Yi Po International Holdings Ltd F-1/A, filed Sep 9, 2022
Yi Po International Holdings Ltd (YBZN)
As filed with the U.S. Securities and Exchange Commission on September 9, 2022
Registration No. 333-262405
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM F-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Yi Po International Holdings Limited
(Exact Name of Registrant as Specified in its Charter)
Not Applicable
(Translation of Registrant’s name into English)
| Cayman Islands | 7500 | N/A | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
320~324, Building C4, No. 5 Jinxiu Street,
Yuhuatai District, Nanjing,
Jiangsu Province, People’s Republic of China
+86-4008280910
(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
(800) 221-0102
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
William S. Rosenstadt, Esq. Mengyi “Jason” Ye, Esq. Ortoli Rosenstadt LLP 366 Madison Avenue, 3rd Floor New York, NY 10017 T: 212-588-0022 |
Benjamin A. Tan, Esq. Sichenzia Ross Ference LLP 1185 Avenue of the Americas, 31st Floor New York, NY 10036 T: 212-930-9700 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after effectiveness 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, 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 462I 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 of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We will not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION, DATED SEPTEMBER 9, 2022 |
Yi Po International Holdings Limited
4,000,000 Ordinary Shares
This is an initial public offering of ordinary shares, par value US$0.00015625 per share, which we refer to as the “Ordinary Shares.” We anticipate the initial public offering price will be US$5.00 per share.
Prior to this offering, there has been no public market for our Ordinary Shares. We plan to apply to list our Ordinary Shares on the Nasdaq Capital Market under the symbol “YBZN”. This offering is contingent upon us listing our Ordinary Shares on the Nasdaq Capital Market or another national exchange. There can be no assurance that we will be successful in listing our Ordinary Shares on the Nasdaq Capital Market.
Weiming Jin, our Chairman of the Board of Directors and Chief Executive Officer, is currently the beneficial owner of 87% of our issued and outstanding Ordinary Shares, of which 100% are directly held by Ausen International Investment Holdings Co., Limited, a British Virgin Islands company, which is 100% owned by Mr. Jin. Upon the closing of this offering, our directors and officers will own approximately 62% of our issued and outstanding Ordinary Shares. We currently meet the definition of a “controlled company” under the corporate governance standards for Nasdaq listed companies and for so long as we remain a controlled company under this definition, we are eligible to utilize certain exemptions from the corporate governance requirements of the Nasdaq Stock Market. Mr. Jin will have the ability to determine all matters requiring approval by stockholders. For more information, see “Risk Factors – Risks Relating to this Offering – We will hold in the aggregate 62% of the voting power of our capital stock following the completion of this offering, preventing you and other stockholders from influencing significant decisions, including the election of directors, amendments to our organizational documents and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval.”
Investors are cautioned that you are not buying shares of a China-based operating company but instead are buying shares of a Cayman Islands holding company with operations conducted by our subsidiaries based in China and that this structure involves unique risks to investors.
This is an offering of the Ordinary Shares of the Cayman Islands holding company. We conduct our business through the PRC subsidiaries. You will not and may never have direct ownership in the operating entity based in China. After the restructure that dissolved the VIE structure, Yi Po International Holdings Limited now controls and receives the economic benefits of the PRC subsidiaries’ business operation, if any, through equity ownership. We do not use a Variable Interest Entity (“VIE”) structure.
Yi Po International Holdings Limited (“Yi Po Holdings”) is a Cayman Islands holding company and is not a Chinese operating company. As a holding company with no material operations of its own, it conducts all of its operations and operates its business in China through its PRC subsidiaries, in particular, Nanjing Dingxu Xinhui Technology Co. Ltd. (“Yi Po WFOE”) and its subsidiary, Jiangsu Easy Parking Intelligent Technology Co., Ltd. (“Jiangsu Easy Parking”). Because of our corporate structure as a Cayman Islands holding company with operations conducted by our PRC subsidiaries, it involves unique risks to investors. Furthermore, Chinese regulatory authorities could change the rules and regulations regarding foreign ownership in the industry in which the company operates, which would likely result in a material change in our operations and/or a material change in the value of the securities we are registering for sale, including that it could cause the value of such securities to significantly decline or become worthless. Investors in our Ordinary Shares should be aware that they do not directly hold equity interests in the Chinese operating entities, but rather are purchasing equity solely in Yi Po Holdings, our Cayman Islands holding company, which indirectly owns 100% equity interests in the PRC subsidiaries. Our Ordinary Shares offered in this offering are shares of our Cayman Islands holding company instead of shares of our subsidiaries in China. See “Risk Factors – Risks Related to Doing Business in China – The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if our subsidiaries or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors” on page 28.
Investing in our Ordinary Shares involves a high degree of risk. Before buying any Ordinary Shares, you should carefully read the discussion of material risks of investing in our Ordinary Shares in “Risk Factors” beginning on page 15 of this prospectus.
In particular, as substantially all of our operations are conducted through the PRC subsidiaries, we are subject to certain legal and operational risks associated with our operations in China, including that changes in the legal, political and economic policies of the Chinese government, the relations between China and the United States, or Chinese or United States regulations may materially and adversely affect our business, financial condition and results of operations. PRC laws and regulations governing our current business operations are sometimes vague and uncertain, and therefore, these risks could result in a material change in our operations and/or the value of our ordinary shares or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our Ordinary Shares to significantly decline or be worthless. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement.
On December 28, 2021, the Cyberspace Administration of China (the “CAC”), together with 12 other governmental departments of the PRC, jointly promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022. The Cybersecurity Review Measures requires that an online platform operator which possesses the personal information of at least one million users must apply for a cybersecurity review by the CAC if it intends to be listed in foreign countries. As confirmed by our PRC counsel, Guantao Law Firm, since we are not an online platform operator that possesses over one million users’ personal information, we are not subject to the cybersecurity review with the CAC under the Cybersecurity Review Measures, and for the same reason, we will not be subject to the network data security review by the CAC if the Draft Regulations on the Network Data Security Administration (Draft for Comments) (the “Security Administration Draft”) are enacted as proposed. See “Risk Factors — Risks Related to Doing Business in China — The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if our subsidiaries or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors” on page 28.
As of the date of this prospectus, as advised by our PRC counsel, Guantao Law Firm, no relevant laws or regulations in the PRC explicitly require us to seek approval from the China Securities Regulatory Commission, or the CSRC, or any other PRC governmental authorities for our overseas listing plan, nor has our Cayman Islands holding company, any of our subsidiaries received any inquiry, notice, warning or sanctions regarding our planned overseas listing from the CSRC or any other PRC governmental authorities. However, since these statements and regulatory actions by the PRC government are newly published and official guidance and related implementation rules have not been issued, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. or other foreign exchange. The Standing Committee of the National People’s Congress, or the SCNPC, or other PRC regulatory authorities may in the future promulgate laws, regulations or implementing rules that requires our company or any of our subsidiaries to obtain regulatory approval from Chinese authorities before listing in the U.S. In other words, although the Company is currently not required to obtain permission from any of the PRC central (or national) or local government to obtain such permission and has not received any denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly; our ability to offer, or continue to offer, securities to investors would be potentially hindered and the value of our securities might significantly decline or be worthless, by existing or future laws and regulations relating to its business or industry or by intervene or interruption by PRC governmental authorities, if we or our subsidiaries (i) do not receive or maintain such permissions or approvals, (ii) inadvertently conclude that such permissions or approvals are not required, (iii) applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future, or (iv) any intervention or interruption by PRC governmental with little advance notice. See “Risk Factors — Risks Related to Doing Business in China” beginning on page 21 and “— Risks Related to this Offering,” beginning on page 36 of this prospectus for a discussion of these legal and operational risks and information that should be considered before making a decision to purchase our Ordinary Shares.
In addition, since 2021, the Chinese government has strengthened its anti-monopoly supervision, mainly in three aspects: (1) establishing the National Anti-Monopoly Bureau; (2) revising and promulgating anti-monopoly laws and regulations, including: the Anti-Monopoly Law (the amendment to the PRC Anti-Monopoly Law issued on June 24, 2022 and will be effective from August 1, 2022), the anti-monopoly guidelines for various industries, and the detailed Rules for the Implementation of the Fair Competition Review System; and (3) expanding the anti-monopoly law enforcement targeting Internet companies and large enterprises. As of the date of this prospectus, the Chinese government’s recent statements and regulatory actions related to anti-monopoly concerns have not impacted our ability to conduct business, accept foreign investments, or list on a U.S. or other foreign exchange because neither the Company nor its PRC subsidiaries engage in monopolistic behaviors that are subject to these statements or regulatory actions.
Pursuant to the Holding Foreign Companies Accountable Act, or the HFCAA, if the Public Company Accounting Oversight Board, or the PCAOB, is unable to inspect an issuer’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a U.S. stock exchange. The PCAOB issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. Furthermore, the PCAOB’s report identified the specific registered public accounting firms which are subject to these determinations. On June 22, 2021, United States Senate has passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would decrease the number of “non-inspection years” from three years to two years, and thus, would reduce the time before our securities may be prohibited from trading or delisted if the PCAOB determines that it cannot inspect or investigate completely our auditor. As of the date of the prospectus, WWC, P.C., our auditor, is not subject to the determinations as to inability to inspect or investigate completely as announced by the PCAOB on December 16, 2021. The Company’s auditor is based in the U.S. and is registered with PCAOB and subject to PCAOB inspection. Recently developments with respect to audits of China-based companies, create uncertainty about the ability of WWC, P.C. to fully cooperate with the PCAOB’s request for audit workpapers without the approval of the Chinese authorities. 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, and ultimately result in a determination by a securities exchange to delist the Company’s securities. On August 26, 2022, the China Securities Regulatory Commission, the Ministry of Finance of the PRC (the “MOF”), and the PCAOB signed a Statement of Protocol (the “Protocol”), governing inspections and investigations of audit firms based in 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 U.S. Securities and Exchange Commission (the “SEC”), the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. See “Risk Factors — Risks Related to Doing Business in China — The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering” on page 33.
We currently have not maintained any cash management policies that dictate the purpose, amount and procedure of cash transfers between the Company, our subsidiaries, or investors. Rather, the funds can be transferred in accordance with the applicable PRC laws and regulations. To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds 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 on the ability of us or our subsidiaries by the PRC government to transfer cash or assets. See “Risk Factors - Risks Related to Doing Business in China - To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds 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 on the ability of us or our subsidiaries by the PRC government to transfer cash or assets.”
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 the State Administration of Foreign Exchange, or the 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 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. Cayman Islands law prescribes that a company may only pay dividends out of its profits. Other than that, there is no restrictions on Yi Po Holdings’ ability to transfer cash to investors. See “Prospectus Summary – Transfers of Cash to and from Our Subsidiaries,” “Prospectus Summary – Summary of Risk Factors,” and “Risk Factors - Risks Related to Doing Business in China - To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds 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 on the ability of us or our subsidiaries by the PRC government to transfer cash or assets,” “Risk Factors - Risks Related to Doing Business in China - We are a holding company and we rely on our subsidiaries for funding dividend payments, which are subject to restrictions under PRC laws,” and “Risk Factors - Risks Related to Doing Business in China - Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business.”
As a holding company, we may rely on dividends and other distributions on equity paid by our subsidiaries, including those based in the PRC, for our cash and financing requirements. If any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict their ability to pay dividends to us. Yi Po Holdings is permitted under the laws of the Cayman Islands to provide funding to our subsidiaries incorporated in Hong Kong through loans or capital contributions without restrictions on the amount of the funds. Our subsidiaries are permitted under the respective laws of Hong Kong to provide funding to Yi Po Holdings through dividend distribution without restrictions on the amount of the funds. There are no restrictions on dividend transfers from HK to the Cayman Islands. Current PRC regulations permit Yi Po WFOE to pay dividends to the Company only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. The transfer of funds among companies are subject to the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases (2020 Second Revision, the “Provisions on Private Lending Cases”), which was implemented on January 1, 2021 to regulate the financing activities between natural persons, legal persons and unincorporated organizations. As advised by our PRC counsel, Guantao Law Firm, the Provisions on Private Lending Cases does not prohibit using cash generated from one subsidiary to fund another subsidiary’s operations. We have not been notified of any other restriction which could limit our PRC subsidiaries’ ability to transfer cash between PRC subsidiaries. As of the date of this prospectus, neither the Company nor its subsidiaries have made transfers, dividends, or distributions to investors and no investors have made transfers, dividends, or distributions to the Company or its subsidiaries. As of the date of this prospectus, no dividends, distributions or transfers has been made between Yi Po Holdings and any of its subsidiaries. We do not expect to pay any cash dividends in the foreseeable future. Also, as of the date of this prospectus, 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 subsidiaries. See “Prospectus Summary – Transfers of Cash to and from Our Subsidiaries,” on page 4, “Prospectus Summary – Summary of Financial Position and Cash Flows of Yi Po Holdings” on page 14, and “Consolidated Financial Statements” starting from page F-1.
We are an “Emerging Growth Company” under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements. Please read “Implications of Our Being an ‘Emerging Growth Company’” beginning on page 11 of this prospectus for more information.
Investing in our Ordinary Shares involves a high degree of risk, including the risk of losing your entire investment. See “Risk Factors” beginning on page 15 to read about factors you should consider before buying our Ordinary Shares.
| Per Ordinary Share | Total(4) | |||||||
| Initial public offering price(1) | $ | 5.00 | $ | 20,000,000 | ||||
| Underwriting discounts(2) | $ | 0.35 | $ | 1,400,000 | ||||
| Proceeds to us, before expenses(3) | $ | 4.65 | $ | 18,600,000 | ||||
| (1) | Initial public offering price per share is assumed as US$5.00 per share. |
| (2) | We have agreed to pay the underwriter a discount equal to (i) 7% of the gross proceeds of the offering for investors introduced to us by the underwriter and (ii) 7% of the gross proceeds for investors sourced by the Company. This table assumes all investors are introduced to us by the underwriter. Additionally, we have agreed to pay to the underwriter a discount equal to one percent (1) % of the gross proceeds of the offering as non-accountable expenses. We have agreed to issue to the underwriter, on the applicable closing date of this offering, warrants (the “Underwriters’ Warrants”) in an amount equal to 7% of the aggregate number of Ordinary Shares sold by us in this offering. For a description of other terms of the Underwriters’ Warrants and a description of the other compensation to be received by the underwriters, see “Underwriting.” |
| (3) | Excludes fees and expenses payable to the underwriters. The total amount of underwriters’ expenses related to this offering is set forth in the section entitled “Expenses Relating to This Offering” |
| (4) | Assumes that the underwriters do not exercise any portion of their over-allotment option. |
Neither the Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This offering is being conducted on a firm commitment basis. The underwriters are obligated to take and pay for all of the shares if any such shares are taken. We have granted the underwriters an option, exercisable one or more times in whole or in part, to purchase up to additional Ordinary Shares from us at the initial public offering price, less underwriting discounts, within 45 days from the closing of this offering to cover over-allotments, if any. If the underwriters exercise the option in full, the total underwriting discounts payable will be US$1,400,000, and the total proceeds to us, before expenses, will be US$18,600,000.
The underwriters expect to deliver the ordinary shares against payment as set forth under “Underwriting,” on or about , 2022.
The date of this prospectus is , 2022
TABLE OF CONTENTS
i
Neither we nor any of the underwriters have authorized anyone to provide you with any information or to make any representations other than as contained in this prospectus or in any free writing prospectuses we have prepared. Neither we nor the underwriters take responsibility for, and provide no assurance about the reliability of, any information that others may give you. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the securities. Our business, financial condition, results of operations and prospects may have changed since that date.
No action is being taken in any jurisdiction outside the U.S. to permit a public offering of our securities or possession or distribution of this prospectus in any such jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the U.S. are required to inform themselves about and to observe any restrictions about this offering and the distribution of this prospectus applicable to those jurisdictions.
ii
Conventions Which Apply to this Prospectus
Unless we indicate otherwise, all information in this prospectus assumes no exercise by the underwriters of their over-allotment option.
Unless otherwise stated, as used in this prospectus, the terms “Yi Po Holdings,” “we,” “us,” “our Company,” and the “Company” refer to Yi Po International Holdings Limited, an exempted company with limited liability incorporated under the laws of Cayman Islands; the terms the “PRC subsidiaries” and the “operating subsidiaries” refer to Nanjing Dingxu Xinhui Technology Co. Ltd., or Yi Po WFOE and its subsidiary, Jiangsu Easy Parking Intelligent Technology Co., Ltd. or Jiangsu Easy Parking, entities organized under the laws of the PRC.
| ● | “China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this prospectus only, Taiwan region, Hong Kong, and Macau; |
| ● | “HK$”, “HKD”, or “Hong Kong dollars” refers to the legal currency of Hong Kong;
| |
| ● | “Jiangsu Easy Parking” refers to Jiangsu Easy Parking Intelligent Technology Co., Ltd., a wholly foreign-owned company organized under the laws of the PRC and a wholly-owned subsidiary of Yi Po WFOE; |
| ● | “Ordinary Shares” refers to the Company’s ordinary shares, par value US$0.00015625 per share; |
| ● | “SEC” refers to the United States Securities and Exchange Commission; |
| ● | “US$”, “USD”, “$”, or “U.S. dollars” refers to the legal currency of the United States; |
| ● | “Yi Po Holdings” refers to Yi Po International Holdings Limited, a Cayman Islands exempted company; |
| ● | “Yi Po HK” refers to Guangyan Hong Kong Group Co., Limited, a Hong Kong company and a wholly-owned subsidiary of Yi Po Holdings; |
| ● | “Yi Po WFOE” refers to Nanjing Dingxu Xinhui Technology Co. Ltd., a wholly foreign-owned company organized under the laws of the PRC and a wholly-owned subsidiary of Yi Po HK; |
This prospectus contains translations of certain RMB amounts into U.S. dollar amounts at specified rates solely for the convenience of the reader. All reference to “U.S. dollars”, “USD”, “US$” or “$” are to United States dollars. The relevant exchange rates are listed below:
As of December 31, | ||||||||
| 2021 | 2020 | |||||||
| Period-end RMB: US$1 exchange rate | 6.3551 | 6,5249 | ||||||
| Period-end HKD: US$1 exchange rate | 7.7973 | 7.7530 | ||||||
| Period-average RMB: US$1 exchange rate | 6.3703 | 6.8976 | ||||||
| Period-average HKD: US$1 exchange rate | 7.7991 | 7.7562 | ||||||
We amended our Memorandum and Articles of Association in order to effect a 1-for-32 reverse stock split of our Ordinary Shares. Unless otherwise indicated, all information in this prospectus has been adjusted to give effect to the 1-for-32 reverse stock split of our Ordinary Shares effected on July 9, 2022.
iii
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that reflect our current expectations and views of future events, all of which are subject to risks and uncertainties. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by the use of words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “will,” “would,” “should,” “could,” “may” or other similar expressions in this prospectus. These statements are likely to address our growth strategy, financial results and product and development programs. You must carefully consider any such statements and should understand that many factors could cause actual results to differ from our forward-looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
| ● | our goals and strategies; |
| ● | our future business development, financial condition and results of operations; |
| ● | introduction of new product and service offerings; |
| ● | expected changes in our revenues, costs or expenditures; |
| ● | our expectations regarding the demand for and market acceptance of our products and services; |
| ● | expected growth of our customers, including consolidated account customers; |
| ● | competition in our industry; |
| ● | government policies and regulations relating to our industry; and | |
| ● | uncertainty about the spread of the COVID-19 virus and the impact it may have on the Company’s operations, the demand for the Company’s products and services, and economic activity in general; and |
We describe certain material risks, uncertainties, and assumptions that could affect our business, including our financial condition and results of operations, under “Risk Factors.” We base our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may, and are likely to, differ materially from what is expressed, implied or forecast by our forward-looking statements. Accordingly, you should be careful about relying on any forward-looking statements. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this prospectus, whether as a result of new information, future events, changes in assumptions, or otherwise.
iv
The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements included elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our Ordinary Shares, discussed under “Risk Factors,” before deciding whether to buy our Ordinary Shares.
Investors should note that Yi Po Holdings, our ultimate Cayman Islands holding company, does not directly own any substantive operations in the PRC and our businesses in the PRC described in this prospectus are operated through Jiangsu Easy Parking, our subsidiary in China.
Overview
Yi Po Holdings is a holding company that was incorporated under the laws of the Cayman Islands on March 19, 2020. As a holding company with no material operations of our own, we conduct our operations in China through our subsidiary, Jiangsu Easy Parking. Yi Po Holdings, through Jiangsu Easy Parking, provides intelligent parking management systems and intelligent parking lot gate products in the PRC.
We, through our PRC operating subsidiaries, entered into the intelligent parking industry in 2018. At present, we have installed our intelligent parking management system in approximately 76 parking lots across 20 cities in China, including 8 parking lots self-operated by us.
Our intelligent parking management system is widely-used in the self-operated parking lots business and the cooperatively operated parking lots business, which is an electronic network system with automatic vehicle login, entrance and exit authentication, monitoring, and charging management functionalities. We launched a national network parking platform that provides vehicle owners with diverse services such as parking space search, navigation guidance, touchless payment, membership discounts, and owner’s car search, to provide convenient parking experiences to vehicle owners. We also provide intelligent parking lot gate products, which combine our intelligent parking software system with electromechanical products (i.e. ordinary parking lot gate). Our vehicle access efficiency is manifested by the intelligent management system installed in the parking lot gate products, which save and store information such as records of vehicles’ entrance and exit, time of entrance and exit.
We have a broad marketing network in China, and have established cooperative relationships with 39 regional dealers who provide marketing and promotion services nationwide. The extensive dealer licensing channels reduce our overall operating costs. The dealers facilitate the cooperation between us and our partners to in the operation and management of parking lots and parking spaces. The dealers also promote and publicize our intelligent parking management system and our national network parking platform.
With the rapid development of urbanization in China and the improvement of resident awareness of safety precautions, the demand for intelligent parking management system products in commercial and residential buildings has increased. This translates into a huge market for the intelligent parking lots. Based on our grasp of the market and investment in the intelligent parking industry, Jiangsu Easy Parking was awarded the honors of “China’s most influential brand in the intelligent parking industry in 2020” and “China’s most valuable intelligent parking platform for investment and cooperation in 2020” by China Brand Influence Evaluation Committee, a well-recognized organization in China.
As we gradually deepen our understanding of different vertical industries such as the transportation industry, property management industry, and urban planning industry, our goal is to combine the digital and intelligent development needs of each vertical industry to develop and provide more comprehensive intelligent parking solutions. We believe that our intelligent parking management system will enhance the sustainability of our business. We also plan to collaborate with the merchants on our national network parking platform, which may lead to more business cooperation opportunities.
Our revenues consist of (i) dealer licensing fee; (ii) parking space rental fee; and (iii) other related revenue. Our net revenues were $5,277,517 for the year ended December 31, 2021 as compared to $2,786,853 for the same period in 2020, an increase of $2,490,664, or 89.37%.
Our net income increased by $1,468,382 or 305.77 %, to $1,948,612 for the year ended December 31, 2021, from $480,230 for the year ended December 31, 2020.
Impact of COVID-19
The ongoing outbreak of a novel strain of coronavirus (“COVID-19”) has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities globally for the past year. In March 2020, the World Health Organization declared COVID-19 as a pandemic. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of our business operations and our workforce are concentrated in China, we believe there is a risk that our business, results of operations, and financial condition will be adversely affected. Potential impact to our results of operations will also depend on future developments and new information that may emerge regarding the duration and severity of COVID-19 and the actions taken by government authorities and other entities to contain COVID-19 or mitigate its impact, almost all of which are beyond our control.
The impact of COVID-19 on our business, financial conditions and operating results includes, but is not limited to the following:
| ● | According to the requirements of relevant Chinese regulatory authorities, from the end of January 2020 to March 2020, our employees and dealers were temporarily prohibited from going out in accordance with Nanjing local government policies. Our business reopened in April 2020. |
| ● | In the first half of 2020, we suspended all on-site marketing and advertising activities. We transferred these activities online during the pandemic. As of June 2020, we have resumed on-site marketing and advertising activities. |
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| ● | Our business performance was negatively affected in the first half of 2020. However, due to the effective control of the pandemic in China in the second half of 2020, business performance has rebounded. In addition, we have also received interest from investors who are interested in the smart parking industry and want to join us as dealers. |
As of the date of this prospectus, there are still regional outbreaks of coronavirus diseases in 2022 (such as Beijing and Shanghai) and movements in China are still limited. Lockdown measures will continue in closed and control areas with reported COVID-19 cases. Some cities require residents to present a negative COVID-19 test result to enter public venues and take public transport. Though these recent regional outbreaks did not impact Company’s operations, the situation could impact economies and financial markets, resulting in an economic downturn that could impact our ability to raise capital or slow down potential business opportunities. There are still uncertainties of COVID-19’s future impact, and the extent of the impact will depend on a number of factors, including the duration and severity of the pandemic; and the macroeconomic impact of government measures to contain the spread of COVID-19 and related government stimulus measures. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
Because of the uncertainty surrounding the COVID-19 outbreak, business disruption and its related financial impact related to the outbreak of and response to COVID-19 cannot be reasonably estimated at this time. We believe that our current cash and cash equivalents and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures for the next 12 months. We may, however, need additional capital in the future to fund our continuing operations. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations.
Our Competitive Strengths
We believe that the following competitive strengths contribute to our success and differentiate us from our competitors:
| ● | Integrated national network parking platform: With an integrated national network parking platform and through the coordination and combination of different functional systems, we provide a city-level intelligent parking full-process services, in which the information of parking lot management, operation, maintenance, and charging is transmitted digitally and electronically through the national network parking platform. It can quickly meet the increasingly diversified, complex and personalized needs of customers with lower operating costs in the market competition. |
| ● | Convenient payment services: If the vehicle owner uses the parking lot, the owner can pay the parking fee by scanning the QR code of the parking lot or through our national network parking platform. Our system is quickly connected to mobile payment options, including WeChat, Alipay, UnionPay, and ETC. |
| ● | Marketing network advantages: Our dealers in 28 cities have established cooperative relationships with us and are responsible for providing nationwide marketing and promotion services. The dealers provide promotion and publicity, facilitate us and potential partners, i.e. parking lots’ owners, to reach cooperation in the operation of parking lots through installing our intelligent parking management system and parking lot gates and using our national network parking platform. |
Our Growth Strategies
Our business model and competitive strengths provide us with multiple avenues for growth. We intend to execute the following key strategies:
| ● | We actively participate in the digitalization and intellectualization of parking lot management and focus on the development of intelligent parking solutions: We believe that our ability to provide one-stop parking solutions for vehicle owners enables us to take full advantage of the opportunities from the digital industrialization of the parking lot management. Intelligent parking solutions are expected to become our core business and play an increasingly important role in our business. We plan to extend the application of our intelligent parking solutions to more industries and sectors, including intelligent cities and intelligent communities. |
| ● | We develop online technology platforms and marketing channels: We continue to improve and optimize our national network parking platform, which provides vehicle owners with functions such as parking space search, navigation guidance, touchless payment, membership discounts, and owner’s car search. Such parking platform strives to meet the diverse needs of vehicle owners and provides them with digital parking information and convenient parking experiences. |
| ● | We reduce the overall operation costs: Considering the intense competition in the intelligent parking industry and the COVID-19 outbreak, we intend to reduce our overall costs through dealer licensing to strengthen our short-term cash flow. The dealers facilitate us and potential partners to achieve operation and management cooperation of parking lot and parking space, and promote and publicize our intelligent parking management system and our national network parking platform. |
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Corporate Structure
Yi Po Holdings is a holding company incorporated in the Cayman Islands. As a holding company with no material operations, Yi Po Holdings conduct its operations in China through its PRC subsidiaries. After the restructure that dissolved the VIE structure, Yi Po Holdings now controls and receives the economic benefits of the PRC subsidiaries’ business operation, if any, through equity ownership. We do not use a VIE structure.
The following diagram illustrates our corporate structure as of the date of this prospectus. For more detail on our corporate history, please refer to “Business — Corporate Structure” beginning on page 59 of this prospectus.
Our Subsidiaries and Business Functions
Yi Po Holdings is a Cayman Islands exempted company incorporated on March 19, 2020. We are a holding company incorporated in the Cayman Islands and not a Chinese operating company. As a holding company with no material operations of our own, we conduct our business in China through our PRC subsidiaries.
Yi Po HK was incorporated on April 28, 2020 under the law of Hong Kong SAR. Yi Po HK is our wholly-owned subsidiary and is currently not engaging in any active business and merely acting as a holding company.
Yi Po WFOE was incorporated on March 16, 2021 under the laws of the People’s Republic of China. It is a wholly-owned subsidiary of Yi Po HK and a wholly foreign-owned entity under the PRC laws.
Jiangsu Easy Parking was incorporated on August 22, 2018 under the laws of the People’s Republic of China. Its registered business scope includes intelligent technology, smart parking technology research and development, computer software development, technical services and consulting, parking lot management service, etc. Jiangsu Easy Parking is our operating company.
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The Restructure
On August 24, 2021, Yi Po WFOE entered into a series of VIE agreements (the “VIE Agreements”) with Jiangsu Easy Parking and all the shareholders of Jiangsu Easy Parking, which established the VIE structure. As a result of the VIE Agreements, Yi Po WFOE was regarded as the primary beneficiary of Jiangsu Easy Parking, and we treated Jiangsu Easy Parking as the variable interest entities under U.S. GAAP for accounting purposes. We have consolidated the financial results of Jiangsu Easy Parking and its subsidiaries in our consolidated financial statements in accordance with the U.S. GAAP.
On February 19, 2022, Yi Po WFOE, Jiangsu Easy Parking and shareholders of Jiangsu Easy Parking signed a termination agreement of the VIE Agreements. The VIE structure was dissolved.
On February 23, 2022, a shareholder of Jiangsu Easy Parking transferred part of his shares to a non-Chinese individual. As a result, Jiangsu Easy Parking transformed from a Chinese domestic enterprise to a foreign-invested joint venture.
On March 4, 2022 and March 9, 2022, Yi Po WFOE entered into equity transfer agreements with each shareholder of Jiangsu Easy Parking to purchase all the equity interest in Jiangsu Easy Parking. The restructure was completed on June 1, 2022. As a result, Jiangsu Easy Parking became a wholly owned subsidiary of Yi Po WFOE. Jiangsu Easy Parking was a foreign-invested joint venture at the time of the acquisition of its 100% equity interests by Yi Po WFOE, our PRC counsel, Guantao Law Firm, is of the opinion that the establishment of Yi Po WFOE and the abovementioned acquisition of Jiangsu Easy Parking by Yi Po WFOE were not subject to the M&A Rules and no approvals from CSRC or MOFCOM under the M&A Rules are required. However, our PRC counsel further advises that there is uncertainty as to how the M&A Rules will be interpreted or implemented.
Transfers of Cash to and from Our Subsidiaries
We currently have not maintained any cash management policies that dictate the purpose, amount and procedure of cash transfers between the Company, our subsidiaries, or investors. Rather, the funds can be transferred in accordance with the applicable PRC laws and regulations. To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds 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 on the ability of us or our subsidiaries by the PRC government to transfer cash or assets.
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 the State Administration of Foreign Exchange, or the 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 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. Cayman Islands law prescribes that a company may only pay dividends out of its profits. Other than that, there is no restrictions on Yi Po Holdings’ ability to transfer cash to investors. See “Risk Factors - Risks Related to Doing Business in China - To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds 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 on the ability of us or our subsidiaries by the PRC government to transfer cash or assets,” “Risk Factors - Risks Related to Doing Business in China - We rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business,” and “Risk Factors - Risks Related to Doing Business in China - Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business.”
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As a holding company, we may rely on dividends and other distributions on equity paid by our subsidiaries, including those based in the PRC, for our cash and financing requirements. If any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict their ability to pay dividends to us. Yi Po Holdings is permitted under the laws of the Cayman Islands to provide funding to our subsidiaries incorporated in Hong Kong through loans or capital contributions without restrictions on the amount of the funds. Our subsidiaries are permitted under the respective laws of Hong Kong to provide funding to Yi Po Holdings through dividend distribution without restrictions on the amount of the funds. There are no restrictions on dividends transfers from HK the Cayman Islands. Current PRC regulations permit our WFOE to pay dividends to the Company only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations.
The PRC has currency and capital transfer regulations that require us to comply with certain requirements for the movement of capital. The Company is able to transfer cash (US Dollars) to its PRC subsidiaries through an investment (by increasing the Company’s registered capital in a PRC subsidiary). The Company’s subsidiaries within China can transfer funds to each other when necessary through the way of current lending. The transfer of funds among companies are subject to the Provisions on Private Lending Cases, which was implemented on August 20, 2020 to regulate the financing activities between natural persons, legal persons and unincorporated organizations. As advised by our PRC counsel, Guantao Law Firm, the Provisions on Private Lending Cases does not prohibit using cash generated from one subsidiary to fund another subsidiary‘s operations. We have not been notified of any other restriction which could limit our PRC subsidiaries’ ability to transfer cash between PRC subsidiaries. The Company’s subsidiaries in the PRC have not transferred any earnings or cash to the Company to date. As of the date of this prospectus, there has not been any assets or cash transfer between the holding company and its subsidiaries. As of the date of this prospectus, there has not been any dividends or distributions made to US investors. The Company’s business is primarily conducted through its subsidiaries. The Company is a holding company and its material assets consist solely of the ownership interests held in its PRC subsidiaries. The Company relies on dividends paid by its subsidiaries 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. As a result of PRC laws and regulations (noted below) that require annual appropriations of 10% of after-tax income to be set aside in a general reserve fund prior to payment of dividends, the Company’s PRC subsidiaries are restricted in that respect, as well as in others respects noted below, in their ability to transfer a portion of their net assets to the Company as a dividend.
With respect to transferring cash from the Company to its subsidiaries, increasing the Company’s registered capital in a PRC subsidiary requires the filing of the local commerce department, while a shareholder loan requires a filing with the State Administration of Foreign Exchange or its local bureau. Aside from the declaration to the State Administration of Foreign Exchange, there is no restriction or limitations on such cash transfer or earnings distribution.
With respect to the payment of dividends, we note the following:
| 1. | PRC regulations currently permit the payment of dividends only out of accumulated profits, as determined in accordance with accounting standards and PRC regulations (an in-depth description of the PRC regulations is set forth below); |
| 2. | Our PRC subsidiaries are required to set aside, at a minimum, 10% of their net income after taxes, based on PRC accounting standards, each year as statutory surplus reserves until the cumulative amount of such reserves reaches 50% of their registered capital; |
| 3. | Such reserves may not be distributed as cash dividends; |
| 4. | Our PRC subsidiaries may also allocate a portion of their after-tax profits to fund their staff welfare and bonus funds; except in the event of a liquidation, these funds may also not be distributed to shareholders; the Company does not participate in a Common Welfare Fund; and |
| 5. | The incurrence of debt, specifically the instruments governing such debt, may restrict a subsidiary’s ability to pay stockholder dividends or make other cash distributions. |
If, for the reasons noted above, our subsidiaries are unable to pay shareholder dividends and/or make other cash payments to the Company when needed, the Company’s ability to conduct operations, make investments, engage in acquisitions, or undertake other activities requiring working capital may be materially and adversely affected. However, our operations and business, including investment and/or acquisitions by our subsidiaries within China, will not be affected as long as the capital is not transferred in or out of the PRC.
As of the date of this prospectus, the Company or its subsidiaries have made no transfers, dividends, or distributions to investors and no investors have made transfers, dividends, or distributions to the Company or its subsidiaries.
As of the date of this prospectus, no dividends, distributions or transfers has been made between Yi Po Holdings and any of its subsidiaries. For the foreseeable future, the Company intends to use the earnings for research and development, to develop new products and to expand its production capacity. As a result, we do not expect to pay any cash dividends in the foreseeable future. Also, as of the date of this prospectus, 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 subsidiaries.
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Regulatory Permissions
Our subsidiaries have obtained all requisite permissions and approvals required for our operations in compliance with the relevant laws and regulations in the PRC. As of the date of this prospectus, the only permission required for operations are the business licenses of the PRC subsidiaries. The business license in PRC is a permit issued by Market Supervision and Administration that allows the company to conduct specific business within the government’s geographical jurisdiction. As of the date of this prospectus, we and our PRC subsidiaries have received from PRC authorities all requisite licenses, permissions or approvals needed to engage in the businesses currently conducted in China, and no permission or approval has been denied. The following table provides details on the licenses and permissions held by our PRC subsidiaries.
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Approval |
Recipient |
Issuing body |
Issuing Date | Validity |
Regions |
The Scope of Conduct Allowed | ||||||
| Business License | Yi Po WFOE | Market Supervision and Administration of Jiangning District, Nanjing City | March 16, 2021 | Unlimited | Room 501, Building 12, Ideal Mingyuan, No. 88 Gaotang Road, Moling Street, Jiangning District, Nanjing City | General items: computer system services; data processing services; consulting and planning services; network technology services; animation and game development; translation services; industrial design services; internet sales (except for sales of goods that require licensing) (except for projects subject to approval by law, to independently carry out business activities according to the law with the business license) | ||||||
| Business License | Jiangsu Easy Parking | Market Supervision and Administration of Jianye District, Nanjing City | June 10, 2022 | Unlimited | Room 402-404, Building 1, No. 33 Keji Road, Jianye District, Nanjing City | Research and development of intelligent technology and intelligent parking equipment; computer software and hardware research and development, technical consultation, technical services; parking lot management services; intelligent garage construction engineering design and construction; sales and installation of intelligent parking equipment; property management. (For projects subject to approval according to law, such business activities can only be carried out after approval by relevant authorities)
General items: operation of electric vehicle charging infrastructure; sales of charging piles; centralized fast charging stations (except for projects subject to approval by law, to independently carry out business activities according to the law with the business license)
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The PRC subsidiaries do not need specific licenses for our parking lot management business. However, applicable laws and regulations may be tightened, and new laws or regulations may be introduced to impose additional government approval, license and permit requirements. If we inadvertently conclude that such approval is not required, fail to obtain and maintain such approvals, licenses or permits required for our business or respond to changes in the regulatory environment, we could be subject to liabilities, penalties and operational disruption, which may materially and adversely affect our business, operating results, financial condition and the value of our ordinary shares, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless.
As of the date of this prospectus, none of our Company or subsidiaries has applied for, received or been denied approval from any Chinese authorities to list on the Nasdaq Stock Market, nor has our Company or our subsidiaries received any inquiry, notice, warning or sanctions regarding our planned overseas listing from the China Securities Regulatory Commission, or the CSRC, or any other PRC governmental authorities. We believe that we and our subsidiaries are not required to obtain permission from Chinese authorities to issue these securities to foreign investors based on the PRC laws, regulations and rules currently in effect. However, if we are subsequently advised by any Chinese authorities that permission for this offering and/or listing on the Nasdaq Stock Market was required, we may not be able to obtain such permission in a timely manner, if at all. If this risk occurs, our ability to offer securities to investors could be significantly limited or completely hindered and the securities currently being offered may substantially decline in value and be worthless.
On August 8, 2006, six PRC regulatory agencies jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which came into effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules requires that an offshore special purpose vehicle formed for overseas listing purposes and controlled directly or indirectly by the PRC Citizens shall obtain the approval of the CSRC prior to overseas listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. Based on our understanding of the Chinese laws and regulations in effect at the time of this prospectus, we will not be required to submit an application to the CSRC for its approval of this offering and the listing and trading of our Ordinary Shares on the Nasdaq under the M&A Rules. However, there remains some uncertainty as to how the M&A Rules will be interpreted or implemented, and the opinions of our PRC counsel summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant Chinese government agencies, including the CSRC, would reach the same conclusion.
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Recently, 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 Strictly Cracking Down on Illegal Securities Activities, which were made available to the public on July 6, 2021. The Opinions on Strictly Cracking Down on Illegal Securities Activities emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems will be taken to deal with the risks and incidents of China-based overseas listed companies, and cybersecurity and data privacy protection requirements and similar matters. It is still uncertain how PRC governmental authorities will regulate overseas listing in general and whether we are required to obtain any specific regulatory approvals. Furthermore, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering and any follow-on offering, we may be unable to obtain such approvals which could significantly limit or completely hinder our ability to offer or continue to offer securities to our investors.
On December 24, 2021, the CSRC, together with other relevant government authorities in China issued the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), and the Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (“Draft Overseas Listing Regulations”). The Draft Overseas Listing Regulations requires that a PRC domestic enterprise seeking to issue and list its shares overseas (“Overseas Issuance and Listing”) shall complete the filing procedures of and submit the relevant information to CSRC. The Overseas Issuance and Listing includes direct and indirect issuance and listing. Where an enterprise whose principal business activities are conducted in PRC seeks to issue and list its shares in the name of an overseas enterprise (“Overseas Issuer”) on the basis of the equity, assets, income or other similar rights and interests of the relevant PRC domestic enterprise, such activities shall be deemed an indirect overseas issuance and listing (“Indirect Overseas Issuance and Listing”) under the Draft Overseas Listing Regulations. Therefore, the proposed offering would be deemed an Indirect Overseas Issuance and Listing under the Draft Overseas Listing Regulations. As such, the Company would be required to complete the filing procedures of and submit the relevant information to CSRC after the Draft Overseas Listing Regulations become effective.
On December 28, 2021, the Cyberspace Administration of China jointly with the relevant authorities formally published Measures for Cybersecurity Review (2021) which will take effect on February 15, 2022 and replace the former Measures for Cybersecurity Review (2020). Measures for Cybersecurity Review (2021) stipulates that operators of critical information infrastructure purchasing network products and services, and online platform operator (together with the operators of critical information infrastructure, the “Operators”) carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review, any online platform operator who controls more than one million users’ personal information must go through a cybersecurity review by the cybersecurity review office if it seeks to be listed in a foreign country. Since we are not an Operator, nor do we control more than one million users’ personal information, we would not be required to apply for a cybersecurity review under the Measures for Cybersecurity Review (2021).
Our PRC counsel, Guantao Law Firm, has advised us that, based on its understanding of the current PRC laws and regulations, we will not be required to obtain the aforesaid approval of the listing and trading of our ordinary shares on Nasdaq in the context of this offering because we did not establish our PRC subsidiaries by merger with or acquisition of PRC domestic companies using equities as consideration as defined in the M&A Rules.
However, there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and the opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC counsel does, and hence we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into China, restrict or prohibit the payments or remittance of dividends by our PRC subsidiaries, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of the shares. It is uncertain when and whether the Company will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded.
The PRC government may intervene or influence our operations at any time, which could result in a material change in our operations. For example, the PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding any industry that could adversely affect the business, financial condition and results of operations of our company. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. As confirmed by our PRC counsel, Guantao Law Firm, we currently are not subject to cybersecurity review with the CAC, to conduct business operations in China, given that: (i) we do not possess a large amount of personal information in our business operations; and (ii) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities. In addition, as confirmed by our PRC counsel, we are not subject to merger control review by China’s anti-monopoly enforcement agency due to the level of our revenues which provided from us and audited by our auditor WWC, P.C., and the fact that we currently do not expect to propose or implement any acquisition of control of, or decisive influence over, any company with revenues within China of more than RMB 400 million.
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Although we are currently not required to obtain permission from any of the PRC governmental agencies to obtain such permission and has not received any denial to list on the U.S. exchange or conduct our daily business operation, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list our securities on an U.S. or other foreign exchange. For more detailed information, see “Risk Factors – Risks Relating to Doing Business in China – The approval of the China Securities Regulatory Commission may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval.” and “We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers.”
Risk Factors Summary
Investing in our Ordinary Shares involves a high degree of risk. Below is a summary of material factors that make an investment in our Ordinary Shares speculative or risky. Importantly, this summary does not address all of the risks that we face. Please refer to the information contained in and incorporated by reference under the heading “Risk Factors” of this prospectus for additional discussion of the risks summarized in this risk factor summary as well as other risks that we face. These risks include, but are not limited to, the following:
Risks Relating to Our Business and Industry
Risks and uncertainties relating to our business and industry, beginning on page 15 of this prospectus, include but not limited to the following:
| ● | 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. See “Risk Factors – Risks Relating 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 15. |
| ● | If the market for our products develop more slowly than we expect, our operating results would be adversely affected. See “Risk Factors – Risks Relating to Our Business and Industry – If the market for our products develop more slowly than we expect, our operating results would be adversely affected” on page 15. |
| ● | If we are not able to continue to innovate or if we fail to adapt to changes in our industry, our business, financial condition and results of operations would be materially and adversely affected. See “Risk Factors – Risks Relating to Our Business and Industry – If we are not able to continue to innovate or if we fail to adapt to changes in our industry, our business, financial condition and results of operations would be materially and adversely affected” on page 15. |
| ● | Our results of operations may be affected by the number of vehicle ownership in China. See “Risk Factors – Risks Relating to Our Business and Industry – Our results of operations may be affected by the number of vehicle ownership in China” on page 15. |
| ● | Our licensing agreements obligate us to make future commissions to the dealers, and if we do not have the funds necessary to make such payments, our business and operations may be affected. See “Risk Factors – Risks Relating to Our Business and Industry – Our licensing agreements obligate us to make future commissions to the dealers, and if we do not have the funds necessary to make such payments, our business and operations may be affected” on page 16. |
| ● | Our business is substantially dependent on our collaboration with our major suppliers. Changes or difficulties in our relationships with our suppliers may harm our business and financial results. See “Risk Factors – Risks Relating to Our Business and Industry – Our business is substantially dependent on our collaboration with our major suppliers. Changes or difficulties in our relationships with our suppliers may harm our business and financial results” on page 16. |
| ● | Our business is dependent on certain major customers and changes or difficulties in our relationships with our major customers may harm our business and financial results. See “Risk Factors – Risks Relating to Our Business and Industry – Our business is dependent on certain major customers and changes or difficulties in our relationships with our major customers may harm our business and financial results” on page 16. |
| ● | If we fail to protect our intellectual property rights, it could harm our business and competitive position. See “Risk Factors – Risks Relating to Our Business and Industry – If we fail to protect our intellectual property rights, it could harm our business and competitive position” on page 17. |
| ● | If we fail to promote and maintain our brand in an effective and cost-efficient way, our business and results of operations may be harmed. See “Risk Factors – Risks Relating to Our Business and Industry – If we fail to promote and maintain our brand in an effective and cost-efficient way, our business and results of operations may be harmed” on page 17. |
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Risks Relating to Our Corporate Structure
Risks and uncertainties relating to our corporate structure, beginning on page 20 of this prospectus, include but not limited to the following:
| ● | Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business. See “Risk Factors – Risks Relating to Our Corporate Structure – Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business” on page 27. |
Risks Relating to Doing Business in the PRC
Risks and uncertainties relating to doing business in PRC, beginning on page 21 of this prospectus, include but not limited to the following:
| ● | Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us. See “Risk Factors – Risks Relating to Doing Business in the PRC– Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us” on page 30. |
| ● | The PRC government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and foreign investment in China-based issuers, which could result in a material change in our operations and the value of our Ordinary Shares. See “Risk Factors – Risks Relating to Doing Business in the PRC– The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if our subsidiaries or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors” on page 28. |
| ● | Any actions by the PRC government to exert more oversight and control over offerings that are conducted overseas and foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our Ordinary Shares to significantly decline or be worthless. See “Risk Factors – Risks Relating to Doing Business in the PRC– The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if our subsidiaries or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors” on page 28. |
| ● | Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us. See “Risk Factors – Risks Relating to Doing Business in the PRC– Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us” on page 30. |
| ● | Changes in China’s economic, political, or social conditions or government policies could have a material adverse effect on our business and operations. See “Risk Factors – Risks Relating to Doing Business in the PRC– Changes in China’s economic, political, or social conditions or government policies could have a material adverse effect on our business and operations” on page 24. |
| ● | The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if our subsidiaries or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors. See “Risk Factors – Risks Relating to Doing Business in the PRC– The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if our subsidiaries or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors” on page 28. |
| ● | Recent joint statements by the SEC and the Public Company Accounting Oversight Board (United States), or the “PCAOB,” proposed rule changes submitted by Nasdaq, and an act passed by the U.S. Senate all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering. See “Risk Factors – Risks Relating to Doing Business in the PRC– Recent joint statements by the SEC and the Public Company Accounting Oversight Board (United States), or the “PCAOB,” proposed rule changes submitted by Nasdaq, and an act passed by the U.S. Senate all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering” on page 33. | |
| ● | We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers. See “Risk Factors – Risks Relating to Doing Business in the PRC– We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers” on page 31. |
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| ● | The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China. See “Risk Factors – Risks Relating to Doing Business in the PRC– The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China” on page 35. |
| ● | The approval of the China Securities Regulatory Commission may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval. See “Risk Factors – Risks Relating to Doing Business in the PRC– The approval of the China Securities Regulatory Commission may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval” on page 35. |
| ● | To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds 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 on the ability of us or our subsidiaries by the PRC government to transfer cash or assets. See “Risk Factors – Risks Relating to Doing Business in the PRC– To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds 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 on the ability of us or our subsidiaries by the PRC government to transfer cash or assets” on page 27. |
Risks Relating to this Offering
Risks and uncertainties relating to this offering, beginning on page 36 of this prospectus, include but not limited to the following:
| ● | The initial public offering price for our Ordinary Shares may not be indicative of prices that will prevail in the trading market and such market prices may be volatile. See “Risk Factors – Risks Relating to this Offering – The initial public offering price for our Ordinary Shares may not be indicative of prices that will prevail in the trading market and such market prices may be volatile” on page 36. |
| ● | If you purchase our Ordinary Shares in this offering, you will incur immediate and substantial dilution in the book value of your shares. See “Risk Factors – Risks Relating to this Offering– If you purchase our Ordinary Shares in this offering, you will incur immediate and substantial dilution in the book value of your shares” on page 38. |
| ● | We have not paid dividends to our shareholders and do not expect to pay dividends in the forseeable future. See “Risk Factors – Risks Relating to this Offering – We have not paid dividends to our shareholders and do not expect to pay dividends in the forseeable future” on page 37. |
Holding Foreign Company Accountable Act
U.S. laws and regulations, including the Holding Foreign Companies Accountable Act, or HFCAA, may restrict or eliminate our ability to complete a business combination with certain companies, particularly those acquisition candidates with substantial operations in China.
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 Accelerating Holding Foreign Companies Accountable Act, which, if signed into law, would reduce 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 HFCA Act. 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.
As of the date of the prospectus, WWC, P.C., our auditor, is not subject to the determinations as to inability to inspect or investigate registered firms completely announced by the PCAOB on December 16, 2021. It is based in San Mateo, California and has been inspected by the PCAOB on a regular basis, with the last inspection in 2020, and therefore not subject to the determinations announced by the PCAOB on December 16, 2021. If trading in our ordinary shares is prohibited under the HFCA Act in the future because the PCAOB determines that it cannot inspect or fully investigate our auditor at such future time, Nasdaq may determine to delist our ordinary shares and trading in our ordinary shares could be prohibited. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if passed by the U.S. House of Representatives and signed into law, would reduce the period of time for foreign companies to comply with PCAOB audits to two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading. However, these 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 the audit of our financial statements.
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On August 26, 2022, the China Securities Regulatory Commission, the MOF, and the PCAOB signed the Protocol, governing inspections and investigations of audit firms based in 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 has the unfettered ability to transfer information to the SEC.
See “Risk Factors — Risks Related to Doing Business in China – The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering” on page 33.
Implications of Being an “Emerging Growth Company”
As a company with less than US$1.07 billion in revenues during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise applicable to larger public companies. In particular, as an emerging growth company, we:
| ● | may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations, or “MD&A”; |
| ● | are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives, which is commonly referred to as “compensation discussion and analysis”; |
| ● | are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; |
| ● | are not required to obtain a non-binding advisory vote from our shareholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on frequency” and “say-on-golden-parachute” votes); |
| ● | are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and chief executive officer pay ratio disclosure; |
| ● | are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act; and |
| ● | will not be required to conduct an evaluation of our internal control over financial reporting. |
We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of at least US$1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (iii) the date on which we have, during the preceding three-year period, issued more than US$1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our Ordinary Shares that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.
Implications of Being a Foreign Private Issuer
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; |
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| ● | 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. |
Implications of Being a Controlled Company
Controlled companies are exempt from the majority of independent director requirements. Controlled companies are subject to an exemption from Nasdaq standards requiring that the board of a listed company consist of a majority of independent directors within one year of the listing date.
Public Companies that qualify as a “Controlled Company” with securities listed on the Nasdaq Stock Market (Nasdaq), must comply with the exchange’s continued listing standards to maintain their listings. Nasdaq has adopted qualitative listing standards. Companies that do not comply with these corporate governance requirements may lose their listing status. Under the Nasdaq rules, a “controlled company” is a company with more than 50% of its voting power held by a single person, entity or group. Under Nasdaq rules, a controlled company is exempt from certain corporate governance requirements including:
| ● | the requirement that a majority of the board of directors consist of independent directors; |
| ● | the requirement that a listed company have a nominating and governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; |
| ● | the requirement that a listed company have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and |
| ● | the requirement for an annual performance evaluation of the nominating and governance committee and compensation committee. |
Controlled companies must still comply with the exchange’s other corporate governance standards. These include having an audit committee and the special meetings of independent or non-management directors.
Upon the completion of this offering, our Controlling Shareholder will beneficially own of our total issued and outstanding Ordinary Shares, representing % of the total voting power, assuming that the underwriters do not exercise their over-allotment option, or of our total issued and outstanding Ordinary Shares, representing % of the total voting power, assuming that the over-allotment option is exercised in full. As a result, we will be a “controlled company” as defined under Nasdaq Listing Rule 5615(c) because our Controlling Shareholder will hold more than 50% of the voting power for the election of directors. As a “controlled company,” we are permitted to elect not to comply with certain corporate governance requirements. We do not plan to rely on these exemptions, but we may elect to do so after we complete this offering.
Corporate Information
Our principal executive offices are located at 320~324, Building C4, No. 5 Jinxiu Street, Yuhuatai District, Nanjing City, Jiangsu Province, People’s Republic of China. Our telephone number at this address is +86-4008280910. Our registered office in the Cayman Islands is located at the offices of Osiris International Cayman Limited, Suite #4-210, Governors Square, 23 Lime Tree Bay Avenue, PO Box 32311, Grand Cayman KY1-1209, Cayman Islands. 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. Investors should contact us for any inquiries through the address and telephone number of our principal executive offices.
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Below is a summary of the terms of the offering:
| Issuer | Yi Po International Holdings Limited | |
| Securities offered by us | 4,000,000 Ordinary Shares, par value US$0.00015625 per share. |
| Offering price | We currently estimate that the initial public offering price will be $5.00 per Ordinary Share. | |
| Ordinary Shares outstanding prior to the offering | 10,000,000 Ordinary Shares. | |
| Over-allotment option | We have granted the underwriter an option for a period of 45 days to purchase up to additional Ordinary Shares, if any. | |
| Ordinary Shares to be outstanding after this offering | 14,000,000 shares (or 14,600,000 shares if the underwriters exercise their option to purchase additional Ordinary Shares in full). | |
Representative’s Warrants |
Warrants to purchase 280,000 of our Ordinary Shares (or 322,000 Ordinary Shares if the Representative exercises its option to purchase such additional Warrants in full). The warrants will be exercised at any time, and from time to time, in whole or in part, commencing from the closing of the offering and expiring five (5) years from the effectiveness of the offering. The warrants are exercisable at a per share price of the offering price of the Ordinary Shares offered hereby. The warrants shall not be callable or cancellable. | |
| Use of proceeds | We estimate that the net proceeds to us from this offering will be approximately US$ 18,100,000 or approximately US$ 20,860,000 if the underwriters exercise their over-allotment option to purchase additional Ordinary Shares in full, assuming an offering price of US$5.00 per share, after deducting underwriting discounts and estimated offering expenses payable by us. | |
| We intend to use the net proceeds of this offering primarily for general corporate purposes, including working capital. See “Use of Proceeds” for additional information. | ||
| Proposed Nasdaq Trading Symbol and Listing | We plan to apply to list our Ordinary Shares on the Nasdaq Capital Market under the symbol “YBZN.” This offering is contingent upon us listing our Ordinary Shares on Nasdaq Capital Market or another national exchange. No assurance can be given that such listing will be approved or that a liquid trading market will develop for our Ordinary Shares. | |
| Lock-up | Our directors, executive officers, and all shareholders have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Ordinary Shares or securities convertible into Ordinary Shares for a period of 6 months from the date on which the trading of the Ordinary Shares commences. However, shareholders who own 5% or more of the outstanding Ordinary Shares have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Ordinary Shares or securities convertible into Ordinary Shares for a period of 12 months from the date on which the trading of the Ordinary Shares commences . The Company is also prohibited from conducting offerings during this period and from re-pricing or changing the terms of existing options and warrants. See “Underwriting” for additional information. | |
| Transfer Agent | Transhare Corporation. | |
| Risk factors | See “Risk Factors” for a discussion of risks you should carefully consider before investing in our Ordinary Shares. |
Unless we specifically state otherwise, the information in this prospectus assumes no exercise by the underwriters of the over-allotment option.
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Summary of Financial Position and Cash Flows of Yi Po International Holdings Limited
The consolidated financial statements included in this prospectus reflect financial position and cash flows of the registrant, Cayman Islands incorporated parent company, Yi Po International Holdings Limited, together with those of its subsidiaries, on a consolidated basis. The tables below are condensed consolidating schedules summarizing separately the financial position and cash flows of the registrant, Cayman Islands incorporated parent company, Yi Po International Holdings Limited, and its subsidiaries, together with eliminating adjustments:
Consolidated Statements of Operations Information
| For the year ended December 31, 2021 | ||||||||||||||||||||
| Parent | Non-VIE subsidiaries | VIE | Elimination | Consolidated | ||||||||||||||||
| Revenues | $ | — | $ | — | $ | 5,277,517 | $ | — | $ | 5,277,517 | ||||||||||
| Cost of revenues | $ | — | $ | — | $ | (1,017,378 | ) | $ | — | $ | (1,017,378 | ) | ||||||||
| Share of loss from non- VIE subsidiaries | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Share of income/(loss) from VIEs | $ | — | $ | 1,948,612 | $ | — | $ | (1,948,612 | ) | $ | — | |||||||||
| Net Income | $ | — | $ | — | $ | 1,948,612 | $ | — | $ | 1,948,612 | ||||||||||
| Comprehensive income | $ | — | $ | — | $ | 1,976,885 | $ | — | $ | 1,976,885 | ||||||||||
| For the year ended December 31, 2020 | ||||||||||||||||||||
| Parent | Non-VIE subsidiaries | VIE | Elimination | Consolidated | ||||||||||||||||
| Revenues | $ | — | $ | — | $ | 2,786,853 | $ | — | $ | 2,786,853 | ||||||||||
| Cost of revenues | $ | — | $ | — | $ | (689,501 | ) | $ | — | $ | (689,501 | ) | ||||||||
| Share of loss from non-VIE subsidiaries | $ | — | — | $ | — | $ | — | $ | — | |||||||||||
| Share of income/(loss) from VIEs | $ | — | 480,230 | $ | — | $ | (480,230 | ) | $ | — | ||||||||||
| Net Income | $ | — | — | $ | 480,230 | $ | — | $ | 480,230 | |||||||||||
| Comprehensive income | $ | — | $ | — | $ | 527,530 | $ | — | $ | 527,530 | ||||||||||
Consolidated Balance Sheets Information
| As of December 31, 2021 | ||||||||||||||||||||
| Parent | Non-VIE subsidiaries |
VIE | Elimination | Consolidated | ||||||||||||||||
| Current assets | $ | — | $ | — | $ | 12,758,688 | $ | — | $ | 12,758,688 | ||||||||||
| Investments in non-VIE subsidiaries | $ | 2,841,083 | $ | — | $ | — | $ | (2,841,083 | ) | $ | — | |||||||||
| Equity in VIEs through VIE agreements | $ | — | $ | 2,841,083 | $ | — | $ | (2,841,083 | ) | $ | — | |||||||||
| Non-current assets | $ | — | $ | — | $ | 4,100,245 | $ | — | $ | 4,100,245 | ||||||||||
| Total liabilities | $ | — | $ | — | $ | 14,017,851 | $ | — | $ | 14,017,851 | ||||||||||
| Shareholders’ equity | $ | 2,841,083 | $ | 2,841,083 | $ | 2,841,083 | $ | (5,682,166 | ) | $ | 2,841,083 | |||||||||
| As of December 31, 2020 | ||||||||||||||||||||
| Parent | Non-VIE subsidiaries |
VIE | Elimination | Consolidated | ||||||||||||||||
| Current assets | $ | — | $ | — | $ | 6,946,935 | $ | — | $ | 6,946,935 | ||||||||||
| Investments in non-VIE subsidiaries | $ | 864,198 | $ | — | $ | — | $ | (864,198 | ) | $ | — | |||||||||
| Equity in VIEs through VIE agreements | $ | — | $ | 864,198 | $ | — | $ | (864,198 | ) | $ | — | |||||||||
| Non-current assets | $ | — | $ | — | $ | 3,780,078 | $ | — | $ | 3,780,078 | ||||||||||
| Total liabilities | $ | — | $ | — | $ | 9,862,815 | $ | — | $ | 9,862,815 | ||||||||||
| Shareholders’ equity | $ | 864,198 | $ | 864,198 | $ | 864,198 | $ | (1,728,396 | ) | $ | 864,198 | |||||||||
Consolidated Cash Flows Information
| For the years ended December 31, 2021 | ||||||||||||||||||||
| Parent | Non-VIE subsidiaries |
VIE | Elimination | Consolidated | ||||||||||||||||
| Net cash provided by operating activities | $ | — | $ | — | $ | 1,115,730 | $ | — | $ | 1,115,730 | ||||||||||
| Net cash used in investing activities | $ | — | $ | — | $ | (1,138,525 | ) | — | $ | (1,138,525 | ) | |||||||||
| Net cash used in financing activities | $ | — | $ | — | $ | 80,861 | $ | — | $ | 80,861 | ||||||||||
| For the years ended December 31, 2020 | ||||||||||||||||||||
| Parent | Non-VIE subsidiaries |
VIE | Elimination | Consolidated | ||||||||||||||||
| Net cash used in operating activities | $ | — | $ | — | $ | 1,356,334 | $ | — | $ | 1,356,334 | ||||||||||
| Net cash used in investing activities | $ | — | $ | — | $ | (1,556,695 | ) | $ | — | $ | (1,556,695 | ) | ||||||||
| Net cash provided by financing activities | $ | — | $ | — | $ | 452,426 | $ | — | $ | 452,426 | ||||||||||
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An investment in our Ordinary Shares involves a high degree of risk. Before deciding whether to invest in our Ordinary Shares, you should consider carefully the risks described below, together with all of the other information set forth in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and related notes. If any of these risks actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely affected, which could cause the trading price of our Ordinary Shares to decline, resulting in a loss of all or part of your investment.
Risks Relating 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.
Founded in August 2018, we have a limited operating history in the intellectual parking 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.
73% and 97% of our revenues are derived from the dealer licensing fee during the fiscal year ended December 31, 2021 and 2020, 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 such as intellectual parking system 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.
If the market for our products develop more slowly than we expect, our operating results would be adversely affected.
Our success will depend to a substantial extent on the widespread adoption of intelligent parking system in general, but we cannot be certain that the trend of adoption of intellectual parking system will continue in the future. It is difficult to predict customer adoption rates and demand for our products, the future growth rate and size of intellectual parking system market. If our products do not continue to achieve market acceptance, or there is a reduction in demand caused by a lack of customer acceptance, technological challenges, weakening economic conditions, data security or privacy concerns, governmental regulation, competing technologies and solutions or decreases in information technology spending, it would result in decreased revenues and our business would be adversely affected.
If we are not able to continue to innovate or if we fail to adapt to changes in our industry, our business, financial condition and results of operations would be materially and adversely affected.
The increasing development of high-tech products in the intelligent parking system industry echoes the ever-changing customers’ demands. Similarly, our competitors are also constantly innovating to enhance user experience. We continue to invest significant resources in developing and enhancing our existing products as well as to introduce new services that will attract more participants to our services. The changes and developments taking place in our industry may also require us to re-evaluate our business model and adopt significant changes to our long-term strategies and business plan. Our failure to innovate and adapt to these changes would have a material adverse effect on our business, financial condition, and results of operations.
Our results of operations may be affected by the number of vehicle ownership in China.
The important function of our intelligent parking system, national network parking platform, and parking lot gates products is to control and manage the flow of vehicles. Only when the vehicle ownership in a town or a specific area reaches a certain level and in order to control and manage vehicles or traffic flow, the market will have demand for our products and services. With the increasing number of cars in the market, the demand for our products has also increased. If Chinese government’s policy on development of the automobile industry or encouragement of household vehicle ownership changes, it will affect the number of cars, especially the increase or decrease in the number of private cars, which will affect the market’s demand for our products and/or services.
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We may require substantial additional funding in the future. There is no assurance that additional financing will be available to us.
