, taken as a whole; and, neither of the Company or the Subsidiaries owns, operates, manages or has any other right or interest in any other material real property of any kind, which would reasonably result in a Material Adverse Effect to the Company and the Subsidiaries, taken as a whole, except as described in the Prospectus.
(ii) PRC Taxes. Except as disclosed in the Registration Statement, the Disclosure Materials and Prospectus, including the risk factor set forth in “Risk Factors— If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders,” no transaction, stamp, capital or other issuance, registration, transaction, transfer or withholding taxes or duties are payable in the PRC, Hong Kong, the British Virgin Islands (“BVI”) or the Cayman Islands to any Chinese, Hong Kong, BVI or Cayman Islands taxing authority in connection with (A) the issuance, sale and delivery of the Securities to or for the account of the purchasers, and (B) the purchase from the Company and the sale and delivery of the Securities to purchasers thereof.
(iii) Dividends and Distributions. Except as disclosed in the Disclosure Materials, Registration Statement and the Prospectus, no Subsidiary of the Company is currently prohibited or restricted, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiary’s capital stock, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary’s property or assets to the Company or any other Subsidiary of the Company.
(iv) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in all material respects in compliance with applicable financial recordkeeping and reporting requirements of money laundering statutes and the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company, any of its Subsidiaries.
(v) Office of Foreign Assets Control. To the Company’s and its Subsidiaries’, knowledge, none of any director, officer, or employee of the Company or any of its Subsidiaries, has conducted or entered into a contract to conduct any transaction with the governments or any of subdivision thereof, residents of, or any entity based or resident in the countries that are currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); none of the Company or any of its Subsidiaries is currently subject to any U.S. sanctions administered by OFAC (including but not limited to the designation as a “specially designated national or blocked person” thereunder), the United Nations Security Council, or the European Union or is located, organized or resident in a country or territory that is the subject of OFAC-administered sanctions, including, without limitation, Burma/Myanmar, Cuba, Iran, North Korea, Sudan and Syria; and the Company will not knowingly directly or indirectly use the proceeds of the Offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
(vi) No Immunity. None of the Company, its Subsidiaries or any of its or their properties or assets has any immunity from the jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise) under the laws of the Cayman Islands, BVI, Hong Kong, the PRC, New York or United States federal law; and, to the extent that the Company, its Subsidiaries or any of their respective properties, assets or revenues may have or may hereafter become entitled to any such right of immunity in any such court in which proceedings may at any time be commenced, each of the Company and its Subsidiaries waives or will waive such right to the extent permitted by law and has consented to such relief and enforcement under New York law as provided under this Agreement.
(vii) Free Transferability of Dividends or Distributions. Except as disclosed in the Disclosure Materials, Registration Statement and Prospectus all dividends and other distributions declared and payable on the Ordinary Shares may under current Cayman Islands, BVI, Hong Kong, United States, and PRC law and regulations be paid to the holders of Securities in United States dollars and may be converted into foreign currency that may be transferred out of the Cayman Islands, BVI, Hong Kong, United States, and the PRC in accordance with, and all such payments made to holders thereof or therein who are non-residents of the Cayman Islands, BVI, Hong Kong, United States or the PRC, will not be subject to income, withholding or other taxes under, the laws and regulations of the Cayman Islands, BVI, Hong Kong, United States, and the PRC, or any political subdivision or taxing authority thereof or therein and will otherwise be free and clear of any other tax, duty, withholding or deduction in the Cayman Islands, Hong Kong and the PRC or any political subdivision or taxing authority thereof or therein and without the necessity of obtaining any governmental authorization in the Cayman Islands, BVI, Hong Kong, United States, and the PRC or any political subdivision or taxing authority thereof or therein.
(vi) Not a PFIC. Except as disclosed in the Disclosure Materials, Registration Statement and Prospectus, the Company does not expect that it will be treated as a Passive Foreign Investment Company (“PFIC”) within the meaning of Section 1297 of the United States Internal Revenue Code of 1986, as amended, for its current taxable year. The Company has no plan or intention to operate in such a manner that would reasonably be expected to result in the Company becoming a PFIC in future taxable years.
(vii) Compliance with SAFE Regulations. The Company has taken all reasonable steps to cause all of the Company’s shareholders and option holders who are residents or citizens of the PRC, to comply with any applicable rules and regulations of the State Administration of Foreign Exchange (“SAFE”) relating to such shareholders’ and option holders’ shareholding with the Company (the “SAFE Rules and Regulations”), including, without limitation, taking reasonable steps to require each shareholder or option holder that is, or is directly or indirectly owned or controlled by, a resident or citizen of the PRC to complete any registration and other procedures required under applicable SAFE Rules and Regulations .
(viii) M&A and CSRC Rules. The Company is aware of and has been advised as to the content of the Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors jointly promulgated by the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Tax Administration, the State Administration of Industry and Commerce, the China Securities Regulatory Commission (“CSRC”) and SAFE on August 8, 2006 and amended on June 22, 2009 (the “M&A Rules”), in particular the relevant provisions thereof that purport to require offshore special purpose vehicles formed for the purpose of obtaining a stock exchange listing outside of the PRC and controlled directly or indirectly by companies or natural persons of the PRC, to obtain the approval of the CSRC prior to the listing and trading of their securities on a stock exchange located outside of the PRC; the Company has received legal advice specifically with respect to the M&A Rules from its PRC counsel and based on such legal advice, the Company confirms with the Underwriter:
(1) Except as disclosed in the Disclosure Materials, Registration Statement and the Prospectus, the issuance and sale of the Securities, the listing and trading of the Securities on Nasdaq and the consummation of the transactions contemplated by this Agreement are not and will not be, as of the date hereof or on the Closing Date, affected by the M&A Rules or any official clarifications, guidance, interpretations or implementation rules in connection with or related to the M&A Rules, including the guidance and notices issued by the CSRC on September 8 and September 21, 2006, as amended (collectively, the “M&A Rules and Related Clarifications”).
(2) Except as disclosed in the Disclosure Materials, Registration Statement and the Prospectus, as of the date hereof, the M&A Rules and Related Classifications did not and do not require the Company to obtain the approval of the CSRC prior to the issuance and sale of the Securities, the listing and trading of the Securities on Nasdaq, or the consummation of the transactions contemplated by this Agreement.
(ix) Foreign Private Issuer Status. The Company is a “foreign private issuer” within the meaning of Rule 405 under the Act.
(xii) Choice of Law. Except as disclosed in the Disclosure Materials, Registration Statement and the Prospectus, the choice of law provision set forth in this Agreement constitutes a legal and valid choice of law under the laws of the Cayman Islands, BVI, Hong Kong, United States, and the PRC and will be recognized and given effect to in any action brought before a court of competent jurisdiction in the Cayman Islands, BVI, Hong Kong, United States, and the PRC, except in respect of the Cayman Islands and the BVI, for those laws (a) which such court considers to be procedural in nature, (b) which are revenue or penal laws or (c) the application of which would be inconsistent with public policy, as such term is interpreted under the laws of the Cayman Islands and the BVI, and subject to compliance with relevant civil procedural requirements (that do not involve a re-examination of the merits of the claim) in the Cayman Islands, BVI, Hong Kong, United States (if applicable) and the PRC. The Company has the power to submit, and pursuant to Section 16 of this Agreement, has legally, validly, effectively and submitted, to the personal jurisdiction of each of the New York Courts, and the Company has the power to designate, appoint and authorize, and pursuant to Section 16 of this Agreement, has legally, validly, effectively and irrevocably designated, appointed an authorized agent for service of process in any action arising out of or relating to this Agreement or the Securities in any New York Court, and service of process effected on such authorized agent will be effective to confer valid personal jurisdiction over the Company as provided in Section 16 of this Agreement.
(xiii) Recognition of Judgments. Any final judgment for a fixed sum of money rendered by a New York Court having jurisdiction under New York law in respect of any suit, action or proceeding against the Company based upon this Agreement would be recognized and enforced against the Company by Cayman Islands courts without re-examining the merits of the case under the common law doctrine of obligation; provided that such judgment is (A) given by a foreign court of competent jurisdiction; (B) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given; (C) is final; (D) is not in respect of taxes, a fine or a penalty; and (E) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands.
(gg) MD&A. The section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Preliminary Prospectus included in the Disclosure Materials and the Prospectus accurately and fully describes in all material respects (A) accounting policies that the Company believes are the most important in the portrayal of the Company’s financial condition and results of operations and that require management’s most difficult, subjective or complex judgments (“Critical Accounting Policies”); (B) judgments and uncertainties affecting the application of the Critical Accounting Policies; and (C) the likelihood that materially different amounts would be reported under different conditions or using different assumptions and an explanation thereof; and the Company’s management have reviewed and agreed with the selection, application and disclosure of the Critical Accounting Policies as described in the Disclosure Materials and the Prospectus and have consulted with its independent accountants with regard to such disclosure.
3. Offering. Upon authorization of the release of the Securities by the Underwriter, the Underwriter intends to offer the Securities for sale to the public upon the terms and conditions set forth in the Prospectus.
4. Covenants of the Company. The Company acknowledges, covenants and agrees with the Underwriter that:
(a) The Registration Statement and any amendments thereto have been declared effective, and if Rule 430A is used or the filing of the Prospectus is otherwise required under Rule 424(b), the Company will file the Prospectus (properly completed if Rule 430A has been used) pursuant to Rule 424(b) within the prescribed time period and will provide evidence satisfactory to the Underwriter of such timely filing.
