F-1
As filed with the Securities and Exchange Commission on March 6, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
NINGBO ZHENGHE TRADE LIMITED
(Exact name of Registrant as specified in its charter)
Cayman Islands
2092
Not Applicable
(State or other jurisdiction of
(Primary Standard Industrial
(I.R.S. Employer
incorporation or organization)
Classification Code Number)
Identification Number)
Room 306 Build 2 Yangtze River Delta
e commerce Industrial Park
Shanghai China 100005
(Address, including zip code of Registrant's principal executive offices)
BIGC SECURITIES,INC.
228 PARK AVE S 79525
NEW YORK,
(Name, address, including zip code of agent for service)
Copies to:
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. .
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same offering. .
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. .
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. .
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of 1933. Emerging
growth company .
If an emerging growth company that prepares its financial statements
in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant
to Section 7(a)(2)(B) of the Securities Act. .
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act, as amended, or until the registration
statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a) may determine.
1
PRELIMINARY PROSPECTUS
ORDINARY SHARES
We are offering ordinary shares. This is the initial public offering of
ordinary shares of . The offering price of our ordinary shares in this
offering is expected to be $5.00 per share. Prior to this offering,
there has been no public market for our ordinary shares.
We have applied to list our ordinary shares on the Nasdaq Capital
Market under the symbol 'ZHZ'. There is no assurance that such
application will be approved, and if our application is not approved,
this offering may not be completed.
Investing in our ordinary shares involves a high degree of risk. Before
buying any shares, you should carefully read the discussion of material
risks of investing in our ordinary shares in 'Risk Factors'.
We are an 'emerging growth company' as defined under the federal
securities laws and, as such, will be subject to reduced public company
reporting requirements. See 'Prospectus Summary Implications of
Being an Emerging Growth Company' for additional information.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary
is a criminal offense.
We are not a Chinese operating company, but rather a holding company
incorporated in the Cayman Islands. As a holding company with no material
operations of our own, we conduct a substantial majority of our operations
through our operating entities established in the Peoples Republic of
China (or the 'PRC'). The Ordinary Shares offered in this prospectus are
shares of the Cayman Islands holding company. Holders of our Class A
Ordinary Shares do not directly own any equity interests in our Chinese
operating subsidiaries, but will instead own shares of a Cayman Islands
holding company. The Chinese regulatory authorities could disallow our
corporate structure, which would likely result in a material change in our
operations and/or a material change in the value of our Ordinary Shares,
including that it could cause the value of our Ordinary Shares to
significantly decline or become worthless. Unless otherwise stated, as
used in this prospectus and in the context of describing our operations
and consolidated financial information, 'we,' 'us,' 'Company,' or
'our,' refers to NINGBO ZHENGHE TRADE LIMITED, a Cayman Islands
holding company.
2
We face various legal and operational risks and uncertainties relating to
our operations in China. These risks, together with uncertainties in Chinas
legal system and the interpretation and enforcement of Chinese laws,
regulations, and policies, could hinder our ability to offer or continue to
offer our securities, result in a material adverse effect on our business
operations, and damage our reputation, which could cause our shares to
significantly decline in value or become worthless. The Chinese government
may intervene or influence the operations of our PRC subsidiaries at any
time and may exert more control over offerings conducted overseas and/or
foreign investment in China-based issuers, which could result in a material
change in the operations of our PRC subsidiaries and/or the value of our
common stock. Any actions by the Chinese government to exert more
oversight and control over offerings that are conducted overseas and/or
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 such securities to significantly decline
or be worthless. Recently, the PRC government adopted a series of laws,
regulatory measures and issued statements to regulate business operations
in China, including cracking down on illegal activities in the securities
market, adopting new measures to extend the scope of cybersecurity
reviews, and expanding the efforts in anti-monopoly enforcement. The
Cyberspace Administration of China ('CAC') has opened cybersecurity
probes into several U.S.-listed technology companies focusing on
anti-monopoly regulation, and how companies collect, store, process
and transfer data, among other things. If we are subject to such a probe
or are required to comply with the stringent requirements of the new
regulations, our ability to conduct our business or list on a U.S. stock
exchange may be restricted. As of the date of this prospectus, we and
our subsidiaries have not been involved in any investigations on
cybersecurity review initiated by any Chinese regulatory authority,
nor has any of them received any inquiry, notice or sanction. There
are currently no relevant laws or regulations in China that prohibit
companies whose subsidiaries or entity interests are within China
from listing on overseas stock exchanges. However, since these
statements and regulatory actions are newly published, official
guidance and related implementation rules have not been issued.
It is highly uncertain what the potential impact such modified or
new policies and regulations will have on our daily business operation,
the ability to accept foreign investments and our ability to continue
trading on a U.S. securities marketplace or stock exchange.
PER SHARE
TOTAL
Initial public offering price
Underwriting discounts and commissions(1) Proceeds, before expenses, to us
$
$
$
$
$
$
(1) Does not include accountable and non-accountable expense allowance
payable to underwriters. Please see the section of this prospectus entitled
'Underwriting' for additional information regarding underwriter compensation.
We expect our total cash expenses for this offering (including cash expenses
payable to our underwriters for their out-of-pocket expenses) to be
approximately $[], exclusive of the above commissions. In addition, we
will pay additional items of value in connection with this offering that are
viewed by the Financial Industry Regulatory Authority, or FINRA, as
underwriting compensation. These payments will further reduce proceeds
available to us before expenses. See 'Underwriting.'
Neither we nor any of the underwriters have authorized anyone to provide
any information or to make any representations other than those contained
in this prospectus or in any free writing prospectuses we have prepared.
Neither we nor any of the underwriters take responsibility for, and can
provide no assurance as to the reliability of, any other information that
others may give you. This prospectus is an offer to sell only the shares
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, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
For investors outside the United States: Neither we nor any of the
underwriters have done anything that would permit this offering
or possession or distribution of this prospectus in any jurisdiction
where action for that purpose is required, other than in the United
States. Persons outside the United States who come into possession
of this prospectus must inform themselves about, and observe any
restrictions relating to, the offering of the shares of our common
stock and the distribution of this prospectus outside the United States.
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.
3
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY
5
OFFERINGS
13
RISK FACTORS
14
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
40
USE OF PROCEEDS
42
DIVIDEND POLICY
43
CORPORATE STRUCTURE
44
BUSINESS
45
REGULATIONS
48
MANAGEMENT
56
PRINCIPAL SHAREHOLDERS
60
SHARES ELIGIBLE FOR FUTURE SALE
61
UNDERWRITING
63
LEGAL MATTERS
65
INDEX TO FINANCIAL STATEMENTS
4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
statements appearing 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.
Our Mission
We are a Hairy Crabs service agent focusing on marketing commercial
products to and managing products for individuals and corporate
clients in the PRC.
Overview of Our Company
We are founded in 2015 located in Yangtze River Delta Ecommerce
Industrial Park Shanghai is committed to intelligence.
Ningbo Zhenghe Trading ltd is a professional international leading
Chinese comitten crab overall solution service operator integrating
original ecological free range Yangcheng Lake hairy crab aquaculture
brand promotion comprehensive sales and spot distribution. The farm
is a large scale ecological aquaculture base which is recommended by
the Academy of Agricultural Sciences to ensure that all listed products
meet the principles of food safety and green.
Our products and customers cover more than 10 countries and regions
such as North America Europe Oceania South America Middle East and Asia.
The Industry
According to the Heading Report hairy crab farming has a long history in
China and is one of the pillar industries in China fishery economy. As a
special famous and excellent aquatic product hairy crab has become an
important breakthrough for implementing targeted poverty alleviation
promoting economic growth and increasing farmers income in many regions.
In order to have a comprehensive understanding of China hairy crab
market and industry development Youangsu Academy of Agricultural
Sciences and other units were entrusted to set up a special research
group which conducted a comprehensive investigation and analysis
of China hairy crab industry by means of data access telephone
consultation face to face interview and on site inspection.
Our Solution
We believe the following competitive strengths have contributed
to or will contribute to our recent and ongoing growth:
The development of hairy crab farming industry will still face many
challenges in the future but with the growing maturity of breeding
technology closely linked production and sales links rapid expansion
of consumer market and perfect provision of cold chain logistics
the overall development will be relatively stable.
Our Services
I. We aspire to become intelligent hairy crab industry leader among
the environment of overall growth in the market.
II. To achieve this goal we intend to leverage on our existing strengths
and pursue the following strategies:
III. Further Enhance Our Brand Recognition among intelligent hairy crab
market in China
IV. Further grow our client base and increase our market penetration
V. Broaden Our Individual and Corporate Client Base
VI. Continue Product Innovation to Enhance Our Value Proposition to
Clients Enhance Our IT Infrastructure and Proprietary Database and
Pursue strategic investments and acquisition opportunities.
5
Our Core Competencies
I. The original industry chain can provde hairy crab industry among the
environment of overall growth in the market.
II. Professional team Core listing counseling team resources all over China
Our founder, JIJIAN YOU, has been engaged in lhairy crab operation
industry for 20 years, and has unique experience in enterprise industry
operation.
III. Always put the service for client in the first place in life, always put
the creation of value for enterprises in the first place in life.
Our Competitive Strengths
I. Market development and promotion advantages.
II. Professional team and core operation team resources advantage
throughout China.
III. The advantage of the original hairy crab industry chain operation,
which can provide better hairy crabs goods.
IV. The advantage of long time experience in hairy crab industry operation.
Our Challenges
I. The number of competitors has increased.
II. Team personnel are constrained by funds, resulting in insufficient
manpower.
III. The industry price is becoming more and more transparent.
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Our Strategy
I. Provide better hairy crabs goods, full industry chain operation and
solve the problems in the development of enterprises agent. We
hope to really help enterprises agent to improve their core
competitiveness, cultivate internal strength, enhance the value
, long-term accompanying to clients.
II. M&A of China's high-quality assets, the combination of industry
and finance.
Risk Factors Summary
Risks Related to Our Business
We have grown rapidly in recent years and have limited experience
operating at our current scale of operations. If we are unable to
manage our growth effectively, our brand, company culture and
financial results may suffer.
We have limited sources of working capital and will need substantial
additional financing.
We are dependent on certain key personnel and loss of these key
personnel could have a material adverse effect on our business,
financial condition and results of operations.
Our success depends on our ability to protect our intellectual property.
The global coronavirus COVID-19 pandemic has caused significant
disruptions in our business, which may continue to materially and
adversely affect our results of operations and financial condition.
A severe or prolonged downturn in the global or Chinese economy
could materially and adversely affect our business and our financial
condition.
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.
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.
The PRC government may impose restrictions on our ability to transfer cash
out of China and to U.S. investors.
To the extent cash or assets of our business, or of our PRC or Hong Kong
subsidiaries, is in the PRC or Hong Kong, such cash or assets may not be
available to fund operations or for other use outside of the PRC or Hong
Kong, due to interventions in or the imposition of restrictions and
limitations by the PRC government to the transfer of cash or assets.
PRC laws and regulations governing our current business operations
are sometimes vague and uncertain and any changes in such laws and
regulations may impair our ability to operate profitably.
7
Substantial uncertainties exist with respect to the enactment timetable
and final content of draft China Foreign Investment Law and how it
may impact the viability of our current corporate structure, corporate
governance and business operations.
There are uncertainties under the PRC laws relating to the procedures
for U.S. regulators to investigate and collect evidence from companies
located in the PRC.
We rely on dividends, loans and other distributions on equity paid by
our PRC subsidiaries to fund any cash and financing requirements
we may have. Any limitation on the ability of our PRC subsidiaries
to make loans or payments to us could have a material adverse
effect on our ability to conduct our business.
Fluctuations in exchange rates could have a material adverse effect
on our results of operations and the price of our ordinary shares.
PRC regulation of loans to, and direct investments in, PRC entities
by offshore holding companies may delay or prevent us from making
loans or additional capital contributions to our PRC operating subsidiaries
and thereby prevent us from funding our business.
PRC regulations relating to the establishment of offshore special purpose
vehicles by PRC residents may subject our PRC- resident beneficial owners
or our PRC subsidiaries to liability or penalties, limit our ability to make
capital contributions into our PRC subsidiaries, limit our PRC
subsidiaries' ability to distribute profits to us, or otherwise adversely
affect our financial position.
Governmental control of currency conversion may limit our ability
to utilize our net revenues effectively and affect the value of your
investment.
We must remit the offering proceeds to PRC before they may be
used to benefit our business in the PRC, and this process may take
several months.
Some of our shareholders are not in compliance with the PRC's
regulations relating to offshore investment activities by PRC
residents, and as a result, the shareholders may be subject to
penalties if we are not able to remediate the non- compliance.
Failure to make adequate contributions to various employee benefit
plans required by PRC regulations may subject us to penalties.
The M&A Rules and certain other PRC regulations establish complex
procedures for some acquisitions of Chinese companies by foreign
investors, making it more difficult for us to pursue growth through
acquisitions in China.
PRC regulations relating to offshore investment activities by PRC
residents may limit our PRC subsidiaries' ability to increase their
registered capital or distribute profits to us or otherwise expose
us or our PRC resident beneficial owners to liability and penalties
under PRC law.
If we are classified as a PRC resident enterprise for PRC income
tax purposes, such classification could result in unfavorable tax
consequences to us and our non-PRC shareholders.
8
Enhanced scrutiny over acquisition transactions by the PRC tax
authorities may have a negative impact on potential acquisitions
we may pursue in the future.
If we become directly subject to the scrutiny, criticism and negative
publicity involving U.S.-listed Chinese companies, we may have to
expend significant resources to investigate and resolve the matter
which could harm our business operations, share price and reputation.
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.
Uncertainties in the interpretation and enforcement of Chinese laws
and regulations could limit the legal protections available to us.
We may be adversely affected by the complexity, uncertainties and
changes in PRC regulation of internet-related businesses and
companies, and any lack of requisite approvals, licenses or permits
applicable to our business may have a material adverse effect on
our business and results of operations.
Increases in labor costs in the PRC may adversely affect our business
and our profitability. Risks Related to the Offering and Our Ordinary
Shares
The initial public offering price of our Ordinary Shares may not be
indicative of the market price of our Ordinary Shares after this offering.
In addition, an active, liquid and orderly trading market for our Ordinary
Shares may not develop or be maintained, and our share price may
be volatile.
There may not be an active, liquid trading market for our Ordinary Shares.
Because we do not expect to pay dividends in the foreseeable future
after this offering, you must rely on a price appreciation of the
Ordinary Shares for a return on your investment.
A sale or perceived sale of a substantial number of our Ordinary
Shares may cause the price of our Ordinary Shares to decline.
There can be no assurance that we will not be a passive foreign
investment company ('PFIC') for United States federal income
tax purposes for any taxable year, which could subject United States
holders of our Ordinary Shares to significant adverse United States
federal income tax consequences.
For as long as we are an emerging growth company, we will not
be required to comply with certain reporting requirements,
including those relating to accounting standards and disclosure
about our executive compensation, that apply to other public companies.
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.
Nasdaq may apply additional and more stringent criteria for our initial
and continued listing because we plan to have a small public offering
and insiders will hold a large portion of the company's listed securities.
9
If we cannot satisfy, or continue to satisfy, the initial listing
requirements and other rules of Nasdaq Capital Market,
although we exempt from certain corporate governance
standards applicable to US issuers as a Foreign Private Issuer,
our securities may not be listed or may be delisted, which could
negatively impact the price of our securities and your
ability to sell them.
The market price of our ordinary shares may be volatile
or may decline regardless of our operating performance,
and you may not be able to resell your shares at or above
the public offering price.
We have broad discretion in the use of the net proceeds
from our public offering and may not use them effectively.
We will incur additional costs as a result of becoming a
public company, which could negatively impact our net
income and liquidity.
Trademarks
Implications of Being an Emerging Growth Company Implications of
Our Being an 'Emerging Growth Company'
On September 9, 2022, the SEC adopted inflation adjustments mandated
by the Jumpstart Our Business Startups Act of 2012 (the 'JOBS Act').
As a result, an 'emerging growth company' will lose its emerging
growth company status on the last day of the fiscal year in which it
has $1.235 billion or more in total. As a company with less than $1.235
billion in revenue during our last fiscal year, we qualify as an
'emerging growth company' as defined in 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,
.. 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 CEO 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 until our second annual report on Form 20-F
following the effectiveness of our initial public offering.
10
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.
Under the JOBS Act, we may take advantage of the above-described
reduced reporting requirements and exemptions until we no longer
meet the definition of an emerging growth company. The JOBS Act
provides that we would cease to be an 'emerging growth company'
at the end of the fiscal year in which the fifth anniversary of our initial
sale of common equity pursuant to a registration statement declared
effective under the Securities Act of 1933, as amended (the 'Securities
Act') occurred, if we have more than $1.235 billion in annual revenue,
have more than $700 million in market value of our Class A Ordinary
Share held by non-affiliates, or issue more than $1 billion in principal
amount of non-convertible debt over a three-year period.
Foreign Private Issuer Status
We are a foreign private issuer within the meaning of the rules under
the Securities Exchange Act of 1934, as amended (the 'Exchange Act').