We have been dependent upon proceeds received from shareholders’ equity contributions to meet our capital requirements in the past. We cannot assure you that we will be able to obtain capital in the future to meet our capital requirements to maintain operations and improve financial performance. If we were unable to meet our future funding requirements for working capital and for general business purposes, we could experience operating losses and limit our marketing efforts as well as decrease or eliminate capital expenditures. If so, our operating results, our business results and our financial position would be adversely affected. If adequate additional financing is not available on reasonable terms, we may not be able to undertake our expansion plan or purchase additional equipment for our operations, and we would have to modify our business plans accordingly.
Our licensing agreements obligate us to make future commissions to the dealers, and if we do not have the funds necessary to make such payments, our business and operations may be affected.
Jiangsu Easy Parking signed separate dealer licensing agreements with each dealer. The term of a dealer licensing agreement is usually 3 years. The agreement will be renewed automatically unless either party gives written notice to the other party prior to the expiration of the current agreement. We received income based on these agreements, and in return, the dealer will receive commissions from us. The commissions for the dealer are calculated based on 20% of the five-year net income of all referred parking lot projects in the dealer’s exclusive region, payable on a yearly basis. The company has not paid the franchisee commission yet. We will first pay the commissions to our dealers in April 2023. We are obligated to pay such commissions to dealers under the dealer licensing agreements and these future obligations may add risks to our business and operations. There can be no assurance that we will have the funds necessary to make such payments, or be able to raise such funds when needed. If we are unable to raise additional funds or maintain sufficient liquidity to make our payment obligations if and when they become due, we may be in material breach of our dealers licensing agreements and our counterparties may seek legal action or remedies against us, which would harm our business, financial condition, results of operations and prospects. As of the date of this prospectus, the amount of commissions we are obligated to pay based on the income received is 0.
Our business is substantially dependent on our collaboration with our major suppliers. Changes or difficulties in our relationships with our suppliers may harm our business and financial results.
Our business is substantially dependent on our collaboration with our major suppliers. We consider major suppliers in each period to be those suppliers that accounted for more than 10% of overall purchases in such period. For the year ended December 31, 2021, Jiangsu Easy Parking had one major supplier whose purchases represented approximately 100% of the Company’s total purchases. For the year ended December 31, 2020, Jiangsu Easy Parking had one major supplier whose purchases represented approximately 25% of the Company’s total purchases. As of December 31, 2021, the supplier accounted for 43% of the Company’s accounts payable. As of December 31, 2020, the supplier accounted for 20% of the Company’s accounts payable. For the year ended December 31, 2021, Jiangsu Easy Parking had two suppliers accounted for over 10% of the Company’s accounts payable. For the year ended December 31, 2020, Jiangsu Easy Parking had one supplier accounted for over 10% the Company’s accounts payable.
Our suppliers may fail to meet their contractual obligations, which may adversely affect our business. Jiangsu Easy Parking generally enters into cooperation agreements with them without imposing any contractual obligations requiring them to maintain their relationships with us. Accordingly, there is no assurance that Jiangsu Easy Parking can maintain stable and long-term business relationships with any supplier. Failure to maintain existing relationships with the suppliers or to establish new relationships in the future could negatively affect the Company’s ability to obtain goods sold to customers in a price advantage and timely manner. If the Company is unable to obtain ample supply of goods from existing suppliers or alternative sources of supply, the Company may be unable to satisfy the orders from its customers, which could materially and adversely affect our business, results of operations and financial condition.
Our business is dependent on certain major customers and changes or difficulties in our relationships with our major customers may harm our business and financial results.
For the year ended December 31, 2021, Jiangsu Easy Parking had one customer accounted for 10% of the Company’s revenues. For the year ended December 31, 2020, Jiangsu Easy Parking had no customer accounted for more than 10% of the Company’s revenues. For the year ended December 31, 2021, Jiangsu Easy Parking had one customer, Changzhou Huadong Hotel Co. LTD, which accounted for 57% of the Company’s accounts receivable. For the year ended December 31, 2020, we had one customer, Changzhou Huadong Hotel Co. LTD, accounting for 45%,of the Company’s accounts receivable, respectively. If Jiangsu Easy Parking cannot maintain long-term relationships with major customers or replace major customers from period to period with equivalent customers, the loss of such sales could have an adverse effect on our business, financial condition and results of operations.
Rapid expansion could significantly strain our resources, management and operational infrastructure, which could impair our ability to meet increased demand for our products and hurt our business results.
To accommodate our anticipated growth, we will need to expend capital resources and dedicate personnel to implement and upgrade our accounting, operational and internal management systems and enhance our record keeping and contract tracking system. Such measures will require us to dedicate additional financial resources and personnel to optimize our operational infrastructure and to recruit more personnel to train and manage our growing employee base. If we cannot successfully implement these measures efficiently and cost-effectively, we will be unable to satisfy the demand for our products and/or services, which will impair our revenue growth and hurt our overall financial performance.
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We cannot assure you that our growth strategy will be successful, which may result in a negative impact on our growth, financial condition, results of operations and cash flow.
Our growth strategies may encounter many obstacles, including, but not limited to, increased competition from similar businesses, unexpected costs, and costs associated with marketing efforts and government regulation. We cannot, therefore, assure you that we will be able to successfully overcome such obstacles and establish our products and/or services in any additional markets. Our inability to implement this internal growth strategy successfully may have a negative impact on our growth, future financial condition, results of operations or cash flows.
Our business depends on the continued efforts of our senior management. If one or more of our key executives is/are unable or unwilling to continue in his/ 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 provided 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 is/are unable or unwilling to continue in his/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.
Our directors, management and shareholders have been and may from time to time be subject to negative publicity or claims, controversies, lawsuits, other legal and administrative proceedings and fines, which could have a material adverse effect on our business, results of operations, financial condition and reputation.
Our directors, management and shareholders have been and may from time to time be subject to litigation, regulatory investigations, proceedings and/or negative publicity or otherwise face potential liability and expense in relation to commercial, securities or other matters.
Moreover, we cannot guarantee that additional enforcement measures relating to or arising out of lawsuits would not be threatened or brought against us, other shareholders, directors and officers in the future. We do not have control or have limited control over the actions of these parties, and any misbehavior or misconduct by these parties could bring us negative publicity, which would harm our brand and reputation. In addition, the claims and lawsuits may require us to incur additional resources, which could in turn harm our business.
If we fail to protect our intellectual property rights, it could harm our business and competitive position.
Our intellectual property rights are important to our business. As of the date of this prospectus, we have 16 registered software copyrights in China.
We enter into confidentiality agreements with some of our employees and consultants, and control access to and distribution of our documentation and other licensed information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our technology without authorization, or to develop similar technology independently. Since the Chinese legal system in general, and the intellectual property regime in particular, is relatively weak, it is often difficult to enforce intellectual property rights in China. In addition, confidentiality 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 or elsewhere. In addition, policing any unauthorized use of our intellectual property is difficult, time-consuming and costly and the steps we have taken 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. 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.
If we fail to promote and maintain our brand in an effective and cost-efficient way, our business and results of operations may be harmed.
We believe that developing and maintaining awareness of our brand effectively is critical to attracting new and retaining existing clients. Successful promotion of our brand and our ability to attract clients depend largely on the effectiveness of our marketing efforts and the success of the channels we use to promote our products. Currently, we promote our brand through word of mouth, dealers, and internet promotions. It is likely that our future marketing efforts will require us to incur significant additional expenses to include print media and video advertising. These efforts may not result in increased revenues in the immediate future or at all and, even if they do, any increases in revenues may not offset the expenses incurred. If we fail to successfully promote and maintain our brand while incurring substantial expenses, our results of operations and financial condition would be adversely affected, which may impair our ability to grow our business.
We have been and may continue to be subject to complaints, claims, controversies, regulatory actions, arbitrations and legal proceedings from time to time. If the outcome of these complaints, claims, controversies, regulatory actions, arbitrations and legal proceedings is adverse to us, it could have a material adverse effect on our business, results of operations, financial condition, liquidity, cash flows and reputation.
We have been and may from time to time continue to be subject to or involved in various complaints, claims, controversies, regulatory actions, arbitration, and legal proceedings. Such allegations, claims and proceedings may be asserted against us by third parties, including vehicle owners, suppliers, employees, business partners, governmental or regulatory bodies, competitors or other third parties, in administrative, civil or criminal investigations and proceedings.
As we entered into contractual relationship with various dealers and parking lots’ owners, we may be involved in legal proceedings arising from contract disputes. In addition, we have been and may from time to time be involved in labor and employment related disputes with and subject to such claims by employees. Complaints, claims, arbitration, lawsuits, and litigations are subject to inherent uncertainties, and we are uncertain whether the foregoing claims would develop into lawsuits or regulatory penalties and other disciplinary actions.
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There may also be negative publicity associated with litigation that could decrease clients’ acceptance of our services offerings, regardless of whether the allegations are valid or whether we are ultimately found liable. Lawsuits, litigations, arbitration and regulatory actions may cause us to incur substantial costs or fines, freezing of our assets, utilize a significant portion of our resources and divert management’s attention from our day-to-day operations, or materially modify or suspend our business operations, any of which could materially and adversely affect our financial condition, results of operations and business prospects.
After we become a publicly listed company, we may face additional exposure to claims and lawsuits. These claims could divert management time and attention away from our business and result in significant costs to investigate and defend, regardless of the merits of the claims. In some instances, we may elect or be forced to pay substantial damages if we are unsuccessful in our efforts to defend against these claims, which could harm our business, financial condition and results of operations.
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 products and better serve our clients. 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; |
| ● | 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 products; |
| ● | difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations; |
| ● | difficulties in retaining relationships with clients, employees and suppliers of the acquired business; |
| ● | 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; and |
| ● | potential disruptions to our ongoing businesses. |
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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 and/or services or that any new or enhanced products, if developed, will achieve market acceptance or prove to be profitable.
A lack of insurance could expose us to significant costs and business disruption.
None of the holding company or our subsidiaries maintains any insurance to cover assets, property and potential liability of our business. 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 financial and operating performance may be adversely affected by epidemics, natural disasters and other catastrophes.
Our business and financial and operating performance could be materially and adversely affected by the outbreak of epidemics including but not limited to the novel coronavirus (COVID-19), swine influenza, avian influenza, middle east respiratory syndrome (MERS-CoV) and severe acute respiratory syndrome (SARS-CoV). As a result of the on-going COVID-19 pandemic, we have experienced and may continue to experience slowdown and temporary suspension in operations. Our business could be materially and adversely affected in the event that the slowdown or suspension carries for a long period of time. During such epidemic outbreak, China may adopt certain hygiene measures, including quarantining visitors from places where any of the contagious diseases are rampant. Those restrictive measures may adversely affect and slow down the national economic development during that period. Any prolonged restrictive measures in order to control the contagious disease or other adverse public health developments in China or our targeted markets may have a material and adverse effect on our business operations.
Similarly, natural disasters, wars (including the potential of war), terrorist activity (including threats of terrorist activity), social unrest and heightened travel security measures instituted in response, and travel-related accidents, as well as geopolitical uncertainty and international conflict, will affect overall economic environment and may in turn have a material adverse effect on our business and results of operations. In addition, we may not be adequately prepared in contingency planning or recovery capability in relation to a major incident or crisis, and as a result, our operational continuity may be adversely and materially affected, which in turn may harm our reputation.
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Risks Relating to Our Corporate Structure
We are a holding company, and will rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of Yi Po WFOE 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.
We are a holding company and conduct substantially all of our business through our PRC subsidiary, which is a limited liability company established in China. We may rely on dividends to be paid by our PRC subsidiary 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 our PRC subsidiary incurs 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. Neither any of our subsidiary has made any dividends or other distributions to our holding company or any U.S. investors as of the date of this prospectus.
Under PRC laws and regulations, our PRC subsidiary, which is a wholly foreign-owned enterprise in China, may pay dividends only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its 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.
Our PRC subsidiary generates primarily all of its revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiary to use its 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 State Administration of Foreign Exchange (the “SAFE”) for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC 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 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 our PRC 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.
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Risks Relating to Doing Business in China
There are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities.
We conduct substantially all of our business operations in China, and a majority of our directors and senior management are based in China, which is an emerging market. The SEC, U.S. Department of Justice and other authorities often have substantial difficulties in bringing and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, in certain emerging markets, including China. Additionally, our public shareholders may have limited rights and few practical remedies in emerging markets where we operate, as shareholder claims that are common in the United States, including class action securities law and fraud claims, generally are difficult to pursue as a matter of law or practicality in many emerging markets, including China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, the regulatory cooperation with the securities regulatory authorities in the Unities States has not been efficient in the absence of a mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which became effective in March 2020, no foreign securities regulator is allowed to directly conduct 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 foreign securities regulators.
As a result, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from this offering and/or future financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.
In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which replaces the previous SAFE Circular 75. SAFE Circular 37 requires PRC residents, including PRC individuals and PRC corporate entities, to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we may make in the future.
Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles, or SPVs, are required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its registration with the local branch of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE to reflect any material change. If any PRC resident shareholder of such SPV fails to make the required registration or to update the registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiaries in China. In February, 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound direct investments, including those required under SAFE Circular 37, must be filed with qualified banks instead of SAFE. Qualified banks should examine the applications and accept registrations under the supervision of SAFE. We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being PRC residents to complete the foreign exchange registrations. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. We cannot assure you that all other shareholders or beneficial owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, and limit our PRC subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.
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Furthermore, as these foreign exchange and outbound investment related regulations are relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border investments and transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. We cannot assure you that we have complied or will be able to comply with all applicable foreign exchange and outbound investment related regulations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
As an offshore holding company with PRC subsidiaries, we may transfer funds to our Affiliate Entities or finance our operating entity by means of loans or capital contributions. Any capital contributions or loans that we, as an offshore entity, make to our Company’s PRC subsidiaries, including from the proceeds of this offering, are subject to the above PRC regulations. We may not be able to obtain necessary government registrations or approvals on a timely basis, if at all. If we fail to obtain such approvals or make such registration, our ability to make equity contributions or provide loans to our Company’s PRC subsidiaries or to fund their operations may be negatively affected, which may adversely affect their liquidity and ability to fund their working capital and expansion projects and meet their obligations and commitments. As a result, our liquidity and our ability to fund and expand our business may be negatively affected.
We must remit the offering proceeds to China before they may be used to benefit our business in China, and this process may take several months to complete.
The process for sending the proceeds from this offering back to China may take as long as six months after the closing of this offering. In utilizing the proceeds of this offering in the manner described in “Use of Proceeds,” as an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Any loans to our PRC subsidiaries are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are foreign-invested enterprises, to finance their activities cannot exceed statutory limits and must be registered with SAFE.
To remit the proceeds of the offering, we must take the following steps:
| ● | First, we will open a special foreign exchange account for capital account transactions. To open this account, we must submit to SAFE certain application forms, identity documents, transaction documents, form of foreign exchange registration of overseas investments of the domestic residents, and foreign exchange registration certificate of the invested company. As of the date of this prospectus, we have already opened a special foreign exchange account for capital account transactions. |
| ● | Second, we will remit the offering proceeds into this special foreign exchange account. |
| ● | Third, we will apply for settlement of the foreign exchange. In order to do so, we must submit to SAFE certain application forms, identity documents, payment order to a designated person, and a tax certificate. |
The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary significantly. Ordinarily the process takes several months but is required by law to be accomplished within 180 days of application.
We may also decide to finance our subsidiaries by means of capital contributions. These capital contributions must be approved by MOFCOM or its local counterpart. We cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our subsidiaries. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.
If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.
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PRC regulation of loans to and direct investment in PRC entities by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries.
We are an offshore holding company conducting our operations in China through our PRC subsidiaries. We may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries, or we may establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, or we may acquire offshore entities with business operations in China in an offshore transaction.
Most of these ways are subject to PRC regulations and approvals or registration. For example, loans by us to our wholly owned PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE. If we decide to finance our wholly owned PRC subsidiary by means of capital contributions, these capital contributions are subject to registration with the State Administration for Market Regulation or its local branch, reporting of foreign investment information with the PRC Ministry of Commerce, or registration with other governmental authorities in China. Due to the restrictions imposed on loans in foreign currencies extended to PRC domestic companies, we are not likely to make such loans to our consolidated affiliated entities, which is a PRC domestic company. Further, we are not likely to finance the activities of our consolidated affiliated entities by means of capital contributions due to regulatory restrictions relating to foreign investment in PRC domestic enterprises engaged in certain businesses.
SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or SAFE Circular 19, effective June 2015, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses. According to SAFE Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. Although SAFE Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within China, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in China in actual practice. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from this offering, to our PRC subsidiaries, which may adversely affect our liquidity and our ability to fund and expand our business in China. On October 25, 2019, the SAFE promulgated the Notice for Further Advancing the Facilitation of Cross-border Trade and Investment, or the SAFE Circular 28, which, among other things, allows all foreign-invested companies to use Renminbi converted from foreign currency-denominated capital for equity investments in China, as long as the equity investment is genuine, does not violate applicable laws, and complies with the negative list on foreign investment. However, since the SAFE Circular 28 is newly promulgated, it is unclear how SAFE and competent banks will carry this out in practice.
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 consolidated affiliated entities or future capital contributions by us to our PRC subsidiaries. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiaries or consolidated affiliated entities when needed. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from this offering and 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.
Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and services and materially and adversely affect our competitive position.
Substantially all of our business operations are conducted in China. Accordingly, our business, results of operations, financial condition and prospects are subject to economic, political and legal developments in China. Although the Chinese economy is no longer a planned economy, the PRC government continues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between RMB and foreign currencies, and regulate the growth of the general or specific market.
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From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions 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. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business and results of operations.
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 retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such unpredictability towards our contractual, property (including intellectual property) and procedural rights could adversely affect our business and impede our ability to continue our operations.
These government involvements have been instrumental in China’s significant growth in the past 30 years. In response to the recent global and Chinese economic downturn, the PRC government has adopted policy measures aimed at stimulating the economic growth in China. If the PRC government’s current or future policies fail to help the Chinese economy achieve further growth or if any aspect of the PRC government’s policies limits the growth of our industry or otherwise negatively affects our business, our growth rate or strategy, our results of operations could be adversely affected as a result.
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.
All 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. 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 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. In addition, in the past the Chinese government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, and since 2012, China’s economic growth has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of operations.
Under the Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.
China passed the Enterprise Income Tax Law, or the EIT Law, and its implementing rules, both of which became effective on January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.
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On April 22, 2009, the State Administration of Taxation of China issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate stamps, board and stockholder minutes are kept in China; and (iv) all of its directors with voting rights or senior management reside in China. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its non-PRC stockholders. Because substantially all of our operations and senior management are located within the PRC and are expected to remain so for the foreseeable future, we may be considered a PRC resident enterprise for enterprise income tax purposes and therefore subject to the PRC enterprise income tax at the rate of 25% on its worldwide income. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise controlled by a Chinese natural person. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case.
If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Currently, we do not have any non-China source income, as we conduct our sales in China. However, under the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiaries would be deemed as “qualified investment income between resident enterprises” and therefore qualify as “tax-exempt income” pursuant to clause 26 of the EIT Law. Second, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which the dividends we pay with respect to our Ordinary Shares, or the gain our non-PRC shareholders may realize from the transfer of our Ordinary Shares, may be treated as PRC-sourced income and may therefore be subject to a 10% PRC withholding tax. The EIT Law and its implementing regulations are, however, relatively new and ambiguities exist with respect to the interpretation and identification of PRC-sourced income, and the application and assessment of withholding taxes. If we are required under the EIT Law and its implementing regulations to withhold PRC income tax on dividends payable to our non-PRC shareholders, or if non-PRC stockholders are required to pay PRC income tax on gains on the transfer of their Ordinary Shares, our business could be negatively impacted and the value of your investment may be materially reduced. Further, if we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both China and such countries in which we have taxable income, and our PRC tax may not be creditable against such other taxes.
We must comply with the Foreign Corrupt Practices Act and Chinese anti-corruption laws.
We are required to comply with the United States Foreign Corrupt Practices Act, or FCPA, which prohibits US companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are not subject to these prohibitions. The PRC also strictly prohibits bribery of government officials. Certain of our suppliers are owned by the PRC government and our dealings with them are likely to be considered to be with government officials for these purposes. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in China. It is our policy to prohibit our employees, and to discourage our agents, representatives and consultants, from engaging in such practices. If our competitors engage in these practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage. Our employees, agents, representatives and consultants may not always be subject to our control. If any of them violates FCPA or other anti-corruption law, we might be held responsible. We could suffer severe penalties in that event. In addition, the US government may seek to hold us liable for successor liability FCPA violations committed by companies in which we invest or which we acquire.
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Uncertainties with respect to the PRC legal system, including those regarding the enforcement of laws, and sudden or unexpected changes, with little advance notice, in laws and regulations in China could adversely affect us and limit the legal protections available to you and us.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement could be unpredictable, with little advance notice. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.
We conduct all of our business through our PRC subsidiaries. Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited precedential value.
Since 1979, PRC legislation and regulations have 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 economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, 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) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.
The PRC government has significant oversight and discretion over the conduct of our business and may intervene or influence our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has recently indicated an intent to assert more oversight and control over securities offerings and other capital markets activities that are conducted overseas and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.
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 or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
In utilizing the proceeds of this offering in the manner described in “Use of Proceeds,” as an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries.
Any loans to our PRC subsidiaries are subject to PRC regulations. For example, loans by us to Yi WFOE, which is a foreign invested entity (“FIE”), to finance its activities cannot exceed statutory limits and must be registered with SAFE. On March 30, 2015, SAFE promulgated Hui Fa [2015] No.19, a notice regulating the conversion by a foreign-invested company of foreign currency into RMB. The foreign exchange capital, for which the monetary contribution has been confirmed by the foreign exchange authorities (or for which the monetary contribution has been registered for account entry) in the capital account of a foreign-invested enterprise may be settled at a bank as required by the enterprise’s actual management needs. Foreign-invested enterprises with investment as their main business (including foreign-oriented companies, foreign-invested venture capital enterprises and foreign-invested equity investment enterprises) are allowed to, under the premise of authenticity and compliance of their domestic investment projects, carry out based on their actual investment scales direct settlement of foreign exchange capital or transfer the RMB funds in the foreign exchange settlement account for pending payment to the invested enterprises’ accounts.
On May 10, 2013, SAFE released Circular 21, which came into effect on May 13, 2013. According to Circular 21, SAFE has simplified the foreign exchange administration procedures with respect to the registration, account openings and conversions, settlements of FDI-related foreign exchange, as well as fund remittances.
Circular 21 may significantly limit our ability to convert, transfer and use the net proceeds from this offering and any offering of additional equity securities in China, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.
We may also decide to finance our subsidiaries by means of capital contributions. These capital contributions must be approved by MOFCOM or its local counterpart, which usually takes no more than 30 working days to complete. We may not be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our PRC subsidiaries. If we fail to receive such approvals, we will not be able to capitalize our PRC operations, which could adversely affect our liquidity and our ability to fund and expand our business.
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Governmental control of currency conversion may 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. We receive substantially all of our revenues in RMB. Under our current corporate structure, our income is primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from 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 currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our security-holders.
We are a holding company and we rely on our subsidiaries for funding dividend payments, which are subject to restrictions under PRC laws.
We are a holding company in the Cayman Islands, and we operate our core businesses through our PRC subsidiaries. Therefore, the availability of funds for us to pay dividends to our shareholders and to service our indebtedness depends upon dividends received from the PRC subsidiaries. If the PRC subsidiaries incur debt or losses, their ability to pay dividends or other distributions to us may be impaired. As a result, our ability to pay dividends and to repay our indebtedness will be restricted. PRC laws require that dividends be paid only out of the after-tax profit of our subsidiaries in the PRC calculated according to PRC accounting principles, which differ in many aspects from generally accepted accounting principles in other jurisdictions. PRC laws also require enterprises established in the PRC to set aside part of their after-tax profits as statutory reserves. These statutory reserves are not available for distribution as cash dividends. In addition, restrictive covenants in bank credit facilities or other agreements that we or our subsidiaries may enter into in the future may also restrict the ability of our subsidiaries to pay dividends to us. These restrictions on the availability of our funding may impact our ability to pay dividends to our shareholders and to service our indebtedness.
To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds 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 on the ability of us or our subsidiaries by the PRC government to transfer cash or assets.
The transfer of funds and assets among Yi Po Holdings, its Hong Kong and PRC subsidiaries 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. See “Risk Factors – Governmental control of currency conversion may affect the value of your investment.” 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. –ee “Risk Factors - Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business.”
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.
As a result of the above, to the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the funds 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 on the ability of us or our subsidiaries by the PRC government to transfer cash or assets.
Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business.
We are a holding company in the Cayman Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiaries 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.
Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of their respective after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. These 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.
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Our business may be materially and adversely affected if any of our PRC subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding.
The Enterprise Bankruptcy Law of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007. The Bankruptcy Law provides that an enterprise will be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts.
Our PRC subsidiaries hold certain assets that are important to our business operations. If our PRC subsidiaries undergo a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
According to SAFE’s Notice of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, effective on 17 December 2012, and the Provisions for Administration of Foreign Exchange Relating to Inbound Direct Investment by Foreign Investors, effective May 13, 2013, if any of our PRC subsidiaries undergoes a voluntary or involuntary liquidation proceeding, prior approval from SAFE for remittance of foreign exchange to our shareholders abroad is no longer required, but we still need to conduct a registration process with the SAFE local branch. It is not clear whether “registration” is a mere formality or involves the kind of substantive review process undertaken by SAFE and its relevant branches in the past.
The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges, however, if our subsidiaries or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors.
Yi Po Holdings is a Cayman Islands holding company and is not a Chinese operating company. As a holding company with no material operations of its own, it conducts all of its operations and operates its business in China through its PRC subsidiaries. Because of our corporate structure as a Cayman Islands holding company with operations conducted by our PRC subsidiaries, it involves unique risks to investors. Furthermore, Chinese regulatory authorities could change the rules and regulations regarding foreign ownership in the industry in which the company operates, which would likely result in a material change in our operations and/or a material change in the value of the securities we are registering for sale, including that it could cause the value of such securities to significantly decline or become worthless.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.
Given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.
Recently, 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 was 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. Effective measures, such as promoting the construction of relevant regulatory systems, will be taken to deal with the risks and incidents of China-concept overseas listed companies. As of the date of this prospectus, we have not received any inquiry, notice, warning, or sanctions from PRC government authorities in connection with the Opinions.
On June 10, 2021, the Standing Committee of the National People’s Congress of China, or the SCNPC, promulgated the PRC Data Security Law, which took effect in September 2021. The PRC Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, and the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, illegally acquired or used. The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data an information.
In early July 2021, regulatory authorities in China launched cybersecurity investigations with regard to several China-based companies that are listed in the United States. The Chinese cybersecurity regulator announced on July 2 that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company’s app be removed from smartphone app stores. On July 5, 2021, the Chinese cybersecurity regulator launched the same investigation on two other Internet platforms, China’s Full Truck Alliance of Full Truck Alliance Co. Ltd. (NYSE: YMM) and Boss of KANZHUN LIMITED (Nasdaq: BZ). On July 24, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly released the Guidelines for Further Easing the Burden of Excessive Homework and Off-campus Tutoring for Students at the Stage of Compulsory Education, pursuant to which foreign investment in such firms via mergers and acquisitions, franchise development, and variable interest entities are banned from this sector.
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On August 17, 2021, the State Council promulgated the Regulations on the Protection of the Security of Critical Information Infrastructure, or the Regulations, which took effect on September 1, 2021. The Regulations supplement and specify the provisions on the security of critical information infrastructure as stated in the Cybersecurity Review Measures. The Regulations provide, among others, that protection department of certain industry or sector shall notify the operator of the critical information infrastructure in time after the identification of certain critical information infrastructure.
On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law of the PRC, or the Personal Information Protection Law, which took effect in November 2021. As the first systematic and comprehensive law specifically for the protection of personal information in the PRC, the Personal Information Protection Law provides, among others, that (i) an individual’s consent shall be obtained to use sensitive personal information, such as biometric characteristics and individual location tracking, (ii) personal information operators using sensitive personal information shall notify individuals of the necessity of such use and impact on the individual’s rights, and (iii) where personal information operators reject an individual’s request to exercise his or her rights, the individual may file a lawsuit with a People’s Court.
As such, the Company’s business segments may be subject to various government and regulatory interference in the provinces in which they operate. The Company could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. Additionally, the governmental and regulatory interference could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
Furthermore, it is uncertain when and whether the Company will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded. Although the Company is currently not required to obtain permission from any of the PRC federal or local government to obtain such permission and has not received any denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry.
On December 24, 2021, the CSRC, together with other relevant government authorities in China issued the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), and the Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (“Draft Overseas Listing Regulations”). The Draft Overseas Listing Regulations requires that a PRC domestic enterprise seeking to issue and list its shares overseas (“Overseas Issuance and Listing”) shall complete the filing procedures of and submit the relevant information to CSRC. The Overseas Issuance and Listing includes direct and indirect issuance and listing. Where an enterprise whose principal business activities are conducted in PRC seeks to issue and list its shares in the name of an overseas enterprise (“Overseas Issuer”) on the basis of the equity, assets, income or other similar rights and interests of the relevant PRC domestic enterprise, such activities shall be deemed an indirect overseas issuance and listing (“Indirect Overseas Issuance and Listing”) under the Draft Overseas Listing Regulations. Therefore, the proposed listing would be deemed an Indirect Overseas Issuance and Listing under the Draft Overseas Listing Regulations. As such, the Company would be required to complete the filing procedures of and submit the relevant information to CSRC after the Draft Overseas Listing Regulations become effective.
In addition, on December 28, 2021, the CAC, the National Development and Reform Commission (“NDRC”), and several other administrations jointly issued the revised Measures for Cybersecurity Review, or the Revised Review Measures, which became effective and replaced the existing Measures for Cybersecurity Review on February 15, 2022. According to the Revised Review Measures, if an “online platform operator” that is in possession of personal data of more than one million users intends to list in a foreign country, it must apply for a cybersecurity review. Based on a set of Q&A published on the official website of the State Cipher Code Administration in connection with the issuance of the Revised Review Measures, an official of the said administration indicated that an online platform operator should apply for a cybersecurity review prior to the submission of its listing application with non-PRC securities regulators. Given the recency of the issuance of the Revised Review Measures and their pending effectiveness, there is a general lack of guidance and substantial uncertainties exist with respect to their interpretation and implementation. For example, it is unclear whether the requirement of cybersecurity review applies to follow-on offerings by an “online platform operator” that is in possession of personal data of more than one million users where the offshore holding company of such operator is already listed overseas. Furthermore, the CAC released the draft of the Regulations on Network Data Security Management in November 2021 for public consultation, which among other things, stipulates that a data processor listed overseas must conduct an annual data security review by itself or by engaging a data security service provider and submit the annual data security review report for a given year to the municipal cybersecurity department before January 31 of the following year. If the draft Regulations on Network Data Security Management are enacted in the current form, we, as an overseas listed company, will be required to carry out an annual data security review and comply with the relevant reporting obligations.
As confirmed by our PRC counsel, Guantao Law Firm, we will not be subject to cybersecurity review with the CAC after the Cybersecurity Review Measures became effective on February 15, 2022, since we currently do not have over one million users’ personal information and do not anticipate that we will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise subject us to the Cybersecurity Review Measures; we are also not subject to network data security review by the CAC if the Draft Regulations on the Network Data Security Administration are enacted as proposed, since we currently do not have over one million users’ personal information and do not collect data that affects or may affect national security and we do not anticipate that we will be collecting over one million users’ personal information or data that affects or may affect national security in the foreseeable future, which we understand might otherwise subject us to the Security Administration Draft.
Although the Company is currently not required to obtain permission from any of the PRC federal or local government to obtain such permission and has not received any denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly; our ability to offer, or continue to offer, securities to investors would be potentially hindered and the value of our securities might significantly decline or be worthless, by existing or future laws and regulations relating to its business or industry or by intervene or interruption by PRC governmental authorities, if we or our subsidiaries (i) do not receive or maintain such permissions or approvals, (ii) inadvertently conclude that such permissions or approvals are not required, (iii) applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future, or (iv) any intervention or interruption by PRC governmental with little advance notice.
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Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement could be unpredictable, with little advance notice. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our current understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.
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 addition, any new or changes in PRC laws and regulations related to foreign investment in China could affect the business environment and our ability to operate our business in China.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions 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. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business and the results of operations.
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 retroactive effects. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such unpredictability towards our contractual, property, and procedural rights could adversely affect our business and impede our ability to continue our operations.
Fluctuations in exchange rates could adversely affect our business and the value of our securities.
Changes in the value of the RMB against the U.S. dollar, Euro and other foreign currencies are affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on our shares in U.S. dollar terms. For example, to the extent that we need to convert U.S. dollars we receive from our public offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of paying dividends on our Ordinary Shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations of the RMB against other currencies may increase or decrease the cost of imports and exports, and thus affect the price-competitiveness of our products against products of foreign manufacturers or products relying on foreign inputs.
Since July 2005, the RMB is no longer pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.
Increases in labor costs in the PRC may adversely affect our business and results of operations.
The currently effective PRC Labor Contract Law, or the 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 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 Labor Contract Law sets forth additional restrictions and increases the costs involved with dismissing employees. To the extent that we need to significantly reduce our workforce, the Labor Contract Law could adversely affect our ability to do so in a timely and cost-effective manner, and our results of operations could be adversely affected. In addition, for employees whose employment contracts include noncompetition terms, the Labor Contract Law requires us to pay monthly compensation after such employment is terminated, which will increase our operating expenses.
We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our vehicle buyers by increasing the prices of our products and services, our financial condition and results of operations would be materially and adversely affected.
PRC regulations relating to offshore investment activities by PRC residents Cayman 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.
In July 2014, the State Administration of Foreign Exchange promulgated the Circular on Issues Concerning Foreign Exchange Administration over the Overseas Investment and Financing and Roundtrip Investment by Domestic Residents via Special Purpose Vehicles, or “Circular 37”. According to Circular 37, prior registration with the local SAFE branch is required for Chinese residents to contribute domestic assets or interests to offshore companies, known as Special Purpose Vehicles (“SPVs”). Circular 37 further requires amendment to a PRC resident’s registration in the event of any significant changes with respect to the SPV, such as an increase or decrease in the capital contributed by PRC individuals, share transfer or exchange, merger, division, or other material event. Further, foreign investment enterprises established by way of round-tripping shall complete the relevant foreign exchange registration formalities pursuant to the prevailing foreign exchange control provisions for direct investments by foreign investors, and disclose the relevant information such as actual controlling party of the shareholders truthfully.
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Currently, all of our shareholders who directly or indirectly hold shares in Yi Po International Holdings Limited and who are known to us as being PRC residents have completed the foreign exchange registrations required in connection with our recent corporate restructuring. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents or entities have complied with, and will in the future make or obtain any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit Yi Po WFOE’s ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.
We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers.
We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. These laws and regulations are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws. In particular, there are numerous laws and regulations regarding privacy and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data. Such laws and regulations often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions.
We expect to obtain information about various aspects of our operations as well as regarding our employees and third parties. We also maintain information about various aspects of our operations as well as regarding our employees. The integrity and protection of our customer, employee and company data is critical to our business. Our customers and employees expect that we will adequately protect their personal information. We are required by applicable laws to keep strictly confidential the personal information that we collect, and to take adequate security measures to safeguard such information.
The PRC Criminal Law, as amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions, companies and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained during the course of performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the Standing Committee of the PRC National People’s Congress issued the Cyber Security Law of the PRC, or Cyber Security Law, which became effective on June 1, 2017.
Pursuant to the Cyber Security Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’ personal information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations.
The Civil Code of the PRC (issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides main legal basis for privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration of China, MIIT, and the Ministry of Public Security have been increasingly focused on regulation in the areas of data security and data protection.
The PRC regulatory requirements regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration of China, the Ministry of Public Security and the SAMR, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. In April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security.
In November 2016, the Standing Committee of China’s National People’s Congress passed China’s first Cybersecurity Law (“CSL”), which became effective in June 2017. The CSL is the first PRC law that systematically lays out the regulatory requirements on cybersecurity and data protection, subjecting many previously under-regulated or unregulated activities in cyberspace to government scrutiny. The legal consequences of violation of the CSL include penalties of warning, confiscation of illegal income, suspension of related business, winding up for rectification, shutting down the websites, and revocation of business license or relevant permits. In April 2020, the Cyberspace Administration of China and certain other PRC regulatory authorities promulgated the Cybersecurity Review Measures, which became effective in June 2020. Pursuant to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. On July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Measures for Cybersecurity Review for public comments (“Draft Measures”), which required that, in addition to “operator of critical information infrastructure,” any “data processor” carrying out data processing activities that affect or may affect national security should also be subject to cybersecurity review, and further elaborated the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. The Cyberspace Administration of China has said that under the proposed rules companies holding data on more than 1,000,000 users must now apply for cybersecurity approval when seeking listings in other nations because of the risk that such data and personal information could be “affected, controlled, and maliciously exploited by foreign governments,” The cybersecurity review will also investigate the potential national security risks from overseas IPOs. We do not know what regulations will be adopted or how such regulations will affect us and our listing on Nasdaq. In the event that the Cyberspace Administration of China determines that we are subject to these regulations, we may be required to delist from Nasdaq and we may be subject to fines and penalties. On June 10, 2021, the Standing Committee of the NPC promulgated the PRC Data Security Law, which took effect on September 1, 2021. The Data Security Law also sets forth the data security protection obligations for entities and individuals handling personal data, including that no entity or individual may acquire such data by stealing or other illegal means, and the collection and use of such data should not exceed the necessary limits The costs of compliance with, and other burdens imposed by, CSL and any other cybersecurity and related laws may limit the use and adoption of our products and services and could have an adverse impact on our business. Further, if the enacted version of the Measures for Cybersecurity Review mandates clearance of cybersecurity review and other specific actions to be completed by companies like us, we face uncertainties as to whether such clearance can be timely obtained, or at all.
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On July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Measures for Cybersecurity Review for public comments (the “Review Measures”), and on December 28, 2021, the Cyberspace Administration of China jointly with the relevant authorities published Measures for Cybersecurity Review (2021) which will take effect on February 15, 2022 and replace the Review Measures, which required that, operators of critical information infrastructure purchasing network products and services, and data processors (together with the operators of critical information infrastructure, the “Operators”) carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review, any operator who controls more than one million users’ personal information must go through a cybersecurity review by the cybersecurity review office if it seeks to be listed in a foreign country.
Under the Data Security Law enacted on September 1, 2021 and the Measures for Cybersecurity Review (2021) to be implemented on February 15, 2022, since we are not an Operator, nor do we control more than one million users’ personal information, we would not be required to apply for a cybersecurity review by the CAC. However, if the CSRC, CAC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering and any follow-on offering, we may be unable to obtain such approvals and we may face sanctions by the CSRC, CAC or other PRC regulatory agencies for failure to seek their approval which could significantly limit or completely hinder our ability to offer or continue to offer securities to our investors and the securities currently being offered may substantially decline in value and be worthless.
On August 17, 2021, the State Council promulgated the Regulations on the Protection of the Security of Critical Information Infrastructure, or the Regulations, which took effect on September 1, 2021. The Regulations supplement and specify the provisions on the security of critical information infrastructure as stated in the Cybersecurity Review Measures. The Regulations provide, among others, that protection department of certain industry or sector shall notify the operator of the critical information infrastructure in time after the identification of certain critical information infrastructure.
On August 20, 2021, the Standing Committee of the NPC approved the Personal Information Protection Law (“PIPL”), which became effective on November 1, 2021. The PIPL regulates collection of personal identifiable information and seeks to address the issue of algorithmic discrimination. Companies in violation of the PIPL may be subject to warnings and admonishments, forced corrections, confiscation of corresponding income, suspension of related services, and fines. We had not collected identifiable or sensitive personal information of individual end-users, such as ID card numbers and real names, which means our potential access or exposure to customers’ personal information is limited. However, in the event we inadvertently access or become exposed to customers’ personal identifiable information, then we may face heightened exposure to the PIPL.
We cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do, and there is no assurance that we can fully or timely comply with such laws. In the event that we are subject to any mandatory cybersecurity review and other specific actions required by the CAC, we face uncertainty as to whether any clearance or other required actions can be timely completed, or at all. Given such uncertainty, we may be further required to suspend our relevant business, shut down our website, or face other penalties, which could materially and adversely affect our business, financial condition, and results of operations.
If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, 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 substantially all of their operations in China, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered 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 many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our Company, 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 the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our Company and business operations will be severely hampered and your investment in our Ordinary Shares could be rendered worthless.
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You may face difficulties in protecting your interests and exercising your rights as a stockholder since we conduct substantially all of our operations in China, and almost all of our officers and directors reside outside the U.
Although we are incorporated in the Cayman Islands, we conduct substantially all of our operations in China. All of our current officers and almost all of our directors reside outside the U.S. and substantially all of the assets of those persons are located outside of the U.S. It may be difficult for you to conduct due diligence on the Company or such directors in your election of the directors and attend shareholders meeting if the meeting is held in China. We plan to have one shareholder meeting each year at a location to be determined, potentially in China. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation doing business entirely or predominantly within the U.S.
There are impacts of COVID-19 on our business, financial condition, and results of operations.
The impact of COVID-19 on our business, financial condition, and results of operations includes, but are not limited to, the following:
| ● | According to the requirements of relevant Chinese regulatory authorities, from the end of January 2020 to March 2020, Company’s employees and dealers are temporarily prohibited from going out in accordance with local government policies. Our Marketing business reopened in April 2020. |
| ● | In the first half of 2020, we suspended all on-site marketing and advertising activities. We transferred these activities online during the pandemic. As of June 2020, we have resumed on-site marketing and advertising activities. |
| ● | Our business performance was negatively affected in the first half of 2020, however, due to the effective control of the pandemic in China in the second half of 2020, business performance has rebounded. In addition, we have also received increasing interest from investors who are interested in the smart parking industry and want to join us as dealers. |
As of the date of this prospectus, there are still regional outbreaks of coronavirus diseases in 2022 (such as Beijing and Shanghai) and movements in China are still limited. Lockdown measures will continue in closed and control areas with reported COVID-19 cases. Some cities require residents to present a negative COVID-19 test result to enter public venues and take public transport. Though these recent regional outbreaks did not impact Company’s operations, the situation could impact economies and financial markets, resulting in an economic downturn that could impact our ability to raise capital or slow down potential business opportunities. There are still uncertainties of COVID-19’s future impact, and the extent of the impact will depend on a number of factors, including the duration and severity of the pandemic; and the macroeconomic impact of government measures to contain the spread of COVID-19 and related government stimulus measures. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
Because of the uncertainty surrounding the COVID-19 outbreak, the business disruption and the related financial impact related to the outbreak of and response to the coronavirus cannot be reasonably estimated at this time.
We believe that our current cash and cash equivalents, proceeds from additional equity and debt financing and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures for the next 12 months. We may, however, need additional capital in the future to fund our continuing operations. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations.
The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in “Restrictive Market”, (ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.
On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a national securities exchange or in the over the counter trading market in the U.S. On December 2, 2020, the U.S. House of Representatives approved the Holding Foreign Companies Accountable Act. On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law.
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On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant.
On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if signed into law, would reduce the time period for the delisting of foreign companies under the HFCAA to two consecutive years instead of three years.
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 (“Commission-Identified Issuer”). The final amendments are effective on January 10, 2022. The SEC will begin to identify and list Commission-Identified Issuers on its website shortly after registrants begin filing their annual reports for 2021.
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.
The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
Our auditor, WWC, P.C., the 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 our auditor’s compliance with the applicable professional standards. Our auditor is headquartered in San Mateo, California and is subject to inspection by the PCAOB on a regular basis with the last inspection in 2020. 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, trading in our securities could be prohibited under the Holding Foreign Companies Accountable Act and as a result an exchange may determine to delist your securities.
These recent developments could 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 the audit of our financial statements.
On August 26, 2022, the China Securities Regulatory Commission, the MOF, and the PCAOB signed the Protocol, governing inspections and investigations of audit firms based in 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 has the unfettered ability to transfer information to the SEC.
Our shares may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect our auditors for three consecutive years beginning in 2021 because of a position taken by an authority in a foreign jurisdiction. The delisting of our shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.
The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. The HFCA Act states if the SEC determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit such shares from being traded on a national securities exchange or in the over the counter trading market in the U.S.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act. A company 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. The SEC is assessing how to implement other requirements of the HFCA Act, including the listing and trading prohibition requirements described above.
Despite that we have a U.S. based auditor that is registered with the PCAOB and subject to PCAOB inspection, there are still risks to the company and investors 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. Such risks include but not limited to that trading in our securities may be prohibited under the Holding Foreign Companies Accountable Act and as a result an exchange may determine to delist our securities.
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The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that the MOC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. For example, the M&A Rules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, the Anti-Monopoly Law promulgated by the SCNPC effective in 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds (i.e., during the previous fiscal year, (i) the total global turnover of all operators participating in the transaction exceeds RMB10 billion and at least two of these operators each had a turnover of more than RMB400 million within China, or (ii) the total turnover within China of all the operators participating in the concentration exceeded RMB 2 billion, and at least two of the operators each had a turnover of more than RMB 400 million within China) must be cleared by MOFCOM before they can be completed.
Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOC or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.
The approval of the China Securities Regulatory Commission may be required in connection with this offering, and, if required, we cannot predict whether we will be able to obtain such approval.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.
Our PRC counsel, Guantao Law Firm, has advised us that, based on its understanding of the current PRC laws and regulations, we will not be required to obtain the aforesaid approval of the listing and trading of our ordinary shares on Nasdaq in the context of this offering because we did not establish our PRC subsidiaries by merger with or acquisition of PRC domestic companies using equities as consideration as defined in the M&A Rules.
However, our PRC counsel has further advised us that there remain some uncertainties as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as we do. If it is determined that CSRC approval is required for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek CSRC approval for this offering. These sanctions may include fines and penalties on our operations in the PRC, limitations on our operating privileges in the PRC, delays in or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our PRC subsidiary, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our Ordinary Shares. Furthermore, the CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of the Ordinary Shares that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the Ordinary Shares we are offering, you would be doing so at the risk that the settlement and delivery may not occur.
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Risks Relating to this Offering
There has been no public market for our Ordinary Shares prior to this offering, and you may not be able to resell our Ordinary Shares at or above the price you pay for them, or at all.
Prior to this offering, there has not been a public market for our Ordinary Shares. We have applied to list our Ordinary Shares on the Nasdaq Capital Market. However, an active public market for our Ordinary Shares may not develop or be sustained after the offering, in which case the market price and liquidity of our Ordinary Shares will be materially and adversely affected. Our Ordinary Shares will not be listed on any exchange or quoted for trading on any over-the-counter system.
The initial public offering price for our Ordinary Shares may not be indicative of prices that will prevail in the trading market and such market prices may be volatile.
The initial public offering price for our Ordinary Shares will be determined by negotiations between us and the underwriters, and does not bear any relationship to our earnings, book value or any other indicia of value. We cannot assure you that the market price of our Ordinary Shares will not decline significantly below the initial public offering price. The financial markets in the United States and other countries have experienced significant price and volume fluctuations in the last few years. Volatility in the price of our Ordinary Shares may be caused by factors outside of our control and may be unrelated or disproportionate to changes in our results of operations.
If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we will be required to file a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.
The presence of material weaknesses in internal control over financial reporting could result in financial statement errors which, in turn, could lead to errors in our financial reports and/or delays in our financial reporting, which could require us to restate our operating results. We might not identify one or more material weaknesses in our internal controls in connection with evaluating our compliance with Section 404 of the Sarbanes-Oxley Act. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, we will need to expend significant resources and provide significant management oversight. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors and employees, entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and divert management’s attention from other business concerns. These changes may not, however, be effective in maintaining the adequacy of our internal control.
If we are unable to conclude that we have effective internal controls over financial reporting, investors may lose confidence in our operating results, the price of the Ordinary Shares could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, the Ordinary Shares may not be able to remain listed on Nasdaq.
The requirements of being a public company may strain our resources and divert management’s attention.
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the securities exchange on which we list, and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our legal, accounting, and financial compliance costs and investor relations and public relations costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things, that we file annual and current reports with respect to our business and operating results as well as proxy statements.
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As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation and results of operations.
We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
We have not paid dividends to our shareholders and do not expect to pay dividends in the forseeable future.
We have never declared or paid any cash dividends on our Ordinary Shares. We have been retaining funds for our business operation and expansion. We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Our ability to pay dividends will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospects and other factors the board may deem relevant. As a result, you may only receive a return on your investment in our Ordinary Shares if we are successfully listed and the market price of our Ordinary Shares increases.
The price of the Ordinary Shares and other terms of this offering have been determined by us along with our Underwriter.
If you purchase our Ordinary Shares in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay a price that was determined by us along with the Representative. The offering price for our Ordinary Shares may bear no relationship to our assets, book value, historical results of operations or any other established criterion of value. The trading price, if any, of the Ordinary Shares that may prevail in any market that may develop in the future, for which there can be no assurance, may be higher or lower than the price you paid for our Ordinary Shares.
The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies.
Upon completion of this offering, we will be a public company in the United States. As a public company, we will be required to file periodic reports with the Securities and Exchange Commission upon the occurrence of matters that are material to our Company and shareholders. Although we may be able to attain confidential treatment of some of our developments, in some cases, we will need to disclose material agreements or results of financial operations that we would not be required to disclose if we were a private company. Our competitors may have access to this information, which would otherwise be confidential. This may give them advantages in competing with our Company. Similarly, as a U.S. public company, we will be governed by U.S. laws that our competitors, which are mostly private Chinese companies, are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies, our public company status could affect our results of operations.
Shares eligible for future sale may adversely affect the market price of our Ordinary Shares if the shares are successfully listed on NASDAQ or other stock markets, as the future sale of a substantial amount of outstanding Ordinary Shares in the public marketplace could reduce the price of our Ordinary Shares.
The market price of our Ordinary Shares could decline as a result of sales of substantial amounts of our shares in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of our Ordinary Shares. All of the Ordinary Shares sold in the offering will be freely transferable without restriction or further registration under the Securities Act. The remaining Ordinary Shares will be “restricted securities” as defined in Rule 144. These Ordinary Shares may be sold without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act. See “Shares Eligible for Future Sale.”
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If you purchase our Ordinary Shares in this offering, you will incur immediate and substantial dilution in the book value of your shares.
Investors purchasing our Ordinary Shares in this offering will pay a price per share that substantially exceeds the pro forma as adjusted net tangible book value per share. As a result, investors purchasing Ordinary Shares in this offering will incur immediate dilution of $ per share, representing the difference between our initial public offering price of $ per share and our pro forma as adjusted net tangible book value per share as of December 31, 2021. For more information on the dilution, you may experience as a result of investing in this offering, see the section of this prospectus entitled “Dilution.”
A sale or perceived sale of a substantial number of shares of our Ordinary Shares may cause the price of our Ordinary Shares to decline.
All of our executive officers and directors and all shareholders have agreed not to sell shares of our Ordinary Shares for a period of six months from the date on which the trading of the Ordinary Shares commences, subject to extension under specified circumstances. However, shareholders who own 5% or more of the outstanding Ordinary Shares have agreed with the Underwriter not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Ordinary Shares or securities convertible into Ordinary Shares for a period of 12 months from the date on which the trading of the Ordinary Shares commences . See “Lock-Up Agreements.” Ordinary Shares subject to these lock-up agreements will become eligible for sale in the public market upon expiration of these lock-up agreements, subject to limitations imposed by Rule 144 under the Securities Act of 1933, as amended. If our shareholders sell substantial amounts of our Ordinary Shares in the public market, the market price of our Ordinary Shares could fall. Moreover, the perceived risk of this potential dilution could cause shareholders to attempt to sell their Ordinary Shares and investors to short our Ordinary Shares. These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for the Ordinary Shares and trading volume could decline.
The trading market for the Ordinary Shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades the Ordinary Shares or publishes inaccurate or unfavorable research about our business, the market price for Ordinary Shares would likely decline. If one or more of these analysts ceases coverage of our Company or fails to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the Ordinary Shares to decline.
Our management will have broad discretion over the use of any net proceeds from this offering and you may not agree with how we use the proceeds, and the proceeds may not be invested successfully.
Our management will have broad discretion as to the use of any net proceeds from this offering and could use them for purposes other than those contemplated at the time of this offering and in ways that do not necessarily improve our results of operations or enhance the value of our Ordinary Shares. Accordingly, you will be relying on the judgment of our management with regard to the use of any proceeds from the exercise of warrants on a cash basis in this offering and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The proceeds could be invested in a way that does not yield a favorable, or any, return for you.
We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we remain an emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they may deem important.
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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 U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
| ● | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; |
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; |
| ● | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and |
| ● | the selective disclosure rules by issuers of material nonpublic information under Regulation FD. |
We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a half year basis as press releases, distributed pursuant to the rules and regulations of Nasdaq. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K.
However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. 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 may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination with respect to our status will be made on June 30, 2022. We would lose our foreign private issuer status if, for example, more than 50% of our Ordinary Shares are directly or indirectly held by residents of the U.S. and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms beginning on December 31, 2022, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act.
In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the NASDAQ listing rules. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange.
There can be no assurance we will not be a passive foreign investment company (“PFIC”), for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. investors in our Ordinary Shares or Warrants.
In general, a non-U.S. corporation is a PFIC for U.S. federal income tax purposes for any taxable year in which (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average value of its assets (generally determined on a quarterly basis) consists of assets that produce, or are held for the production of, passive income. For purposes of the above calculations, 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, 25% (by value) of the stock.
Based upon the manner in which we currently operate our business, the expected composition of our income and assets and the value of our assets, we do not expect to be a PFIC for the current taxable year or in the foreseeable future. However, this is a factual determination that must be made annually after the close of each taxable year, and the application of the PFIC rules is subject to uncertainty in several respects. The value of our assets for purposes of the PFIC determination will generally be determined by reference to the market price of our Ordinary Shares, which could fluctuate significantly. In addition, our PFIC status will depend on the manner we operate our workspace business (and the extent to which our income from workspace membership continues to qualify as active for PFIC purposes). Because of these uncertainties, there can be no assurance we will not be a PFIC for the current taxable year, or will not be a PFIC in the future.
If we were a PFIC for any taxable year during which a U.S. investor owns our Ordinary Shares or Warrants, certain adverse U.S. federal income tax consequences could apply to such U.S. investor. See “Taxation — Material U.S. Federal Income Tax Considerations — Passive Foreign Investment Company.”
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We are a “controlled company” within the meaning of the Nasdaq listing requirements and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
We are a “controlled company” as defined under the rules of the Nasdaq since our directors and officers beneficially own, when combined, more than 50% of our total voting power. For so long as we remain a controlled company under this definition, we are permitted to elect to 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. |
Although we currently do not intend to rely on the “controlled company” exemptions under the Nasdaq listing rules, we could elect to rely on those exemptions in the future. As a result, you may not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
We will hold in the aggregate 62% of the voting power of our capital stock following the completion of this offering, preventing you and other stockholders from influencing significant decisions, including the election of directors, amendments to our organizational documents and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval.
Weiming Jin, our Chairman of the Board of Directors and Chief Executive Officer, is currently the beneficial owner of 87% of our issued and outstanding Ordinary Shares, of which 100% are directly held by Ausen International Investment Holdings Co., Limited, a British Virgin Islands company, which is 100% owned by Mr. Jin. Upon the closing of this offering, our directors and officers will own approximately 62% of our issued and outstanding Ordinary Shares. We currently meet the definition of a “controlled company” under the corporate governance standards for Nasdaq listed companies and for so long as we remain a controlled company under this definition, we are eligible to utilize certain exemptions from the corporate governance requirements of the Nasdaq Stock Market. Mr. Jin will have the ability to determine all matters requiring approval by stockholders.
As a result, for so long as Yi Po Holdings owns a controlling or significant voting interest in our ordinary shares, it generally will be able to control or significantly influence, directly or indirectly and subject to applicable law, all matters affecting us, including:
| ● | the election of directors; |
| ● | determinations with respect to our business direction and policies, including the appointment and removal of officers; |
| ● | determinations with respect to corporate transactions, such as mergers, business combinations, change in control transactions or the acquisition or the disposition of assets; |
| ● | our financing and dividend policy; |
| ● | determinations with respect to our tax returns; and |
| ● | compensation and benefits programs and other human resources policy decisions. |
Yi Po Holdings may have interests that differ from yours and may vote in a way with which you disagree, and which may be adverse to your interests. Corporate action might be taken even if other shareholders, including those who purchase shares in this offering, oppose them. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control or other liquidity event of our Company, could deprive our stockholders of an opportunity to receive a premium for their ordinary shares as part of a sale or other liquidity event and might ultimately affect the market price of our ordinary shares.
The Financial Action Task Force’s Increased Monitoring of the Cayman Islands.
In February 2021, the Cayman Islands was added to the Financial Action Task Force (“FATF”) list of jurisdictions whose anti-money laundering practices are under increased monitoring, commonly referred to as the “FATF grey list.” When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring during that timeframe. It is unclear how long this designation will remain in place and what ramifications, if any, the designation will have for the Company.
Compensation of Directors and Officers.
Under Cayman Islands law, the Company is not required to disclose compensation paid to our senior management on an individual basis and the Company has not otherwise publicly disclosed this information elsewhere. The executive officers, directors and management of the Company receive fixed and variable compensation. They also receive benefits in line with market practice. The fixed component of their compensation is set on market terms and adjusted annually. The variable component consists of cash bonuses and awards of shares (or the cash equivalent). Cash bonuses are paid to executive officers and members of management based on previously agreed targets for the business. Shares (or the cash equivalent) are awarded under share options.
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Based upon an assumed initial public offering price of US$5.00 per Ordinary Shares, we estimate that we will receive net proceeds from this offering, after deducting the underwriting discounts and the estimated offering expenses payable by us, of approximately US$ 18,100,000 assuming the underwriters do not exercise its over-allotment option.
We plan to use the net proceeds we receive from this offering for the following purposes:
| Description of Use | Estimated Amount of Net Proceeds (US $) | % | ||||||
| Development and upgrade of parking lot intelligent system | $ | 2,715,000.00 | 15 | % | ||||
| Increase and acquire parking lots | $ | 8,145,000.00 | 45 | % | ||||
| Place more parking lot gates with advertisements | $ | 3,620,000.00 | 20 | % | ||||
| Working capital and general corporate matters | $ | 3,620,000.00 | 20 | % | ||||
| Total | $ | 18,100,000.00 | 100 | % | ||||
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 some 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. To the extent that the net proceeds we receive from this offering are not imminently used for the above purposes, we intend to invest in short-term, interest-bearing bank deposits or debt instruments.
The net proceeds from this offering must be remitted to China before we will be able to use the funds to grow our business. The procedure to remit funds may take several months after completion of this offering, and we will be unable to use the offering proceeds in China until remittance is completed. See “Risk Factors” for further information.
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We intend to keep any future earnings to finance the expansion of our business. We do not anticipate that any cash dividends will be paid in the foreseeable future.
Under Cayman Islands law, a Cayman Islands exempted company may pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts due in the ordinary course of business.
If we determine to pay dividends on any of our ordinary shares in the future, as a holding company, we will depend on receipt of funds from our Hong Kong subsidiary, Yi Po HK.
Current PRC regulations permit Yi Po WFOE to pay dividends to Yi Po HK only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, Yi Po WFOE 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. 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.
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 and affiliates 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.
Cash dividends, if any, on our Ordinary Shares will be paid in U.S. dollars. Yi Po HK may be considered a non-resident enterprise for tax purposes, so that any dividends Yi Po WFOE pays to Yi Po HK 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%. See “Taxation—People’s Republic of China Enterprise Taxation.”
In order for us to pay dividends to our shareholders, we will rely on payments made from Jiangsu Easy Parking to Yi Po WFOE, and the distribution of such payments to Yi Po HK as dividends from WFOE. Certain payments from Jiangsu Easy Parking to Yi Po WFOE are subject to PRC taxes, including VAT, urban maintenance and construction tax, educational surcharges. In addition, if Jiangsu Easy Parking incurs debt on their own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.
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 project. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months preceding its receipt of the dividends.
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The following table sets forth our capitalization as of December 31, 2021
| ● | on an actual basis; and |
| ● | on an as adjusted basis to reflect the issuance and sale of the Ordinary Shares by us in this offering at the initial public offering price of US$5.00 per Ordinary Share, after deducting the estimated discounts and the estimated offering expenses payable by us. |
You should read this capitalization table in conjunction with “Use of Proceeds,” “Selected Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes appearing elsewhere in this prospectus.
| As of December 31, 2021 | ||||||||
| Actual (Audited) | Pro forma(1) | |||||||
| Short term bank loans | $ | 1 | 1 | |||||
| Shareholder’s Equity: | 1,563 | 2,187 | ||||||
| Ordinary shares, US$0.00015625 par value per share | 338,157 | 18,437,533 | ||||||
| Additional paid-in capital(2) | (50,000 | ) | (50,000 | ) | ||||
| Subscription receivable | - | - | ||||||
| Statutory reserve | 2,476,168 | 2,476,168 | ||||||
| Retained earnings | 75,195 | 75,195 | ||||||
| Accumulated other comprehensive income | 2,841,083 | 20,941,083 | ||||||
| Total shareholders’ equity | ||||||||
| Total capitalization | $ | 2,841,083 | 20,941,083 | |||||
| (1) | Gives effect to the sale of 4,000,000 Ordinary Shares in this offering at an assumed initial public offering price of $5 per share and reflects the application of the proceeds after deducting the underwriting discounts, non-accountable expense allowance and our estimated offering expenses. |
| (2) | Pro forma adjusted additional paid in capital reflects the net proceeds we expect to receive, after deducting underwriting discounts and non-accountable expense allowance, and other expenses. We expect to receive net proceeds of approximately $18,100,000 ($ 20,000,000 offering, less underwriting discounts of $1,400,000 (7% of gross proceeds), non-accountable expense allowance of $200,000 (1% of gross proceeds), accountable expenses of $300,000 and offering expenses of $0). |
Each $1.00 increase (decrease) in the assumed initial public offering price of $5 per Ordinary Share would increase (decrease) the pro forma as adjusted amount of total capitalization by $3.68 million, assuming that the number of Ordinary Shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts, non-accountable expense allowance and estimated offering expenses payable by us.
An increase (decrease) of one million in the number of Ordinary Shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of total capitalization by $4.6 million, assuming no change in the assumed initial public offering price per Ordinary Share as set forth on the cover page of this prospectus.
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If you invest in our Ordinary Shares, your interest will be diluted to the extent of the difference between the initial public offering price per Ordinary Share and the pro forma net tangible book value per Ordinary Share after the offering. Dilution results from the fact that the offering price per Ordinary Share is substantially in excess of the book value per Ordinary Share attributable to the existing shareholders for our presently issued and outstanding Ordinary Shares. Our net tangible book value attributable to shareholders on December 31, 2021 was $2,841,083 or approximately $0.28 per Ordinary Share. Net tangible book value per Ordinary Share as of December 31, 2021 represents the amount of total assets less intangible assets and total liabilities, divided by the number of Ordinary Shares issued and outstanding.
We will have Ordinary Shares issued and outstanding upon completion of the offering or Ordinary Shares assuming not including the full exercise of over-allotment option. Our post offering pro forma net tangible book value, which gives effect to receipt of the net proceeds from the offering and issuance of additional shares in the offering, but does not take into consideration any other changes in our net tangible book value after December 31, 2021, will be $20,941,083 or approximately $1.50 per Ordinary Share. This would result in dilution to investors in this offering of approximately $3.50 per Ordinary Share or approximately 70.1% from the assumed offering price of $5 per Ordinary Share. Net tangible book value per Ordinary Share would increase to the benefit of present shareholders by $1.22 per share attributable to the purchase of the Ordinary Shares by investors in this offering.
The following table sets forth the estimated net tangible book value per Ordinary Share after the offering and the dilution to persons purchasing Ordinary Shares based on the foregoing firm commitment offering assumptions. The number of our Ordinary Shares had been adjusted retrospectively to reflect the increasing of share capital. See “Description of Share Capital” for more details.
| Offering Without Over- Allotment | Offering With Over- Allotment | |||||||
| Assumed offering price per Ordinary Share | $ | 5.00 | $ | 5.00 | ||||
| Net tangible book value per Ordinary Share before the offering | $ | 0.28 | $ | 0.28 | ||||
| Increase per Ordinary Share attributable to payments by new investors | $ | 1.22 | $ | 1.34 | ||||
| Pro forma net tangible book value per Ordinary Share after the offering | $ | 1.50 | $ | 1.62 | ||||
| Dilution per Ordinary Share to new investors | $ | 3.50 | $ | 3.38 | ||||
Each $1.00 increase (decrease) in the assumed initial public offering price of $5 per Ordinary Share would increase (decrease) our pro forma as adjusted net tangible book value as of December 31, 2021 after this offering by approximately $0.26 per Ordinary Share, and would increase (decrease) dilution to new investors by $0.74 per Ordinary Share, assuming that the number of Ordinary Shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts, non-accountable expense allowance and estimated offering expenses payable by us.