(b) During the period beginning on the date hereof and ending on the later of the Closing Date or such date as, in the reasonable opinion of Underwriter’s Counsel, the Prospectus is no longer required by law to be delivered (or in lieu thereof the notice referred to in Rule 173(a) under the Act is no longer required to be provided) in connection with sales by an underwriter or dealer (the “Prospectus Delivery Period”), prior to amending or supplementing the Registration Statement, the General Disclosure Package or the Prospectus, the Company shall furnish to the Underwriter and Underwriter’s Counsel for review a copy of each such proposed amendment or supplement, and the Company shall not file any such proposed amendment or supplement to which the Underwriter reasonably objects within 36 hours of delivery thereof to Underwriter’s Counsel. The term “General Disclosure Package” means, collectively, the Issuer Free Writing Prospectus (es) (as defined below) issued at or prior to the date hereof, the most recent preliminary prospectus related to this Offering, and the information included on Schedule A hereto.
(c) After the date of this Agreement, the Company shall promptly advise the Underwriter in writing of: (i) the receipt of any comments of, or requests for additional or supplemental information from, the Commission; (ii) the time and date of any filing of any post-effective amendment to the Registration Statement or any amendment or supplement to any prospectus, the General Disclosure Package or the Prospectus; (iii) the time and date that any post-effective amendment to the Registration Statement becomes effective; and (iv) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or of any order preventing or suspending its use or the use of any prospectus, the General Disclosure Package, the Prospectus or any issuer free writing prospectus as defined in Rule 433 of the Regulations (the “Issuer Free Writing Prospectus”), or the initiation of any proceedings to remove, suspend or terminate from listing the Shares from any securities exchange upon which the Shares are listed for trading, or of the threatening of initiation of any proceedings for any of such purposes. If the Commission shall enter any such stop order at any time, the Company will use its reasonable efforts to obtain the lifting of such order at the earliest possible moment. Additionally, the Company agrees that it shall comply with the provisions of Rules 424(b), 430A and 430B, as applicable, under the Act and will use its reasonable efforts to confirm that any filings made by the Company under Rule 424(b) or Rule 433 were received in a timely manner by the Commission (without reliance on Rule 424(b)(8) or Rule 164(b)).
(d) (i) During the Prospectus Delivery Period, the Company will comply in all material respects with all requirements imposed upon it by the Act as now in effect and as may be hereafter amended, and by the Regulations, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Securities as contemplated by the provisions hereof, the General Disclosure Package, the Registration Statement and the Prospectus. If during such period any event or development occurs as a result of which the Prospectus (or if the Prospectus is not yet available to prospective purchasers, the General Disclosure Package) would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances then existing, not misleading, or if during such period it is necessary or appropriate in the opinion of the Company or its counsel or the Underwriter or Underwriter’s Counsel to amend the Registration Statement or supplement the Prospectus (or if the Prospectus is not yet available to prospective purchasers, the General Disclosure Package) to comply with the Act, the Company will promptly notify the Underwriter and will promptly amend the Registration Statement or supplement the Prospectus (or if the Prospectus is not yet available to prospective purchasers, the General Disclosure Package) or file such document (at the expense of the Company) so as to correct such statement or omission or effect such compliance.
(ii) If at any time following the issuance of an Issuer Free Writing Prospectus there occurs an event or development as a result of which such Issuer Free Writing Prospectus would conflict with the information contained in the Registration Statement or the Prospectus or would include an untrue statement of a material fact or would omit to state a material fact necessary in order to make the statements therein, in light of the circumstances there existing, not misleading, the Company will promptly notify the Underwriter and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
(e) The Company will deliver to the Underwriter and Underwriter’s Counsel a copy of the Registration Statement, as initially filed, and all amendments thereto, including all consents and exhibits filed therewith, and will maintain in the Company’s files manually signed copies of such documents for at least five (5) years after the date of filing thereof. The Company will promptly deliver to the Underwriter such number of copies of any Preliminary Prospectus, the Prospectus, the Registration Statement, and all amendments of and supplements to such documents, if any, and all documents which are exhibits to the Registration Statement and any Preliminary Prospectus or Prospectus or any amendment thereof or supplement thereto, as the Underwriter may reasonably request. On the Business Day next succeeding the date of this Agreement, and from time to time thereafter, the Company will furnish to the Underwriter copies of the Prospectus in such quantities as the Underwriter may reasonably request.
(f) The Company consents to the use and delivery of the Preliminary Prospectus by the Underwriter in accordance with Rule 430 and Section 5(b) of the Act.
(g) If the Company elects to rely on Rule 462(b) under the Act, the Company shall both file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by the earlier of: (i) 10:00 P.M., Eastern time, on the date of this Agreement, and (ii) the time that confirmations are given or sent, as specified by Rule 462(b)(2), and pay the applicable fees in accordance with Rule 111 of the Act.
(h) The Company will use its reasonable best efforts, in cooperation with the Underwriter, at or prior to the time of effectiveness of the Registration Statement, to qualify the Securities for offering and sale under the securities laws relating to the Offering or sale of the Securities of such jurisdictions as the Underwriter may reasonably designate and to maintain such qualifications in effect for so long as required for the distribution thereof; except that in no event shall the Company be obligated in connection therewith to qualify as a foreign corporation or to execute a general consent to service of process or to subject itself to taxation if it is otherwise not so subject.
(i) The Company will make generally available (which includes filings pursuant to the Exchange Act made publicly through the Electronic Data Gathering, Analysis and Retrieval (“EDGAR”) system) to its security holders as soon as practicable, but in any event not later than 15 months after the end of the Company’s current fiscal quarter, an earnings statement (which need not be audited) covering a 12-month period that shall satisfy the provisions of Section 11(a) of the Act and Rule 158 of the Regulations.
(j) Except with respect to (i) securities of the Company which may be issued in connection with an acquisition of another entity (or the assets thereof), (ii) the issuance of securities of the Company intended to provide the Company with proceeds to acquire another entity (or the assets thereof), or (iii) the issuance of securities under the Company’s stock option plans with exercise or conversion prices at fair market value (as defined in such plans) in effect from time to time, during the three (3) months following the Closing Date, the Company or any successor to the Company shall not undertake any public or private offerings of any equity securities of the Company (including equity-linked securities) without the prior written consent of the Underwriter, which consent shall not be unreasonably withheld.
(k) Following the Closing Date, any of the entities and individuals listed on Schedule B hereto (the “Lock-Up Parties”), without the prior written consent of the Underwriter, shall not sell or otherwise dispose of any securities of the Company, whether publicly or in a private placement, during the period that their respective lock-up agreements are in effect. The Company will deliver to the Underwriter the agreements of the Lock-Up Parties to the foregoing effect prior to the Closing Date, which agreements shall be substantially in the form attached hereto as Annex II.
(l) The Company will not issue press releases or engage in any other publicity without the Underwriter’s prior written consent, for a period ending at 5:00 P.M., Eastern time, on the first Business Day following the twenty-fifth (25th) day following the Closing Date, other than normal and customary releases issued in the ordinary course of the Company’s business, or as required by law.
(m) The Company will apply the net proceeds from the sale of the Securities as set forth under the caption “Use of Proceeds” in the Prospectus. Without the prior written consent of the Underwriter, except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, no proceeds of the Offering will be used to pay outstanding loans from officers, directors or shareholders or to pay any accrued salaries or bonuses to any employees or former employees.
(n) The Company will use its reasonable best efforts to effect and maintain the listing of the Shares on the NASDAQ Capital Market for at least two (2) years after the Effective Date, unless such listing is terminated as a result of a transaction approved by the holders of a majority of the voting securities of the Company. If the Company fails to maintain such listing of its Shares on the NASDAQ Capital Market or other Trading Market, for a period of two (2) years from the Effective Date, the Company, at its expense, shall obtain and keep current a listing of such securities in the Standard & Poor’s Corporation Records Services or Mergent’s Industrial Manual; provided that Mergent’s OTC Industrial Manual is not sufficient for these purposes. “Trading Market” means any of the following markets or exchanges on which the Ordinary Shares is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Stock Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing).
(o) The Company will use its reasonable best efforts to do and perform all things required to be done or performed under this Agreement by the Company prior to the Closing Date, and to satisfy all conditions precedent to the delivery of the Securities.
(p) The Company will not take, and will cause its affiliates not to take, directly or indirectly, any action which constitutes or is designed to cause or result in, or which could reasonably be expected to constitute, cause or result in, the stabilization or manipulation of the price of any security to facilitate the sale or resale of any of the Securities.
(q) The Company shall cause to be prepared and delivered to the Underwriter, at its expense, within two (2) Business Days from the date of this Agreement, an Electronic Prospectus to be used by the Underwriter in connection with the Offering. As used herein, the term “Electronic Prospectus” means a form of prospectus, and any amendment or supplement thereto, that meets each of the following conditions: (i) it shall be encoded in an electronic format, satisfactory to the Underwriter, that may be transmitted electronically by the Underwriter to offerees and purchasers of the Securities for at least the period during which a Prospectus relating to the Securities is required to be delivered under the Act or the Exchange Act; (ii) it shall disclose the same information as the paper prospectus and prospectus filed pursuant to EDGAR, except to the extent that graphic and image material cannot be disseminated electronically, in which case such graphic and image material shall be replaced in the electronic prospectus with a fair and accurate narrative description or tabular representation of such material, as appropriate; and (iii) it shall be in or convertible into a paper format or an electronic format, satisfactory to the Underwriter, that will allow recipients thereof to store and have continuously ready access to the prospectus at any future time, without charge to such recipients (other than any fee charged for subscription to the Internet as a whole and for online time).