As such, we are exempt from certain provisions applicable to United
States domestic public companies. For example:
we are not required to provide as many Exchange Act reports, or as
frequently, as a domestic public company,
for interim reporting, we are permitted to comply solely with our
home country requirements, which are less rigorous than the rules
that apply to domestic public companies,
we are not required to provide the same level of disclosure on
certain issues, such as executive compensation,
we are exempt from provisions of Regulation FD aimed at
preventing issuers from making selective disclosures of material
information,
we are not required to comply with the sections of the Exchange
Act regulating the solicitation of proxies, consents, or authorizations
in respect of a security registered under the Exchange Act, and
we are not required to comply with Section 16 of the Exchange
Act requiring insiders to file public reports of their share ownership
and trading activities and establishing insider liability for profits
realized from any 'short-swing' trading transaction.
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.
11
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.
12
OFFERINGS
Below is a summary of the terms of the offering:
Issuer NINGBO ZHENGHE TRADE LIMITED
Securities Being Offered Ordinary Shares, par value US$0.0001 per share
Offering Price We expect that the initial public offering price will be
US$ per Ordinary Share.
Ordinary Shares Outstanding Immediately Before This Offering
Ordinary Shares
Ordinary Shares Outstanding Immediately After This Offering
Ordinary Shares (or Ordinary Shares if the underwriters exercise
their option to purchase additional Ordinary Shares in full).
Voting Rights Each Ordinary Share is entitled to one vote. Use of Proceeds
Proposed Nasdaq Trading Symbol and Listing
ZHZ
Lock-up Our directors, executive officers, and shareholder who own 5%
or more of the outstanding Ordinary Shares intended 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 commencing on the date
of this prospectus. 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
Risk factors See 'Risk Factors' for a discussion of risks you should
carefully consider before investing in our Ordinary Shares.
13
RISK FACTORS
An investment in our Ordinary Shares involves a high degree of risk.
Before deciding whether to invest in our Ordinary Shares, you should
consider carefully the risks described below, together with all of the
other information set forth in this prospectus, including the section
titled 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' 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. The risks described below and in the
documents referenced above are not the only ones that we face.
Additional risks not presently known to us or that we currently
deem immaterial may also affect our business. You should only
consider investing in our Ordinary Shares if you can bear the risk
of loss of your entire investment.
Risks Related to Our Business
We have grown rapidly in recent years and have limited experience
operating at our current scale of operations. If we are unable to
manage our growth effectively, our brand, company culture and
financial results may suffer.
We have grown rapidly in the past year and our recent growth
rates and financial results should not be considered indicators
of our future performance. In order to effectively manage and
leverage our growth, we must continue to expand our sales and
marketing, focus on innovative product and website development,
and upgrade our management information systems. Our continued
growth has in the past and may in the future strain our existing
resources and we may experience ongoing operational difficulties
in managing our operations in numerous jurisdictions, including
difficulties in recruiting, training and managing a dispersed and
growing employee base. Failure to expand and maintain our company
culture through growth may harm our future success, including our
ability to retain and recruit personnel and to effectively focus on and
pursue our corporate goals.
The finance service industry is evolving rapidly and may not evolve as
we expect. Even if our net sales continue to grow, our net sales growth
rate may decline in the future due to a variety of factors, including
macroeconomic factors, changes in supply and supply chain, changes
in consumer preferences, increased competition and the maturation
of our business. Accordingly, you should not rely on our net sales growth
rates for any prior period as an indicator of our future performance.
Our overall growth in net sales will depend on many factors, including
our ability to:
1) price our products and services effectively so that we can attract
new customers and expand our relationships with existing customers.
2) accurately forecast our net sales and plan our operating expenses.
3) compete successfully with other companies that are or may be
entering our competitive market in the future and respond to
developments in those competitors, such as pricing changes
and the introduction of new products and services.
4) Complying with existing and new laws and regulations that
apply to our business.
5) Successfully expanding into existing markets and entering new
markets, including new geographic areas and categories.
6) The successful introduction of new products and enhancements
to our products and services and their features, including in
response to new trends or competitive dynamics or customer
needs or preferences.
7) Successfully identifying and acquiring or investing in businesses,
products or technologies that we believe will complement or
expand our business.
8) Avoiding disruptions or interruptions in the distribution of our
products and services.
9) Providing quality support to our customers that meets their needs.
10) Hiring, integrating and retaining talented sales, customer service
and other personnel.
11) Effectively managing the growth of our business, personnel and
operations, including the opening of new showrooms.
12) Effectively managing the costs associated with our business and
operations.
13) Maintaining and enhancing our reputation and brand value.
14
Because of our limited history of operating our business at our
current scale, it is difficult to assess our current operations and
future prospects, including our ability to plan for and model
future growth. Our limited operating experience at this scale,
combined with the rapidly evolving nature of the markets in
which we sell our products and services, the significant uncertainty
about how these markets will develop and other economic factors
beyond our control, reduces our ability to accurately forecast
quarterly or annual revenues. Failure to effectively manage our
future growth could adversely affect our business, financial
condition and results of operations.
We have limited sources of working capital and will need substantial
additional financing.
The working capital required to implement our business strategy will
most likely be provided by funds obtained through offerings of our
equity, debt, debt-linked securities, and/or equity-linked securities,
and revenues generated by us. No assurance can be given that we
will have revenues sufficient to sustain our operations or that we
would be able to obtain equity/debt financing in the current
economic environment. If we do not have sufficient working
capital and are unable to generate sufficient revenues or raise
additional funds, we may delay the completion of or significantly
reduce the scope of our current business plan, postpone the hiring
of new personnel, or, under certain dire financial circumstances,
substantially curtail or cease our operations.
We may need to engage in capital-raising transactions in the near
future. Such financing transactions may well cause substantial dilution
to our shareholders and could involve the issuance of securities with
rights senior to the outstanding shares. Our ability to complete
additional financings is dependent on, among other things, the state
of the capital markets at the time of any proposed offering, market
reception of the Company and the likelihood of the success of its
business model and offering terms. There is no assurance that we
will be able to obtain any such additional capital through asset
sales, equity or debt financing, or any combination thereof, on
satisfactory terms or at all. Additionally, no assurance can be given
that any such financing, if obtained, will be adequate to meet our
capital needs and to support our operations. If we do not obtain
adequate capital on a timely basis and on satisfactory terms, our
revenues and operations and the value of our Ordinary Shares
and Ordinary Share equivalents would be materially negatively
impacted and we may cease our operations.
We are dependent on certain key personnel and loss of these
key personnel could have a material adverse effect on our
business, financial condition and results of operations.
Our success is, to a certain extent, attributable to the management,
sales and marketing of key personnel. We are dependent upon the
services of Mr. jijian You our President, Chairman of the Board, for
the continued growth and operation of our Company, due to his
industry experience, technical expertise, as well as his personal and
business contacts in the PRC. Additionally, We may not be able to retain
for any given period of time. Although we have no reason to believe that
Mr. jijian You will discontinue their services with us, the interruption
or loss of his services would adversely affect our ability to effectively
run our business and pursue our business strategy as well as our
results of operations. We do not carry key man life insurance for
any of our key personnel, nor do we foresee purchasing such
insurance to protect against the loss of key personnel.
Our success depends on our ability to protect our intellectual property.
Our success depends on our ability to obtain and maintain patent
protection for products developed utilizing our technologies, in the
PRC and in other countries, and to enforce these patents. There is
no assurance that any of our existing and future patents will be
held valid and enforceable against third-party infringement or
that our products will not infringe any third-party patent or intellectual
property. We own patents and have filed additional patent applications
with the Patent Administration Department of the PRC, however,
there is no assurance that our filed patent applications will be granted.
15
Any patents relating to our technologies may not be sufficiently broad
to protect our products. In addition, our patents may be challenged,
potentially invalidated or potentially circumvented. Our patents may
not afford us protection against competitors with similar technology
or permit the commercialization of our products without infringing
third-party patents or other intellectual property rights.
We also rely on or intend to rely on our trademarks, trade names
and brand names to distinguish our products from the products
of our competitors, and have registered or will apply to register
a number of these trademarks. However, third parties may oppose
our trademark applications or otherwise challenge our use of the
trademarks. In the event that our trademarks are successfully challenged,
we could be forced to rebrand our products, which could result in loss
of brand recognition and could require us to devote resources to
advertising and marketing these new brands. Further, our competitors
may infringe our trademarks, or we may not have adequate resources
to enforce our trademarks.
In addition, we also have trade secrets, non-patented proprietary
expertise and continuing technological innovation that we shall seek
to protect, in part, by entering into confidentiality agreements with
licensees, suppliers, employees and consultants. These agreements
may be breached and there may not be adequate remedies in the
event of a breach. Disputes may arise concerning the ownership of
intellectual property or the applicability of confidentiality agreements.
Moreover, our trade secrets and proprietary technology may otherwise
become known or be independently developed by our competitors. If
patents are not issued with respect to products arising from research,
we may not be able to maintain the confidentiality of information
relating to these products.
The global coronavirus COVID-19 pandemic has caused significant
disruptions in our business, which may continue to materially and
adversely affect our results of operations and financial condition.
On March 11, 2020, the World Health Organization declared the
COVID-19 outbreak a global pandemic. Many businesses and social
activities in China and other countries and regions were severely
disrupted in 2020, including those of our suppliers, customers and
employees. This pandemic has also caused market panics, which
materially and negatively affected the global financial markets, such
as the plunge of global stocks on major stock exchanges in March
2020. Such disruption and slowdown of the world's economy in 2020
and beyond had, and may continue to have, a material adverse effect
on our results of operations and financial condition. We and our
customers experienced significant business disruptions and suspension
of operations due to quarantine measures to contain the spread of
the pandemic, which caused shortage in the supply of raw materials,
reduced our production capacity, increased the likelihood of default
from our customers and delayed our product delivery. All of these had
resulted in a material adverse effect on our results of operations and
financial condition in the fiscal year 2021. The extent to which the
COVID-19 pandemic may impact our business, operations and financial r
esults will depend on numerous evolving factors that the Company
cannot accurately predict at this time, including the uncertainty on
the potential resurgence of the COVID-19 cases in China, the
continual spread of the virus globally, and the instability of local
and global government policies and restrictions. We are closely
monitoring the development of the COVID-19 pandemic and
continuously evaluating any further potential impact on our
business, results of operations and financial condition. If the
pandemic persists or escalates, we may be subject to further
negative impact on our business operations and financial condition.
A severe or prolonged downturn in the global or Chinese economy
could materially and adversely affect our business and our
financial condition.
Although the Chinese economy expanded well in the last two
decades, the rapid growth of the Chinese economy has slowed
down since 2012, and there is considerable uncertainty over
the long-term effects of the expansionary monetary and fiscal
policies adopted by the People's Bank of China and financial
authorities of some of the world's leading economies, including
the United States and China. There have been concerns over
unrest and terrorist threats in the Middle East, Europe and Africa,
which have resulted in volatility in oil and other markets. There
have also been concerns on the relationship among China and
other Asian countries, which may result in or intensify potential
conflicts in relation to territorial disputes. Economic conditions
in China are sensitive to global economic conditions, as well as
changes in domestic economic and political policies and the
expected or perceived overall economic growth rate in China.
Any severe or prolonged slowdown in the global or Chinese
economy may materially and adversely affect our business,
results of operations and financial condition.
16
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.
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. Under the current
government leadership, the government of the PRC has been pursuing
reform policies which have adversely affected China-based operating
companies whose securities are listed in the United States, with significant
policies changes being made from time to time without notice. 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, or the enforcement and performance
of our contractual arrangements with borrowers in the event of the
imposition of statutory liens, death, bankruptcy or criminal proceedings.
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.
17
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.
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.
18
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 has 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 of the date of this prospectus, none of our PRC subsidiaries'
operations involve storing of personal information of PRC individual
clients. However, given the above uncertainties, it is unclear how the
Revised Review Measures and the final draft Regulations on Network
Data Security Management will affect us. We have been closely monitoring
the development in the regulatory landscape in China, particularly
regarding the requirement of approvals, including on a retrospective basis,
from the CSRC, the CAC or other PRC authorities with respect to this
offering, as well as regarding any annual data security review or other
procedures that may be imposed on us. If any approval, review or other
procedure is in fact required, we are not able to guarantee that we will
obtain such approval or complete such review or other procedure timely
or at all. For any approval that we may be able to obtain, it could
nevertheless be revoked and the terms of its issuance may impose
restrictions on our operations and offerings relating to our securities.
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.
Substantially all of our operations are located in China. Accordingly, our
business, prospects, financial condition, and results of operations may
be influenced significantly 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 the 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.
19
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 harm 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.
We may also decide to finance our PRC subsidiaries using capital
contributions. The Ministry of Commerce ('MOC') or its local
counterpart must approve these capital contributions. On March
30, 2015, the State Administration of Foreign Exchange, or SAFE,
promulgated Circular of the State Administration of Foreign
Exchange on Reforming the Management Approach regarding
the Settlement of Foreign Exchange Capital of Foreign-invested
Enterprises, or Circular 19, which expands a pilot reform of the
administration of the settlement of the foreign exchange capitals
of foreign-invested enterprises nationwide. Circular 19 came into
force and replaced previous Circular 142 and Circular 36 on June
1, 2015. On June 9, 2016, SAFE promulgated the Circular of the
State Administration of Foreign Exchange on Reforming and
Regulating Policies on the Control over Foreign Exchange Settlement
of Capital Accounts, or Circular 16, to further expand and strengthen
such reform. Under Circular 19 and Circular 16, foreign-invested
enterprises in the PRC are allowed to use their foreign exchange
funds under capital accounts and RMB funds from exchange settlement
for expenditure under current accounts within its business scope or
expenditure under capital accounts permitted by laws and regulations,
except that such funds shall not be used for (i) expenditure beyond the
enterprise's business scope or expenditure prohibited by laws and
regulations, (ii) investments in securities or other investments than
principal-secured products issued by banks, (iii) granting loans to
non-affiliated enterprises, except where it is expressly permitted in
the business license, and (iv) construction or purchase of real estate
for purposes other than self-use (except for real estate enterprises).
In addition, SAFE strengthened its oversight of the flow and use of
the RMB capital converted from foreign currency registered capita
l of a foreign-invested company. The use of such RMB capital may
not be altered without SAFE's approval, and such RMB capital may
not, in any case, be used to repay RMB loans if the proceeds of such
loans have not been used. Violations of these circulars could result in
severe monetary or other penalties. These circulars may significantly
limit our ability to use RMB converted from the cash provided by our
offshore financing activities to fund the establishment of new entities
in China by our PRC subsidiaries, to invest in or acquire any other PRC
companies through our PRC subsidiaries.
In light of the various requirements imposed by PRC regulations on
loans to and direct investment in PRC entities by offshore holding
companies, we cannot assure you that we will be able to complete
the necessary government registrations or obtain the necessary
government approvals on a timely basis, if at all, with respect to
future loans to our PRC subsidiaries or future capital contributions
by us to our PRC subsidiaries. If we fail to complete such registrations
or obtain such approvals, our ability to use the proceeds we expect to
receive from our initial public offering to capitalize or otherwise fund
our PRC operations may be negatively affected, which could materially
and adversely affect our liquidity and our ability to fund and expand
our business.
The PRC government may impose restrictions on our ability to transfer
cash out of China and to U.S. investors.
The PRC government imposes controls on the convertibility of Renminbi
into foreign currencies and, in certain cases, the remittance of currency
out of China. To the extent that our income is received in Renminbi,
shortages in foreign currencies may restrict our ability to pay dividends
or other payments, or otherwise satisfy our foreign currency denominated
obligations, if any. 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 the State
Administration of Foreign Exchange, or SAFE, as long as certain
procedural requirements are met. Approval from appropriate
government authorities is required if Renminbi is converted into
foreign currency and remitted out of China to pay capital expenses
such as the repayment of loans denominated in foreign currencies.
The PRC government may, at its discretion, impose restrictions on
access to foreign currencies for current account transactions.
20
To address persistent capital outflows and the RMB's depreciation
against the U.S. dollar in the fourth quarter of 2016, the People's Bank
of China and the SAFE implemented a series of capital control measures
in the subsequent months, including stricter vetting procedures for
China-based companies to remit foreign currency for overseas
acquisitions, dividend payments and shareholder loan repayments.
The PRC government may continue to strengthen its capital controls
and our PRC subsidiaries' dividends and other distributions may be
subject to tightened scrutiny in the future. The PRC government also
imposes controls on the conversion of RMB into foreign currencies
and the remittance of currencies out of the PRC. Therefore, we may
experience difficulties in completing the administrative procedures
necessary to obtain and remit foreign currency for the payment of
dividends from our profits, if any. Furthermore, there can be no
assurance that the PRC government will not intervene or impose
restrictions on our ability to transfer or distribute cash within our
organization or to foreign investors, which could result in an inability
or prohibition on making transfers or distributions outside of China
or Hong Kong and adversely affect our business as well as your investment.
As of the date of this prospectus, we are not aware of other material
restrictions and limitations on our ability to distribute earnings from
our businesses, including our subsidiaries, to the parent company and
U.S. investors or our ability to settle amounts owed, or on foreign
exchange or our ability to transfer cash between entities within our
group, across borders, or to U.S. investors.