An increase (decrease) of 1 million in the number of Ordinary Shares we are offering would increase (decrease) our pro forma as adjusted net tangible book value as of December 31, 2021 after this offering by approximately $0.21 per Ordinary Share, and would decrease (increase) dilution to new investors by approximately $0.21 per ordinary share, assuming the assumed initial public offering price per Ordinary Share, as set forth on the cover page of this prospectus remains the same, and after deducting the estimate underwriting discounts, non-accountable expense allowance and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.
If the underwriter exercises its over-allotment option in full, the pro forma as adjusted net tangible book value per Ordinary Share after the offering would be $23,701,083, the increase in net tangible book value per Ordinary Share to existing shareholders would be $1.62, and the immediate dilution in net tangible book value per Ordinary Share to new investors in this offering would be $3.38.
The following table summarizes, on a pro forma as adjusted basis as of December 31, 2021, the differences between existing shareholders and the new investors with respect to the number of Ordinary Shares purchased from us, the total consideration paid and the average price per Ordinary Share before deducting the estimated discounts to the underwriters, non-accountable expense allowance and the estimated offering expenses payable by us.
| Ordinary Shares purchased | Total consideration | Average price per Ordinary | ||||||||||||||||||
| Number | Percent | Amount | Percent | Share | ||||||||||||||||
| Existing shareholders | 10,000,000 | 71.4 | % | $ | 339,720 | 1.7 | % | $ | 0.03 | |||||||||||
| New investors (1) | 4,000,000 | 28.6 | % | $ | 20,000,000 | 98.3 | % | $ | 5.00 | |||||||||||
| Total | 14,000,000 | 100 | % | $ | 20,339,720 | 100 | % | $ | 5.03 | |||||||||||
| (1) | Not including over-allotment shares. |
The pro forma as adjusted information as discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our Ordinary Shares and other terms of this offering determined at the pricing.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See “Disclosure Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks, and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.
Overview
Yi Po Holdings is a holding company that was incorporated under the laws of the Cayman Islands on March 19, 2020. As a holding company with no material operations of our own, we conduct our operations in China through our subsidiary, Jiangsu Easy Parking. Yi Po Holdings, through Jiangsu Easy Parking, provides intelligent parking management systems and intelligent parking lot gate products in the PRC.
We, through our PRC operating subsidiaries, entered into the intelligent parking industry in 2018. At present, we have installed our intelligent parking management system in approximately 76 parking lots across 20 cities in China, including 8 parking lots self-operated by us.
Our revenues consist of: (i) dealer licensing fee; (ii) Parking management system fee; (iii) parking space rental fee; and (iv) Other related revenue.
Our intelligent parking management system is widely-used in the self-operated parking lots business and the cooperatively operated parking lots business, which is an electronic network system with automatic vehicle login, entrance and exit authentication, monitoring, and charging management functionalities. We launched a national network parking platform that provides vehicle owners with diverse services such as parking space search, navigation guidance, touchless payment, membership discounts, and owner’s car search, to provide convenient parking experiences to vehicle owners. We also provide intelligent parking lot gate products, which combine our intelligent parking software system with electromechanical products (i.e. ordinary parking lot gate). Our vehicle access efficiency is manifested by the intelligent management system installed in the parking lot gate products, which save and store information such as records of vehicles’ entrance and exit, time of entrance and exit.
We have a broad marketing network in China, and have established cooperative relationships with 39 regional dealers who provide marketing and promotion services nationwide. The extensive dealer licensing channels reduce our overall operating costs. The dealers facilitate the cooperation between us and our partners to in the operation and management of parking lots and parking spaces. The dealers also promote and publicize our intelligent parking management system and our national network parking platform.
With the rapid development of urbanization in China and the improvement of resident awareness of safety precautions, the demand for intelligent parking management system products in commercial and residential buildings has increased. This translates into a huge market for the intelligent parking lots. Based on our grasp of the market and investment in the intelligent parking industry, Jiangsu Easy Parking was awarded the honors of “China’s most influential brand in the intelligent parking industry in 2020” and “China’s most valuable intelligent parking platform for investment and cooperation in 2020” by China Brand Influence Evaluation Committee, a well-recognized organization in China.
As we gradually deepen our understanding of different vertical industries such as the transportation industry, property management industry, and urban planning industry, our goal is to combine the digital and intelligent development needs of each vertical industry to develop and provide more comprehensive intelligent parking solutions. We believe that our intelligent parking management system will enhance the sustainability of our business. We also plan to collaborate with the merchants on our national network parking platform, which may lead to more business cooperation opportunities.
Impact of COVID-19
The ongoing outbreak of a novel strain of coronavirus (“COVID-19”) has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities globally for the past year. In March 2020, the World Health Organization declared COVID-19 as a pandemic. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of our business operations and our workforce are concentrated in China, we believe there is a risk that our business, results of operations, and financial condition will be adversely affected. Potential impact to our results of operations will also depend on future developments and new information that may emerge regarding the duration and severity of COVID-19 and the actions taken by government authorities and other entities to contain COVID-19 or mitigate its impact, almost all of which are beyond our control.
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The impact of COVID-19 on our business, financial conditions and operating results includes, but is not limited to the following:
| ● | According to the requirements of relevant Chinese regulatory authorities, from the end of January 2020 to March 2020, our employees and dealers were temporarily prohibited from going out in accordance with Nanjing local government policies. Our business reopened in April 2020. |
| ● | In the first half of 2020, we suspended all on-site marketing and advertising activities. We transferred these activities online during the pandemic. As of June 2020, we have resumed on-site marketing and advertising activities. |
| ● | Our business performance was negatively affected in the first half of 2020. However, due to the effective control of the pandemic in China in the second half of 2020, business performance has rebounded. In addition, we have also received interest from investors who are interested in the smart parking industry and want to join us as dealers. |
As of the date of this prospectus, there are still regional outbreaks of coronavirus diseases in 2022 (such as Beijing and Shanghai) and movements in China are still limited. Lockdown measures will continue in closed and control areas with reported COVID-19 cases. Some cities require residents to present a negative COVID-19 test result to enter public venues and take public transport. Though these recent regional outbreaks did not impact Company’s operations, the situation could impact economies and financial markets, resulting in an economic downturn that could impact our ability to raise capital or slow down potential business opportunities. There are still uncertainties of COVID-19’s future impact, and the extent of the impact will depend on a number of factors, including the duration and severity of the pandemic; and the macroeconomic impact of government measures to contain the spread of COVID-19 and related government stimulus measures. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
Because of the uncertainty surrounding the COVID-19 outbreak, business disruption and its related financial impact related to the outbreak of and response to COVID-19 cannot be reasonably estimated at this time. We believe that our current cash and cash equivalents and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures for the next 12 months. We may, however, need additional capital in the future to fund our continuing operations. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations.
Results of Operations
For the years ended December 31, 2021 and 2020
The following table sets forth a summary of the Company’s consolidated results of operations For the years ended December 31, 2021 and 2020. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.
| For the years ended | ||||||||||||||||
| December 31, | Changes | |||||||||||||||
| 2021 | 2020 | Amount | % | |||||||||||||
| Net revenue | $ | 5,277,517 | $ | 2,786,853 | $ | 2,490,664 | 89.37 | % | ||||||||
| Cost of revenue | 1,017,378 | 689,501 | 327,877 | 47.55 | % | |||||||||||
| Gross profit | 4,260,139 | 2,097,352 | 2,162,787 | 103.12 | % | |||||||||||
| Selling, general and administrative expenses | (2,245,212 | ) | (1,444,469 | ) | (800,743 | ) | 55.44 | % | ||||||||
| Income from operations | 6,505,351 | 3,541,821 | 2,963,530 | 83.67 | % | |||||||||||
| Interest income (expense), net | 65,112 | 6,299 | 58,813 | 933.69 | % | |||||||||||
| Total other income (loss) and expenses | (15,587 | ) | (11,207 | ) | (4,380 | ) | 39.08 | % | ||||||||
| Income before income tax provision | 1,999,340 | 641,676 | 1,357,664 | 211.58 | % | |||||||||||
| Provision for income taxes | (50,728 | ) | (161,446 | ) | 110,718 | (68.58 | )% | |||||||||
| Net income | 1,948,612 | 480,230 | 1,468,382 | 305.77 | % | |||||||||||
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Net Revenue
The following table lists the calculation methods of gross profit and gross profit margin of each type of revenue:
For the years ended December 31, | Changes | |||||||||||||||
| 2021 | 2020 | Amount | % | |||||||||||||
| Dealer licensing fee | ||||||||||||||||
| Net revenue | $ | 3,851,651 | 2,700,101 | 1,151,550 | 42.65 | % | ||||||||||
| Cost of revenue | 324,269 | 466,145 | (141,876 | ) | 30.44 | % | ||||||||||
| Gross profit | $ | 3,527,382 | 2,233,956 | 1,293,426 | 57.90 | % | ||||||||||
| Gross profit margin | 91.58 | % | 82.74 | % | 8.85 | % | 10.69 | % | ||||||||
| Parking management system | ||||||||||||||||
| Net revenue | $ | 1,118,648 | 0 | 1,118,648 | - | |||||||||||
| Cost of revenue | 318,448 | 0 | 318,448 | - | ||||||||||||
| Gross profit | $ | 800,200 | 0 | 800,200 | - | |||||||||||
| Gross profit margin | 71.53 | % | - | % | - | % | - | |||||||||
| Parking space rental fee | ||||||||||||||||
| Net revenue | $ | 306,565 | 86,697 | 219,868 | 253.61 | % | ||||||||||
| Cost of revenue | 374,661 | 223,356 | 151,305 | 67.74 | % | |||||||||||
| Gross profit | $ | (68,096 | ) | (136,659 | ) | 68,563 | (50.17 | )% | ||||||||
| Gross profit margin | (22.21 | )% | (157.63 | )% | 135.42 | % | (85.91 | )% | ||||||||
| Other related revenue | ||||||||||||||||
| Net revenue | $ | 653 | 55 | 598.00 | 1087.27 | % | ||||||||||
| Cost of revenue | 0 | 0 | 0.00 | - | ||||||||||||
| Gross profit | $ | 653 | 55 | 598.00 | 1087.27 | % | ||||||||||
| Gross profit margin | 100.00 | % | 0 | % | 100.00 | % | - | |||||||||
| Total | ||||||||||||||||
| Net revenue | $ | 5,277,517 | 2,786,853 | 2,490,664 | 89.37 | % | ||||||||||
| Cost of revenue | 1,017,378 | 689,501 | 327,877 | 47.55 | % | |||||||||||
| Gross profit | $ | 4,260,139 | 2,097,352 | 2,162,787 | 103.12 | % | ||||||||||
| Gross profit margin | 80.72 | % | 75.26 | % | 5.46 | % | 7.26 | % | ||||||||
Our net revenues were $5,277,517 for the years ended December 31, 2021 as compared to $2,786,853 for the same period in 2020, an increase of $2,490,664, or 89.37%. The increase was mostly due to the increase in dealer licensing fees and the parking management system fees.
Dealer licensing fees
Dealer licensing fee revenue increased by $1,151,550 or 42.65%, from $2,700,101 for the years ended December 31, 2020 to $3,851,651 for the years ended December 31, 2021. This increase was mainly a result of having more regional dealers year over year.
Cost of revenue was $324,269 for the years ended December 31, 2021, a decrease of $141,876 or 30.44%, from $466,145 for the years ended December 31, 2020. The decrease of revenue cost was due to the company focused more on developing its parking business, relatively reducing its investment in that business.
Gross profit and gross profit margin were $3,527,382 and 91.58%, respectively, for the years ended December 31, 2021 as compared to $2,233,956 and 82.74%, for the same period in 2020. Gross margins for license fees are increased because of a corresponding decrease in its costs.
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Parking management system
Parking management system was the new business in 2021. For the years ended December 31, 2021, our parking management system’s gross profit was $800,200.
Parking space rental fees
For the years ended December 31, 2021, net revenue from parking space rental fees was $306,565 and the cost of revenue was $374,661, compared to $86,697 and $223,356 for the same period in 2020. Our parking space fee gross loss was $68,096 for the years ended December 31, 2021. This was because the market has gradually improved, and we expect that most of our parking spaces will achieve profitability by the end of 2022.
Other related revenue
Net revenue from Other related revenues were $653 For the years ended December 31, 2021 as compared to $55 for the same period in 2020, an increase of $598, or 1087.27%. The increase was mostly due to the corresponding increase in cooperative parking lots.
Selling, General and Administrative Expenses
We, through our VIE in China, incurred selling, general and administrative expenses of $(2,245,212) for the years ended December 31, 2021, as compared to $(1,444,469) for the years ended December 31, 2020, an increase of $(800,743) or 55.44 %. The increase was mainly due to the expansion of parking space rental business. The salary of professionals and related office costs have increased correspondingly.
Interest Expenses
Interest charges and bank charges are mainly from bank transfer charges offset by deposit interest. Interest income as for the years ended December 31, 2021 and 2020 was approximately $65,112 and $6,299, respectively.
Provision for Income Taxes
Provision for income tax was $(50,728) for the years ended December 31, 2021,as compared to $(161,446) for the years ended December 31, 2020.Under the Income Tax Laws of the PRC, companies are generally subject to income tax at a rate of 25%. The increase in provision for income taxes was mainly due to the increase in the income before income tax provision as of December 31, 2021 and 2020 was approximately $1,999,340 and $641,676, respectively.
Net Income
Our net income increased by $1,468,382 or 305.77 %, to $1,948,612 for the years ended December 31, 2021, from $480,230 for the years ended December 31, 2020.
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For the years ended December 31, 2020 and 2019
The following table sets forth a summary of the Company’s consolidated results of operations for the years ended December 31, 2020 and 2019. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.
| For the years ended | ||||||||||||||||
| December 31, | Changes | |||||||||||||||
| 2020 | 2019 | Amount | % | |||||||||||||
| Net revenue | $ | 2,786,853 | $ | 92,428 | $ | 2,694,425 | 2915.16 | % | ||||||||
| Cost of revenue | 689,501 | 18,307 | 671,194 | 3666.32 | % | |||||||||||
| Gross profit | 2,097,352 | 74,121 | 2,023,231 | 2729.63 | % | |||||||||||
| Selling, general and administrative expenses | 1,444,469 | 11,309 | 1,433,160 | 12672.74 | % | |||||||||||
| Income from operations | 652,883 | 62,812 | 590,071 | 939.42 | % | |||||||||||
| Interest income (expense), net | 6,299 | 2 | 6,297 | 314850 | % | |||||||||||
| Total other income (loss) and expenses | (11,207 | ) | 290 | (11,497 | ) | (3964.48 | )% | |||||||||
| Income before income tax provision | 641,676 | 63,102 | 578,574 | 916.89 | % | |||||||||||
| Provision for income taxes | 161,446 | 15,776 | 145,670 | 923.36 | % | |||||||||||
| Net income | 480,230 | 47,326 | 432,904 | 914.73 | % | |||||||||||
Net Revenue
The following table lists the calculation methods of gross profit and gross profit margin of each type of revenue:
For the years ended December 31, | Changes | |||||||||||||||
| 2020 | 2019 | Amount | % | |||||||||||||
| Dealer licensing fee | ||||||||||||||||
| Net revenue | $ | 2,700,101 | 92,428 | 2,607,673 | 2821.30 | % | ||||||||||
| Cost of revenue | 466,145 | 18,307 | 447,838 | 2446.27 | % | |||||||||||
| Gross profit | $ | 2,233,956 | 74,121 | 2,159,835 | 2913.93 | % | ||||||||||
| Gross profit margin | 82.74 | % | 80.19 | % | 2.54 | % | 3.17 | % | ||||||||
| Parking space rental fee | ||||||||||||||||
| Net revenue | $ | 86,697 | - | - | - | % | ||||||||||
| Cost of revenue | 223,356 | - | - | - | % | |||||||||||
| Gross profit | $ | (136,659 | ) | - | - | - | % | |||||||||
| Gross profit margin | (157.63 | )% | - | - | - | % | ||||||||||
| Advertising revenue | ||||||||||||||||
| Net revenue | $ | 55 | - | - | - | |||||||||||
| Cost of revenue | - | - | - | - | ||||||||||||
| Gross profit | $ | 55 | - | - | - | |||||||||||
| Gross profit margin | 100.00 | % | - | - | - | |||||||||||
| Total | ||||||||||||||||
| Net revenue | $ | 2,786,853 | 92,428 | 2,694,425 | 2915.16 | % | ||||||||||
| Cost of revenue | 689,501 | 18,307 | 671,194 | 3666.32 | % | |||||||||||
| Gross profit | $ | 2,097,352 | 74,121 | 2,023,231 | 2729.63 | % | ||||||||||
| Gross profit margin | 75.26 | % | 80.19 | % | (4.93 | )% | (6.15 | )% | ||||||||
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Our net revenues were $2,786,853 for the years ended December 31, 2020 as compared to $92,428 for the same period in 2019, an increase of $2,694,425, or 2915.16%. The increase was mostly due to the increase of dealer licensing fees.
Dealer licensing fees
Dealer licensing fee revenue increased by $2,607,673 or 2821.30%, from $92,428 for the year ended December 31, 2019 to $2,700,101 for the year ended December 31, 2020. This increase was primarily attributable to an increase in the number of dealers that began to adopt our products, and the opportunities afforded to them as our authorized dealers; accordingly, we, through our VIE in China, experienced an increase in dealers entered into licensing agreements and the related recognition of revenue for those license agreements from 2019 to 2020.
Cost of revenue was $466,145 for the year ended December 31, 2020, an increase of $447,838 or 2,446.27%, from $18,307 for the year ended December 31, 2019. The increase of revenue cost was a result of the increase in marketing and training expenses from recruiting more dealers during the year. Increases in costs are correlated with the increase in dealer licensing fees.
Gross profit and gross profit margin were $2,233,956 and 82.74%, respectively for the year ended December 31, 2020 as compared to $74,121 and 80.19%, respectively for the same period in 2019. Gross margins for license fees are consistent because we make our best efforts to control our costs in accordance to revenues.
Parking space rental fees
For the year ended December 31, 2020, net revenue from parking space rental fees was $86,697 and the cost of revenue was $223,356, compared to $nil and $nil for the same period in 2019. Our parking space fee gross loss was $136,659. This was because we, through our VIE in China, incurred costs in expanding this segment of our business and our expenses were exceeded revenue in 2020. Currently the market has gradually improved, and we expect that most of our parking spaces will achieve profitability by the end of 2021. As of December 31, 2019, we did not generate any revenue in this segment.
Advertising revenue
We, through our VIE in China, lease advertising space on our parking lot gates. For the year ended December 31, 2020, our advertising gross profit was only $55. There was no advertising revenue in 2019 because we did not lease advertising space in 2019.
Selling, General and Administrative Expenses
We, through our VIE in China, incurred selling, general and administrative expenses of $1,444,469 for the year ended December 31, 2020, as compared to $11,309 for the year ended December 31, 2019, an increase of $1,433,160, or 12,672.74%. The increase was mainly due to increased promoting and advertising expenses. In addition, we recruited more employees. Our selling, general and administrative expenses include advertising expenses, delivery expenses for parking lot gates delivery, employees’ salaries, office expenses, and amortization of long term deferred expenses.
Interest Expenses
Interest charges and bank charges are mainly from bank transfer charges and deposit interest offset. Interest expense as of December 31, 2020 and 2019 was approximately$3,382 and -$96, respectively.
Provision for Income Taxes
Provision for income tax was $161,446 during the year ended December 31, 2020, an increase of $145,670 or 923.36%, as compared to $15,776 for the year ended December 31, 2019. Under the Income Tax Laws of the PRC, companies are generally subject to income tax at a rate of 25%. The increase in provision for income taxes was mainly due to the increase in income before income tax provision, which was $641,676 for the year ended December 31, 2020, as compared to $ 63,102 for the year ended December 31, 2019.
Net Income
Our net income increased by $432,904 or 914.73%, to $480,230 for the year ended December 31, 2020, from $47,326 for the year ended December 31, 2019.
Liquidity and Capital Resources
For the years ended December 31, 2021 and 2020
As of December 31, 2021, we had $332,083 in cash. The Company’s working capital and other capital needs mainly come from shareholders’ equity contribution and operating cash flow. Cash is needed to pay for inventory, wages, sales expenses, rent, income taxes, other operating expenses, and purchases to service debts.
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Although the Company’s management believes that cash generated from operations will be sufficient to meet the Company’s normal working capital requirements, its ability to service its current debt will depend on its future realization of its current assets for at least the next 12 months. Management took into account historical experience, the economy, trends in the automotive industry, the collectability of accounts receivable as of December 31, 2021, and the realization of inventory. Based on these considerations, the management believes that the Company has sufficient funds to meet its working capital requirements and debt obligations, as they will be due at least 12 months from the date of financial reporting. However, there is no guarantee that management’s plan will succeed. There are a number of factors that can arise and cause the Company’s plans to fall short, such as the overall number of vehicles in China, economic conditions, competitive pricing in the industry, and the continued support of our dealers and suppliers. If future cash flow from operations and other capital resources are insufficient to meet its liquidity needs, the Company may be forced to reduce or delay its anticipated expanding plans, sell assets, acquire additional debt or equity capital, or refinance all or part of its debt.
The following table summarizes the company’s cash flow data as of December 31, 2021 and December 31, 2020:
| For the years ended December 31, |
||||||||
| 2021 | 2020 | |||||||
| Net cash provided by (used in) operating activities | $ | 1,115,730 | $ | 1,356,334 | ||||
| Net cash used in investing activities | (1,138,525 | ) | (1,556,695 | ) | ||||
| Net cash provided by financing activities | 80,861 | 452,426 | ||||||
| Effect of exchange rate on cash | 7,419 | 14,467 | ||||||
| Net decrease in cash and cash equivalents | $ | 65,485 | $ | 266,532 | ||||
Operating Activities
Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, accounts receivable and contractual liabilities, and is adjusted for the impact of changes in working capital. Net cash generated in operating activities for the year end December 31, 2021 was $1,115,730, representing an decrease of $240,604 or 17.74% compared to net cash generated in operating activities of $1,356,334 for the year ended December 31, 2020. The decrease in net cash provided by operating activities was due to the related increase in operating costs.
Investing Activities
Net cash used in investing activities was $1,138,525 for the year ended December 31, 2021, an decrease of $418,170, or 26.86%, as compared to net cash used by $1,556,695 for the year ended December 31, 2020. The decrease in cash used was because the Company has purchased more fixed and other long-term assets.
Financing Activities
Net cash provided by financing activities was $80,861 for the year ended December 31, 2021, a decrease of $371,565, or 82.13%, as compared to net cash provided by $452,426 for the year ended December 31, 2020. The decrease in cash used was due to the expansion of parking space rental business.
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For the years ended December 31, 2020 and 2019
As of December 31, 2020, we had $266,598 in cash. The Company’s working capital and other capital needs mainly come from shareholders’ equity contribution and operating cash flow. Cash is needed to pay for inventory, wages, sales expenses, rent, income taxes, other operating expenses, and purchases to service debts.
Although the Company’s management believes that cash generated from operations will be sufficient to meet the Company’s normal working capital requirements, its ability to service its current debt will depend on its future realization of its current assets for at least the next 12 months. Management took into account historical experience, the economy, trends in the automotive industry, the collectability of accounts receivable as of December 31, 2020, and the realization of inventory. Based on these considerations, the management believes that the Company has sufficient funds to meet its working capital requirements and debt obligations, as they will be due at least 12 months from the date of financial reporting. However, there is no guarantee that management’s plan will succeed. There are a number of factors that can arise and cause the Company’s plans to fall short, such as the overall number of vehicles in China, economic conditions, competitive pricing in the industry, and the continued support of our dealers and suppliers. If future cash flow from operations and other capital resources are insufficient to meet its liquidity needs, the Company may be forced to reduce or delay its anticipated expanding plans, sell assets, acquire additional debt or equity capital, or refinance all or part of its debt.
The following table summarizes the company’s cash flow data as of December 31, 2020 and December 31, 2019:
| For the years ended December 31, |
||||||||
| 2020 | 2019 | |||||||
| Net cash provided by (used in) operating activities | $ | 1,356,334 | $ | (25,724 | ) | |||
| Net cash used in investing activities | (1,556,695 | ) | - | |||||
| Net cash provided by financing activities | 452,426 | 25,790 | ||||||
| Effect of exchange rate on cash | 14,467 | - | ||||||
| Net decrease in cash and cash equivalents | $ | 252,065 | $ | 66 | ||||
Operating Activities
Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, accounts receivable and contractual liabilities, and is adjusted for the impact of changes in working capital. Net cash generated in operating activities for the year December 31, 2020 was $1,356,334, representing an increase of $78,316, compared to net cash used in operating activities of $25,724 for the year ended December 31, 2019. The increase in net cash provided by operating activities was due to growth in our business.
Investing Activities
Net cash used in investing activities was $1,556,695 for the year ended December 31, 2020. This was mainly due to the Company purchasing fixed and other long-term assets. We did not have any investments in fixed assets in 2019.
Financing Activities
Net cash provided by financing activities was approximately $452,426 for the year ended December 31, 2020, an increase of $426,636, or 1654.27%, as compared to net cash provided by $25,790 for the year ended December 31, 2019. The increase in cash used was due to contributions of capital by shareholders.
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Contractual Obligations
For the years ended December 31, 2021 and 2020
The Company has one operating lease for its office space and eight operating leases for its parking lots.
Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is incremental borrowing rate or, if available, the rate implicit in the lease. The Company determines the incremental borrowing rate for each lease based primarily on its lease term in PRC which is approximately 4.75%.
Operating lease expenses were $459,087 and $212,617 for the years ended December 31, 2021 and 2020, respectively.
The undiscounted future minimum lease payment schedule as follows:
| For the years ending December 31, | |||||
| 2022 | 379,701 | ||||
| 2023 | 377,810 | ||||
| 2024 | 285,467 | ||||
| 2025 | 57,167 | ||||
| 2026 | - | ||||
| Total | 1,100,145 | ||||
For the years ended December 31, 2020 and 2019
The Company has various operating leases for its office space and parking lots.
Operating lease expenses were $212,617 and $15,221 for the years ended December 31, 2020 and 2019, respectively.
The undiscounted future minimum lease payment schedule as follows:
| For the years ending December 31, | ||||
| 2021 | 342,742 | |||
| 2022 | 366,294 | |||
| 2023 | 364,453 | |||
| 2024 | 276,389 | |||
| 2025 | 55,656 | |||
| Total | 1,405,533 | |||
Off-Balance Sheet Arrangements
Other than as disclosed elsewhere in this prospectus, we, through our VIE in China, have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to its shares and classified as shareholder’s equity or that are not reflected in its 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 that engages in leasing, hedging or research and development services with us.
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Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations are based upon its financial statements, which have been prepared in accordance with GAAP. These principles require the Company’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, cash flow and related disclosure of contingent assets and liabilities. The estimates include, but are not limited to, accounts receivable, revenue recognition, inventory realization, impairment of long-lived assets and income taxes. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and the actual results, future financial statements will be affected.
The Company’s management believes that among their significant accounting policies, which are described in Note 2 to the audited consolidated financial statements of the Company included in this Registration Statement, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, the Company’s management believes these are the most critical to fully understand and evaluate its financial condition and results of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions. In particular, the novel coronavirus (“COVID-19”) pandemic and the resulting adverse impacts to global economic conditions, as well as our operations, may impact future estimates including, but not limited to, our allowance for loan losses, inventory valuations, fair value measurements, asset impairment charges and discount rate assumptions. Certain prior year amounts have been reclassified to conform to the current year’s presentation. Amounts and percentages may not total due to rounding.
Accounts Receivable
Accounts receivable are recorded at the net value less estimates for expected credit losses. Management regularly reviews outstanding accounts and provides an allowance for doubtful accounts. When collection of the original invoice amounts is no longer probable, the Company will either partially or fully write-off the balance against the allowance for doubtful accounts.
Revenue Recognition
In 2014, the FASB issued guidance on revenue recognition (“ASC 606”), with final amendments issued in 2016. The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients. The Company has concluded that the new guidance did not require any significant change to its revenue recognition processes.
The Company generate revenues from dealer licensing fee, parking space rental fee, vehicle owners’ membership fees.
Dealer licensing fee is recognized as performance obligations are satisfied over time, usually, recognized on an average over the life of dealer licensing as indicated in agreement. Payments received in advance from agents are recorded as “contract liabilities”. Contract liabilities are recognized as revenue over the passage of time. Such advance payment received are non-refundable.
Parking space rental fee is recognized as performance obligations are satisfied at a point in time when the Company provides parking space to customers where fees are calculated by the parking management system, or over time on an average over the duration of rental period as indicated in agreement.
Vehicle owners’ membership fees is recognized as performance obligations are satisfied over time on an average over the life of membership. Payments received in advance from members are recorded as “accruals and other payables”. Accruals and other payables are recognized as revenue over the passage of time. Such advance payment received are non-refundable.
Income Taxes
Income taxes are provided in accordance with ASC No. 740, Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry-forwards. Deferred tax expense (benefit) results from the net change during the years of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
A tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that the relevant taxing authority that has full knowledge of all relevant information will examine each uncertain tax position. Although the Company believes the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals.
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Property and Equipment & Depreciation
Property and equipment are stated at historical cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Property and equipment are depreciated on a straight-line basis over the following periods:
| Leasehold improvement | 3 years | |
| Office equipment | 3 years | |
| Motor Vehicle | 4 years |
Impairment of Long-lived assets
The Company accounts for impairment of property and equipment and amortizable intangible assets in accordance with ASC 360, “Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of”, which requires the Company to evaluate a long-lived asset for recoverability when there is event or circumstance that indicate the carrying value of the asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset or asset group is not recoverable (when carrying amount exceeds the gross, undiscounted cash flows from use and disposition) and is measured as the excess of the carrying amount over the asset’s (or asset group’s) fair value.
New Accounting Pronouncements
In July 2021, the FASB issued ASU 2021-5, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. The amendments in this Update amend Topic 842, which has different effective dates for public business entities and most entities other than public business entities. The amendments are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities and interim periods within fiscal years beginning after December 15, 2022, for all other entities. The amendments in this Update address stakeholders’ concerns by amending the lease classification requirements for lessors to align them with practice under Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: 1) The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in paragraphs 842-10-25-2 through 25-3; 2) The lessor would have otherwise recognized a day-one loss.
In May 2021, the FASB issued ASU 2021-4, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The FASB is issuing this Update to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.
In February of 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) “Leases (Topic 842)”. ASU 2016-02 requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted.
For finance leases, a lessee is required to do the following:
| ● | Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position |
| ● | Recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement of comprehensive income |
| ● | Classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. |
For operating leases, a lessee is required to do the following:
| ● | Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position |
| ● | Recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis |
| ● | Classify all cash payments within operating activities in the statement of cash flows. |
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In July 2018, the FASB issued Accounting Standards Update No. 2018-11 (ASU 2018-11), which amends ASC 842 so that entities may elect not to recast their comparative periods in transition (the “Comparatives Under 840 Option”). ASU 2018-11 allows entities to change their date of initial application to the beginning of the period of adoption. In doing so, entities would:
| ● | Apply ASC 840 in the comparative periods. |
| ● | Provide the disclosures required by ASC 840 for all periods that continue to be presented in accordance with ASC 840. |
| ● | Recognize the effects of applying ASC 842 as a cumulative-effect adjustment to retained earnings for the period of adoption. |
In addition, the FASB also issued a series of amendments to ASU 2016-02 that address the transition methods available and clarify the guidance for lessor costs and other aspects of the new lease standard.
The management will review the accounting pronouncements and plan to adopt the new standard on November 1, 2019 using the modified retrospective method of adoption. The transition method expedient which allows entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of electing this transition method, prior periods will not be restated. The adoption of this ASU will result in the recording of additional lease assets and liabilities each with no effect to opening balance of retained earnings as the Company.
The management is currently evaluating the impact of this update to the consolidated financial statements. Management will evaluate if the current design for the allowance for loan loss methodology would comply with these new requirements.
Quantitative and Qualitative Disclosures about Market Risk
Credit risk
Cash deposits with banks are held in financial institutions in China, which deposits are not federally insured. Accordingly, the Company has a concentration of credit risk related to the uninsured part of bank deposits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk.
Risks Related to Doing Business in China
The recent state government interference into business activities on U.S. listed Chinese companies may negatively impact our operations.
Recently, the Chinese government announced that it would step up supervision of Chinese firms listed offshore. Under the new measures, China will improve regulation of cross-border data flows and security, crack down on illegal activity in the securities market and punish fraudulent securities issuance, market manipulation and insider trading, China will also check sources of funding for securities investment and control leverage ratios. The Cyberspace Administration of China (“CAC”) has also opened a cybersecurity probe into several U.S.-listed tech giants focusing on anti-monopoly, financial technology regulation and more recently, with the passage of the Data Security Law, how companies collect, store, process and transfer data. Our operations and business interests are in Taiwan and mainland China. If the Chinese government’s interference expands and by proxy, our business interests are affected, our operations may be negatively impacted although presently, there is no discernible immediate impact.
If our public accounting firm does not permit the Public Company Accounting Oversight Board (“PCAOB”) to inspect it within three years pursuant to the Holding Foreign Companies Accountable Act, we may be delisted.
The Holding Foreign Companies Accountable Act requires that the Public Company Accounting Oversight Board (“PCAOB”) be permitted to inspect our public accounting firm within three years. If our public accounting firm does not permit or the PCAOB is unable to conduct such an inspection, it may result in our delisting. Our current auditor and previous auditor are both PCAOB-registered. We are not aware of any reasons to believe or conclude that either one would not permit an inspection by PCAOB or that either one may not be subject to such inspection.
Risks of variable interest entity structure
In the opinion of management, (i) the corporate structure of the Company is in compliance with existing PRC laws and regulations; (ii) the VIE Arrangements are valid and binding, and do not result in any violation of PRC laws or regulations currently in effect; and (iii) the business operations of WFOE and the VIE are in compliance with existing PRC laws and regulations in all material respects.
However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, the Company cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to the foregoing opinion of its management. If the current corporate structure of the Company or the VIE Arrangements is found to be in violation of any existing or future PRC laws and regulations, the Company may be required to restructure its corporate structure and operations in the PRC to comply with changing and new PRC laws and regulations. In the opinion of management, the likelihood of loss in respect of the Company’s current corporate structure or the VIE Arrangements is remote based on current facts and circumstances.
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Concentration
For the years ended December 31, 2021 and 2020
The Company has a concentration risk related to suppliers and customers. Failure to maintain existing relationships with the suppliers or customers to establish new relationships in the future could negatively affect the Company’s ability to obtain goods sold to customers in a price advantage and timely manner. If the Company is unable to obtain ample supply of goods from existing suppliers or alternative sources of supply, the Company may be unable to satisfy the orders from its customers, which could materially and adversely affect revenues.
The concentration on sales revenues generated by customers type comprised of the following:
| As of | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Percentage of the Company’s sales | ||||||||
| Customer A | 42 | % | 46 | % | ||||
The table sets above information as to the revenue derived from those customers that accounted for more than 10% of the Company’s total revenues for the year ended December 31, 2021 and 2020
| As of | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Percentage of the Company’s accounts receivable | ||||||||
| Customer A | 10 | % | 0 | % | ||||
The table above shows the account receivable accounted from Customer A for the year ended December 31, 2020 has no more than 10%.
| As of | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Percentage of the Company’s Prepayment | ||||||||
| Customer A | 57 | % | 45 | % | ||||
| Customer B | 11 | % | 6 | % | ||||
The following table sets forth a summary of two suppliers who represent 10% or more of the Company’s total Account payables:
| As of | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Percentage of the Company’s Account payable | ||||||||
| Supplier A | 10 | % | 20 | % | ||||
| Supplier B | 43 | % | 0 | % | ||||
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Overview
Yi Po Holdings is a holding company that was incorporated under the laws of the Cayman Islands on March 19, 2020. As a holding company with no material operations of our own, we conduct our operations in China through our subsidiary, Jiangsu Easy Parking. Yi Po Holdings, through Jiangsu Easy Parking, provides intelligent parking management systems and intelligent parking lot gate products in the PRC.
We, through our PRC operating subsidiaries, entered into the intelligent parking industry in 2018. At present, we have installed our intelligent parking management system in approximately 76 parking lots across 20 cities in China, including 8 parking lots self-operated by us.
Our intelligent parking management system is widely-used in the self-operated parking lots business and the cooperatively operated parking lots business, which is an electronic network system with automatic vehicle login, entrance and exit authentication, monitoring, and charging management functionalities. We launched a national network parking platform that provides vehicle owners with diverse services such as parking space search, navigation guidance, touchless payment, membership discounts, and owner’s car search, to provide convenient parking experiences to vehicle owners. We also provide intelligent parking lot gate products, which combine our intelligent parking software system with electromechanical products (i.e. ordinary parking lot gate). Our vehicle access efficiency is manifested by the intelligent management system installed in the parking lot gate products, which save and store information such as records of vehicles’ entrance and exit, time of entrance and exit.
We have a broad marketing network in China, and have established cooperative relationships with 39 regional dealers who provide marketing and promotion services nationwide. The extensive dealer licensing channels reduce our overall operating costs. The dealers facilitate the cooperation between us and our partners to in the operation and management of parking lots and parking spaces. The dealers also promote and publicize our intelligent parking management system and our national network parking platform.
With the rapid development of urbanization in China and the improvement of resident awareness of safety precautions, the demand for intelligent parking management system products in commercial and residential buildings has increased. This translates into a huge market for the intelligent parking lots. Based on our grasp of the market and investment in the intelligent parking industry, Jiangsu Easy Parking was awarded the honors of “China’s most influential brand in the intelligent parking industry in 2020” and “China’s most valuable intelligent parking platform for investment and cooperation in 2020” by China Brand Influence Evaluation Committee, a well-recognized organization in China.
As we gradually deepen our understanding of different vertical industries such as the transportation industry, property management industry, and urban planning industry, our goal is to combine the digital and intelligent development needs of each vertical industry to develop and provide more comprehensive intelligent parking solutions. We believe that our intelligent parking management system will enhance the sustainability of our business. We also plan to collaborate with the merchants on our national network parking platform, which may lead to more business cooperation opportunities.
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Corporate Structure
Yi Po Holdings is a holding company incorporated in the Cayman Islands. As a holding company with no material operations, Yi Po Holdings conduct its operations in China through its PRC subsidiaries. After the restructure that dissolved the VIE structure, Yi Po Holdings now controls and receives the economic benefits of the PRC subsidiaries’ business operation, if any, through equity ownership. We do not use a VIE structure.
The following diagram illustrates our corporate structure as of the date of this prospectus:
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Our Subsidiaries and Business Functions
Yi Po Holdings is a Cayman Islands exempted company incorporated on March 19, 2020. We are a holding company incorporated in the Cayman Islands and not a Chinese operating company. As a holding company with no material operations of our own, we conduct our business in China through our PRC subsidiaries.
Yi Po HK was incorporated on April 28, 2020 under the law of Hong Kong SAR. Yi Po HK is our wholly-owned subsidiary and is currently not engaging in any active business and merely acting as a holding company.
Yi Po WFOE was incorporated on March 16, 2021 under the laws of the People’s Republic of China. It is a wholly-owned subsidiary of Yi Po HK and a wholly foreign-owned entity under the PRC laws.
Jiangsu Easy Parking was incorporated on August 22, 2018 under the laws of the People’s Republic of China. Its registered business scope includes intelligent technology, smart parking technology research and development, computer software development, technical services and consulting, parking lot management service, etc. Jiangsu Easy Parking is our operating company.
The Restructure
On August 24, 2021, Yi Po WFOE entered into a series of VIE agreements (the “VIE Agreements”) with Jiangsu Easy Parking and all the shareholders of Jiangsu Easy Parking, which established the VIE structure. As a result of the VIE Agreements, Yi Po WFOE was regarded as the primary beneficiary of Jiangsu Easy Parking, and we treated Jiangsu Easy Parking as the variable interest entities under U.S. GAAP for accounting purposes. We have consolidated the financial results of Jiangsu Easy Parking and its subsidiaries in our consolidated financial statements in accordance with the U.S. GAAP.
On February 19, 2022, Yi Po WFOE, Jiangsu Easy Parking and shareholders of Jiangsu Easy Parking signed a termination agreement of the VIE Agreements. The VIE structure was dissolved.
On February 23, 2022, a shareholder of Jiangsu Easy Parking transferred part of his shares to a non-Chinese individual. As a result, Jiangsu Easy Parking transformed from a Chinese domestic enterprise to a foreign-invested joint venture.
On March 4, 2022 and March 9, 2022, Yi Po WFOE entered into equity transfer agreements with each shareholder of Jiangsu Easy Parking to purchase all the equity interest in Jiangsu Easy Parking. The restructure was completed on June 1, 2022. As a result, Jiangsu Easy Parking became a wholly owned subsidiary of Yi Po WFOE. Jiangsu Easy Parking was a foreign-invested joint venture at the time of the acquisition of its 100% equity interests by Yi Po WFOE, our PRC counsel, Guantao Law Firm, is of the opinion that the establishment of Yi Po WFOE and the abovementioned acquisition of Jiangsu Easy Parking by Yi Po WFOE were not subject to the M&A Rules and no approvals from CSRC or MOFCOM under the M&A Rules are required. However, our PRC counsel further advises that there is uncertainty as to how the M&A Rules will be interpreted or implemented.
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Our Products and Services
Through our PRC subsidiaries, we mainly provide the following four types of products and services: (1) the parking lots service, (2) the intelligent parking management system, (3) parking lot gates, and (4) national network parking platform. A vehicle’s entering and exiting the parking lot will be identified in high-definition quality and monitored by the intelligent parking management system. The information of parking management, operation, maintenance, and charging will be digitally and electronically recorded within the national network parking platform.
| 1. | Parking lots service |
We, through our PRC subsidiaries, provide parking lots for vehicle owners through our six (6) self-operated parking lots. We lease the parking lots, independently operate the parking lots, and provide the public with short-term and long-term parking services. The size of the parking lots ranges from 20,000 sq ft to 160,000 sq ft. We operate the parking lots through our intelligent parking management system (as described below), which is installed and maintained by us. Our revenue from self-operated parking lots is derived mainly from parking space rental fees from short-term parking vehicles and long-term parking vehicles.
We also work with third-party operated parking lots, where we install our intelligent parking management system and parking lot gates (as described below). We refer to these parking lots as cooperatively operated parking lots. We look for suitable partners who provide us with the right to install intelligent parking management system, parking lot gates, and other parking equipment in their parking lots. We can solicit advertisers to publish their commercial advertisements on the parking lot gates. Our revenue from cooperatively operated parking lots is derived mainly from the advertisement fees on parking lot gates and intelligent parking management system maintenance fees. All parking space rental fees from vehicle owners are allocated to the cooperative partners.
| 2. | Intelligent parking management system |
The intelligent parking management system is an automated electronic network system with automatic vehicle login, entrance and exit authentication, monitoring, and billing functionalities, which entail scanning, information transmission, monitoring, central management unit, data management unit, and command execution. Such system adopts the technologies of computer control, information identification, data storage and processing, and communication transmission, to realize automatic control to entrance and exit management, site safety management, and implements automatic charging based on the pre-set charging standards.
The intelligent parking management system is used for both our self-operated parking lots and cooperatively operated parking lots. For self-operated parking lots, our revenue is derived mainly from parking space rental fees while for cooperatively operated parking lots, our revenue is derived from intelligent parking management system maintenance fees. The system maintenance fee is usually charged from 1% to 25% of the total parking space rental fees depending on the parking lot vehicle flow.
| 3. | Parking lot gates |
The parking lot gate is comprised of an electromechanical railing in either horizontal blocking state or vertical release state to permit or prohibit real-time passage of vehicles through real-time prompts, accomplishing automatic control and management of traffic flow.
The parking lot gates are mainly used in places that need to control and manage vehicular access such as residential areas, enterprises and institutions, scenic spots, office buildings, and commercial shopping areas. The parking lot gates may be used alone or integrated with the intelligent parking management systems.
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We purchase the customized parking lot gates and related hardware equipment from third party suppliers, and install our intelligent parking management system on such hardware equipment. Meanwhile, we connect the data interfaces of hardware equipment with the national network parking platform to realize the combination of software and hardware, i.e. intelligent equipment. The intelligent equipment will be debugged and tested until all test results are correct and then officially put into use in the parking lot.
Our parking lot gate products include heavy parking lot gates, non-powered advertising parking lot gates, high-speed parking lot gates, and automatic returned high-speed parking lot gates.
Features of heavy parking lot gates:
The height of the heavy parking lot gate is approximately 1.77 meters. The opening distance of a single railing can reach 7 meters, and the opening distance of a pair of railings can reach 14 meters. There is a large advertising display area and LED lighting equipment in the heavy parking lot gate. According to our suppliers, such heavy parking lot gate is able to effectively resist typhoons below level 8 through its reinforced design.
Features of non-powered advertising parking lot gates:
The height of the unpowered advertisement parking lot gate is approximately 1.77 meters. The opening distance of a single railing can reach 7 meters. It can be operated remotely within 30 meters. The non-powered advertising parking lot gates are installed with multiple protection measures including wind protection, motor’s high-temperature protection, and anti-surge protection.
Features of automatic returned high-speed parking lot gates:
The height of the automatic returned high-speed parking lot gate is approximately 1.22 meters. The opening distance of a single railing can reach 3 meters. The direction of the railing to left or right can be adjusted. It can be operated remotely within a distance of 30 meters. The automatic returned high-speed parking lot gate has been improved its safety design, which is able to lift at high speeds and lower at slow speeds, and automatically return to the original position. The automatic returned high-speed parking lot gate is equipped with a high-speed servo motor and traffic light display screen.
| 4. | National network parking platform |
The national network parking platform is a software application that vehicle owners can download with their mobile phones. The platform is used for both our self-operated parking lots and cooperatively operated parking lots. The national network parking platform provides vehicle owners with functions such as parking space search, navigation guidance, touchless payment, membership discount, and owner’s car search. The Company believes that such parking platform meets the diverse needs of vehicle owners and provides them with digital parking information and convenient parking experience.
Parking space search function
Our parking platform obtains the number of empty parking spaces nearby through GPS positioning. The vehicle owners are able to search for empty parking spaces through our parking platform.
Navigation guidance function
If the vehicle owner finds a suitable parking lot or parking space through our parking platform, the owner can further use the navigation function, in which the system will navigate to the target parking lot for the vehicle owner through one-click navigation.
Touchless payment function
When the vehicle owner enters and exits the parking lot, our parking platform will automatically charge the parking space rental fees based on the time spent in the parking lot through a mobile payment feature.
Membership discounts function
The vehicle owner may purchase a membership card on the national network parking platform. The vehicle owner can enjoy a discount from 5% to 50% on the parking space rental fees when the owner becomes a member of our national network parking platform. Members who join our parking platform at different times can enjoy different discounts.
Owner’s car search function
After entering the license plate number or parking space number, the owner’s car search function may help the owner find the parking address of the vehicle, navigate route to the parking space and the vehicle’s location.
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Business Model and Revenue Sources
For the fiscal years ended December 31, 2021 and 2020, we generated revenues mainly from dealer licensing fees, parking space rental fees, and other related revenue. At the end of 2020, we started to sell the intelligent parking management system and parking lot gates, which have already generated revenues including sales of the intelligent parking management system and parking lot gates, and the intelligent parking management system maintenance fees. Also, with more and more vehicle owners using our national network parking platform, vehicle ownership membership fees are anticipated to become one of our revenue sources. We expect that the percentage of dealer licensing revenue will decrease, while other revenues will increase in the future.
Dealer Licensing Fee
Through our PRC subsidiaries, we have adopted a dealer licensing model. Jiangsu Easy Parking has a broad marketing network in China and has established cooperative relationships with 39 regional dealers. Our dealer licensing fee was approximately RMB 0.6 million (approximately UD$87,000) and RMB 18.6 million (approximately US$2.7 million) for the years ended in 2021 and 2020, respectively, accounting for 73% and 97% of total revenue.
The dealer builds its own team and provides promotion and publicity services for us within the dealer’s exclusive region, which is usually a city in China. The dealer facilitates the cooperation between us and potential partners, i.e. parking lots’ owners, to achieve operation and management of the parking lots through installing our intelligent parking management system and parking lot gates and using our national network parking platform.
Through our PRC subsidiaries, we sign separate dealer licensing agreements with each dealer. The term of a dealer licensing agreement is usually 3 years. The agreement will be renewed automatically unless either party gives written notice to the other party prior to the expiration of the current agreement. The amount of dealer licensing fees received by us from a single dealer is between RMB 2 million to RMB 4 million, or approximately US$290,000 to US$580,000, based on the level of such dealer licensing. The dealer may pay the dealer licensing fee in installments within a certain period as agreed to in the dealer licensing agreement. After our dealer pays the dealer licensing fee, we authorize the dealer to act as our business agent within the designated district, and to use our trademarks, trade names, logos, and software copyrights of national network parking system in business activities. In return, the dealer will receive commissions from us. The commissions for the dealer are calculated based on 20% of the five-year net income of all referred parking lot projects in the dealer’s exclusive region, payable on yearly basis. We will first pay the commissions to our dealers in April 2023. We are obligated to pay such commissions to dealers under the dealer licensing agreements and these future obligations may add risks to our business and operations. As of the date of this prospectus, the amount of commissions we are obligated to pay based on the income received is 0. See Risk Factors – Risks Relating to Our Business and Industry – “ Our licensing agreements obligate us to make future commissions to the dealers, and if we do not have the funds necessary to make such payments, our business and operations may be affected.”
We provide dealers with business support such as market inspection and business training. We then provide support such as guidance on the operation of intelligent parking lot system, training on parking equipment knowledge, and guidance on parking equipment and system installation. We also provide corresponding support such as operation and maintenance on parking equipment and systems. Our obligations are specific services and deliverables that are set forth in an agreement, in which terms may vary slightly depending on the region within Mainland China.
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In 2021 and 2020, with the increased demand for expansion of our marketing network, the dealer licensing fee accounted for a relatively high proportion of our revenue.
Other Revenues
In addition to the dealer licensing fee, our other revenue includes the parking space rental fee and other related revenue for the fiscal years ended December 31, 2021 and 2020.
The parking space rental fee is the fee when we provide parking space to customers. We receive the fee based on a percentage of parking fees as agreed to by us and the partnering parking lots.
Advertising revenue is the fees received from leasing advertising spaces on the parking lot gates. In 2021, our parking space rental revenue was approximately US$306,565, and others related revenue was US$653. In 2020, our parking space rental revenue was approximately US$86,697, and others related revenue was US$55.
At the end of 2020, we started to sell the intelligent parking management system and parking lot gates, which has already generated revenues including sales of the intelligent parking management system and parking lot gates, and the intelligent parking management system maintenance fees. Also, with more and more vehicle owners using our national network parking platform, vehicle ownership membership fees are expected to become one of our revenue sources.
Vehicle owners’ membership fees are payments received in advance from members. Such advance payment received is non-refundable. The vehicle owner pays RMB 298, or approximately US$43, in a lump sum to purchase a membership card on the national network parking platform. The member will receive lifetime discounts on the parking fees on our parking platform, and bonus points when they refer new members to purchase the membership cards. Such bonus points may be used to pay for parking fees. For the year ended December 31, 2021, we have sold 7187 membership cards, which generate the revenue of RMB 2,141,726 (approximately US$324,504). As of December 31, 2020, we have sold 5,654 membership cards, which generate the revenue of RMB1,684,892 (approximately US$243,000).
Our Industry
We mainly operate our business in the intelligent parking industry, which is a sub-industry of the access control and management industry. The access control and management industry is a sub-industry of the safe guarding industry. The relationship among the intelligent parking industry, the parking industry, the access control and management industry and the safe guarding industry is as follows:
Overview of the Safe Guarding Industry
Safe guarding products refer to special equipment, software and systems used to prevent national, collective, personal property and personal safety from being infringed. The safe guarding industry is developed on the basis of development of technologies such as computer, multimedia, network communication, automatic control, electronic instrumentation, sensing, and mechatronics. The scope of the safe guarding industry is very broad, including surveillance, access control and management, anti-theft alarm, building intercom. The safe guarding products usually with the functions of anti-theft, anti-robbing, anti-robbing, and anti-accident, are commonly used in residential communities, intelligent buildings, prisons, government agencies, schools, road traffic, shopping malls, supermarkets, airports, customs, which includes intelligent parking management systems, closed-circuit video surveillance products, building intercom systems, security patrol systems, anti-theft alarm systems, anti-theft doors, anti-theft locks, and fire-fighting equipment. The safe guarding industry has been a sunrise industry in China that integrates product development, production, sales, engineering and system integration. There is a huge potential market of the safe guarding products, which combine public security and technical protection. The safe guarding industry is an important part to build the social security prevention system and maintain social stability.
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Overview of the Access Control and Management Industry
The access control and management industry is one of the sub-industries of the safe guarding industry, which is used to control the behavior of people or vehicles entering and exiting a certain area or a building by using the verification devices or the identification methods. The main access control and management products include the intelligent parking management system, the intelligent access control management system, the intelligent access parking lot gate management system, the intelligent charging management system, the intelligent attendance management system, the intelligent patrol management system, the roadblock machines, and induction doors.
The access control and management industry has developed rapidly to enhance the over-all life quality in China and comply with the government’s requirements for public safety. Before the 1990s, China basically relied on the manual and mechanical parking lot gates to control and manage the flow of people and vehicles. With the rapid expansion of urban population and the rapid growth of China’s vehicle ownership, it is imperative to adopt scientific and advanced management methods to control and manage the flow of people and vehicles.
The main factors for the rapid development of China’s access control and management industry are as follows.
| (1) | Increased vehicle ownership; |
| (2) | Higher standards of property management in residential communities and office buildings; |
| (3) | Acceleration of urbanization; and |
| (4) | Higher standards of public safety order. |
Overview of China’s Parking Industry
The number of vehicles in China have maintained steady growth in the past five years and increased from approximately 190 million in 2016 to approximately 280 million in 2020, representing a CAGR of 8.1% during the period.
Source: https://www.djyanbao.com/report/detail?id=2524333&from=search_list
Driven by the rapid growth of the retain number of vehicles, there is a trend of rapid development of the industries in relation to automobile. However, the number of parking spaces is far lower than the number of vehicles, which results in difficulties in parking in most cities of China. In 2020, there were approximately 12.64 million new parking spaces in China, while the number of vehicles increased by more than 20 million. In 2020, the ratio of parking spaces to the retain number of vehicles in China and of the ideal international standards was 1:0.4 and 1:1.3, respectively. There is still room for a substantial increase in the number of parking spaces in China.
Source: https://www.djyanbao.com/report/detail?id=2524333&from=search_list
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Overview of China’s Intelligent Parking Industry
With the rapid development of urbanization in China and the improvement of the residents’ awareness of safety precautions, the demands for the intelligent parking management system products in commercial and residential buildings have been increased, which maintains a growth rate of more than 20% in recent years. Driven by the construction of intelligent parking lots and the transformation of traditional parking lots, the overall intelligent parking market will reach RMB 1.4 trillion, or approximately US$0.203 trillion in 2025, representing a CAGR of 19% during the period from 2020 to 2025. The revenue of China’s intelligent parking market comes mainly from the sales revenue of intelligent parking lots system and the parking fees from operation of parking lots. The sales revenue of intelligent parking systems in the future is anticipated to only account for a small part. The most important source of income is from the operation of intelligent parking lots, which will greatly increase utilization ratio of parking lots and bring in a large amount of parking fees revenue.
Source: https://www.djyanbao.com/report/detail?id=2524333&from=search_list
Our Growth Strategies
We entered into the intelligent parking industry in 2018. We have a broad marketing network in China and have retained 39 regional dealers across China. At present, we have installed our intelligent parking management system in the parking lots of 20 cities across China. Our business growth is supported by key products, leading technologies and operation model. Our growth strategies include:
We actively participate in the digitalization and intellectualization of parking management and focus on the development of intelligent parking solutions.
We continue to actively participate in the digitalization and intellectualization of the parking management and focus on the development of intelligent parking solutions. We believe that our ability to provide one-stop parking solutions for vehicle owners enables us to take full advantage of the opportunities from the digital industrialization. Intelligent parking solutions will become our core business and play an increasingly important role in our business. We plan to extend the application of our intelligent parking solutions to more industries and sectors, including intelligent cities and intelligent communities.
Furthermore, as we gradually deepen our understanding of different vertical industries such as the transportation industry, property management, and urban planning, our goal is to combine the digital and intelligent development needs of each vertical industry to develop and provide more comprehensive intelligent parking solutions. We believe that our intelligent parking management system will enhance the sustainability of our business.
We develop online technology platforms and marketing channels.
Through our PRC subsidiaries, we continue to improve and optimize our national network parking platform, which provides vehicle owners with functions such as parking space search, navigation guidance, touchless payment, membership discounts, and owner’s car search. Such parking platform meets the diverse needs of vehicle owners and provides them with digital parking information and convenient parking experience.
The national network parking platform is critical to our long-term growth and customer retainment. We will further broaden the matrix of internet products in the forms of application programs and WeChat mini programs, which will expand our products and services to more comprehensive daily life scenarios and build a more competitive one-stop platform for content aggregation and data distribution.
In order to optimize user’s experience, we will increase investment in refining user management, which will increase users’ loyalty and retention and value contribution to our national network parking platform. We also plan to collaborate with the merchants on our national network parking system which may lead to more business cooperation opportunities.
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We reduce the overall operation costs.
Considering the intense competition in the intelligent parking industry and the COVID-19 outbreak, we intend to reduce our overall costs through dealer licensing to strengthen our short-term cash flow. The dealers facilitate us and potential partners to achieve operation and management cooperation of parking lot and parking space, and promote and publicize our intelligent parking management system and our national network parking platform.
In addition to self-operated parking lots business, we also upgrade and optimize cooperatively operated parking lot businesses to improve capital efficiency. Through our PRC subsidiaries, we will assist partners to install our intelligent parking management system, parking lot gates and other parking equipment to build intelligent parking lots. We will reduce our self-operated parking lots business investments and focus on obtaining more cooperative parking business revenue sources.
Competitive Advantages
The intelligent parking industry is an emerging industry in China and the market is huge. We believe that our products and services have strong competitive advantages in the domestic market of the intelligent parking industry in China.
Integrated national network parking platform
We combine the Internet with traditional parking lots business, which create an advanced intelligent parking management system. Our intelligent parking management system aims to overcome parking information limitations and provide a high-quality parking experience.
With an integrated cloud platform and through the coordination and combination of different functionalities, we provide city-level intelligent parking full-process services, in which the information of parking management, operation, maintenance, and billing is transmitted digitally and electronically through the national network parking platform. It can quickly meet the increasingly diversified, complex and personalized needs of customers with lower operating costs.
Convenient payment services
We provide convenient payment services for vehicle owners. If the vehicle owner uses the parking lot, he can pay the parking fee by scanning the QR code of the parking lot or through our national network parking platform. Our system is quickly connected to mobile payment options like WeChat, Alipay, UnionPay, and ETC.
Compared with the traditional manual payment model, our payment methods are more convenient, which reduces the queue time of vehicles entering and exiting the parking lot and reduces the labor costs.
Marketing network advantages
We have established a nationwide marketing network in China. Our high-quality dealers from 28 cities have established cooperative relationships with us and are responsible for providing nationwide marketing and promotion services. The dealers provide promotion and publicity, facilitate us and potential partners, i.e. parking lots’ owners, to reach cooperation in the operation of parking lots through installing our intelligent parking management system and parking lot gates and using our national network parking platform. In return, we provide commissions as a business incentive mechanism for the dealers. A wide range of dealer licensing channels will reduce our overall costs and strengthen our short-term cash flow.
At present, through our PRC subsidiaries, we have installed intelligent parking management systems in approximately 76 parking lots in 20 cities across China, including 8 parking lots self-operated by us. The number of intelligent parking lots each year has maintained a steady growth.
Our Suppliers
Our products and services are mainly a combination of intelligent software and electromechanical products. The raw material purchased by us is the hardware equipment of the parking lot gates. Our business is substantially dependent on our collaboration with our major suppliers. We consider major suppliers in each period to be those suppliers that accounted for more than 10% of overall purchases in such period. For the year ended December 31, 2021, Jiangsu Easy Parking had one major supplier, Jiangsu Parking Butler Technology Co., LTD, whose purchases represented approximately 100% of the Company’s total purchases. For the year ended December 31, 2020, Jiangsu Easy Parking had one major supplier, Qingdao Jingkehuaxin Network Technology Co. LTD, whose purchases represented approximately 25% of the Company’s total purchases. Jiangsu Easy Parking usually enters sales and installation contracts with suppliers. The supplier is responsible for delivering hardware equipment, install the equipment system and confirming the system works smoothly. Jiangsu Easy Parking pays the total amount to the supplier according to the contract.
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Our Customers and Sales
We generated revenues from dealer licensing fees, parking space rental fees, and advertising revenue. For the year ended December 31, 2021, one customer, Changzhou Huadong Hotel Co. LTD, accounted for 42% of the Company’s revenues. For the year ended December 31, 2020, one customer, Changzhou Buhuadong Hotel Co., LTD, accounted for 46% of the Company’s revenues. Jiangsu Easy Parking enters into agreements with its customers for three to four years depending on different customers. Pursuant to signed agreements, Jiangsu Easy Parking leases parking spaces from customers and receive parking space rental fees from vehicle owners as revenue. Parking space rental fee are recognized at a point in time when Jiangsu Easy Parking provides parking space to vehicle owners. The fees are calculated by the parking management system.
Competition
China’s intelligent parking industry is an emerging industry with broad market. We believe that more and more companies will enter into the intelligent parking industry in the future, and the market competition will become fierce. The current intelligent parking companies are mostly private small and medium-sized enterprises. In addition to competing in technologies and sales prices, such companies have clearly tended to compete in the scale and refinement of operational capabilities. Our main competitors include but are not limited to Beijing Yuechang Technology Co., Ltd., Shenzhen Jieshun Technology Industrial Co., Ltd., Jiangsu Wuyang Parking Industry Group Co., Ltd., and Xiamen Ketuo Communication Technology Co., Ltd.
Research and Development
We will continue to strengthen our research and development capabilities and commit to the quality assurance of our products to maintain and enhance our market position. With an aim of enhancing our core technologies, and developing new products with consistent performance, we will devote more resources to enhance our research and development and quality assurance capabilities by improving our existing products and developing new features of products. Through internal training and external recruitment, we currently have an internal research and development (“R&D”) team of 11 persons, which accounts for approximately 48% of the total number of employees as of the date of this prospectus.
Our technology development is supported by our financial support of R&D investment, our R&D infrastructure and an experienced R&D team. Our research and development projects include intelligent parking management system, national network parking platform and parking lot charging system for electric vehicles and version upgrades of the aforesaid projects. In addition, we currently own 16 software copyrights. For further details, please refer to “Business-Intellectual Property” section of this prospectus.
We plan to engage external technology companies to develop a parking application for iOS and Android, as well as to arrange internal secondary development of parking application for iOS and Android in the fourth quarter of 2021. At present, such projects are in the development stage.
Intellectual Property
We rely on our software copyrights to protect our domestic business interests and ensure our competitive position in our industry. Jiangsu Easy Parking owns 16 software copyrights with the effective protection period of 50 years respectively. After the expiration of the effective protection period, no application for renewal will be applied. Jiangsu Easy Parking holds the software copyrights as follows:
| No. | Registration Number |
Registration Approval Date | Issue Date | Title | Registration Place | |||||
| 1. | 2020SR1862748 | 2020-12-21 | 2020-12-02 | Easy Parking Security Settlement System V1.0 | China | |||||
| 2. | 2020SR1864764 | 2020-12-21 | 2020-09-28 | Easy Parking Timeshare Leasing Platform V1.0 | China | |||||
| 3. | 2020SR1862747 | 2020-12-21 | 2020-10-23 | Easy Parking Member Management System V1.0 | China | |||||
| 4. | 2020SR1864763 | 2020-12-21 | 2020-09-10 | Easy Parking Space Trading Platform V1.0 | China | |||||
| 5. | 2020SR1852322 | 2020-12-18 | 2020-06-26 | Easy Parking New Energy Charging System V1.0 | China | |||||
| 6. | 2020SR1854630 | 2020-12-18 | 2020-11-13 | Easy Parking Member Intelligent Recommendation Advertising System V1.0 | China | |||||
| 7. | 2020SR1854629 | 2020-12-18 | 2020-07-25 | Easy Parking Intelligent Passenger Flow Statistics System V1.0 | China | |||||
| 8. | 2020SR1854646 | 2020-12-18 | 2020-03-26 | Easy Parking Franchise Parking Settlement System V1.0 | China | |||||
| 9. | 2020SR1852093 | 2020-12-18 | 2020-05-18 | Easy Parking Indoor Intelligent Car Search System V1.0 | China | |||||
| 10. | 2020SR1854647 | 2020-12-18 | 2020-03-13 | Easy Parking Member Mall Service System V1.0 | China | |||||
| 11. | 2020SR1847369 | 2020-12-17 | 2020-02-20 | Easy Parking Big Data Platform V1.0 | China | |||||
| 12. | 2020SR1847384 | 2020-12-17 | 2020-03-18 | Easy Parking Intelligent Parking Cloud System V1.0 | China | |||||
| 13. | 2020SR1847491 | 2020-12-17 | 2020-04-23 | Easy Parking Unattended Parking Control Platform V1.0 | China | |||||
| 14. | 2020SR1847368 | 2020-12-17 | 2020-01-16 | Easy Parking New Generation Intelligent Parking System V1.0 | China | |||||
| 15. | 2020SR1847493 | 2020-12-17 | 2020-08-25 | Easy Parking Unionpay Settlement System V1.0 | China | |||||
| 16. | 2020SR1847364 | 2020-12-17 | 2020-07-16 | Easy Parking Non-Inductive Payment System V1.0 | China |
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Employees
As of June 30, 2022, we have 24 full-time employees. The number of employees in each department are as follows:
| Department | As of December 31, 2021 | As of June 30, 2022 | ||||||
| Chairman’s Office | 2 | 2 | ||||||
| Human Resources & Administration | 6 | 2 | ||||||
| Finance | 3 | 4 | ||||||
| Research & Development | 11 | 11 | ||||||
| Operation | 1 | 5 | ||||||
| Total | 23 | 24 | ||||||
All of our total employees are employed in China. Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We believe that we maintain a good working relationship with our employees. We are required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. As required by regulations in China, we participate in various employee social securities plans that are organized by local governments. We pay social insurance for some of our employees, covering all five types of social insurance, including pension, medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance. We believe that we are in material compliance with the relevant PRC employment laws.