(r) [intentionally omitted].
5. Representations and Warranties of the Underwriter.
The Underwriter represents and agrees that, unless it obtains the prior written consent of the Company, it has not made and will not make any offer relating to the Securities that would constitute a “free writing prospectus,” as defined in Rule 405 under the Act, required to be filed with the Commission; provided that the prior written consent of the parties hereto shall be deemed to have been given in respect of the free writing prospectuses included in Schedule C. Any such free writing prospectus consented to by the Underwriter is herein referred to as a “Permitted Free Writing Prospectus.” The Underwriter represents that it has treated or agrees that it will treat each Permitted Free Writing Prospectus as an “issuer free writing prospectus,” as defined in Rule 433, and has complied and will comply with the requirements of Rule 433 applicable to any Permitted Free Writing Prospectus, including timely Commission filing where required, legending and record keeping.
6. Consideration; Payment of Expenses.
(a) In consideration of the services to be provided for hereunder, the Company shall pay to the Underwriter or its designee(s) the following compensation (or pro rata portion thereof, if applicable) with respect to the Securities purchased from the Company in this Offering:
(i) an underwriting discount equal to seven percent (7.0%) of the aggregate gross proceeds (inclusive the Over-allotment Option to purchase the Additional Shares) raised in the Offering;
(ii) a non-accountable expense allowance of one percent (1.0%) of the gross proceeds of the Offering;
(iii) an accountable expense allowance of up to $225,000, of which $200,000 has already been paid to the Underwriter as an advance against accountable expenses; and
(iv) the Company shall grant to the Underwriter or its designated affiliates share purchase warrants (the “Representative’s Warrants”) covering a number of shares equal to seven percent (7.0%) of the total number of Firm Shares and Additional Shares sold in this Offering.
(b) In compliance with FINRA Rule 5110(e)(1), the Representative’s Warrants and the underlying securities will be locked up for 180 days following the date of commencement of sales of the Offering and will expire three (3) years after the Effective Date, subject to certain exceptions as set forth in FINRA Rule 5110(e)(2). The Representative’s Warrants are non-exercisable for six (6) months after the close of the Offering and will expire three (3) years after the sales of the Offering. The Representative’s Warrants will be exercisable at a price equal to one hundred and fifteen percent (125%) of the public offering price of the underlying Ordinary Shares in connection with the Offering. The Representative’s Warrants shall not be redeemable. The Company will register the Ordinary Shares underlying the Representative’s Warrants under the Act and will file all necessary undertakings in connection therewith. The Representative’s Warrants and the underlying securities shall not be sold during the Offering, or sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days beginning on the date of commencement of sales of the Offering, except that they may be transferred to any member participating in the Offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction for the remainder of the time period. The Underwriter will have the option to exercise, transfer or assign the Representative’s Warrants at any time, provided that the underlying securities shall not be transferred during the lock-up period; i.e., the Shares underlying the Representative’s Warrants shall remain subject to the 180-day lock-up period. The Representative’s Warrants may be exercised as to all or a lesser number of the underlying Ordinary Shares, will provide for cashless exercise and will contain provisions for one demand registration of the sale of the underlying Ordinary Share at the Company’s expense, an additional demand registration at the Representative’s Warrants holder’s expense, and unlimited “piggyback” registration rights at the Company’s expense, each with a duration of no more than three (3) years from the date of commencement of sales of the offering in compliance with FINRA Rule 5110(g)(8)(D). The Representative’s Warrants shall further provide for adjustment in the number and price of such warrants (and the Ordinary Share underlying such Warrants) in the event of recapitalization, merger or other structural transaction to prevent dilution. In the event that the Company chooses to disengage or terminate Network 1 Financial Securities, Inc. as its Underwriter prior to the effectiveness of the Registration Statement but after the initial filing of the Registration Statement with the SEC (other than termination for “cause,” for Network 1 Financial Securities, Inc.’s material failure to provide the services contemplated in this Agreement, which will eliminate the Company’s obligations with respect to the payment of any fees with respect to this Section) Network 1 Financial Securities, Inc. will be due the full amount of the Representative’s Warrants that would be due to them at the Closing Date of the IPO.
(c) The Underwriter reserves the right to reduce any item of compensation or adjust the terms thereof as specified herein in the event that a determination shall be made by FINRA to the effect that the Underwriter’ aggregate compensation is in excess of FINRA Rules or that the terms thereof require adjustment.
(d) Whether or not the transactions contemplated by this Agreement, the Registration Statement and the Prospectus are consummated or this Agreement is terminated, the Company hereby agrees to pay all costs and expenses incident to the Offering, including the following:
(i) all expenses in connection with the preparation, printing, formatting for EDGAR and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and any and all amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriter and dealers;
(ii) all fees and expenses in connection with filings with FINRA’s Public Offering System;
(iii) all fees, disbursements and expenses of the Company’s counsel and accountants in connection with the registration of the Securities under the Act and the Offering;
(iv) all reasonable expenses in connection with the qualifications of the Securities for offering and sale under state or foreign securities or blue sky laws;
(v) all fees and expenses in connection with listing the Securities on a national securities exchange;
(vi) all reasonable travel expenses of the Company’s officers, directors and employees and any other expense of the Company incurred in connection with attending or hosting meetings with prospective purchasers of the Securities;
(vii) all fees and expenses in connection with any “due diligence” meetings;
(viii) all the road show expenses incurred by the Company;
(ix) any stock transfer taxes or other taxes incurred in connection with this Agreement or the Offering;
(x) the costs associated with book building, prospectus tracking and compliance software and the cost of preparing certificates representing the Securities;
(xi) the cost and charges of any transfer agent or registrar for the Securities;
(xii) any reasonable costs and expenses incurred in conducting background checks of the Company’s officers and directors by a background search firm acceptable to the Underwriter, not to exceed $15,000;
(xiii) the costs associated with bound volumes and mementos in such quantities as the Underwriter may reasonably request, not to exceed $2,500; and
(xiv) fees and expenses of the Underwriter’s legal counsel, not to exceed $75,000.
(e) It is understood, however, that except as provided in this Section 6, and Sections 8, 9 and 11(d) hereof, the Underwriter will pay all of their own costs and expenses. Notwithstanding anything to the contrary in this Section 6, in the event that this Agreement is terminated pursuant to Section 12(b) hereof, or subsequent to a Material Adverse Change, the Company will pay, less any advances previously paid which as of the date hereof is $200,000, including $75,000 as an advance to be applied towards the accountable expenses allowance (the “Advance”), $50,000 paid upon the first confidential filing of the Registration Statement, and $75,000 paid at the time the Company files the Registration Statement publicly. On the Closing Date, the Company shall pay the Underwriter $25,000 such that as of the Closing Date the Company shall have paid the Underwriter a total of no more than $225,000 in respect of such accountable expenses pursuant to this Section 6(e). All documented out-of-pocket expenses of the Underwriter (including but not limited to fees and disbursements of Underwriter’s Counsel and reasonable and accountable travel) incurred in connection herewith which shall be limited to expenses which are actually incurred as allowed under FINRA Rule 5110 and in any event, the aggregate amount of such expenses to be reimbursed by the Company shall not exceed $225,000, including the Advances. To the extent that the Underwriter’ out-of-pocket expenses are less than the Advance, the Underwriter will return to the Company that portion of the Advances not offset by actual expenses in accordance with FINRA Rule 5110(g)(4)(A).
7. Conditions of Underwriter’ Obligations. The obligations of the Underwriter to purchase and pay for the Firm Shares as provided herein shall be subject to: (i) the accuracy of the representations and warranties of the Company herein contained, as of the date hereof and as of the Closing Date, (ii) the absence from any certificates, opinions, written statements or letters furnished to the Underwriter or to Underwriter’s Counsel pursuant to this Section 7 of any misstatement or omission, (iii) the performance by the Company of its obligations hereunder, and (iv) each of the following additional conditions. For purposes of this Section 7, the terms “Closing Date” and “Closing” shall refer to the Closing Date for the Firm Shares and each of the foregoing and following conditions must be satisfied as of each Closing.
(a) The Registration Statement shall have become effective and all necessary regulatory and listing approvals shall have been received not later than 5:30 P.M., Eastern time, on the date of this Agreement, or at such later time and date as shall have been consented to in writing by the Underwriter. If the Company shall have elected to rely upon Rule 430A under the Act, the Prospectus shall have been filed with the Commission in a timely fashion in accordance with the terms thereof and a form of the Prospectus containing information relating to the description of the Securities and the method of distribution and similar matters shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period; and, at or prior to the Closing Date and the actual time of the Closing, no stop order suspending the effectiveness of the Registration Statement or any part thereof, or any amendment thereof, nor suspending or preventing the use of the General Disclosure Package, the Prospectus or any Issuer Free Writing Prospectus shall have been issued; no proceedings for the issuance of such an order shall have been initiated or threatened; all requests of the Commission for additional information (to be included in the Registration Statement, the General Disclosure Package, the Prospectus, any Issuer Free Writing Prospectus or otherwise) shall have been complied with to the Underwriter’s satisfaction.