To the extent cash or assets of our business, or of our PRC or Hong
Kong subsidiaries, is in the PRC or Hong Kong, such cash or assets
may not be available to fund operations or for other use outside of
the PRC or Hong Kong, due to interventions in or the imposition of
restrictions and limitations by the PRC government to the transfer
of cash or assets.
The transfer of funds and assets among ZHZ, 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. In addition, the PRC
Enterprise Income Tax Law and its implementation rules provide
that a withholding tax at a rate of 10% will be applicable to dividends
payable by Chinese companies to non-PRC-resident enterprises,
unless reduced under treaties or arrangements between the PRC
central government and the governments of other countries or
regions where the non-PRC-resident enterprises are tax resident.
As of the date of this prospectus, there are no restrictions or
limitations imposed by the Hong Kong government on the transfer
of capital within, into and out of Hong Kong (including funds from
Hong Kong to the PRC), except for the transfer of funds involving
money laundering and criminal activities. However, there is no
guarantee that the Hong Kong government will not promulgate
new laws or regulations that may impose such restrictions in the future.
As a result of the above, to the extent cash or assets of our business,
or of our PRC or Hong Kong subsidiaries, is in the PRC or Hong Kong,
such 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 by the PRC government
to the transfer of cash or assets.
PRC laws and regulations governing our current business operations
are sometimes vague and uncertain and any changes in such laws
and regulations may impair our ability to operate profitably.
There are substantial uncertainties regarding the interpretation and
application of PRC laws and regulations including, but not limited to,
the laws and regulations governing our business and the enforcement
and performance of our arrangements with customers in certain
circumstances. The laws and regulations are sometimes vague and
may be subject to future changes, and their official interpretation
and enforcement may involve substantial uncertainty. 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.
21
Substantial uncertainties exist with respect to the enactment
timetable and final content of draft China Foreign Investment
Law and how it may impact the viability of our current corporate
structure, corporate governance and business operations.
The MOFCOM published a discussion draft of the proposed
Foreign Investment Law in January 2015 (the 'Draft FIL'). The
Draft FIL embodies an expected Chinese regulatory trend to
rationalize its foreign investment regulatory regime in line with
prevailing international practice and the legislative efforts to
unify the corporate legal requirements for both foreign and
domestic investments.
Among other things, the Draft FIL expands the definition of
foreign investment and introduces the principle of 'actual
control' in determining whether a company is considered a
foreign-invested enterprise ('FIE'). The Draft FIL specifically
provides that entities established in China but 'controlled'
by foreign investors will be treated as FIEs, whereas an entity
set up in a foreign jurisdiction would nonetheless be, upon
market entry clearance, treated as a Chinese domestic investor
provided that the entity is 'controlled' by Chinese entities
and/or citizens. Once an entity is determined to be an FIE, it
will be subject to the foreign investment restrictions or
prohibitions set forth in a Negative List to be separately issued
by the State Council later. Unless the underlying business of
the FIE falls within the Negative List, which calls for market
entry clearance, prior approval from the government authorities
as mandated by the existing foreign investment legal regime
would no longer be required for establishment of the FIE.
On December 27, 2021, the NDRC and MOFCOM, jointly issued
the Special Administrative Measures for Entry of Foreign Investment
(Negative List) (2021 Version), or the Negative List, which became
effective and replaced the previous version on January 1, 2022.
Pursuant to the Negative List, if a PRC company, which engages
in any business where foreign investment is prohibited under the
Negative List, or prohibited businesses, seeks an overseas offering
or listing, it must obtain the approval from competent governmental
authorities. Based on a set of Q&A published on the NDRC's official
website, a NDRC official indicated that after a PRC company submits
its application for overseas listing to the CSRC and where matters
relating to prohibited businesses under the Negative List are implicated,
the CSRC will consult the regulatory authorities having jurisdiction
over the relevant industries and fields.
Because the Overseas Listing Rules are currently in draft form and
given the novelty of the Negative List, there remain substantial
uncertainties as to whether and what requirements, including filing
requirements, will be imposed on a PRC company with respect to
its listing and offerings overseas as well as with the interpretation
and implementation of existing and future regulations in this regard.
For example, it is unclear as to whether the approval requirement
under the Negative List will apply to follow-on offerings by PRC
companies engaged in prohibited businesses and whose offshore
holding company is listed overseas. If such approval is in fact required
and given the NDRC's indication of CSRC's involvement in the approval
process, there is also a lack of clarity on the application procedure,
requirement and timeline which may not be resolved until the Overseas
Listing Rules, which provide for the filing procedures of the overseas
offering and listing of a PRC company with the CSRC, is enacted.
If the Overseas Listing Rules are enacted in the current form before
the completion of this offering, we will be required to make a filing
with the CSRC in connection with this offering within three business
days after its completion. If the approval requirement under the
Negative List applies to follow-on offerings by PRC companies whose
offshore holding company is listed overseas, we may be required to
obtain an approval for this offering or we may be required to relinquish
our licenses pertaining to prohibited businesses. If we relinquish or
are required to relinquish these licenses, while we do not expect our
business operation to be materially adversely affected, we are uncertain
whether or when the relevant procedures will be completed.
22
There are uncertainties under the PRC laws relating to the procedures
for U.S. regulators to investigate and collect evidence from companies
located in the PRC.
According to Article 177 of the newly amended PRC Securities Law
which became effective in March 2020 (the 'Article 177'), the securities
regulatory authority of the PRC State Council may collaborate with
securities regulatory authorities of other countries or regions in order
to monitor and oversee cross border securities activities. Article 177
further provides that overseas securities regulatory authorities are not
allowed to carry out investigation and evidence collection directly within
the territory of the PRC, and that any Chinese entities and individuals
are not allowed to provide documents or materials related to securities
business activities to overseas agencies without prior consent of the
securities regulatory authority of the PRC State Council and the
competent departments of the PRC State Council.
Our principal business operation is conducted in the PRC. In the event
that the U.S. regulators carry out investigation on us and there is a
need to conduct investigation or collect evidence within the territory
of the PRC, the U.S. regulators may not be able to carry out such
investigation or evidence collection directly in the PRC under the PRC
laws. The U.S. regulators may consider cross-border cooperation with
securities regulatory authority of the PRC by way of judicial assistance,
diplomatic channels or regulatory cooperation mechanism established
with the securities regulatory authority of the PRC.
We rely on dividends, loans and other distributions on equity paid by
our PRC subsidiaries to fund any cash and financing requirements we
may have. Any limitation on the ability of our PRC subsidiaries to make
loans or payments to us could have a material adverse effect on our
ability to conduct our business.
We are a holding company and rely on dividends, loans and other
distributions on equity paid by our PRC subsidiaries for our cash
and financing requirements, including the funds necessary to pay
dividends and other cash distributions to our shareholders and
service any debt or pay any expense we may incur. In the event
that 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. In addition, the
PRC tax authorities may require our PRC subsidiaries to adjust their
taxable income in a manner that would materially and adversely
affect their ability to pay dividends and other distributions to us.
Under PRC laws and regulations, our PRC subsidiaries, as wholly
foreign-owned enterprises in China, may pay dividends only out of
their respective accumulated after-tax 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 certain statutory reserve funds until the aggregate
amount of such funds reaches 50% of its registered capital. At its
discretion, a wholly foreign-owned enterprise may allocate a portion
of its after-tax profits based on PRC accounting standards to staff
welfare and bonus funds. These reserve funds and staff welfare and
bonus funds are not distributable as cash dividends
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. In response to the persistent capital outflow and the
Renminbi's depreciation against the U.S. dollar in the fourth quarter of
2016, the People's Bank of China and the State Administration of
Foreign Exchange, or SAFE, have implemented a series of capital control
measures, including stricter vetting procedures for China-based companies
to remit foreign currency for overseas acquisitions, dividend payments,
and shareholder loan repayments. The PRC government may continue
to strengthen its capital controls, and our PRC subsidiaries' dividends
and other distributions may be subjected to tighter scrutiny in the future.
Any limitation on the ability of our PRC subsidiaries to pay dividends or
make other distributions to us could materially and adversely limit our
ability to grow, make investments or acquisitions that could be beneficial
to our business, pay dividends, or otherwise fund and conduct our business.
23
Fluctuations in exchange rates could have a material adverse effect on
our results of operations and the price of our ordinary shares.
Substantially, our revenues and expenditures are denominated in RMB,
whereas our reporting currency is the U.S. dollar. As a result, fluctuations
in the exchange rate between the U.S. dollar and RMB will affect the
relative purchasing power in RMB terms of our U.S. dollar assets and the
proceeds from our initial public offering. Our reporting currency is the
U.S. dollar, while the functional currency for our PRC subsidiaries is RMB.
Gains and losses from the re-measurement of assets and liabilities
receivable or payable in RMB are included in our consolidated statements
of operations. The re-measurement has caused the U.S. dollar value of
our results of operations to vary with exchange rate fluctuations, and
the U.S. dollar value of our results of operations will continue to vary
with exchange rate fluctuations. A fluctuation in the value of RMB
relative to the U.S. dollar could reduce our profits from operations and
the translated value of our net assets when reported in U.S. dollars in
our financial statements. This change in value could negatively impact
our business, financial condition, or results of operations as reported
in U.S. dollars. In the event that we decide to convert our RMB into
U.S. dollars to make payments for dividends on our ordinary shares
or for other business purposes, appreciation of the U.S. dollar against
the RMB will harm the U.S. dollar amount available to us. In addition,
fluctuations in currencies relative to the periods in which the earnings
are generated may make it more difficult to perform period- to-period
comparisons of our reported results of operations.
The value of the RMB against the U.S. dollar and other currencies is
affected by, among other things, changes in China's political and
economic conditions and China's foreign exchange policies.
On July 21, 2005, the PRC government changed its decades-old
policy of pegging the value of the RMB to the U.S. dollar, and the
RMB appreciated more than 20% against the U.S. dollar over the
following three years. However, the PBOC regularly intervenes in the
foreign exchange market to limit fluctuations in RMB exchange rates
and achieve policy goals. Between July 2008 and June 2010, the
exchange rate between the RMB and the U.S. dollar had been
stable and traded within a narrow range. Since June 2010, the
RMB has fluctuated against the U.S. dollar, at times significantly
and unpredictably. Since October 1, 2016, Renminbi has joined the
International Monetary Fund (IMF)'s basket of currencies that make
up the Special Drawing Right (SDR) and the U.S. dollar, the Euro, the
Japanese yen, and the British pound. In the fourth quarter of 2016,
the RMB has depreciated significantly in the backdrop of a surging
U.S. dollar and persistent capital outflows of China. With the development
of the foreign exchange market and progress towards interest rate
liberalization and Renminbi internationalization, the PRC government
may announce further changes to the exchange rate system. We
cannot assure you that the Renminbi will not appreciate or depreciate
significantly in value against the U.S. dollar in the future. It is difficult
to predict how market forces or PRC or U.S. government policy may
impact the exchange rate between the Renminbi and the U.S. dollar
in the future.
There remains significant international pressure on the PRC government
to adopt a flexible currency policy. Any significant appreciation or
depreciation of the RMB may materially and adversely affect our
revenues, earnings and financial position, and the value of, and any
dividends payable on, our ordinary shares in U.S. dollars. For example,
to the extent that we need to convert U.S. dollars we receive from our
initial public offering into RMB to pay our operating expenses,
appreciation of the RMB against the
U.S. dollar would adversely affect the RMB amount we would receive
from the conversion. Conversely, a significant depreciation of the RMB
against the U.S. dollar may significantly reduce the U.S. dollar equivalent
of our earnings, which in turn could adversely affect the price of our
ordinary shares.
24
Very limited hedging options are available in China to reduce our
exposure to exchange rate fluctuations. To date, we have not entered
into any hedging transactions to reduce our exposure to foreign
currency exchange risk. While we may decide to enter into hedging
transactions in the future, the availability and effectiveness of these
hedges may be limited. We may not be able to hedge our exposure
adequately. In addition, our currency exchange losses may be
magnified by PRC exchange control regulations that restrict our
ability to convert RMB into foreign currency. As a result, fluctuations
in exchange rates may have a material adverse effect on the price of
our ordinary shares.
PRC regulation of loans to, and direct investments in, PRC entities by
offshore holding companies may delay or prevent us from making
loans or additional capital contributions to our PRC operating
subsidiaries and thereby prevent us from funding our business.
As an offshore holding company with PRC subsidiaries, we may
transfer funds to our PRC subsidiaries by means of loans or capital
contributions. Any loans to these PRC subsidiaries, which are
foreign-invested enterprises, cannot exceed statutory limits based
on the difference between the amount of our investments and
registered capital in such subsidiaries, and shall be registered with
SAFE, or its local counterparts. Furthermore, any capital increase
contributions we make to our PRC subsidiaries, which are
foreign-invested enterprises, shall be approved by MOFCOM,
or its local counterparts. We may not be able to obtain these
government registrations or approvals on a timely basis, if at all.
If we fail to receive such registrations or approvals, our ability
to provide loans or capital to increase contributions to our PRC
subsidiaries may be negatively affected, which could adversely
affect their liquidity and our ability to fund and expand their business.
PRC regulations relating to the establishment of offshore special
purpose vehicles by PRC residents may subject our PRC- resident
beneficial owners or our PRC subsidiaries to liability or penalties,
limit our ability to make capital contributions into our PRC subsidiaries,
limit our PRC subsidiaries' ability to distribute profits to us, or otherwise
adversely affect our financial position.
Under several regulations promulgated by SAFE, PRC residents and PRC
corporate entities are required to register with and obtain approval from
local branches of SAFE or designated qualified foreign exchange banks in
mainland China in connection with their direct or indirect offshore
investment activities. In addition, any PRC resident who is a direct
or indirect shareholder of an offshore company is required to update
the previously filed registration with the local branch of SAFE, with
respect to any material change involving that offshore company,
such as an increase or decrease in capital, transfer or swap of shares,
merger or division. These regulations apply to all direct and indirect
shareholders and beneficial owners of our company who are PRC
residents, or PRC- Resident Shareholders, and may apply to any
offshore acquisitions that we make in the future. To the best of our
knowledge, as of the date of this prospectus, each of our principal
shareholders who is required to make the foreign exchange registration
under SAFE Circular 37 had completed such registration. However, we
may not at all times be fully aware or informed of the identities of all
the PRC residents holding direct or indirect interests in our company,
and we cannot assure you that all of our shareholders and beneficial
owners who are PRC residents will comply with these foreign
exchange regulations.
If any PRC-Resident Shareholder fails to make the required registration
or update a previously filed registration, our PRC subsidiaries may be
prohibited from distributing their profits and proceeds from any
reduction in capital, share transfer or liquidation to us, and we may
also be prohibited from injecting additional capital into our PRC
subsidiaries. Moreover, failure to comply with the various foreign
exchange registration requirements described above could result
in liability on the related PRC- Resident shareholder or our PRC
subsidiaries under the PRC laws for evasion of applicable foreign
exchange restrictions.
25
Governmental control of currency conversion may limit our ability to
utilize our net revenues effectively and affect the value of your
investment.
The PRC government imposes controls on the convertibility of the
RMB into foreign currencies and, in certain cases, the remittance of
currency out of China. We receive substantially all of our net
revenues in RMB. Under our current corporate structure, our
company in the Cayman Islands may rely on dividend payments
from our PRC subsidiaries to fund any cash and financing requirements
we may have. Under existing PRC foreign exchange regulations, payments
of current account items, such as profit distributions and trade and
service-related foreign exchange transactions, can be made in foreign
currencies without prior approval from SAFE by complying with
certain procedural requirements. Therefore, our PRC subsidiaries
are able to pay dividends in foreign currencies to us without prior
approval from SAFE, subject to the condition that the remittance of
such dividends outside of the PRC complies with certain procedures
under PRC foreign exchange regulation, such as the overseas
investment registrations by the beneficial owners of our company
who are PRC residents. But approval from or registration with
appropriate government authorities is required where RMB is
converted into foreign currency and remitted out of China to pay
capital expenses such as the repayment of loans denominated in
foreign currencies.
In light of China's flood of capital outflows in 2016 due to the
weakening RMB, the PRC government has imposed more restrictive
foreign exchange policies and stepped up scrutiny of major outbound
capital movements. More restrictions and a substantial vetting process
are put in place by SAFE to regulate cross-border transactions falling
under the capital account. The PRC government may also, at its discretion,
restrict access in the future to foreign currencies for current account
transactions. In the event that the foreign exchange control system
prevents us from obtaining sufficient foreign currencies to satisfy
our foreign currency demands, we may not be able to pay dividends
in foreign currencies to our shareholders.
We must remit the offering proceeds to PRC before they may be used
to benefit our business in the PRC, and this process may take several
months.
The proceeds of this offering must be sent back to the PRC, and the
process for sending such proceeds back to the PRC may take several
months after the closing of this offering. We may be unable to use
these proceeds to grow our business until we receive such proceeds
in the PRC. To remit the offering proceeds to the PRC, we will take
the following actions:
First, we will open a special foreign exchange account for capital
account transactions. To open this account, we must submit to
State Administration for Foreign Exchange ('SAFE') certain application
forms, identity documents, transaction documents, a form of foreign
exchange registration of overseas investments by domestic residents,
and foreign exchange registration certificate of the invested company.
Second, we will remit the offering proceeds into this special foreign
exchange account.