In addition to the full-time employees directly employed by us, we have also signed a labor outsourcing agreement with Jiangsu Linghang Service Outsourcing Co., Ltd. Jiangsu Linghang Service Outsourcing Co., Ltd. provides the outsourced personnel to us for the daily management and equipment maintenance of the parking lots. Jiangsu Linghang Service Outsourcing Co., Ltd. is responsible for signing labor contracts with the outsourced personnel and paying labor remuneration, social insurance and housing provident fund for the outsourced personnel. There are 14 persons being indirectly employed by us through this agreement.
Description of Property
Leased property
Jiangsu Easy Parking has one operating lease for its office space and six operating leases for its parking lots.
Jiangsu Easy Parking currently has a 30-month lease with Nanjing Shuang Chuang Enterprise Incubator Co., Ltd. which is granted by the property owner of Greenland Group Nanjing Baodi Real Estate Co., Ltd., to rent an office space at Room 320, Room 321, Room 322, Room 323 and Room 324 of No. 5, Jinxiu Street, Yuhuatai District, Nanjing for sales and marketing purpose, which is 521.94 square meters, starting April 1, 2020 till September 30, 2022. The monthly rent is RMB 46,230, or approximately US$6,700, paid semi-annually.
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Jiangsu Easy Parking currently has six operating leases for its self-operated parking lots in five cities of China. Jiangsu Easy Parking obtain the right to use the parking lots, independently operates the parking lots, and provides the public with short-term and long-term parking services in our self-operated parking lots. The lessors of such parking lots include government agencies, property services companies, and other private companies.
| Location | Numbers of parking lots | Rent | Terms | |||
| Anhuai East Road, Gulou District, Nanjing City, Jiangsu Province | 227 | RMB 249,000 (approximately USD 36,000) |
August 1, 2019 to July 31, 2022 | |||
| Gongyi Village Community, Yichang City, Hubei Province | 373 | RMB 654,166 (approximately USD 94,900), annually increased 4% |
October 10, 2020 to October 9, 2025 | |||
| Qiaotou Avenue, Qiaotou Town, Dongguan City, Guangdong Province | 168 | RMB 360,000 (approximately USD 52,000) |
September 18, 2020 to September 30, 2026 | |||
| Tianning District, Changzhou City, Jiangsu Province | 52 | RMB 30,000 (approximately USD 4,300) |
December 1, 2019 to November 30, 2022 | |||
| Area One, South Square, Railway Station, Guanhe East Road, Tianning District, Changzhou City | 300 | RMB 1,280,000 (approximately USD 183,000) |
August 1, 2020 to July 31, 2024 | |||
| Yuelu District, Changsha City, Hunan Province | 50 | RMB 125,000 (approximately USD 18,000) |
January 10, 2020 to January 9, 2025 |
We believe that our office space is adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available on commercially reasonable terms to accommodate any expansion of our operations.
Legal Proceedings
From time to time, we may be involved in legal proceedings in the ordinary course of our business. We are currently not a party to any material legal or administrative proceedings. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial costs and diversion of our resources, including our management's time and attention.
We had a labor dispute with a former employee who was our former CEO and president of operations. Based on the complaint dated July 20, 2020, the employee brought an action against Jiangsu Easy Parking and demanded compensation in a total amount of approximately RMB 1.2 million (approximately $174,000). The trial court, Court of Jiangning Economic Development Zone, dismissed the case on December 20, 2020. The employee appealed on December 14, 2020 and the intermediate court, in a judgment issued on April 13, 2021, vacated the trial court judgment remanded for retrial. On October 12, 2021, as a result of the court mediation, Jiangsu Easy Parking and the employee entered into a settlement agreement, which stipulates that Jiangsu Easy Parking is to pay the employee in the amount of RMB 630,000 (approximately $98,000). Jiangsu Easy Parking has paid the settlement amount.
As of the date of this prospectus, except for the labor proceedings as described aforesaid, we are not involved in any legal or administrative proceedings that may have a material adverse impact on our business, balance sheets or results of operations and cash flows, other than as described herein.
Seasonality
Our operating results and operating cash flows historically have not been subject to seasonal variations.
Insurance
We provide social security insurance including pension insurance, unemployment insurance, work-related injury insurance and medical insurance for our employees in compliance with applicable PRC laws. We do not maintain key man insurance. During the fiscal years 2021 and 2020, we did not make any material insurance claims in relation to our business.
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Our operation in China is subject to a number of PRC laws and regulations. This section summarizes the most significant PRC laws and regulations relevant to our business and operations in China and the key provisions of such regulations.
As an electronic manufacturing company, we are regulated by various government authorities, including, among others:
| ● | the Ministry of Industry and Information Technology, or the MIIT, regulating the telecommunications and telecommunications-related activities, including, but not limited to, the internet information services and other value-added telecommunication services; |
| ● | the People’s Bank of China, or the PBOC, as the central bank of China, regulating the formation and implementation of monetary policy, issuing the currency, supervising the commercial banks and assisting the administration of the financing; |
| ● | the State Administration of Foreign Exchange, or the 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; |
| ● | the PRC Ministry of Commerce, or the MOFCOM, published Foreign Investment Law; and |
| ● | the Ministry of Finance and the State Administration of Taxation, promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax and further promulgated the Notice on Fully Promoting the Pilot Plan for Replacing Business Tax by Value-Added Tax. |
Regulations on Corporation and Foreign Investment
The establishment, operation and management of corporate entities in the PRC is governed by the Company Law of the PRC, which was promulgated by the Standing Committee of the National People’s Congress of the PRC (the “SCNPC”) on December 29, 1993 and came into effect on July 1, 1994. The Company Law of the PRC was subsequently amended on December 25, 1999, August 28, 2004, October 27, 2005, December 28, 2013 and October 26, 2018 (the latest revision became effective on October 26, 2018). The Company Law of the PRC generally governs two types of companies, namely limited liability companies and joint stock limited companies. Both types of companies have the status of legal persons, and the liability of shareholders of a limited liability company or a joint stock limited company is limited to the amount of registered capital they have contributed. The Company Law of the PRC shall also apply to foreign-invested companies in form of limited liability company or joint stock limited company. Where laws on foreign investment have other stipulations, such stipulations shall apply.
On January 1, 2020, the Foreign Investment Law of the PRC (the “FIL”) and the Regulations on the Implementation of the Foreign Investment Law of the PRC became effective and simultaneously replaced the trio of prior laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law of the PRC, the Sino-foreign Cooperative Joint Venture Enterprise Law of the PRC and the Wholly Foreign-invested Enterprise Law of the PRC, together with their implementation rules and ancillary regulations. The FIL sets out the definition of foreign investment and the framework for promotion, protection and administration of foreign investment activities. According to the FIL, “foreign investment” refers to the investment activities conducted directly or indirectly by foreign individuals, enterprises or other entities in the PRC, including the following circumstances: (i) establishment of foreign-invested enterprises in the PRC by foreign investors solely or jointly with other investors, (ii) acquisition of shares, equity interests, property portions or other similar rights and interests of enterprises in the PRC by foreign investors, (iii) investment in new projects in the PRC by foreign investors solely or jointly with other investors, and (iv) investments made by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. The FIL and its implementation regulations allow foreign-invested enterprises established prior to January 1, 2020 and having corporate structure and governance inconsistent with the Company Law of the PRC or the Partnership Enterprise Law of the PRC, as applicable, to maintain their corporate structure and governance within a five-year transition period, but require adjustment for compliance with such PRC laws, as applicable, shall be completed prior to the expiration of such transition period.
On December 30, 2019, the Ministry of Commerce of the PRC (the “MOFCOM”) and the State Administration for Market Regulation (the “SAMR”) jointly promulgated the Measures for Reporting of Information on Foreign Investment, which came into effect on January 1, 2020 and pursuant to which, foreign investors or foreign-invested enterprises shall report investment information to the MOFCOM and its local counterparts when foreign investors carry out investment activities directly or indirectly within China, for example, the establishment of the foreign-invested enterprises, including establishment through purchasing the equities of a domestic enterprise or subscribing to the increased capital of a domestic enterprise, and its subsequent changes are required to submit an initial or change report through the Enterprise Registration System.
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Pursuant to the FIL, China has adopted a system of pre-establishment national treatment plus a negative list with respect to foreign investment administration. The negative list shall be issued by, amended or released upon approval by the State Council, from time to time. The negative list sets forth industries in which foreign investments are prohibited and industries in which foreign investments are restricted. Foreign investment in prohibited industries is not allowed, while foreign investment in restricted industries must satisfy certain conditions stipulated in the negative list. Foreign investments and domestic investments in industries outside of the negative list will be treated equally. The Special Administrative Measures (Negative List) for the Access of Foreign Investment (2020 Version), which was promulgated by the National Development and Reform Commission of the PRC (the “NDRC”) and the MOFCOM on June 23, 2020 and became effective on July 23, 2020, and the Catalogue of Industries for Encouraging Foreign Investment (2020 Version), which was promulgated by the NDRC and the MOFCOM on December 27, 2020 and became effective on January 27, 2021, replace previous negative list and encouraging catalogue and list the categories of encouraged, restricted, and prohibited industries.
Regulations on Parking Facilities Business
On May 7, 2021, the NDRC, the Ministry of Housing and Urban-Rural Development, the Ministry of Public Security, and the Ministry of Natural Resources, issued the Opinions on Promoting the Development of Urban Parking Facilities, pursuant to which, various market entities are encouraged to fully participate in parking facilities construction, equipment research and development, product supply, parking facilities maintenance, operation management, and information system construction. The entry standards for the construction and operation of parking facilities have been lowered. Small, medium and micro enterprises and individuals are allowed to apply for investment and operation of public parking facilities. In principle, there is no minimum number of parking spaces. The classification of parking facilities and equipment, and the approval management methods have been refined. Small parking facilities projects and parking facilities projects built on self-owned land will be implemented of the filing mechanism. The price of parking fees is mainly determined by the market. The parking fee standards shall be comprehensively considered various factors, such as the level of parking facilities, service conditions, supply-demand relationship and social affordability, and distinguished by different areas, locations, time periods, models and length of occupation. Such parking fee standards shall be scientifically formulated, differentiated and dynamically adjusted, which shall be disclosed to the public.
Regulations on Consumer Protection
The Consumer Protection Law of the PRC promulgated by SCNPC, which was latest amended on October 25, 2013 and effective on March 15, 2014, sets out the obligations of business operators and the rights and interests of the consumers in China. Pursuant to this law, business operators must guarantee that the commodities they sell satisfy the requirements for personal or property safety, provide consumers with authentic information about the commodities, and guarantee the quality, function, usage and term of validity of the commodities. Failure to comply with the Consumer Protection Law may subject business operators to civil liabilities such as refunding purchase prices, replacement of commodities, repairing, ceasing damages, compensation, and restoring reputation, and even subject the business operators to criminal penalties. Where the operators of the online trading platforms are unable to provide the real names, addresses and valid contact details of the sellers or service providers, the consumers may also claim damages to the providers of the online trading platforms. Operators of online trading platforms that clearly knew or should have known that sellers or service providers use their platforms to infringe upon the legitimate rights and interests of consumers but fail to take necessary measures should bear joint and several liabilities with the sellers or service providers. Moreover, if business operators deceive consumers, they should not only compensate consumers for their losses, but also pay additional damages equal to three times the price of the goods or services on the demand of consumers. If business operators knowingly provide substandard or defective products or services, causing death or serious damage to the health of consumers or other victims, the victims shall have the right to require compensation for their losses and to claim punitive compensation of not more than two times the amount of losses incurred.
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Regulations on Advertising
The Advertising Law of the PRC, which was promulgated by SCNPC on October 27, 1994 and recently amended on October 26, 2018, requires that advertisers, advertising operators and advertisement publishers shall ensure that contents of advertisements produced or spread by them are true and totally comply with applicable laws and regulations, and contents of advertisements shall not include, inter alia, information which (i) damages the national dignity or interest, or involves state secrets, (ii) contains such words as “national”, “highest level” and “the best”, and (iii) involves ethnic, racial, religious and gender discrimination. In addition, in providing advertising services, advertising operators and advertisement publishers must review the supporting documents provided by advertisers for advertisements and verify the content of the advertisements. Prior to distributing advertisements that are subject to government censorship and approval, advertising publishers are obligated to verify that such censorship has been performed and approval has been obtained. The release or delivery of advertisements through the Internet must not impair the normal use of the network by users. Particularly, advertisements distributed on Internet pages such as pop-up advertisements must be indicated with conspicuous mark for close to ensure the close of such advertisements by one click. Where Internet information service providers know or should have known that illegal advertisements are distributed using their services, they must prevent such advertisements from being distributed.
The Interim Measures for Administration of Internet Advertising (the “Internet Advertising Measures”) regulating the Internet-based advertising activities, were adopted by the SAIC on July 4, 2016. According to the Internet Advertising Measures, advertising operators and publishers of Internet advertisement must examine, verify and record identity information, such as name, address and contact information, of advertisers, and maintain an updated verification record on a regular basis. Moreover, advertising operators and publishers must examine supporting documents provided by advertisers and verify the contents of the advertisements before publishing. If the contents of advertisements are inconsistent with the supporting documents, or the supporting documents are incomplete, advertising operators and publishers must refrain from providing design, production, agency or publishing services. The Internet Advertising Measures also prohibits the following activities: (i) providing or using applications and hardware to intercept, filter, cover up or skip over lawful advertisements; (ii) using network access, network equipment and applications to disrupt the normal data transmission of lawful advertisements or tamper with, block lawful advertisements, or loading advertisements without authorization; and (iii) using fake statistics, dissemination effect or Internet media value to induce an erroneous offer for illegitimate benefits or damage to the interests of any other person.
Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In the case of serious violations, the SAMR or its local branches may force the violator to terminate its advertising operation or even revoke its business licenses. Furthermore, advertisers, advertising operators or advertisement publishers may be subject to civil liability if they infringe on the legal rights and interests of third parties.
Regulations on Cybersecurity, Information Security, Privacy and Data Protection
On May 28, 2020, the National People’s Congress of the PRC approved the Civil Code of the PRC (the “Civil Code”), which has come into effect on January 1, 2021. Pursuant to the Civil Code, the personal information of a natural person shall be protected by the law. Any organization or individual that need to obtain personal information of others shall obtain such information legally and ensure the security of such information, and shall not illegally collect, use, process or transmit personal information of others, or illegally purchase, sell, provide or make public personal information of others.
In addition to the Civil Code, the PRC government authorities have enacted other laws and regulations with respect to Internet information security and protection of personal information from any abuse or unauthorized disclosure, which includes the Decision of the SCNPC on Maintaining Internet Security promulgated by the SCNPC on December 28, 2000 and amended on August 27, 2009, the Provisions on the Technical Measures for Internet Security Protection promulgated by the Ministry of Public Security on December 13, 2005 and becoming effective on March 1, 2006, and the Decision of the SCNPC on Strengthening Network Information Protection promulgated by the SCNPC on December 28, 2012.
According to the National Security Law of the PRC issued by the SCNPC on February 22, 1993 and latest revised on July 1, 2015, the state shall establish systems and mechanisms for national security review and supervision, conduct national security review on key technology, network information technology products and services related to state security, so as to prevent and neutralize state security risks in an effective way. On November 7, 2016, the SCNPC promulgated the Cyber Security Law of the PRC (the “Cyber Security Law”), which became effective on June 1, 2017. The Cyber Security Law requires network operators to perform certain functions related to cyber security protection and strengthen the network information management. For instance, under the Cyber Security Law, network operator of key information infrastructure generally shall, during their operations in the PRC, store the personal information and important data collected and produced within the territory of the PRC. When collecting and using personal information, in accordance with the Cyber Security Law, network operator shall abide by the “lawful, justifiable and necessary” principles. Network operator shall collect and use personal information by announcing rules for collection and use, expressly notify the purpose, methods and scope of such collection and use, and obtain the consent of the person whose personal information is to be collected. Network operator shall not disclose, tamper with or destroy personal information that it has collected, or disclose such information to others without prior consent of the person whose personal information has been collected, unless such information has been processed to prevent specific person from being identified and such information from being restored. Each individual is entitled to require a network operator to delete his or her personal information if he or she finds that collection and use of such information by such operator violate the laws, administrative regulations or the agreement by and between such operator and such individual; and is entitled to require any network operator to make corrections if he or she finds errors in such information collected and stored by such operator. Such operator shall take measures to delete the information or correct the error.
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At the end of 2019, the Cyberspace Administration of China (the “CAC”), issued the Provisions on the Management of Network Information Content Ecology, (the “CAC Order No.5”), which became effective on March 1, 2020, to further strengthen the regulation and management of network information content. Pursuant to the CAC Order No.5, each network information content service platform is required, among others, (i) not to disseminate any information prohibited by laws and regulations, such as information jeopardizing national security; (ii) to strengthen the examination of advertisements published on such network information content service platform; (iii) to promulgate management rules and platform convention, improve user agreement, clarify users’ rights and obligations and perform management responsibilities required by laws, regulations, rules and convention; (iv) to establish convenient channels for complaints and reports; and (v) to prepare annual work report regarding its management of network information content ecology. In addition, a network information content service platform must not, among others, (i) utilize new technologies and applications such as deep-learning and virtual reality to engage in activities prohibited by laws and regulations; (ii) engage in online traffic fraud, malicious traffic rerouting and other activities related to fraudulent account, illegal transaction account or maneuver of users’ account; and (iii) infringe a third party’s legitimate rights or seek illegal interests by way of interfering with information display.
Moreover, on April 13, 2020, CAC, NDRC and several other administrations jointly promulgated the Measures for Cybersecurity Review (the “Review Measures”), which became effective on June 1, 2020. The Review Measures establish the basic framework for national security reviews of purchasing network products and services by critical information infrastructure operators, and provide the principle provisions for undertaking cyber security reviews. According to the Review Measures, where the purchase of network products and services by an operator of critical information infrastructure influences or may influence state security, a cybersecurity review shall be conducted pursuant to the Review Measures. In addition, the relevant regulatory authorities are still entitled to impose security reviews on network products and services that are deemed capable of affecting national security. Critical information infrastructure operators may voluntarily file for a cybersecurity review with CAC prior to purchasing network products and services if they deem their behavior affects or may affect national security based on self-assessment and self-evaluation. Notwithstanding the voluntary filing, the relevant authorities are entitled to initiate cybersecurity reviews accordingly. Cybersecurity reviews focus on assessing the national security risks associated with purchasing network products and services, mainly taking the following factors into account: (i) the risk of illegal control, interference or destruction of critical information infrastructure and of its important data being stolen, leaked or destroyed, arising from the purchase and utilization of network products and services; (ii) the potential harm on the business continuity of critical information infrastructure incurring from a disruption of network products and services supply; (iii) the safety, openness, transparency, diversity of sources of network products and services; the reliability of suppliers; and the risk of supply disruption due to political, diplomatic, trade and other reasons; (iv) the level of compliance with PRC laws, administrative regulations and ministry rules of the suppliers of Network Products and Services; and (v) other factors that may harm critical information infrastructure and/or national security. Critical information infrastructure operators who use network products and services that have not been filed for or passed a cybersecurity review may receive the following penalties: (i) suspension of using such network products and services; (ii) a fine of more than one time and less than ten times the purchase price of such network products and services; (iii) a fine of more than RMB10,000 and less than RMB100,000 on the senior staff in and other staff directly responsible. On July 10, 2021, the CAC issued a revised draft of the Measures for Cybersecurity Review for public comments, which required that, in addition to “operator of critical information infrastructure”, any “data processor” carrying out data processing activities that affect or may affect national security should also be subject to the cybersecurity review, and further elaborated the factors to be considered when assessing the national security risks of the relevant activities, other than those already provided in the Review Measures, including: (i) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country, and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. Specifically, such revised draft measures require that an “operator of critical information infrastructure” or a “data processor”, who has personal information of more than 1 million users and is going to list abroad, must report to the relevant cybersecurity review office for a cyber security review. Currently there is no further official explanation available on the exact scope of “going to list abroad” under such draft measures so we cannot rule out the possibility that such provision may apply to the listing in Hong Kong. Furthermore, on August 17, 2021, the State Council promulgated the Provisions on Protection of Critical Information Infrastructure Security, which will take effect on September 1, 2021 and provides that “critical information infrastructures”, or CII, refers to important network facilities and information systems involved in important industries and fields such as public communication and information services, energy, transportation, water conservancy, finance, public services, e-government, national defense related science and technology industry, as well as those which may seriously endanger national security, national economy and citizen’s livelihood and public interests if damaged, malfunctioned, or if any leakage of data in relation thereto occurs. Pursuant to these provisions, the relevant governmental authorities are responsible for formulating rules for the identification of CII and further organizing to identify such the CII in the related industries and fields, taking into account the factors set forth in the provisions. The relevant authorities shall also notify operators who are being identified as critical information infrastructure operators. However, as these provisions were newly issued and the governmental authorities may further enact detailed rules or explanations with respect to the interpretation and implementation of such provisions, including rules on identifying CII in different industries and fields, it remains unclear whether we or other operators we provide network products and services to may be identified as critical information infrastructure operators.
Pursuant to the Ninth Amendment to the Criminal Law of the PRC issued by the SCNPC on August 29, 2015 and becoming effective on November 1, 2015, any network service provider that fails to fulfil the obligations related to Internet information security administration as required by applicable laws and refuses to rectify upon orders, will be subject to criminal liability for causing (i) any dissemination of illegal information in large scale; (ii) any leakage of the users’ information with serious consequences; (iii) any loss of evidence of criminal activities with serious circumstances; or (iv) any other serious circumstances. In addition, any individual or entity that (i) sells or provides personal information to others unlawfully, or (ii) steals or illegally obtains any personal information, will be subject to criminal liability in serious circumstances.
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On May 8, 2017, the Supreme People’s Court and the Supreme People’s Procuratorate released the Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Cases Involving Infringement of Citizens’ Personal Information, which became effective from June 1, 2017. The interpretations clarify several concepts regarding the crime of “infringement of citizens’ personal information” stipulated by Article 253A of the Criminal Law of the PRC, including “citizens’ personal information”, “violation of relevant national provisions”, “provision of citizens’ personal information” and “illegally obtaining any citizen’s personal information by other methods”. In addition, the interpretations specify the standards for determining “serious circumstances” and “particularly serious circumstances” of this crime. On October 21, 2019, the Supreme People’s Court and the Supreme People’s Procuratorate jointly issued the Interpretations on Certain Issues Regarding the Applicable of Law in the Handling of Criminal Case Involving Illegal Use of Information Networks and Assisting Committing Internet Crimes, which came into effect on November 1, 2019, and further clarifies the meaning of Internet service operators and the serious circumstance of the relevant crimes.
On June 10, 2021, the SCNPC promulgated the Data Security Law of the PRC (the “Data Security Law”), which will take effect in September 2021. The Data Security Law provides for data security and privacy obligations on entities and individuals carrying out data activities. The Data Security Law also introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used. The appropriate level of protection measures is required to be taken for each respective category of data. For example, a processor of important data shall designate the personnel and the management body responsible for data security, carry out risk assessments for its data processing activities and file the risk assessment reports with the competent authorities. In addition, the Data Security Law provides a national security review procedure for those data activities which may affect national security and imposes export restrictions on certain data and information.
On 14 November 2021, the CAC published the Regulations on Network Data Security Management (Draft for Comments) (the “Draft Regulations on Cyber Data Security Management”), which specified that data processor who processes personal information of more than one million people, shall apply for cybersecurity review. In addition, the Draft Regulations on Cyber Data Security Management also regulate other specific requirements in respect of the data processing activities conducted by data processors through the internet in view of personal data protection, important data safety, cross-broader data safety management and obligations of network platform operators. For example, in one of the following situations, data processors shall delete or anonymize personal information within 15 business days: (i) the purpose of processing personal information has been achieved or the purpose of processing is no longer needed; (ii) the storage term agreed with the users or specified in the personal information processing rules has expired; (iii) the service has been terminated or the account has been cancelled by the individual; or (iv) unnecessary personal information or personal information unavoidably collected due to the use of automatic data collection technology but without the consent of the individual. For the processing of important data, specific requirements shall be complied with. For example, processors of important data shall specify the responsible person of data safety, establish a data safety management department and make filing to the cyberspace administration at the districted city level within 15 business days after the identification of their important data.
Data processors dealing with important data or listing overseas (including Hong Kong) should carry out an annual data security assessment by themselves or by entrusting data security service agencies, and each year before 31 January data security assessment report for the previous year shall be submitted to the districted city level cyberspace administration department. When data collected and generated within the PRC are provided to the data processors overseas, if such data includes important data, or if the relevant data processor is a critical information infrastructure operator or processes personal information of more than one million people, the data processor shall go through the security assessment of cross-border data transfer organized by the national Cyberspace Administration. As of the Latest Practicable Date, the Regulations on Network Data Security Management (Draft for Comments) has not been formally adopted.
On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law, which integrates the scattered rules with respect to personal information rights and privacy protection and will take effect in November 2021. The Personal Information Protection Law aims at protecting the personal information rights and interests, regulating the processing of personal information, ensuring the orderly and free flow of personal information in accordance with the law and promoting the reasonable use of personal information. Personal information, as defined in the Personal Information Protection Law, refers to information related to identified or identifiable natural persons and is recorded by electronic or other means but excluding the anonymized information. The Personal Information Protection Law applies to personal information processing activities within China, as well as certain personal information processing activities outside China, including those for provision of products and services to natural persons within China or for analyzing and assessing acts of natural persons within China. The Personal Information Protection Law provides the circumstances under which a personal information processor could process personal information, which include but not limited to, where the consent of the individual concerned is obtained and where it is necessary for the conclusion or performance of a contract to which the individual is a contractual party. It also stipulates certain specific rules with respect to the obligations of a personal information processor, such as to inform the purpose, the method of processing, the type of personal information processed and retention period to the individuals, and the obligation of the third party who has access to the personal information by way of co-processing or delegation etc. Processors processing personal information exceeding the threshold to be set by the relevant authorities and CIIOs are required to store, within the territory of the PRC, the personal information collected and produced within the PRC. Specifically, a personal information processor who use personal information to make automated decision-making shall ensure the transparency of decision-making and the fairness and impartiality of the results, and shall not impose unreasonable differential treatment on individuals in terms of pricing and other transaction conditions. The relevant governmental authorities shall organize assessment on mobile apps’ personal information protection and publicize the outcome. The mobile apps that are identified as not in compliance with personal information protection requirements under such law may be required to suspend or terminate the services and the operators may also be subject to penalties including confiscation of illegal revenues and fines. Furthermore, the Personal Information Protection Law also provides for the rights of natural persons whose personal information is processed, and takes special care of the personal information of children under 14 and sensitive personal information.
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Failure to comply with the above laws and regulations regarding cybersecurity, information security, privacy and data protection may subject the internet service providers or data processors to administrative penalties including, without limitation, warnings, fines, suspension of business operation, shut-down of websites or apps, revocation of licenses and even criminal liabilities.
Regulations Relating to Foreign Exchange Control
Regulations on Foreign Currency Exchange
Pursuant to the Foreign Exchange Administrative Regulations of the PRC promulgated by the State Council on January 29, 1996, became effective on April 1, 1996 and last amended on August 5, 2008, Renminbi is freely convertible for payments of current account items such as trade and service-related foreign exchange transactions and dividend payments after the relevant financial institutions have reasonably examined the authenticity of the transactions and their consistency with foreign exchange receipts and payments, but are not freely convertible for capital expenditure items such as direct investment, loans or investments in securities outside the PRC unless the approval of the State Administration of Foreign Exchange of the PRC (the “SAFE”) or its local counterparts is obtained in advance.
On March 30, 2015, the SAFE promulgated Circular 19, which took into effect on June 1, 2015. The SAFE further promulgated Circular 16 on June 9, 2016, which, among other things, amended certain provisions of the Circular 19. According to the Circular 19 and the Circular 16, the flow and use of the Renminbi capital converted from foreign currency denominated registered capital of a foreign-invested company is regulated such that Renminbi capital may not be used for business beyond its business scope or to provide loans to persons other than affiliates unless otherwise permitted under its business scope. Violations of the Circular 19 or the Circular 16 could result in administrative penalties.
On January 18, 2017, the SAFE promulgated the Notice on Improving the Check of Authenticity and Compliance to Further Promote Foreign Exchange Control (the “Circular 3”), which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant to the Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.
On October 23, 2019, the SAFE issued the Notice on Further Promoting Cross-border Trade and Investment Facilitation (the “Circular 28”), which expressly allows foreign-invested enterprises that do not have equity investments in their approved business scope to use their capital obtained from foreign exchange settlement to make domestic equity investments as long as the investments are real and in compliance with the foreign investment-related laws and regulations. In addition, Circular 28 stipulates that qualified enterprises in certain pilot areas may use their capital income from registered capital, foreign debt and overseas listing, for the purpose of domestic payments without providing authenticity certifications to the relevant banks in advance for those domestic payments.
Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents
On July 4, 2014, the SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles (the “SAFE Circular 37”) for the purpose of simplifying the approval process, and for the promotion of the cross-border investment. Under the SAFE Circular 37, (i) before the PRC residents or entities conducting investment in offshore special purpose vehicles with their legitimate onshore and offshore assets or equities, they must register with local SAFE branches with respect to their investments; and (ii) following the initial registration, they 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).
The SAFE further promulgated the Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment on February 13, 2015, which came into effect on June 1, 2015 and allows PRC residents or entities to register with qualified banks in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. The qualified banks, under the supervision of SAFE, directly examine the applications and conduct the registration.
Failure to comply with the registration procedures set forth in the SAFE Circular 37 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliate, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations. PRC residents who control the company from time to time are required to register with the SAFE in connection with their investments in the company. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.
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Regulations on Intellectual Property
Trademarks
Trademarks are protected by the PRC Trademark Law, which was adopted on August 23, 1982 and subsequently amended in 1993, 2001, 2013, and 2019, respectively, as well as the Implementation Regulation of the PRC Trademark Law promulgated by the State Council on 3 August 2002 and amended on April 29, 2014. The Trademark Office of National Intellectual Property Administration (the “Trademark Office”) handles trademark registrations and grants a term of ten years to registered trademarks and another ten years if requested upon expiry of the first or any renewed ten-year term. Trademark registrant may license its registered trademark to another party by entering into a trademark license agreement. Trademark license agreements must be filed with the Trademark Office to be recorded, while the non-filing of the licensing of a trademark shall not be contested against a good faith third-party. The licensor shall supervise the quality of the commodities on which the trademark is used, and the licensee shall guarantee the quality of such commodities.
The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. Where a trademark for which a registration has been made is identical or similar to another trademark which has already been registered or been subject to a preliminary examination and approval for use on the same kind of or similar commodities or services, the application for registration of such trademark may be rejected. Any person applying for the registration of a trademark may not prejudice the existing right first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “certain degree of reputation” through such party’s use.
Domain Names
Internet domain name registration and related matters are primarily regulated by the Measures on Administration of Domain Names for the Chinese Internet promulgated by the Ministry of Industry and Information Technology (the “MIIT”) on November 5, 2004 and took into effect on December 20, 2004, which was superseded by the Measures on Administration of Internet Domain Names promulgated by the MIIT on August 24, 2017 and took into effect on November 1, 2017, and the Implementing Rules on Registration of National Top-level Domain Names promulgated by China Internet Network Information Centre and took into effect on June 18, 2019. Domain name owners are required to register their domain names and the MIIT is in charge of the administration of PRC Internet domain names. The domain name services follow a “first come, first file” principle. Applicants for registration of domain names shall provide their true, accurate and complete information of such domain names to and enter into registration agreements with domain name registration service institutions. The applicants will become the holders of such domain names upon the completion of the registration procedure.
Patents
According to the Patent Law of the PRC, which was promulgated by the SCNPC on March 12, 1984 and amended on September 4, 1992, August 25, 2000, December 27, 2008 and November 11, 2020 (the lasted version became effective on June 1, 2021), and the Implementation Rules of the Patent Law of the PRC, which was promulgated by the State Council on January 9, 2010 and took into effect on February 1, 2010, the National Intellectual Property Administration is responsible for administering patents in the PRC. The patent administration departments of provincial or autonomous regions or municipal governments are responsible for administering patents within their respective jurisdictions. The Patent Law of the PRC and its implementation rules provide for three types of patents, namely, “invention”, “utility model” and “design”. Invention patents are valid for twenty years, while design patents and utility model patents are valid for ten years, from the date of application. The Chinese patent system adopts a “first-to-file” principle, which means that where more than one person files a patent application for the same invention, a patent will be granted to the person who files the application first. To be patentable, invention or utility models must meet three criteria: novelty, inventiveness and practicability. A third party must obtain consent or a proper license from the patent owner to use the patent. Otherwise, the use constitutes an infringement of the patent rights.
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Copyright
Pursuant to the Copyright Law of the PRC promulgated by the SCNPC on September 7, 1990, implemented on June 1, 1991 and amended on October 27, 2001, February 26, 2010 and November 11, 2020 (the latest revision became effective on June 1, 2021) and the Implementing Regulations of the Copyright Law of the PRC promulgated by the State Council on August 2, 2002, amended on January 8, 2011 and January 30, 2013 (the latest revision became effective on March 1, 2013), the PRC nationals, legal persons, and other organizations shall, enjoy copyright in their works, whether published or not, which include, among others, works of literature, art, natural science, social science, engineering technology and computer software. The copyright owner enjoys various kinds of rights, including right of publication, right of authorship and right of reproduction.
Any work of a foreigner or stateless person which acquires copyright under an agreement concluded between the PRC and the country to which the author belongs or in which the author permanently resides, or under an international treaty to which both countries are parties, shall be protected by the Copyright Law of the PRC. Any work of a foreigner or stateless person published for the first time and within the territory of the PRC shall acquire copyright in accordance with the relevant rules.
Pursuant to the Computer Software Copyright Protection Regulations promulgated by the State Council on December 20, 2001 and amended on January 30, 2013, the software copyright owner may go through the registration formalities with a software registration authority recognized by the State Council’s copyright administrative department. The software copyright owner may authorize others to exercise that copyright and is entitled to receive remuneration.
Regulations on Taxation
Enterprise Income Tax
According to the Enterprise Income Tax Law of the PRC (the “EIT Law”), which was promulgated by the SCNPC on March 16, 2007 and became effective on January 1, 2008 and amended on February 24, 2017 and December 29, 2018, and the Enterprise Income Tax Implementation Regulations of the PRC (the “EITIR”), which was promulgated by the State Council on December 6, 2007, became effective on January 1, 2008 and was amended on April 23, 2019, the enterprise income tax of both domestic and foreign-invested enterprises is unified at 25%. According to the EIT Law, enterprises are classified as “resident enterprises” and “non-resident enterprises”. Pursuant to the EIT Law and the EITIR, PRC resident enterprises typically pay an enterprise income tax at the rate of 25% while non-PRC resident enterprises without any branches in the PRC should pay an enterprise income tax in connection with their income from the PRC at the tax rate of 10% and enterprises established under the laws of foreign countries or regions whose “de facto management bodies” are located in the PRC are considered as PRC resident enterprises, and will generally be subject to enterprise income tax at the rate of 25% of their global income. The EITIR defines “de facto management bodies” as “establishments that carry out substantial and overall management and control over production and operations, personnel, accounting, and properties” of the enterprise.
Pursuant to Notice of the State Administration of Taxation on Issues about the Determination of Chinese-Controlled Enterprises Registered Abroad as Resident Enterprises on the Basis of Their Body of Actual Management (the “SAT Circular 82”) issued by the State Administration of Taxation (the “SAT”) in April 2009 and amended in December 2017, an overseas registered enterprise controlled by a PRC company or a PRC company group will be classified as a “resident enterprise” with its “de facto management body” located within China if the following requirements are satisfied: (i) the senior management and core management departments in charge of its daily operations are mainly located in the PRC; (ii) its financial and human resources decisions are subject to determination or approval by persons or bodies located in the PRC; (iii) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (iv) no less than half of the enterprise’s directors or senior management with voting rights reside in the PRC. SAT issued additional rules to provide more guidance on the implementation of SAT Circular 82 in July 2011, and issued an amendment to SAT Circular 82 delegating the authority to its provincial branches to determine whether a Chinese-controlled overseas-incorporated enterprise should be considered a PRC resident enterprise, in January 2014. Although the SAT Circular 82, the additional guidance and its amendment only apply to overseas registered enterprises controlled by PRC enterprises and not those controlled by PRC individuals or foreigners, the determining criteria set forth in the circular may reflect SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, individuals or foreigners. If our offshore entities are deemed PRC resident enterprises, these entities may be subject to the EIT at the rate of 25% on their global incomes, except that the dividends distributed by our PRC subsidiaries may be exempt from the EIT to the extent such dividends are deemed “dividends among qualified resident enterprises.”
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In addition, pursuant to the EIT Law, Enterprises qualified as “High and New Technology Enterprises” are entitled to a 15% enterprise income tax rate rather than the 25% uniform statutory tax rate. The preferential tax treatment continues as long as an enterprise can retain its “High and New Technology Enterprise” status. According to the Announcement of the State Administration of Taxation on Issuing the Revised Measures for Handling Enterprise Income Tax Preferences (Revision 2018), which was promulgated by the SAT and came into effect on April 25, 2018, enterprises enjoying enterprise income tax preferences shall adopt the handling methods of “making independent judgement, declaring for enjoyment and retaining the relevant materials for future reference”. An enterprise shall, according to its operating condition and related tax provisions, independently determine whether it satisfies the conditions required for enterprise income tax preferences. Those who meet the conditions may independently calculate the tax deductions or exemptions according to the time listed in the Catalogue for the Administration of Enterprise Income Tax Preferences (Revision 2017), and enjoy tax incentives by filing enterprise income tax returns. Meanwhile, they shall, in accordance with the relevant provisions, collect and retain the relevant materials for future reference.
Dividends Withholding Tax
According to the EIT Law and the EITIR, dividends paid by foreign-invested companies to their foreign investors that are non-resident enterprises as defined under the law are subject to withholding tax at a rate of 10%, unless otherwise provided in the relevant tax agreements entered into with the central government of the PRC. Pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income promulgated on August 21, 2006, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such tax arrangement, the withholding tax rate on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5% from 10% applicable under the EIT Law and the EITIR. However, based on the Notice of the State Administration of Taxation on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties promulgated by the SAT and effective on February 20, 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. Furthermore, in October 2019, the SAT promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treaty Treatments (the “Circular 35”), which became effective on January 1, 2020 and superseded the Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties promulgated in 2015. The Circular 35 abolished the record-filing procedure for justifying the tax treaty eligibility of taxpayers, and stipulates that non-resident taxpayers can enjoy tax treaty benefits via the “self-assessment of eligibility, claiming treaty benefits, retaining documents for inspection” mechanism.
Non-resident taxpayers can claim tax treaty benefits after self-assessment provided that relevant supporting documents shall be collected and retained for post-filing inspection by the tax authorities. Based on the Notice of the State Administration of Taxation on the Recognition of Beneficial Owners in Tax Treaties, which was promulgated by SAT on February 3, 2018 and came into effect on April 1, 2018, a comprehensive analysis will be used to determine beneficial ownership based on the actual situation of a specific case combined with certain principles, and if an applicant was obliged to pay more than 50% of its income to a third country (region) resident within 12 months of the receipt of the income, or the business activities undertaken by an applicant did not constitute substantive business activities including substantive manufacturing, distribution, management and other activities, the applicant was unlikely to be recognized as an beneficial owner to enjoy tax treaty benefits.
Value-added Tax and Business Tax
According to Provisional Regulations on Value-added Tax of the PRC, which was promulgated by the State Council on December 13, 1993, came into effect on January 1, 1994, and was amended on November 5, 2008, February 6, 2016, November 19, 2017, and the Implementing Rules for the Interim Regulations on Value-added Tax of the PRC promulgated by Ministry of Finance (the “MOF”) on December 25, 1993 and amended on December 18, 2008 and October 28, 2011, organizations and individuals engaging in sale of goods or processing, repair and assembly services, sale of services, intangible assets, immovable and importation of goods in the PRC shall be taxpayers of Value-added Tax (the “VAT”), all enterprises and individuals that engage in the sale of goods, the provision of processing, repair and replacement services, the sale of services, intangible assets or immovable properties and the importation of goods within the territory of the PRC must pay value-added tax.
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Since 1 January 2012, the MOF and the SAT have implemented the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax, which imposes VAT in lieu of business tax for certain “modern service industries” in certain regions and eventually expanded to nationwide application in 2013. In accordance with the Notice on Fully Launch of the Pilot Scheme for the Conversion of Business Tax to Value-Added Tax which was issued by the MOF and the SAT on 23 March 2016 and came into effect on 1 May 2016, the state started to fully implement the pilot change from business tax to value-added tax on 1 May 2016. All taxpayers of business tax in construction industry, real estate industry, financial industry and living service industry have been included in the scope of the pilot and should pay value-added tax instead of business tax. On 19 November 2017, the Interim Regulations on Business Tax of the PRC was abolished.
On 20 March 2019, the MOF, the SAT and the General Administration of Customs jointly issued the Announcement of Strengthening Reform of VAT Policies (the “Announcement No. 39”), which provides certain VAT reduction arrangements. According to the Announcement No. 39, (i) for general VAT payers’ sales activities or imports that are subject to VAT at an existing applicable rate of 16% or 10%, the applicable VAT rate is adjusted to 13% or 9%, respectively; (ii) for the agricultural products purchased by taxpayers to which an existing 10% deduction rate is applicable, the deduction rate is adjusted to 9%; (iii) for the agricultural products purchased by taxpayers for production or commissioned processing, which are subject to VAT at 13%, the input VAT will be calculated at a 10% deduction rate; (iv) for the exportation of goods or labour services that are subject to VAT at 16%, with the applicable export refund at the same rate, the export refund rate is adjusted to 13%; and (v) for the exportation of goods or cross-border taxable activities that are subject to VAT at 10%, with the export refund at the same rate, the export refund rate is adjusted to 9%. The Announcement No. 39 came into effect on 1 April 2019 and shall prevail in case of any conflict with existing provisions. The Announcement No. 39 further provides that a qualified VAT taxpayer that provides telecommunication services, modern services or living services is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the services provided from 1 April 2019 to 31 December 2021.
Enterprise Income Tax on Indirect Transfer of Non-Resident Enterprises
On December 10, 2009, the SAT issued the Notice on Strengthening the Administration of Enterprise Income Tax on Equity Transfers of Non-resident Enterprises (the “Circular 698”). By promulgating and implementing the Circular 698, the PRC tax authorities have enhanced their scrutiny over the indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise. The SAT further issued the Public Announcement on Several Issues Concerning Enterprise Income Tax for Indirect Transfer of Assets by Non-Resident Enterprises (the “Circular 7”) on February 3, 2015, which replaces certain provisions in the Circular 698. The Circular 7 introduces a new tax regime that is significantly different from that under the Circular 698. The Circular 7 extends its tax jurisdiction to capture not only indirect transfer as set forth under the Circular 698 but also transactions involving transfer of immovable property in China and assets held under the establishment and place, in China of a foreign company through the offshore transfer of a foreign intermediate holding company. The Circular 7 also provides clearer criteria than the Circular 698 on how to assess reasonable commercial purposes and introduces safe harbor scenarios applicable to internal group restructurings. Where a non-resident enterprise indirectly transfers equity interests or other assets of a PRC resident enterprise by implementing arrangements that are not for reasonable commercial purposes to avoid its obligation to pay enterprise income tax, such an indirect transfer shall, in accordance with the EIT Law, be recognized by the competent PRC tax authorities as a direct transfer of equity interests or other assets of the PRC resident enterprise.
On October 17, 2017, the SAT promulgated the Announcement on Matters Concerning Withholding and Payment of Income Tax of Non-resident Enterprises from Source (the “SAT Circular 37”), which came into force and replace the Circular 698 and certain provisions in the Circular 7 on December 1, 2017 and was partly amended on June 15, 2018. The SAT Circular 37, among other things, simplifies the procedures of withholding and payment of income tax levied on non-resident enterprises. Pursuant to SAT Circular 37, where the party responsible for withholding such income tax did not, or was unable to, withhold the taxes that should have been withheld to the relevant tax authority, the party may be subject to penalties. Where the non-resident enterprise receiving such income failed to declare and pay taxes that should have been withheld to the relevant tax authority, the party may be ordered to rectify within a specific time limit.
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Regulations Relating to Employment and Social Welfare
The Labour Contract Law
Pursuant to the Labour Law of the PRC promulgated by the SCNPC on July 5, 1994, becoming effective on January 1, 1995 and amended on August 27, 2009 and on December 29, 2018, the Labour Contract Law of the PRC promulgated by the SCNPC on June 29, 2007, becoming effective on January 1, 2008 and amended on December 28, 2012 and effective from July 1, 2013, and the Regulations on the Implementation of the Labour Contract Law promulgated by the State Council and came into effect on September 18, 2008, labour relationships between employers and employees must be executed in written form. Where a labour relationship has already been established but no formal contract has been made, a written labour contract shall be entered into within one month from the date when the employee begins to work. Wages may not be lower than the local minimum wage standard. Employers must establish a system for labour safety and sanitation, strictly abide by state standards and provide relevant training to its employees. Employees are also required to follow rules on labour safety and sanitation.
Social Insurance and Housing Fund
Enterprises in the PRC are required by the PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a basic pension plan, a basic medical insurance plan, an unemployment insurance plan, an employment injury insurance plan and a maternity insurance plan, and a housing provident fund.
According to the Social Security Law of the PRC, which was promulgated by the SCNPC on October 28, 2010 and came into effect on July 1, 2011, and was amended on December 29, 2018, and other relevant PRC laws and regulations such as the Interim Regulations on the Collection and Payment of Social Insurance Premiums effective on January 22, 1999 and amended on March 24, 2019, Regulations on Work Injury Insurance implemented on January 1, 2004 and amended on December 20, 2010, Regulations on Unemployment Insurance promulgated on January 22, 1999 and Trial Measures on Employee Maternity Insurance of Enterprises implemented on January 1, 1995, the employer shall contribute to social insurance plans covering basic pensions insurance, basic medical insurance, maternity insurance, employment injury insurance and unemployment insurance. Basic pension, medical and unemployment insurance contributions shall be paid by both employers and employees, while employment injury insurance and maternity insurance contributions shall be paid only by employers, and employers who failed to promptly contribute social security premiums in full amount shall be ordered 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; and 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.
According to the Regulations on the Administration of Housing Fund, which was promulgated by the State Council and became effective on April 3, 1999, and was amended on March 24, 2002 and March 24, 2019, enterprises in the PRC must register with the competent managing center for housing provident funds and upon the examination by such center, these enterprises shall complete procedures for opening an account at the relevant bank for the deposit of employees’ housing provident funds. Enterprises are also required to pay and deposit housing provident funds on behalf of their employees in full and in a timely manner. Employers that violate these regulations and fail to process housing provident fund payments or deposit registrations with the housing provident fund administration center within a designated period are subject to a fine ranging from RMB10,000 to RMB-50,000.
Pursuant to the Reform Plan of the State Tax and Local Tax Collection Administration System, which was promulgated by the General Office of the Communist Party of China and the General Office of the State Council of the PRC on July 20, 2018, from January 1, 2019, all the social insurance premiums including the premiums of the basic pension insurance, unemployment insurance, maternity insurance, employment injury insurance and basic medical insurance will be collected by the tax authorities. According to the Notice by the General Office of the State Administration of Taxation on Conducing the Relevant Work Concerning the Administration of Collection of Social Insurance Premiums in a Steady, Orderly and Effective Manner promulgated on September 13, 2018 and the Urgent Notice of the General Office of the Ministry of Human Resources and Social Security on Implementing the Spirit of the Executive Meeting of the State Council in Stabilizing the Collection of Social Security Contributions promulgated on September 21, 2018, all the local authorities responsible for the collection of social insurance are strictly forbidden to conduct self-collection of historical unpaid social insurance contributions from enterprises. Notice of the State Administration of Taxation on Implementing Measures on Further Support and Serve the Development of Private Economy promulgated on November 16, 2018 reiterates that tax authorities at all levels may not organize self-collection of arrears of taxpayers including private enterprises in the previous years.
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Regulations on Dividend Distribution
Under applicable PRC laws and regulations, foreign investment enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, foreign investment enterprises in China are required to allocate at least 10% of their respective accumulated after-tax profits each year, if any, to fund statutory reserve funds unless these reserves have reached 50% of the registered capital of the respective enterprises. A PRC company may, at its discretion, allocate a portion of its after-tax profits based on PRC accounting standards to other reserve funds. These reserves are not distributable as cash dividends. A PRC company shall not distribute any profits until any losses from prior fiscal years have been offset and the reserve funds have been funded. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
Regulations on M&A Rules and Overseas Listing
On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State-owned Assets Supervision and Administration Commission of the State Council, the SAT, the SAIC, China Securities Regulatory Commission (the “CSRC”) and the SAFE, issued the Regulations on Merger with and Acquisition of Domestic Enterprises by Foreign Investors (the “M&A Rules”), which took into effect on September 8, 2006 and was amended by the MOFCOM 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 intends to acquire equity interests or assets of any other PRC domestic company affiliated with such PRC companies or individuals, such acquisition must be submitted to MOFCOM for approval. The M&A Rules also require offshore special purpose vehicles formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of CSRC prior to publicly listing their securities on an overseas stock exchange.
Since the FIL and its implementation regulations became effective on January 1, 2020, the provisions of the M&A Rules remain effective to the extent they are not inconsistent with the FIL and its implementation regulations. According to the Anti-Monopoly Law which took effect as August 1, 2008, where the concentration of business operators reaches the filing thresholds stipulated by the State Council, business operators shall file a declaration with the SAMR, and no concentration shall be implemented until the SAMR clears the anti-monopoly filing. Pursuant to the Notice of the General Office of the State Council on the Establishment of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors and the Security Review Rules issued by the General Office of the State Council on February 3, 2011 and became effective on March 3, 2011, mergers and acquisitions by foreign investors that raise “national defense and security” concerns, and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns, are subject to strict review by the PRC government authorities. On August 25, 2011, the MOFCOM issued the Provisions of the Ministry of Commerce for the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which provides that if a foreign investor’s merger or acquisition of a domestic enterprise falls within the scope of security review specified in the Notice of the General Office of the State Council on the Establishment of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, the foreign investor shall file an application with MOFCOM for security review. Whether a foreign investor’s merger or acquisition of a domestic enterprise falls within the scope of security review or not shall be determined based on the substance and actual influence of the merger or acquisition transaction. No foreign investor is allowed to substantially avoid the security review in any way, including but not limited to, holding shares on behalf of others, trust arrangements, multi-level reinvestment, leasing, loans, contractual control, or overseas transactions.
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Directors and Executive Officers
The following table sets forth information regarding our directors and executive officers as of the date of this prospectus.
Set forth below is information concerning our directors, executive officers, and other key employees.
| Name | Age | Position(s) | ||||
| Weiming Jin | 56 | Chief Executive Officer, Director, and Chairman of the Board | ||||
| Alex Chen | 40 | Chief Financial Officer | ||||
| Xin Jin | 27 | Chief Operating Officer | ||||
| Chao Wang | 27 | Chief Technology Officer | ||||
| Chao Chen | 33 | Director | ||||
| Jehn Ming Lim*(1)(2)(3) | 42 | Independent Director Nominee, Chair of Audit Committee | ||||
| Zijian Tong*(1)(2)(3) | 44 | Independent Director Nominee, Chair of Compensation Committee | ||||
| Tao Feng*(1)(2)(3) | 54 | Independent Director Nominee, Chair of Nominating Committee |
| (1) | Member of the Audit Committee |
| (2) | Member of the Compensation Committee |
| (3) | Member of the Nominating Committee |
| * | The individual shall be appointed and consents to be in such position effective upon the effectiveness of the registration statement of which this prospectus forms a part. |
Weiming Jin, Chief Executive Officer, Director, and Chairman of the Board
Mr. Weiming Jin has been our Chief Executive Officer, Director, and Chairman of the Board of Directors since the inception. From December 2015 to November 2017, he served as Chief Executive Officer and Chairman of Lanzhou Kangzheng Hengxin Automobile Sales Co., Ltd. and was mainly responsible for the operation and management of the automobile supermarket. From September 2011 to December 2015, Mr. Jin served as Chief Executive Officer for Lanzhou Juheng Trading Company where he was in charge of operations and led the agency brand “Aidenburg” to thrive and be ranked as No.1 in national agency sales for five consecutive years. During the same period, he served as the executive director and vice chairman of the Jiangsu Chamber of Commerce in Gansu Province.
Alex Chen, Chief Financial Officer
Alex Chen has been our Chief Financial Officer since April 2022. Prior to that, he served as the Director of Strategy and Investment of Hangzhou Junfu Investment Management Partnership and was responsible for the formulation of macro and industry investment strategies. From August 2011 to December 2018, he was the Vice President of Investment of Royal Rock Capital and was mainly responsible for cultural industry fund, the daily operation and management of the fund. From July 2005 to July 2011, he was the Manager of KPMG Hangzhou and was mainly responsible for Auditing and project due diligence. He earned bachelor’s degree in Accounting from the Zhejiang University of Finance and Economic in 2005, and become Certified General Accountant (CGA) Member in 2007.
Xin Jin, Chief Operating Officer
Mr. Xin Jin has served as our Chief Operating Officer since the inception, and is mainly responsible for executing our strategic plans, expanding our business, and managing the daily operations. From June 2016 to December 2017, he served as the designer of Jiangsu Huayuan Architectural Design and Research Institute Co., Ltd. and was responsible for architectural design. Mr. Jin Xin earned his bachelor’s degree in urban architectural design from Wenzheng College of Soochow University in June 2016, and he obtained an associate degree in architectural engineering from Lanzhou University in September 2021.
Chao Wang, Chief Technology Officer
Mr. Chao Wang has served as our Chief Technology Officer since the inception and is mainly responsible for building our software system and big data platform. Prior to that, he served as a partner of Changzhou Chenjue Culture Media Co., Ltd. and was responsible for product framework design. Mr. Wang obtained his bachelor’s degree in Design Management from Sichuan Academy of Fine Arts in 2016.
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Chao Chen, Director
Mr. Chao Chen has served as our director since the inception and is mainly responsible for the Company’s operations and management. From January 2018 to August 2018, he served as the CEO of Jiangsu Easy Parking and was responsible for daily operation and management. From March 2017 to January 2018, he was the academic specialist of Zhejiang Shiqiang Pharmaceutical Co., Ltd., during which he was responsible for product sales, research, and development of pharmaceutical products. From June 2012 to December 2017, he was the supervisor of Lanzhou Juheng Trading Co., Ltd., during which he was in charge of product sales. Mr. Chen obtained his bachelor’s degree in Animal Medicine from Nanjing Agricultural University in 2013.
Jehn Ming Lim, Independent Director Nominee and Chair of Audit Committee
Jehn Ming Lim has been our Independent Director Nominee, Chair of Audit Committee since July 2022. Mr. Lim has over 17 years’ experience in providing financial accounting and advisory services to public and private companies in the United States. He has been the Chief Financial Officer of Kandi Technologies, Corp. (NASDAQ GS: KNDI) since May 2020 and the Independent Director of Jiuzi Holdings, Inc. (NASDAQ: JXZN). Prior to that, he served as the Chief Financial Officer of Takung Art Co., Ltd. (NYSE MKT: TKAT) from February 2019 to May 2020. From January 2013 to February 2019, he was the Managing Director of a U.S.-based financial consulting firm, Albeck Financial Services, and was mainly responsible for overseeing SEC reporting, GAAP technical consultation, financial statement audit preparation, due diligence and internal controls compliance services. He has overseen and completed more than 10 public listing applications for U.S. listed companies in China (through Forms S-1 and F-1, SPAC and Form 10 reverse merger transactions), and managed multiple projects for U.S. GAAP consulting, SOX 404, pre-audit process, SEC financial reporting, development of financial forecasting models, and due diligence for IPO and M&A transactions. He also has extensive experience in auditing private and public companies in his stints as audit manager and senior auditor of two regional accounting firms in the United States from October 2008 through December 2012 and from September 2006 through October 2008, respectively and as an auditor at Ernst& Young in the United States from September 2004 through to July 2006. Mr. Lim graduated with High Honors from the University of California, Santa Barbara, with a Bachelor of Arts degree in Business Economics. We believe that Mr. Lim is qualified to serve on our board by reasons of professional experiences and qualifications.
Zijian Tong, Independent Director Nominee and Chair of Compensation Committee
Zijian Tong has been our Independent Director Nominee, Chair of Compensation Committee since July 2022. Prior to that, he served as the Partner of CNZF Management Co. Ltd. and was responsible for researching, identifying and tracking industry trends, reviewing due diligence and legal documents. From January 2012 to June 2017, he was an Investor Relations Director and Board Secretary of China Talent Group (CTG) and was mainly responsible for facilitating the company’s’ annual meeting, board meeting and monthly management meeting, and producing monthly and annual shareholder reports. From August 2010 to December 2011, he was the Vice President of Finance of Rodobo International Inc. and was mainly responsible for overseeing all sides of accounting operations, including payables, receivables, payroll, and tax preparation and developed appropriate tracking methods for revenue and expenses. He earned his bachelor’s degree in Economics from the Dalian Maritime University in 2001, and earned his master’s Degree in Bank and Insurance from Institut Des Hautes Etudes Economiques et Commerciales (INSEEC) Bordeaux, France in 2006, and he became Fellow of Chartered Institute of Management Accountants (CIMA) in 2017. We believe that Mr. Tong is qualified to serve on our board by reasons of professional experiences and qualifications.
Tao Feng, Independent Director Nominee and Chair of Nominating Committee
Tao Feng has been our Independent Director Nominee, Chair of Nominating Committee since July 2022. Prior to that, he served as the Senior lawyer of Zhejiang CELG Law firm, and specializes in legal services of enterprise investment and financing, corporate merger and acquisitions, disposal of non-performing assets, real estate, finance and insurance, intellectual property. From January 2003 to April 2006, he was the Senior lawyer of Zhejiang M&H Law firm. From December 2001 to December 2002, he was a Lawyer of Zhejiang L&H Law firm. He earned his bachelor's degree in Law from the Ningbo University in 1991, and earned his master’s degree in Economic Law and Economics from the Zhejiang University in 2000. We believe that Mr. Feng is qualified to serve on our board by reasons of professional experiences and qualifications.
Family Relationships
Weiming Jin is the father of Xin Jin. There is no other family relationship as defined in Item 401 of Regulation S-K between other directors, director nominees, or executive officers.
Election of Officers
Our executive officers are appointed by, and serve at the discretion of, our board of directors.
Board of Directors
Our board of directors will consist of five directors upon declaration of effectiveness of the registration statement of which this prospectus forms a part. A director is not required to hold any shares in our company to qualify to serve as a director. Subject to the rules of the relevant stock exchange and disqualification by the chairman of the board of directors, a director may vote with respect to any contract, proposed contract, or arrangement in which he or she is materially interested. A director may exercise all the powers of the company to borrow money, mortgage its business, property and uncalled capital and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party. There are no directors’ service contracts with the Company or its subsidiaries providing for benefits upon termination of employment.
Committees of the Board of Directors
Prior to the declaration of effectiveness of the registration statement of which this prospectus forms a part, we intend to establish an audit committee, a compensation committee and a nominating and corporate governance committee under the board of directors. We intend to adopt a charter for each of the three committees prior to the completion of this offering. Each committee’s members and functions are described below.
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Audit Committee. Our audit committee will consist of Jehn Ming Lim, Zijian Tong, and Tao Feng, and will be chaired by Jehn Ming Lim. We have determined that these three individuals satisfy the “independence” requirements of Nasdaq Rule 5605 and Rule 10A-3 under the Securities Exchange Act of 1934. We have determined that Jehn Ming Lim qualifies as an “audit committee financial expert.” The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee will be responsible for, among other things:
| ● | selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm; |
| ● | reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response; |
| ● | reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; |
| ● | discussing the annual audited financial statements with management and the independent registered public accounting firm; |
| ● | reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; |
| ● | annually reviewing and reassessing the adequacy of our audit committee charter; |
| ● | meeting separately and periodically with management and the independent registered public accounting firm; and |
| ● | reporting regularly to the board. |
Compensation Committee. Our compensation committee will consist of Jehn Ming Lim, Zijian Tong, and Tao Feng, and will be chaired by Zijian Tong. We have determined that these three individuals satisfy the “independence” requirements of Nasdaq Rule 5605 and Rule 10A-3 under the Securities Exchange Act of 1934. The compensation committee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated upon. The compensation committee will be responsible for, among other things:
| ● | reviewing the total compensation package for our executive officers and making recommendations to the board; |
| ● | reviewing the compensation of our non-employee directors and making recommendations to the board with respect to it; and | |
| ● | periodically reviewing and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, and employee pension and welfare benefit plans. |
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee will consist of Jehn Ming Lim, Zijian Tong, and Tao Feng, and will be chaired by Tao Feng. We have determined that these three individuals satisfy the “independence” requirements of Nasdaq Rule 5605 and Rule 10A-3 under the Securities Exchange Act of 1934. The nominating and corporate governance committee will assist the board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee will be responsible for, among other things:
| ● | recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board; |
| ● | reviewing annually with the board the current composition of the board with regards to characteristics such as independence, age, skills, experience and availability of service to us; |
| ● | selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself; and |
| ● | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
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Duties of Directors
Under Cayman Islands law, our directors owe fiduciary duties to us, including a duty of loyalty, a duty to act honestly, in good faith and with a view to our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our company a duty to act with skill and care. English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association and the class rights vested thereunder in the holders of the shares. 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.
Our board of directors has 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 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; and |
| ● | approving the transfer of shares in our company, including the registration of such shares in our share register. |
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, nor has any been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in “Related Party Transactions,” our directors and officers have not been involved in any transactions with us or any of our affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Code of Business Conduct and Ethics
We currently do not have a code of business conduct and ethics applicable to our directors, officers and employees; however, we intend to adopt one in the near future in connection with our application to list on The Nasdaq Capital Market.
Foreign Private Issuer Exemption
We are a “foreign private issuer,” as defined by the SEC. As a result, in accordance with the rules and regulations of Nasdaq, we may choose to comply with home country governance requirements and certain exemptions thereunder rather than complying with Nasdaq corporate governance standards. We may choose to take advantage of the following exemptions afforded to foreign private issuers:
Exemption from filing quarterly reports on Form 10-Q or provide current reports on Form 8-K disclosing significant events within four days of their occurrence.
Exemption from Section 16 rules regarding sales of ordinary shares by insiders, which will provide less data in this regard than shareholders of U.S. companies that are subject to the Exchange Act.
Exemption from the Nasdaq rules applicable to domestic issuers requiring disclosure within four business days of any determination to grant a waiver of the code of business conduct and ethics to directors and officers. Although we will require board approval of any such waiver, we may choose not to disclose the waiver in the manner set forth in the Nasdaq rules, as permitted by the foreign private issuer exemption.
Exemption from the requirement that our board of directors have a remuneration committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
Exemption from the requirements that director nominees are selected, or recommended for selection by our board of directors, either by (1) independent directors constituting a majority of our board of directors’ independent directors in a vote in which only independent directors participate, or (2) a committee comprised solely of independent directors, and that a formal written charter or board resolution, as applicable, addressing the nominations process is adopted.