(b) The Underwriter shall not have reasonably determined, and advised the Company, that the Registration Statement, the General Disclosure Package or the Prospectus, or any amendment thereof or supplement thereto, or any Issuer Free Writing Prospectus, contains an untrue statement of fact which, in the Underwriter’s reasonable opinion, is material, or omits to state a fact which, in the Underwriter’s reasonable opinion, is material and is required to be stated therein or necessary to make the statements therein not misleading.
(c) The Underwriter shall have received legal opinions, in form and substance reasonably satisfactory to the Underwriter and Underwriter’s Counsel of (i) Ogier, Cayman Islands counsel to the Company dated as of the Closing Date and addressed to the Underwriter, (ii) VCL Law LLP, U.S. legal counsel for the Company, dated as of the Closing Date and addressed to the Underwriter; (iii) Loeb & Loeb, U.S. legal counsel for the Underwriter, dated as of the Closing Date and addressed to the Underwriter; (iv) Beijing Yingke (Hangzhou) Law Firm, PRC legal counsel to the Underwriter, dated as of the Closing Date and addressed to the Underwriter; and (v) Allbright Law Offices, PRC legal counsel to the Company, dated as of the Closing Date.
(d) The Underwriter shall have received a certificate from the Chief Executive Officer and Chief Financial Officer of the Company, dated as of each of the Closing Date and any Option Closing Date, to the effect that: (i) the conditions set forth in subsection (a) of this Section 7 have been satisfied, (ii) as of the date hereof and as of each of the Closing Date and any Option Closing Date, the representations and warranties of the Company set forth in Section 2 hereof are accurate, (iii) as each of the Closing Date and any Option Closing Date, all agreements, conditions and obligations of the Company to be performed or complied with hereunder on or prior thereto have been duly performed or complied with, (iv) except as disclosed in the Registration Statement the General Disclosure Package or the Prospectus, the Company has not sustained any material loss or interference with its businesses, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, (v) no stop order suspending the effectiveness of the Registration Statement or any amendment thereof has been issued and no proceedings therefor have been initiated or threatened by the Commission, (vi) there are no pro forma or as adjusted financial statements that are required to be included in the Registration Statement and the Prospectus pursuant to the Regulations which are not so included, and (vii) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any Material Adverse Change or any development involving a prospective Material Adverse Change, whether or not arising from transactions in the ordinary course of business.
(e) At each of the Closing Date and any Option Closing Date, the Underwriter shall have received a certificate of the Company signed by a duly authorized executive officer of the Company, dated the Closing Date and any Option Closing Date, certifying: (i) that each of the Charter and Bylaws is true and complete, has not been modified and is in full force and effect; (ii) that the resolutions of the Company’s board of directors relating to the Offering are in full force and effect and have not been modified; (iii) the good standing of the Company; and (iv) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate.
(f) On the date of this Agreement and on the Closing Date, the Underwriter shall have received a “comfort” letter from Marcum. as of each such date, addressed to the Underwriter and in form and substance satisfactory to the Underwriter and Underwriter’s Counsel, confirming that they are independent certified public accountants with respect to the Company within the meaning of the Act and all applicable Regulations, and stating, as of such date (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five (5) days prior to such date), the conclusions and findings of such firm with respect to the financial information and other matters relating to the Registration Statement covered by such letter.
(g) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date or the Option Closing Date or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto), there shall not have been any change in the share capital or long-term debt of the Company or any change or development involving a change, whether or not arising from transactions in the ordinary course of business, in the business, condition (financial or otherwise), results of operations, shareholders’ equity, or properties of the Company, taken as a whole, including but not limited to the occurrence of any fire, flood, storm, explosion, accident, act of war or terrorism or other calamity, the effect of which, in any such case described above, is, in the reasonable judgment of the Underwriter, so material and adverse as to make it impracticable or inadvisable to proceed with the sale of Securities or Offering as contemplated hereby.
(h) The Underwriter shall have received a lock-up agreement from each Lock-Up Party, duly executed by the applicable Lock-Up Party, in each case substantially in the form attached as Annex II.
(i) The Shares are registered under the Exchange Act and, as of the Closing Date, the Shares shall be listed and admitted and authorized for trading on the NASDAQ Capital Market and satisfactory evidence of such action shall have been provided to the Underwriter. The Company shall have taken no action designed to terminate, or likely to have the effect of terminating, the registration of the Shares under the Exchange Act or delisting or suspending the Shares from trading on the NASDAQ Capital Market, nor will the Company have received any information suggesting that the Commission or the NASDAQ Capital Market is contemplating terminating such registration or listing. The Firm Shares and the Additional Shares shall be DTC eligible.
(j) FINRA shall have confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements.
(k) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority that would, as of the Closing Date, prevent the issuance or sale of the Securities; and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date, prevent the issuance or sale of the Securities or materially and adversely affect or potentially materially and adversely affect the business or operations of the Company.
(l) The Company shall have furnished the Underwriter and Underwriter’ Counsel with such other certificates, opinions or documents as they may have reasonably requested.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Underwriter and each Person, if any, who controls the Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any losses, liabilities, claims, damages and expenses whatsoever, as incurred (including but not limited to reasonable attorneys’ fees and any and all reasonable expenses whatsoever, incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise (including in settlement of any litigation if such settlement is effected with the written consent of the Company), insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon: (i) an untrue statement or alleged untrue statement of a material fact contained in (A) the Registration Statement, including the information deemed to be a part of the Registration Statement at the time of effectiveness and at any subsequent time pursuant to Rules 430A and 430B of the Regulations, any Preliminary Prospectus, the General Disclosure Package, the Prospectus, or any amendment or supplement to any of them or (B) any Issuer Free Writing Prospectus or any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the offering of the Securities (“Marketing Materials”), including any road show or investor presentations made to investors by the Company (whether in person or electronically), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading and will reimburse such indemnified party for any legal or other expenses reasonably incurred by it in connection with investigations or defending against such losses, liabilities, claims, damages or expenses (or actions in respect thereof); or (ii) in whole or in part upon any inaccuracy in the representations and warranties of the Company contained herein; or (iii) in whole or in part upon any failure of the Company to perform its obligations hereunder; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, liability, claim, damage or expense (or action in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the General Disclosure Package, the Prospectus, or any such amendment or supplement to any of them, or any Issuer Free Writing Prospectus or any Marketing Materials in reliance upon and in conformity with the Underwriter’s Information.
(b) The Underwriter agrees to indemnify and hold harmless the Company, each of the directors of the Company, each of the officers of the Company who shall have signed the Registration Statement, and each other Person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any losses, liabilities, claims, damages and expenses whatsoever, as incurred (including but not limited to reasonable attorneys’ fees and any and all reasonable expenses whatsoever, incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise (including in settlement of any litigation if such settlement is effected with the written consent of the Underwriter), insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, at the time of effectiveness and at any subsequent time pursuant to Rules 430A and 430B of the Regulations, any Preliminary Prospectus, the General Disclosure Package, the Prospectus, any amendment or supplement to any of them or any Marketing Materials, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse such indemnified party for any legal or other expenses reasonably incurred by it in connection with investigating or defending against such losses, liabilities, claims, damages or expenses (or actions in respect thereof), in each case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense (or action in respect thereof) arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in the Underwriter’s Information.
(c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of any claim or the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify each party against whom indemnification is to be sought in writing thereof (but the failure so to notify an indemnifying party shall not relieve the indemnifying party from any liability which it may have under this Section 8 to the extent that it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability that such indemnifying party may have otherwise than on account of the indemnity agreement hereunder). In case any such claim or action is brought against any indemnified party, and it so notifies an indemnifying party thereof, the indemnifying party will be entitled to participate at its own expense in the defense of such action, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel satisfactory to such indemnified party; provided however, that counsel to the indemnifying party shall not (except with the written consent of the indemnified party) also be counsel to the indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless: (i) the employment of such counsel shall have been authorized in writing by one of the indemnifying parties in connection with the defense of such action; (ii) the indemnifying parties shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of the claim or the commencement of the action; (iii) the indemnifying party does not diligently defend the action after assumption of the defense; or (iv) such indemnified party or parties shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party, or any of them, in conducting the defense of any such action or there may be legal defenses available to it or them which are different from or additional to those available to any of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying parties and shall be paid as incurred. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) of the indemnified party or parties unless such separate representations are required under applicable ethics rules that govern the representations of the indemnified party or parties by such legal counsel. In the case of any separate firm for the Underwriter and such control persons and affiliates of any Underwriter, such firm shall be designated in writing by the Underwriter. In the case of more than one separate firm (in addition to any local counsel) for the Company, and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company. No indemnifying party shall, without the prior written consent of the indemnified parties, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened claim, investigation, action or proceeding in respect of which indemnity or contribution may be or could have been sought by an indemnified party under this Section 8 or Section 9 hereof (whether or not the indemnified party is an actual or potential party thereto), unless (x) such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such claim, investigation, action or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or any failure to act, by or on behalf of the indemnified party, and (y) the indemnifying party confirms in writing its indemnification obligations hereunder with respect to such settlement, compromise or judgment.