Third, we will apply for settlement of the foreign exchange. 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 materially. Ordinarily, the process
takes several months to complete but is required by law to be
accomplished within 180 days of application. Until the abovementioned
approvals, the proceeds of this offering will be maintained in an
interest-bearing account maintained by us in the United States.
Some of our shareholders are not in compliance with the PRC's regulations
relating to offshore investment activities by PRC residents, and as a result,
the shareholders may be subject to penalties if we are not able to remediate
the non- compliance.
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 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.
26
Currently, some of our shareholders have completed Circular 37 Registration
and are in compliance. Some of our beneficial owners, who are PRC residents,
have not completed the Circular 37 Registration. All our significant
shareholders, directors and officers have completed Circular 37
Registration. We have asked our shareholders who are Chinese
residents to make the necessary applications and filings as required
by Circular 37. We attempt to comply, and attempt to ensure that
our shareholders who are subject to these rules comply, with the
relevant requirements. We cannot, however, provide any assurances
that all of our and future shareholders who are Chinese residents will
comply with our request to make or obtain any applicable registration
or comply with other requirements required by Circular 37 or other
related rules. The Chinese resident shareholders' failure to comply with
Circular 37 registration may result in restrictions being imposed on part
of foreign exchange activities of the offshore special purpose vehicles,
including restrictions on its ability to receive registered capital as
well as additional capital from Chinese resident shareholders who
fail to complete Circular 37 registration, and repatriation of profits
and dividends derived from special purpose vehicles to China, by
the Chinese resident shareholders who fail to complete Circular 37
registration, are also illegal. In addition, the failure of the Chinese
resident shareholders to complete Circular 37 registration may
subject each of the shareholders to fines less than RMB50,000. We
cannot assure you that each of our Chinese resident shareholders
will in the future complete the registration process as required
by Circular 37.
Failure to make adequate contributions to various employee benefit
plans required by PRC regulations may subject us to penalties.
We are required under PRC laws and regulations to participate in
various government-sponsored employee benefit plans, including
certain social insurance, housing funds, and other welfare-oriented
payment obligations, and contribute to the plans in amounts equal
to certain percentages of salaries, including bonuses and allowances,
of our employees up to a maximum amount specified by the local
government from time to time at locations where we operate our
businesses. The requirement of employee benefit plans has not
been implemented consistently by the local governments in China,
given the different levels of economic development in different
locations. In the event that the local governments deem our
contribution to be not sufficient, we may be subject to late
contribution fees or fines in relation to any underpaid employee
benefits, and our financial condition and results of operations
may be adversely affected.
According to the Interim Regulations on the Collection and Payment
of Social Insurance Premiums, the Regulations on Work Injury Insurance,
the Regulations on Unemployment Insurance and the Trial Measures on
Employee Maternity Insurance of Enterprises, enterprises in the PRC shall
provide benefit plans for their employees, which include basic pension
insurance, unemployment insurance, maternity insurance, work injury
insurance and basic medical insurance. An enterprise must provide
social insurance by making social insurance registration with local
social insurance agencies, and shall pay or withhold relevant social
insurance premiums for and on behalf of employees. The Law on
Social Insurance of the PRC, which was promulgated by the SCNPC
on October 28, 2010, became effective on July 1, 2011, and was most
recently updated on December 29, 2018, has consolidated pertinent
provisions for basic pension insurance, unemployment insurance,
maternity insurance, work injury insurance and basic medical insurance,
and has elaborated in detail the legal obligations and liabilities of
employers who do not comply with laws and regulations on social insurance.
According to the Regulations on the Administration of Housing Provident
Fund, which was promulgated by the State Counsel and became effective
on April 3, 1999, and was amended on March 24, 2002 and was partially
revised on March 24, 2019 by the Decision of the State Council on
Revising Some Administrative Regulations (Decree No. 710 of the State
Council), housing provident fund contributions by an individual employee
and housing provident fund contributions by his or her employer shall
belong to the individual employee. Registration by PRC companies with
the applicable housing provident fund management center is compulsory,
and a special housing provident fund account for each of the employees
shall be opened at an entrusted bank.
27
The government supervision of social insurance policy has not been
implemented consistently by the local governments in China given
the different levels of economic development in different locations.
According to the Social Insurance Law of the People's Republic of
China, we may be ordered to pay the outstanding social insurance
contributions within a prescribed deadline and liable for a late payment
fee equal to 0.05% of the outstanding amount for each day of delay,
in addition to a fine a fine ranging from RMB 10,000 to RMB 50,000.
Furthermore, we may be liable for a fine of one to three times the
amount of the outstanding contributions, provided that we still fail
to pay the outstanding social insurance contributions within the
prescribed deadline. In addition, according to the Regulations on
the Administration of Housing Provident Fund, we may be ordered
by the Housing Accumulation Fund Management Center to deposit
the outstanding funds within a time limit. If we fail to deposit such
amounts within the time limit, the Center may petition a people's
court to enforce the payment. Additionally, the standard for fine
imposition has become highly discretional for the local government
to decide whether to enforce compliance with the employee social
fund regulations, if at all. As of the date of the prospectus, given
that (i) the requirement of social insurance and housing fund has
not been implemented consistently by the local governments in
China given the different levels of economic development in
different locations, (ii) pursuant to the Emergency Notice on
Practicing Principles of the State Council Executive Meeting and
Stabilizing Work on Collecting Social Insurance Premiums
promulgated by the Ministry of Human Resources and Social
Security on September 21, 2018, local authorities are prohibited
from recovering unpaid social insurance premiums from enterprises,
(iii) as of the date of this Prospectus, the Company had not received
any notice or order from the relevant government authorities requesting
us to pay the social insurance premiums or housing funds in full, (iv)
as of the date of this Prospectus, the Company had not received any
complaint or report on outstanding social insurance premiums or
housing funds, nor had them had any labor dispute or lawsuit with
their employees on payments of social insurance premiums or housing
provident fund, and (v) the Company had not been subject to any
administrative penalties, the Company has not made any provisions in
connection with the shortfall of its social insurance contribution and
housing provident funds for the year ended December 31, 2021.
Furthermore, as of the date of the prospectus, we are not aware of
any action, claim, investigation or penalties being conducted or
threatened by any government authorities. However, if we are fined
or otherwise penalized by government authorities due to our failure
to adequately pay social insurance and housing provident fund
contributions for our employees, our financial condition may be
negatively impacted.
The M&A Rules and certain other PRC regulations establish
complex procedures for some acquisitions of Chinese companie
by foreign investors, making 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. 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.
28
PRC regulations relating to offshore investment activities by PRC
residents may limit our PRC subsidiaries' ability to increase their
registered capital or distribute profits to us or otherwise expose
us or our PRC resident beneficial owners to liability and penalties
under PRC law.
SAFE promulgated the Circular on Relevant Issues Relating to
Domestic Resident's Investment and Financing and Roundtrip
Investment through Special Purpose Vehicles, or SAFE Circular
37, in July 2014 that requires PRC residents or entities to register
with SAFE or its local branch in connection with their establishment
or control of an offshore entity established for overseas investment
or financing. In addition, such PRC residents or entities must update
their SAFE registrations when the offshore special purpose vehicle
undergoes material events relating to any change of basic information
(including change of such PRC citizens or residents, name and operation
term), increases or decreases in investment amount, transfers or
exchanges of shares, or mergers or divisions. SAFE Circular 37 is
issued to replace the Notice on Relevant Issues Concerning Foreign
Exchange Administration for PRC Residents Engaging in Financing
and Roundtrip Investments via Overseas Special Purpose. Vehicles,
or SAFE Circular 75. SAFE promulgated the Notice on Further Simplifying
and Improving the Administration of the Foreign Exchange Concerning
Direct Investment in February 2015, which took effect on June 1, 2015.
This notice has amended SAFE Circular 37 requiring PRC residents or
entities to register with qualified banks rather than SAFE or its local
branch in connection with their establishment or control of an offshore
entity established for overseas investment or financing.
In the event that our shareholders who are PRC residents or entities
do not complete their registration as required, our PRC subsidiaries
may be prohibited from distributing their profits and proceeds from
any reduction in capital, share transfer or liquidation to us. We may
be restricted in our ability to contribute additional capital to our PRC
subsidiaries. Moreover, failure to comply with the SAFE registration
described above could result in liability under PRC laws for evasion
of applicable foreign exchange restrictions.
However, we may not be informed of the identities of all the PRC
residents or entities holding a 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 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.
If we are classified as a PRC resident enterprise for PRC income tax
purposes, such classification could result in unfavorable tax consequence
s to us and our non-PRC shareholders.
Under the PRC Enterprise Income Tax Law and its implementation
rules, an enterprise established outside of the PRC with a 'de facto
management body' within the PRC is considered a resident enterprise
and will be subject to the enterprise income tax on its global income
rate of 25%. The implementation rules define the term 'de facto
management body' as the body that exercises full and substantial
control over and overall management of an enterprise's business,
productions, personnel, accounts, and properties. 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
incorporated offshore is located in China. Although this circular only
applies to offshore enterprises controlled by PRC enterprises or PRC
enterprise groups, not those controlled by PRC individuals or foreigners
like us, the criteria set forth in the circular may reflect the State
Administration of Taxation's general position on how the 'de facto
management body' test should be applied in determining the tax
resident status of all offshore enterprises. According to Circular 82,
an offshore incorporated enterprise controlled by a PRC enterprise or
a PRC enterprise group will be regarded as a PRC tax resident by virtue
of having its 'de facto management body' in China and will be subject
to PRC enterprise income tax on its global income only if all of the
following conditions are met: (i) the primary location of the day-to-day
operational management is in the PRC, (ii) decisions relating to the
enterprise's financial and human resource matters are made or are
subject to approval by organizations or personnel in the PRC, (iii) the
enterprise's primary assets, accounting books and records, company seals,
and board and shareholder resolutions, are located or maintained in
the PRC, and
(iv) at least 50% of voting board members or senior executives habitually
reside in the PRC.
29
We believe none of our entities outside of China is a PRC resident
enterprise for PRC tax purposes. See 'Taxation People's Republic
of China Enterprise Taxation' on page 129. However, the tax resident
status of an enterprise is subject to determination by the PRC tax
authorities, and uncertainties remain with respect to the interpretation
of the term 'de facto management body.' As substantially all of our
management members are based in China, it remains unclear how
the tax residency rule will apply to our case. In the event that the
PRC tax authorities determine that Erayak or any of our subsidiaries
outside of China is a PRC resident enterprise for PRC enterprise
income tax purposes, Erayak or such subsidiary could be subject to
PRC tax at a rate of 25% on its worldwide income, which could
materially reduce our net income. In addition, we will also be subject
to PRC enterprise income tax reporting obligations.
Furthermore, if the PRC tax authorities determine that we are a PRC
resident enterprise for enterprise income tax purposes, gains realized
on the sale or other disposition of our ordinary shares may be subject
to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20%
in the case of non-PRC individuals (in each case, subject to the provisions
of any applicable tax treaty), if such gains are deemed to be from PRC
sources. It is unclear whether non-PRC shareholders of our company
would be able to claim the benefits of any tax treaties between their
country of tax residence and the PRC if we are treated as a PRC resident
enterprise. Any such tax may reduce the returns on the investment in
our ordinary shares.
Enhanced scrutiny over acquisition transactions by the PRC tax
authorities may have a negative impact on potential acquisitions
we may pursue in the future.
The PRC tax authorities have enhanced their scrutiny over the direct
or indirect transfer of certain taxable assets, including, in particular,
equity interests in a PRC resident enterprise, by a non-resident
enterprise by promulgating and implementing Notice of the Ministry
of Finance and the State Administration of Taxation on Several Issues
Concerning the Enterprise Income Tax Treatment on Enterprise
Reorganization (Circular 59) and Announcement No. 7 [2015] of the
State Administration of Taxation Announcement on Several Issues
concerning the Enterprise Income Tax on Income from the Indirect
Transfer of Assets by Non- Resident Enterprises (Circular 7) which
became effective in February 2015. Under Circular 7, where a
non-resident enterprise conducts an 'indirect transfer' by transferring
the equity interests of a PRC 'resident enterprise' indirectly by disposing
of the equity interests of an overseas holding company, the non-resident
enterprise, being the transferor, may be subject to PRC enterprise income
tax, if the indirect transfer is considered to be an abusive use of company
structure without reasonable commercial purposes. Circular 7 also provides
that, where a non-PRC resident enterprise transfers its equity interests in
a PRC resident enterprise to its related parties at a price lower than the
fair market value, the relevant tax authority has the power to make a
reasonable adjustment to the taxable income of the transaction.
Circular 7 extends its tax jurisdiction to indirect transfers and transactions
involving the transfer of other taxable assets through the offshore transfer
of a foreign intermediate holding company. In addition, Circular 7 provides
clear criteria on how to assess reasonable commercial purposes and has
introduced safe harbors for internal group restructurings and the purchase
and sale of equity through a public securities market. Circular 7 also brings
challenges to both the foreign transferor and transferee (or other person
obligated to pay for the transfer) of the taxable assets. Where a
non-resident enterprise conducts an 'indirect transfer' by transferring
the taxable assets indirectly by disposing of the equity interests of an
overseas holding company, the non-resident enterprise being the
transferor, the transferee, or the PRC entity which directly owned
the taxable assets may report to the relevant tax authority such indirect
transfer. Using a 'substance over form' principle, the PRC tax authority
may disregard the existence of the overseas holding company if it
lacked a reasonable commercial purpose and was established for the
purpose of reducing, avoiding, or deferring PRC tax.
30
According to the 'Enterprise Income Tax Law of the People's Republic
of China' (adopted on March 16, 2007, first amended on February 24,
2017, and second amended on December 29, 2018), if the business
dealings between an enterprise and its affiliated parties do not conform
to the principle of independent transactions and thus reduce the taxable
income or income of the enterprise or its affiliated parties, the tax
authorities have the right to adjust in accordance with reasonable
methods. The cost incurred by an enterprise and its related parties in
developing and accepting intangible assets or providing and receiving
labor services together shall be apportioned according to the principle
of independent transaction when calculating taxable income.
If a resident enterprise or an enterprise controlled by a resident enterprise
and a Chinese resident and established in a country (region) whose actual
tax burden is significantly lower than the tax rate level of China's
enterprise income tax, does not allocate or reduce its profits due to
reasonable business needs, the portion of the above profits that should
belong to the resident enterprise shall be included in the current income
of the resident enterprise.
Interest expenses incurred when the ratio of creditor's rights investment
to equity investment accepted by an enterprise from its affiliated parties
exceeds the prescribed standard shall not be deducted in the calculation
of taxable income.
If an enterprise reduces its taxable income or income by implementing
other arrangements without reasonable commercial purposes, tax
authorities have the right to adjust them in accordance with reasonable
methods.
We face uncertainties on the reporting and consequences on future
private equity financing transactions, share exchange, or other transactions
involving the transfer of shares in our company by investors that are
non-PRC resident enterprises. The PRC tax authorities may pursue such
non-resident enterprises with respect to a filing or the transferees with
respect to withholding obligation and request our PRC subsidiaries to
assist in the filing. As a result, non-resident enterprises in such
transactions may become at risk of being subject to filing obligations
or being taxed under Circular 59 and Circular 7. They may be required
to expend valuable resources to comply with Circular 59and Circular 7
or establish that our non-resident enterprises should not be taxed
under these circulars, which may have a material adverse effect on
our financial condition and results from operations.
The PRC tax authorities have the discretion under SAT Circular 59
and Circular 7 to make adjustments to the taxable capital gains
based on the difference between the fair value of the taxable assets
transferred and the cost of investment. Although we currently have
no plans to pursue any acquisitions in China or elsewhere in the world,
we may pursue acquisitions in the future that may involve complex
corporate structures. If we are considered a non-resident enterprise
under the PRC Enterprise Income Tax Law and if the PRC tax authorities
make adjustments to the taxable income of the transactions under
SAT Circular 59 and Circular 7, our income tax costs associated with
such potential acquisitions will be increased, which may have an
adverse effect on our financial condition and results of operations.
If we become directly subject to the scrutiny, criticism and negative
publicity involving U.S.-listed Chinese companies, we may have to
expend significant resources to investigate and resolve the matter
which could harm our business operations, share price and reputation.
US. public companies that have substantially all of their operations in
China have been the subject of intense scrutiny, criticism, and negative
publicity by investors, financial commentators, and regulatory agencies,
such as the SEC. Much of the scrutiny, criticism, and negative publicity
has centered on financial and accounting irregularities and mistakes,
a lack of effective internal controls over financial accounting, inadequate
corporate governance policies or a lack of adherence thereto and, in
many cases, allegations of fraud. On December 7, 2018, the SEC and
the PCAOB issued a joint statement highlighting continued challenges
faced by the U.S. regulators in their oversight of financial statement
audits of U.S.-listed companies with significant operations in China.
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, reiterating past SEC and PCAOB statements on matters
including the difficulty associated with inspecting accounting firms and
audit work papers in China and higher risks of fraud in emerging markets
and the difficulty of bringing and enforcing SEC, Department of Justice
and other U.S., including in instances of fraud, in emerging markets
generally. As a result of this scrutiny, criticism, and negative publicity,
the publicly traded stock of many U.S.-listed Chinese companies sharply
decreased in value and, in some cases, has become virtually worthless.