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Furthermore, Nasdaq Rule 5615(a)(3) provides that a foreign private issuer, such as us, may rely on our home country corporate governance practices in lieu of certain of the rules in the Nasdaq Rule 5600 Series and Rule 5250(d), provided that we nevertheless comply with Nasdaq’s Notification of Noncompliance requirement (Rule 5625), the Voting Rights requirement (Rule 5640) and that we have an audit committee that satisfies Rule 5605(c)(3), consisting of committee members that meet the independence requirements of Rule 5605(c)(2)(A)(ii). If we rely on our home country corporate governance practices in lieu of certain of the rules of Nasdaq, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq. If we choose to do so, we may utilize these exemptions for as long as we continue to qualify as a foreign private issuer.
Although we are permitted to follow certain corporate governance rules that conform to Cayman Island requirements in lieu of many of the Nasdaq corporate governance rules, we intend to comply with the Nasdaq corporate governance rules applicable to foreign private issuers.
Other Corporate Governance Matters
The Sarbanes-Oxley Act of 2002, as well as related rules subsequently implemented by the SEC, requires foreign private issuers, including us, to comply with various corporate governance practices. In addition, Nasdaq rules provide that foreign private issuers may follow home country practice in lieu of the Nasdaq corporate governance standards, subject to certain exceptions and except to the extent that such exemptions would be contrary to U.S. federal securities laws.
Because we are a foreign private issuer, our members of our board of directors, executive board members and senior management are not subject to short-swing profit and insider trading reporting obligations under section 16 of the Exchange Act. They will, however, be subject to the obligations to report changes in share ownership under section 13 of the Exchange Act and related SEC rules.
Controlled Company
We expect to continue to be a controlled company within the meaning of the Nasdaq Stock Market Rules, and as a result, we qualify for and intend to continue to rely on exemptions from certain corporate governance requirements.
Public Companies that qualify as a “Controlled Company” with securities listed on the Nasdaq Stock Market (Nasdaq), must comply with the exchange’s continued listing standards to maintain their listings. Nasdaq has adopted qualitative listing standards. Companies that do not comply with these corporate governance requirements may lose their listing status. Under the Nasdaq rules, a “controlled company” is a company with more than 50% of its voting power held by a single person, entity or group. Under Nasdaq rules, a controlled company is exempt from certain corporate governance requirements, including:
| ● | the requirement that a majority of the board of directors consist of independent directors; |
| ● | the requirement that a listed company have a nominating and governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; |
| ● | the requirement that a listed company have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and |
| ● | the requirement for an annual performance evaluation of the nominating and governance committee and compensation committee. |
Controlled companies must still comply with the exchange’s other corporate governance standards. These include having an audit committee and the special meetings of independent or non-management directors.
Upon the completion of this offering, our Controlling Shareholder will beneficially own % of our total issued and outstanding Ordinary Shares, representing % of the total voting power, assuming that the underwriters do not exercise their over-allotment option, or % of our total issued and outstanding Ordinary Shares, representing % of the total voting power, assuming that the over-allotment option is exercised in full. As a result, we will be a “controlled company” as defined under Nasdaq Listing Rule 5615(c), because our Controlling Shareholder will hold more than 50% of the voting power for the election of directors. As a “controlled company,” we are permitted to elect not to comply with certain corporate governance requirements. We do not plan to rely on these exemptions, but we may elect to do so after we complete this offering.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information with respect to compensation for the years ended December 31, 2021 and 2020, earned by or paid to our chief executive officer and principal executive officer, our principal financial officer, and our other most highly compensated executive officers whose total compensation exceeded US$100,000 (the “named executive officers”).
| Name and Principal Position | Year | Salary (US$) |
Bonus (US$) |
Stock Awards (US$) |
Option Awards (US$) |
Non-Equity Incentive Plan Compensation |
Deferred Compensation Earnings |
Other | Total (US$) |
||||||||||||||||||||||||||
| Weiming Jin, | 2021 | $ | 65,000 | - | - | - | - | - | - | $ | 65,000 | ||||||||||||||||||||||||
| CEO | 2020 | $ | 65,000 | - | - | - | - | - | - | $ | 65,000 | ||||||||||||||||||||||||
| Alex Chen, | 2021 | $ | 120,000 | - | - | - | - | - | - | $ | 120,000 | ||||||||||||||||||||||||
| CFO | 2020 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Xin Jin, | 2021 | $ | 19,200 | - | - | - | - | - | - | $ | 19,200 | ||||||||||||||||||||||||
| COO | 2020 | $ | 19,200 | - | - | - | - | - | - | $ | 19,200 | ||||||||||||||||||||||||
| Chao Wang, | 2021 | $ | 18,500 | - | - | - | - | - | - | $ | 18,500 | ||||||||||||||||||||||||
| CTO | 2020 | $ | 18,500 | - | - | - | - | - | - | $ | 18,500 | ||||||||||||||||||||||||
Employment Agreements with Named Executive Officers
We have entered into employment agreements with our senior executive officers. Pursuant to these agreements, we are entitled to terminate a senior executive officer’s employment for cause at any time without remuneration for certain acts of the officer, such as being convicted of any criminal conduct, any act of gross or willful misconduct or any serious, willful, grossly negligent or persistent breach of any employment agreement provision, or engaging in any conduct which may make the continued employment of such officer detrimental to our company.
On January 1, 2020, we entered into an employment agreement with our Chief Executive Officer, Mr. Weiming Jin, for a term of three years. Mr. Jin is entitled to an annual base salary of US$65,000 and discretionary bonus.
On October 1, 2019, we entered into an employment agreement with our Chief Operating Officer, Mr. Xin Jin, for a term of three years. Mr. Jin is entitled to an annual base salary of US$19,200 and discretionary bonus.
On May 1, 2021, we entered into an employment agreement with our Chief Technology Officer, Mr. Chao Wang, for a term of three years. Mr. Wang is entitled to an annual base salary of US$18,500 and discretionary bonus.
On April 1, 2022, we entered into an employment agreement with our Chief Financial Officer, Mr. Alex Chen, for a term of three years. Mr. Jin is entitled to an annual base salary of US$120,000 and discretionary bonus.
Compensation of Directors
On January 1, 2020, we entered into an employment agreement with our Director, Mr. Chao Chen, for a term of three years. Mr. Chen receives his compensation for his position as an executive Director of the Company. Mr. Chen is entitled to an annual base salary of US$28,000 and discretionary bonus.
For the fiscal years ended December 31, 2021 and 2020, we did not compensate our directors for their services other than to reimburse them for out-of-pocket expenses incurred in connection with their attendance at meetings of the Board of Directors, except that Mr. Chao Chen received approximately US$28,000 for his position as the Executive Director.
We have entered into director offer letters with each of our independent directors and agreed to pay an annual compensation of US$40,000. We will also reimburse all directors for any out-of-pocket expenses incurred by them in connection with their services provided in such capacity.
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Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our Ordinary Shares as of the date of this prospectus by:
| ● | each of our directors and executive officers; and |
| ● | each person known to us to beneficially own more than 5% of our Ordinary Shares on an as-converted basis. |
The calculations in the table below are based on 10,000,000 Ordinary Shares outstanding as of the date of this prospectus, and Ordinary Shares issued and outstanding immediately after the completion of this offering, assuming the underwriters do not exercise their over-allotment option. All of our shareholders who own our Ordinary Shares have the same voting rights.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
As of the date of the prospectus, we have 6 shareholders of record, none of which is located in the United States.
| Ordinary Shares Beneficially Owned Prior to This Offering | Shares Beneficially Owned After This Offering | |||||||||||||||
| Number | % | Number | % | |||||||||||||
| Directors and Executive Officers: | ||||||||||||||||
| Weiming Jin (1) | 8,700,000 | 87 | % | 8,700,000 | 62.14 | % | ||||||||||
| Xin Jin | 200,000 | 2 | % | 200,000 | 1.43 | % | ||||||||||
| Chao Wang | - | - | - | - | ||||||||||||
| Chao Chen | 300,000 | 3 | % | 300,000 | 2.14 | % | ||||||||||
| Alex Chen | - | - | - | - | ||||||||||||
| Jehn Ming Lim | - | - | - | - | ||||||||||||
| Zijian Tong | - | - | - | - | ||||||||||||
| Tao Feng | - | - | - | - | ||||||||||||
| All Directors and Executive Officers as a Group (8 persons) | 9,200,000 | 92 | % | 9,200,000 | 65.71 | % | ||||||||||
| Other 5% Shareholders: | ||||||||||||||||
| Ausen International Investment Holdings Co., Limited (1) | 8,700,000 | 87 | % | 8,700,000 | 62.14 | % | ||||||||||
| (1) | Weiming Jin is deemed to beneficially own 8,700,000 Ordinary Shares through Ausen International Investment Holdings Co., Limited, a British Virgin Islands company holding 8,700,000 shares of our Ordinary Shares. Weiming Jin has the sole voting and dispositive power of all the shares held by Ausen International Investment Holdings Co., Limited. |
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Employment Agreements
See “Management—Employment Agreements.”
Other Transactions with Related Parties
The Company had transactions with the following related parties for the years ended December 31, 2021 and 2020:
| Name of Related Party | Nature of Relationship | |
| Chao Chen | Employee of the Company, legal representative of Jiangsu Youchuang Yi Po Intelligent Technology Limited | |
| Weiming Jin | CEO | |
| Jiangsu Youchuang Yi Po Intelligent Technology Limited | Company managed by Weiming Jin | |
| Jiangsu Yi Po Media Co. Limited | Subsidiary of Jiangsu Youchuang Yi Po Intelligent Technology Limited | |
| Nanjing Qunqing Equity Investment LLP | Engage partnership with Nanjing Sanzu Management Co. Limited | |
| Nanjing Sanzu Management Co. Limited | Company managed by Weiming Jin | |
| Xin Jin | Assistant to the CEO, son of the Weiming Jin | |
| Jiangsu Yi Po Parking Management Co. Limited | Company controlled by Weiming Jin |
Due from related party
The Company advance $58,050 to Mr. Chao Chen for business working capital, and received $41,023 for the year ended December 31, 2021. The balance due from Mr. Chao Chen was $17,068 and $ nil as of December 31, 2021 and 2020, respectively. As of the date the financial statements were available to be issued, the Company did not receive any payment.
The Company advance $5,588 and $2,670,758 to Mr. Weiming Jin for working capital for business on behalf of the Company, and received $2,727,731 and $12,226 for the year ended December 31, 2021 and 2020, respectively. The balance due from Mr. Weiming Jin was $nil and $2,656,142 as of December 31, 2021 and 2020, respectively.
The Company advance $3,615,663 and $1,112,856 to Jiangsu Youchuang Yi Po Intelligent Technology Limited (“Youchuang Yi Po”) for business working capital, and received $3,756,537 and $975,397 for the year ended December 31, 2021 and 2020. The balance due from Youchuang Yi Po was $nil and $137,459 as of December 31, 2021 and 2020, respectively.
The Company advance $100,466 and $1,597 to Jiangsu Yi Po Media Co. Limited (“Yi Po Media”) for business working capital, and received $102,103 and $nil for the year ended December 31, 2021 and 2020, respectively. The balance due from Yi Po Media was $nil and $1,597 as of December 31, 2021 and 2020, respectively.
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As of December 31, 2021, an amount of $3,142,916 has transfer from Jiangsu Youchuang Yi Po Intelligent Technology Limited to Nanjing Sanzu Management Co. Limited. The balance due from Nanjing Sanzu Management Co. Limited was $3,150,455 and $nil as of December 31, 2021 and 2020, respectively. As of the date the financial statements were available to be issued, the Company received payment of $1,109346.
The Company advance $2,355 to Mr. Xin Jin for business working capital, and received $nil for the year ended December 31, 2021. The balance due from Mr. Xin Jin was $2,360 and $ nil as of December 31, 2021 and 2020, respectively. As of the date the financial statements were available to be issued, the Company did not receive any payment.
The Company advance $197,032 to Jiangsu Yi Po Parking Management Co. Limited (“Yi Po Parking”) for business working capital, and received $183,805 for the year ended December 31, 2021. The balance due from Yi Po Parking was $13,258 and $ nil as of December 31, 2021 and 2020, respectively. As of the date the financial statements were available to be issued, the Company did not receive any payment.
As of December 31, 2021 and 2020, the amount receivable to related parties were $3,183,141 and $2,795,198 respectively.
Due to related party
The Company borrowed $nil and $53,886 from Mr. Chao Chen for business purpose, and repaid $45,732 and $9,262 for the year ended December 31, 2021 and 2020. The balance due to Mr. Chao Chen was $nil and $44,624 as of December 31, 2021 and December 31, 2020, respectively. Such balances are interest free, unsecured, and due demand without an agreement.
For the year ended December 31, 2021, the Company borrowed $90,328 from Mr. Weiming Jin for business purpose, and repaid $nil. As of December 31, 2020, the Company did not borrow any fund from Mr. Weiming Jin and repaid $10,056. The balance due to Mr. Weiming Jin was $90,545 and $nil as of December 31, 2021 and 2020, respectively. Such balances are interest free, unsecured, and due demand without an agreement.
For the year ended December 31, 2021, the Company borrowed $1,043,587 from Youchuang Yi Po for business purpose, and repaid $985,345. As of December 31, 2020, the Company did not borrow any fund from Youchuang Yi Po and repaid $15,528. The balance due to Youchuang Yi Po was $58,382 and $ nil as of December 31, 2021 and 2020, respectively. Such balances are interest free, unsecured, and due demand without an agreement.
The Company borrowed $56,512 and $78,117 from Nanjing Qunqing Equity Investment LLP (Qunqing LLP) for business purpose, and repaid $nil for the year ended December 31, 2021 and 2020, respectively. The balance due to Qunqing LLP was $136,898 and $78,117 as of December 31, 2021 and 2020, respectively. Such balances are interest free, unsecured, and due demand without an agreement.
The Company borrowed $2,737,121 and $76,586 from Nanjing Sanzu Management Co. Limited ("Nanjing Sanzu") for business purpose, and repaid $2,815,610 and $nil for the year ended December 31, 2021 and 2020. The balance due to Nanjing Sanzu was $nil ad $76,586 as of December 31, 2021 and 2020, respectively. Such balances are interest free, unsecured, and due demand without an agreement.
As of December 31, 2021 and 2020, the amount payable to related parties were $285,825 and $199,327, respectively.
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We are an exempted company incorporated in the Cayman Islands and our corporate affairs are governed by our memorandum and articles of association, the Companies Act (As Revised) of the Cayman Islands, which we refer to as the Companies Act or the Cayman Companies Act below, and the common law of the Cayman Islands.
As of the date of this prospectus, our authorized share capital is US$50,000 divided into 320,000,000 Ordinary shares of par value USD0.00015625 each. All of our shares to be issued in the offering will be issued as fully paid.
As of the date of this prospectus, there are 10,000,000 Ordinary Shares issued and outstanding.
Our Memorandum and Articles of Association
The following are summaries of the material provisions of our amended and restated memorandum and articles of association and the Companies Act, insofar as they relate to the material terms of our Ordinary Shares. They do not purport to be complete. Copies of which are filed or will be filed as an exhibit to the registration statement of which this prospectus is a part. The descriptions of the ordinary shares reflect changes to our capital structure that will occur when our amended and restated memorandum and articles of association becomes effective.
The following discussion primarily concerns ordinary shares and the rights of holders of ordinary shares.
Ordinary Shares
As at the date of this Prospectus, the Company has no outstanding options, warrants and other convertible securities.
Listing
We plan to apply to list our Ordinary Shares on the Nasdaq Capital Market under the symbol “YBZN.” We cannot guarantee that we will be successful in listing on Nasdaq; however, we will not complete this offering unless we receive conditional approval letter.
Transfer Agent and Registrar
The transfer agent and registrar for the Ordinary Shares is Transhare Corporation.
Dividends
The holders of our Ordinary Shares are entitled to such dividends as may be declared by our board of directors. In addition, our shareholders may declare dividends by ordinary resolution, but no dividend shall exceed the amount recommended by our directors. Our amended and restated memorandum and articles of association provide that dividends may be declared and paid out of the funds of our company lawfully available therefor. Under the laws of the Cayman islands, our company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.
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Voting Rights
At each general meeting, each shareholder who is present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly authorized representative) will have one (1) vote for each Ordinary Share.
A quorum required for a meeting of shareholders consists of one or more shareholders holding not less than one-third of the votes attaching to the issued and outstanding shares entitled to vote at general meetings present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. As a Cayman Islands exempted company, the Company is not obliged by the Companies Act to call shareholders’ annual general meetings. Our amended and restated memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as its annual general meeting in which case the Company will specify the meeting as such in the notices calling it, and the annual general meeting will be held at such time and place as may be determined by its directors. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting. Shareholders’ annual general meetings and any other general meetings of our shareholders may be called by a majority of its Board of Directors or its chairman or, in the case of an extraordinary general meeting only, upon a requisition of shareholders holding at the date of deposit of the requisition not less than one-third of the votes attaching to the issued and outstanding shares entitled to vote at general meetings, in which case the directors are obliged to call such meeting and to put the resolutions so requisitioned to a vote at such meeting; however, our amended and restated memorandum and articles of association do not provide its shareholders with any right to put any proposals before any annual general meetings or any extraordinary general meetings not called by such shareholders. Advance notice of at least ten (10) calendar days is required for the convening of our annual general meeting and other general meetings unless such notice is waived in accordance with our amended and restated memorandum and articles of association.
An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes attached to the Ordinary Shares cast by those shareholders entitled to vote who are present in person or by proxy (or, in the case of corporations, by their duly authorized representatives) at a general meeting, while a special resolution requires the affirmative vote of a majority of not less than two-thirds of the votes attached to the Ordinary Shares cast by those shareholders who are present in person or by proxy (or, in the case of corporations, by their duly authorized representatives) at a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our company, as permitted by the Companies Act and our memorandum and articles of association. A special resolution will be required for important matters such as a change of name or making changes to our memorandum and articles of association.
There are no limitations on non-residents or foreign shareholders in the amended and restated memorandum and articles of association to hold or exercise voting rights on the Ordinary Shares imposed by foreign law or by the charter or other constituent document 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.
Pre-emptive Rights
There are no pre-emptive rights applicable to the issue by us of Ordinary Shares under our amended and restated memorandum and articles of association.
Winding Up
On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of ordinary shares, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed among the holders of the ordinary shares in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares held by them.
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Calls on Ordinary Shares and forfeiture of Ordinary Shares
Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their Ordinary Shares in a notice served to such shareholders not earlier than the expiration of 14 days from the specified time of payment. The Ordinary Shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Ordinary Shares
Subject to the provisions of the Companies Act and other applicable law, we may issue shares on terms that are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner, as may be determined by the board of directors or by our shareholders by special resolution. The Company may also repurchase any of our shares on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. 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 our company can, immediately following such payment, 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 or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.
Variations of Rights of Shares
If at any time, our share capital is divided into different classes of shares, all or any of the rights attached to any class of shares may be materially adversely varied with the written consent of the holders of a majority of the issued shares of that class or with the sanction of an ordinary resolution passed at a general meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be materially adversely varied by the creation, allotment or issue of further shares ranking pari passu with or subsequent to them or the redemption or purchase of any shares of any class by our company. The rights of the holders of shares shall not be deemed to be materially adversely varied by the creation or issue of shares with preferred or other rights including, without limitation, the creation of shares with enhanced or weighted voting rights.
Changes in Capital
We may from time to time by an ordinary resolution of our shareholders:
| ● | increase the share capital of our Company by new shares of such amount as it thinks expedient; | |
| ● | consolidate and divide all or any of our share capital into shares of larger amount than its existing shares of shares; | |
| ● | subdivide its existing shares, or any of them, into shares of a smaller amount provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; and | |
| ● | cancel any shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled. |
Subject to the Companies Act and to any rights for the time being conferred on the shareholders holding a particular class of shares, our shareholders may, by special resolution, reduce its share capital and any capital redemption reserve in any manner authorised by law.
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Inspection of Books and Records
Holders of our Ordinary Shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records (other than the memorandum and articles of association, the register of mortgages and charges and any special resolutions passed by shareholders). Under Cayman Islands law, the names of our current directors can be obtained from a search conducted at the Registrar of Companies in the Cayman Islands. However, we will provide our shareholders with annual audited financial statements. See “Where You Can Find Additional Information”.
Issuance of additional Ordinary Shares
Our amended and restated memorandum and articles of association authorizes our board of directors to issue additional Ordinary Shares from authorized but unissued shares, to the extent available, from time to time as our board of directors shall determine.
Our amended and restated memorandum and articles of association also authorize our board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:
| ● | the designation of the series; | |
| ● | the number of shares of the series; | |
| ● | the dividend rights, dividend rates, conversion rights, voting rights; and | |
| ● | the rights and terms of redemption and liquidation preferences. |
Our board of directors may issue preferred shares without action by its shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares
Exempted Company
We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside 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:
| ● | does not have to file an annual return of its shareholders with the Registrar of Companies in the Cayman Islands; | |
| ● | is not required to open its register of members for inspection; | |
| ● | does not have to hold an annual general meeting; | |
| ● | may issue negotiable or bearer shares or shares with no par value; | |
| ● | may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance); | |
| ● | may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; | |
| ● | may register as a limited duration company; and | |
| ● | may register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on that shareholder’s shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
Differences in Corporate Law
The Cayman Companies Act is derived, to a large extent, from the older Companies Acts of England and Wales but does not follow recent United Kingdom statutory enactments, and accordingly there are significant differences between the Cayman Companies Act and the current Companies Act of England. In addition, the Cayman Companies Act differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of certain significant differences between the provisions of the Cayman Companies Act applicable to us and the comparable laws applicable to companies incorporated in the State of Delaware in the United States.
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| Delaware | Cayman Islands | |||
| Title of Organizational Documents | Certificate of Incorporation and Bylaws | Certificate of Incorporation and Memorandum and Articles of Association | ||
| Duties of Directors | Under Delaware law, the business and affairs of a corporation are managed by or under the direction of its board of directors. In exercising their powers, directors are charged with a fiduciary duty of care to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its shareholders. The duty of care requires that directors act in an informed and deliberative manner and inform themselves, prior to making a business decision, of all material information reasonably available to them. The duty of care also requires that directors exercise care in overseeing and investigating the conduct of the corporation’s employees. The duty of loyalty may be summarized as the duty to act in good faith, not out of self-interest, and in a manner which the director reasonably believes to be in the best interests of the shareholders. | As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his or her position as director (unless the company permits him to do so) and a duty not to put himself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party.
A director of a Cayman Islands company owes to the company a duty to act with skill and care. 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 are likely to be followed in the Cayman Islands. | ||
| Limitations on Personal Liability of Directors | Subject to the limitations described below, a certificate of incorporation may provide for the elimination or limitation of the personal liability of a director to the corporation or its shareholders for monetary damages for a breach of fiduciary duty as a director. Such provision cannot limit liability for breach of loyalty, bad faith, intentional misconduct, unlawful payment of dividends or unlawful share purchase or redemption. In addition, the certificate of incorporation cannot limit liability for any act or omission occurring prior to the date when such provision becomes effective. | The Companies Act has no equivalent provision to Delaware law regarding the limitation of director’s liability. However, as a matter of public policy, Cayman Islands law will not allow the limitation of a director’s liability to the extent that the liability is a consequence of the director committing a crime or of the director’s own fraud, dishonesty or willful default. |
| Indemnification of Directors, Officers, Agents, and Others | A corporation has the power to indemnify any director, officer, employee, or agent of corporation who was, is, or is threatened to be made a party who acted in good faith and in a manner he believed to be in the best interests of the corporation, and if with respect to a criminal proceeding, had no reasonable cause to believe his conduct would be unlawful, against amounts actually and reasonably incurred. | Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of directors and officers, 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 the consequences of committing a crime, or against the indemnified person’s own fraud or dishonesty.
Our amended and restated articles of association provide that our directors and officers (but not including the Company's auditors) shall be indemnified and secured harmless against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities sustained by them, other than by reason of their own wilful default or fraud, in or about the conduct of the Company's business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such persons in defending (whether successfully or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or elsewhere. In addition, we have entered into indemnification agreements with our directors and senior executive officers that provide such persons with additional indemnification beyond that provided in our amended and restated memorandum and articles of association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. | ||
| 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 director (including alternate director), secretary or any of our officers in respect of any matter identified in above on condition that the director (including alternate director), secretary or officer must repay the amount paid by us to the extent that it is ultimately found not liable to indemnify the director (including alternate director), the secretary or that officer for those legal costs. |
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| Delaware | Cayman Islands | |||
| Interested Directors | Under Delaware law, a transaction in which a director who has an interest in such transaction would not be voidable if (i) the material facts as to such interested director’s relationship or interests are disclosed or are known to the board of directors and the board in good faith authorizes the transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors are less than a quorum, (ii) such material facts are disclosed or are known to the shareholders entitled to vote on such transaction and the transaction is specifically approved in good faith by vote of the shareholders, or (iii) the transaction is fair as to the corporation as of the time it is authorized, approved or ratified. Under Delaware law, a director could be held liable for any transaction in which such director derived an improper personal benefit. | Interested director transactions are governed by the terms of a company’s memorandum and articles of association. | ||
| Voting Requirements | The certificate of incorporation may include a provision requiring supermajority approval by the directors or shareholders for any corporate action.
In addition, under Delaware law, certain business combinations involving interested shareholders require approval by a supermajority of the non-interested shareholders. |
For the protection of shareholders, certain matters must be approved by special resolution of the shareholders as a matter of Cayman Islands law, including alteration of the memorandum or articles of association, appointment of inspectors to examine company affairs, reduction of share capital (subject, in relevant circumstances, to court approval), change of name, authorization of a plan of merger or transfer by way of continuation to another jurisdiction or consolidation or voluntary winding up of the company.
Cayman Companies Act requires that a special resolution be passed by a majority of at least two-thirds or such higher percentage as set forth in the memorandum and articles of association, of shareholders being entitled to vote and do vote in person or by proxy at a general meeting, or by unanimous written consent of shareholders entitled to vote at a general meeting.
Cayman Companies Act defines “special resolutions” only. A company’s memorandum and articles of association can therefore tailor the definition of “ordinary resolutions” as a whole, or with respect to specific provisions. | ||
| Voting for Directors | Under Delaware law, unless otherwise specified in the certificate of incorporation or bylaws of the corporation, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. | Our amended and restated memorandum and articles of association provide that our directors may be appointed by a resolution of our board of directors to fill a casual vacancy on the board of directors or as an addition to the board of directors or by an ordinary resolution of our shareholders. | ||
| Cumulative Voting | No cumulative voting for the election of directors unless so provided in the certificate of incorporation. | No cumulative voting for the election of directors unless so provided in the memorandum and articles of association. | ||
| Directors’ Powers Regarding Bylaws | The certificate of incorporation may grant the directors the power to adopt, amend or repeal bylaws. | The memorandum and articles of association may only be amended by a special resolution of the shareholders. | ||
| Nomination and Removal of Directors and Filling Vacancies on Board | Shareholders may generally nominate directors if they comply with advance notice provisions and other procedural requirements in company bylaws. Holders of a majority of the shares may remove a director with or without cause, except in certain cases involving a classified board or if the company uses cumulative voting. Unless otherwise provided for in the certificate of incorporation, directorship vacancies are filled by a majority of the directors elected or then in office. | Nomination and removal of directors and filling of board vacancies are governed by the terms of the memorandum and articles of association. |
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| Delaware | Cayman Islands | |||
| Mergers and Similar Arrangements | Under Delaware law, with certain exceptions, a merger, consolidation, exchange or sale of all or substantially all the assets of a corporation must be approved by the board of directors and a majority of the outstanding shares entitled to vote thereon. Under Delaware law, a shareholder of a corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights pursuant to which such shareholder may receive cash in the amount of the fair value of the shares held by such shareholder (as determined by a court) in lieu of the consideration such shareholder would otherwise receive in the transaction.
Delaware law also provides that a parent corporation, by resolution of its board of directors, may merge with any subsidiary, of which it owns at least 90% of each class of capital stock without a vote by shareholders of such subsidiary. Upon any such merger, dissenting shareholders of the subsidiary would have appraisal rights. |
Cayman Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (b) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The plan must be filed with the Registrar of Companies together with 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 shareholders 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. For this purpose a subsidiary is a company of which at least 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 of a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
Except in certain limited circumstances, a dissenting shareholder of a Cayman Islands constituent company is entitled to payment of the fair value of his or her shares upon dissenting from a merger or consolidation. The exercise of such dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding shares, except for the right to seek relief on the grounds that the merger or consolidation is void or unlawful. | ||
| In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, 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: (a) the statutory provisions as to the required majority vote have been met; (b) the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class; (c) 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 (d) the arrangement is not one that would more properly be sanctioned under some other provision of the Cayman Companies Act. |
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| Delaware | Cayman Islands | |||
|
When a takeover offer is made and accepted by holders of 90% of the shares affected within four months the offeror may, within a two-month period commencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this 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 is thus approved, or if a takeover offer is made and accepted, a dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
| ||||
| Shareholder Suits | Class actions and derivative actions generally are available to shareholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court generally has discretion to permit the winning party to recover attorneys’ fees incurred in connection with such action. | In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands courts can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the name of the company to challenge: (a) an act which is illegal or ultra vires with respect to the company and is therefore incapable of ratification by the shareholders; (b) an act which, although not ultra vires, requires authorization by a qualified (or special) majority (that is, more than a simple majority) which has not been obtained; and (c) an act which constitutes a “fraud on the minority” where the wrongdoers are themselves in control of the company. | ||
| Inspection of Corporate Records | Under Delaware law, shareholders of a Delaware corporation have the right during normal business hours to inspect for any proper purpose, and to obtain copies of list(s) of shareholders and other books and records of the corporation and its subsidiaries, if any, to the extent the books and records of such subsidiaries are available to the corporation. | Shareholders of a Cayman Islands exempted company have no general right under Cayman Islands law to inspect or obtain copies of a list of shareholders or other corporate records (other than the memorandum and articles of association and any special resolutions passed by such companies, and the registers of mortgages and charges of such companies) of the company. However, these rights may be provided in the company’s memorandum and articles of association. |
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| Delaware | Cayman Islands | |||
| Shareholder Proposals | Unless provided in the corporation’s certificate of incorporation or bylaws, Delaware law does not include a provision restricting the manner in which shareholders may bring business before a meeting. | The Cayman Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our amended and restated memorandum and articles of association allow our shareholders holding not less than one-third of all voting power of our share capital in issue to requisition a shareholder’s meeting, in which case our board is obliged to convene an extraordinary general meeting and to put the resolutions so requisitioned to a vote at such meeting. Other than this right to requisition a shareholders’ meeting, our amended and restated memorandum and articles of association do not provide our shareholders other right to put proposal before a meeting. As a Cayman Islands exempted company, we are not obliged by law to call shareholders’ annual general meetings. |
| Approval of Corporate Matters by Written Consent | Delaware law permits shareholders to take action by written consent signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting of shareholders. | Cayman Companies Act and our amended and restated 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. | ||
| Calling of Special Shareholders Meetings | Delaware law permits the board of directors or any person who is authorized under a corporation’s certificate of incorporation or bylaws to call a special meeting of shareholders. | Cayman Companies Act does not have provisions governing the proceedings of shareholders meetings which are usually provided in the memorandum and articles of association. Please see above. | ||
| 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 of directors. | Under the Cayman Companies Act and our articles, 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. |
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have Ordinary Shares issued and outstanding assuming the underwriters do not exercise their over-allotment option to purchase additional Ordinary Shares. Of that amount, Ordinary Shares will be publicly held by investors participating in this offering, and Ordinary Shares will be held by our existing shareholders, some of whom may be our “affiliates” as that term is defined in Rule 144 under the Securities Act. As defined in Rule 144, an “affiliate” of an issuer is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the issuer. Prior to this offering, there has been no public market for our Ordinary Shares. While we intend to list the Ordinary Shares on the Nasdaq Capital market, we cannot assure you that a regular trading market will develop in our Ordinary Shares.
Future sales of substantial amounts of our Ordinary Shares in the public markets after this offering, or the perception that such sales may occur, could adversely affect market prices prevailing from time to time. As described below, only a limited number of our Ordinary Shares currently outstanding will be available for sale immediately after this offering due to contractual and legal restrictions on resale. Nevertheless, after these restrictions lapse, future sales of substantial amounts of our ordinary share, including ordinary share issued upon exercise of outstanding options, in the public market in the United States, or the possibility of such sales, could negatively affect the market price in the United States of our ordinary share and our ability to raise equity capital in the future.
All of the ordinary shares sold in the offering will be freely transferable by persons other than our “affiliates” in the United States without restriction or further registration under the Securities Act. Ordinary shares purchased by one of our “affiliates” may not be resold, except pursuant to an effective registration statement or an exemption from registration, including an exemption under Rule 144 under the Securities Act described below.
The ordinary share held by existing shareholders are, and any ordinary share issuable upon exercise of options outstanding following the completion of this offering will be, “restricted securities,” as that term is defined in Rule 144 under the Securities Act. These restricted securities may be sold in the United States only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act. These rules are described below.
Lock-Up Agreements
Our directors, executive officers and all shareholders have agreed, subject to limited exceptions, not to 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 or otherwise dispose of, directly or indirectly, or enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of our Ordinary Shares or such other securities for a period of 6 months from the date on which the trading of the Ordinary Shares commences, without the prior written consent of the Underwriter. However, shareholders who own 5% or more of the outstanding Ordinary Shares have agreed with the Underwriter not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Ordinary Shares or securities convertible into Ordinary Shares for a period of 12 months from the date on which the trading of the Ordinary Shares commences.
The Company is also prohibited from conducting offerings during this period and from re-pricing or changing the terms of existing options and warrants. See “Underwriting.”
Rule 144
All of our Ordinary Shares outstanding prior to this offering are “restricted shares” as that term is defined in Rule 144 under the Securities Act and may be sold publicly in the United States only if they are subject to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirements. Under Rule 144 as currently in effect, a person who has beneficially owned our restricted shares for at least six months is generally entitled to sell the restricted securities without registration under the Securities Act beginning 90 days after the date of this prospectus, subject to certain additional restrictions.
Our affiliates are subject to additional restrictions under Rule 144. Our affiliates may only sell a number of restricted shares within any three-month period that does not exceed the greater of the following:
| ● | 1% of the then outstanding Ordinary Shares, which will equal approximately Ordinary Shares immediately after this offering; or |
| ● | the average weekly trading volume of our Ordinary Shares during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC. |
Affiliates who sell restricted securities under Rule 144 may not solicit orders or arrange for the solicitation of orders, and they are also subject to notice requirements and the availability of current public information about us.
Persons who are not our affiliates are only subject to one of these additional restrictions, the requirement of the availability of current public information about us, and this additional restriction does not apply if they have beneficially owned our restricted shares for more than one year.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases our Ordinary Shares from us in connection with a compensatory stock or option plan or other written agreement relating to compensation is eligible to resell such Ordinary Shares 90 days after we became a reporting company under the Exchange Act in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144.
Regulation S
Regulation S provides generally that sales made in offshore transactions are not subject to the registration or prospectus-delivery requirements of the Securities Act.
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The following summary 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 summary does not deal with all possible tax consequences relating to an investment in our Ordinary Shares, such as the tax consequences under state, local and other tax laws.
The brief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of shares and you are, for U.S. federal income tax purposes,
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; |
| ● | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
| ● | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our Ordinary Shares, nor will gains derived from the disposal of our Ordinary Shares be subject to Cayman Islands income or corporate tax.
People’s Republic of China Taxation
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 at the rate of 25% on its global income. 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, 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 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.
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On March 17, 2017, the State Tax Administration promulgated the “Administrative Measures for Adjustment of Special Tax Investigation and Mutual Consultation Procedures” (State Administration of Tax Practice Announcement No.6, 2017), which came into force on May 1, 2017), which provides that tax authorities have implemented special tax adjustment monitoring and management for enterprises through related declaration review, contemporaneous data management, profit level monitoring and other means. If an enterprise is found to have special tax adjustment risks, the tax authorities may serve a “Notice” to remind such enterprise of the tax risks. If an enterprise receives a special tax adjustment risk alert or finds that it has a special tax adjustment risk, it may adjust the supplementary tax on its own. If the enterprise adjusts the supplementary tax by itself, the tax authorities may still carry out special tax investigation and adjustment in accordance with the relevant provisions. If an enterprise requires the tax authorities to confirm the special tax adjustment matters, such as the pricing principles and methods of related party transactions, the tax authorities shall initiate the special tax investigation procedures. It also stipulates that if the principle of independent transactions is not met, tax authorities may implement a special tax adjustment in the full amount of the amount deducted before tax under the following circumstances:
| (1) | The enterprise and its affiliated parties transfer or accept the right to use intangible assets that do not bring economic benefits and collect or pay royalties; |
| (2) | The enterprise pays royalties to related parties that only own intangible assets but do not contribute to their value; |
| (3) | An enterprise establishes a holding company or a financing company overseas for the main purpose of financing and listing, and pays royalties to overseas affiliated parties only for the incidental benefits arising from the financing and listing activities; |
| (4) | The taxable income or income amount of the enterprise or its affiliated party is reduced because the payment or collection of the price of the labor service transaction between the enterprise and its affiliated party does not meet the principle of independent transactions; and |
| (5) | The enterprise pays fees to overseas related parties that fail to perform their functions, bear risks and have no substantial business activities. |
Although we believe all our related party transactions, including all payments by our PRC subsidiaries and consolidated affiliated entities to our non-PRC entities, are made on an arm’s-length basis and our estimates are reasonable, the ultimate decisions by the relevant tax authorities may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.
We believe that none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. We do not believe that Yi Po International Holdings Limited meets all of the conditions above. Yi Po International Holdings Limited is a company incorporated outside the PRC. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. For the same reasons, we believe our other entities outside of China are not PRC resident enterprises either. 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.” There can be no assurance that the PRC government will ultimately take a view that is consistent with us.
However, if the PRC tax authorities determine that Yi Po International Holdings Limited is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 20% withholding tax from dividends we pay to our shareholders that are non-resident enterprises. In addition, non-resident enterprise shareholders may be subject to a 10% PRC tax on gains realized on the sale or other disposition of Ordinary Shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of Yi Po International Holdings Limited would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that Yi Po International Holdings Limited is treated as a PRC resident enterprise.
Provided that the Company is not deemed to be a PRC resident enterprise, holders of our Ordinary Shares who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares. However, under SAT Circular 7, where a non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular, equity interests in a PRC resident enterprise, 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 such 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 and our non-PRC resident investors may be at risk of being required to file a return and being taxed under SAT Circular 7, and we may be required to expend valuable resources to comply with SAT Circular 7, or to establish that we should not be taxed under these circulars. See “Risk Factors — Risks Relating to Doing Business in China — Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.”
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United States Federal Income Tax Considerations
The following discussion is a summary of U.S. federal income tax considerations generally applicable to the 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 U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service, or the IRS, with respect to any U.S. federal income tax considerations described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion, moreover, does not address the U.S. federal estate, gift, and alternative minimum tax considerations, the Medicare tax on certain net investment income, information reporting or backup withholding or any state, local, and non-U.S. tax considerations, relating to the ownership or disposition of our Ordinary Shares. The following summary does not address all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances or to persons in special tax situations such as:
| ● | banks and other financial institutions; |
| ● | insurance companies; |
| ● | pension plans; |
| ● | cooperatives; |
| ● | regulated investment companies; |
| ● | real estate investment trusts; |
| ● | broker-dealers; |
| ● | traders that elect to use a mark-to-market method of accounting; |
| ● | certain former U.S. citizens or long-term residents; |
| ● | tax-exempt entities (including private foundations); |
| ● | individual retirement accounts or other tax-deferred accounts; |
| ● | persons liable for alternative minimum tax; |
| ● | persons who acquire their Ordinary Shares pursuant to any employee share option or otherwise as compensation; |
| ● | investors that will hold their Ordinary Shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes; |
| ● | investors that have a functional currency other than the U.S. dollar; |
| ● | persons that actually or constructively own 10% or more of our Ordinary Shares (by vote or value); or |
| ● | partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding the Ordinary Shares through such entities, |
all of whom may be subject to tax rules that differ significantly from those discussed below.
Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular circumstances, and the state, local, non-U.S., and other tax considerations of the ownership and disposition of our Ordinary Shares.
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General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our Ordinary Shares that is, for U.S. federal income tax purposes:
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under the laws of the United States or any state thereof or the District of Columbia; |
| ● | an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or |
| ● | a trust (i) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust, or (ii) that has otherwise validly elected to be treated as a U.S. person under the Code. |
| ● | If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our Ordinary Shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding our Ordinary Shares and their partners are urged to consult their tax advisors regarding an investment in our Ordinary Shares. |
Passive Foreign Investment Company Considerations
A non-U.S. corporation, such as our company, will be classified as a PFIC for U.S. federal income tax purposes for any taxable year if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income, or the asset test. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. Passive assets are those which give rise to passive income, and include assets held for investment, as well as cash, assets readily convertible into cash, and working capital. The company’s goodwill and other unbooked intangibles are taken into account and may be classified as active or passive depending upon the relative amounts of income generated by the company in each category. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.
Based upon our current and projected income and assets, the expected proceeds from this offering, and projections as to the market price of our Ordinary Shares immediately following this offering, we do not expect to be a PFIC for the current taxable year or the foreseeable future. However, no assurance can be given in this regard because the determination of whether we are or will become a PFIC is a factual determination made annually that will depend, in part, upon the composition and classification of our income and assets, including the relative amounts of income generated by our strategic investment business as compared to our other businesses, and the value of the assets held by our strategic investment business as compared to our other businesses. Because there are uncertainties in the application of the relevant rules, it is possible that the IRS may challenge our classification of certain income and assets as non-passive, which may result in our being or becoming classified as a PFIC in the current or subsequent years. Furthermore, fluctuations in the market price of our Ordinary Shares may cause us to be a PFIC for the current or future taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to the market price of our Ordinary Shares from time to time (which may be volatile). In estimating the value of our goodwill and other unbooked intangibles, we have taken into account our anticipated market capitalization immediately following the close of this offering. Among other matters, if our market capitalization is less than anticipated or subsequently declines, we may be or become a PFIC for the current or future taxable years. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering. Under circumstances where our revenues from activities that produce passive income significantly increases relative to our revenues from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming a PFIC may substantially increase.
If we are a PFIC for any year during which a U.S. Holder holds our Ordinary Shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our Ordinary Shares unless, in such case, we cease to be treated as a PFIC and such U.S. Holder makes a deemed sole election.
The discussion below under “Dividends” and “Sale or Other Disposition” is written on the basis that we will not be or become classified as a PFIC for U.S. federal income tax purposes. The U.S. federal income tax rules that apply generally if we are treated as a PFIC are discussed below under “Passive Foreign Investment Company Rules.”
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Dividends
Any cash distributions paid on our Ordinary Shares out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution we pay will generally be treated as a “dividend” for U.S. federal income tax purposes. Dividends received on our Ordinary Shares will not be eligible for the dividends received deduction allowed to corporations in respect of dividends-received from U.S. corporations.
Individuals and other non-corporate U.S. Holders may be subject to tax on any such dividends at the lower capital gain tax rate applicable to “qualified dividend income,” provided that certain conditions are satisfied, including that (i) our Ordinary Shares on which the dividends are paid are readily tradable on an established securities market in the United States, (ii) we are neither a PFIC nor treated as such with respect to a U.S. Holder for the taxable year in which the dividend is paid and the preceding taxable year, and (iii) certain holding period requirements are met. We intend to list the Ordinary Shares on Nasdaq Capital Market. Provided that this listing is approved, we believe that the ordinary should generally be considered to be readily tradeable on an established securities market in the United States. There can be no assurance that the Ordinary Shares will continue to be considered readily tradable on an established securities market in later years. U.S. Holders are urged to consult their tax advisors regarding the availability of the lower rate for dividends paid with respect to the Ordinary Shares.
For U.S. foreign tax credit purposes, dividends paid on our Ordinary Shares will generally be treated as income from foreign sources and will generally constitute passive category income. The rules governing the foreign tax credit are complex and U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Sale or Other Disposition
A U.S. Holder will generally recognize gain or loss upon the sale or other disposition of Ordinary Shares in an amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such Ordinary Shares. Such gain or loss will generally be capital gain or loss. Any such capital gain or loss will be long term if the Ordinary Shares have been held for more than one year. Non-corporate U.S. Holders (including individuals) generally will be subject to United States federal income tax on long-term capital gain at preferential rates. The deductibility of a capital loss may be subject to limitations. Any such gain or loss that the U.S. Holder recognizes will generally be treated as U.S. source income or loss for foreign tax credit limitation purposes, which could limit the availability of foreign tax credits. Each U.S. Holder is advised to consult its tax advisor regarding the tax consequences if a foreign tax is imposed on a disposition of our Ordinary Shares, including the applicability of any tax treaty and the availability of the foreign tax credit under its particular circumstances.
Passive Foreign Investment Company Rules
If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our Ordinary Shares, and unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the Ordinary Shares), and (ii) any gain realized on the sale or other disposition, including, under certain circumstances, a pledge, Ordinary Shares. Under the PFIC rules:
| ● | the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the Ordinary Shares; |
| ● | the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income; and |
| ● | the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for individuals or corporations, as appropriate, for that year, increased by an additional tax equal to the interest on the resulting tax deemed deferred with respect to each such taxable year. |
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As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to- market election with respect to such stock. If a U.S. Holder makes this election with respect to our Ordinary Shares, the holder will generally(i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of Ordinary Shares held at the end of the taxable year over the adjusted tax basis of such Ordinary Shares and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the Ordinary Shares over the fair market value of such Ordinary Shares held at the end of the taxable year, but such deduction will only be allowed to the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the Ordinary Shares would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to- market election in respect of our Ordinary Shares and we cease to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that we are not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of our Ordinary Shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.
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, or regularly traded, on a qualified exchange or other market, as defined in applicable United States Treasury regulations. Our Ordinary Shares will be treated as marketable stock upon their listing on Nasdaq Capital Market. We anticipate that our Ordinary Shares should qualify as being regularly traded, but no assurances may be given in this regard.
Because a mark-to-market election cannot technically be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.
If a U.S. Holder owns our Ordinary Shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS Form 8621. You should consult your tax advisor regarding the U.S. federal income tax consequences of owning and disposing of our Ordinary Shares if we are or become a PFIC.
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In connection with this offering, we will enter into an underwriting agreement with Boustead Securities, LLC, as representative of the Underwriters, or the Representative, in this offering. The Representative may retain other brokers or dealers to act as a sub-agents or selected dealers on their behalf in connection with this offering. The Underwriters have agreed to purchase from us, on a firm commitment basis, the number of ordinary shares set forth opposite its name below, at the offering price less the underwriting discounts set forth on the cover page of this prospectus:
| Name of Underwriter | Number of Ordinary Shares | |||
| Boustead Securities, LLC | 4,000,000 | |||
The Underwriter is committed to purchase all the ordinary shares offered by this prospectus if it purchases any ordinary shares. The Underwriter is not obligated to purchase the ordinary shares covered by the Underwriter’s Over-Allotment option to purchase ordinary shares as described below. The Underwriter is offering the ordinary shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, and other conditions contained in the underwriting agreement, such as the receipt by the Underwriter of officer’s certificates and legal opinions. The Underwriter reserves the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Over-Allotment Option
We have granted to the Underwriter a 45-day option to purchase up to an aggregate of additional ordinary shares (equal to 15% of the number of ordinary shares sold in the offering), at the offering price per ordinary shares less underwriting discounts and commissions. The Underwriter may exercise this option for 45 days from the date of closing of this offering solely to cover sales of ordinary shares by the Underwriter in excess of the total number of ordinary shares set forth in the table above. If any of the additional ordinary shares are purchased, the Underwriter will offer the additional ordinary shares at $ [-] per ordinary share, the offering price of each ordinary share.
Fees, Commissions and Expense Reimbursement
We will pay the Underwriter a discount equivalent to seven percent (7%) of the gross proceeds of this offering. The Underwriter proposes initially to offer the ordinary shares to the public at the offering price set forth on the cover page of this prospectus and to dealers at those prices less the aforesaid fee (“underwriting discount”) set forth on the cover page of this prospectus. If all of the ordinary shares offered by us are not sold at the offering price, the Underwriter may change the offering price and other selling terms by means of a supplement to this prospectus
The following table shows the underwriting fees/commission payable to the Underwriter with this offering:
| Per Ordinary Share | Total Without Over- Allotment Option | Total With Full Over- Allotment Option | ||||||||||
| Public offering price | $ | 5.00 | $ | 20,000,000 | $ | 23,000,000 | ||||||
| Underwriting fees and commissions (7%)(1) | $ | 5.00 | $ | 1,400,000 | $ | 16,100,000 | ||||||
| Proceeds, before expenses, to us | $ | 5.00 | $ | 18,600,000 | $ | 21,390,000 | ||||||
| Non-accountable expense allowance (1%) | $ | 5.00 | $ | 200,000 | $ | 230,000 | ||||||
| (1) | The fees do not include the Underwriter Warrants or expense reimbursement as described below. |
In addition to the cash commission, we will also reimburse the Underwriter for its non-accountable expenses of one percent (1%) of the gross proceeds of the offering and accountable out-of-pocket expenses not to exceed $300,000. Such accountable out-of-pocket expenses include no more than $150,000 in Underwriter’s legal counsel fees, due diligence and other like expenses not to exceed $75,000 and road show, travel, on-boarding fees and other reasonable out-of-pocket accountable expenses not to exceed $75,000, background checks expenses not to exceed $8,000, and DTC eligibility fees and expenses not to exceed $20,000. We have paid to $ in accountable expenses as of the date hereof, which will be refundable to us to the extent actually not incurred by the Underwriter in accordance with FINRA Rule 5110(f)(2)(C).
We estimate that the total expenses payable by us in connection with the offering, other than the underwriting fees and commissions, will be approximately $.
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We have agreed to issue to the Underwriter and to register herein warrants to purchase up to Ordinary Shares (equal to percent (7%) of the Ordinary Shares sold in this offering, inclusive of the Underwriter Over-Allotment option to purchase an additional Ordinary Shares) and to also register herein such underlying Ordinary Shares. The warrants will be exercised at any time, and from time to time, in whole or in part, commencing from the closing of the offering and expiring five (5) years from the effectiveness of the offering. The warrants are exercisable at a per share price of the offering price of the Ordinary Shares offered hereby. The Underwriter Warrant shall not be callable or cancellable.
The Underwriter Warrants may not be 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 immediately following the commencement of sales of the offering, of which this prospectus forms a part (in accordance with FINRA Rule 5110), except that they may be assigned, in whole or in part, to any successor, officer, manager, member, or partner of the Underwriter, and to members of the syndicate or selling group and their respective officers, managers, members or partners. The Underwriter Warrants may be exercised as to all or a lesser number of shares, will provide for cashless exercise and will contain provisions for immediate “piggyback” registration rights at our expense for a period of five years from the date of effectiveness of the offering. We have registered the Underwriter the Ordinary Shares underlying the Underwriter Warrants in this offering.
The Underwriter intends to offer our Ordinary Shares to their retail customers only in states in which we are permitted to offer our Ordinary Shares. We have relied on an exemption to the blue sky registration requirements afforded to “covered securities.” Securities listed on a National Securities Exchange are “covered securities.” If we were unable to meet a National Securities Exchange listing standards, then we would be unable to rely on the covered securities exemption to blue sky registration requirements and we would need to register the offering in each state in which we planned to sell shares. Consequently, we will not complete this offering unless we meet a National Securities Exchange’s listing requirements and our application to list on the exchange is approved.
The foregoing does not purport to be a complete statement of the terms and conditions of the underwriting agreement and subscription agreement. A form of the underwriting agreement is included as an exhibit to the registration statement of which this prospectus forms a part.
Right of First Refusal
Until 24 months from the closing of this public offering, the Underwriter shall have a right of first refusal to act as lead or managing underwriter, exclusive or joint financial advisor or in any other similar capacity, on the representative’s customary terms and conditions, in the event we pursue a registered, underwritten public offering of securities (in addition to this offering), a public or private offering of securities (debt or equity), a merger, acquisition of another company or business, change of control, sale of substantially all assets, business combination, recapitalization or other similar transaction (regardless of whether we would be considered an acquiring party, a selling party or neither in such transaction). In accordance with FINRA Rule 5110(f)(2)(E)(i), such right of first refusal shall not have a duration of more than three years from the date of commencement of sales of the public offering or the termination date of the engagement between the us and the Underwriter.
Lock-Up Agreements
We have agreed that, subject to certain exceptions set forth in the underwriting agreement, we will not, without the prior written consent of the Underwriter, from the date of execution of the underwriting agreement and continuing for a period of 6 months from the date on which the trading of the Ordinary Shares commences, (i) 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 or otherwise transfer or dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any ordinary shares or any securities convertible into or exercisable or exchangeable for Ordinary Shares, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Ordinary Shares or any such other securities.
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Our officers, directors, and all shareholders agree not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any Ordinary Shares or other securities convertible into or exercisable or exchangeable for Ordinary Shares for a period of up to 6 months from the date on which the trading of the Ordinary Shares commences without the prior written consent of the Underwriter. However, shareholders who own 5% or more of the outstanding Ordinary Shares have agreed with the Underwriter not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our Ordinary Shares or securities convertible into Ordinary Shares for a period of 12 months from the date on which the trading of the Ordinary Shares commences.
We are prohibited from conducting any other offerings during this period and from re-pricing or changing the terms of existing options and warrants.
The Underwriter may in its sole discretion and at any time without notice release some or all of the Ordinary Shares subject to lock-up agreements prior to the expiration of the lock-up period. When determining whether or not to release shares from the lock-up agreements, the Underwriter will consider, among other factors, the security holder’s reasons for requesting the release, the number of shares for which the release is being requested and market conditions at the time.
Price Stabilization
The Underwriter will be required to comply with the Securities Act and the Exchange Act, including without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of shares of capital stock by the Underwriter acting as principal. Under these rules and regulations, the Underwriter:
| ● | may not engage in any stabilization activity in connection with our securities; and |
| ● | may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until it has completed its participation in the distribution. |
Determination of Offering Price
The public offering price of the Ordinary Shares we are offering was determined by us in consultation with the Underwriter based on discussions with potential investors in light of the history and prospects of our Company, the stage of development of our business, our business plans for the future and the extent to which they have been implemented, an assessment of our management, the public stock price for similar companies, general conditions of the securities markets at the time of the offering and such other factors as were deemed relevant.
Electronic Offer, Sale and Distribution of Securities.
A prospectus in electronic format may be delivered to potential investors by the Underwriter. The prospectus in electronic format will be identical to the paper version of such prospectus. Other than the prospectus in electronic format, the information on the Underwriter’ website and any information contained in any other website maintained by the Underwriter is not part of the prospectus or the registration statement of which this Prospectus forms a part.
Foreign Regulatory Restrictions on Purchase of our Ordinary Shares
We have not taken any action to permit a public offering of our Ordinary Shares outside the United States or to permit the possession or distribution of this prospectus outside the United States. People outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to this offering of our Ordinary Shares and the distribution of this prospectus outside the United States.
Indemnification
We have agreed to indemnify the Underwriter against liabilities relating to the offering arising under the Securities Act and the Exchange Act and to contribute to payments that the Underwriter may be required to make for these liabilities. We have been advised that, in the opinion of the Securities and Exchange Commission, indemnification of liabilities under the Securities Act is against public policy as expressed in the Securities Act, and is therefore, unenforceable.
Application for NYSE American/Nasdaq Listing
We plan to apply to have our Ordinary Shares approved for listing/quotation on the Nasdaq Capital Market under the symbol “YBZN.” We will not consummate and close this offering without a listing approval letter from Nasdaq Capital Market. Our receipt of a listing approval letter is not the same as an actual listing on the Nasdaq Capital Market. The listing approval letter will serve only to confirm that, if we sell a number of Ordinary Shares in this offering sufficient to satisfy applicable listing criteria, our Ordinary Shares will in fact be listed.
If the application is approved, trading of our Ordinary Shares on the Nasdaq Capital Market will begin within five days following the closing of this offering. If our Ordinary Shares are listed on the Nasdaq Capital Market, we will be subject to continued listing requirements and corporate governance standards. We expect these new rules and regulations to significantly increase our legal, accounting and financial compliance costs.
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ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of the Cayman Islands with limited liability. We are incorporated in the Cayman Islands because of certain benefits associated with being a Cayman Islands exempted company, such as:
| ● | political and economic stability; |
| ● | an effective judicial system; |
| ● | a favorable tax system; |
| ● | the absence of exchange control or currency restrictions; and |
| ● | the availability of professional and support services. |
However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include:
| ● | the Cayman Islands has a less developed body of securities laws as compared to the United States and provides fewer protections to investors; and |
| ● | Cayman Islands companies may not have standing to sue before the federal courts of the United States. |
Our amended and restated memorandum and articles 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.
Substantially all of our assets are located outside the United States. In addition, a majority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against them or against us, judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.
We have appointed as our agent upon whom process may be served in any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any State of the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.
Guantao Law Firm, our counsel as to Chinese law, has advised us that the recognition and enforcement of foreign judgments are provided for under the Chinese Civil Procedure Law. Chinese courts may recognize and enforce foreign judgments in accordance with the requirements of the Chinese Civil Procedure Law based either on treaties between China and the country where the judgment is made or in reciprocity between jurisdictions. China does not have any treaties or other agreements with the Cayman Islands or the United States that provide for the reciprocal recognition and enforcement of foreign judgments. As a result, it is uncertain whether a Chinese court would enforce a judgment rendered by a court in either of these two jurisdictions.
According to the Civil Procedure Law of the People’s Republic of China (amended in 2017), if a legally effective judgment or ruling made by a foreign court requires recognition and enforcement by a people’s court of the People’s Republic of China, the party concerned may directly apply to an intermediate people’s court with jurisdiction over for recognition and enforcement, or the foreign court may request recognition and enforcement by a people’s court in accordance with the provisions of an international treaty concluded or acceded to by the country and the People’s Republic of China, or in accordance with the principle of reciprocity.
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If the people’s courts are of the opinion that the legally effective judgment or ruling made by the foreign court applying for or requesting recognition and enforcement does not violate the basic principles of the laws of the People’s Republic of China or the sovereignty, security and public interests of the country after the people’s court reviews the legally effective judgment or ruling made by the foreign court applying for or requesting recognition and enforcement in accordance with the international treaties concluded or acceded to by the People’s Republic of China or in accordance with the principle of reciprocity, then the people’s court shall issue a ruling that recognizes its validity and, if enforcement is necessary, issues an enforcement order, which order shall be implemented in accordance with the relevant laws. A judgment or ruling that violates the basic principles of the laws of the People’s Republic of China or the sovereignty, security and public interests of the country will not be recognized and implemented.
If an award made by a foreign arbitration institution requires recognition and enforcement by the people’s court of the People’s Republic of China, the party concerned shall directly apply to the intermediate people’s court in the place where the person subjected to enforcement has his domicile or where his property is located. The people’s court shall handle the matter in accordance with international treaties concluded or acceded to by the People’s Republic of China or in accordance with the principle of reciprocity.
Maples and Calder (Hong Kong) LLP, our counsel with respect to the laws of the Cayman Islands, has advised us that there is uncertainty as to whether the courts of the Cayman Islands would (i) 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 (ii) entertain original actions brought in the Cayman Islands against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.
Maples and Calder (Hong Kong) LLP has further advised us that there is currently no statutory enforcement or treaty between the United States and the Cayman Islands providing for enforcement of judgments. A judgment obtained in the United States, however, may be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination on the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment: (i) is given by a foreign court of competent jurisdiction; (ii) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given; (iii) is final; (iv) is not in respect of taxes, a fine or a penalty; and (v) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or public policy of the Cayman Islands. Furthermore, it is uncertain that Cayman Islands courts would enforce: (1) judgments of U.S. courts obtained in actions against us or other persons that are predicated upon the civil liability provisions of the U.S. federal securities laws; or (2) original actions brought against us or other persons predicated upon the Securities Act. Maples and Calder (Hong Kong) LLP has informed us that there is uncertainty with regard to Cayman Islands law relating to whether a judgment obtained from the U.S. courts under civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature.
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EXPENSES RELATING TO THIS OFFERING
Set forth below is an itemization of the total expenses, excluding underwriting discounts, expected to be incurred in connection with this offering by us. With the exception of the SEC registration fee, the FINRA filing fee, and the Nasdaq Capital Market listing fee, all amounts are estimates.
| Securities and Exchange Commission Registration Fee | $ | 2,317.50 | ||
| Nasdaq Capital Market Listing Fee | $ | 5,000.00 | ||
| FINRA Filing Fee | $ | 4,512.50 | ||
| Legal Fees and Expenses | $ | 630,000.00 | ||
| Accounting Fees and Expenses | $ | 350,000.00 | ||
| Printing and Engraving Expenses | $ | 25,000.00 | ||
| Miscellaneous Expenses | $ | 10,000.00 | ||
| Total Expenses | $ | 1,004,600.00 |
These expenses will be borne by us. Underwriting discounts will be borne by us in proportion to the numbers of Ordinary Shares sold in the offering.
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We are being represented by Ortoli Rosenstadt LLP with respect to certain legal matters as to United States federal securities and New York State law. The underwriters are being represented by Sichenzia Ross Ference LLP with respect to certain legal matters as to United States federal securities and New York State law. The validity of the Ordinary Shares offered in this offering and other certain legal matters as to Cayman Islands law will be passed upon for us by Maples and Calder (Hong Kong) LLP. Certain legal matters as to the PRC law will be passed upon for us by Guantao Law Firm. Ortoli Rosenstadt LLP may rely upon Maples and Calder (Hong Kong) LLP with respect to matters governed by Cayman Islands law and Guantao Law Firm with respect to matters governed by the PRC law.
114
The consolidated financial statements of Yi Po International Holdings Limited for the years ended December 31, 2021 and 2020, as set forth in this prospectus and elsewhere in the registration statement have been so included in reliance on the report of WWC, P.C., an independent registered public accounting firm, given on their authority as experts in accounting and auditing. The offices of WWC, P.C. is located at 2010 Pioneer Court, San Mateo, CA 94403.
115
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form F-1, including relevant exhibits and schedules under the Securities Act, covering the Ordinary Shares offered by this prospectus. You should refer to our registration statements and their exhibits and schedules if you would like to find out more about us and about the Ordinary Shares. This prospectus summarizes material provisions of contracts and other documents that we refer you to. Since the prospectus may not contain all the information that you may find important, you should review the full text of these documents.
Immediately upon the completion of this offering, we will be subject to periodic reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. Accordingly, we will be required to file reports, including annual reports on Form 20-F, and other information with the SEC. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of proxy statements to shareholders under the federal proxy rules contained in Sections 14(a), (b) and (c) of the Exchange Act, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
The registration statements, reports and other information so filed can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains a website that contains reports, proxy statements and other information about issuers, such as us, who file electronically with the SEC. The address of that website is http://www.sec.gov. The information on that website is not a part of this prospectus.
No dealers, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
116
YI PO INTERNATIONAL HOLDINGS LIMITED
Financial Statements
December 31, 2021 and 2020
Yi Po International Holdings Limited, Its subsidiaries and Its Variable Interest Entities
Financial Statements
Table of Contents
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| To: | The Board of Directors and Shareholders of |
Yi Po International Holdings Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Yi Po International Holdings Limited, its subsidiaries, and its variable interest entity (collectively the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, 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 December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, 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 audit 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/ WWC, P.C.
WWC, P.C.
Certified Public Accountants
We have served as the Company’s auditor since 2021.
San Mateo, California
August 2, 2022
F-2
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Consolidated Balance Sheets
As of December 31, 2021 and December 31, 2020
| December 31, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 332,083 | $ | 266,598 | ||||
| Short-term investments | 2,202,957 | 1,378,563 | ||||||
| Accounts receivables, net | 1,660 | - | ||||||
| Related party receivables | 3,183,141 | 2,795,198 | ||||||
| Contract assets - current | 4,289,001 | 2,217,494 | ||||||
| Other current assets | 2,749,846 | 289,082 | ||||||
| Total Current Assets | 12,758,688 | 6,946,935 | ||||||
| Non-Current Assets | ||||||||
| Property, plant and equipment, net | 470,117 | 223,917 | ||||||
| Other long-term assets | 806,094 | 803,626 | ||||||
| Operating lease right of use asset, net | 982,009 | 1,510,654 | ||||||
| Contract assets – non-current | 1,842,025 | 1,241,881 | ||||||
| Total non-current assets | 4,100,245 | 3,780,078 | ||||||
| TOTAL ASSETS | $ | 16,858,933 | $ | 10,727,013 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts and other payables, and accruals | 4,260,112 | 1,467,805 | ||||||
| Taxes payable | 416,113 | 70,497 | ||||||
| Operating lease liability - current | 254,292 | 384,587 | ||||||
| Contract liabilities - current | 5,158,020 | 3,305,364 | ||||||
| Related party payables | 285,825 | 199,327 | ||||||
| Total Current Liabilities | 10,374,362 | 5,427,580 | ||||||
| Non-Current Liabilities | ||||||||
| Operating lease liabilities – non-current | 503,249 | 887,002 | ||||||
| Contract liabilities – non-current | 3,140,240 | 3,548,233 | ||||||
| Total non-current liabilities | 3,643,489 | 4,435,235 | ||||||
| TOTAL LIABILITIES | $ | 14,017,851 | $ | 9,862,815 | ||||
| COMMITMENTS AND CONTINGENCIES | - | - | ||||||
| Shareholders' Equity | ||||||||
| Ordinary shares 320,000,000 shares authorized, par value $0.00015625,10,000,000 shares issued and outstanding as of December 31, 2021 and 2020 | $ | 1,563 | $ | 1,563 | ||||
| Subscription receivable | (50,000 | ) | (50,000 | ) | ||||
| Additional paid in capital | 338,157 | 338,157 | ||||||
| Retained earnings | 2,476,168 | 527,556 | ||||||
| Accumulated other comprehensive income | 75,195 | 46,922 | ||||||
| Total Shareholders' Equity | 2,841,083 | 864,198 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 16,858,934 | $ | 10,727,013 | ||||
See accompanying notes to financial statements.