9. Contribution. In order to provide for contribution in circumstances in which the indemnification provided for in Section 8 is for any reason held to be unavailable from any indemnifying party or is insufficient to hold harmless a party indemnified thereunder, the Company and the Underwriter shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by such indemnification provision (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting in the case of losses, claims, damages, liabilities and expenses suffered by the Company, any contribution received by the Company from Persons, other than the Underwriter, who may also be liable for contribution, including Persons who control the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, officers of the Company who signed the Registration Statement and directors of the Company), as incurred, to which the Company and one or more of the Underwriter may be subject, in such proportions as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriter on the other hand from the Offering and sale of the Securities or, if such allocation is not permitted by applicable law, in such proportions as are appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company and the Underwriter in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriter shall be deemed to be in the same proportion as (x) the total proceeds from the Offering (net of underwriting discount and commission but before deducting expenses) received by the Company bears to (y) the underwriting discount and commissions received by the Underwriter, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company and the Underwriter shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriter and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriter agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Underwriter were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 9. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 9 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any judicial, regulatory or other legal or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 9: (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts applicable to the Securities underwritten by it and distributed to the public and (ii) no Person guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of the Act) shall be entitled to contribution from any Person who was not guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of the Act). For purposes of this Section 9, each Person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Underwriter, and each Person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to clauses (i) and (ii) of the immediately preceding sentence. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties, notify each party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 9 or otherwise. As used herein, a “Person” refers to an individual or entity.
10. Survival of Representations and Agreements. All representations, warranties, covenants and agreements of the Company and the Underwriter contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, including, without limitation, the agreements contained in Sections 6, 14 and 16, the indemnity agreements contained in Section 8 and the contribution agreements contained in Section 9, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriter or any controlling Person thereof or by or on behalf of the Company, any of its officers or directors or any controlling Person thereof, and shall survive delivery of and payment for the Securities to and by the Underwriter. The representations and warranties contained in Section 2 and Section 5 and the covenants and agreements contained in Sections 4, 6, 8, 9, 14 and 16 shall survive any termination of this Agreement, including termination pursuant to Sections 12. For the avoidance of doubt, in the event of termination the Underwriter will receive only out-of-pocket accountable expenses actually incurred subject to the limit in Section 12(d) below, in compliance with FINRA Rules 5110.
11. [intentionally omitted].
12. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective upon the later of: (i) receipt by the Underwriter and the Company of notification of the effectiveness of the Registration Statement or (ii) the execution of this Agreement by all parties hereto. Notwithstanding any termination of this Agreement, the provisions of this Section 12 and of Sections 1, 4, 6, 8, 9, 14 and 16 shall remain in full force and effect at all times after the execution hereof to the extent they are in compliance with FINRA Rule 5110.
(b) The Underwriter shall have the right to terminate this Agreement at any time prior to the consummation of the Closing if: (i) any domestic or international event or act or occurrence has materially disrupted, or in the reasonable opinion of the Underwriter will in the immediate future materially disrupt, the market for the Company’s securities or securities in general; or (ii) trading on the New York Stock Exchange or the NASDAQ Stock Market has been suspended or made subject to material limitations, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, on the NYSE Euronext or the NASDAQ Stock Market or by order of the Commission, FINRA or any other governmental authority having jurisdiction; or (iii) a banking moratorium has been declared by any state or federal authority or any material disruption in commercial banking or securities settlement or clearance services has occurred; or (iv) (A) there has occurred any outbreak or escalation of hostilities or acts of terrorism involving the United States, Hong Kong, BVI, the Cayman islands, or the PRC or there is a declaration of a national emergency or war by the United States, Hong Kong, BVI, the Cayman islands, or the PRC or (B) there has been any other calamity or crisis or any change in political, financial or economic conditions, if the effect of any such event in (A) or (B), in the reasonable judgment of the Underwriter, is so material and adverse that such event makes it impracticable or inadvisable to proceed with the offering, sale and delivery of the Firm Shares on the terms and in the manner contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 12 shall be in writing and delivered in accordance with Section 13.
(d) If this Agreement shall be terminated pursuant to any of the provisions hereof (other than pursuant to Section 12(b) hereof), or if the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriter set forth herein is not satisfied or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof, the Company will, subject to demand by the Underwriter, reimburse the Underwriter for only those documented out-of-pocket expenses (including the reasonable fees and expenses of their counsel), actually incurred by the Underwriter in connection herewith as allowed under FINRA Rule 5110 less any amounts previously paid by the Company); provided, however, that all such expenses, including the costs and expenses set forth in Section 6(d) which were actually paid, shall not exceed $225,000 in the aggregate, including any advances.
13. Notices. All communications hereunder, except as may be otherwise specifically provided herein, shall be in writing, and:
(a) if sent to the Underwriter, shall be mailed, delivered, or emailed, to:
Network 1 Financial Securities, Inc.
2 Bridge Avenue, Suite 241
Red Bank, NJ 07701
Attention: Adam Pasholk, Managing Director
Email: adampasholk@netw1.com
with a copy to Underwriter’s Counsel at:
Loeb & Loeb LLP
2206-19 Jardine House
1 Connaught Place
Central, Hong Kong SAR
Attention: Lawrence Venick, Esq.
Email: lvenick@loeb.com
(b) if sent to the Company, shall be mailed, delivered, or emailed, to the Company with a copy to its counsel, at the addresses set forth in the Registration Statement.
14 Parties; Limitation of Relationship. This Agreement shall inure solely to the benefit of, and shall be binding upon, the Underwriter, the Company and the controlling Persons, directors, officers, employees and agents referred to in Sections 8 and 9 hereof, and their respective successors and assigns, and no other Person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the parties hereto and such Persons and their respective successors and assigns, and not for the benefit of any other Person. The term “successors and assigns” shall not include a purchaser, in its capacity as such, of Securities from the Underwriter.
15. Effectiveness; Defaulting Underwriters. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or an Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Shares set forth opposite their respective names in Schedule A bears to the aggregate number of the Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as the Representative may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 15 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter.
If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased on such date, and arrangements satisfactory to the Representative, the Company for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case either the Representative or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement, in the Prospectus or in any other documents or arrangements may be effected. If, on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased on such Option Closing Date, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase the Additional Shares to be sold on such Option Closing Date (provided that if such default occurs with respect to Additional Shares after the Closing Date, this Agreement will not terminate as to the Firm Shares or any Additional Shares purchased prior to such termination) or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. For the avoidance of doubt but subject to the first sentence of this paragraph, none of the non-defaulting Underwriters shall be held liable to the Company or any other party in respect of any default of any defaulting Underwriter. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement, the Company will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel, printing expenses, travel expenses, postage, facsimile and telephone charges) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder.
16. Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the conflict of laws principles thereof. Each of the parties hereto hereby submits to the exclusive jurisdiction of the federal and state courts in the Borough of Manhattan in The City of New York (each, a “New York Court”) in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. Each of the parties hereto irrevocably waives any objection to the laying of venue of any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in the New York Courts, and irrevocably waives and agrees not to plead or claim in any such court that any such suit or proceeding in any such court has been brought in an inconvenient forum. The Company irrevocably appoints Cogency Global Inc., 122 East 42nd St 18th Floor, New York, NY 10168 as its authorized agent (the “Authorized Agent”) in the Borough of Manhattan in The City of New York upon which process may be served in any such suit or proceeding, and agrees that service of process in any manner permitted by applicable law upon such agent shall be deemed in every respect effective service of process in any manner permitted by applicable law upon the Company in any such suit or proceeding. The Company further agrees to take any and all actions as may be necessary to maintain such designation and appointment of such agent in full force and effect for a period of three years from the date of this Agreement.
16. Entire Agreement. This Agreement, together with the schedules and annexes attached hereto and as the same may be amended from time to time in accordance with the terms hereof, contains the entire agreement among the parties hereto relating to the subject matter hereof and there are no other or further agreements outstanding not specifically mentioned herein. This Agreement supersedes any prior agreements or understandings among or between the parties hereto.
17. Severability. If any term or provision of this Agreement or the performance thereof shall be invalid or unenforceable to any extent, such invalidity or unenforceability shall not affect or render invalid or unenforceable any other provision of this Agreement and this Agreement shall be valid and enforceable to the fullest extent permitted by law.
18. Amendment. This Agreement may only be amended by a written instrument executed by each of the parties hereto.
19. Waiver, etc. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Agreement or any provision hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver may be sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
20. No Fiduciary Relationship. The Company hereby acknowledges that the Underwriter is acting solely as Underwriter in connection with the offering of the Company’s Securities. The Company further acknowledges that the Underwriter is acting pursuant to a contractual relationship created solely by this Agreement entered into on an arm’s-length basis and in no event do the parties intend that the Underwriter act or be responsible as a fiduciary to the Company, its management, shareholders, creditors or any other person in connection with any activity that the Underwriter may undertake or have undertaken in furtherance of the offering of the Company’s Securities, either before or after the date hereof. The Underwriter hereby expressly disclaims any fiduciary or similar obligations to the Company, either in connection with the transactions contemplated by this Agreement or any matters leading up to such transactions, and the Company hereby confirms its understanding and agreement to that effect. The Company hereby further confirms its understanding that the Underwriter has not assumed an advisory or fiduciary responsibility in favor of the Company with respect to the Offering contemplated hereby or the process leading thereto, including, without limitation, any negotiation related to the pricing of the Securities; and the Company has consulted its own legal and financial advisors to the extent it has deemed appropriate in connection with this Agreement and the Offering. The Company and the Underwriter agree that they are each responsible for making their own independent judgments with respect to any such transactions, and that any opinions or views expressed by the Underwriter to the Company regarding such transactions, including but not limited to any opinions or views with respect to the price or market for the Company’s securities, do not constitute advice or recommendations to the Company. The Company hereby waives and releases, to the fullest extent permitted by law, any claims that the Company may have against the Underwriter with respect to any breach or alleged breach of any fiduciary or similar duty to the Company in connection with the transactions contemplated by this Agreement or any matters leading up to such transactions.
21. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all such counterparts shall together constitute one and the same instrument. Delivery of a signed counterpart of this Agreement by facsimile or other electronic transmission shall constitute valid and sufficient delivery thereof.
22. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.
23. Time is of the Essence. Time shall be of the essence of this Agreement. As used herein, the term “Business Day” shall mean any day other than a Saturday, Sunday or any day on which any of the major U.S. stock exchanges are not open for business.
[Signature Page Follows]
If the foregoing correctly sets forth your understanding, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among us.
| Very truly yours, | ||
| Webus International Limited | ||
| By: | ||
| Name: | Zheng Nan | |
| Title: | Chief Executive Officer | |
Accepted by the Underwriter,
as of the date first written above:
Network 1 Financial Securities, Inc.
| By: | ||
| Name: | Adam Pasholk | |
| Title: | Managing Director |
[Signature Page to Underwriting Agreement]
SCHEDULE A
| Underwriters | Closing Securities | Closing Purchase Price | ||
| Network 1 Financial Securities, Inc. | $[●] | |||
| $[●] | ||||
| Total | $[●] |
SCHEDULE B
Lock-Up Parties
Webus International Limited
Zheng Jiahua
Zheng Nan
Wang Shijie
Chen Yizhou
He Wenxin
[ ]
[ ]
[ ]
SCHEDULE C
Free Writing Prospectuses
Annex II
Lock-Up Agreement
[●], 202_
Network 1 Financial Securities, Inc.
2 Bridge Avenue, Suite 241
Red Bank, NJ 07701
Ladies and Gentlemen:
The undersigned understands that Network 1 Financial Securities, Inc. (the “Underwriter”) proposes to enter into an Underwriting Agreement (the “Underwriting Agreement”) with Webus International Limited, a Cayman Islands exempted company (the “Company”), providing for the initial public offering in the United States (the “Initial Public Offering”) of a certain number of the Company’s Ordinary Shares, par value $0.0001 per share (the “Securities”). For purposes of this letter agreement, “Shares” shall mean shares of the Company’s Ordinary Shares.
To induce the Underwriter to continue its efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of the Underwriter, the undersigned will not, during the period commencing on the date hereof and ending one hundred and eighty (180) days from the effective date of the registration statement (the “Prospectus”) relating to the Initial Public Offering (the “Lock-Up Period”), (1) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, make any short sale, or otherwise transfer or dispose of, directly or indirectly, any Shares or any securities convertible into or exercisable or exchangeable for or represent the right to receive Shares, whether now owned or hereafter acquired by the undersigned (collectively, the “Lock-Up Securities”); (2) enter into any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (1) above or this clause (2) is to be settled by delivery of Shares or such other securities, in cash or otherwise; (3) make any written demand for or exercise any right with respect to the registration of any Shares or any security convertible into or exercisable or exchangeable for Shares; or (4) publicly disclose the intention to do any of the foregoing.
Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer Lock-Up Securities without the prior written consent of the Underwriter in connection with (a) transactions relating to Lock-Up Securities acquired in open market transactions after the completion of the Initial Public Offering; (b) transfers of Lock-Up Securities as a bona fide gift, by will or intestacy or to a family member or trust for the benefit of the undersigned and/or one or more family members (for purposes of this lock-up agreement, “family member” means any relationship by blood, marriage or adoption, not more remote than first cousin); (c) transfers of Lock-Up Securities to a charity or educational institution or other not-for-profit organization; (d) if the undersigned, directly or indirectly, controls a corporation, partnership, limited liability company or other business entity, any transfers of Lock-Up Securities to any such corporation, partnership, limited liability company or other business entity, or any shareholder, partner or member of, or owner of similar equity interests in, the same, as the case may be; (e) a sale or surrender to the Company of any options or Shares of the Company underlying options in order to pay the exercise price or taxes associated with the exercise of options or (f) transfers or distributions pursuant to any bona fide third-party tender offer, merger, acquisition, consolidation or other similar transaction made to all holders of the Company’s Shares involving a Change of Control of the Company, provided that in the event that such tender offer, merger, acquisition, consolidation or other such transaction is not completed, the Lock-Up Securities held by the undersigned shall remain subject to the provisions of this lock-up agreement; provided that in the case of any transfer pursuant to the foregoing clauses (b), (c) or (d), (i) any such transfer shall not involve a disposition for value, (ii) each transferee shall sign and deliver to the Underwriter a lock-up agreement substantially in the form of this lock-up agreement and (iii) no filing under Section 16(a) of the U.S. Securities Exchange Act of 1934, as amended shall be required or shall be voluntarily made (collectively, “Permitted Transfers”). For purposes of this paragraph, the term “Change of Control” shall mean any transaction or series of related transactions pursuant to which any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as such term is defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the Shares of the Company on a fully diluted basis. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s Lock-Up Securities except in compliance with this lock-up agreement.
The undersigned agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this lock-up agreement (for the avoidance of doubt, excluding any transaction or other action in connection with a Permitted Transfer) during the period from the date hereof to the expiration of the initial Lock-Up Period, the undersigned will give notice thereof to the Company and will not consummate any such transaction or take any such action unless it has received written confirmation from the Company that the Lock-Up Period has expired.
The undersigned agrees that (i) the foregoing restrictions shall be equally applicable to any issuer-directed or “friends and family” Shares that the undersigned may purchase in the Initial Public Offering, (ii) at least three (3) business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Lock-Up Securities, the Underwriter will notify the Company of the impending release or waiver. Any release or waiver granted by the Underwriter hereunder to any such officer or director shall only be effective two (2) business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer of Lock-Up Securities not for consideration or in connection with any other Permitted Transfer and (b) the transferee has agreed in writing to be bound by a lock-up agreement substantially in the form of this lock-up agreement.
No provision in this agreement shall be deemed to restrict or prohibit the exercise, exchange or conversion by the undersigned of any securities exercisable or exchangeable for or convertible into Shares, as applicable; provided that the undersigned does not transfer the Shares acquired on such exercise, exchange or conversion during the Lock-Up Period, unless in connection with a Permitted Transfer or in a transfer otherwise permitted pursuant to the terms of this lock-up agreement. In addition, no provision herein shall be deemed to restrict or prohibit the entry into or modification of a so-called “10b5-1” plan at any time (other than the entry into or modification of such a plan in such a manner as to cause the sale of any Lock-Up Securities within the Lock-Up Period).
The undersigned understands that the Company and the Underwriter are relying upon this lock-up agreement in proceeding toward consummation of the Initial Public Offering. The undersigned further understands that this lock-up agreement is irrevocable and shall be binding upon the undersigned’s heirs, successors and assigns.
The undersigned understands that, if the Underwriting Agreement does not become effective, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Shares to be sold thereunder, then this lock-up agreement shall be void and of no further force or effect.
Whether or not the Initial Public Offering actually occurs depends on a number of factors, including market conditions. The Initial Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Underwriter.
This lock-up agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to the conflict of laws principles thereof. Delivery of a signed copy of this lock-up agreement by facsimile or e-mail/.pdf transmission shall be effective as the delivery of the original hereof.
[SIGNATURE PAGE TO FOLLOW]
| Very truly yours, | ||
| (Signature) | ||
| Address: | ||
Exhibit 4.2
Representative’s Warrant
THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES BY HIS, HER OR ITS ACCEPTANCE HEREOF, THAT SUCH HOLDER WILL NOT FOR A PERIOD OF ONE HUNDRED EIGHTY (180) DAYS BEGINNING ON THE date of the commencemEnt of sales of the offering pursuant the registration statement No: 333-269684 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION: (A) SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT TO ANYONE OTHER THAN OFFICERS OR PARTNERS OF NETWORK 1 FINANCIAL SECURITIES, INC., EACH OF WHOM SHALL HAVE AGREED TO THE RESTRICTIONS CONTAINED HEREIN, IN ACCORDANCE WITH FINRA CONDUCT RULE 5110(E)(1), OR (B) CAUSE THIS PURCHASE WARRANT OR THE SECURITIES ISSUABLE HEREUNDER TO BE THE SUBJECT OF ANY HEDGING, SHORT SALE, DERIVATIVE, PUT OR CALL TRANSACTION THAT WOULD RESULT IN THE EFFECTIVE ECONOMIC DISPOSITION OF THIS PURCHASE WARRANT OR THE SECURITIES HEREUNDER, EXCEPT AS PROVIDED FOR IN FINRA RULE 5110(e)(2).
THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO [●], 202_1. VOID AFTER 5:00 P.M., EASTERN TIME, [●], 202_2 .