Many of these companies are now subject to shareholder lawsuits and
SEC enforcement actions and are conducting internal and external
investigations into the allegations. It is not clear what effect this
sector-wide scrutiny, criticism and negative publicity will have on us,
our business, and our share price. In the event that we become the
subject of any unfavorable allegations, whether such allegations are
proven to be true or untrue, we will have to expend significant resources
to investigate such allegations and/or defend our company. This situation
will be costly and time consuming and distract our management from
developing our growth. In the event that such allegations are not proven
to be groundless, we and our business operations will be severely affected
and you could sustain a significant decline in the value of our share.
31
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.
Uncertainties in the interpretation and enforcement of Chinese laws and
regulations could limit the legal protections available to us.
The PRC legal system is based on written statutes and prior court decisions
have limited value as precedents. Since these laws and regulations are
relatively new and the PRC legal system continues to rapidly evolve, the
legal system in China, including risks and uncertainties regarding the
enforcement of laws and that rules and regulations in China can change
quickly with little advance notice, and the interpretations of many laws,
regulations and rules are not always uniform and enforcement of these
laws, regulations and rules involves uncertainties.
Therefore, these risks may result in a material change in business
operations, significant depreciation of the value of our ordinary shares,
or a complete hinderance of our ability to offer or continue to offer our
securities to investors. Recently, the Chinese 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 a VIE structure, adopting new measures
to extend the scope of cybersecurity reviews, and expanding the efforts
in anti-monopoly enforcement. Since these statements and regulatory
actions are new, 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.
32
Although we have taken measures to comply with the laws and
regulations that are applicable to our business operations, including
the regulatory principles raised by the CBRC, and avoiding conducting
any activities that may be deemed as illegal fund-raising, forming
capital pool or providing guarantee to investors under the current
applicable laws and regulations, the PRC government authority may
promulgate new laws and regulations regulating the direct lending
service industry in the future. We cannot assure you that our practices
would not be deemed to violate any PRC laws or regulations relating
to illegal fund-raising, forming capital pools or the provision of credit
enhancement services. Moreover, we cannot rule out the possibility
that the PRC government will institute a license requirement covering
our industry at some point in the future. If such a licensing regime were
introduced, we cannot assure you that we would be able to obtain any
newly required license in a timely manner, or at all, which could materially
and adversely affect our business and impede our ability to continue
our operations.
From time to time, we may have to resort to administrative and court
proceedings to enforce our legal rights. However, since PRC administrative
and court authorities have significant discretion in interpreting and
implementing statutory and contractual terms, it may be more difficult
to evaluate the outcome of administrative and court proceedings and
the level of legal protection we enjoy, than in more developed legal
systems. Furthermore, the PRC legal system is based in part on government
policies and internal rules (some of which are not published in a timely
manner or at all) that may have a retroactive effect. As a result, we may
not be aware of our violation of these policies and rules until sometime
after the violation. Such uncertainties, including uncertainty over the
scope and effect of our contractual, property (including intellectual
property) and procedural rights, could materially and adversely affect
our business and impede our ability to continue our operations.
We may be adversely affected by the complexity, uncertainties and changes
in PRC regulation of internet-related businesses and companies, and any
lack of requisite approvals, licenses or permits applicable to our business
may have a material adverse effect on our business and results of
operations.
The PRC government extensively regulates the internet industry, including
foreign ownership of, and the licensing and permit requirements pertaining
to, companies in the internet industry. These internet-related laws and
regulations are relatively new and evolving, and their interpretation and
enforcement involve significant uncertainties. As a result, in certain
circumstances it may be difficult to determine what actions or omissions
may be deemed to be in violation of applicable laws and regulations.
The evolving PRC regulatory system for the internet industry may lead
to the establishment of new regulatory agencies. For example, in May
2011, the State Council announced the establishment of a new department,
the State Internet Information Office (with the involvement of the State
Council Information Office, the MITT, and the Ministry of Public Security).
The primary role of this new agency is to facilitate the policy-making and
legislative development in this field, to direct and coordinate with the
relevant departments in connection with online content administration
and to deal with cross-ministry regulatory matters in relation to the
internet industry.
The Circular on Strengthening the Administration of Foreign Investment
in and Operation of Value-added Telecommunications Business, issued
by the MITT in July 2006, prohibits domestic telecommunication service
providers from leasing, transferring or selling telecommunications business
operating licenses to any foreign investor in any form, or providing any
resources, sites or facilities to any foreign investor for their illegal
operation of a telecommunications business in China. According to
this circular, either the holder of a value-added telecommunication
services operation permit or its shareholders must directly own the
domain names and trademarks used by such license holders in their
provision of value-added telecommunication services. The circular
also requires each license holder to have the necessary facilities,
including servers, for its approved business operations and to maintain
such facilities in the regions covered by its license. If an ICP License
holder fails to comply with the requirements and also fails to remedy
such non-compliance within a specified period of time, the MITT or
its local counterparts have the discretion to take administrative
measures against such license holder, including revoking its ICP License.
33
The interpretation and application of existing PRC laws, regulations
and policies and possible new laws, regulations or policies relating
to the internet industry have created substantial uncertainties
regarding the legality of existing and future foreign investments in
, and the businesses and activities of, internet businesses in China,
including our business. We cannot assure you that we have obtained
all the permits or licenses required for conducting our business in
China or will be able to maintain our existing licenses or obtain new
ones. If the PRC government considers that we were operating without
the proper approvals, licenses or permits or promulgates new laws and
regulations that require additional approvals or licenses or imposes
additional restrictions on the operation of any part of our business, it
has the power, among other things, to levy fines, confiscate our income,
revoke our business licenses, and require us to discontinue our relevant
business or impose restrictions on the affected portion of our business.
Any of these actions by the PRC government may have a material adverse
effect on our business and results of operations.
Increases in labor costs in the PRC may adversely affect our business
and our profitability.
China's economy has experienced increases in labor costs in recent years.
China's overall economy and the average wage in China are expected to
continue to grow. The average wage level for our employees has also
increased in recent years. We expect that our labor costs, including wages
and employee benefits, will continue to increase. Unless we are able to
pass on these increased labor costs to our customers by increasing prices
for our products or services, our profitability and results of operations
may be materially and adversely affected.
In addition, we have been subject to stricter regulatory requirements in
terms of entering into labor contracts with our employees and paying
various statutory employee benefits, including pensions, housing fund,
medical insurance, work-related injury insurance, unemployment insurance,
and maternity insurance to designated government agencies for the benefit
of our employees. Pursuant to the PRC Labor Contract Law, or the 'Labor
Contract Law,' that became effective in January 2008 and its amendments
that became effective in July 2013 and its implementing rules that became
effective in September 2008, employers are subject to stricter requirements
in terms of signing labor contracts, minimum wages, paying remuneration,
determining the term of employees' probation, and unilaterally terminating
labor contracts. In the event that we decide to terminate some of our
employees or otherwise change our employment or labor practices, the
Labor Contract Law and its implementation rules may limit our ability to
effect those changes in a desirable or cost-effective manner, which could
adversely affect our business and results of operations.
As the interpretation and implementation of labor-related laws and
regulations are still evolving, we cannot assure you that our employment
practice does not and will not violate labor-related laws and regulations
in China, which may subject us to labor disputes or government
investigations. If we are deemed to have violated relevant labor laws
and regulations, we could be required to provide additional compensation
to our employees and our business, financial condition and results of
operations could be materially and adversely affected.
Risks Related to the Offering and Our Ordinary Shares
The initial public offering price of our Ordinary Shares may not be
indicative of the market price of our Ordinary Shares after this offering.
In addition, an active, liquid and orderly trading market for our Ordinary
Shares may not develop or be maintained, and our share price may
be volatile.
Prior to the completion of this offering, our Ordinary Shares were not
traded on any market. Any active, liquid and orderly trading market for
our Ordinary Shares may not develop or be maintained after this offering.
Active, liquid and orderly trading markets usually result in less price
volatility and more efficiency in carrying out investors' purchase and
sale orders. The market price of our Ordinary Shares could vary
significantly as a result of a number of factors, some of which are
beyond our control. In the event of a drop in the market price of
our Ordinary Shares, you could lose a substantial part or all of your
investment in our Ordinary Shares. The initial public offering price
will be determined by us, based on numerous factors and may not
be indicative of the market price of our Ordinary Shares after this
offering. Consequently, you may not be able to sell our Ordinary
Shares at a price equal to or greater than the price paid by you in
this offering.
34
The following factors could affect our share price:
.. our operating and financial performance,
.. quarterly variations in the rate of growth of our financial indicators,
such as net income per share, net income and revenues,
.. the public reaction to our press releases, our other public announcements
and our filings with the SEC,
.. strategic actions by our competitors,
.. changes in revenue or earnings estimates, or changes in recommendations
or withdrawal of research coverage, by equity research analysts,
.. speculation in the press or investment community,
.. the failure of research analysts to cover our Ordinary Shares,
.. sales of our Ordinary Shares by us or other shareholders, or the perception
that such sales may occur,
.. changes in accounting principles, policies, guidance, interpretations
or standards,
.. additions or departures of key management personnel,
.. actions by our shareholders,
.. domestic and international economic, legal and regulatory factors
unrelated to our performance, and
.. the realization of any risks described under this 'Risk Factors' section.
The stock markets in general have experienced extreme volatility that
has often been unrelated to the operating performance of particular
companies. These broad market fluctuations may adversely affect the
trading price of our Ordinary Shares. Securities class action litigation
has often been instituted against companies following periods of
volatility in the overall market and in the market price of a company's
securities. Such litigation, if instituted against us, could result in very
substantial costs, diver our management's attention and resources and
harm our business, operating results and financial condition.
There may not be an active, liquid trading market for our Ordinary Shares.
Prior to the completion of this offering, there has been no public market
for our Ordinary Shares. An active trading market for our Ordinary Shares
may not develop or be sustained following this offering. You may not be
able to sell your shares at the market price, if at all, if trading in our
shares is not active. The initial public offering price was determined by
negotiations between us and our advisors based upon a number of factors.
The initial public offering price may not be indicative of prices that will
prevail in the trading market.
Because we do not expect to pay dividends in the foreseeable future after
this offering, you must rely on a price appreciation of the Ordinary Shares
for a return on your investment.
We currently intend to retain most, if not all, of our available funds and
any future earnings after this offering to fund the development and
growth of our business. As a result, we do not expect to pay any cash
dividends in the foreseeable future. Therefore, you should not rely on
an investment in the Ordinary Shares as a source for any future
dividend income.
A sale or perceived sale of a substantial number of our Ordinary Shares
may cause the price of our Ordinary Shares to decline.
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 shares and investors to short our
Ordinary Shares. These sales also make it more difficult for us to sell
equity-related securities in the future at a time and price that we deem
reasonable or appropriate.
35
There can be no assurance that we will not be a passive foreign
investment company ('PFIC') for United States federal income tax
purposes for any taxable year, which could subject United States
holders of our Ordinary Shares to significant adverse United States
federal income tax consequences.
A non-United States corporation will be a passive foreign investment
company, or PFIC, for United States federal income tax purposes for
any taxable year if either (i) at least 75% of its gross income for such
taxable year is passive income or (ii) at least 50% of the value of its
assets (based on average of the quarterly values of the assets) during
such year is attributable to assets that that produce or are held for the
production of passive income. Based on the current and anticipated
value of our assets and the composition of our income assets, we do
not expect to be a PFIC for United States federal income tax purposes
for our current taxable year ended December 31, 2021 or in the
foreseeable future. However, the determination of whether or not
we are a PFIC according to the PFIC rules is made on an annual basis
and depend on the composition of our income and assets and the
value of our assets from time to time. Therefore, changes in the
composition of our income or assets or value of our assets may cause
us to become a PFIC. The determination of the value of our assets
(including goodwill not reflected on our balance sheet) may be based,
in part, on the quarterly market value of Ordinary Shares, which is subject
to change and may be volatile.
The classification of certain of our income as active or passive, and
certain of our assets as producing active or passive income, and hence
whether we are or will become a PFIC, depends on the interpretation
of certain United States Treasury Regulations as well as certain IRS
guidance relating to the classification of assets as producing active
or passive income. Such regulations guidance is potentially subject
to different interpretations. If due to different interpretations of
such regulations and guidance the percentage of our passive income
or the percentage of our assets treated as producing passive income
increases, we may be a PFIC in one of more taxable years.
If we are a PFIC for any taxable year during which a United States
person holds Ordinary Shares, certain adverse United States federal
income tax consequences could apply to such United States person.
For as long as we are an emerging growth company, we will not be
required to comply with certain reporting requirements, including those
relating to accounting standards and disclosure about our executive
compensation, that apply to other public companies.
We are classified as an 'emerging growth company' under the JOBS Act.
For as long as we are an emerging growth company, which may be up to
five full fiscal years, unlike other public companies, we will not be required
to, among other things, (i) provide an auditor's attestation report on
management's assessment of the effectiveness of our system of internal
control over financial reporting pursuant to Section 404(b) of the
Sarbanes-Oxley Act, (ii) comply with any new requirements adopted by
the PCAOB requiring mandatory audit firm rotation or a supplement to
the auditor's report in which the auditor would be required to provide
additional information about the audit and the financial statements of
the issuer, (iii) provide certain disclosure regarding executive compensation
required of larger public companies, or (iv) hold nonbinding advisory votes
on executive compensation. We will remain an emerging growth company
for up to five years, although we will lose that status sooner if we have
more than $1.235 billion of revenues in a fiscal year, have more than
$700 million in market value of our Ordinary Shares held by non-affiliates,
or issue more than $1.0 billion of non-convertible debt over a three-year
period.
To the extent that we rely on any of the exemptions available to emerging
growth companies, you will receive less information about our executive
compensation and internal control over financial reporting than issuers
that are not emerging growth companies. If some investors find our
Ordinary Shares to be less attractive as a result, there may be a less
active trading market for our Ordinary Shares and our share price
may be more volatile.
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.
36
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 attention 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 weakness in internal control over financial
reporting could result in financial statement errors, which, in turn, could
lead to error 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 the exchange.
Nasdaq may apply additional and more stringent criteria for our initial and
continued listing because we plan to have a small public offering and
insiders will hold a large portion of the company's listed securities.
Nasdaq Listing Rule 5101 provides Nasdaq with broad discretionary authority
over the initial and continued listing of securities in Nasdaq and Nasdaq
may use such discretion to deny initial listing, apply additional or more
stringent criteria for the initial or continued listing of particular
securities, or suspend or delist particular securities based on any
event, condition, or circumstance that exists or occurs that makes
initial or continued listing of the securities on Nasdaq inadvisable
or unwarranted in the opinion of Nasdaq, even though the securities
meet all enumerated criteria for initial or continued listing on Nasdaq.
In addition, Nasdaq has used its discretion to deny initial or continued
listing or to apply additional and more stringent criteria in the instances,
including but not limited to: (i) where the company engaged an auditor
that has not been subject to an inspection by the Public Company
Accounting Oversight Board ('PCAOB'), an auditor that PCAOB cannot
inspect, or an auditor that has not demonstrated sufficient resources,
geographic reach, or experience to adequately perform the company's
audit, (ii) where the company planned a small public offering, which
would result in insiders holding a large portion of the company's listed
securities. Nasdaq was concerned that the offering size was insufficient
to establish the company's initial valuation, and there would not be
sufficient liquidity to support a public market for the company, and (iii)
where the company did not demonstrate sufficient nexus to the U.S.
capital market, including having no U.S. shareholders, operations, or
members of the board of directors or management. Our public offering
will be relatively small, and our company's insiders will hold a large
portion of the company's listed securities. Nasdaq might apply the
additional and more stringent criteria for our initial and continued
listing, which might cause delay or even denial of our listing application.
If we cannot satisfy, or continue to satisfy, the initial listing
requirements and other rules of Nasdaq Capital Market,
although we exempt from certain corporate governance
standards applicable to US issuers as a Foreign Private Issuer,
our securities may not be listed or may be delisted, which
could negatively impact the price of our securities and
your ability to sell them.
We will seek to have our securities approved for listing on
the Nasdaq Capital Market upon consummation of this offering.
We cannot assure you that we will be able to meet those initial
listing requirements at that time. Even if our securities are listed
on the Nasdaq Capital Market, we cannot assure you that our
securities will continue to be listed on the Nasdaq Capital Market.
In addition, following this offering, in order to maintain our listing
on the Nasdaq Capital Market, we will be required to comply with
certain rules of Nasdaq Capital Market, including those regarding
minimum stockholders' equity, minimum share price, and certain
corporate governance requirements. Even if we initially meet the
listing requirements and other applicable rules of the Nasdaq
Capital Market, we may not be able to continue to satisfy these
requirements and applicable rules. If we are unable to satisfy the
Nasdaq Capital Market criteria for maintaining our listing, our
securities could be subject to delisting.
37
If the Nasdaq Capital Market does not list our securities or
subsequently delists our securities from trading, we could face
significant consequences, including:
limited availability for market quotations for our securities,
reduced liquidity with respect to our securities,
a determination that our Ordinary Share is a 'penny stock,'
which will require brokers trading in our Ordinary Share to
adhere to more stringent rules and possibly result in a reduced
level of trading activity in the secondary trading market for
our Ordinary Share,
limited amount of news and analyst coverage, and
a decreased ability to issue additional securities or obtain
additional financing in the future.