F-3
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Consolidated Statements of Income and Comprehensive Income
For the year ended December 31, 2021 and 2020
| December 31, 2021 | December 31, 2020 | |||||||
| Revenues, net | $ | 5,277,517 | $ | 2,786,853 | ||||
| Cost of revenues | (1,017,378 | ) | (689,501 | ) | ||||
| Gross profit | 4,260,139 | 2,097,352 | ||||||
| Operating expenses | ||||||||
| Selling and marketing expenses | (32,341 | ) | (5,809 | ) | ||||
| General and administrative expenses | (2,212,871 | ) | (1,438,660 | ) | ||||
| (2,245,212 | ) | (1,444,469 | ) | |||||
| Operating income | 2,014,927 | 652,883 | ||||||
| Other income (expense) | ||||||||
| Other income (expense), net | (80,699 | ) | (17,506 | ) | ||||
| Interest income, net | 65,112 | 6,299 | ||||||
| Total other income (loss) and expenses | (15,587 | ) | (11,207 | ) | ||||
| Earnings before tax | 1,999,340 | 641,676 | ||||||
| Income tax | (50,728 | ) | (161,446 | ) | ||||
| Net income | $ | 1,948,612 | $ | 480,230 | ||||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation income (loss) | 28,273 | 47,300 | ||||||
| Total comprehensive income | $ | 1,976,885 | $ | 527,530 | ||||
| Earning before tax | ||||||||
| Basic | $ | 0.19 | $ | 0.05 | ||||
| Diluted | $ | 0.19 | $ | 0.05 | ||||
| Weighted average number of ordinary shares outstanding | ||||||||
| Basic | 10,000,000 | 10,000,000 | ||||||
| Diluted | 10,000,000 | 10,000,000 | ||||||
See accompanying notes to financial statements.
F-4
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Consolidated Statements of Changes in Shareholders’ Equity
For the year ended December 31, 2021 and 2020
| Ordinary shares | Subscription | Additional Paid in | Retained | Accumulated Other Comprehensive | Total | |||||||||||||||||||||||
| No. of Shares | Par Value | Receivable | Capital | Earnings | Loss | Equity | ||||||||||||||||||||||
| Balance, December 31, 2020 | 10,000,000 | $ | 1,563 | $ | (50,000 | ) | $ | 338,157 | $ | 527,556 | $ | 46,922 | $ | 864,198 | ||||||||||||||
| Net income | 1,948,612 | 1,948,612 | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | 28,273 | 28,273 | ||||||||||||||||||||||||||
| Balance, December 31, 2021 | 10,000,000 | $ | 1,563 | $ | (50,000 | ) | $ | 338,157 | $ | 2,476,168 | $ | 75,195 | $ | 2,841,083 | ||||||||||||||
| Balance, December 31, 2019 | 10,000,000 | $ | 1,563 | $ | (50,000 | ) | $ | 48,437 | $ | 47,326 | $ | (378 | ) | $ | 46,948 | |||||||||||||
| Net income | 480,230 | 480,230 | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | 47,300 | 47,300 | ||||||||||||||||||||||||||
| Contribution in capital | 289,720 | - | 289,720 | |||||||||||||||||||||||||
| Balance, December 31, 2020 | 10,000,000 | $ | 1,563 | $ | (50,000 | ) | $ | 338,157 | $ | 527,556 | $ | 46,922 | $ | 864,198 | ||||||||||||||
See accompanying notes to financial statements.
F-5
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Consolidated Statements of Cash Flows
For the years ended December 31, 2021 and 2020
| December 31, 2021 | December 31, 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 1,948,612 | $ | 480,230 | ||||
| Depreciation and amortization | 114,127 | 41,186 | ||||||
| Changes in assets and liabilities | ||||||||
| Decrease (increase) in accounts receivable | (1,656 | ) | 1,124,622 | |||||
| Decrease (increase) in advance to suppliers | (1,628,021 | ) | 30,710 | |||||
| Decrease (increase) in due from related parties | (310,871 | ) | (2,643,527 | ) | ||||
| Decrease (increase) in contract assets | (2,556,893 | ) | (2,878,046 | ) | ||||
| Decrease (increase) in other assets | (818,959 | ) | (245,746 | ) | ||||
| Decrease (increase) in other long-term assets | 19,429 | (760,020 | ) | |||||
| (Decrease) increase in accounts payable | 2,680,772 | (98,417 | ) | |||||
| (Decrease) increase in accrued and other liabilities | 64,870 | 1,012,932 | ||||||
| (Decrease) increase in contract liabilities | 1,240,377 | 5,450,497 | ||||||
| (Decrease) increase in taxes payable | 342,869 | 47,476 | ||||||
| (Decrease) increase in lease liabilities | 21,074 | (205,563 | ) | |||||
| Net cash (used in) generated by operating activities | 1,115,730 | 1,356,334 | ||||||
| Cash flows from investing activity | ||||||||
| Acquisition of investments | (784,888 | ) | (1,303,742 | ) | ||||
| Purchase of fixed assets | (353,637 | ) | (1,556,695 | ) | ||||
| Net cash used in investing activity | (1,138,525 | ) | (1,556,695 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from related parties, net | 80,861 | 162,706 | ||||||
| Proceeds from capital contribution | - | 289,720 | ||||||
| Net cash provided by financing activities | 80,861 | 452,426 | ||||||
| Effect of foreign currency translation on cash and cash equivalents | 7,419 | 14,467 | ||||||
| Net (decrease) increase of cash and cash equivalents | 65,485 | 266,532 | ||||||
| Cash, cash equivalents, and restricted cash – beginning of period | 266,598 | 66 | ||||||
| Cash, cash equivalents, and restricted cash – beginning of period | $ | 332,083 | $ | 266,598 | ||||
| Supplemental cash flow information | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income taxes paid | $ | - | $ | - | ||||
See accompanying notes to financial statements.
F-6
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Yi Po International Holdings Limited was incorporated in the Cayman Islands on March 19, 2020. The Company is in an investment holding company; its primary business operations are conducted through its subsidiaries and its variable interest entities as described below. Yi Po International Holdings Limited and its subsidiaries and variable interest entities are collectively referred to as the “Company” or “Yi Po”.
Guangyan Hong Kong Group Co., Limited (“Guangyan HK”) was incorporated in Hong Kong on April 28, 2020. It is a wholly owned subsidiary of Yi Po Cayman.
Nanjing Dingxu New Technology Limited. (“Nanjing WFOE”) was incorporated on March 16, 2021 as a wholly foreign owned entity in the People’s Republic of China (“PRC”). Nanjing WFOE is a wholly owned subsidiary of Guangyan HK.
Jiangsu Yi Po Technology Limited (“Jiangsu Yi Po”) was incorporated on August 22, 2018 in the People’s Republic of China (“PRC”). Jiangsu Youchuang Yi Po Intelligent Technology Co. Limited and Xin Jin, executive director of the Company, own equity interest of 51.0% and 49% of Jiangsu Yi Po respectively. The Company’s primary business is the operations of parking lots, parking space leasing, and vehicle owners’ membership fees, and parking lot management franchising.
On August 24, 2021, Nanjing WFOE entered into series of contractual agreements by and among Jiangsu Yi Po and Jiangsu Yi Po’s shareholders that are collectively known as Variable Interest Entity Agreements (“VIE Agreements”) whereby Jiangsu Yi Po, for accounting purposes becomes an indirectly controlled subsidiary of the Company as result of the terms set forth by the VIE Agreements where the Company directs the deployment, use, and disposition of the assets of Jiangsu Yi Po, and the Company is the primary beneficiary of the results of operations of Jiangsu Yi Po.
On February 19, 2022, Yi Po WFOE, Jiangsu Easy Parking and shareholders of Jiangsu Easy Parking signed a termination agreement of the VIE Agreements. The VIE structure was dissolved thereafter.
On February 23, 2022, a shareholder of Jiangsu Easy Parking transferred part of his shares to a non-Chinese individual. As a result, Jiangsu Easy Parking transformed from a Chinese domestic enterprise to a foreign-invested joint venture.
On March 4, 2022 and March 9, 2022, Yi Po WFOE entered into equity transfer agreements with each shareholder of Jiangsu Easy Parking to purchase all the equity interest in Jiangsu Easy Parking. The restructure was completed on June 1, 2022. As a result, Jiangsu Easy Parking became a wholly owned subsidiary of Yi Po WFOE. Jiangsu Easy Parking was a foreign-invested joint venture at the time of the acquisition of its 100% equity interests by Yi Po WFOE.
Contractual Arrangements between Nanjing WFOE and Jiangsu Yi Po
The Company and its subsidiaries do not own any direct equity interest in Jiangsu Yi Po. Instead, the Company and its subsidiaries control and receive the economic benefits of Jiangsu Yi Po’s business operation through a series of contractual arrangements.
Nanjing WFOE, Jiangsu Yi Po and the Jiangsu Yi Po Shareholders entered into a series of contractual arrangements, 1) Exclusive Option Agreement, 2) Exclusive Business Cooperation Agreement, and 3) Share Pledge Agreement, known as VIE Agreements, on August 24, 2021. The VIE agreements are designed to provide Nanjing WFOE with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Jiangsu Yi Po, including absolute control rights and the rights to the assets, property and revenue of Jiangsu Yi Po.
F-7
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Each of the VIE Agreements is described in detail below:
Exclusive Option Agreement
Under the Exclusive Option Agreement, the Jiangsu Yi Po Shareholders irrevocably granted Nanjing WFOE (or its designee) an exclusive right to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, a portion or whole of the equity interests or assets in Jiangsu Yi Po held by the Jiangsu Yi Po Shareholders. The purchase price is RMB 10 and subject to any appraisal or restrictions required by applicable PRC laws and regulations.
The agreement takes effect upon parties signing the agreement, and remains effective for 10 years, extendable upon Nanjing WFOE or its designee’s discretion.
Exclusive Business Cooperation Agreement
Pursuant to the Exclusive Business Cooperation Agreement between Jiangsu Yi Po and Nanjing WFOE, Nanjing WFOE provides Jiangsu Yi Po with technical support, consulting services and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, business management and information. For services rendered to Jiangsu Yi Po by Nanjing WFOE under this agreement, Nanjing WFOE is entitled to collect a service fee that shall be calculated based upon service hours and multiple hourly rates provided by Nanjing WFOE. The service fee should approximately equal to Jiangsu Yi Po’s net profit.
The Exclusive Business Cooperation Agreement shall remain in effect for 10 years unless earlier terminated upon written confirmation from both Nanjing WFOE and Jiangsu Yi Po before expiration. Otherwise, this agreement can only be extended by Nanjing WFOE and Jiangsu Yi Po does not have the right to terminate the agreement unilaterally.
Share Pledge Agreement
Under the Share Pledge Agreement between Nanjing WFOE and certain shareholders of Jiangsu Yi Po together holding 100% of the equity interests, of Jiangsu Yi Po (“Jiangsu Yi Po Shareholders”), the Jiangsu Yi Po Shareholders pledged all of their equity interests in Jiangsu Yi Po to Nanjing WFOE to guarantee the performance of Jiangsu Yi Po’s obligations under the Exclusive Business Cooperation Agreement. Under the terms of the Share Pledge Agreement, in the event that Jiangsu Yi Po breaches its contractual obligations under the Exclusive Business Cooperation Agreement, Nanjing WFOE, as pledgee, will be entitled to certain rights, including, but not limited to, the right to dispose of dividends generated by the pledged equity interests. The Jiangsu Yi Po Shareholders also agreed that upon occurrence of any event of default, as set forth in the Share Pledge Agreement, Nanjing WFOE is entitled to dispose of the pledged equity interest in accordance with applicable PRC laws. The Jiangsu Yi Po Shareholders further agree not to dispose of the pledged equity interests or take any actions that would prejudice Nanjing WFOE’s interest.
The Share Pledge Agreement shall be effective until the full payment of the service fees under the Business Cooperation Agreement has been made and upon termination of Jiangsu Yi Po’s obligations under the Business Cooperation Agreement.
The purposes of the Share Pledge Agreement are to (1) guarantee the performance of Jiangsu Yi Po’s obligations under the Exclusive Business Cooperation Agreement, (2) ensure the shareholders of Jiangsu Yi Po do not transfer or assign the pledged equity interests or create or allow any encumbrance that would prejudice Nanjing WFOE’s interests without Nanjing WFOE’s prior written consent and (3) provide Nanjing WFOE control over Jiangsu Yi Po.
F-8
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
The Company has concluded that the Company is the primary beneficiary of Jiangsu Yi Po and its subsidiaries and should consolidate financial statements. The Company is the primary beneficiary based on the VIE Agreements that each equity holder of Jiangsu Yi Po pledged their rights as a shareholder of Jiangsu Yi Po to Nanjing WFOE. These rights include, but are not limited to, voting on all matters of Jiangsu Yi Po requiring shareholder approval, disposing of all or part of the shareholder’s equity interest in Jiangsu Yi Po, oversee and review Jiangsu Yi Po’s operation and financial information. As such, the Company, through Nanjing WFOE, is deemed to hold all of the voting equity interest in Jiangsu Yi Po and its subsidiaries.
For the periods presented, the Company has not provided any financial or other support to either Jiangsu Yi Po or its subsidiaries. However, pursuant to the Exclusive Business Cooperation Agreement, the Company may provide complete technical support, consulting services and other services during the term of the VIE agreements. Though not explicit in the VIE agreements, the Company may provide financial support to Jiangsu Yi Po to meet its working capital requirements and capitalization purposes. The terms of the VIE Agreements and the Company’s plan of financial support to the VIEs were considered in determining that the Company is the primary beneficiary of the VIEs. Accordingly, the financial statements of the VIEs are consolidated in the Company’s consolidated financial statements.
Based on the foregoing VIE Agreements, Nanjing WFOE has effective control of Jiangsu Yi Po and its subsidiaries, which enables Nanjing WFOE to receive all of their expected residual returns and absorb the expected losses of the VIE and its subsidiaries. Accordingly, the Company consolidates the accounts of Jiangsu Yi Po and its subsidiaries for the periods presented herein, in accordance with Accounting Standards Codification, or ASC, 810-10, Consolidation. Yi Po International Holdings Limited and its subsidiaries and variable interest entities are collectively referred to as the “Company” or “Yi Po”.
F-9
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, its subsidiaries and its variable interest entities. Significant inter-company balances, investment and capital, if any, have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions. In particular, the novel coronavirus (“COVID-19”) pandemic and the resulting adverse impacts to global economic conditions, as well as our operations, may impact future estimates including, but not limited to, our allowance for loan losses, inventory valuations, fair value measurements, asset impairment charges and discount rate assumptions. Certain prior year amounts have been reclassified to conform to the current year’s presentation. Amounts and percentages may not total due to rounding.
Reclassification of prior year presentation
Certain assets in prior years have been reclassified for consistency and comparability, the Company’s result of operations was not affected.
Other current assets of $1,378,563 is reclassified as short-term investments as of December 31, 2020.
Functional and presentation currency
The functional currency of the Company is the currency of the primary economic environment in which the Company operates which is Chinese Yuan (“RMB”). The RMB is not freely convertible into the US dollar and may be subject to PRC currency restrictions for payments, including the distributions of dividends or retained earnings to the Company by its subsidiaries or its variable interest entities.
Transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at the end of the reporting periods. Exchange differences arising on the settlement of monetary items and on translation of monetary items at period-end are included in income statement of the period.
For the purpose of presenting these financial statements, the Company’s assets and liabilities are expressed in US$ at the exchange rate on the balance sheet date, stockholder’s equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange rate during the period. The resulting translation adjustments are reported under accumulated other comprehensive income in the stockholder’s equity section of the balance sheets.
F-10
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Exchange rate used for the translation as follows:
| US$ to RMB | Period End | Average | ||||||
| December 31, 2021 | 6.3551 | 6.3703 | ||||||
| December 31, 2020 | 6.5286 | 6.9032 | ||||||
Fair Values of Financial Instruments
The Company adopted ASC 820 “Fair Value Measurements,” which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures. Current assets and current liabilities qualified as financial instruments and management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their current interest rate is equivalent to interest rates currently available. The three levels are defined as follow:
| ● | Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
| ● | Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value. |
As of the balance sheet date, the estimated fair values of the financial instruments approximated their fair values due to the short-term nature of these instruments. Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates the hierarchy disclosures each year.
Related parties
The Company adopted ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
Cash and Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. All of the consolidated cash and equivalents reported on the accompanying consolidated financial statements are the assets of Jiangsu Yi Po. Substantially of all of Jiangsu Yi Po’s cash and equivalents are deposited with financial institutions that are located in the PRC and do not carry deposit insurance; however, these institutions are regarded as very well capitalized institutions with strong credit ratings; management has deemed the risk of loss of the Company’s deposit held at these financial institution as the result of them becoming insolvent as unlikely; accordingly, the Company and Jiangsu Yi Po have not recognized any potential losses on bank deposits classified as cash and equivalents.
Accounts Receivable
Accounts receivable are recorded at the net value less estimates for expected credit losses. Management regularly reviews outstanding accounts and provides an allowance for doubtful accounts. When collection of the original invoice amounts is no longer probable, the Company will either partially or fully write-off the balance against the allowance for doubtful accounts.
F-11
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
In 2014, the FASB issued guidance on revenue recognition (“ASC 606”), with final amendments issued in 2016. The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients. The Company has concluded that the new guidance did not require any significant change to its revenue recognition processes.
The Company generate revenues from dealer licensing fee, parking space rental fee, vehicle owners’ membership fees, parking management software sales and other related revenue.
Dealer licensing fee is recognized as performance obligations are satisfied over time, usually, recognized on an average over the life of dealer licensing as indicated in agreement. Payments received in advance from dealers are recorded as “contract liabilities”. Contract liabilities are recognized as revenue over the passage of time. Such advance payment received are non-refundable.
The Company provides various support services to dealers as set forth in each dealer’s membership agreement. These support services costs, which are presented as cost of revenues, include direct and indirect labor, sales training expenses, and fees paid to outside contractors. Revenues and related costs are recognized over time as performance obligations are satisfied.
Parking space rental fee is recognized as performance obligations are satisfied at a point in time when the Company provides parking space to customers where fees are calculated by the parking management system, or over time on an average over the duration of rental period as indicated in agreement.
Vehicle owners’ membership fees is recognized as performance obligations are satisfied over time on an average over the life of membership. Payments received in advance from members are recorded as “accruals and other payables”. Accruals and other payables are recognized as revenue over the passage of time. Such advance payment received are non-refundable.
Parking management software fee is recognized as performance obligations are satisfied at a point in time when the Company completed installation, tested the parking management system and delivered to customers where such fees are calculated according to the labor and material cost incurred during setup and software testing.
F-12
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising
The Company expenses advertising costs as incurred and includes it in selling expenses. The Company recorded $28,873 and $4,491 of advertising and promotional expenses for the years ended December 31, 2021 and 2020, respectively.
Income Taxes
Income taxes are provided in accordance with ASC No. 740, Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry-forwards. Deferred tax expense (benefit) results from the net change during the years of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
A tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that the relevant taxing authority that has full knowledge of all relevant information will examine each uncertain tax position. Although the Company believes the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals.
Earnings (loss) per share
Basic income (loss) per share is computed by dividing net income (loss) attributable to the holders of ordinary shares by the weighted average number of ordinary shares outstanding during the year. Diluted income (loss) per share is calculated by dividing net income (loss) attributable to the holders of ordinary shares as adjusted for the effect of dilutive ordinary share equivalents, if any, by the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. For the year ended December 31, 2021 and 2020, the Company does not have any outstanding ordinary shares equivalents; therefore, a separate computation of diluted income per share is not presented.
Property and Equipment & Depreciation
Property and equipment are stated at historical cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Property and equipment are depreciated on a straight-line basis over the following periods:
| Leasehold improvement | Shorter of the estimated useful life or remaining |
| Office equipment | 3 years |
| Motor Vehicle | 4 years |
F-13
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Long-lived assets
The Company accounts for impairment of property and equipment and amortizable intangible assets in accordance with ASC 360, “Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of”, which requires the Company to evaluate a long-lived asset for recoverability when there is event or circumstance that indicate the carrying value of the asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset or asset group is not recoverable (when carrying amount exceeds the gross, undiscounted cash flows from use and disposition) and is measured as the excess of the carrying amount over the asset’s (or asset group’s) fair value.
Research and development
The Company and Jiangsu Yi Po expenses research and development expenses when incurred as periodic costs. The Company classifies such expenses as cost of revenue. The Company and Jiangsu Yi Po recognized research and development expenses for the years ended December 31, 2021 and 2020 in the amounts of $318,448 and $nil, respectively.
New Accounting Pronouncements
In July 2021, the FASB issued ASU 2021-5, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. The amendments in this Update amend Topic 842, which has different effective dates for public business entities and most entities other than public business entities. The amendments are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities and interim periods within fiscal years beginning after December 15, 2022, for all other entities. The amendments in this Update address stakeholders’ concerns by amending the lease classification requirements for lessors to align them with practice under Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: 1) The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in paragraphs 842-10-25-2 through 25-3; 2) The lessor would have otherwise recognized a day-one loss.
In May 2021, the FASB issued ASU 2021-4, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The FASB is issuing this Update to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.
In February of 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02) “Leases (Topic 842)”. ASU 2016-02 requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted.
F-14
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For finance leases, a lessee is required to do the following:
| ● | Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position |
| ● | Recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement of comprehensive income |
| ● | Classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. |
For operating leases, a lessee is required to do the following:
| ● | Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position |
| ● | Recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis |
| ● | Classify all cash payments within operating activities in the statement of cash flows. |
In July 2018, the FASB issued Accounting Standards Update No. 2018-11 (ASU 2018-11), which amends ASC 842 so that entities may elect not to recast their comparative periods in transition (the “Comparatives Under 840 Option”). ASU 2018-11 allows entities to change their date of initial application to the beginning of the period of adoption. In doing so, entities would:
| ● | Apply ASC 840 in the comparative periods. |
| ● | Provide the disclosures required by ASC 840 for all periods that continue to be presented in accordance with ASC 840. |
| ● | Recognize the effects of applying ASC 842 as a cumulative-effect adjustment to retained earnings for the period of adoption. |
In addition, the FASB also issued a series of amendments to ASU 2016-02 that address the transition methods available and clarify the guidance for lessor costs and other aspects of the new lease standard.
The management will review the accounting pronouncements and plan to adopt the new standard on November 1, 2019 using the modified retrospective method of adoption. The transition method expedient which allows entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of electing this transition method, prior periods will not be restated. The adoption of this ASU will result in the recording of additional lease assets and liabilities each with no effect to opening balance of retained earnings as the Company.
The management is currently evaluating the impact of this update to the consolidated financial statements. Management will evaluate if the current design for the allowance for loan loss methodology would comply with these new requirements.
F-15
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 3 – ACCOUNTS RECEIVABLES
Accounts receivables, net is comprised of the following:
December 31, 2021 | December 31, 2020 | |||||||
| Accounts receivables | 1,660 | - | ||||||
| Allowance for doubtful accounts | - | - | ||||||
| Total, net | 1,660 | - | ||||||
Bad debt expense was $nil and $nil for the years ended December 31, 2021 and 2020, respectively.
NOTE 4 – SHORT-TERM INVESTMENTS
The following table summarizes the Company’s short-term investment:
| As of December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Bank Wealth Management | - | 2,202,957 | - | 2,202,957 | ||||||||||||
| - | 2,202,957 | - | 2,202,957 | |||||||||||||
| As of December 31, 2020 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Bank Wealth Management | - | 1,378,563 | - | 1,378,563 | ||||||||||||
| - | 1,378,563 | - | 1,378,563 | |||||||||||||
NOTE 5 – CONTRACT ASSETS
Prepayments as at December 31, 2021 and 2020 are classified as current assets and totaled:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Contract assets - current | 4,289,001 | 2,217,494 | ||||||
| Contract assets – non current | 1,842,025 | 1,241,881 | ||||||
| Total, net | 6,131,026 | 3,459,375 | ||||||
For service contracts where the performance obligation is not completed, contract assets are recorded for any costs incurred in advance of the performance obligation.
F-16
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 6 – OTHER CURRENT ASSETS
Other current assets as at December 31, 2021 and 2020 comprised of the following:
December 31, 2021 | December 31, 2020 | |||||||
| Short-term deposits | - | |||||||
| Employees reserves | 536,362 | 113,634 | ||||||
| Advances to suppliers | 2,189,977 | 175,448 | ||||||
| Accrued interest income | 23,507 | - | ||||||
| Total, net | 2,749,846 | 289,082 | ||||||
NOTE 7 – PROPERTY & EQUIPMENT
Property and equipment, net comprised of the following:
December 31, 2021 | December 31, 2020 | |||||||
| At Cost: | ||||||||
| Leasehold improvement | 55,074 | 53,610 | ||||||
| Motor Vehicle | 401,780 | 70,459 | ||||||
| Office equipment | 172,402 | 143,397 | ||||||
| 629,256 | 267,466 | |||||||
| Less: Accumulated depreciation | (159,139 | ) | (43,549 | ) | ||||
| Total, net | 470,117 | 223,917 | ||||||
Depreciation expenses was $113,722 and $41,186 for the years ended December 31, 2021 and 2020, respectively.
NOTE 8 – OTHER LONG-TERM ASSETS
Other long-term assets and deposits as at December 31, 2021 and 2020 comprised of the following:
| December 31, 2021 | December 31, 2020 | |||||||
| Software licensing | 285,271 | 396,656 | ||||||
| Training fee | 520,823 | 406,970 | ||||||
| Total, net | 806,094 | 803,626 | ||||||
F-17
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 9 – RELATED PARTY TRANSACTIONS
The Company had transactions with the following related parties for the years ended December 31, 2021 and 2020:
| Name of Related Party | Nature of Relationship | |
| Chao Chen | Employee of the Company, legal representative of Jiangsu Youchuang Yi Po Intelligent Technology Limited | |
| Weiming Jin | CEO | |
| Jiangsu Youchuang Yi Po Intelligent Technology Limited | Company managed by Weiming Jin | |
| Jiangsu Yi Po Media Co. Limited | Subsidiary of Jiangsu Youchuang Yi Po Intelligent Technology Limited | |
| Nanjing Qunqing Equity Investment LLP | Engage partnership with Nanjing Sanzu Management Co. Limited | |
| Nanjing Sanzu Management Co. Limited | Company managed by Weiming Jin | |
| Xin Jin | Assistant to the CEO, son of the Weiming Jin | |
| Jiangsu Yi Po Parking Management Co. Limited | Company controlled by Weiming Jin |
Due from related party
The Company advance $58,050 to Mr. Chao Chen for business working capital, and received $41,023 for the year ended December 31, 2021. The balance due from Mr. Chao Chen was $17,068 and $ nil as of December 31, 2021 and 2020, respectively. As of the date the financial statements were available to be issued, the Company did not receive any payment.
The Company advance $5,588 and $2,670,758 to Mr. Weiming Jin for working capital for business on behalf of the Company, and received $2,727,731 and $12,226 for the year ended December 31, 2021 and 2020, respectively. The balance due from Mr. Weiming Jin was $nil and $2,656,142 as of December 31, 2021 and 2020, respectively.
The Company advance $3,615,663 and $1,112,856 to Jiangsu Youchuang Yi Po Intelligent Technology Limited (“Youchuang Yi Po”) for business working capital, and received $3,756,537 and $975,397 for the year ended December 31, 2021 and 2020. The balance due from Youchuang Yi Po was $nil and $137,459 as of December 31, 2021 and 2020, respectively.
The Company advance $100,466 and $1,597 to Jiangsu Yi Po Media Co. Limited (“Yi Po Media”) for business working capital, and received $102,103 and $nil for the year ended December 31, 2021 and 2020, respectively. The balance due from Yi Po Media was $nil and $1,597 as of December 31, 2021 and 2020, respectively.
As of December 31, 2021, an amount of $3,142,916 has transfer from Jiangsu Youchuang Yi Po Intelligent Technology Limited to Nanjing Sanzu Management Co. Limited. The balance due from Nanjing Sanzu Management Co. Limited was $3,150,455 and $nil as of December 31, 2021 and 2020, respectively. As of the date the financial statements were available to be issued, the Company received payment of $1,109346.
The Company advance $2,355 to Mr. Xin Jin for business working capital, and received $nil for the year ended December 31, 2021. The balance due from Mr. Xin Jin was $2,360 and $ nil as of December 31, 2021 and 2020, respectively. As of the date the financial statements were available to be issued, the Company did not receive any payment.
F-18
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 9 – RELATED PARTY TRANSACTIONS (CONTINUED)
The Company advance $197,032 to Jiangsu Yi Po Parking Management Co. Limited (“Yi Po Parking”) for business working capital, and received $183,805 for the year ended December 31, 2021. The balance due from Yi Po Parking was $13,258 and $ nil as of December 31, 2021 and 2020, respectively. As of the date the financial statements were available to be issued, the Company did not receive any payment.
As of December 31, 2021 and 2020, the amount receivable to related parties were $3,183,141 and $2,795,198 respectively.
Due to related party
The Company borrowed $nil and $53,886 from Mr. Chao Chen for business purpose, and repaid $45,732 and $9,262 for the year ended December 31, 2021 and 2020. The balance due to Mr. Chao Chen was $nil and $44,624 as of December 31, 2021 and December 31, 2020, respectively. Such balances are interest free, unsecured, and due demand without an agreement.
For the year ended December 31, 2021, the Company borrowed $90,328 from Mr. Weiming Jin for business purpose, and repaid $nil. As of December 31, 2020, the Company did not borrow any fund from Mr. Weiming Jin and repaid $10,056. The balance due to Mr. Weiming Jin was $90,545 and $nil as of December 31, 2021 and 2020, respectively. Such balances are interest free, unsecured, and due demand without an agreement.
For the year ended December 31, 2021, the Company borrowed $1,043,587 from Youchuang Yi Po for business purpose, and repaid $985,345. As of December 31, 2020, the Company did not borrow any fund from Youchuang Yi Po and repaid $15,528. The balance due to Youchuang Yi Po was $58,382 and $ nil as of December 31, 2021 and 2020, respectively. Such balances are interest free, unsecured, and due demand without an agreement.
The Company borrowed $56,512 and $78,117 from Nanjing Qunqing Equity Investment LLP (Qunqing LLP) for business purpose, and repaid $nil for the year ended December 31, 2021 and 2020, respectively. The balance due to Qunqing LLP was $136,898 and $78,117 as of December 31, 2021 and 2020, respectively. Such balances are interest free, unsecured, and due demand without an agreement.
The Company borrowed $2,737,121 and $76,586 from Nanjing Sanzu Management Co. Limited ("Nanjing Sanzu") for business purpose, and repaid $2,815,610 and $nil for the year ended December 31, 2021 and 2020. The balance due to Nanjing Sanzu was $nil ad $76,586 as of December 31, 2021 and 2020, respectively. Such balances are interest free, unsecured, and due demand without an agreement.
As of December 31, 2021 and 2020, the amount payable to related parties were $285,825 and $199,327, respectively.
F-19
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 10 – LEASES
The Company has one operating lease for its office space and eight operating leases for its parking lots.
Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is incremental borrowing rate or, if available, the rate implicit in the lease. The Company determines the incremental borrowing rate for each lease based primarily on its lease term in PRC which is approximately 4.75%.
Operating lease expenses were $459,087 and $212,617 for the years ended December 31, 2021 and 2020, respectively.
The undiscounted future minimum lease payment schedule as follows:
| For the years ending December 31, | |||||
| 2022 | 379,701 | ||||
| 2023 | 377,810 | ||||
| 2024 | 285,467 | ||||
| 2025 | 57,167 | ||||
| 2026 | - | ||||
| Total | 1,100,145 | ||||
NOTE 11 – SHAREHOLDERS’ EQUITY
The Company is authorized to issue 320,000,000 ordinary shares with a par value of $0.00015625 per share.
As of December 31, 2021, the Company had 10,000,000 shares issued and outstanding with a par value of $0.00015625 per share.
On July 9, 2022, the Company’s board of directors and shareholders authorized a reverse stock split of its outstanding ordinary shares at a ratio of 1-for-32 without any change in the par value per share. The number of shares and price per share in the financial statements have been retrospectively adjusted accordingly to reflect this reverse stock split.
On March 19, 2020, Yi Po International Holdings Limited (“Company” or “Yi Po”) was incorporated in Cayman Island. The share capital of the Company is $50,000 divided into 320,000,000 Ordinary shares (pre-reverse split 1-for-32 shares) with par value of $0.00015625 per share.
On November 2020, the shareholders have contributed approximately $289,720 (RMB 2,000,000) as registered capital of the Company.
F-20
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 12 – SEGMENTS AND GEOGRAPHIC INFORMATION
The Company believes that it operates in one business segment which comprised of dealer licensing fee, parking space rental fee, and other related revenue; and it operates in one geographical location China. The Company disaggregates its revenue into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Sales revenues comprised of the following:
| Years Ended | ||||||||||||||||
December 31, 2021 | December 31, 2020 | |||||||||||||||
| Dealer licensing fee | 3,851,651 | 73 | % | 2,700,101 | 97 | % | ||||||||||
| Parking management system | 1,118,648 | 21 | % | - | - | % | ||||||||||
| Parking space rental fee | 306,565 | 6 | % | 86,697 | 3 | % | ||||||||||
| Others related revenue | 653 | - | % | 55 | - | % | ||||||||||
| Total | 5,277,517 | 100 | % | 2,786,853 | 100 | % | ||||||||||
Direct costs comprised of the following:
| Years Ended | ||||||||||||||||
December 31, 2021 | December 31, 2020 | |||||||||||||||
| Dealer operation cost and training fee | 324,269 | 32 | % | 466,145 | 68 | % | ||||||||||
| Parking management system | 318,448 | 31 | % | - | - | |||||||||||
| Parking space rental service cost | 374,661 | 37 | % | 223,356 | 32 | % | ||||||||||
| Others related cost | - | - | % | - | - | |||||||||||
| Total | 1,017,378 | 100 | % | 689,501 | 100 | % | ||||||||||
Gross profit (loss) comprised of the following:
| Years Ended | ||||||||||||||||
December 31, 2021 | December 31, 2020 | |||||||||||||||
| Dealer licensing | 3,527,382 | 83 | % | 2,233,956 | 106 | % | ||||||||||
| Parking management system | 800,200 | 18 | % | - | - | |||||||||||
| Parking space rental | (68,096 | ) | -1 | % | (136,659 | ) | -6 | % | ||||||||
| Others related | 653 | - | % | 55 | - | |||||||||||
| Total | 4,260,139 | 100 | % | 2,097,352 | 100 | % | ||||||||||
F-21
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 13 – CONCENTRATIONS, RISKS AND UNCERTAINTIES
Deterioration in general economic conditions in the United States and globally, including the effect of prolonged periods of inflation on our customers and suppliers, could harm our business and results of operations.
Our business and results of operations could be adversely affected by changes in national or global economic conditions. These conditions include but are not limited to inflation, rising interest rates, availability of capital markets, energy availability and costs (including fuel surcharges), the negative impacts caused by pandemics and public health crises (including the COVID-19 pandemic), negative impacts resulting from the military conflict between Russia and the Ukraine, and the effects of governmental initiatives to manage economic conditions. Impacts of such conditions could be passed on to our business in the form of a reduced customer base and/or our customers spendings due to possible reductions in industry-wide spendings and/or economic pressure on our suppliers to pass on increased costs.
Risks Related to Doing Business in China
The recent state government interference into business activities on U.S. listed Chinese companies may negatively impact our operations.
Recently, the Chinese government announced that it would step up supervision of Chinese firms listed offshore. Under the new measures, China will improve regulation of cross-border data flows and security, crack down on illegal activity in the securities market and punish fraudulent securities issuance, market manipulation and insider trading, China will also check sources of funding for securities investment and control leverage ratios. The Cyberspace Administration of China (“CAC”) has also opened a cybersecurity probe into several U.S.-listed tech giants focusing on anti-monopoly, financial technology regulation and more recently, with the passage of the Data Security Law, how companies collect, store, process and transfer data. Our operations and business interests are in Taiwan and mainland China. If the Chinese government’s interference expands and by proxy, our business interests are affected, our operations may be negatively impacted although presently, there is no discernible immediate impact.
Credit risk
Cash deposits with banks are held in financial institutions in China, which deposits are not federally insured. Accordingly, the Company has a concentration of credit risk related to the uninsured part of bank deposits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk.
Concentration
The Company has a concentration risk related to suppliers and customers. Failure to maintain existing relationships with the suppliers or customers to establish new relationships in the future could negatively affect the Company’s ability to obtain goods sold to customers in a price advantage and timely manner. If the Company is unable to obtain ample supply of goods from existing suppliers or alternative sources of supply, the Company may be unable to satisfy the orders from its customers, which could materially and adversely affect revenues.
F-22
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 13 – CONCENTRATIONS, RISKS AND UNCERTAINTIES (CONTINUED)
The concentration on sales revenues generated by customers type comprised of the following:
| As of | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Percentage of the Company’s sales | ||||||||
| Customer A | 42 | % | 46 | % | ||||
The table sets above information as to the revenue derived from those customers that accounted for more than 10% of the Company’s total revenues for the year ended December 31, 2021 and 2020
| As of | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Percentage of the Company’s accounts receivable | ||||||||
| Customer A | 10 | % | 0 | % | ||||
The table above shows the account receivable accounted from Customer A for the year ended December 31, 2020 has no more than 10%.
| As of | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Percentage of the Company’s Prepayment | ||||||||
| Customer A | 57 | % | 45 | % | ||||
| Customer B | 11 | % | 6 | % | ||||
The following table sets forth a summary of two suppliers who represent 10% or more of the Company’s total Account payables:
| As of | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Percentage of the Company’s Account payable | ||||||||
| Supplier A | 10 | % | 20 | % | ||||
| Supplier B | 43 | % | 0 | % | ||||
F-23
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 14 – CONTRACT LIABILITIES
For service contracts where the performance obligation is not completed, contract liabilities were recorded for any payments received in advance of the performance obligation. The payments received in advance will not be refunded and will be amortized in future when met performance obligations.
Contract liabilities is comprised of the following:
December 31, 2021 | December 31, 2020 | |||||||
| Unearned dealer licensing - current | 5,158,020 | 3,305,364 | ||||||
| Unearned dealer licensing – non-current | 3,140,240 | 3,548,233 | ||||||
| Total, net | 8,298,260 | 6,853,597 | ||||||
NOTE 15 – INCOME TAX
Cayman Islands
Under the current laws of the Cayman Islands, entities are not subject to tax on income or capital gain. In addition, payments of dividends by the Company to their shareholders are not subject to withholding tax in the Cayman Islands.
Hong Kong
Entities incorporated under the Hong Kong tax laws, and the statutory income tax rate was 16.5%. The Company has no operating profit or tax liabilities for the years ended December 31, 2021 and 2020.
China, PRC
The Company is subject to profits tax rate at 25% for income generated for its operation in China and net operating losses can be carried forward for no longer than five years starting from the year subsequent to the year in which the loss was incurred.
The Company has net operating income carryforward of $2,476,170 as of December 31, 2021 which will expire starting year 2025. The deferred tax assets are reduced by a valuation allowance as in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will be realized.
F-24
Yi Po International Holdings Limited, Its Subsidiaries and Its Variable Interest Entities
Notes to the Financial Statements
NOTE 15 – INCOME TAX (CONTINUED)
The net taxable income (losses) before income taxes and its provision for income taxes comprised of the following:
| Years Ended | ||||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Income attributed to China | 1,999,340 | 641,676 | ||||||
| PRC statutory tax rate | 25 | % | 25 | % | ||||
| Tax expense | 499,835 | 160,419 | ||||||
| Permanent difference | (449,107 | ) | 1,027 | |||||
| Valuation allowance | - | - | ||||||
| Tax expense, net | 50,728 | 161,446 | ||||||
NOTE 16 – SUBSEQUENT EVENTS
On March 4, 2022 and March 9, 2022, Yi Po WFOE entered into equity transfer agreements with each shareholder of Jiangsu Easy Parking to purchase all the equity interest in Jiangsu Easy Parking. The restructure was completed on June 1, 2022. As a result, Jiangsu Easy Parking became a wholly owned subsidiary of Yi Po WFOE.
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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.
Our amended and restated memorandum and articles of association provide that we shall indemnify our officers and directors against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors or officer, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere.
The underwriting agreement, the form of which will be filed as Exhibit 1.1 to this registration statement, will provide for indemnification by the underwriters of us and our directors and officers for certain liabilities, including liabilities arising under the Securities Act, but only to the extent that such liabilities are caused by information relating to the underwriters furnished to us in writing expressly for use in this registration statement and certain other disclosure documents.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”) 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
Founding Transactions
Yi Po International Holdings Limited was incorporated on March 19, 2020. Upon incorporation, we issued 304,000,000, 9,600,000, and 6,400,000 Ordinary Shares to Ausen International Investment Holdings Co., Limited, Chao Chen and Xin Jin, respectively. Ausen International Investment Holdings Co., Limited, a British Virgin Islands company, is controlled by our CEO and Chairman of the Board Weiming Jin. No underwriters were involved in these issuances of securities. The transaction was not registered under the Securities Act in reliance on an exemption from registration set forth in Regulation S thereof.
On July 9, 2022, the Company’s board of directors and shareholders authorized a reverse stock split of its outstanding Ordinary Shares at a ratio of 1-for-32 without any change in the numbers of authorized Ordinary Shares and the par value per share.
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Item 8. Exhibits and Financial Statement Schedules
(II) (a) The following documents are filed as part of this registration statement:
| + | Filed herewith |
| * | To be filed by amendment |
| ** | Previously filed |
(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.
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Item 9. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
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) (§230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement. |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
| 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 Securities Act 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 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. |
| 5) | That, for the purpose of determining any liability under the Securities Act of 1933 to any purchaser, each prospectus filed by the Registrant pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. 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 first use, 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 date of first use; |
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| 6) | That, for the purpose of determining liability of the registrant under the Securities Act 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 placement 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. |
| 7) | 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. |
| 8) | That, for purposes of determining any liability under the Securities Act of 1933, (i) 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; and (ii) 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. |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Nanjing in China, on September 9, 2022.
| Yi Po International Holdings Limited | ||
| By: | /s/ Weiming Jin | |
| Name: | Weiming Jin | |
| Title: | Chief Executive Officer, Director, and Chairman | |
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Weiming Jin | Chief Executive Officer, Director, and Chairman | September 9, 2022 | ||
| Name: Weiming Jin | (Principal Executive Officer) | |||
| /s/ Alex Chen | Chief Financial Officer | September 9, 2022 | ||
| Name: Alex Chen | (Principal Executive Officer) | |||
| /s/ Xin Jin | Chief Operating Officer | September 9, 2022 | ||
| Name: Xin Jin | ||||
| /s/ Chao Wang | Chief Technology Officer | September 9, 2022 | ||
| Name: Chao Wang | ||||
| /s/ Chao Chen | Director | September 9, 2022 | ||
| Name: Chao Chen |
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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, NY on September 9, 2022.
| By: | /s/ Colleen A. De Vries | |
Name: Title: |
Colleen A. De Vries Senior Vice-President on behalf of Cogency Global Inc. |
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Exhibit 1.1
Yi Po International Holdings Limited
UNDERWRITING AGREEMENT
__, 2022
Boustead Securities, LLC
6 Venture, Suite 395
Irvine, CA 92618
Attn: Keith Moore, Chief Executive Officer
Attn: Daniel J. McClory, Managing Director
Ladies and Gentlemen:
This underwriting agreement (this “Agreement”) constitutes the agreement between Yi Po International Holdings Limited, a Cayman Islands company limited by shares (collectively with its subsidiaries and affiliates, including, without limitation, all entities disclosed or described in the Registration Statement (as hereafter defined) as being subsidiaries or affiliates of the Company, the “Company”), on the one hand, and Boustead Securities, LLC (the “Underwriter”), on the other hand, pursuant to which the Underwriter shall serve as the underwriter for the Company in connection with the proposed offering (the “Offering”) by the Company of their Ordinary Shares (as defined below) on a “Firm Commitment” basis.
The Company proposes, subject to the terms and conditions stated herein, to issue and sell to the Underwriter an aggregate of [ ] authorized but unissued ordinary shares (the “Underwritten Shares”), with $0.000156 par value (the “Ordinary Shares”), of the Company and to grant the Underwriter the option to purchase an aggregate of up to [___________] additional Ordinary Shares (the “Additional Shares”) as may be necessary to cover over-allotments made in connection with the Offering. The Underwritten Shares and Additional Shares are collectively referred to as the “Offered Securities.” The Offered Securities and the Underwriter’s Warrant (as defined below) are herein collectively referred to as the “Securities.”
The Company hereby confirms its agreement with the Underwriter as follows:
Section 1. Agreement to Act as Underwriter.
(a) Underwriting Discount; Expenses.
(i) Underwriting Discount. An underwriting discount equal to seven percent (7.0%) of the aggregate public sales price of the Offered Securities sold on a Closing Date, which will be paid to and allocated by the Underwriter among the selling syndicate and soliciting dealers in its sole discretion, if applicable.
(ii) Underwriter’s Warrants. The Company hereby agrees to issue to the Underwriter (and/or its designees) on a Closing Date, as defined in Section 3(c) herein, a warrant to purchase a number of Ordinary Shares equal to 7% of the Offered Securities gross proceeds on a Closing Date for the Offered Securities divided by the Purchase Price (“Underwriter’s Warrant”). The Underwriter’s Warrant, in the form attached hereto as Exhibit A, shall be exercisable, in whole or in part, commencing on the date of issuance and expiring on the five-year anniversary from the Closing Date (the “Effective Date”) at an initial exercise price equal to the Per Share Price (as defined below) of the Offered Securities. The Underwriter’s Warrant shall include a “cashless” exercise feature. The Underwriter understands and agrees that there are significant restrictions pursuant to FINRA Rule 5110 against transferring the Underwriter’s Warrant and the underlying Ordinary Shares during the one hundred eighty (180) days after the Effective Date and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Underwriter’s Warrant, or any portion thereof, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities for a period of one hundred eighty (180) days following the Effective Date to anyone other than the circumstances listed under FINRA Rule 5110(g)(2).
Delivery of the Underwriter’s Warrant shall be made on a Closing Date and shall be issued in the name or names and in such authorized denominations as the Underwriter may request.
(iii Non-Accountable Expenses. The Company agrees that, in addition to the expenses payable pursuant to Section 1(iv) below, on the Closing Date it shall pay to the Underwriter, 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 the Company from the sale of the Offered Securities.
(iv) Expenses. Whether or not the transactions contemplated by this Agreement and the Registration Statement are consummated or this Agreement is terminated, the Company hereby agrees to pay all costs and expenses incident to the Offering, including the following:
| A. | all expenses in connection with the preparation, printing, formatting for EDGAR and filing of the Registration Statement, and any and all amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; | |
| B. | all fees and expenses in connection with filings with FINRA’s Public Offering System; | |
| C. | all fees, disbursements and expenses of the Company’s counsel and accountants in connection with the registration of the Securities under the Securities Act of 1933, as amended (the “Securities Act”) and the Offering; | |
| D. | all reasonable expenses in connection with the qualifications of the Securities for offering and sale under state or blue-sky laws, when applicable; | |
| E. | all fees and expenses in connection with listing the Securities on the NYSE Amex or Nasdaq (a “Senior Exchange”); | |
| F. | any stock transfer taxes incurred in connection with this Agreement or the Offering; | |
| G. | the cost and charges of any transfer agent or registrar for the Securities; | |
| H. |
all of the Underwriter’s reasonable out-of-pocket expenses in connection with the performance of its services hereunder, with the aggregate amount not to exceed $300,000, including but not limited to:
(i) Underwriters’ counsel’s fees and expenses up to $150,000,
(ii) due diligence and other expenses incurred prior to completion of the Offering, which shall not exceed $75,000;
(iii) road show, travel, platform on-boarding fees, and other reasonable out-of-pocket accountable expenses which shall not exceed $75,000 (the “Road Show and Travel Expenses”); and
(iv) $8,000 for background checks on the Company’s officers, directors and major shareholders.
(v) $20,000 for DTC eligibility of the Ordinary Shares.
Prior to the date of this Agreement, the Company has paid to the Underwriter $[ ]. Any advances made by the Company have been (and shall be) made for reasonably anticipated out-of-pocket accountable expenses in connection with the Offering, and any unused portion will be returned to the Company to the extent not actually incurred. |
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In the event that this Agreement is terminated pursuant to Section 9 hereof, or subsequent to a Material Adverse Change, the Company will pay all documented out-of-pocket and unreimbursed expenses of the Underwriter (including but not limited to fees and disbursements of Underwriter’s counsel, expenses associated with a due diligence report and reasonable travel specified in Sections 1(a)(iii)(H) 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 paid or reimbursed by the Company directly or indirectly to or on behalf of the Underwriter shall not exceed $300,000.
(b) Exclusivity. The term of the Underwriter’s exclusive engagement (the “Exclusive Term”) will be until the termination of the engagement agreement by and between the Company and the Underwriter dated August 15, 2020 (the “Engagement Letter”). Notwithstanding anything to the contrary contained herein, the provisions concerning confidentiality, indemnification and contribution contained herein will survive any expiration or termination of this Agreement, and the Company’s obligation to pay fees actually earned and payable and to reimburse expenses actually incurred and reimbursable pursuant to Section 1 hereof and which are permitted to be reimbursed under FINRA Rule 5110(g)(4)(A), will survive any expiration or termination of this Agreement. Nothing in this Agreement shall be construed to limit the ability of the Underwriter or its Affiliates to pursue, investigate, analyze, invest in, or engage in investment banking, financial advisory or any other business relationship with Persons (as defined below) other than the Company. As used herein (i) “Persons” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind and (ii) “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 405 under the Securities Act. If during the Exclusive Term, or within twelve (12) months after the date of termination or expiration of the Engagement Letter, no Closing has occurred, the Company sells securities to investors introduced to the Company by the Underwriter or its Affiliates prior to such termination or expiration, then the Company shall pay to the Underwriter, at the time of each such sale, the compensation, set forth in Section 1(a) above, with respect to any such sale.
Section 2. Representations, Warranties and Covenants of the Company. The Company hereby represents, warrants and covenants to the Underwriter, as of the date hereof, and as of each Closing Date, except as set out in the Registration Statement, as follows:
(a) Securities Law Filings. The Company has filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form F-1 (Registration File No. 333-262405) under the Securities Act and the rules and regulations (the “Rules and Regulations”) of the Commission promulgated thereunder. At the time of the effective date of the Registration Statement, the Registration Statement and amendments will materially meet the requirements of Form F-1 under the Securities Act. The Company will file with the Commission pursuant to Rules 430A and 424(b) under the Securities Act, a final prospectus included in such registration statement relating to the Offering and the underwriting thereof (the “Final Prospectus”) and has advised the Underwriter of all further information (financial and other) with respect to the Company required to be set forth therein. Such registration statement, including the exhibits thereto, as amended at the date of this Agreement, is hereinafter called the “Registration Statement”; such prospectus in the form in which it appears in the Registration Statement as amended at the date of this Agreement is hereinafter called the “Prospectus.” All references in this Agreement to financial statements and schedules and other information that is “contained,” “included,” “described,” “referenced,” “set forth” or “stated” in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information that is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. The Registration Statement has been declared effective on the date hereof. The Company shall, prior to the initial Closing Date, file with the Commission a Form 8-A providing for the registration under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the Ordinary Shares.
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(b) Assurances. The Registration Statement (and any further documents to be filed with the Commission) contains all exhibits and schedules as required by the Securities Act. Each of (i) the Registration Statement at the time it became effective, (ii) the Prospectus at the time the Registration Statement became effective, (iii) any post-effective amendment to the Registration Statement at the time it becomes effective and (iv) and the Final Prospectus filed with the Commission pursuant to Rule 424(b) at the time of such filing, and at all other subsequent times at each Closing Date, complied in all material respects with the Securities Act and the applicable Rules and Regulations, as amended or supplemented, if applicable, and did not and will not, contain any untrue statement of a material fact or omit to state a 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 materially misleading (provided, however, that the preceding representations and warranties contained in this sentence shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by the Underwriter expressly for use therein (the “Underwriter Information”). The Prospectus, as of its date, complies in all material respects with the Securities Act and the applicable Rules and Regulations, and the Final Prospectus, as of its date, will comply in all material respects with the Securities Act and the applicable Rules and Regulations. As of its date, the Prospectus did not and will and the Final Prospectus will not contain as of the date thereof any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (provided, however, that the preceding representations and warranties contained in this sentence shall not apply to any Underwriter Information). All post-effective amendments to the Registration Statement reflecting facts or events arising after the date thereof which represent, individually or in the aggregate, a fundamental change in the information set forth therein have been so filed with the Commission. There are no documents required to be filed with the Commission in connection with the transaction contemplated hereby that (x) have not been filed as required pursuant to the Securities Act or (y) will not be filed within the requisite time period. There are no material contracts or other documents required to be described in the Prospectus (or the Final Prospectus) or filed as exhibits or schedules to the Registration Statement that have not been (or will not be) described or filed as required. The Company is eligible to use free writing prospectuses in connection with the Offering pursuant to Rules 164 and 433 under the Securities Act. Any free writing prospectus that the Company is required to file pursuant to Rule 433(d) under the Securities Act has been, or will be, filed with the Commission in accordance with the requirements of the Securities Act and the applicable Rules and Regulations. Each free writing prospectus that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act or that was prepared by or behalf of or used by the Company complies or will comply in all material respects with the requirements of the Securities Act and the applicable Rules and Regulations. The Company will not, without the prior consent of the Underwriter, prepare, use or refer to, any free writing prospectus. Except as set out on Schedule 2(b), there are no free-writing prospectuses in connection with this offering.
(c) Offering Materials. The Company has delivered, or will as promptly as practicable deliver, to the Underwriter complete conformed copies of the Registration Statement and of each consent and certificate of experts, as applicable, filed as a part thereof, and conformed copies of the Registration Statement (without exhibits) and the Prospectus, as amended or supplemented (including the Final Prospectus), in such quantities and at such places as the Underwriter reasonably requests. Neither the Company nor any of its directors and officers has distributed and none of them will distribute, prior to any Closing Date, any offering material in connection with the offering and sale of the Securities other than the Prospectus, the Final Prospectus, the Registration Statement, and any other materials permitted by the Securities Act (collectively, the “Offering Materials”).
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(d) Subsidiaries. All of the direct and indirect subsidiaries of the Company (the “Subsidiaries”) are described in the Registration Statement to the extent necessary. The Company owns, directly or indirectly, all of its capital stock or other equity interests of each Subsidiary free and clear of any liens, charges, security interests, encumbrances, rights of first refusal, preemptive rights or other restrictions (collectively, “Liens”), and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.
(e) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing (where applicable) under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of this Agreement or any other agreement entered into between the Company and the Underwriter (“Transaction Documents”), (ii) a material adverse effect on the results of operations, assets, business, prospects (as such prospects are described in the Prospectus) or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under this Agreement or the Offering (any of (i), (ii) or (iii), a “Material Adverse Effect”) and to the best knowledge of the Company, no action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened (“Proceeding”) has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
(f) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and the Offering and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement by the Company and each of the other Transaction Documents and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Company’s Board of Directors (the “Board of Directors”) or the Company’s shareholders in connection therewith other than in connection with the Required Approvals (as defined below). This Agreement and each other Transaction Document to which it is a party has been duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(g) No Conflicts. The execution, delivery and performance by the Company of this Agreement, the other Transaction Documents to which it is a party and the transactions contemplated hereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, to the Company’s best knowledge, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (i), (ii) and (iii), such conflict, default or violation could not reasonably be expected to result in a Material Adverse Effect.
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(h) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of this Agreement, the other Transaction Documents to which it is a party and the transactions contemplated hereby, other than: (i) the filing with the Commission of the Final Prospectus as required by Rule 424 under the Securities Act, (ii) application to a Senior Exchange (the “Trading Market”), for the listing of the Securities for trading thereon in the time and manner required thereby and (iii) if applicable, such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”).
(i) Issuance of the Securities; Registration. The Securities are duly authorized and, when issued and paid for in accordance with this Agreement, the other Transaction Documents to which it is a party, and the terms of the Offering as described in the Prospectus, will be duly and validly issued, fully paid and non-assessable, free and clear of all Liens imposed by the Company. The Company has sufficient Ordinary Shares for the issuance of the maximum number of Securities issuable pursuant to the Offering as described in the Prospectus.
(j) Capitalization. The capitalization of the Company as of the date hereof is as set forth in the Registration Statement, and the Prospectus. The Company has not issued any Ordinary Shares since the date of this Agreement, other than pursuant to the Company’s equity incentive plans, the issuance of Ordinary Shares to employees, directors or consultants pursuant to the Company’s equity incentive plans and pursuant to the conversion and/or exercise of any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire Ordinary Shares at any time, including, without limitation, any debt, preferred shares, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive (“Ordinary Shares Equivalents”). No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Offering Materials. Except as a result of the purchase and sale of the Securities or as disclosed in the Registration Statement, and the Prospectus, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any Ordinary Shares or the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional Ordinary Shares or Ordinary Shares Equivalents or capital stock of any Subsidiary. The issuance and sale of the Securities will not obligate the Company or any Subsidiary to issue Ordinary Shares or other securities to any Person (other than the Underwriter) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. There are no securities of the Company or any Subsidiary that have any anti-dilution or similar adjustment rights (other than adjustments for stock splits, recapitalizations, and the like) to the exercise or conversion price, have any exchange rights, or reset rights. Except as set forth in the Registration Statement, and the Prospectus, there are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. The Company does not have any share appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. All of the outstanding Ordinary Shares of the Company are duly authorized, validly issued, fully paid and non-assessable, have been issued in compliance in all material respects with all federal and state securities laws, and none of such outstanding Ordinary Shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any shareholder, the Board of Directors or others is required for the issuance and sale of the Securities. Except for the operating agreement of the Company, there are no shareholders agreements, voting agreements or other similar agreements with respect to the Company’s Ordinary Shares to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s shareholders.
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(k) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within the Registration Statement, except as specifically disclosed in the Registration Statement, the Prospectus and the Final Prospectus, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to United States generally accepted accounting principles (“GAAP”) or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any Ordinary Shares of the Company and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans, if any. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by the Prospectus or disclosed in the Registration Statement or the Prospectus, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective business, prospects (as such prospects are described in the Prospectus), properties, operations, assets or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one trading day prior to the date that this representation is made.
(l) Litigation. Except for such matter disclosed in the Offering Materials, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of this Agreement, any of the Transaction Documents, the Offering or the Securities or (ii) could, if there were an unfavorable decision, reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has within the last 10 years been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.
(m) Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. No executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. To the Company’s actual knowledge, the Company and its Subsidiaries are in compliance with all applicable laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
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(n) Compliance. Except as set forth in the Offering Materials, neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or governmental body or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not reasonably be expected to result in a Material Adverse Effect.
(o) Regulatory Permits. Except as otherwise disclosed in the Offering Materials, the Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the Prospectus, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.
(p) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens disclosed in the Prospectus, Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Except as disclosed in the Offering Materials, any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.
(q) Patents and Trademarks. Except as disclosed in the Offering Materials and to the best of the Company’s actual knowledge, the Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or required for use in connection with their respective businesses as described in the Offering Materials and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or be abandoned, within two (2) years from the date of this Agreement, except where such action would not reasonably be expected to have a Material Adverse Effect. Except as disclosed in the Offering Materials, neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the Offering Materials, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as would not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has no knowledge that it lacks or will be unable to obtain any rights or licenses to use all Intellectual Property Rights that are necessary to conduct its business.
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(r) Transactions with Affiliates and Employees. Except as set forth in the Registration Statement and the Prospectus, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.
(s) Sarbanes-Oxley; Internal Accounting Controls. Except as disclosed in the Registration Statement and in the Prospectus, the Company is in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective and applicable to the Company as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of each Closing Date. Except as set forth in the Offering Materials, the Company and the Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.
(t) Certain Fees, FINRA Affiliation. Except as set forth herein and in the Prospectus, contemplated by this Agreement, or a separate agreement regarding the Offering with a soliciting dealer in the sole discretion of the Underwriter, no brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. Except as set forth in the Registration Statement, and the Prospectus, to the Company’s knowledge, there are no other arrangements, agreements or understandings of the Company or, to the Company’s knowledge, any of its stockholders that may affect the Underwriter’s compensation, as determined by FINRA. The Company has not made any direct or indirect payments (in cash, securities or otherwise) to (i) any person, as a finder’s fee, investing fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who provided capital to the Company, (ii) any FINRA member, or (iii) any person or entity that has any direct or indirect affiliation or association with any FINRA member within the 12-month period prior to the date on which the Registration Statement was filed with the Commission (the “Filing Date”) or thereafter. To the Company’s knowledge, no (i) officer or director of the Company or its subsidiaries, (ii) owner of 5% or more of the Company’s unregistered securities or that of its subsidiaries or (iii) owner of any amount of the Company’s unregistered securities acquired within the 180-day period prior to the Filing Date, has any direct or indirect affiliation or association with any FINRA member. The Company will advise the Underwriter if it becomes aware that any officer, director or stockholder of the Company or its Subsidiaries is or becomes an Affiliate or associated person of a FINRA member participating in the Offering.
(u) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.
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(v) Registration Rights. Except as set forth in the Registration Statement or the Prospectus, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.
(w) Registration. The Company shall use its commercially reasonable efforts to maintain the effectiveness of the Registration Statement and a current Prospectus relating thereto for as long as the Securities remain outstanding.
(x) Solvency. Based on the consolidated financial condition of the Company, as of each Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, are sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). Except as set forth in the Registration Statement and the Prospectus, the Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from each Closing Date. The Registration Statement and the Prospectus sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Except as set forth in the Registration Statement and the Prospectus, neither the Company nor any Subsidiary is in default with respect to any Indebtedness.
(y) Tax Status. Except for matters that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary (i) has made or filed all income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim.
(z) Accountants. WWC, P.C. (“WWC”) is the Company’s independent registered public accounting firm. To the knowledge and belief of the Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act and (ii) has expressed its opinion with respect to the financial statements of the Company for the years ended December 31, 2021 and 2020.
(aa) Office of Foreign Assets Control. Neither the Company nor, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).
(bb) Company Not Ineligible Issuer. (i) At the time of filing the Registration Statement relating to the Securities and (ii) as of the date of the execution and delivery of this Agreement (with such date being used as the determination date for purposes of this clause (ii)), the Company met all the requirements set forth in General Instruction I of Form F-1.
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(cc) Emerging Growth Company. From the time of the initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communications) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “Emerging Growth Company”). “Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
(dd) Certificates. Any certificate signed by an officer of the Company and delivered to the Underwriter or to counsel for the Underwriter shall be deemed to be a representation and warranty by the Company to the Underwriter as to the matters set forth therein.
(ee) Reliance. The Company acknowledges that the Underwriter will rely upon the accuracy and truthfulness of the foregoing representations and warranties and hereby consents to such reliance.
(ff) Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in either the Registration Statement or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
(gg) Statistical or Market-Related Data. Any statistical, industry-related and market-related data included or incorporated by reference in the Registration Statement or the Prospectus, are based on or derived from sources that the Company reasonably and in good faith believes to be reliable and accurate, and such data agree with the sources from which they are derived.
(hh) Listing and Maintenance Requirements. The Ordinary Shares are registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is 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 disclosed in the Offering Materials, the Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Ordinary Shares are currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of a Senior Exchange.
(ii) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.
(jj) Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Underwriter in connection with the Offering.
(kk) Testing the Waters Communications. The Company (a) has not alone engaged in any Testing-the-Waters Communication other than Testing-the-Waters Communications with the consent of the Underwriter with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (b) has not authorized anyone other than the Underwriter to engage in Testing-the-Waters Communications. The Company reconfirms that the Underwriters have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications.
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(ll) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.
(mm) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Company believes are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
(nn) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries owns or controls, directly or indirectly, five percent or more of the outstanding shares of any class of voting securities or 25 percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
(oo) U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon the Underwriter’s request.
(pp) Senior Exchange Listing. The Ordinary Shares has been approved for listing on a Senior Exchange, subject to official notice of issuance, and the Company has taken no action designed to, or likely to have the effect of, delisting the Ordinary Shares from the Senor Exchange, nor has the Company received any notification that the Senor Exchange is contemplating terminating such listing.