ORDINARY SHARES PURCHASE WARRANT
For the Purchase of [●] Ordinary Shares
of
WEBUS INTERNATIONAL LIMITED
1. Purchase Warrant. THIS ORDINARY SHARES PURCHASE WARRANT (this “Purchase Warrant”) certifies that, pursuant to that certain Underwriting Agreement by and between Webus International Limited, a Cayman Islands exempted company (the “Company”) and Network 1 Financial Securities, Inc. (“Network 1”), dated [●], 202_ (the “Underwriting Agreement”), Network 1 (in such capacity with its permitted successors or assigns, the “Holder”), as registered owner of this Purchase Warrant, is entitled, at any time or from time to time from [●], 202_ (the “Exercise Date”)3, and at or before 5:00 p.m., Eastern time, [●], 202_2 (the “Expiration Date”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to [●] Ordinary Shares of the Company, par value $0.0001 per share (the “Shares”)4, subject to adjustment as provided in Section 5 hereof. If the Expiration Date is a day on which banking institutions are authorized by law or executive order to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period commencing on the date hereof and ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Warrant. This Purchase Warrant is initially exercisable at $[●] per Share (125% of the price of the Shares sold in the Offering); provided, however, that upon the occurrence of any of the events specified in Section 5 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. The term “Exercise Price” shall mean the initial exercise price or the adjusted exercise price, depending on the context. Any term not defined herein shall have the meaning ascribed thereto in the Underwriting Agreement. The Purchase Warrant is redeemable.
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Warrant, the exercise form attached hereto as Exhibit A (the “Exercise Form”) must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern Time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.
| 1 | Date that is six (6) months following the date of the commencement of sales of the offering. |
| 2 | Date that is three years from the date of commencement of sales of the offering. |
| 3 | The date that is six (6) months following the date of the commencement of sales of the offering. |
| 4 | 7% of the number of Ordinary Shares sold in the Offering. |
2.2 Cashless Exercise. In lieu of exercising this Purchase Warrant by payment of cash pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with the Exercise Form, in which event the Company shall issue to Holder, Shares in accordance with the following formula:
| X = | Y(A – B) | |
| A |
| Where, | X = The number of Shares to be issued to Holder; |
Y = The number of Shares that would be issuable upon exercise of this Purchase Warrant in accordance with the terms of this Purchase Warrant if such exercise were by means of a cash exercise rather than a cashless exercise;
A = The fair market value of one Share; and
B = The Exercise Price of this Purchase Warrant, as adjusted hereunder.
For purposes of this Section 2.2, the fair market value of a Share is defined as follows:
(i) if the Company’s Ordinary Shares are traded on a securities exchange, the value shall be deemed to be the closing price on such exchange on the trading day immediately prior to the Exercise Form being submitted in connection with the exercise of this Purchase Warrant; or
(ii) if the Company’s Ordinary Shares are traded over-the-counter, the value shall be deemed to be the closing bid price on the trading day immediately prior to the Exercise Form being submitted in connection with the exercise of the Purchase Warrant;
(iii) if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Company’s Board of Directors.
2.3 Legend. Each certificate for the securities purchased under this Purchase Warrant shall bear a legend as follows unless such securities have been registered under the Securities Act of 1933, as amended (the “Act”):
“(i) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE LAW. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD OF ONE HUNDRED AND EIGHTY (180) DAYS FOLLOWING THE COMMENCEMENT OF SALES OF THE OFFERING PURSUANT TO THE REGISTRATION STATEMENT OF THE COMPANY’S SECURITIES (FILE NO. 333-269684)) AND MAY NOT BE (A) SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED TO ANYONE OTHER THAN NETWORK 1 FINANCIAL SERVICES, INC. OR BONA FIDE OFFICERS OR MEMBERS OR PARTNERS OF NETWORK 1 FINANCIAL SECURITIES, INC., OR (B) CAUSED TO BE THE SUBJECT OF ANY HEDGING, SHORT SALE, DERIVATIVE, PUT OR CALL TRANSACTION THAT WOULD RESULT IN THE EFFECTIVE ECONOMIC DISPOSITION OF THIS SECURITIES HEREUNDER, EXCEPT AS PROVIDED FOR IN FINRA RULE 5110(E)(2).”
3. Transfer.
3.1 General Restrictions. The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not for a period of one hundred eighty (180) days following the date of commencement of sales of the offering: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant or any of the Shares issuable hereunder to anyone other than: (i) Network 1 or a selected dealer participating in the Offering contemplated by the Underwriting Agreement, or (ii) officers or partners of Network 1, each of whom shall have agreed to the restrictions contained herein, in accordance with FINRA Rule 5110(e)(1), or (b) cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(e)(2). The registered Holder of this Purchase Warrant will have the option to exercise, transfer or assign this Purchase Warrant at any time, provided that underlying securities shall not be transferred during the lock-up period; i.e., the Shares shall remain subject to the 180-day lock-up period. On and after that date that is one hundred eighty (180) days after the commencement of sales of the offering, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto as Exhibit B duly executed and completed, together with this Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) Business Days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Act. The securities evidenced by this Purchase Warrant shall not be transferred unless and until: (i) the Company has received the opinion of counsel for the Holder that the securities may be transferred pursuant to an exemption from registration under the Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the Company, (ii) a Registration Statement relating to the offer and sale of such securities that includes a current prospectus has been filed and declared effective by the Securities and Exchange Commission (the “Commission”) and compliance with applicable state securities law has been established.
4. New Purchase Warrants to be Issued.
4.1 Partial Exercise or Transfer. Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2.1 hereof, the Company shall cause to be delivered to the Holder, without charge, a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.
4.2 Lost Certificate. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Warrant of like tenor. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.
5. Adjustments.
5.1 Adjustments to Exercise Price and Number of Shares. The Exercise Price and the number of Shares underlying this Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:
5.1.1 Share Dividends; Split Ups. If, after the date hereof, and subject to the provisions of Section 5.3 below, the number of outstanding Shares is increased by a share dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding shares, and the Exercise Price shall be proportionately decreased.
5.1.2 Aggregation of Shares. If, after the date hereof, and subject to the provisions of Section 5.3 below, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding shares, and the Exercise Price shall be proportionately increased.
5.1.3 Replacement of Shares upon Reorganization, etc. In case of any reclassification or reorganization of the outstanding Shares other than a change covered by Section 5.1.1 or Section 5.1.2 hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 5.1.1 or Section 5.1.2, then such adjustment shall be made pursuant to Section 5.1.1, Section 5.1.2 and this Section 5.1.3. The provisions of this Section 5.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.
5.1.4 Changes in Form of Purchase Warrant. This form of Purchase Warrant need not be changed because of any change pursuant to this Section 5.1, and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Shares as are stated in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Warrants reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the date hereof or the computation thereof.
5.2 Substitute Purchase Warrant. In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Shares of the Company for which such Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 5. The above provision of this Section 5 shall similarly apply to successive consolidations or share reconstructions or amalgamations.
5.3 Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.
6. Registration Rights.
6.1 Demand Registration.
6.1.1 Grant of Right. Unless all of the Registrable Securities (defined as below) are included in an effective registration statement with a current prospectus, the Company, upon written demand (“Demand Notice”) of the Holder(s) of at least 51% of the Purchase Warrants and/or the underlying securities (“Majority Holder(s)”), agrees to register, once at the Company’s expense and once at the Majority Holder’s expense, all or any portion of the remaining Ordinary Shares (collectively, the “Registrable Securities”) as requested by the Majority Holder(s) in the Demand Notice, provided that no such registration will be required unless the Holders request registration of an aggregate of at least 51% of the outstanding Registrable Securities. On such occasion, the Company will file a new registration statement or a post-effective amendment to the Registration Statement covering the Registrable Securities within sixty (60) days after receipt of the Demand Notice and use its commercially reasonable efforts to have such registration statement or post-effective amendment declared effective as soon as possible thereafter. The demand for registration may be made at any time after the date of commencement of sales of the offering, but no later than three (3) years from the date of commencement of sales of the offering. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holder(s) to all other registered Holders of the Purchase Warrants and/or the Registrable Securities within ten (10) days from the date of the receipt of any such Demand Notice, who shall have five days from the receipt of such Notice in which to notify the Company of their desire to have their Registrable Securities included in the Registration Statement.
6.1.2 Terms. The Company shall bear all fees and expenses attendant to registering the Registrable Securities upon the first Demand Notice, including the reasonable expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities, but the Holders shall pay any and all underwriting commissions, if any. The Holders shall bear all fees and expenses attendant to registering the Registrable Securities upon the second Demand Notice. The Company agrees to use its commercially reasonable efforts to qualify or register the Registrable Securities in such States as are reasonably requested by the Majority Holder(s); provided, however, that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause (i) the Company to be obligated to qualify to do business in such State or execute a general consent to service of process, or would subject the Company to taxation as a foreign corporation doing business in such jurisdiction or (ii) the principal shareholders of the Company to be obligated to escrow their shares of the Company. The Company shall cause any registration statement or post-effective amendment filed pursuant to the demand rights granted under Section 6.1.1 to remain effective for a period of twelve (12) consecutive months from the effective date of such registration statement or post-effective amendment or until the Holders have completed the distribution of the Registrable Securities included in the Registration Statement, whichever occurs first.