The market price of our ordinary shares may be volatile or may
decline regardless of our operating performance, and you may
not be able to resell your shares at or above the public offering price.
The public offering price for our ordinary shares will be determined
through negotiations between the underwriters and us and may vary
from the market price of our ordinary shares following our public
offering. If you purchase our ordinary shares in our public offering,
you may not be able to resell those shares at or above the public
offering price. We cannot assure you that the public offering price
of our ordinary shares, or the market price following our public
offering, will equal or exceed prices in privately negotiated transactions
of our shares that have occurred from time to time prior to our public
offering. The market price of our ordinary shares may fluctuate
significantly in response to numerous factors, many of which are
beyond our control, including:
actual or anticipated fluctuations in our revenue and other
operating results,
the financial projections we may provide to the public, any changes
in these projections or our failure to meet these projections,
actions of securities analysts who initiate or maintain coverage
of us, changes in financial estimates by any securities analysts who
follow our company, or our failure to meet these estimates or the
expectations of investors,
announcements by us or our competitors of significant services or
features, technical innovations, acquisitions, strategic relationships,
joint ventures, or capital commitments,
price and volume fluctuations in the overall stock market, including
as a result of trends in the economy as a whole,
lawsuits threatened or filed against us, and
other events or factors, including those resulting from war or
incidents of terrorism, or responses to these events.
In addition, the stock markets have experienced extreme price
and volume fluctuations that have affected and continue to affect
the market prices of equity securities of many companies. Stock
prices of many companies have fluctuated in a manner unrelated
or disproportionate to the operating performance of those companies.
In the past, stockholders have filed securities class action litigation
following periods of market volatility. In the event that we were to
become involved in securities litigation, it could subject us to
substantial costs, divert resources and the attention of management
from our business, and adversely affect our business.
We have broad discretion in the use of the net proceeds from our
public offering and may not use them effectively.
To the extent (i) we raise more money than required for the purposes
explained in the section titled 'Use of Proceeds' or (ii) we determine
that the proposed uses set forth in that section are no longer in the
best interests of our Company, we cannot specify with any certainty
the particular uses of such net proceeds that we will receive from our
public offering. Our management will have broad discretion in the
application of such net proceeds, including working capital, possible
acquisitions, and other general corporate purposes, and we may
spend or invest these proceeds in a way with which our stockholders
disagree. The failure by our management to apply these funds
effectively could harm our business and financial condition. Pending
their use, we may invest the net proceeds from our public offering in
a manner that does not produce income or that loses value. As of
the date of this Prospectus, Management has not determined the
types of businesses that the Company will target or the terms of any
potential acquisition.
38
We will incur additional costs as a result of becoming a public company,
which could negatively impact our net income and liquidity.
Upon completion of this offering, we will become a public company in
the United States. As a public company, we will incur significant legal,
accounting and other expenses that we did not incur as a private company.
In addition, Sarbanes-Oxley and rules and regulations implemented by
the SEC and the Nasdaq Capital Market require significantly heightened
corporate governance practices for public companies. We expect that
these rules and regulations will increase our legal, accounting and
financial compliance costs and will make many corporate activities
more time-consuming and costly.
We do not expect to incur materially greater costs as a result of
becoming a public company than those incurred by similarly sized
U.S. public companies. In the event that we fail to comply with these
rules and regulations, we could become the subject of a governmental
enforcement action, investors may lose confidence in us and the market
price of our ordinary shares could decline.
39
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. In some cases, you can identify
forward-looking statements by the words 'may,' 'might,' 'will,' 'could,'
'would,' 'should,' 'expect,' 'intend,' 'plan,' 'objective,' 'anticipate,'
'believe,' 'estimate,' 'predict,' 'potential,' 'continue' and 'ongoing,'
or the negative of these terms, or other comparable terminology
intended to identify statements about the future. These statements
involve known and unknown risks, uncertainties and other important
factors that may cause our actual results, levels of activity, performance
or achievements to be materially different from the information expressed
or implied by these forward-looking statements. The forward-looking
statements and opinions contained in this prospectus are based upon
information available to us as of the date of this prospectus and, while
we believe such information forms a reasonable basis for such statements,
such information may be limited or incomplete, and our statements should
not be read to indicate that we have conducted an exhaustive inquiry into,
or review of, all potentially available relevant information. Forward-looking
statements include statements about:
our future financial performance, including our expectations regarding
our revenue, cost of revenue, operating expenses, including capital
expenditures related to asset-intensive offerings, our ability to determine
reserves and our ability to achieve and maintain future profitability,
our ability to develop and market new products,
the continued market acceptance of our products,
the sufficiency of our cash, cash equivalents and investments to meet
our liquidity needs, our ability to manage operations-related risk,
our expectations and management of future growth,
our expectations concerning relationships with third parties,
the impact of COVID-19 on the Company,
our ability to maintain, protect and enhance our intellectual property,
our ability to successfully acquire and integrate companies and assets,
the increased expenses associated with being a public company
exposure to product liability and defect claims,
protection of our intellectual property rights,
changes in the laws that affect our operations,
inflation and fluctuations in foreign currency exchange rates,
our ability to obtain all necessary government
certifications, approvals, and/or licenses to conduct our business,
continued development of a public trading market for our securities,
the cost of complying with current and future governmental
regulations and the impact of any changes in the regulations on
our operations,
managing our growth effectively,
fluctuations in operating results,
dependence on our senior management and key employees, and
other factors set forth under 'Risk Factors.'
We caution you that the foregoing list may not contain all of the
forward-looking statements made in this prospectus.
You should not rely upon forward-looking statements as predictions
of future events. We have based the forward-looking statements
contained in this prospectus primarily on our current expectations
and projections about future events and trends that we believe may
affect our business, financial condition, results of operations and
prospects. The outcome of the events described in these forward-looking
statements is subject to risks, uncertainties and other factors, including
those described in the section titled 'Risk Factors' and elsewhere in this
prospectus. Moreover, we operate in a very competitive and rapidly
changing environment. New risks and uncertainties emerge from time
to time and it is not possible for us to predict all risks and uncertainties
that could have an impact on the forward-looking statements contained
in this prospectus. We cannot assure you that the results, events and
circumstances reflected in the forward-looking statements will be
achieved or occur, and actual results, events or circumstances could
differ materially from those described in the forward-looking statements.
40
Neither we nor any other person assumes responsibility for the accuracy
and completeness of any of these forward-looking statements. Moreover,
the forward-looking statements made in this prospectus relate only to
events as of the date on which the statements are made. We undertake
no obligation to update any forward-looking statements made in this
prospectus to reflect events or circumstances after the date of this
prospectus or to reflect new information or the occurrence of unanticipated
events, except as required by law. We may not actually achieve the plans,
intentions or expectations disclosed in our forward-looking statements
and you should not place undue reliance on our forward-looking
statements. Our forward-looking statements do not reflect the potential
impact of any future acquisitions, mergers, dispositions, joint ventures
or investments we may make.
In addition, statements that 'we believe' and similar statements reflect
our beliefs and opinions on the relevant subject. These statements are
based upon information available to us as of the date of this prospectus,
and while we believe such information forms a reasonable basis for such
statements, such information may be limited or incomplete, and our
statements should not be read to indicate that we have conducted an
exhaustive inquiry into, or review of, all potentially available relevant
information. These statements are inherently uncertain and investors
are cautioned not to unduly rely upon these statements.
41
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of
approximately $ million after deducting estimated underwriting
discounts and commissions and the estimated offering expenses
payable by us and based upon an assumed initial offering price of
$5.00 per ordinary share (excluding any exercise of the underwriters
over-allotment option).
A $ increase (decrease) in the assumed initial public offering price
of $5.00 per share would increase (decrease) the net proceeds to
us from this offering by approximately $ million, after deducting
the estimated underwriting discounts and commissions and estimated
aggregate offering expenses payable by us and assuming no change to
the number of ordinary share offered by us as set forth on the cover
page of this prospectus, provided, however, that in no case would we
decrease the initial public offering price to less than $4.00 per share.
Description of Use
Estimated Amount of
Net Proceeds (US $)
Percentage
Brand promotion and marketing
Recruitment of talented personnel
Expansion of new offices and servicing scope
Enhancement of IT system
General working capital
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.
42
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock,
and we do not currently intend to pay any cash dividends on our common
stock in the foreseeable future.
We currently intend to retain all available funds and any future earnings
to support operations and to finance the growth and development of
our business.
Any future determination to pay dividends will be made at the discretion
of our board of directors, subject to applicable laws, and will depend upon,
among other factors, our results of operations, financial condition,
contractual restrictions, and capital requirements.
From time to time, we may also enter into other loan or credit agreements
or similar borrowing arrangements that may further restrict our ability
to declare or pay dividends on our common stock. Our board of directors
will have sole discretion in making any future determination to pay
dividends, subject to applicable laws, taking into account, among
other factors, our results of operations, financial condition, contractual
restrictions, and capital requirements.
43
CORPORATE STRUCTURE
CORPORATE STRUCTURE
44
BUSINESS
Our Mission
We are a Hairy Crabs service agent focusing on marketing commercial
products to and managing products for individuals and corporate
clients in the PRC.
Overview of Our Company
We are founded in 2015 located in Yangtze River Delta Ecommerce
Industrial Park Shanghai is committed to intelligence.
Ningbo Zhenghe Trading ltd is a professional international leading
Chinese comitten crab overall solution service operator integrating
original ecological free range Yangcheng Lake hairy crab aquaculture
brand promotion comprehensive sales and spot distribution. The farm
is a large scale ecological aquaculture base which is recommended by
the Academy of Agricultural Sciences to ensure that all listed products
meet the principles of food safety and green.
Our products and customers cover more than 10 countries and regions
such as North America Europe Oceania South America Middle East and Asia.
The Industry
According to the Heading Report hairy crab farming has a long history
in China and is one of the pillar industries in China fishery economy.
As a special famous and excellent aquatic product hairy crab has
become an important breakthrough for implementing targeted poverty
alleviation promoting economic growth and increasing farmers income
in many regions.
In order to have a comprehensive understanding of China hairy crab
market and industry development Youangsu Academy of Agricultural
Sciences and other units were entrusted to set up a special research
group which conducted a comprehensive investigation and analysis of
China hairy crab industry by means of data access telephone consultation
face to face interview and on site inspection.
Our Solution
We believe the following competitive strengths have contributed to or
will contribute to our recent and ongoing growth:
The development of hairy crab farming industry will still face many
challenges in the future but with the growing maturity of breeding
technology closely linked production and sales links rapid expansion
of consumer market and perfect provision of cold chain logistics the
overall development will be relatively stable.
Our Services
I. We aspire to become intelligent hairy crab industry leader among
the environment of overall growth in the market.
II. To achieve this goal we intend to leverage on our existing strengths
and pursue the following strategies:
III. Further Enhance Our Brand Recognition among intelligent hairy crab
market in China
IV. Further grow our client base and increase our market penetration
V. Broaden Our Individual and Corporate Client Base
Continue Product Innovation to Enhance Our Value Proposition to
Clients Enhance Our IT Infrastructure and Proprietary Database and
Pursue strategic investments and acquisition opportunities.
45
Our Core Competencies
I. The original industry chain can provde hairy crab industry among the
environment of overall growth in the market.
II. Professional team Core listing counseling team resources all over
China Our founder, JIJIAN YOU, has been engaged in lhairy crab
operation industry for 20 years, and has unique experience in enterprise
industry operation.
III. Always put the service for client in the first place in life, always put
the creation of value for enterprises in the first place in life.
Our Competitive Strengths
I. Market development and promotion advantages.
II. Professional team and core operation team resources advantage
throughout China.
III. The advantage of the original hairy crab industry chain operation,
which can provide better hairy crabs goods.
IV. The advantage of long time experience in hairy crab industry
operation.
Our Challenges
I. The number of competitors has increased.
II. Team personnel are constrained by funds, resulting in insufficient
manpower.
III. The industry price is becoming more and more transparent.
Our Corporate Structure
46
Our Strategy
I. Provide better hairy crabs goods, full industry chain operation and
solve the problems in the development of enterprises
agent. We hope to really help enterprises agent to improve their core
competitiveness, cultivate internal strength, enhance the value,
long-term accompanying to clients.
II. M&A of China's high-quality assets, the combination of industry
and finance.
47
REGULATIONS
Laws and Regulations Relating to Other Business Areas Foreign Exchange
Pursuant to the Administrative Regulations of the PRC on Foreign
Exchange promulgated by the State Council on January 29, 1996
and amended on August 1, 2008 with effect from August 5, 2008,
and various regulations issued by SAFE, and other PRC regulatory
agencies, foreign currency could be exchanged or paid through
two different accounts, namely current account and capital account.
Payment of current account items, including commodity, trade and
service-related foreign exchange transactions and other current
payment, may be made by conversion between RMB and foreign
currencies without approval of SAFE, but are subject to procedural
requirements including presenting relevant documentary evidence
of such transactions. Capital account items, such as direct equity
investment, loans and repatriation of investment, require the prior
approval from or registration with SAFE or its local branch for conversion
between RMB and the foreign currency, and remittance of the foreign
currency outside the PRC.
Pursuant to the Notice on Administration of Foreign Exchange Involved
in Offshore Investment, Financing and Round-Trip Investment Conducted
by Domestic Residents Through Special Purpose Vehicles, which was
promulgated by SAFE and went into effect on July 4, 2014, prior to
making capital contribution in a special purpose vehicle by a PRC r
esident using its legitimate assets or interests in the PRC or overseas,
the PRC resident shall apply to the foreign exchange bureau for
completion of foreign exchange registration formalities for overseas
investments. A 'domestic entity' referred to in this notice shall mean
enterprise and institutional legal persons and any other economic
organizations established in the PRC pursuant to the law, a 'PRC
resident individual' shall mean a PRC citizen holding a PRC resident
identity document, military personnel identity document or armed police
personnel identity document, and any foreign individual who does not
hold a PRC identity document but normally resides in the PRC due to
economic reasons.
Pursuant to the Notice on Further Simplification and Improvement
of Foreign Exchange Administration Policies for Direct Investment,
promulgated by SAFE on February 13, 2015 and effective June 1, 2015,
two administrative approval matters, including foreign exchange
registration approval under domestic direct investment and foreign
exchange registration approval under overseas direct investment, shall
be reviewed and processed directly by banks. SAFE and its local bureaus
shall implement indirect supervision through the foreign exchange
registration with banks for direct investment.
Pursuant to the Notice of SAFE on Reforming the Mode of Management
of Settlement of Foreign Exchange Capital of Foreign- Funded Investment
Enterprises promulgated on March 30, 2015 and effective June 1, 2015,
and the Notice of SAFE on Reforming and Regulating the Policies for
Administration of Foreign Exchange Settlement under the Capital Account
promulgated on and effective June 9, 2016, the system of voluntary foreign
exchange settlement is implemented for the foreign exchange earnings
of foreign exchange capital of foreign-invested enterprises. Foreign
exchange capital in a foreign- invested enterprise capital account, for
which the monetary contribution has been confirmed by SAFE (or for
which the monetary contribution has been registered for account entry),
may be settled at a bank as required by the actual management needs of
the enterprise. The voluntary settlement ratio of foreign-invested
enterprise foreign exchange capital projects has been temporarily
set at 100%. SAFE may make adjustments to the said ratio at appropriate
times based on the status of the international balance of payments. In
addition, foreign exchange earnings under capital projects and the RMB
funds obtained from the exchange settlements thereof shall not be used
by foreign-invested enterprises for the following purposes: (1) direct or
indirect payments of expenditures exceeding its business scope or those
being prohibited by the laws and regulations of the PRC, (2) direct or
indirect uses in securities investments or investments other than
capital-protected banking products (except as otherwise expressly
provided), (3) issuance of loans to non- affiliated enterprises (excluding
those that are expressly permitted within their business scope), and (4)
construction or purchase of real estate not for personal use (except for
real estate enterprises).
48
Foreign Investment
In March 2019, the Standing Committee of the National People's
Congress of the PRC passed the Foreign Investment Law of the
People's Republic of China, or the Foreign Investment Law. Among
other things, the Foreign Investment Law defines the 'foreign
investment' as the investment activities in China conducted by
foreign individuals, enterprises and other organizations, or the
Foreign Investors, in a direct or indirect manner. The PRC governmental
authorities will administrate foreign investment by applying the
principal of pre-entry national treatment together with a negative list,
to be specific, the Foreign Investors are prohibited from making any
investments in the fields cataloged into prohibited industries for
foreign investment based on the negative list, while they are allowed
to make investments in the restricted industries provided that all the
requirements and conditions as set forth in the negative list have been
satisfied, when the Foreign Investors make investments in the fields
other than those included in the negative list, the national treatment
principle shall apply.
Pursuant to Provisions for Guiding the Foreign Investment Direction,
projects with foreign investment fall into 4 categories, namely
encouraged, permitted, restricted and prohibited. Projects with foreign
investment that are encouraged, restricted or prohibited shall be listed
in the Foreign Investment Catalog. Projects with foreign investment not
listed as encouraged, restricted or prohibited projects are permitted
projects.