(qq) D&O Questionnaires. To the Company’s knowledge, all information contained in the questionnaires (the “Questionnaires”) completed by each of the Company’s directors, officers and 5% shareholders immediately prior to the Offering (the “Insiders”) as supplemented by all information concerning the Company’s directors, officers and principal shareholders as described in the Offering Materials, provided to the Underwriter, is true and correct in all material respects and the Company has not become aware of any information which would cause the information disclosed in the Questionnaires to become materially inaccurate and incorrect.
(rr) Electronic Road Show. The Company has made available a “bona fide electronic road show” in compliance with Rule 433(d)(8)(ii) of the Securities Act Regulations such that no filing of any “road show” (as defined in Rule 433(h) of the Securities Act Regulations) is required in connection with the Offering.
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(ss) Margin Securities. The Company owns no “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), and none of the proceeds of Offering will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Securities to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.
(tt) Export and Import Laws. The Company and, to the Company’s knowledge, each of its Affiliates, and any director, officer, agent or employee of, or other person associated with or acting on behalf of the Company, has acted at all times in compliance with applicable Export and Import Laws (as defined below) and there are no claims, complaints, charges, investigations or Proceedings pending or expected or, to the knowledge of the Company, threatened between the Company or any of its subsidiaries and any governmental authority under any Export or Import Laws. The term “Export and Import Laws” means the Arms Export Control Act, the International Traffic in Arms Regulations, the Export Administration Act of 1979, as amended, the Export Administration Regulations, and all other laws and regulations of the United States government regulating the provision of services to non-U.S. parties or the export and import of articles or information from and to the United States of America, and all similar laws and regulations of any foreign government regulating the provision of services to parties not of the foreign country or the export and import of articles and information from and to the foreign country to parties not of the foreign country.
(uu) Integration. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause the Offering to be integrated with prior offerings by the Company for purposes of the Securities Act that would require the registration of any such securities under the Securities Act.
(vv) No Fiduciary Duties. The Company acknowledges and agrees that the Underwriter’s responsibility to the Company is solely contractual in nature and that none of the Underwriter or their Affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its Affiliates in connection with the Offering and the other transactions contemplated by this Agreement. Notwithstanding anything in this Agreement to the contrary, the Company acknowledges that the Underwriter may have financial interests in the success of the Offering that are not limited to the difference between the Per Share Price to the public and the purchase price paid to the Company by the Underwriter for the Offered Securities and the Underwriter has no obligation to disclose, or account to the Company for, any of such additional financial interests. 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 fiduciary duty.
Section 3. Delivery and Payment.
(a) On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell the Offered Securities to the Underwriters, and the Underwriter agrees to purchase the Offered Securities. The purchase price for each Underwritten Share shall be $[ ] (the “Per Share Price”).
(b) [Intentionally omitted].
(c) The Underwritten Shares will be delivered by the Company to the Underwriter against payment of the purchase price therefor by wire transfer of same day funds payable to the order of the Company’s offices, or such other location as may be mutually acceptable, at 6:00 a.m. Pacific Time, on the second (or if the Underwritten Shares are priced, as contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 p.m. Eastern Time, the third) full business day following the date hereof, or at such other time and date as the Underwriter and the Company determine pursuant to Rule 15c6-1(a) under the Exchange Act. The time and date of delivery of the Offered Securities is referred to herein as the “Closing Date”. If the Underwriter so elects, delivery of the Offered Securities may be made by credit through full fast transfer to the account at The Depository Trust Company designated by the Underwriter.
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Section 4. Covenants and Agreements of the Company. The Company further covenants and agrees with the Underwriter as follows:
(a) Registration Statement Matters. 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. The Company will advise the Underwriter promptly after they receive notice thereof of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement or amendment to the Prospectus has been filed and will furnish the Underwriter with copies thereof. The Company will file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for so long as the delivery of a prospectus is required in connection with the Offering. The Company will advise the Underwriter, promptly after it receives notice thereof (i) of any request by the Commission to amend the Registration Statement or to amend or supplement the Prospectus or for additional information, and (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or any order preventing or suspending the use of the Prospectus or any amendment or supplement thereto or any post-effective amendment to the Registration Statement, of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, of the institution or threatened institution of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information. The Company shall use its commercially reasonable efforts to prevent the issuance of any such stop order or prevention or suspension of such use. If the Commission shall enter any such stop order or order or notice of prevention or suspension at any time, the Company will use its commercially reasonable efforts to obtain the lifting of such order at the earliest possible moment, or will file a new registration statement and use its commercially reasonable efforts to have such new registration statement declared effective as soon as practicable. Additionally, the Company agrees that it shall comply with the provisions of Rules 424(b), 430A, 430B and 430C, as applicable, under the Securities Act, including with respect to the timely filing of documents thereunder, and will use its commercially reasonable efforts to confirm that any filings made by the Company under such Rule 424(b) are received in a timely manner by the Commission.
(b) Blue Sky Compliance. The Company will cooperate with the Underwriter in endeavoring to qualify the Securities for sale under the securities laws of such jurisdictions (United States and foreign) as the Underwriter may reasonably request and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent, and provided further that the Company shall not be required to produce any new disclosure document other than the Prospectus. The Company will, from time to time, prepare and file such statements, reports and other documents as are or may be required to continue such qualifications in effect for so long a period as the Underwriter may reasonably request for distribution of the Securities. The Company will advise the Underwriter promptly of the suspension of the qualification or registration of (or any such exemption relating to) the Securities for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of any order suspending such qualification, registration or exemption, the Company shall use its commercially reasonable efforts to obtain the withdrawal thereof at the earliest possible moment.
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(c) Amendments and Supplements to the Prospectus and Other Matters. The Company will comply with the Rules and Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and the Prospectus. If during the period in which a prospectus is required by law to be delivered in connection with the distribution of Securities contemplated by the Prospectus (the “Prospectus Delivery Period”), any event shall occur as a result of which, in the judgment of the Company or in the opinion of the Underwriter or counsel for the Underwriter, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, as the case may be, not misleading, or if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company will promptly prepare and file with the Commission, and furnish at its own expense to the Underwriter and to dealers, an appropriate amendment to the Registration Statement or supplement to the Registration Statement or the Prospectus that is necessary in order to make the statements in the Prospectus as so amended or supplemented, in the light of the circumstances under which they were made, as the case may be, not misleading, or so that the Registration Statement or the Prospectus, as so amended or supplemented, will comply with law. Before amending the Registration Statement or supplementing the Prospectus in connection with the Offering, the Company will furnish the Underwriter with a copy of such proposed amendment or supplement and will not file any such amendment or supplement to which the Underwriter reasonably objects; the Underwriter, and its counsel shall have at least three (3) business days to review and return any comments to the Company.
(d) Copies of any Amendments and Supplements to the Prospectus. The Company will furnish the Underwriter, without charge, during the period beginning on the date hereof and ending on the final Closing Date of the Offering, as many copies of the Prospectus and any amendments and supplements thereto as the Underwriter may reasonably request.
(e) Free Writing Prospectus. The Company covenants that it will not, unless it obtains the prior consent of the Underwriter, make any offer relating to the Securities that would constitute a Company Free Writing Prospectus (as defined below) or that would otherwise constitute a “free writing prospectus” (as defined in Rule 405 of the Securities Act) required to be filed by the Company with the Commission or retained by the Company under Rule 433 of the Securities Act. In the event that the Underwriter expressly consents in writing to any such free writing prospectus (a “Permitted Free Writing Prospectus”), the Company covenants that it shall (i) treat each Permitted Free Writing Prospectus as a Company Free Writing Prospectus, and (ii) comply with the requirements of Rule 164 and 433 of the Securities Act applicable to such Permitted Free Writing Prospectus, including in respect of timely filing with the Commission, legending and record keeping. “Company Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the Securities Act Regulations (“Rule 433”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the Securities Act Regulations) relating to the public securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the public securities or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).
(f) Transfer Agent. The Company will maintain, at its expense, a registrar and transfer agent for its Ordinary Shares for so long as the Ordinary Shares are publicly traded.
(g) Earnings Statement. As soon as practicable and in accordance with applicable requirements under the Securities Act, but in any event not later than 18 months after the last Closing Date, the Company will make generally available to its security holders and to the Underwriter an earnings statement, covering a period of at least 12 consecutive months beginning after the last Closing Date, that satisfies the provisions of Section 11(a) and Rule 158 under the Securities Act.
(h) Periodic Reporting Obligations. During the Prospectus Delivery Period, the Company will duly file, on a timely basis, with the Commission all reports and documents required to be filed under the Exchange Act within the time periods and in the manner required by the Exchange Act.
(i) Additional Documents. The Company will enter into any subscription, purchase or other customary agreements as the Underwriter deems necessary or appropriate to consummate the Offering, all of which will be in form and substance reasonably acceptable to the Company and the Underwriter.
(j) No Manipulation of Price. The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company.
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(k) Company Lock-Up.
(i) The Company will not, without the prior written consent of the Underwriter, from the date of execution of this Agreement and continuing for a period of 6 months from the date on which the trading of the Ordinary Shares on a Senior Exchange commences (the “Lock-Up Period”), (i) 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, change the terms of or grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file with the Commission a registration statement under the Securities Act relating to, any Ordinary Shares or any securities convertible into or exercisable or exchangeable for Ordinary Shares, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Ordinary Shares or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Ordinary Shares or such other securities, in cash or otherwise, except to the Underwriter pursuant to this Agreement. The Company agrees not to accelerate the vesting of any option or warrant or the lapse of any repurchase right prior to the expiration of the Lock-Up Period.
(ii) The restrictions contained in Section 4(k)(i) hereof shall not apply to: (A) the Securities, (B) any securities previously issued under Company incentive plans as described as outstanding in the Registration Statement and the Prospectus, (C) any options and other awards granted under a Company incentive plan or Ordinary Shares issued pursuant to an employee stock purchase plan, in each case, as described in the Registration Statement and the Prospectus, and (D) Ordinary Shares or other securities issued in connection with a transaction with an unaffiliated third party that includes a bona fide commercial relationship (including joint ventures, marketing or distribution arrangements, collaboration agreements or intellectual property license agreements) or any acquisition of assets or acquisition of not less than a majority or controlling portion of the equity of another entity; provided that (x) the aggregate number of Ordinary Shares issued pursuant to clause (D) shall not exceed five percent (5%) of the total number of outstanding Ordinary Shares immediately following the issuance and sale of the Securities pursuant to this Agreement and (y) the recipient of any such Ordinary Shares or other securities issued or granted pursuant to clauses (B), (C) and (D) during the Lock-Up Period shall enter into an agreement substantially in the form of Exhibit A hereto.
(l) Acknowledgment. The Company acknowledges that any advice given by the Underwriter to the Company is solely for the benefit and use of the Board of Directors of the Company and may not be used, reproduced, disseminated, quoted or referred to, without such Underwriter’s prior written consent.
(m) Listing. The Company shall use its commercially reasonable efforts to maintain the listing of the Securities on a Senior Exchange for five (5) years after the date of this Agreement.
(n) Application of Net Proceeds. The Company shall apply the net proceeds from the Offering of the Securities received by it in a manner consistent with the application thereof described under the caption “Use of Proceeds” in the Registration Statement, the Prospectus and the Final Prospectus.
(o) Rule 158. The Company will timely file such reports pursuant to the Exchange Act as are necessary in order to make generally available to its security holders as soon as practicable an earnings statement for the purposes of, and to provide to the Underwriter the benefits contemplated by Rule 158(a) under Section 11(a) of the Securities Act.
(p) Stabilization. Neither the Company nor, to its knowledge, any of its employees, directors or shareholders (without the consent of the Underwriter) has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.
(q) Internal Controls. The Company shall maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
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(r) Accountants. The Company shall retain an independent registered public accounting firm reasonably acceptable to the Underwriter (it being understood that Wei, Wei & Co. LLP is an independent registered public accounting firm that is reasonably acceptable to the Underwriter), and the Company shall continue to retain a nationally recognized independent registered public accounting firm for a period of at least five (5) years after the date of this Agreement.
(s) FINRA. The Company shall advise the Underwriter (who shall make an appropriate filing with FINRA) if it is or becomes aware that (i) any officer or director of the Company, (ii) any beneficial owner of 5% or more of any class of the Company’s securities or (iii) any beneficial owner of the Company’s unregistered equity securities which were acquired during the 180 days immediately preceding the original filing of the Registration Statement is or becomes an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
(t) Board Composition and Board Designations. The Company shall ensure that: (i) the qualifications of the persons serving as Board members and the overall composition of the Board comply with the Sarbanes-Oxley Act and the rules promulgated thereunder and with the listing requirements of the Senior Exchange and (ii) if applicable, at least one member of the Board qualifies as a “financial expert” as such term is defined under the Sarbanes-Oxley Act and the rules promulgated thereunder.
Section 5. Conditions of the Obligations of the Underwriter. The obligations of the Underwriter hereunder shall be subject to the accuracy of the representations and warranties on the part of the Company set forth in Section 2 hereof, in each case as of the date hereof and as of each Closing Date as though then made, to the timely performance by each of the Company of its covenants and other obligations hereunder on and as of such dates, and to each of the following additional conditions:
(a) Accountants’ Comfort Letter. On the date hereof, the Underwriter shall have received, and the Company shall have caused to be delivered to the Underwriter, a letter from Wei, Wei & Co., LLP addressed to the Underwriter, dated as of the date hereof, in form and substance satisfactory to the Underwriter. The letter shall not disclose any change in the condition (financial or other), earnings, operations, business or prospects of the Company from that set forth in the Prospectus, which, in the Underwriter’s sole judgment, is material and adverse and that makes it, in the Underwriter’s sole judgment, impracticable or inadvisable to proceed with the Offering of the Securities as contemplated by the Prospectus.
(b) Compliance with Registration Requirements; No Stop Order; No Objection from the FINRA. 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., New York City 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. The Prospectus (in accordance with Rule 424(b)) and “free writing prospectus” (as defined in Rule 405 of the Securities Act), if any, shall have been duly filed with the Commission in a timely fashion in accordance with the terms thereof. At or prior to each Closing Date and the actual time of the Closing, no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; no order preventing or suspending the use of the Prospectus shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; no order having the effect of ceasing or suspending the distribution of the Securities or any other securities of the Company shall have been issued by any securities commission, securities regulatory authority or stock exchange and no proceedings for that purpose shall have been instituted or shall be pending or, to the knowledge of the Company, contemplated by any securities commission, securities regulatory authority or stock exchange; all requests for additional information on the part of the Commission shall have been complied with; and the FINRA shall have raised no objections to the fairness and reasonableness of the placement terms and arrangements. On the Closing Date, the Company’s Ordinary Shares shall have been approved for listing on the Senior Exchange.
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(c) Corporate Proceedings. All corporate proceedings and other legal matters in connection with this Agreement, the Registration Statement and the Prospectus, and the registration, sale and delivery of the Securities, shall have been completed or resolved in a manner reasonably satisfactory to the Underwriter’s counsel.
(d) No Material Adverse Effect. Subsequent to the execution and delivery of this Agreement and prior to each Closing Date, in the Underwriter’s sole judgment after consultation with the Company, there shall not have occurred any Material Adverse Effect.
(e) Opinions of Counsel for the Company. The Underwriter shall have received on each Closing Date
(i) the favorable opinion of Ortoli Rosenstadt LLP, Company securities counsel, dated as of such Closing Date, including, without limitation, a customary negative assurance letter, addressed to the Underwriters in customary form reasonably satisfactory to the Underwriters;
(ii) the favorable opinion of Maples and Calder (Hong Kong) LLP, Company Cayman Islands counsel, dated as of such Closing Date, including, without limitation, a customary negative assurance letter for applicable sections, addressed to the Underwriters in customary form reasonably satisfactory to the Underwriters; and
(iii) the favorable opinion of Guantao Law Firm, Company PRC counsel, dated as of such Closing Date, including, without limitation, a customary negative assurance letter for applicable sections, addressed to the Underwriters in customary form reasonably satisfactory to the Underwriter.
The Underwriter shall rely on the opinions of (i) the Company’s Cayman Islands counsel, Maples and Calder (Hong Kong) LLP, filed as Exhibit 5.1 to the Registration Statement, as to the due incorporation, validity of the Securities and due authorization, execution and delivery of the Agreement and (ii) the Company’s PRC counsel, Guantao Law Firm, filed as Exhibit 8.1 to the Registration Statement.
(f) Officers’ Certificate. The Underwriter shall have received on each Closing Date a certificate of the Company, dated as of such Closing Date, signed by the Chief Executive Officer and Chief Financial Officer of the Company, to the effect that, and the Underwriter shall be satisfied that, the signers of such certificate have reviewed the Registration Statement and the Prospectus, and this Agreement and to the further effect that:
(i) The representations and warranties of the Company in this Agreement are true and correct, as if made on and as of such Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date;
(ii) No stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus has been issued and no proceedings for that purpose have been instituted or are pending or, to the Company’s knowledge, threatened under the Securities Act; no order having the effect of ceasing or suspending the distribution of the Securities or any other securities of the Company has been issued by any securities commission, securities regulatory authority or stock exchange in the United States and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, contemplated by any securities commission, securities regulatory authority or stock exchange in the United States;
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(iii) When the Registration Statement became effective, at the time of sale, and at all times subsequent thereto up to the delivery of such certificate, the Registration Statement, when it became effective, contained all material information required to be included therein by the Securities Act and the applicable rules and regulations of the Commission thereunder, as the case may be, and in all material respects conformed to the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder, as the case may be, and the Registration Statement, did not and does not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (provided, however, that the preceding representations and warranties contained in this paragraph (iii) shall not apply to any statements or omissions made in reliance upon and in conformity with the Underwriter Information) and, since the effective date of the Registration Statement, there has occurred no event required by the Securities Act and the rules and regulations of the Commission thereunder to be set forth in the Registration Statement which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been: (a) any Material Adverse Effect; (b) any transaction that is material to the Company and the Subsidiaries taken as a whole, except transactions entered into in the ordinary course of business; (c) any obligation, direct or contingent, that is material to the Company and the Subsidiaries taken as a whole, incurred by the Company or any Subsidiary, except obligations incurred in the ordinary course of business; (d) any material change in the capital stock (except changes thereto resulting from the exercise of outstanding options or warrants or conversion of outstanding indebtedness into Ordinary Shares of the Company) or outstanding indebtedness of the Company or any Subsidiary (except for the conversion of such indebtedness into Ordinary Shares of the Company); (e) any dividend or distribution of any kind declared, paid or made on Ordinary Shares of the Company; or (f) any loss or damage (whether or not insured) to the property of the Company or any Subsidiary which has been sustained or will have been sustained which has a Material Adverse Effect.
(g) Secretary’s Certificate. As of each Closing Date the Underwriter shall have received a certificate of the Company signed by the Secretary of the Company, dated such Closing Date, certifying: (i) that each of the Company’s Articles of Association and Memorandum of Association attached to such certificate is true and complete, has not been modified and is in full force and effect; (ii) that each of the Subsidiaries’ Articles of Association, Memorandum of Association or charter documents attached to such certificate is true and complete, has not been modified and is in full force and effect; (iii) that the resolutions of the Company’s Board of Directors relating to the Offering attached to such certificate are in full force and effect and have not been modified; and (iv) the good standing of the Company and each of the Subsidiaries. The documents referred to in such certificate shall be attached to such certificate.
(h) Bring-down Comfort Letter. On each Closing Date, the Underwriter shall have received from Wei, Wei & Co. LLP, or such other independent registered public accounting firm engaged by the Company at such time, a letter dated as of such Closing Date, in form and substance satisfactory to the Underwriters, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (a) of this Section 5, except that the specified date referred to therein for the carrying out of procedures shall be no more than three business days prior to such Closing Date.
(i) Additional Documents. On or before each Closing Date, the Underwriter and counsel for the Underwriter shall have received such customary information and documents as they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the Securities as contemplated herein, or in order to evidence the accuracy of any of the representations and warranties, or the satisfaction of any of the conditions or agreements, herein contained. If any condition specified in this Section 5 is not satisfied when and as required to be satisfied, this Agreement may be terminated by the Underwriter by notice to the Company at any time on or prior to such Closing Date, which termination shall be without liability on the part of any party to any other party, except that Section 6 (Payment of Expenses), Section 7 (Indemnification and Contribution) and Section 8 (Representations and Indemnities to Survive Delivery) shall at all times be effective and shall survive such termination.
(j) Subsequent to the execution and delivery of this Agreement 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 capital stock or long-term debt of the Company (other than as described in the Registration Statement or the Prospectus) 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, properties or prospects 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 sole 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.
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(k) Subsequent to the execution and delivery of this Agreement and up to each Closing Date, there shall not have occurred any of the following: (i) trading in securities generally on a Senior Exchange or any Trading Market shall not have commenced, (ii) a banking moratorium shall have been declared by federal or state authorities or a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, (iii) the United States shall have become engaged in hostilities in which it is not currently engaged, the subject of an act of terrorism, there shall have been an escalation in hostilities involving the United States, or there shall have been a declaration of a national emergency or war by the United States, or (iv) there shall have occurred any other calamity or crisis or any change in general economic, political or financial conditions in the United States or elsewhere, if the effect of any such event in clause (ii) or (iv) makes it, in the sole judgment of the Underwriter, impracticable or inadvisable to proceed with the sale or delivery of the Securities on the terms and in the manner contemplated by the Prospectus.
(l) The Underwriter shall have received a lock-up agreement from each Lock-Up Party set forth on Schedule A, duly executed by the applicable Lock-Up Party, in each case substantially in the form attached as Exhibit B.
(m) 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 any 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 such 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.
If any of the conditions specified in this Section 5 shall not have been fulfilled when and as required by this Agreement, or if any of the certificates, opinions, written statements or letters furnished to the Underwriter or to Underwriter’s counsel pursuant to this Section 5 shall not be reasonably satisfactory in form and substance to the Underwriter and to Underwriter’s counsel, all obligations of the Underwriter hereunder may be cancelled by the Underwriter at, or at any time prior to, the consummation of the Offering. Notice of such cancellation shall be given to the Company in writing or orally. Any such oral notice shall be confirmed promptly thereafter in writing.
Section 6. Payment of Company Expenses. The Company agrees to pay all costs, fees and expenses incurred by the Company in connection with the performance of its obligations hereunder and in connection with the transactions contemplated hereby, including, without limitation: (i) all expenses incident to the issuance, delivery and qualification of the Securities (including all printing and engraving costs); (ii) all fees and expenses of the registrar and transfer agent of the Securities; (iii) all necessary issue, transfer and other stamp taxes in connection with the issuance and sale of the Securities; (iv) all fees and expenses of the Company’s counsel, independent public or certified public accountants and other advisors; (v) all costs and expenses incurred in connection with the preparation, printing, filing, shipping and distribution of the Registration Statement (including financial statements, exhibits, schedules, consents and certificates of experts), the Prospectus, and all amendments and supplements thereto, and this Agreement; (vi) all filing fees, reasonable attorneys’ fees and expenses incurred by the Company or the Underwriter in connection with qualifying or registering (or obtaining exemptions from the qualification or registration of) all or any part of the Securities for offer and sale under the state securities or blue sky laws or the securities laws of any other country, and, if reasonably requested by the Underwriter, preparing and printing a “Blue Sky Survey,” an “International Blue Sky Survey” or other memorandum, and any supplements thereto, advising any of the Underwriter of such qualifications, registrations and exemptions; (vii) if applicable, the filing fees incident to the review and approval by the FINRA of the Underwriter’s participation in the offering and distribution of the Securities; (viii) the fees and expenses associated with including the Ordinary Shares on the Trading Market; and (ix) all costs and expenses incident to the travel and accommodation of the Company’s employees on the “roadshow,” as described in Section 1(a)(iii) of this Agreement.
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Section 7. Indemnification and Contribution.
(a) The Company agrees to indemnify, defend and hold harmless the Underwriter, its Affiliates, directors and officers and employees, and each person, if any, who controls the Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each an “Underwriter Indemnified Party”), from and against any losses, claims, damages or liabilities (including in settlement of any litigation if such settlement is effected with the prior written consent of the Company) arising out of (i) an untrue statement or alleged untrue statement of a material fact contained in 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 Securities Act Regulations, or arise out of or are based upon the omission from the Registration Statement, or alleged omission to state therein, a material fact required to be stated therein or necessary to make the statements therein not misleading; or (ii) an untrue statement or alleged untrue statement of a material fact contained in the Prospectus, or any amendment or supplement thereto, or in any other materials used in connection with the Offering, 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, in light of the circumstances under which they were made, not misleading, and will reimburse such Underwriter Indemnified Party for any legal or other expenses reasonably incurred by it in connection with evaluating, investigating or defending against such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Prospectus, or any amendment or supplement thereto, or, in reliance upon and in conformity with the Underwriter Information. The indemnification obligations under this Section 7(a) are not exclusive and will be in addition to any liability which the Company might otherwise have and shall not limit any rights or remedies which may otherwise be available at law or in equity to each Underwriter Indemnified Party.
(b) The Underwriter will indemnify, defend and hold harmless the Company, its Affiliates, directors, officers and employees, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each a “Company Indemnified Party”), from and against any losses, claims, damages or liabilities to which such Company Indemnified Party may become subject, under the Securities Act or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Representative), insofar as such losses, claims, damages or liabilities (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, the Prospectus, or any amendment or supplement thereto, 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, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with the Underwriter Information, and will reimburse such Company Indemnified Party for any legal or other expenses reasonably incurred by it in connection with defending against any such loss, claim, damage, liability or action; provided, however, that the Underwriter shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Prospectus, or any amendment or supplement thereto, or, in reliance upon and in conformity with information furnished in writing to the Underwriter by the Company. The indemnification obligations under this Section 7(b) are not exclusive and will be in addition to any liability which the Underwriter might otherwise have and shall not limit any rights or remedies which may otherwise be available at law or in equity to each Company Indemnified Party.
(c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of 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 the indemnifying party in writing of the commencement thereof, but the failure to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have to any indemnified party except to the extent such indemnifying party has been materially prejudiced by such failure. In case any such action shall be brought against any indemnified party, and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of the indemnifying party’s election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof; provided, however, that if (i) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (ii) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party), or (iii) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, the indemnified party shall have the right to employ a single counsel to represent it in any claim in respect of which indemnity may be sought under subsection (a) or (b) of this Section 7, in which event the reasonable fees and expenses of such separate counsel shall be borne by the indemnifying party or parties and reimbursed to the indemnified party as incurred.
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(d) The indemnifying party under this Section 7 shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is a party or could be named and indemnity was or would be sought hereunder by such indemnified party, unless such settlement, compromise or consent (i) includes an unconditional release of such indemnified party from all liability for claims that are the subject matter of such action, suit or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. Notwithstanding the foregoing, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel pursuant to Section 7(c), such indemnifying party agrees that it shall be liable for any settlement effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in this Section 7 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then the indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above, (i) in such proportion 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 (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriter on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriter on the other hand shall be deemed to be in the same proportion as the total net proceeds from the Offering (before deducting expenses) received by the Company bear to the total cash compensation received by the Underwriter. The relative fault 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’ relevant intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriter agree that it would not be just and equitable if contributions pursuant to this subsection (e) were to be determined by pro rata allocation (even if the Underwriter was treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the first sentence of this subsection (e). The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending against any action or claim that is the subject of this subsection (e). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
(f) For purposes of this Agreement, the Underwriter confirms, and the Company acknowledges, that there is no information concerning the Underwriter furnished in writing to the Company by the Underwriter specifically for preparation of or inclusion in the Registration Statement or the Prospectus other than the Underwriter Information.
Section 8. Representations and Indemnities to Survive Delivery. The respective indemnities, agreements, representations, warranties and other statements of the Company or any person controlling the Company, of its officers, and of the Underwriter set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Underwriter, the Company, or any of its or their partners, officers or directors or any controlling person, as the case may be, and will survive delivery of and payment for the Securities sold hereunder and any termination of this Agreement. A successor to the Underwriter, or to the Company, its directors or officers or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Agreement.
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Section 9. 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. The Underwriter shall have the right to terminate this Agreement at any time upon 15 days written notice to the Company, or as practical as possible prior to any Closing Date if: (i) any domestic or international event or act or occurrence has materially disrupted, the market for the Company’s securities or securities in general; or (ii) trading on a Senior Exchange has been rejected by such Senior Exchange 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 Senior Exchange 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 or China or there is a declaration of a national emergency or war by the United States or China 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 Securities on the terms and in the manner contemplated by the Prospectus.
(b) Any notice of termination pursuant to this Section 9 shall be in writing.
(c) If this Agreement shall be terminated pursuant to any of the provisions 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 out-of-pocket expenses (including the reasonable fees and expenses of their counsel, and expenses associated with a due diligence report), actually incurred by the Underwriter in connection herewith as allowed under FINRA Rule 5110, less any amounts previously paid by the Company, subject to the cap on expenses set forth in Section 1(a)(iii) hereof. To the extent that the Underwriter’s out-of-pocket expenses are less than the sums already advanced by the Company to the Underwriter (“Advances”), the Underwriter will return to the Company that portion of the Advances not offset by actual expenses.
Section 10. Right of First Refusal [Intentionally Omitted]
Section 11. Notices. All communications hereunder shall be in writing and shall be mailed, hand delivered, delivered by reputable overnight courier (i.e., Federal Express) or delivered by facsimile or e-mail transmission to the parties hereto as follows:
If to the Underwriter, then to:
Boustead Securities, LLC
6 Venture, Suite 395
Irvine, CA 92618
| Attn: | Keith Moore | |
| Attn: | Daniel J. McClory | |
| Email: | Keith@boustead1828.com | |
| Dan@boustead1828.com |
With a copy (which shall not constitute notice) to:
Sichenzia Ross Ference LLP
1185 Avenue of the Americas, 37th Floor
New York, NY 10036
| Attn: | Benjamin Tan, Esq. | |
| Email: | btan@SRF.LAW |
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If to the Company:
With a copy (which shall not constitute notice) to:
Ortoli Rosenstadt LLP
366 Madison Avenue
New York, NY 10017
| Attn: | William Rosenstadt, Esq. | |
| Jason Ye, Esq. | ||
| Email: | wsr@orllp.legal | |
| jye@orllp.legal |
Any party hereto may change the address for receipt of communications by giving written notice to the others.
Section 12. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto, and to the benefit of the employees, officers and directors and controlling persons referred to in Section 7 hereof, and to their respective successors, and no other person will have any right or obligation hereunder.
Section 13. Partial Unenforceability. The invalidity or unenforceability of any section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.
Section 14. Governing Law Provisions. This Agreement shall be deemed to have been made and delivered in New York and both this Agreement and the transactions contemplated hereby shall be governed as to validity, interpretation, construction, effect and in all other respects by the internal laws of the State of New York, without regard to the conflict of laws principles thereof. Each of the Underwriter and the Company: (i) agrees that any legal suit, action or proceeding arising out of or relating to this Agreement and/or the transactions contemplated hereby shall be instituted exclusively in New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, (ii) waives any objection which it may now or hereafter have to the venue of any such suit, action or proceeding, and (iii) irrevocably consents to the jurisdiction of the New York Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding. Each of the Underwriter and the Company further agrees to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York and agrees that service of process upon the Company mailed by certified mail to the Company’s address shall be deemed in every respect effective service of process upon the Company, in any such suit, action or proceeding, and service of process upon the Underwriter mailed by certified mail to the Underwriter address(es) shall be deemed in every respect effective service process upon the Underwriter, in any such suit, action or proceeding.
Section 15. General Provisions.
(a) This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations solely with respect to the subject matters hereof. Notwithstanding anything to the contrary set forth herein, it is understood and agreed by the parties hereto that all other terms and conditions of the Engagement Letter shall remain in full force and effect. This Agreement may be executed in two or more counterparts, each one of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement may not be amended or modified unless in writing and signed by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party whom the condition is meant to benefit. Section headings herein are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement.
(b) The Company acknowledges that in connection with the Offering of the Offered Securities: (i) the Underwriter has acted at arm’s length, is not an agent of, and owes no fiduciary duties to the Company or any other person, (ii) the Underwriter owes the Company only those duties and obligations set forth in this Agreement and (iii) the Underwriter may have interests that differ from those of the Company. The Company waives to the full extent permitted by applicable law any claims it may have against the Underwriter arising from an alleged breach of fiduciary duty in connection with the Offering of the Offered Shares.
[The remainder of this page has been intentionally left blank.]
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If the foregoing is in accordance with your understanding of our agreement, please sign below whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in accordance with its terms.
| Very truly yours, | ||
|
Yi Po International Holdings Limited | ||
| By: | ||
| Name: | Weiming Jin | |
| Title: | Chief Executive Officer | |
The foregoing Underwriting Agreement is hereby confirmed and agreed to of the date first above written.
| BOUSTEAD SECURITIES, LLC | ||
| By: | ||
| Name: | Keith Moore | |
| Title: | Chief Executive Officer | |
Schedule A
Lock-up Party
| Locked-up Parties | Ordinary Shares Beneficially Owned |
Lock Up Period | ||
| Weiming Jin | 8,700,000* | 12 months* | ||
| Xin Jin | 200,000 | 6 months | ||
| Chao Wang | 0 | 6 months | ||
| Chao Chen | 300,000 | 6 months | ||
| Alex Chen | 0 | 6 months | ||
| Jehn Ming Lim | 0 | 6 months | ||
| Zijian Tong | 0 | 6 months | ||
| Tao Feng | 0 | 6 months | ||
| Ausen International Investment Holdings Co., Limited | 8,700,000 | 12 months | ||
| Shunyu Limited | 400,000 | 6 months | ||
| Glacier Warrior Holdings Limited | 200,000 | 6 months | ||
| Glacier Warrior International Limited | 200,000 | 6 months | ||
* Weiming Jin is deemed to beneficially own 8,700,000 Ordinary Shares through Ausen International Investment Holdings Co., Limited, a British Virgin Islands company holding 8,700,000 shares of our Ordinary Shares. Weiming Jin has the sole voting and dispositive power of all the shares held by Ausen International Investment Holdings Co., Limited.
Exhibit A
Form of Underwriter’s Warrant
Exhibit B
Form of Lock-up Agreement
[_____________], 2022
Boustead Securities, LLC
6 Venture, Suite 395
Irvine, CA 92618
Re: Proposed Public Offering by Yi Po International Holdings Limited
Ladies and Gentlemen:
The undersigned, a stockholder, director or officer of Yi Po International Holdings Limited, a Cayman Islands company limited by shares (the “Company”), understands that Boustead Securities, LLC (the “Underwriter”) will act as an underwriter to carry out an offering (the “Offering”) of the Company’s ordinary shares, $0.000156 par value (the “Ordinary Shares”). In recognition of the benefit that the Offering will confer upon the undersigned, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with the Underwriter that, without the prior written consent of the Underwriter, during a period of up to [6/12] months from the date on which the trading of the Ordinary Shares on the Senior Exchange commences (the “Lock-Up Period”), the undersigned will not, without the prior written consent of the Underwriter, directly or indirectly(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 or otherwise transfer or dispose of any securities of the Company (including the issuance of Ordinary Shares upon the exercise of options) (collectively, the “Lock-Up Securities”), whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or file, or cause to be filed, any registration statement under the Securities Act of 1933, as amended, with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Lock-Up Securities, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of the Lock-Up Securities or such other securities, in cash or otherwise or (iii) enter into any swap or other agreement, arrangement, hedge or transaction that transfers to another, in whole or in part, directly or indirectly, any of the economic consequences of ownership of our Ordinary Shares or other capital stock or any securities convertible into or exercisable or exchangeable for our Ordinary Shares or other capital stock; or (iv) conduct any offerings conducted through other broker-dealers or at the Company’s own volition or (v) re-price or change the terms of existing options and warrants.
Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer the Lock-Up Securities without the prior written consent of the Underwriter as follows, provided that (1) the Underwriter receives a signed lock-up agreement for the balance of the Lock-Up Period from each donee, trustee or transferee, as the case may be, (2) any such transfer shall not involve a disposition for value, (3) such transfers are not required to be reported in any public report or filing with the Securities and Exchange Commission, or otherwise and (4) the undersigned does not otherwise voluntarily effect any public filing or report regarding such transfers:
(i) as a bona fide gift or gifts (including but not limited to charitable gifts); or
(ii) to any member of the immediate family of the undersigned or to a trust or other entity for the direct or indirect benefit of, or wholly-owned by, the undersigned or the immediate family of the undersigned (for purposes of this lock-up agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin); or
(iii) if the undersigned is a corporation, partnership, limited liability company, trust or other business entity (1) transfers to another corporation, partnership, limited liability company, trust or other business entity that is a direct or indirect affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of the undersigned or (2) distributions of Ordinary Shares or any security convertible into or exercisable for Ordinary Shares to limited partners, limited liability company members or stockholders of the undersigned; or
(iv) if the undersigned is a trust, transfers to the beneficiary of such trust; or
(v) by will, other testamentary document or intestate succession; or
(vi) by operation of law pursuant to a qualified domestic order or in connection with a divorce settlement.; or
(vii) pursuant to a trading plan established pursuant to Rule 10b5-1 of the Exchange Act.
The undersigned further agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this lock-up agreement during the Lock-Up Period, it will give notice thereof to the Company and will not consummate 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 understands that, if the Offering shall terminate or be terminated prior to payment for and delivery of the Securities, the undersigned shall be released from all obligations set forth herein.
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 Lock-Up Securities except in compliance with the foregoing restrictions.
The undersigned, whether or not participating in the Offering, understands that the Underwriter is proceeding with the Offering in reliance upon this lock-up agreement.
This lock-up agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws principles thereof.
[Signature page follows]
| Very truly yours, | |
| (Name - Please Print) | |
| (Signature) |
Exhibit 3.1
THE COMPANIES ACT (AS REVISED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
OF
Yl PO INTERNATIONAL HOLDINGS LIMITED
易泊国际控股有限公司
(Adopted by a Special Resolution passed on September 5, 2022)
| 1. | The name of the Company is Yl PO INTERNATIONAL HOLDINGS LIMITED 易泊国际控股有限公司. |
| 2. | The Registered Office of the Company will be at the offices of Osiris International Cayman Limited, Suite #4-210, Governors Square, 23 Lime Tree Bay Avenue, PO Box 32311, Grand Cayman KY1-1209, Cayman Islands, or at such other location within the Cayman Islands as the Directors may from time to time determine. |
| 3. | The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Act or any other law of the Cayman Islands. |
| 4. | The Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit as provided by the Companies Act. |
| 5. | The Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands; provided that nothing in this section shall be construed as to prevent the Company effecting and concluding contracts in the Cayman Islands, and exercising in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands. |
| 6. | The liability of each Shareholder is limited to the amount, if any, unpaid on the Shares held by such Shareholder. |
| 7. | The authorised share capital of the Company is US$50,000 divided into 320,000,000 Ordinary shares of a par value of US$0.00015625 each, of such class or classes (however designated) as the board of directors may determine in accordance with Articles 8 and 9 of the Articles of Association of the Company. Subject to the Companies Act and the Articles, the Company shall have power to redeem or purchase any of its Shares and to increase or reduce its authorised share capital and to sub-divide or consolidate the said Shares or any of them and to issue all or any part of its capital whether original, redeemed, increased or reduced with or without any preference, priority, special privilege or other rights or subject to any postponement of rights or to any conditions or restrictions whatsoever and so that unless the conditions of issue shall otherwise expressly provide every issue of shares whether stated to be ordinary, preference or otherwise shall be subject to the powers on the part of the Company hereinbefore provided. |
| 8. | The Company has the power contained in the Companies Act to deregister in the Cayman Islands and be registered by way of continuation in some other jurisdiction. |
| 9. | Capitalised terms that are not defined in this Memorandum of Association bear the same meanings as those given in the Articles of Association of the Company. |
THE COMPANIES ACT (AS REVISED)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
OF
Yl PO INTERNATIONAL HOLDINGS LIMITED
易泊国际控股有限公司
(Adopted by a Special Resolution passed on September 5, 2022)
TABLE A
The regulations contained or incorporated in Table ‘A’ in the First Schedule of the Companies Act shall not apply to the Company and the following Articles shall comprise the Articles of Association of the Company.
INTERPRETATION
| 1. | In these Articles the following defined terms will have the meanings ascribed to them, if not inconsistent with the subject or context: |
| “Articles” | means these articles of association of the Company, as from time to time altered or added to in accordance with the Companies Act and these Articles; |
| “Board” and “Board of Directors” and “Directors” | means the directors of the Company for the time being, or as the case may be, the directors assembled as a board or as a committee thereof; |
| “Chairperson” | means the chairperson of the Board of Directors; |
| “Class” or “Classes” | means any class or classes of Shares as may from time to time be issued by the Company; |
| “Commission” | means the Securities and Exchange Commission of the United States of America or any other federal agency for the time being administering the Securities Act; |
| “Communications Facilities” | means technology (including without limitation video, video-conferencing, internet or online conferencing applications, telephone or tele-conferencing and/or other video-communications, internet or online conferencing application or telecommunications facilities) by which natural persons are capable of hearing and being heard by each other; |
| “Company” | means Yl PO INTERNATIONAL HOLDINGS LIMITED易泊国际控股有限公司, a Cayman Islands exempted company; |
| “Companies Act” | means the Companies Act (As Revised) of the Cayman Islands and any statutory amendment or re-enactment thereof; |
| “Company’s Website” | means the main corporate/investor relations website of the Company, the address or domain name of which has been disclosed in any registration statement filed by the Company with the Commission in connection with its initial public offering of Shares, or which has otherwise been notified to Shareholders; |
| “Designated Stock Exchange” | means the stock exchange in the United States on which any Shares are listed for trading; |
| “Designated Stock Exchange Rules” |
means the relevant code, rules and regulations, as amended, from time to time, applicable as a result of the original and continued listing of any Shares on the Designated Stock Exchange; |
| “electronic” | has the meaning given to it in the Electronic Transactions Act and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor; |
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| “electronic communication” | means electronic posting to the Company’s Website, transmission to any number, address or internet website or other electronic delivery methods as otherwise decided and approved by not less than two-thirds of the vote of the Board; |
| “Electronic Transactions Act” | means the Electronic Transactions Act (As Revised) of the Cayman Islands and any statutory amendment or re-enactment thereof; |
| “electronic record” | has the meaning given to it in the Electronic Transactions Act and any amendment thereto or re-enactments thereof for the time being in force and includes every other law incorporated therewith or substituted therefor; |
| “Memorandum of Association” | means the memorandum of association of the Company, as amended or substituted from time to time; |
| “Ordinary Resolution” |
means a resolution: | |
|
(a) |
passed by a simple majority of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting of the Company held in accordance with these Articles; or
| |
| (b) | approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is executed; | |
| “Ordinary Shares” | means the ordinary shares in the capital of the Company with a par value of US$0.00015625 each; |
| “paid up” | means paid up as to the par value in respect of the issue of any Shares and includes credited as paid up; |
| “Person” | means any natural person, firm, company, joint venture, partnership, corporation, association or other entity (whether or not having a separate legal personality) or any of them as the context so requires; |
| “Present” | means, in respect of any Person, such Person’s presence at a general meeting of Shareholders, which may be satisfied by means of such Person or, if a corporation or other non-natural Person, its duly authorized representative (or, in the case of any Shareholder, a proxy which has been validly appointed by such Shareholder in accordance with these Articles), being: (a) physically present at the venue specified in the notice convening the meeting; or (b) in the case of any meeting at which Communications Facilities are permitted in accordance with these Articles, including any Virtual Meeting, connected by Communication Facilities in accordance with procedures specified in the notice convening such general meeting; and “Presence” shall be construed accordingly; |
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| “Register” | means the register of Members of the Company maintained in accordance with the Companies Act; |
| “Registered Office” | means the registered office of the Company as required by the Companies Act; |
| “Seal” | means the common seal of the Company (if adopted) including any facsimile thereof; |
| “Secretary” | means any Person appointed by the Directors to perform any of the duties of the secretary of the Company; |
| “Securities Act” | means the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time; |
| “Share” | means a share in the capital of the Company. All references to “Shares” herein shall be deemed to be Shares of any or all Classes as the context may require. For the avoidance of doubt in these Articles the expression “Share” shall include a fraction of a Share; |
| “Shareholder” or “Member” | means a Person who is registered as the holder of one or more Shares in the Register; |
| “Share Premium Account” | means the share premium account established in accordance with these Articles and the Companies Act; |
| “signed” | means bearing a signature or representation of a signature affixed by mechanical means or an electronic symbol or process attached to or logically associated with an electronic communication and executed or adopted by a Person with the intent to sign the electronic communication; |
| “Special Resolution” |
means a special resolution of the Company passed in accordance with the Companies Act, being a resolution: | |
|
(a) |
passed
by not less than two-thirds of the votes cast by such Shareholders as, being entitled to do so, vote in person or, where proxies are allowed,
by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting of the Company of which notice
specifying the intention to propose the resolution as a special resolution has been duly given; or | |
|
(b) |
approved in writing by all of the Shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Shareholders and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments, if more than one, is executed; | |
| “Treasury Share” | means a Share held in the name of the Company as a treasury share in accordance with the Companies Act; |
| “United States” | means the United States of America, its territories, its possessions and all areas subject to its jurisdiction; and |
| “Virtual Meeting” | means any general meeting of the Shareholders at which the Shareholders (and any other permitted participants of such meeting, including without limitation the chairperson of the meeting and any Directors) are permitted to be Present solely by means of Communications Facilities. |
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| 2. | In these Articles, save where the context requires otherwise: |
| (a) | words importing the singular number shall include the plural number and vice versa; |
| (b) | words importing the masculine gender only shall include the feminine gender and any Person as the context may require; |
| (c) | the word “may” shall be construed as permissive and the word “shall” shall be construed as imperative; |
| (d) | reference to a dollar or dollars (or US$) and to a cent or cents is reference to dollars and cents of the United States of America; |
| (e) | reference to a statutory enactment shall include reference to any amendment or re-enactment thereof for the time being in force; |
| (f) | reference to any determination by the Directors shall be construed as a determination by the Directors in their sole and absolute discretion and shall be applicable either generally or in any particular case; |
| (g) | reference to “in writing” shall be construed as written or represented by any means reproducible in writing, including any form of print, lithograph, email, facsimile, photograph or telex or represented by any other substitute or format for storage or transmission for writing including in the form of an electronic record or partly one and partly another; |
| (h) | any requirements as to delivery under the Articles include delivery in the form of an electronic record or an electronic communication; |
| (i) | any requirements as to execution or signature under the Articles, including the execution of the Articles themselves, can be satisfied in the form of an electronic signature as defined in the Electronic Transaction Act; and |
| (j) | Sections 8 and 19(3) of the Electronic Transactions Act shall not apply. |
| 3. | Subject to the last two preceding Articles, any words defined in the Companies Act shall, if not inconsistent with the subject or context, bear the same meaning in these Articles. |
PRELIMINARY
| 4. | The business of the Company may be conducted as the Directors see fit. |
| 5. | The Registered Office shall be at such address in the Cayman Islands as the Directors may from time to time determine. The Company may in addition establish and maintain such other offices and places of business and agencies in such places as the Directors may from time to time determine. |
| 6. | The expenses incurred in the formation of the Company and in connection with the offer for subscription and issue of Shares shall be paid by the Company. Such expenses may be amortised over such period as the Directors may determine and the amount so paid shall be charged against income and/or capital in the accounts of the Company as the Directors shall determine. |
| 7. | The Directors shall keep, or cause to be kept, the Register at such place as the Directors may from time to time determine and, in the absence of any such determination, the Register shall be kept at the Registered Office. |
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SHARES
| 8. | Subject to these Articles, all Shares for the time being unissued shall be under the control of the Directors who may, in their absolute discretion and without the approval of the Members, cause the Company to: |
| (a) | issue, allot and dispose of Shares (including, without limitation, preferred shares) (whether in certificated form or non-certificated form) to such Persons, in such manner, on such terms and having such rights and being subject to such restrictions as they may from time to time determine; |
| (b) | grant rights over Shares or other securities to be issued in one or more classes or series as they deem necessary or appropriate and determine the designations, powers, preferences, privileges and other rights attaching to such Shares or securities, including dividend rights, voting rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers, preferences, privileges and rights associated with the then issued and outstanding Shares, at such times and on such other terms as they think proper; and |
| (c) | grant options with respect to Shares and issue warrants or similar instruments with respect thereto. |
| 9. | The Directors may authorise the division of Shares into any number of Classes and the different Classes shall be authorised, established and designated (or re-designated as the case may be) and the variations in the relative rights (including, without limitation, voting, dividend and redemption rights), restrictions, preferences, privileges and payment obligations as between the different Classes (if any) may be fixed and determined by the Directors or by a Special Resolution. The Directors may issue Shares with such preferred or other rights, all or any of which may be greater than the rights of Ordinary Shares, at such time and on such terms as they may think appropriate. Notwithstanding Article 12, the Directors may issue from time to time, out of the authorised share capital of the Company (other than the authorised but unissued Ordinary Shares), series of preferred shares in their absolute discretion and without approval of the Members; provided, however, before any preferred shares of any such series are issued, the Directors shall by resolution of Directors determine, with respect to any series of preferred shares, the terms and rights of that series, including: |
| (a) | the designation of such series, the number of preferred shares to constitute such series and the subscription price thereof if different from the par value thereof; |
| (b) | whether the preferred shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be general or limited; |
| (c) | the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation which such dividends shall bear to the dividends payable on any shares of any other class or any other series of shares; |
| (d) | whether the preferred shares of such series shall be subject to redemption by the Company, and, if so, the times, prices and other conditions of such redemption; |
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| (e) | whether the preferred shares of such series shall have any rights to receive any part of the assets available for distribution amongst the Members upon the liquidation of the Company, and, if so, the terms of such liquidation preference, and the relation which such liquidation preference shall bear to the entitlements of the holders of shares of any other class or any other series of shares; |
| (f) | whether the preferred shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the preferred shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; |
| (g) | whether the preferred shares of such series shall be convertible into, or exchangeable for, shares of any other class or any other series of preferred shares or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; |
| (h) | the limitations and restrictions, if any, to be effective while any preferred shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Company of, the existing shares or shares of any other class of shares or any other series of preferred shares; |
| (i) | the conditions or restrictions, if any, upon the creation of indebtedness of the Company or upon the issue of any additional shares, including additional shares of such series or of any other class of shares or any other series of preferred shares; and |
| (j) | any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof; |
and, for such purposes, the Directors may reserve an appropriate number of Shares for the time being unissued. The Company shall not issue Shares to bearer.
| 10. | The Company may insofar as may be permitted by law, pay a commission to any Person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any Shares. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up Shares or partly in one way and partly in the other. The Company may also pay such brokerage as may be lawful on any issue of Shares. |
| 11. | The Directors may refuse to accept any application for Shares, and may accept any application in whole or in part, for any reason or for no reason. |
MODIFICATION OF RIGHTS
| 12. | Whenever the capital of the Company is divided into different Classes the rights attached to any such Class may, subject to any rights or restrictions for the time being attached to any Class, only be materially adversely varied with the consent in writing of the holders of a majority of the issued Shares of that Class or with the sanction of a Ordinary Resolution passed at a separate meeting of the holders of the Shares of that Class. To every such separate meeting all the provisions of these Articles relating to general meetings of the Company or to the proceedings thereat shall, mutatis mutandis, apply, except that the necessary quorum shall be one or more Persons holding or representing by proxy at least one-third in nominal or par value amount of the issued Shares of the relevant Class (but so that if at any adjourned meeting of such holders a quorum as above defined is not present, those Shareholders who are present shall form a quorum) and that, subject to any rights or restrictions for the time being attached to the Shares of that Class, every Shareholder of the Class shall on a poll have one vote for each Share of the Class held by him. For the purposes of this Article the Directors may treat all the Classes or any two or more Classes as forming one Class if they consider that all such Classes would be affected in the same way by the proposals under consideration, but in any other case shall treat them as separate Classes. |
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| 13. | The rights conferred upon the holders of the Shares of any Class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the Shares of that Class, be deemed to be materially adversely varied by, inter alia, the creation, allotment or issue of further Shares ranking pari passu with or subsequent to them or the redemption or purchase of any Shares of any Class by the Company. The rights of the holders of Shares shall not be deemed to be materially adversely varied by the creation or issue of Shares with preferred or other rights including, without limitation, the creation of Shares with enhanced or weighted voting rights. |
CERTIFICATES
| 14. | Every Person whose name is entered as a Member in the Register may, without payment and upon its written request, request a certificate within two calendar months after allotment or lodgement of transfer (or within such other period as the conditions of issue shall provide) in the form determined by the Directors. All certificates shall specify the Share or Shares held by that Person, provided that in respect of a Share or Shares held jointly by several Persons the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a Share to one of several joint holders shall be sufficient delivery to all. All certificates for Shares shall be delivered personally or sent through the post addressed to the Member entitled thereto at the Member’s registered address as appearing in the Register. |
| 15. | Every share certificate of the Company shall bear legends required under the applicable laws, including the Securities Act. |
| 16. | Any two or more certificates representing Shares of any one Class held by any Member may at the Member’s request be cancelled and a single new certificate for such Shares issued in lieu on payment (if the Directors shall so require) of one U.S. dollar (US$1.00) or such smaller sum as the Directors shall determine. |
| 17. | If a share certificate shall be damaged or defaced or alleged to have been lost, stolen or destroyed, a new certificate representing the same Shares may be issued to the relevant Member upon request, subject to delivery up of the old certificate or (if alleged to have been lost, stolen or destroyed) compliance with such conditions as to evidence and indemnity and the payment of out-of-pocket expenses of the Company in connection with the request as the Directors may think fit. |
| 18. | In the event that Shares are held jointly by several Persons, any request may be made by any one of the joint holders and if so made shall be binding on all of the joint holders. |
FRACTIONAL SHARES
| 19. | The Directors may issue fractions of a Share and, if so issued, a fraction of a Share shall be subject to and carry the corresponding fraction of liabilities (whether with respect to nominal or par value, premium, contributions, calls or otherwise), limitations, preferences, privileges, qualifications, restrictions, rights (including, without prejudice to the generality of the foregoing, voting and participation rights) and other attributes of a whole Share. If more than one fraction of a Share of the same Class is issued to or acquired by the same Shareholder such fractions shall be accumulated. |
LIEN
| 20. | The Company has a first and paramount lien on every Share (that are not fully paid) for all amounts (whether presently payable or not) payable at a fixed time or called in respect of that Share. The Company also has a first and paramount lien on every Share registered in the name of a Person indebted or under liability to the Company (whether he is the sole registered holder of a Share or one of two or more joint holders) for all amounts owing by him or his estate to the Company (whether or not presently payable). The Directors may at any time declare a Share to be wholly or in part exempt from the provisions of this Article. The Company’s lien on a Share extends to any amount payable in respect of it, including but not limited to dividends. |
| 21. | The Company may sell, in such manner as the Directors in their absolute discretion think fit, any Share on which the Company has a lien, but no sale shall be made unless an amount in respect of which the lien exists is presently payable nor until the expiration of fourteen calendar days after a notice in writing, demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the Share, or the Persons entitled thereto by reason of his death or bankruptcy. |
| 22. | For giving effect to any such sale the Directors may authorise a Person to transfer the Shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the Shares comprised in any such transfer and he shall not be bound to see to the application of the purchase money, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. |
| 23. | The proceeds of the sale after deduction of expenses, fees and commissions incurred by the Company shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue shall (subject to a like lien for sums not presently payable as existed upon the Shares prior to the sale) be paid to the Person entitled to the Shares immediately prior to the sale. |
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CALLS ON SHARES
| 24. | Subject to the terms of the allotment, the Directors may from time to time make calls upon the Shareholders in respect of any moneys unpaid on their Shares, and each Shareholder shall (subject to receiving at least fourteen calendar days’ notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on such Shares. A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed. |
| 25. | The joint holders of a Share shall be jointly and severally liable to pay calls in respect thereof. |
| 26. | If a sum called in respect of a Share is not paid before or on the day appointed for payment thereof, the Person from whom the sum is due shall pay interest upon the sum at the rate of eight percent per annum from the day appointed for the payment thereof to the time of the actual payment, but the Directors shall be at liberty to waive payment of that interest wholly or in part. |
| 27. | The provisions of these Articles as to the liability of joint holders and as to payment of interest shall apply in the case of non-payment of any sum which, by the terms of issue of a Share, becomes payable at a fixed time, whether on account of the amount of the Share, or by way of premium, as if the same had become payable by virtue of a call duly made and notified. |
| 28. | The Directors may make arrangements with respect to the issue of partly paid Shares for a difference between the Shareholders, or the particular Shares, in the amount of calls to be paid and in the times of payment. |
| 29. | The Directors may, if they think fit, receive from any Shareholder willing to advance the same all or any part of the moneys uncalled and unpaid upon any partly paid Shares held by him, and upon all or any of the moneys so advanced may (until the same would, but for such advance, become presently payable) pay interest at such rate (not exceeding without the sanction of an Ordinary Resolution, eight percent per annum) as may be agreed upon between the Shareholder paying the sum in advance and the Directors. No such sum paid in advance of calls shall entitle the Member paying such sum to any portion of a dividend declared in respect of any period prior to the date upon which such sum would, but for such payment, become presently payable. |
FORFEITURE OF SHARES
| 30. | If a Shareholder fails to pay any call or instalment of a call in respect of partly paid Shares on the day appointed for payment, the Directors may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued. |
| 31. | The notice shall name a further day (not earlier than the expiration of fourteen calendar days from the date of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed, the Shares in respect of which the call was made will be liable to be forfeited. |
| 32. | If the requirements of any such notice as aforesaid are not complied with, any Share in respect of which the notice has been given may at any time thereafter, before the payment required by notice has been made, be forfeited by a resolution of the Directors to that effect. |
| 33. | A forfeited Share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the Directors think fit. |
| 34. | A Person whose Shares have been forfeited shall cease to be a Shareholder in respect of the forfeited Shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the Shares forfeited, but his liability shall cease if and when the Company receives payment in full of the amount unpaid on the Shares forfeited. |
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| 35. | A certificate in writing under the hand of a Director that a Share has been duly forfeited on a date stated in the certificate shall be conclusive evidence of the facts in the declaration as against all Persons claiming to be entitled to the Share. |
| 36. | The Company may receive the consideration, if any, given for a Share on any sale or disposition thereof pursuant to the provisions of these Articles as to forfeiture and may execute a transfer of the Share in favour of the Person to whom the Share is sold or disposed of and that Person shall be registered as the holder of the Share and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the Shares be affected by any irregularity or invalidity in the proceedings in reference to the disposition or sale. |
| 37. | The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which by the terms of issue of a Share becomes due and payable, whether on account of the amount of the Share, or by way of premium, as if the same had been payable by virtue of a call duly made and notified. |
TRANSFER OF SHARES
| 38. | The instrument of transfer of any Share shall be in writing and in any usual or common form or such other form as the Directors may, in their absolute discretion, approve and be executed by or on behalf of the transferor and if in respect of a nil or partly paid up Share, or if so required by the Directors, shall also be executed on behalf of the transferee and shall be accompanied by the certificate (if any) of the Shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to remain a Shareholder until the name of the transferee is entered in the Register in respect of the relevant Shares. |
| 39. | The Directors may in their absolute discretion decline to register any transfer of Shares which is not fully paid up or on which the Company has a lien. |
| (a) | The Directors may also decline to register any transfer of any Share unless: |
| (i) | the instrument of transfer is lodged with the Company, accompanied by the certificate for the Shares to which it relates and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer; |
| (ii) | the instrument of transfer is in respect of only one Class of Shares; |
| (iii) | the instrument of transfer is properly stamped, if required; |
| (iv) | in the case of a transfer to joint holders, the number of joint holders to whom the Share is to be transferred does not exceed four; and |
| (v) | a fee of such maximum sum as the Designated Stock Exchange may determine to be payable, or such lesser sum as the Board of Directors may from time to time require, is paid to the Company in respect thereof. |
| 40. | The registration of transfers may, on ten calendar days’ notice being given by advertisement in such one or more newspapers, by electronic means or by any other means in accordance with the Designated Stock Exchange Rules, be suspended and the Register closed at such times and for such periods as the Directors may, in their absolute discretion, from time to time determine, provided always that such registration of transfer shall not be suspended nor the Register closed for more than thirty calendar days in any calendar year. |
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| 41. | All instruments of transfer that are registered shall be retained by the Company. If the Directors refuse to register a transfer of any Shares, they shall within three calendar months after the date on which the transfer was lodged with the Company send notice of the refusal to each of the transferor and the transferee. |
TRANSMISSION OF SHARES
| 42. | The legal personal representative of a deceased sole holder of a Share shall be the only Person recognised by the Company as having any title to the Share. In the case of a Share registered in the name of two or more holders, the survivors or survivor, or the legal personal representatives of the deceased survivor, shall be the only Person recognised by the Company as having any title to the Share. |
| 43. | Any Person becoming entitled to a Share in consequence of the death or bankruptcy of a Shareholder shall, upon such evidence being produced as may from time to time be required by the Directors, have the right either to be registered as a Shareholder in respect of the Share or, instead of being registered himself, to make such transfer of the Share as the deceased or bankrupt Person could have made; but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the Share by the deceased or bankrupt Person before the death or bankruptcy. |
| 44. | A Person becoming entitled to a Share by reason of the death or bankruptcy of a Shareholder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered Shareholder, except that he shall not, before being registered as a Shareholder in respect of the Share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company, provided however, that the Directors may at any time give notice requiring any such Person to elect either to be registered himself or to transfer the Share, and if the notice is not complied with within ninety calendar days, the Directors may thereafter withhold payment of all dividends, bonuses or other monies payable in respect of the Share until the requirements of the notice have been complied with. |
REGISTRATION OF EMPOWERING INSTRUMENTS
| 45. | The Company shall be entitled to charge a fee not exceeding one U.S. dollar (US$1.00) on the registration of every probate, letters of administration, certificate of death or marriage, power of attorney, notice in lieu of distringas, or other instrument. |
ALTERATION OF SHARE CAPITAL
| 46. | The Company may from time to time by Ordinary Resolution increase the share capital by such sum, to be divided into Shares of such Classes and amount, as the resolution shall prescribe. |
| 47. | The Company may by Ordinary Resolution: |
| (a) | increase its share capital by new Shares of such amount as it thinks expedient; |
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| (b) | consolidate and divide all or any of its share capital into Shares of a larger amount than its existing Shares; |
| (c) | subdivide its Shares, or any of them, into Shares of an amount smaller than that fixed by the Memorandum, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced Share shall be the same as it was in case of the Share from which the reduced Share is derived; and |
| (d) | cancel any Shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any Person and diminish the amount of its share capital by the amount of the Shares so cancelled. |
| 48. | The Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner authorised by law. |
REDEMPTION, PURCHASE AND SURRENDER OF SHARES
| 49. | Subject to the provisions of the Companies Act and these Articles, the Company may: |
| (a) | issue Shares that are to be redeemed or are liable to be redeemed at the option of the Shareholder or the Company. The redemption of Shares shall be effected in such manner and upon such terms as may be determined, before the issue of such Shares, by either the Board or by the Shareholders by Special Resolution; |
| (b) | purchase its own Shares (including any redeemable Shares) on such terms and in such manner and terms as have been approved by the Board or by the Members by Ordinary Resolution, or are otherwise authorised by these Articles; and |
| (c) | make a payment in respect of the redemption or purchase of its own Shares in any manner permitted by the Companies Act, including out of capital. |
| 50. | The purchase of any Share shall not oblige the Company to purchase any other Share other than as may be required pursuant to applicable law and any other contractual obligations of the Company. |
| 51. | The holder of the Shares being purchased shall be bound to deliver up to the Company the certificate(s) (if any) thereof for cancellation and thereupon the Company shall pay to him the purchase or redemption monies or consideration in respect thereof. |
| 52. | The Directors may accept the surrender for no consideration of any fully paid Share. |
TREASURY SHARES
| 53. | The Directors may, prior to the purchase, redemption or surrender of any Share, determine that such Share shall be held as a Treasury Share. |
| 54. | The Directors may determine to cancel a Treasury Share or transfer a Treasury Share on such terms as they think proper (including, without limitation, for nil consideration). |
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GENERAL MEETINGS
| 55. | All general meetings other than annual general meetings shall be called extraordinary general meetings. |
| 56. | The Company may (but shall not be obliged to) in each calendar year hold a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it. The annual general meeting shall be held at such time and place as may be determined by the Directors. |
| (a) | At these meetings the report of the Directors (if any) shall be presented. |
| 57. | The Chairperson or a majority of the Directors may call general meetings, and they shall on a Shareholders’ requisition forthwith proceed to convene an extraordinary general meeting of the Company. |
| (a) | A Shareholders’ requisition is a requisition of Members holding at the date of deposit of the requisition Shares which carry in aggregate not less than one-third (1/3) of all votes attaching to all issued and outstanding Shares of the Company that as at the date of the deposit carry the right to vote at general meetings of the Company. |
| (b) | The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more requisitionists. |
| (c) | If there are no Directors as at the date of the deposit of the Shareholders’ requisition, or if the Directors do not within twenty-one calendar days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty-one calendar days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three calendar months after the expiration of the said twenty-one calendar days. |
| (d) | A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors. |
NOTICE OF GENERAL MEETINGS
| 58. | At least ten (10) calendar days’ notice shall be given for any general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is given and shall specify the place (except in the case of a Virtual Meeting), the day and the hour of the meeting and the general nature of the business and shall be given in the manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company, provided that a general meeting of the Company shall, whether or not the notice specified in this Article has been given and whether or not the provisions of these Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed: |
| (a) | in the case of an annual general meeting, by all the Shareholders (or their proxies) entitled to attend and vote thereat; and |
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| (b) | in the case of an extraordinary general meeting, by two-thirds (2/3rd) of the Shareholders having a right to attend and vote at the meeting, Present at the meeting. |
| 59. | The accidental omission to give notice of a meeting to or the non-receipt of a notice of a meeting by any Shareholder shall not invalidate the proceedings at any meeting. |
PROCEEDINGS AT GENERAL MEETINGS
| 60. | No business except for the appointment of a chairperson for the meeting shall be transacted at any general meeting unless a quorum of Shareholders is Present at the time when the meeting proceeds to business. One or more Shareholders holding Shares which carry in aggregate (or representing by proxy) not less than one-third of all votes attaching to all Shares in issue and entitled to vote at such general meeting, Present at the meeting, shall be a quorum for all purposes. |
| 61. | If within half an hour from the time appointed for the meeting a quorum is not Present, the meeting shall be dissolved. |
| 62. | If the Directors so determine in respect of a specific general meeting or all general meetings of the Company, Presence at the relevant general meeting may be by means of Communications Facilities. The Directors may determine that any general meeting may be held as a Virtual Meeting. The notice of any general meeting at which Communications Facilities may be utilized (including any Virtual Meeting) must disclose the Communications Facilities that will be used, including the procedures to be followed by any Shareholder or other participant of the general meeting utilizing such Communications Facilities. |
| 63. | The Chairperson, if any, shall preside as chairperson at every general meeting of the Company. |
| 64. | If there is no such Chairperson, or if at any general meeting he is not Present within fifteen minutes after the time appointed for holding the meeting or is unwilling to act as chairperson of the meeting, any Director or Person nominated by the Directors shall preside as chairperson of that meeting, failing which the Shareholders Present shall choose any Person Present to be chairperson of that meeting. |
| 65. | The chairperson of any general meeting shall be entitled to participate at any such general meeting by Communication Facilities, and to act as the chairperson of such general meeting, in which event the following provisions shall apply: |
| (a) | he shall be deemed to be Present at the general meeting; and |
| (b) | if the Communication Facilities fail to enable the chairperson of the general meeting to hear and be heard by other Persons participating in the meeting, then the other Directors Present at the general meeting shall choose another Director Present to act as chairperson of the general meeting for (or for the remainder of) the general meeting; provided that if no other Director is Present at the general meeting, or if all the Directors Present decline to take the chair, then the general meeting shall be automatically adjourned to the same day in the next week and at such time and place as shall be decided by the Directors. |
| 66. | The chairperson of any general meeting at which a quorum is Present may with the consent of the meeting (and shall if so directed by the meeting) adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting, or adjourned meeting, is adjourned for fourteen calendar days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. |
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| 67. | The Directors may cancel or postpone any duly convened general meeting at any time prior to such meeting, except for general meetings requisitioned by the Shareholders in accordance with these Articles, for any reason or for no reason, upon notice in writing to Shareholders. A postponement may be for a stated period of any length or indefinitely as the Directors may determine. |
| 68. | At any general meeting a resolution put to the vote of the meeting shall be decided on a poll. |
| 69. | A poll shall be taken in such manner as the chairperson of the meeting directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. |
| 70. | All questions submitted to a meeting shall be decided by an Ordinary Resolution except where a greater majority is required by these Articles or by the Companies Act. In the case of an equality of votes, the chairperson of the meeting shall be entitled to a second or casting vote. |
| 71. | A poll demanded on the election of a chairperson of the meeting or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairperson of the meeting directs. |
VOTES OF SHAREHOLDERS
| 72. | Subject to any rights and restrictions for the time being attached to any Share, at a general meeting of the Company, on a poll, every Shareholder Present at the meeting shall have one (1) vote for each Ordinary Share of which such Shareholder is the holder. |
| 73. | In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy (or, if a corporation or other non-natural person, by its duly authorised representative or proxy) shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register. |
| 74. | Shares carrying the right to vote that are held by a Shareholder of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may be voted by his committee, or other Person in the nature of a committee appointed by that court, and any such committee or other Person may vote in respect of such Shares by proxy. |
| 75. | No Shareholder shall be entitled to vote at any general meeting of the Company unless all calls, if any, or other sums presently payable by him in respect of Shares carrying the right to vote held by him have been paid. |
| 76. | On a poll votes may be given either personally or by proxy. |
| 77. | Each Shareholder, other than a recognised clearing house (or its nominee(s)), may only appoint one proxy. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under Seal or under the hand of an officer or attorney duly authorised. A proxy need not be a Shareholder. |
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| 78. | An instrument appointing a proxy may be in any usual or common form or such other form as the Directors may approve. |
| 79. | The instrument appointing a proxy shall be deposited at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company: |
| (a) | not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote; or |
| (b) | in the case of a poll taken more than 48 hours after it is demanded, be deposited as aforesaid after the poll has been demanded and not less than 24 hours before the time appointed for the taking of the poll; or |
| (c) | where the poll is not taken forthwith but is taken not more than 48 hours after it was demanded be delivered at the meeting at which the poll was demanded to the chairperson of the meeting or to the secretary or to any Director; |
provided that the Directors may in the notice convening the meeting, or in an instrument of proxy sent out by the Company, direct that the instrument appointing a proxy may be deposited at such other time (no later than the time for holding the meeting or adjourned meeting) at the Registered Office or at such other place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company. The chairperson of the meeting may in any event at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited. An instrument of proxy that is not deposited in the manner permitted shall be invalid.