6.1.3. Deferred Filing. If (i) in the good faith judgment of the Board, filing a registration statement pursuant to Section 6.1 would be seriously detrimental to the Company and the Board concludes, as a result, that it is essential to defer the filing of such registration statement at such time, and (ii) the Company shall furnish to such Holders a certificate signed by a duly authorized officer of the Company stating that in the good faith judgment of the Board it would be seriously detrimental to the Company for such registration statement to be filed in the near future and that it is, therefore, essential to defer the filing of such registration statement, then the Company shall have the right to defer such filing on two occasions for an aggregate of not more than one hundred and twenty (120) days in any twelve-month period.
6.1.4. No Cash Settlement Option. The Company is only required to use its commercially reasonable efforts to cause a registration statement covering issuance of the Registrable Securities underlying the Purchase Warrant to be declared effective, and once effective, only to use its commercially reasonable efforts to maintain the effectiveness of the registration statement. The Company will not be obligated to deliver securities, and there are no contractual penalties for failure to deliver securities, if a registration statement is not effective at the time of exercise. Additionally, in no event is the Company obligated to settle any Purchase Warrant, in whole or in part, for cash in the event it is unable to register the Registrable Securities.
6.2 “Piggy-Back” Registration.
6.2.1 Grant of Right. Unless all of the Registrable Securities are included in an effective registration statement with a current prospectus, the Holders of the Purchase Warrants shall have the right for a period of not more than three (3) years from the date of commencement of sales of the offering, to include the remaining Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Act or pursuant to Form S-8 or any successor or equivalent form); provided, however, that if, in the written opinion of the Company’s managing underwriter or underwriters, if any, for such offering, the inclusion of the Registrable Securities, when added to the securities being registered by the Company or the selling shareholder(s), will exceed the maximum amount of the Company’s securities which can be marketed (i) at a price reasonably related to their then current market value, and (ii) without materially and adversely affecting the entire offering, then the Company will still be required to include the Registrable Securities, but may require the Holders to agree, in writing, to delay the sale of all or any portion of the Registrable Securities for a period of ninety (90) days from the effective date of the offering, provided, further, that if the sale of any Registrable Securities is so delayed, then the number of securities to be sold by all shareholders in such public offering shall be apportioned pro rata among all such selling shareholders, including all holders of the Registrable Securities, according to the total amount of securities of the Company owned by said selling shareholders, including all holders of the Registrable Securities.
6.2.2 Terms. The Company shall bear all fees and expenses attendant to registering the Registrable Securities, including the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities, but the Holders shall pay any and all underwriting commissions. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than ten (10) days written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each applicable registration statement filed (during the period in which the Purchase Warrant is exercisable) by the Company until such time as all of the Registrable Securities have been registered and sold. The holders of the Registrable Securities shall exercise the “piggy back” rights provided for herein by giving written notice, within ten (10) days of the receipt of the Company’s notice of its intention to file a registration statement. The Company shall use its commercially reasonable efforts to cause any registration statement filed pursuant to the above “piggyback” rights that does not relate to a firm commitment underwritten offering to remain effective for at least nine (9) consecutive months from the effective date of such registration statement or until the Holders have completed the distribution of the Registrable Securities in the registration statement, whichever occurs first.
7. Reservation and Listing. The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance upon exercise of this Purchase Warrant, such number of Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of this Purchase Warrant and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. The Company further covenants and agrees that upon exercise of this Purchase Warrant and payment of the exercise price therefor, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any shareholder. As long as this Purchase Warrant shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of this Purchase Warrant to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on the OTC Bulletin Board or any successor trading market) on which the Shares issued to the public in the Offering may then be listed and/or quoted.
8. Certain Notice Requirements.
8.1 Holder’s Right to Receive Notice. Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a shareholder for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books (the “Notice Date”) for the determination of the shareholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other shareholders of the Company at the same time and in the same manner that such notice is given to the shareholders.
8.2 Events Requiring Notice. The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company, (ii) the Company shall offer to all the holders of its Shares any additional shares of the Company or securities convertible into or exchangeable for shares of the Company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business shall be proposed.
8.3 Notice of Change in Exercise Price. The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 5 hereof, send notice to the Holders of such event and change (“Price Notice”). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company’s Chief Financial Officer.
8.4 Transmittal of Notices. All notices, requests, consents and other communications under this Purchase Warrant shall be in writing and shall be deemed to have been duly made (1) when hand delivered, (2) when mailed by express mail or private courier service, (3) if sent by electronic mail, on the day the notice was sent if during regular business hours and, if sent outside of regular business hours, on the following business day, or (4) when the event requiring notice is disclosed in all material respects and filed in a Current Report on Form 6-K prior to the Notice Date: (i) if to the registered Holder of the Purchase Warrant, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to following address or to such other address as the Company may designate by notice to the Holders:
If to the Holder:
Network 1 Financial Securities, Inc.
2 Bridge Ave., Suite 241
Red Bank, NJ 07701
Attention: Adam Pasholk, Managing Director
Email: adampasholk@netw1.com
with a copy (which shall not constitute notice) to:
Loeb & Loeb LLP
2206-19 Jardine House
1 Connaught Place
Central, Hong Kong SAR
Attention: Lawrence Venick, Esq.
Email: lvenick@loeb.com
If to the Company:
Webus International Limited
25/F, UK Center, EFC, Yuhang District
Hangzhou, China 311121
Attention: Zheng Nan, CEO
Email: nanzheng00@gmail.com
with a copy (which shall not constitute notice) to:
VCL Law LLP
1945 Old Gallows Road, Suite 630
Vienna, VA 22182
Attn: Fang Liu, Esq.
Email: fliu@vcllegal.com
9. Miscellaneous.
9.1 Amendments. The Company and Network 1 may from time to time supplement or amend this Purchase Warrant without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and Network 1 may deem necessary or desirable and that the Company and Network 1 deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.
9.2 Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.
9.3 Entire Agreement. This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.
9.4 Binding Effect. This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees and respective successors and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.
9.5 Governing Law; Submission to Jurisdiction. This Purchase Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in the Borough of Manhattan in The City of New York (each, a “New York Court”), and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8.4 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor.
9.6 Waiver, etc. The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
9.7 Exchange Agreement. As a condition of the Holder’s receipt and acceptance of this Purchase Warrant, Holder agrees that, at any time prior to the complete exercise of this Purchase Warrant by Holder, if the Company and Network 1 enter into an agreement (“Exchange Agreement”) pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.
9.8 Execution in Counterparts. This Purchase Warrant may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.
9.9 Restrictions. The Holder acknowledges that the Shares acquired upon the exercise of this Purchase Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
9.10 Severability. Wherever possible, each provision of this Purchase Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Purchase Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Purchase Warrant.
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IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the ____ day of _______, 202_.
| WEBUS INTERNATIONAL LIMITED | ||
| By: | ||
| Name: | Zheng Nan | |
| Title: | Chief Executive Officer | |
EXHIBIT A
EXERCISE FORM
Form to be used to exercise Purchase Warrant:
Date: __________, 20___
The undersigned hereby elects irrevocably to exercise the Purchase Warrant for ______ Shares of Webus International Limited, a Cayman Islands exempted company (the “Company”) and hereby makes payment of $____ (at the rate of $____ per Share) in payment of the Exercise Price pursuant thereto. Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.
or
The undersigned hereby elects irrevocably to convert its right to purchase ___ Shares under the Purchase Warrant for ______ Shares, as determined in accordance with the following formula:
| X | = | Y(A-B) | ||
| A |
Where,
X = The number of Shares to be issued to Holder;
Y = The number of Shares that would be issuable upon exercise of this Purchase Warrant in accordance with the terms of this Purchase Warrant if such exercise were by means of a cash exercise rather than a cashless exercise;
A = The fair market value of one Share; and
B = The Exercise Price of this Purchase Warrant, as adjusted hereunder
The undersigned agrees and acknowledges that the calculation set forth above is subject to confirmation by the Company and any disagreement with respect to the calculation shall be resolved by the Company in its sole discretion.
Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.
Signature
Signature Guaranteed
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
| Name: | |
| (Print in Block Letters) | |
| Address: |
NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.
EXHIBIT B
ASSIGNMENT FORM
Form to be used to assign Purchase Warrant:
(To be executed by the registered Holder to effect a transfer of the within Purchase Warrant):
FOR VALUE RECEIVED, does hereby sell, assign and transfer unto the right to purchase shares of Webus International Limited, a Cayman Islands exempted company (the “Company”), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on the books of the Company to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ____________, 20__
Holder’s Signature: _____________________________
Holder’s Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTICE: The signature to this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Purchase Warrant.
Exhibit 23.1
Independent Registered Public Accounting Firm’s Consent
We consent to the inclusion in this Registration Statement of Webus International Limited on Amendment No.10 to Form F-1 of our report dated October 21, 2024, except for Note 11, as to which the date is November 13, 2024, with respect to our audits of the consolidated financial statements of Webus International Limited as of June 30, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity and cash flows for the years ended June 30, 2024 and 2023, which report appears in the Prospectus, which is part of this Registration Statement. We also consent to the reference to our Firm under the heading “Experts” in such Prospectus.
/s/ Marcum Asia CPAs LLP
Marcum Asia CPAs LLP
New York, New York
December 2, 2024
NEW YORK OFFICE ● 7 Penn Plaza ● Suite 830 ● New York, New York ● 10001
Phone 646.442.4845 ● Fax 646.349.5200 ● www.marcumasia.com