Pursuant to the Special Administrative Measures for Access of Foreign
Investment (2021 Edition), or the 2021 Edition Negative list, issued
by the MOFCOM and the NDRC on December 27, 2021, which came
into effect on January 1, 2022. Our business does not fall into the
negative list and is permitted for foreign investment.
The Foreign Investment Law replaced the Law of the People's Republic
of China on Wholly Foreign-owned Enterprises. It stipulates that the
PRC implements a system of pre-establishment national treatment
plus negative list for the administration of foreign investment. Foreign
investors are not allowed to invest in fields or sectors prohibited in the
market access negative list for foreign investment. Foreign investors
that intend to invest in the fields subject to access restrictions
stipulated in the market access negative list for foreign investment
shall be required to satisfy the conditions stipulated in such negative
list. The PRC policies supporting enterprise development are equally
applicable to foreign-invested enterprises. The PRC does not impose
expropriation on foreign investment. Under special circumstances, if
it requires imposing expropriation on foreign investment due to the
need of public interest, expropriation shall be imposed according to
legal procedures, and the foreign-invested enterprises concerned
shall receive fair and reasonable compensation. Foreign-invested
enterprises can raise funds through public issuance of stocks,
corporate bonds and other securities in accordance with the law.
Overall, The Foreign Investment Law establishes the clear principle
of applying national treatment to FIEs except those engaged in
industries on the 2021 Negative List. Since our current and planned
business is not on the 2021 Negative List, to the best of our knowledge,
it will not create any material adverse effect to our Company's business.
Outbound Investment
Pursuant to the Measures for Administration of Overseas Investment
Management promulgated by the MOFCOM on September 6, 2014 and
effective October 6, 2014 and the Measures for Administration of
Overseas Investment of Enterprises promulgated by the NDRC on
December 26, 2017 and effective March 1, 2018, a domestic institution is
required to undergo relevant procedures for offshore investment prior
to its overseas direct investment and obtain relevant record-filing,
approval, certificate or permit. If an enterprise fails to complete
the aforesaid procedures, it will be required by the competent
authorities to suspend or cease the implementation of the project.
49
Laws and Regulations Relating to Taxation Enterprise Income Tax
Pursuant to the EIT Law promulgated on March 16, 2007, amended
on and effective December 29, 2018, and the Regulation on
Implementation of the Enterprise Income Tax Law of the PRC,
or the EIT Implementation Rules, issued on December 6, 2007
and effective April 23, 2019, EIT shall be applicable at a uniform
rate of 25% to all resident or non-resident enterprises. EIT shall
be payable by a resident enterprise for income sourced within or
outside the PRC. EIT shall be payable by a non-resident enterprise,
for income sourced within the PRC by its institutions or premises
established in the PRC, and for income sourced outside the PRC for
which the institutions or premises established in the PRC have a de
facto relationship. Where the non-resident enterprise has no institutions
or premises established in the PRC or has income bearing no de facto
relationship with the institution or premises established, EIT shall be
payable by the non-resident enterprise only for income sourced
within the PRC.
Pursuant to the Administrative Measures on the Accreditation of High
and New Technology Enterprises high and new technology enterprises
accredited pursuant to these measures may make declarations under
and benefit from tax concession policies in accordance with relevant
regulations including the EIT Law and the EIT Implementation Rules,
the Law of the PRC on Administration of Levying and Collection of
Taxes and the Regulation of Implementation of the Law of the PRC
on Administration of Levying and Collection of Taxes.
Pursuant to the Announcement on the Enterprise Income Tax Policies
for Promoting the High-quality Development of the Integrated Circuit
Industry and the Software Industry promulgated by the Ministry of
Finance, the State Taxation Administration, the NDRC and the MIIT
on December 12, 2020 and effective from January 1, 2020, and the
Announcement No. 9 [2021] of the MIIT, the NDRC, the Ministry of
Finance and the State Taxation Administration, upon certification, an
integrated circuit design, equipment, materials, packaging, or testing
enterprise or a software enterprise shall be exempt from the EIT from
the first to the second year from the year when such enterprise makes
profits, and be subject to the EIT levied at half of the 25% statutory tax
rate from the third to the fifth year.
Tax on Dividends
Pursuant to the EIT Law and the EIT Implementation Rules, except
as otherwise provided by relevant tax treaties with the PRC government,
dividends paid by foreign-invested investment enterprises to foreign
investors which are non-resident enterprises and which have not
established or operated premises in the PRC, or which have established
or operated premises but where their income has no de facto relationship
with such establishment or operation of premises shall be subject to a
withholding tax of 10%.
Pursuant to the Arrangement between Mainland 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 entered into between the PRC government and the
Hong Kong Special Administrative Region, where the beneficial
owner is a company directly holding at least 25% of the equity
interest of the company paying the dividends, the tax charged
shall not exceed 5% of the distributed dividends. In any other
case, the tax charged shall not exceed 10% of the distributed
dividends.
Pursuant to the Announcement on Issues Relating to 'Beneficial
Owner' in Tax Treaties promulgated by the SAT on February 3,
2018 and came effective April 1, 2018, a 'beneficial owner' shall
mean a person who has ownership and control over the income,
and the rights and property from which the income is derived.
Upon the determination of the 'beneficial owner' status of a
resident of the treaty counterparty who needs to enjoy the tax
treaty benefits (hereinafter referred to as the 'applicant'), a
comprehensive analysis shall be conducted taking into account
the actual conditions of the specific case. In general, the following
factors are unfavorable for the determination of 'beneficial owner'
status of an applicant: (1) the applicant is obligated to pay 50% or
more of the income, within 12 months from its receipt, to a resident
of a third country (region), where the term 'obligated' includes agreed
obligations and de facto payment for which there is no agreed
obligation, (2) the business activities undertaken by the applicant do
not constitute substantive business activities, where substantive
business activities shall include manufacturing, distribution and
management activities of a substantive nature, the determination
of whether the business activities undertaken by the applicant are
of a substantive nature shall be based on the functions actually
performed and the risks borne, and investment holding management
activities of a substantive nature undertaken by the applicant may
constitute substantive business activities (where the applicant
undertakes investment holding management activities which do
not constitute substantive business activities, and simultaneously
undertakes other business activities, if such other business activities
are not sufficiently significant, these shall not constitute substantive
business activities), (3) the treaty counterparty country (region) does
not levy, or exempts tax on the relevant income, or levies tax but
with a very low actual tax rate, (4) in addition to the loan contract
based on which interest is derived and paid, there exists other loan
s or deposit contracts between the creditor and the third party, of
which factors such as the amount, interest rate and date of execution
are similar, and (5) in addition to the transfer contract for rights to
use such as copyright, patent, technology, from which the royalties
are derived and paid, there exists other transfer contracts for rights
to use or ownership in relation to copyright, patent, technology
between the applicant and a third party.
50
Pursuant to the Notice of the SAT on the Relevant Issues Concerning
the Implementation of Dividend Clauses in Tax Treaties promulgated
by the SAT and effective February 20, 2009, all of the following conditions
shall be satisfied before the concession tax rate in a tax treaty can be
enjoyed: (1) the tax resident obtaining dividends shall be restricted
to the company as provided in the tax treaty, (2) among all the
ownership equity interests and voting shares of the PRC resident
company, the proportion directly owned by the tax resident complies
with the prescribed proportions under the tax treaty, and (3) the
proportion of the equity interests of the PRC resident company
directly owned by such tax resident complies with, at all times within
the twelve months before obtaining the dividends, the proportions
specified in the tax treaty.
Pursuant to the Announcement of the State Taxation Administration
on Issuing the Administrative Measures for Entitlement to Treaty
Benefits for Non-resident Taxpayers promulgated by the SAT on
October 14, 2019 and effective January 1, 2020, entitlement to treaty
benefits for non-resident taxpayers shall be handled by means of
'self-judgment of eligibility, declaration of entitlement, and retention
of relevant materials for future reference'. Where non-resident taxpayers
judge by themselves that they meet the conditions for entitlement to
treaty benefits, they may obtain such entitlement themselves at the time
of making tax declarations, or at the time of making withholding
declarations via withholding agents. At the same time, they shall collect,
gather and retain relevant materials for future reference in accordance
with the provisions of these measures, and shall accept the follow- up
administration of tax authorities. Relevant information proving the status
of 'beneficial owner' shall be retained in the case of entitlement to
dividends, interest and treaty benefits of royalty clauses.
Labor Contracts
The Labor Contract Law of the PRC, which was promulgated on June
29, 2007 and subsequently amended on December 28, 2012 and
effective July 1, 2013, serves as the primary law regulating the labor
contract relationship between companies and employees. Pursuant
to this law, an employment relationship is established between the
employer and the worker since the day of employment. The employer
shall execute a written employment contract with the worker.
Furthermore, to safeguard the legal rights and interests of workers,
the way to calculate compensation for the probation period and for
damages shall be subject to the provisions of the law.
Social Security and Housing Provident Fund
Pursuant to the Interim Regulations on Levying Social Insurance
Premiums promulgated on January 22, 1999 and amended on
March 24, 2019, Decisions of the State Council on Modifying the
Basic Endowment Insurance System for Enterprise Employees
promulgated on December 3, 2005, Decision on Establishment
of Basic Medical System for Urban Employee issued by State
Council with effect from December 14, 1998, the Regulations on
Unemployment Insurance effective from January 22, 1999,
Regulations on Work-Related Injury Insurance promulgated on
April 27, 2003 with effect from January 1, 2004, and as amended
on December 20, 2010, and the Interim Measures concerning the
Maternity Insurance for Enterprise Employees promulgated on
December 14, 1994 with effect from January 1, 1995, employers
are required to register with the competent social insurance
authorities and provide their employees with welfare schemes
covering pension insurance, unemployment insurance, maternity
insurance, work-related injury insurance and medical insurance.
51
Pursuant to the Social Insurance Law of the PRC, which became effective
on July 1, 2011 with last amendment on December 29, 2018, all employees
are required to participate in basic pension insurance, basic medical
insurance schemes and unemployment insurance, which must be
contributed by both the employers and the employees. All employees
are required to participate in work- related injury insurance and maternity
insurance schemes, which must be contributed by the employers. Employers
are required to complete registrations with local social insurance authorities.
Moreover, the employers must timely make all social insurance contributions
.. Except for mandatory exceptions such as force majeure, social insurance
premiums may not be paid late, reduced, or be exempted. Where an employer
fails to make social insurance contributions in full and on time, the social
insurance contribution collection agencies shall order it to make all or
outstanding contributions within a specified period and impose a late payment
fee at the rate of 0.05% per day from the date on which the contribution
becomes due. If such employer fails to make the overdue contributions within
such time limit, the relevant administrative department may impose a fine
equivalent to 1-3times the overdue amount.
Pursuant to the Administrative Regulations on the Housing Provident
Fund effective from April 3, 1999, amended on March 24, 2002 and
March 24, 2019, enterprises are required to register with the competent
administrative centers of housing provident fund and open bank accounts
for housing provident funds for their employees. Employers are also
required to timely pay all housing fund contributions for their employees.
Where an employer fails to submit and deposit registration of housing
provident fund or fails to go through the formalities of opening housing
provident fund accounts for its employees, the housing provident fund
management center shall order it to go through the formalities within a
prescribed time limit. Failing to do so at the expiration of the time limit
will subject the employer to a fine of not less than RMB10,000 and up to
RMB50,000. When an employer fails to pay housing provident fund due
in full and in time, housing provident fund center is entitled to order it
to rectify, failing to do so would result in enforcement exerted by the
court.
Laws and Regulations Relating to Intellectual Property Trademarks
Pursuant to the Trademark Law of the PRC promulgated on August
23, 1982, amended on April 23, 2019 and effective November 1, 2019
and the Regulation on Implementation of the Trademark Law of the
PRC amended on April 29, 2014 and effective May 1, 2014, the right to
the exclusive use of a registered trademark is limited to the approved
trademark registration, and to goods for which the use of the trademark
has been approved. The period of validity of registered trademarks lasts
for ten years from the day of registration approval. Absent the
authorization by the owner of the registered trademark, the use of
the registered trademark or a similar trademark on the same category
of goods or similar goods constitutes an infringement of the right to
exclusive use of the registered trademark. The infringer shall, in
accordance with the relevant regulations, cease the infringement
activities, take correction actions, and compensate for losses.
Patents
Pursuant to the Patent Law of the PRC promulgated on March 12, 1984,
last amended on October 17, 2020 and effective June 1, 2021, and the
Rules for the Implementation of the Patent Law of the PRC amended on
January 9, 2010 and effective February 1, 2010, after the grant of the
patent right for inventions and utility models, except otherwise regulated
under the Patent Law, no entity or individual may, without the authorization
of the patent owner, exploit such patent, that is to manufacture, use,
offer to sell, sell or import the patented product, or use the patented
process, and use, offer to sell, sell or import products directly obtained
from such patented process, for production or business purposes. After
the patent right is granted for a design, no unit or individual shall, without
the authorization of the patent owner, exploit such patent, that is to
manufacture, offer to sell, sell, or import any product containing such
patented design for production or business purposes. Where infringement
has been established, the infringer shall, in accordance with the relevant
regulations, be ordered to cease the infringement activities, take corrective
actions, and compensate for losses.
52
Regulations in relation to M&A Rules and Overseas Listing
Accordance with the M&A Rules which was promulgated by the MOFCOM,
the State-owned Assets Supervision and Administration Commission of the
State Council, the SAT, the State Administration for Industry and Commerce,
the CSRC and SAFE and took effect on September 8, 2006 and was
subsequently amended on June 22, 2009 by the MOFCOM, a foreign
investor was required to obtain necessary approvals when (i) a foreign
investor acquires equity in a domestic non-foreign invested enterprise
thereby converting it into a foreign-invested enterprise, or subscribes
for new equity in a domestic enterprise via an increase of registered
capital thereby converting it into a foreign-invested enterprise, or (ii) a
foreign investor establishes a foreign- invested enterprise which purchase
and operates the assets of a domestic enterprise, or which purchases the
assets of a domestic enterprise and injects those assets to establish a
foreign-invested enterprise. According to article 11 of the M&A Rules,
where a domestic company or enterprise, or a domestic natural person,
through an overseas company established or controlled by it/him, acquires
a domestic company which is related to or connected with it/him, approval
from MOFCOM is required. According to the Manual of Guidance on
Administration for Foreign Investment Access issued by MOFOM on
December 18, 2008, the equity transfer by the Chinese shareholders to
the foreign shareholders in an established foreign-invested enterprise
shall not be governed by the provisions on mergers and acquisitions.
It does not matter whether the Chinese party and the foreign party are
related parties or whether the foreign party is an existing shareholder
or a new investor.
On July 6, 2021, the State Council and General Office of the of the
Communist Party China Central Committee issued Opinions on Strictly
Cracking Down Illegal Securities Activities in Accordance with the Law,
which steps-up scrutiny of overseas listings by companies and calls for
strengthening cooperation in cross-border regulation, improving relevant
laws and regulations on cyber security, cross-border data transmission
and confidential information management, including the confidentiality
requirement and file management related to the issuance and listing of
securities overseas, enforcing the primary responsibility of the enterprises
for information security of China based overseas listed companies and
promoting the construction of relevant regulatory systems to deal with
the risks and incidents faced by China-based overseas-listed companies.
Furthermore, establishing and improving a system of extraterritorial
application of laws in the capital market are also mentioned, judicial
interpretations and supporting rules for extraterritorial application
provisions of the Securities Law shall be formulated as soon as possible.
On December 24, 2021, the CSRC issued Administrative Measures
of the State Council on Overseas Issuance and Listing of Securities
by Domestic Enterprises (Draft for Comment), which would explicitly
require domestic enterprises seeking to list their securities overseas
to file with the CSRC and sets forth the general provisions for these
record-filing requirements as well as the specific circumstances under
which an offshore listing would be prohibited, and also includes
provisions relating to data security, internal control system, share
registration, fund raising, supervision of intermediaries, among others.
On the same day, the CSRC issued Administrative Measures for the
Record-filing of Overseas Issuance and Listing of Securities by Domestic
Enterprises (Draft for Comment), according to which domestic enterprises
would be required to file a record with the CSRC for direct or indirect
listing. The indirect overseas listing of a domestic enterprise refers to
the occurrence of any of the following circumstances of an issuer: (1)
the revenue, total profits, total assets or net assets of a domestic
enterprise in the most recent fiscal year accounts for more than 50%
of the corresponding figure in the issuer's audited consolidated financial
statements for the same period, and (2) a majority of the senior officers
in charge of business operation and management of such entity are
Chinese citizens or have a habitual residence in China, and the main
place of business operation is located in China or carried out mainly in
China. In addition, the domestic enterprise must report to the CSRC
the following circumstances after completion of offering and listing:
(1) any change of control of the issuer, (2) any measures adopted or
required by the foreign securities' regulatory authorities or relevant
competent authorities in connection with a foreign listing such as
investigation and punishment , and (3) the voluntary or compulsory
termination of listing of any foreign securities by a domestic enterprise.
This offering and listing and trading of our common stocks on the
Nasdaq will be subject to the requirements of filing with the CSRC
when the foregoing regulatory guidance is officially promulgated
and became effective.