| 80. | The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll. |
| 81. | A resolution in writing signed by all the Shareholders for the time being entitled to receive notice of and to attend and vote at general meetings of the Company (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. |
CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS
| 82. | Any corporation which is a Shareholder or a Director may by resolution of its directors or other governing body authorise such Person as it thinks fit to act as its representative at any meeting of the Company or of any meeting of holders of a Class or of the Directors or of a committee of Directors, and the Person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Shareholder or Director. |
CLEARING HOUSES
| 83. | If a recognised clearing house (or its nominee(s)) is a Member of the Company it may, by resolution of its directors or other governing body or by power of attorney, authorise such Person(s) as it thinks fit to act as its representative(s) at any general meeting of the Company or of any Class of Shareholders provided that, if more than one Person is so authorised, the authorisation shall specify the number and Class of Shares in respect of which each such Person is so authorised. A Person so authorised pursuant to this Article shall be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) which he represents as that recognised clearing house (or its nominee(s)) could exercise if it were an individual Member holding the number and Class of Shares specified in such authorisation. |
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DIRECTORS
| 84. | Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than three (3) Directors. |
| 85. | All Directors shall hold office until the expiration of their respective terms of office and until their successors shall have been appointed and qualified. A Director appointed to fill a vacancy resulting from the death, resignation or removal of a Director shall serve for the remainder of the full term of the Director whose death, resignation or removal shall have created such vacancy and until his successor shall have been appointed and qualified. |
| 86. | The Company may by Ordinary Resolution or by the Directors appoint any person to be a Director. |
| 87. | The Board may, by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting, appoint any person as a Director, to fill a casual vacancy on the Board or as an addition to the existing Board. |
| 88. | A Director may be removed from office by Ordinary Resolution or by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting, notwithstanding anything in these Articles or in any agreement between the Company and such Director (but without prejudice to any claim for damages under such agreement). A vacancy on the Board created by the removal of a Director under the previous sentence may be filled by Ordinary Resolution or by the affirmative vote of a simple majority of the remaining Directors present and voting at a Board meeting. The notice of any meeting at which a resolution to remove a Director shall be proposed or voted upon must contain a statement of the intention to remove that Director and such notice must be served on that Director not less than two (2) calendar days before the meeting. Such Director is entitled to attend the meeting and be heard on the motion for his removal. |
| 89. | The Board of Directors shall elect and appoint a Chairperson by a majority of the Directors then in office. The period for which the Chairperson will hold office will also be determined by a majority of all of the Directors then in office. The Chairperson shall preside as chairperson at every meeting of the Board of Directors. To the extent the Chairperson is not present at a meeting of the Board of Directors within fifteen minutes after the time appointed for holding the same, the attending Directors may choose one of their number to be the chairperson of the meeting. |
| 90. | The Board may, from time to time, and except as required by applicable law or Designated Stock Exchange Rules, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives of the Company and determine on various corporate governance related matters of the Company as the Board shall determine by resolution of Directors from time to time. |
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| 91. | A Director shall not be required to hold any Shares in the Company by way of qualification. A Director who is not a Member of the Company shall nevertheless be entitled to attend and speak at general meetings. |
| 92. | The remuneration of the Directors may be determined by the Directors or by Ordinary Resolution. |
| 93. | The Directors shall be entitled to be paid their travelling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive such fixed allowance in respect thereof as may be determined by the Directors from time to time, or a combination partly of one such method and partly the other. |
ALTERNATE DIRECTOR OR PROXY
| 94. | Any Director may in writing appoint another Person to be his alternate and, save to the extent provided otherwise in the form of appointment, such alternate shall have authority to sign written resolutions on behalf of the appointing Director, but shall not be required to sign such written resolutions where they have been signed by the appointing director, and to act in such Director’s place at any meeting of the Directors at which the appointing Director is unable to be present. Every such alternate shall be entitled to attend and vote at meetings of the Directors as a Director when the Director appointing him is not personally present and where he is a Director to have a separate vote on behalf of the Director he is representing in addition to his own vote. A Director may at any time in writing revoke the appointment of an alternate appointed by him. Such alternate shall be deemed for all purposes to be a Director and shall not be deemed to be the agent of the Director appointing him. The remuneration of such alternate shall be payable out of the remuneration of the Director appointing him and the proportion thereof shall be agreed between them. |
| 95. | Any Director may appoint any Person, whether or not a Director, to be the proxy of that Director to attend and vote on his behalf, in accordance with instructions given by that Director, or in the absence of such instructions at the discretion of the proxy, at a meeting or meetings of the Directors which that Director is unable to attend personally. The instrument appointing the proxy shall be in writing under the hand of the appointing Director and shall be in any usual or common form or such other form as the Directors may approve, and must be lodged with the chairperson of the meeting of the Directors at which such proxy is to be used, or first used, prior to the commencement of the meeting. |
POWERS AND DUTIES OF DIRECTORS
| 96. | Subject to the Companies Act, these Articles and to any resolutions passed in a general meeting, the business of the Company shall be managed by the Directors, who may pay all expenses incurred in setting up and registering the Company and may exercise all powers of the Company. No resolution passed by the Company in general meeting shall invalidate any prior act of the Directors that would have been valid if that resolution had not been passed. |
| 97. | Subject to these Articles, the Directors may from time to time appoint any natural person or corporation, whether or not a Director to hold such office in the Company as the Directors may think necessary for the administration of the Company, including but not limited to, chief executive officer, one or more other executive officers, president, one or more vice presidents, treasurer, assistant treasurer, manager or controller, and for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another), and with such powers and duties as the Directors may think fit. Any natural person or corporation so appointed by the Directors may be removed by the Directors. The Directors may also appoint one or more of their number to the office of managing director upon like terms, but any such appointment shall ipso facto terminate if any managing director ceases for any cause to be a Director, or if the Company by Ordinary Resolution resolves that his tenure of office be terminated. |
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| 98. | The Directors may appoint any natural person or corporation to be a Secretary (and if need be an assistant Secretary or assistant Secretaries) who shall hold office for such term, at such remuneration and upon such conditions and with such powers as they think fit. Any Secretary or assistant Secretary so appointed by the Directors may be removed by the Directors or by the Company by Ordinary Resolution. |
| 99. | The Directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors. |
| 100. | The Directors may from time to time and at any time by power of attorney (whether under Seal or under hand) or otherwise appoint any company, firm or Person or body of Persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys or authorised signatory (any such person being an “Attorney” or “Authorised Signatory”, respectively) of the Company for such purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of Persons dealing with any such Attorney or Authorised Signatory as the Directors may think fit, and may also authorise any such Attorney or Authorised Signatory to delegate all or any of the powers, authorities and discretion vested in him. |
| 101. | The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the three next following Articles shall not limit the general powers conferred by this Article. |
| 102. | The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any natural person or corporation to be a member of such committees or local boards and may appoint any managers or agents of the Company and may fix the remuneration of any such natural person or corporation. |
| 103. | The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of them to fill any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any natural person or corporation so appointed and may annul or vary any such delegation, but no Person dealing in good faith and without notice of any such annulment or variation shall be affected thereby. |
| 104. | Any such delegates as aforesaid may be authorised by the Directors to sub-delegate all or any of the powers, authorities, and discretion for the time being vested in them. |
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BORROWING POWERS OF DIRECTORS
| 105. | The Directors may from time to time at their discretion exercise all the powers of the Company to raise or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. |
THE SEAL
| 106. | The Seal shall not be affixed to any instrument except by the authority of a resolution of the Directors provided always that such authority may be given prior to or after the affixing of the Seal and if given after may be in general form confirming a number of affixing of the Seal. The Seal shall be affixed in the presence of a Director or a Secretary (or an assistant Secretary) or in the presence of any one or more Persons as the Directors may appoint for the purpose and every Person as aforesaid shall sign every instrument to which the Seal is so affixed in their presence. |
| 107. | The Company may maintain a facsimile of the Seal in such countries or places as the Directors may appoint and such facsimile Seal shall not be affixed to any instrument except by the authority of a resolution of the Directors provided always that such authority may be given prior to or after the affixing of such facsimile Seal and if given after may be in general form confirming a number of affixing of such facsimile Seal. The facsimile Seal shall be affixed in the presence of such Person or Persons as the Directors shall for this purpose appoint and such Person or Persons as aforesaid shall sign every instrument to which the facsimile Seal is so affixed in their presence and such affixing of the facsimile Seal and signing as aforesaid shall have the same meaning and effect as if the Seal had been affixed in the presence of and the instrument signed by a Director or a Secretary (or an assistant Secretary) or in the presence of any one or more Persons as the Directors may appoint for the purpose. |
| 108. | Notwithstanding the foregoing, a Secretary or any assistant Secretary shall have the authority to affix the Seal, or the facsimile Seal, to any instrument for the purposes of attesting authenticity of the matter contained therein but which does not create any obligation binding on the Company. |
DISQUALIFICATION OF DIRECTORS
| 109. | The office of Director shall be vacated, if the Director: |
| (a) | becomes bankrupt or makes any arrangement or composition with his creditors; |
| (b) | dies or is found to be or becomes of unsound mind; |
| (c) | resigns his office by notice in writing to the Company; |
| (d) | without special leave of absence from the Board, is absent from meetings of the Board for three consecutive meetings and the Board resolves that his office be vacated; or |
| (e) | is removed from office pursuant to any other provision of these Articles. |
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PROCEEDINGS OF DIRECTORS
| 110. | The Directors may meet together (either within or outside of the Cayman Islands) for the despatch of business, adjourn, and otherwise regulate their meetings and proceedings as they think fit. Questions arising at any meeting shall be decided by a majority of votes. At any meeting of the Directors, each Director present in person or represented by his proxy or alternate shall be entitled to one vote. In case of an equality of votes the Chairperson shall have a second or casting vote. A Director may, and a Secretary or assistant Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors. |
| 111. | A Director may participate in any meeting of the Directors, or of any committee appointed by the Directors of which such Director is a member, by means of telephone or similar communication equipment by way of which all Persons participating in such meeting can communicate with each other and such participation shall be deemed to constitute presence in person at the meeting. |
| 112. | The quorum necessary for the transaction of the business of the Board may be fixed by the Directors, and unless so fixed, the quorum shall be a majority of Directors then in office. A Director represented by proxy or by an alternate Director at any meeting shall be deemed to be present for the purposes of determining whether or not a quorum is present. |
| 113. | A Director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with the Company shall declare the nature of his interest at a meeting of the Directors. A general notice given to the Directors by any Director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract or transaction which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made or transaction so consummated. Subject to the Designated Stock Exchange Rules, a Director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the Directors at which any such contract or transaction or proposed contract or transaction shall come before the meeting for consideration. |
| 114. | A Director may hold any other office or place of profit under the Company (other than the office of auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Directors may determine and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relation thereby established. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting of the Directors whereat he or any other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such appointment are arranged and he may vote on any such appointment or arrangement. |
| 115. | Any Director may act by himself or through his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director; provided that nothing herein contained shall authorise a Director or his firm to act as auditor to the Company. |
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| 116. | The Directors shall cause minutes to be made for the purpose of recording: |
| (a) | all appointments of officers made by the Directors; |
| (b) | the names of the Directors present at each meeting of the Directors and of any committee of the Directors; and |
| (c) | all resolutions and proceedings at all meetings of the Company, and of the Directors and of committees of Directors. |
| 117. | When the chairperson of a meeting of the Directors signs the minutes of such meeting the same shall be deemed to have been duly held notwithstanding that all the Directors have not actually come together or that there may have been a technical defect in the proceedings. |
| 118. | A resolution in writing signed by all the Directors or all the members of a committee of Directors entitled to receive notice of a meeting of Directors or committee of Directors, as the case may be (an alternate Director, subject as provided otherwise in the terms of appointment of the alternate Director, being entitled to sign such a resolution on behalf of his appointer), shall be as valid and effectual as if it had been passed at a duly called and constituted meeting of Directors or committee of Directors, as the case may be. When signed a resolution may consist of several documents each signed by one or more of the Directors or his duly appointed alternate. |
| 119. | The continuing Directors may act notwithstanding any vacancy in their body but if and for so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number, or of summoning a general meeting of the Company, but for no other purpose. |
| 120. | Subject to any regulations imposed on it by the Directors, a committee appointed by the Directors may elect a chairperson of its meetings. If no such chairperson is elected, or if at any meeting the chairperson is not present within fifteen minutes after the time appointed for holding the meeting, the committee members present may choose one of their number to be chairperson of the meeting. |
| 121. | A committee appointed by the Directors may meet and adjourn as it thinks proper. Subject to any regulations imposed on it by the Directors, questions arising at any meeting shall be determined by a majority of votes of the committee members present and in case of an equality of votes the chairperson shall have a second or casting vote. |
| 122. | All acts done by any meeting of the Directors or of a committee of Directors, or by any Person acting as a Director, shall notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or Person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such Person had been duly appointed and was qualified to be a Director. |
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PRESUMPTION OF ASSENT
| 123. | A Director who is present at a meeting of the Board of Directors at which an action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the chairperson or secretary of the meeting before the adjournment thereof or shall forward such dissent by registered post to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action. |
DIVIDENDS
| 124. | Subject to any rights and restrictions for the time being attached to any Shares, the Directors may from time to time declare dividends (including interim dividends) and other distributions on Shares in issue and authorise payment of the same out of the funds of the Company lawfully available therefor. |
| 125. | Subject to any rights and restrictions for the time being attached to any Shares, the Company by Ordinary Resolution may declare dividends, but no dividend shall exceed the amount recommended by the Directors. |
| 126. | The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, in the absolute discretion of the Directors, be applicable for meeting contingencies or for equalising dividends or for any other purpose to which those funds may be properly applied, and pending such application may in the absolute discretion of the Directors, either be employed in the business of the Company or be invested in such investments (other than Shares of the Company) as the Directors may from time to time think fit. |
| 127. | Any dividend payable in cash to the holder of Shares may be paid in any manner determined by the Directors. If paid by cheque it will be sent by mail addressed to the holder at his address in the Register, or addressed to such person and at such addresses as the holder may direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the Register in respect of such Shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. |
| 128. | The Directors may determine that a dividend shall be paid wholly or partly by the distribution of specific assets (which may consist of the shares or securities of any other company) and may settle all questions concerning such distribution. Without limiting the generality of the foregoing, the Directors may fix the value of such specific assets, may determine that cash payment shall be made to some Shareholders in lieu of specific assets and may vest any such specific assets in trustees on such terms as the Directors think fit. |
| 129. | Subject to any rights and restrictions for the time being attached to any Shares, all dividends shall be declared and paid according to the amounts paid up on the Shares, but if and for so long as nothing is paid up on any of the Shares dividends may be declared and paid according to the par value of the Shares. No amount paid on a Share in advance of calls shall, while carrying interest, be treated for the purposes of this Article as paid on the Share. |
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| 130. | If several Persons are registered as joint holders of any Share, any of them may give effective receipts for any dividend or other moneys payable on or in respect of the Share. |
| 131. | No dividend shall bear interest against the Company. |
| 132. | Any dividend unclaimed after a period of six calendar years from the date of declaration of such dividend may be forfeited by the Board of Directors and, if so forfeited, shall revert to the Company. |
ACCOUNTS, AUDIT AND ANNUAL RETURN AND DECLARATION
| 133. | The books of account relating to the Company’s affairs shall be kept in such manner as may be determined from time to time by the Directors. |
| 134. | The books of account shall be kept at the Registered Office, or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors. |
| 135. | The Directors may from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Shareholders not being Directors, and no Shareholder (not being a Director) shall have any right to inspect any account or book or document of the Company except as conferred by law or authorised by the Directors or by Ordinary Resolution. |
| 136. | The accounts relating to the Company’s affairs shall be audited in such manner and with such financial year end as may be determined from time to time by the Directors or failing any determination as aforesaid shall not be audited. |
| 137. | The Directors may appoint an auditor of the Company who shall hold office until removed from office by a resolution of the Directors and may fix his or their remuneration. |
| 138. | Every auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors. |
| 139. | The auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment, and at any time during their term of office, upon request of the Directors or any general meeting of the Members. |
| 140. | The Directors in each calendar year shall prepare, or cause to be prepared, an annual return and declaration setting forth the particulars required by the Companies Act and deliver a copy thereof to the Registrar of Companies in the Cayman Islands. |
CAPITALISATION OF RESERVES
| 141. | Subject to the Companies Act, the Directors may: |
| (a) | resolve to capitalise an amount standing to the credit of reserves (including a Share Premium Account, capital redemption reserve and profit and loss account), which is available for distribution; |
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| (b) | appropriate the sum resolved to be capitalised to the Shareholders in proportion to the nominal amount of Shares (whether or not fully paid) held by them respectively and apply that sum on their behalf in or towards: |
| (i) | paying up the amounts (if any) for the time being unpaid on Shares held by them respectively, or |
| (ii) | paying up in full unissued Shares or debentures of a nominal amount equal to that sum, |
and allot the Shares or debentures, credited as fully paid, to the Shareholders (or as they may direct) in those proportions, or partly in one way and partly in the other, but the Share Premium Account, the capital redemption reserve and profits which are not available for distribution may, for the purposes of this Article, only be applied in paying up unissued Shares to be allotted to Shareholders credited as fully paid;
| (c) | make any arrangements they think fit to resolve a difficulty arising in the distribution of a capitalised reserve and in particular, without limitation, where Shares or debentures become distributable in fractions the Directors may deal with the fractions as they think fit; |
| (d) | authorise a Person to enter (on behalf of all the Shareholders concerned) into an agreement with the Company providing for either: |
| (i) | the allotment to the Shareholders respectively, credited as fully paid, of Shares or debentures to which they may be entitled on the capitalisation, or |
| (ii) | the payment by the Company on behalf of the Shareholders (by the application of their respective proportions of the reserves resolved to be capitalised) of the amounts or part of the amounts remaining unpaid on their existing Shares, |
and any such agreement made under this authority being effective and binding on all those Shareholders; and
| (e) | generally do all acts and things required to give effect to the resolution. |
| 142. | Notwithstanding any provisions in these Articles, the Directors may resolve to capitalise an amount standing to the credit of reserves (including the share premium account, capital redemption reserve and profit and loss account) or otherwise available for distribution by applying such sum in paying up in full unissued Shares to be allotted and issued to: |
| (a) | employees (including Directors) or service providers of the Company or its subsidiaries or group companies upon exercise or vesting of any options or awards granted under any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or the Members; or |
| (b) | any trustee of any trust or administrator of any share incentive scheme or employee benefit scheme to whom shares are to be allotted and issued by the Company in connection with the operation of any share incentive scheme or employee benefit scheme or other arrangement which relates to such persons that has been adopted or approved by the Directors or Members. |
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SHARE PREMIUM ACCOUNT
| 143. | The Directors shall in accordance with the Companies Act establish a Share Premium Account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any Share. |
| 144. | There shall be debited to any Share Premium Account on the redemption or purchase of a Share the difference between the nominal value of such Share and the redemption or purchase price provided always that at the discretion of the Directors such sum may be paid out of the profits of the Company or, if permitted by the Companies Act, out of capital. |
NOTICES
| 145. | Except as otherwise provided in these Articles, any notice or document may be served by the Company or by the Person entitled to give notice to any Shareholder either personally, or by posting it by airmail or a recognised courier service in a prepaid letter addressed to such Shareholder at his address as appearing in the Register, or by electronic mail to any electronic mail address such Shareholder may have specified in writing for the purpose of such service of notices, or by facsimile to any facsimile number such Shareholder may have specified in writing for the purpose of such service of notices, or by placing it on the Company’s Website should the Directors deem it appropriate. In the case of joint holders of a Share, all notices shall be given to that one of the joint holders whose name stands first in the Register in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders. |
| 146. | Notices sent from one country to another shall be sent or forwarded by prepaid airmail or a recognised courier service. |
| 147. | Any Shareholder Present at any meeting of the Company shall for all purposes be deemed to have received due notice of such meeting and, where requisite, of the purposes for which such meeting was convened. |
| 148. | Any notice or other document, if served by: |
| (a) | post, shall be deemed to have been served five calendar days after the time when the letter containing the same is posted; |
| (b) | facsimile, shall be deemed to have been served upon production by the transmitting facsimile machine of a report confirming transmission of the facsimile in full to the facsimile number of the recipient; |
| (c) | recognised courier service, shall be deemed to have been served 48 hours after the time when the letter containing the same is delivered to the courier service; or |
| (d) | electronic means, shall be deemed to have been served immediately (i) upon the time of the transmission to the electronic mail address supplied by the Shareholder to the Company or (ii) upon the time of its placement on the Company’s Website. |
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In proving service by post or courier service it shall be sufficient to prove that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier service.
| 149. | Any notice or document delivered or sent by post to or left at the registered address of any Shareholder in accordance with the terms of these Articles shall notwithstanding that such Shareholder be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any Share registered in the name of such Shareholder as sole or joint holder, unless his name shall at the time of the service of the notice or document have been removed from the Register as the holder of the Share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all Persons interested (whether jointly with or as claiming through or under him) in the Share. |
| 150. | Notice of every general meeting of the Company shall be given to: |
| (a) | all Shareholders holding Shares with the right to receive notice and who have supplied to the Company an address for the giving of notices to them; and |
| (b) | every Person entitled to a Share in consequence of the death or bankruptcy of a Shareholder, who but for his death or bankruptcy would be entitled to receive notice of the meeting. |
No other Person shall be entitled to receive notices of general meetings.
INFORMATION
| 151. | Subject to the relevant laws, rules and regulations applicable to the Company, no Member shall be entitled to require discovery of any information in respect of any detail of the Company’s trading or any information which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Board would not be in the interests of the Members of the Company to communicate to the public. |
| 152. | Subject to due compliance with the relevant laws, rules and regulations applicable to the Company, the Board shall be entitled to release or disclose any information in its possession, custody or control regarding the Company or its affairs to any of its Members including, without limitation, information contained in the Register and transfer books of the Company. |
INDEMNITY
| 153. | Every Director (including for the purposes of this Article any alternate Director appointed pursuant to the provisions of these Articles), Secretary, assistant Secretary, or other officer for the time being and from time to time of the Company (but not including the Company’s auditors) and the personal representatives of the same (each an “Indemnified Person”) shall be indemnified and secured harmless against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such Indemnified Person, other than by reason of such Indemnified Person’s own dishonesty, wilful default or fraud, in or about the conduct of the Company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such Indemnified Person in defending (whether successfully or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or elsewhere. |
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| 154. | No Indemnified Person shall be liable: |
| (a) | for the acts, receipts, neglects, defaults or omissions of any other Director or officer or agent of the Company; or |
| (b) | for any loss on account of defect of title to any property of the Company; or |
| (c) | on account of the insufficiency of any security in or upon which any money of the Company shall be invested; or |
| (d) | for any loss incurred through any bank, broker or other similar Person; or |
| (e) | for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on such Indemnified Person’s part; or |
| (f) | for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers, authorities, or discretions of such Indemnified Person’s office or in relation thereto; |
unless the same shall happen through such Indemnified Person’s own dishonesty, willful default or fraud.
FINANCIAL YEAR
| 155. | Unless the Directors otherwise prescribe, the financial year of the Company shall end on December 31st in each calendar year and shall begin on January 1st in each calendar year. |
NON-RECOGNITION OF TRUSTS
| 156. | No Person shall be recognised by the Company as holding any Share upon any trust and the Company shall not, unless required by law, be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any Share or (except only as otherwise provided by these Articles or as the Companies Act requires) any other right in respect of any Share except an absolute right to the entirety thereof in each Shareholder registered in the Register. |
WINDING UP
| 157. | If the Company shall be wound up the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Companies Act, divide amongst the Members in specie or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and determine how the division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Members as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any asset upon which there is a liability. |
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| 158. | If the Company shall be wound up, and the assets available for distribution amongst the Members shall be insufficient to repay the whole of the share capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the par value of the Shares held by them. If in a winding up the assets available for distribution amongst the Members shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst the Members in proportion to the par value of the Shares held by them at the commencement of the winding up subject to a deduction from those Shares in respect of which there are monies due, of all monies payable to the Company for unpaid calls or otherwise. This Article is without prejudice to the rights of the holders of Shares issued upon special terms and conditions. |
AMENDMENT OF ARTICLES OF ASSOCIATION
| 159. | Subject to the Companies Act, the Company may at any time and from time to time by Special Resolution alter or amend these Articles in whole or in part. |
CLOSING OF REGISTER OR FIXING RECORD DATE
| 160. | For the purpose of determining those Shareholders that are entitled to receive notice of, attend or vote at any meeting of Shareholders or any adjournment thereof, or those Shareholders that are entitled to receive payment of any dividend, or in order to make a determination as to who is a Shareholder for any other purpose, the Directors may provide that the Register shall be closed for transfers for a stated period which shall not exceed in any case thirty calendar days in any calendar year. |
| 161. | In lieu of or apart from closing the Register, the Directors may fix in advance a date as the record date for any such determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of the Shareholders and for the purpose of determining those Shareholders that are entitled to receive payment of any dividend the Directors may, at or within ninety calendar days prior to the date of declaration of such dividend, fix a subsequent date as the record date for such determination. |
| 162. | If the Register is not so closed and no record date is fixed for the determination of those Shareholders entitled to receive notice of, attend or vote at a meeting of Shareholders or those Shareholders that are entitled to receive payment of a dividend, the date on which notice of the meeting is posted or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Shareholders. When a determination of those Shareholders that are entitled to receive notice of, attend or vote at a meeting of Shareholders has been made as provided in this Article, such determination shall apply to any adjournment thereof. |
REGISTRATION BY WAY OF CONTINUATION
| 163. | The Company may by Special Resolution resolve to be registered by way of continuation in a jurisdiction outside the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company. |
DISCLOSURE
| 164. | The Directors, or any service providers (including the officers, the Secretary and the registered office provider of the Company) specifically authorised by the Directors, shall be entitled to disclose to any regulatory or judicial authority any information regarding the affairs of the Company including without limitation information contained in the Register and books of the Company. |
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Exhibit 4.1
THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY (180) DAYS FOLLOWING THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT TO ANYONE OTHER THAN (I) BOUSTEAD SECURITIES, LLC, OR A REPRESENTATIVE OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF BOUSTEAD SECURITIES, LLC, OR OF ANY SUCH UNDERWRITERS OR SELECTED DEALER.
THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO___, 2022. VOID AFTER 5:00 P.M., EASTERN TIME, _____, 2027.
UNDERWRITER’S WARRANT
FOR THE PURCHASE OF [●] ORDINARY SHARES
OF
Yi Po International Holdings Limited
1. Purchase Warrant. THIS CERTIFIES THAT, pursuant to that certain Underwriting Agreement by and between Yi Po International Holdings Limited, a Cayman Islands company (the “Company”), on one hand, and Boustead Securities, LLC (the “Holder”), on the other hand, dated __, 2022 (the “Underwriting Agreement”), the Holder, as registered owner of this Purchase Warrant, is entitled, at any time or from time to time from ___, 2022 (the “Exercise Date”), and at or before 5:00 p.m., Eastern time, on ____, 2027 (the “Expiration Date”, which date shall be no more than five years from the commencement of sales of the initial public offering pursuant to the Underwriting Agreement), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to _____ordinary shares (the “Shares”) of the Company, no par value per ordinary share (the “Ordinary Shares”), subject to adjustment as provided in Section 6 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 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 Ordinary Share (100% of Offering price); provided, however, that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Warrant, including the exercise price per Ordinary Share and the number of Ordinary Shares to be received upon such exercise, shall be adjusted as therein specified. The term “Exercise Price” shall mean the initial exercise price as set forth above or the adjusted exercise price as a result of the events set forth in Section 6 below, depending on the context. Capitalized terms not defined herein shall have the meaning ascribed to them in the Underwriting Agreement.
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Warrant, the exercise form attached hereto as Exhibit A must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Ordinary Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check. 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.
2.2 Cashless Exercise. This Purchase Warrant may be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the Fair Market Value of one Ordinary Share;
(B) = the Exercise Price of this Purchase Warrant, as adjusted hereunder; and
(X) = the number of Ordinary Shares underlying the Purchase Warrant 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.
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If Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Shares shall take on the registered characteristics of the Purchase Warrants being exercised. The Company agrees not to take any position contrary to this Section 2.2.
Notwithstanding anything herein to the contrary, on the Expiration Date, this Purchase Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2.2.
“Fair Market Value” means, for any date, the price determined by the first of the following clauses that applies: (a) if the common stock is then listed or quoted on a Trading Market, the value shall be deemed to be the highest intra-day or closing price on any trading day on such Trading Market on which the common stock is then listed or quoted as reported by Bloomberg L.P. (based on a trading day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)) during the five trading days preceding the exercise, (b) if OTCQB or OTCQX is not an Trading Market, the value shall be deemed to be the highest intra-day or closing price on any trading day on the OTCQB or OTCQX on which the common stock is then quoted as reported by Bloomberg L.P. (based on a trading day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)) during the five trading days preceding the exercise, as applicable, (c) if the common stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the common stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the “OTC Markets Group”, the value shall be deemed to be the highest intra-day or closing price on any trading day on the Pink Sheets on which the common stock is then quoted as reported by OTC Markets Group (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)) during the five trading days preceding the exercise, or (d) in all other cases, the fair market value of a share of common stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.
“Trading Market” means the NASDAQ Stock Market LLC, or any of the following other markets or exchanges on which the Ordinary Shares are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing).
Upon a cashless exercise of this Purchase Warrant pursuant to this Section 2.2 the Ordinary Shares to be issued to Holder shall be paid up out of any of the Company’s freely distributable reserves, other than share premium reserves maintained by the Company for the benefit of holders of preferred shares, or out of any of the Company’s statutory reserves which may be converted into share capital, to be determined by the Company’s board of directors in its sole discretion. A cashless exercise of this Purchase Warrant pursuant to this Section 2.2 shall only be permitted to the extent the Company has sufficient freely distributable reserves, other than share premium reserves maintained by the Company for the benefit of holders of preferred shares, or reserves which may be converted into share capital.
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2.3 Legend. Each certificate for the securities purchased under this Purchase Warrant shall bear the following legends unless such securities have been registered under the Securities Act of 1933, as amended (the “Act”), or are exempt from registration under the Act:
(i) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE LAW. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE LAW WHICH, IN THE OPINION OF COUNSEL TO THE COMPANY, IS AVAILABLE.”
(ii) Any legend required by the securities laws of any state to the extent such laws are applicable to the Shares represented by a certificate, instrument, or book entry so legended.
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: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant (or any Shares issuable upon the exercise of this Purchase Warrant) for a period of one hundred eighty (180) days following the effective date of the Registration Statement (the “Effective Date”) to anyone other than: (i) the Underwriter or a selected dealer participating in the Offering, or (ii) a bona fide officer or partner of the Underwriter or of any such selected dealer, in each case 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). On and after that date that is one hundred eighty (180) days after the Effective Date, 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 Ordinary 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 Company 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 or a post-effective amendment to the registration statement relating to the offer and sale of such securities that has been declared effective by the U.S. Securities and Exchange Commission (the “Commission”) and includes a current prospectus or (iii) a registration statement, pursuant to which the Holder has exercised its registration rights pursuant to Section 4.1 herein, relating to the offer and sale of such securities has been filed and declared effective by the Commission and compliance with applicable state securities law has been established.
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4. Registration Rights.
4.1 “Piggy-Back” Registration. At any time after 180 days from the date hereof that all of the Shares may not be resold by the Holder pursuant to an exemption from registration under the Securities Act upon exercise on a cashless basis and unless all of the Ordinary Shares underlying the Purchase Warrant (collectively, the “Registrable Securities”) are included in an effective registration statement with a current prospectus, the Holder shall have the right, until the Expiration Date, or the maximum time allowable under FINRA Rule 5110(g)(8), whichever is the earlier, 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 promulgated under the Act or pursuant to Forms S-8, F-3, F-4 or any equivalent forms); provided, however, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of Registrable Securities which may be included in the registration statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such registration statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit; and further provided that no such piggy-back rights shall exist for so long as the Registrable Securities (which term shall include those paid as consideration pursuant to the cashless exercise provisions of this Purchase Warrant) may be sold pursuant to Rule 144 of the Act without restriction. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such registration statement or are not entitled to pro rata inclusion with the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than fifteen (15) 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 registration statement filed by the Company until such time as all of the Registrable Securities have been sold by the Holder. The Holders of the Registrable Securities shall exercise the “piggy-back” rights provided for herein by giving written notice, within seven (7) days of the receipt of the Company’s notice of its intention to file a registration statement. Except as otherwise provided in this Purchase Warrant, there shall be no limit on the number of times the Holder may request registration under this Section 4.1.
4.2 General Terms.
4.2.1 Expenses of Registration. The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 4 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities.
4.2.2 Indemnification. The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20 (a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriter contained in Section 5 of the Underwriting Agreement.
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4.2.3 Exercise of Purchase Warrant. Nothing contained in this Purchase Warrant shall be construed as requiring the Holder(s) to exercise their Purchase Warrant prior to or after the initial filing of any registration statement or the effectiveness thereof.
4.2.4 Documents to be Delivered by Holder(s). Each of the Holder(s) participating in any registration statement filed by the Company shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.
4.2.5 Damages. Should the registration or the effectiveness thereof required by Section 4 hereof be delayed by the Company or the Company otherwise fails to comply with such provisions, the Holder(s) shall, in addition to any other legal or other relief available to the Holder(s), be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.
5. New Purchase Warrants to be Issued.
5.1 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 Ordinary Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.
5.2 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 and date. 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.
6. Adjustments.
6.1 Adjustments to Exercise Price and Number of Ordinary Shares. The Exercise Price and the number of Ordinary Shares underlying this Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:
6.1.1 Share Dividends; Split Ups. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Ordinary Shares is increased by a stock dividend payable in Ordinary Shares or by a split up of Ordinary Shares or other similar event, then, on the effective day thereof, the number of Ordinary Shares purchasable hereunder shall be increased in proportion to such increase in outstanding Ordinary Shares, and the Exercise Price shall be proportionately decreased.
6.1.2 Aggregation of Ordinary Shares. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Ordinary Shares is decreased by a consolidation, combination or reclassification of Ordinary Shares or other similar event, then, on the effective date thereof, the number of Ordinary Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding Ordinary Shares, and the Exercise Price shall be proportionately increased.
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6.1.3 Replacement of Ordinary Shares upon Reorganization, etc. In case of any reclassification or reorganization of the outstanding Ordinary Shares other than a change covered by Section 6.1.1 or Section 6.1.2 hereof or that solely affects the par value of such Ordinary 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 Ordinary 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 ordinary shares 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 Ordinary 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 Ordinary Shares covered by Section 6.1.1 or Section 6.1.2, then such adjustment shall be made pursuant to Section 6.1.1, Section 6.1.2 and this Section 6.1.3. The provisions of this Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.
6.1.4 Fundamental Transaction. If, at any time while this Purchase Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any direct or indirect purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Ordinary Shares are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Ordinary Shares, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Ordinary Shares or any compulsory share exchange pursuant to which the Ordinary Shares are effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spinoff or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding Ordinary Shares (not including any Ordinary Shares held by the other Person or other Persons making or party to, or associated or affiliated with, the other Persons making or party to such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Purchase Warrant, the Holder shall have the right to receive, for each Ordinary Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of Ordinary Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional or alternative consideration (the “Alternative Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of Ordinary Shares for which this Purchase Warrant is exercisable immediately prior to such Fundamental Transaction. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternative Consideration based on the amount of Alternative Consideration issuable in respect of one Ordinary Share in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternative Consideration in a reasonable manner reflecting the relative value of any different components of the Alternative Consideration. If holders of Ordinary Shares are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternative Consideration it receives upon any exercise of this Purchase Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Purchase Warrant, and to deliver to the Holder in exchange for this Purchase Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Purchase Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the Ordinary Shares acquirable and receivable upon exercise of this Purchase Warrant prior to such Fundamental Transaction, and with an exercise price which applies the Exercise Price hereunder to such shares of capital stock (but taking into account the relative value of the Ordinary Shares pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Purchase Warrant immediately prior to the consummation of such Fundamental Transaction). Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Purchase Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of, the Company and shall assume all of the obligations of the Company, under this Purchase Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. “Transaction Documents” shall mean the Underwriting Agreement and any other agreement entered into between the Company and the Holder in connection therewith or herewith.
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6.1.5 Changes in Form of Purchase Warrant. This form of Purchase Warrant need not be changed because of any change pursuant to this Section 6.1, and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Ordinary Shares as are stated in the Purchase Warrant initially issued pursuant to the Underwriting 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.
6.2 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 Ordinary 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 Ordinary Shares and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Ordinary 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 6. The above provision of this Section 6 shall similarly apply to successive consolidations or share reconstructions or amalgamations.
6.3 Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of Ordinary 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 Ordinary Shares or other securities, properties or rights.
7. Reservation and Listing. 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 Ordinary 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 Ordinary 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 OTCQB Market or any successor quotation system) on which the Ordinary Shares issued to the public in the Offering may then be listed and/or quoted (if at all).
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 this Purchase Warrant and its 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 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.
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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 Ordinary 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 Ordinary Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock 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 6 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 if made in accordance with the notice provisions of the Underwriting Agreement to the addresses and contact information for the Holder appearing on the books and records of the Company.
If to the Holder, then to:
Boustead Securities, LLC
6 Venture, Suite 265
Irvine, CA 92618
| Attn: | Keith Moore |
| Attn: | Daniel J. McClory |
| Email: | keith@boustead1828.com |
dan@boustead1828.com
With a copy to:
Sichenzia Ross Ference LLP
1185 Avenue of the Americas, 31st Floor
New York, NY 10036
| Attn: | Benjamin Tan, Esq. |
| Email: | btan@srf.law |
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If to the Company:
With a copy (which shall not constitute notice) to:
Ortoli Rosenstadt LLP
366 Madison Avenue
New York, NY 10017
Attn: William Rosenstadt, Esq.
Jason Ye, Esq.
| Email: | wsr@orllp.legal |
jye@orllp.legal
9. Miscellaneous.
9.1 Amendments. The Company and the Underwriter 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 the Underwriter may deem necessary or desirable and that the Company and the Underwriter deem shall not adversely affect the interest of the Holders, in their sole and absolute discretion. 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 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, respective successors, legal representative 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 Purchase Warrant or any provisions herein contained.
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9.5 Governing Law; Submission to Jurisdiction; Trial by Jury. This Purchase Warrant shall be governed by and construed and enforced in accordance with the 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 New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, 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 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. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
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 the Underwriter 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 Holder Not Deemed a Shareholder. Except as otherwise specifically provided herein, the Holder, solely in its capacity as a holder of this Purchase Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Purchase Warrant be construed to confer upon the Holder, solely in its capacity as the Holder of this Purchase Warrant, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of share, reclassification of share, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Ordinary Shares which it is then entitled to receive upon the due exercise of this Purchase Warrant. In addition, nothing contained in this Purchase Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Purchase Warrant or otherwise) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.
[Signature Page to Follow]
10
IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the __th day of 2022.
|
Yi Po International Holdings Limited | ||
| By: | ||
| Name: Weiming Jin | ||
| Title: Chief Executive Officer | ||
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EXHIBIT A
Exercise Notice
Form to be used to exercise Purchase Warrant:
Date: __________, 20___
The undersigned hereby elects irrevocably to exercise the Purchase Warrant for ______ Ordinary Shares of Yi Po International Holdings Limited, a Cayman Islands company (the “Company”) and hereby makes payment of $____ (at the rate of $____ per Ordinary Share) in payment of the Exercise Price pursuant thereto. Please issue the Ordinary 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 Ordinary Shares for which this Purchase Warrant has not been exercised.
or
The undersigned hereby elects irrevocably to convert its right to purchase ___ Ordinary Shares under the Purchase Warrant for ______ Ordinary Shares, as determined in accordance with the following formula:
dividing [(A-B) (X)] by (A), where:
(A) = the Fair Market Value of one Ordinary Share;
(B) = the Exercise Price of this Purchase Warrant, as adjusted hereunder; and
(X) = the number of Ordinary Shares underlying the Purchase Warrant 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.
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 Ordinary Shares as to which this Purchase Warrant is exercised in accordance with the instructions given and, if applicable, a new Purchase Warrant representing the number of Ordinary Shares for which this Purchase Warrant has not been converted.
Signature
Signature Guaranteed
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EXHIBIT B
Form to be used to assign Purchase Warrant: ASSIGNMENT
(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 [●] ordinary shares of Yi Po International Holdings Limited, a Cayman Islands company (the “Company”), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on the books of the Company.
Dated: , 20__
Signature
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, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.
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.
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Exhibit 5.1
Our ref ELR/809703-000001/24823211v1
Yi Po International Holdings Limited
320~324, Building C4, No. 5 Jinxiu Street,
Yuhuatai District, Nanjing,
Jiangsu Province, People’s Republic of China
7 September 2022
Dear Sirs
Yi Po International Holdings Limited
We have acted as Cayman Islands legal advisers to Yi Po International Holdings Limited (the “Company”) in connection with the Company’s registration statement on Form F-1, including all amendments or supplements thereto (the “Registration Statement”), filed with the Securities and Exchange Commission under the U.S. Securities Act of 1933, as amended to date relating to the offering by the Company of the Company’s ordinary shares of par value US$0.00015625 each (the “Shares”).
We are furnishing this opinion as Exhibits 5.1 and 23.2 to the Registration Statement.
| 1 | Documents Reviewed |
For the purposes of this opinion, we have reviewed only originals, copies or final drafts of the following documents and such other documents as we have deemed necessary in order to render the opinions below:
| 1.1 | The certificate of incorporation of the Company dated 19 March 2020 issued by the Registrar of Companies in the Cayman Islands. |
| 1.2 | The amended and restated memorandum and articles of association of the Company as adopted by special resolution on 5 September 2022 (the “Memorandum and Articles”). |
| 1.3 | The written resolutions of the directors of the Company dated 1 September 2022 (the “Directors’ Resolutions”). |
| 1.4 | The written resolutions of the shareholders of the Company dated 5 September 2022 (the “Shareholders’ Resolutions”). |
| 1.5 | A certificate from a director of the Company, a copy of which is attached hereto (the “Director’s Certificate”). |
| 1.6 | A certificate of good standing with respect to the Company issued by the Registrar of Companies dated 2 September 2022 (the “Certificate of Good Standing”). |
| 1.7 | The Registration Statement. |
| 2 | Assumptions |
The following opinions are given only as to, and based on, circumstances and matters of fact existing and known to us on the date of this opinion letter. These opinions only relate to the laws of the Cayman Islands which are in force on the date of this opinion letter. In giving these opinions we have relied (without further verification) upon the completeness and accuracy, as of the date of this opinion letter, of the Director’s Certificate and the Certificate of Good Standing. We have also relied upon the following assumptions, which we have not independently verified:
| 2.1 | Copies of documents, conformed copies or drafts of documents provided to us are true and complete copies of, or in the final forms of, the originals. |
| 2.2 | All signatures, initials and seals are genuine. |
| 2.3 | There is nothing under any law (other than the law of the Cayman Islands), which would or might affect the opinions set out below. |
| 3 | Opinion |
Based upon the foregoing and subject to the qualifications set out below and having regard to such legal considerations as we deem relevant, we are of the opinion that:
| 3.1 | The Company has been duly incorporated as an exempted company with limited liability and is validly existing and in good standing with the Registrar of Companies under the laws of the Cayman Islands. |
| 3.2 | The authorised share capital of the Company is US$50,000.00 divided into 320,000,000 Shares with a par value of $0.00015625 each. |
| 3.3 | The issue and allotment of the Shares have been duly authorised and when allotted, issued and paid for as contemplated in the Registration Statement, the Shares will be legally issued and allotted, fully paid and non-assessable. As a matter of Cayman law, a share is only issued when it has been entered in the register of members (shareholders). |
| 3.4 | The statements under the caption “Taxation” in the prospectus forming part of the Registration Statement, to the extent that they constitute statements of Cayman Islands law, are accurate in all material respects and that such statements constitute our opinion. |
| 4 | Qualifications |
In this opinion the phrase “non-assessable” means, with respect to the Shares in the Company, that a shareholder shall not, solely by virtue of its status as a shareholder, be liable for additional assessments or calls on the Shares by the Company or its creditors (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
2
Except as specifically stated herein, we make no comment with respect to any representations and warranties which may be made by or with respect to the Company in any of the documents or instruments cited in this opinion or otherwise with respect to the commercial terms of the transactions, which are the subject of this opinion.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our name under the headings “Enforceability of Civil Liabilities”, “Taxation” and “Legal Matters” and elsewhere in the prospectus included in the Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the U.S. Securities Act of 1933, as amended, or the Rules and Regulations of the Commission thereunder.
Yours faithfully
| /s/ Maples and Calder (Hong Kong) LLP | |
| Maples and Calder (Hong Kong) LLP |
3
Director’s Certificate
4
Exhibit 5.2
| Ortoli | Rosenstadt LLP | 366 Madison Avenue |
| 3rd Floor | |
| New York, NY 10017 | |
| tel: (212) 588-0022 | |
| fax: (212) 826-9307 |
September 8, 2022
Yi Po International Holdings Limited
320~324, Building C4, No. 5 Jinxiu Street,
Yuhuatai District, Nanjing,
Jiangsu Province, People’s Republic of China
Ladies and Gentlemen:
We are acting as United States counsel to Yi Po International Holdings Limited, a Cayman Islands exempted company (the “Company”), in connection with the registration statement on Form F-1, File No. 333-262405 (the “Registration Statement”), including all amendments and supplements thereto, and accompanying prospectus filed with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the offering by the Company of 4,000,000 ordinary shares, par value US$0.00015625 per share, and an additional 600,000 ordinary shares pursuant to an over-allotment option granted to the underwriters (collectively the “IPO Shares”). The IPO Shares are to be sold by the Company pursuant to an underwriting agreement (the “Underwriting Agreement”) to be entered into by and between the Company and Boustead Securities, LLC (the “Underwriter”). The Company is also registering (i) warrants to purchase up to 7% of the ordinary shares sold in the offering to be issued to the Underwriter as compensation pursuant to the Underwriting Agreement (the “Underwriter’s Warrants”), and (ii) the ordinary shares issuable upon exercise of the Underwriter’s Warrants.
This opinion is being furnished to you in connection with the Registration Statement.
In connection with this opinion, we have examined the following documents:
| 1. | The Registration Statement, |
| 2. | The form of the Underwriting Agreement, filed as Exhibit 1.1 to the Registration Statement, |
| 3. | The form of the Underwriter’s Warrants, filed as Exhibit 4.1 to the Registration Statement, |
| 4. | a copy of the executed written resolution of the directors of the Company dated September 1, 2022, and |
| 5. | such other documents and corporate records as we have deemed necessary or appropriate in order to enable us to render the opinion below. |
For purposes of this opinion, we have assumed (i) the validity and accuracy of the documents and corporate records that we have examined, (ii) the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such documents and (iii) that all relevant documents have been, or will be, validly authorized, executed, delivered and performed by all of the relevant parties. As to any facts material to the opinion expressed herein that we did not independently establish or verify, we have relied upon statements and representations of officers and other representatives of the Company and have assumed that such statements and representations are true, correct and complete without regard to any qualification as to knowledge or belief. Our opinion is conditioned upon, among other things, the initial and continuing truth, accuracy, and completeness of the items described above on which we are relying.
Ortoli | Rosenstadt LLP
Yi Po International Holdings Limited
September 8, 2022
Subject to the foregoing and the qualifications set forth in the Registration Statement, we are of the opinion that the Underwriter’s Warrants, when issued executed and delivered in accordance with the terms of the Underwriting Agreement as described in the Registration Statement, will constitute the valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms under the law of New York.
Our opinion is limited to the application of the laws of the State of New York, the Securities Act and the rules and regulations of the SEC promulgated thereunder only and we express no opinion with respect to the applicability of other federal laws, the laws of other countries, the laws of any state of the United States or any other jurisdiction, or as to any matters of municipal law or the laws of any other local agencies within any state. No opinion is expressed as to any federal securities laws except as specifically set forth herein. Our opinion represents only our interpretation of the law and has no binding, legal effect on, without limitation, the service or any court. It is possible that contrary positions may be asserted by the service and that one or more courts may sustain such contrary positions. Our opinion is expressed as of the date hereof, and we are under no obligation to supplement or revise this opinion to reflect any changes, including changes which have retroactive effect (i) in applicable law, or (ii) in any fact, information, document, corporate record, covenant, statement, representation, or assumption stated herein that becomes untrue, incorrect or incomplete.
This letter is furnished to you for use in connection with the Registration Statement and is not to be used, circulated, quoted, or otherwise referred to for any other purpose without our express written permission. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name in the Registration Statement wherever it appears. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the SEC thereunder.
| Very truly yours, | |
| /s/ Ortoli Rosenstadt LLP | |
| Ortoli Rosenstadt LLP |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation of our report dated August 2, 2022 in Amendment No. 2 to the Registration Statement on Form F-1 (No. 333-262405), relating to the audit of the consolidated balance sheets of Yi Po International Holdings Limited (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).
We also consent to the Company’s reference to WWC, P.C., Certified Public Accountants, as experts in accounting and auditing.
| /s/ WWC, P.C. | ||
| San Mateo, California | WWC, P.C. | |
| September 9, 2022 | Certified Public Accountants | |
| PCAOB ID: 1171 |
Exhibit 99.1
September 1, 2022
| To: | Yi Po International Holdings Limited |
| 320~324, Building C4, No. 5 Jinxiu Street, | |
| Yuhuatai District, Nanjing, | |
| Jiangsu Province, People’s Republic of China |
| Re: | Legal Opinion on Certain PRC Legal Matters |
Dear Sirs or Madams:
We are qualified lawyers of the People’s Republic of China (the “PRC””, for the purpose of this opinion only, the PRC shall not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan) and as such are qualified to issue this opinion on the laws and regulations of the PRC effective as of the date hereof.
We act as the PRC legal counsel for Yi Po International Holdings Limited. (the “Company”), a company incorporated under the laws of the Cayman Islands, solely in connection with (i) the proposed initial public offering (the “Offering”) of certain number of ordinary shares, par value US$0.000156 per share, of the Company (the “Ordinary Shares”), by the Company as set forth in the Company’s registration statement on Form F-1, including all amendments or supplements thereto (the “Registration Statement”), which filed by the Company with the Securities and Exchange Commission (the “SEC”) under the U.S. Securities Act of 1933 (as amended) in relation to the Offering, and (ii) the Company’s proposed listing of the Ordinary Shares on the Nasdaq Capital Market.
| 1 | Documents and Assumptions |
| 1.1 | In rendering this opinion, we have examined the Registration Statement, originals or copies of the due diligence documents provided to us by the Company and the PRC Companies (as defined below) and such other documents, corporate records and certificates issued by the governmental authorities in the PRC (collectively the “Documents”). |
| 1.2 | In rendering this opinion, we have assumed without independent investigation that (“Assumptions”): |
| 1.2.1 | All signatures, seals and chops are genuine, each signature on behalf of a party thereto is that of a person duly authorized by such party to execute the same, all Documents submitted to us as originals are authentic, and all Documents submitted to us as certified or photostatic copies conform to the originals; |
| 1.2.2 | All Documents submitted to us still exist, remain in full force and effect up to the date of this opinion and have not been revoked, amended, varied, cancelled or superseded by any other document or agreement or action; and no revocation or termination has occurred, with respect to any of the Documents after they were submitted to us for the purposes of this opinion; |
| 1.2.3 | Each of the parties to the Documents, other than the PRC Companies, (a) if a legal person or other entity, is duly organized and is validly existing in good standing under the laws of its jurisdiction of organization and/or incorporation, or (b) if an individual, has full capacity for civil conduct; each of them, other than the PRC Companies, has full power and authority to execute, deliver and perform its obligations under the Documents to which it is a party in accordance with the laws of its jurisdiction of organization or incorporation or the laws that it/she/he is subject to; |
| 1.2.4 | The laws of jurisdictions other than the PRC which may be applicable to the execution, delivery, performance or enforcement of the Documents are complied with; |
| 1.2.5 | All requested Documents have been provided to us and all factual statements made to us by the Company and the PRC Companies in connection with this legal opinion are true, correct and complete; and |
| 1.2.6 | All Governmental Authorizations (as defined below) and other official statements and documentation obtained by the Company or any PRC Companies from any Governmental Agency (as defined below) have been obtained by lawful means in due course, and the Documents provided to us conform with those documents submitted to Governmental Agencies for such purposes. |
| 2 | Definitions |
| 2.1 | In addition to the terms defined in the context of this opinion, the following capitalized terms used in this opinion shall have the meanings ascribed to them as follows: |
| 2.1.1 | “CSRC” means the China Securities Regulatory Commission (中国证券监督管理委员会); |
| 2.1.2 | “Governmental Agency” means any national, provincial or local governmental, regulatory or administrative authority, agency or commission in the PRC, or any court, tribunal or any other judicial body in the PRC, or anybody exercising, or entitled to exercise, any administrative, judicial, legislative, police, regulatory, or taxing authority or power of similar nature in the PRC; |
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| 2.1.3 | “Governmental Authorization” means any license, approval, consent, waiver, order, sanction, certificate, authorization, filing, disclosure, registration, exemption, permission, endorsement, annual inspection, clearance, qualification, permit or license by, from or with any Governmental Agency pursuant to any PRC Laws; |
| 2.1.4 | “M&A Rules” means the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (《关于外国投资者并购境内企业的规定》) promulgated jointly by the PRC Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the CSRC, and the State Administration of Foreign Exchange on August 8, 2006, which became effective on September 8, 2006 and were amended on June 22, 2009 by the Ministry of Commerce; |
| 2.1.5 | “PRC Companies” means Nanjing Dingxu Xinhui Technology Co. Ltd.and Jiangsu Easy Parking Intelligent Technology Co., Ltd.; |
| 2.1.6 | “PRC Laws” mean all applicable national, provincial and local laws, regulations, statues, rules, orders, decrees, notices and supreme court’s judicial interpretations of the PRC currently in effect and publicly available on the date of this opinion. |
| 2.2 | Capitalized terms used herein and not otherwise defined herein shall have the same meanings described in the Registration Statement. |
| 3 | Opinions |
| 3.1 | Based on our review of the Documents and subject to the Assumptions and the Qualifications, we are of the opinion that: |
| 3.1.1 | With Respect to the Corporate Structure. |
The ownership structure of the Company and its affiliates, including the PRC Companies, currently does not and immediately after giving effect to the Offering, will not result in any violation of the applicable PRC Laws, and is currently valid, binding and enforceable in accordance with applicable PRC Laws.
| 3.1.2 | With respect to the M&A Rules. |
The M&A Rules, among other things, purport to require CSRC approval prior to the listing and trading on an overseas stock exchange of the securities of an offshore special purpose vehicle established or controlled directly or indirectly by PRC companies or individuals and formed for the purpose of overseas listing through the acquisition of PRC domestic interests held by such PRC companies or individuals. Based on our understanding of the explicit provisions under PRC Laws, the CSRC’s approval is not required for the Offering. However, there are substantial uncertainties regarding the interpretation and application of the M&A Rules, other PRC Laws and future PRC laws and regulations, and there can be no assurance that any Governmental Agency will not take a view that is contrary to or otherwise different from our opinions stated herein.
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| 3.1.3 | Enforceability of Civil Procedures. |
The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between the PRC and the country where the judgment is made or on principles of reciprocity between jurisdictions. The PRC 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 a company or its 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 the Cayman Islands.
| 3.1.4 | Taxation. |
The statements made in the Registration Statement under the caption “Taxation—PRC Taxation,” with respect to the PRC tax laws and regulations or interpretations, constitute correct and accurate descriptions of the matters described therein in all material respects and such statements represent our opinion. We do not express any opinion herein concerning any law other than PRC tax law.
| 3.1.5 | PRC Laws. |
All statements set forth in the Registration Statement under the sections entitled “Prospectus Summary”, “Risk Factors”, “Use of Proceeds”, “Dividend Policy”, “Enforceability of Civil Liabilities”, “Business”, “Regulation”, “Management”, “Taxation” and “Legal Matters”, to the extent that they describe or summarize matters of PRC Laws or documents, agreements or proceedings governed by the PRC Laws, are true and accurate in all material respects, and fairly present or fairly summarize in all material respects the PRC legal and regulatory matters, proceedings referred to therein, and nothing has been omitted from such statements which would make the same misleading in any material respect.
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| 4 | Qualifications |
| 4.1 | Our opinion expressed above is subject to the following qualifications : |
| 4.1.1 | Our opinion is limited to the PRC Laws of general application on the date hereof. We have made no investigation of, and do not express or imply any views on, the laws of any jurisdiction other than the PRC. |
| 4.1.2 | The PRC Laws referred to herein are laws and regulations publicly available and currently in force on the date hereof and there is no guarantee that any of such laws and regulations, or the interpretation or enforcement thereof, will not be changed, amended or revoked in the future with or without retrospective effect. |
| 4.1.3 | Our opinion is subject to the effects of (i) certain legal or statutory principles affecting the enforceability of contractual rights generally under the concepts of public interest, social ethics, national security, good faith, fair dealing, and applicable statutes of limitation; (ii) any circumstance in connection with formulation, execution or performance of any legal documents that would be deemed materially mistaken, clearly unconscionable, fraudulent, coercionary or concealing illegal intentions with a lawful form; (iii) judicial discretion with respect to the availability of specific performance, injunctive relief, remedies or defenses, or calculation of damages; and (iv) the discretion of any competent PRC legislative, administrative or judicial bodies in exercising their authority in the PRC. |
| 4.1.4 | This opinion is issued based on our understanding of the current PRC Laws. For matters not explicitly provided under the current PRC Laws, the interpretation, implementation and application of the specific requirements under the PRC Laws are subject to the final discretion of competent PRC legislative, administrative and judicial authorities, and there can be no assurance that the Government Agencies will ultimately take a view that is not contrary to our opinion stated above. |
| 4.1.5 | We may rely, as to matters of fact (but not as to legal conclusions), to the extent we deem proper, on certificates and confirmations of responsible officers of the PRC Companies and PRC government officials. |
| 4.1.6 | This opinion is intended to be used in the context which is specifically referred to herein. |
| 4.1.7 | As used in this opinion, the expression “to our best knowledge” or similar language with reference to matters of fact refers to the current actual knowledge of the attorneys of this firm who have worked on matters for the Company in connection with the Offering and the transactions contemplated thereunder. We have not undertaken any independent investigation to determine the existence or absence of any fact, and no inference as to our knowledge of the existence or absence of any fact should be drawn from our representation of the Company or the rendering of this opinion. |
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This opinion is delivered in our capacity as the Company’s PRC legal counsel solely for the purpose of the Registration Statement publicly submitted to the SEC on the date of this opinion and shall not be used for any other purpose without our prior written consent.
We hereby consent to the use of this opinion in, and the filing hereof as an exhibit to, the Registration Statement, and to the reference to our name in such Registration Statement. In giving such consent, we do not thereby admit that we come within the category of the person whose consent is required under Section 7 of the U.S. Securities Act of 1933, as amended, or the regulations promulgated thereunder.
| Yours faithfully, |
|
/s/ Guantao Law Firm
|
Guantao Law Firm
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