53
Regulations Relating to Dividend Distributions
According to the PRC Company Law and Foreign Investment Law,
each of our PRC subsidiaries, as a foreign invested enterprise, or FIE,
is required to draw 10% of its after-tax profits each year, if any, to fund
a common reserve, and which may stop drawing its after-tax profits
if the aggregate balance of the common reserve has already accounted
for over 50% of its registered capital. These reserves are not distributable
as cash dividends. Furthermore, under the EIT Law, which became
effective in January 2008, the maximum tax rate for the withholding
tax imposed on dividend payments from PRC foreign invested companies
to their overseas investors that are not regarded as 'resident' for tax
purposes is 20%. The rate was reduced to 10% under the Implementing
Regulations for the EIT Law issued by the State Council. However, a lower
withholding tax rate might be applied if there is a tax treaty between
China and the jurisdiction of the foreign holding companies, such as
tax rate of 5% in the case of Hong Kong companies that holds at least
25% of the equity interests in the foreign-invested enterprise, and certain
requirements specified by PRC tax authorities are satisfied.
Pursuant to the Notice on Improving the Check of Authenticity and
Compliance to Further Promote Foreign Exchange Control promulgated
by SAFE in January 2017, which stipulates several capital control measures
with respect to outbound remittance of profits from domestic entities to
offshore entities, including the following: (1) under the principle of
genuine transaction, banks shall check board resolutions regarding
profit distributions, the original version of tax filing records and audited
financial statements, and (2) domestic entities shall hold income to
account for previous years' losses before remitting the profits.
Moreover, domestic entities shall make detailed explanations of
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.
Regulations in relation to Cyber Security and Data Protection
On November 7, 2016, the Standing Committee of the National People's
Congress (the 'SCNPC') promulgated the Cyber Security Law of the PRC,
or 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. On June 10, 2021, the SCNPC promulgated the Data Security
Law of the PRC, or the PRC Data Security Law, which became effective on
September 1, 2021. Pursuant to the PRC Data Security Law, data refers to
any record of information in electronic or any other form and data processing
including the collection, storage, use, processing, transmission, provision,
and public disclosure of data.
On December 28, 2021, the Cyberspace Administration of China, or the
CAC, jointly with other twelve PRC governmental authorities, promulgated
the Measures for Cybersecurity Review, or Cybersecurity Measures, which
became effective on February 15, 2022. the Cybersecurity Measures provides
that, among other things, (i) online platform operators possessing personal
information of more than one million users must apply to the Cybersecurity
Review Office for a cybersecurity review before conducting any listing
in a foreign country, (ii) the purchase of network products and services
of a critical information infrastructure operator and data processing
activities of an online platform operator that affect or may affect national
security shall be subject to the cybersecurity review, and (iii) the relevant
governmental authorities in the PRC may initiate cyber security review if
such governmental authorities determine any network products and
services and data processing activities affect or may affect national
security.
On November 14, 2021, the CAC promulgated the Regulations on the
Administration of Cyber Data Security (Draft for Comments), or Draft
Cyber Data Regulations. According to the Draft Cyber Data Regulations,
data processors shall, in accordance with relevant PRC regulations, apply
for cybersecurity review when carrying out the following activities: (i)
the merger, reorganization or separation of online platform operators
that have acquired a large number of data resources related to national
security, economic development or public interests, which affects or
may affect national security, (ii) processing personal information of
more than one million individuals and seeking a listing in a foreign
country, (iii) applying for listing in Hong Kong, which affects or may
affect national security, and (iv) other data processing activities that
affect or may affect national security. As at the date of this prospectus,
the Draft Cyber Data Regulations are still in draft form and subject to
change with substantially uncertainty.
54
Regulations on Employee Share Option Plans
Pursuant to the Notice of Issues Related to the Foreign Exchange
Administration for Domestic Individuals Participating in Stock Incentive
Plan of Overseas Listed Company, or SAFE Circular 7, issued by the SAFE
in February 2012, employees, directors, supervisors, and other senior
management participating in any share incentive plan of an overseas
publicly-listed company who are PRC citizens or non-PRC citizens residing
in China for a continuous period of not less than one year, subject to a
few exceptions, are required to register with SAFE through a domestic
qualified agent, which may be a PRC subsidiary of such overseas listed
company, and complete certain other procedures. See 'Regulations on
Foreign Exchange.'
In addition, the SAT has issued certain circulars concerning employee
share options and restricted shares. Under these circulars, employees
working in the PRC who exercise share options or are granted restricted
shares will be subject to PRC individual income tax. The PRC subsidiaries
of an overseas listed company are obligated to file documents related
to employee share options and restricted shares with relevant tax
authorities and to withhold individual income taxes of employees
who exercise their share option or purchase restricted shares. If the
employees fail to pay or the PRC subsidiaries fail to withhold income
tax in accordance with relevant laws and regulations, the PRC subsidiaries
may face sanctions imposed by the tax authorities or other PRC
governmental authorities.
55
MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding our directors
and executive officers as of the date of this prospectus.
Name
Age
Position/Title
Jijian You
43
Chief Executive Officer and Chairman of the Board of Directors
Yahoo Xu
69
Vice Chairman of the Board and General Manager
Ye Wang
37
President, General Manager and Director
Ms Lai
41
Chief Operating Officer and Director
Jijian You is our Chief Executive Officer and Chairman of the Board
of Directors and has served as our chairman since our
inception in 2012. Since 2012, Mr.You has served as the Chairman of
Ningbo Zhenghe Trade Ltd. during her tenure.
We believe that Mr.You should serve as a member of our Board of
Directors because he is experienced in founding, leading and
managing companies.
Yahoo Xu is our Vice Chairman of the Board and General Manager
since 2016. From June 2016 to November 2022, Ms. li holds
the position of General Manager of Ningbo Zhenghe Trade Ltd..
We believe that Mr.Xu should serve as a member of our Board of
Directors because he is experienced in managing companies.
Ye Wang is our General Manager and Director since 2021. Mr.
Wang specializes in business management and has
excellent strategic planning, organization, coordination and
implementation skills, familiar with market insight, competitive
analysis, strategic management methods and frameworks. he is
responsible for multi regional market development, channel
planning and management, and leads business teams of hundreds
of people.
Ms.Lai is our Chief Operating Officer and Director since 2017. Ms.
Lai worked as Director of Finance Department of Yilin Ningbo
Zhenghe Trade Ltd from March 2018 to January 2022. From October
2022 , she worked as Director of Zhongchuang Shangxue important
client management of Ningbo Zhenghe Trade Ltd. during her tenure.
56
Family Relationships
None of the directors, director appointees, or executive officers has
a family relationship as defined in Item 401 of Regulation S-K.
Board of Directors
Our board of directors will consist of five directors upon the SEC' s
declaration of effectiveness of our registration statement on Form
F-1 of which this prospectus is a part, three of whom are independent
directors within the meaning of Nasdaq Marketplace Rule 5605(a)(2)
and Rule 10A-3 under the Exchange Act.
Subject to the Nasdaq rules and disqualification by the chairman of
the relevant board meeting, a director may vote in respect of any
contract or proposed contract or transaction notwithstanding that
he may be interested therein provided that the nature of the interest
of any director in such contract or transaction shall be disclosed by
him or her at or prior to its consideration and any vote on that matter,
and if he or she does so his or her vote shall be counted and he may
be counted in the quorum at any meeting of the directors at which any
such contract or proposed contract or transaction is considered. Our
board of directors may exercise all the powers of the company to borrow
money, mortgage or charge its undertaking, property and uncalled capital,
and issue debentures, debenture stock and other securities whenever money
is borrowed or as security for any debt, liability or obligation of the
company or of any third party. None of our directors has a service
contract with us that provides for benefits upon termination of service
as a director.
Board Committees
Prior to the completion of this offering, we intend to establish an audit
committee, a compensation committee and a nomination and corporate
governance committee under our board of directors. We intend to adopt
a charter for each of the committees prior to the completion of this
offering. Each committee's members and functions are described below.
Audit Committee
The audit committee oversees our accounting and financial reporting
processes and the audits of the financial statements of our company.
The audit committee is responsible for, among other things:
.. appointing or removing the independent auditor and pre-approving
all auditing and non-auditing services permitted to be performed by
the independent auditor,
.. setting clear hiring policies for employees or former employees of the
independent auditor,
.. reviewing with the independent auditor any audit problems or difficulties
and management's response,
.. reviewing and approving all related-party transactions,
.. discussing the annual audited financial statements with management
and the independent auditor,
.. discussing with management and the independent auditor major
issues regarding accounting principles and financial statement presentations,
57
.. reviewing analyzes or other written communications prepared by
management or the independent auditor relating to significant financial
reporting issues and judgments made in connection with the preparation
of the financial statements,
.. reviewing with management and the independent auditor the effect of
key transactions, related-party transactions and off- balance sheet
transactions and structures,
.. reviewing with management and the independent auditor the effect
of regulatory and accounting initiatives,
.. reviewing policies with respect to risk assessment and risk management,
.. reviewing our disclosure controls and procedures and internal control
over financial reporting,
.. reviewing reports from the independent auditor regarding all critical
accounting policies and practices to be used by our company,
.. establishing procedures for the receipt, retention and treatment
of complaints we received regarding accounting, internal accounting
controls or auditing matters and the confidential, anonymous
submission by our employees of concerns regarding questionable
accounting or auditing matters,
.. periodically reviewing and reassessing the adequacy of our audit
committee charter,
.. evaluating the performance, responsibilities, budget and staffing
of our internal audit function and reviewing and approving the
internal audit plan, and
.. reporting regularly to the board of directors.
Compensation Committee
Our compensation committee assists the board in reviewing and
approving the compensation structure, including all forms of
compensation, relating to our executive officers. The compensation
committee is responsible for, among other things:
.. reviewing and approving, or recommending to the board for its
approval, the compensation of our executive officers,
.. reviewing and evaluating our executive compensation and benefits
policies generally,
.. in consultation with our chief executive officer, periodically reviewing
our management succession planning,
.. reporting to our board of directors periodically,
.. evaluating its own performance and reporting to our board of directors
on such evaluation,
.. periodically reviewing and assessing the adequacy of the compensation
committee charter and recommending any proposed changes to our
board of directors, and
.. selecting compensation consultant, legal counsel or other adviser
only after taking into consideration all factors relevant to that person's
independence from management.
Nomination and Corporate Governance Committee
The nomination and corporate governance committee assists the
board in selecting individuals qualified to become our directors
and in determining the composition of the board and its committees.
The nomination and corporate governance committee is responsible
for, among other things:
.. identifying and recommending to the board of directors qualified
individuals for membership on the board of directors and its committees,
.. evaluating, at least annually, its own performance and reporting to the
board of directors on such evaluation,
.. leading our board of directors in a self-evaluation to determine whether
it and its committees are functioning effectively,
.. reviewing the evaluations prepared by each board committee of such
committee's performance and considering any recommendations for
proposed changes to our board of directors,
.. reviewing and approving compensation (including equity-based
compensation) for our directors,
.. overseeing compliance with the corporate governance guidelines
and code of business conduct and ethics and reporting on such
compliance to the board of directors, and
.. reviewing and assessing periodically the adequacy of its charter
and recommending any proposed changes to the board of
directors for approval.
58
Corporate Governance
Our board of directors has adopted a code of business conducts
and ethics, which is applicable to all of our directors, officers,
employees and advisors. We will make our code of business
conducts and ethics publicly available on our website. In addition,
our board of directors has adopted a set of corporate governance
guidelines. The guidelines reflect certain guiding principles with
respect to our board's structure, procedures and committees.
The guidelines are not intended to change or interpret any law,
or our memorandum and articles of association, as amended from
time to time. The code of business conducts and ethics and corporate
governance guidelines all become effective upon completion of this
offering.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with each of our
executive officers for a specified time period providing that the
agreements are terminable for cause at any time. The terms of
these agreement are substantially similar to each other. A senior
executive officer may terminate his or her employment at any time
by 30-day prior written notice. We may terminate the executive
officer's employment for cause, at any time, without advance notice
or remuneration, for certain acts of the executive officer, such as
conviction or plea of guilty to a felony or any crime involving moral
turpitude, negligent or dishonest acts to our detriment, or misconduct
or a failure to perform agreed duties.
Each executive officer has agreed to hold in strict confidence and not
to use, except for the benefit of our company, any proprietary
information, technical data, trade secrets and know-how of our
company or the confidential or proprietary information of any third
party, including our subsidiaries and our clients, received by our
company. Each of these executive officers has also agreed to be
bound by noncompetition and non-solicitation restrictions during
the term of his or her employment and typically for two years
following the last date of employment.
We expect to enter into indemnification agreements with our directors
and executive officers, pursuant to which we will agree to indemnify
our directors and executive officers against certain liabilities and
expenses incurred by such persons in connection with claims made
by reason of their being such a director or officer.
59
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of our common
stock (i) as of and (ii) immediately following this offering, as adjusted to
reflect the sale of shares of common stock by us, in each case, by the
following individuals or groups:
.. each of our directors,
.. each of our named executive officers,
.. all of our directors and executive officers as a group, and
.. each person, or group of affiliated persons, who is known by us to
beneficially own more than 5% of our common stock.
We have determined beneficial ownership in accordance with the
rules of the SEC. These rules generally attribute beneficial ownership
of securities to persons who possess sole or shared voting power or
investment power with respect to those securities, or have the right
to acquire such powers within 60 days. Under these rules, more than
one person may be deemed beneficial owner of the same securities
and a person may be deemed to be a beneficial owner of securities
as to which such person has no economic interest. In addition, the
rules include shares of common stock issuable pursuant to the
exercise of stock options or warrants that are either immediately
exercisable or exercisable on or before , 2023, which is 60 days after ,
2023. These shares are deemed to be outstanding and beneficially
owned by the person holding those options or warrants for the
purpose of computing the percentage ownership of that person,
but they are not treated as outstanding for the purpose of computing
the percentage ownership of any other person. The information
contained in the following table is not necessarily indicative of
beneficial ownership for any other purpose, and the inclusion of
any shares in the table does not constitute an admission of beneficial
ownership of those shares. Unless otherwise indicated, the persons or
entities identified in this table have sole voting and investment power
with respect to all shares shown as beneficially owned by them, subject
to applicable community property laws.
Ordinary Shares Beneficially
Owned Prior to This Offering
Shares Beneficially Owned After This Offering
Number % Number %
Directors and Executive Officers:
JIJIAN YOU
21,220,022
60.63%
Zhao Li
749000
2.14%
Liu Jinghui
175000
0.50%
Xu Weijie
115500
0.33%
Wang Wei
227500
0.65%
Yan Qunyan
220500
0.63%
Huang Yinglan
1221500
3.49%
Wang Ye
913500
2.61%
Qiu Zhongchun
875000
2.50%
Fan Xinxing
381500
1.09%
Tong Lingling
2632000
7.52%
Wang Yanqin
73500
0.21%
Zhu Jinmei
73500
0.21%
Yan Qinghua
73500
0.21%
Shi Lei
73500
0.21%
Gong Yan
73500
0.21%
Li Jie
87500
0.25%
wang ying
73848
0.21%
yang chun
73848
0.21%
shi ruiying
56000
0.16%
wang zhongguo
168000
0.48%
wang fei
28000
0.08%
xu lei
350000
1.00%
huang yinglan
420000
1.20%
Guo Haiping
70000
0.20%
Huang Yin
521500
1.49%
Zhang Yi
28000
0.08%
Xu Dongyun
1606047
4.59%
jin song
30770
0.09%
Deng Tao
92310
0.26%
Yu Zhimin
189000
0.54%
Wu Ge
119000
0.34%
Li Jianfa
153846
0.44%
Ge Yuewen
123077
0.35%
Li Jing
101500
0.29%
Yi Bailin
153847
0.44%
Ding Lei
6154
0.02%
Wang Xingbo
21551
0.06%
Geng Weilong
21551
0.06%
Chen Zhenzhen
9231
0.03%
Chen Meixiang
15385
0.04%
Shenzhen NetLianLian Network Technology Co.,Ltd
95359
0.27%
Shang Junjie
194562
0.56%
BIGC SECURITIES,INC
1091592
3.12%
All executive officers, continuing directors and director nominees
as a group (44persons)
35,000,000
100%
61
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have Ordinary
Shares 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 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 after the date of this prospectus, without the
prior written consent of the presentative. 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.
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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.
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UNDERWRITING
In connection with this offering, we will enter into an underwriting
agreement with Bigc Securities,Inc., 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 will be 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:
Underwriters
Number of Shares
Bigc Securities,Inc.
Total
The underwriters are offering the Ordinary Shares subject to
their acceptance of the Ordinary Shares from us and subject
to prior sale. The underwriting agreement provides that the
obligations of the underwriters to pay for and accept delivery
of the Ordinary Shares offered by this prospectus are subject to
the approval of certain legal matters by its counsel and to other
conditions. The underwriters are obligated to take and pay for
all of the Ordinary Shares offered by this prospectus if any such
Ordinary Shares are taken.
However, the underwriters are not required to take or pay for the
Ordinary Shares covered by the Representative's option to purchase
additional Ordinary Shares described below.
Certain of the underwriters are expected to make offers and sales
both inside and outside the United States through their respective
selling agents. Any offers or sales in the United States will be
conducted by broker-dealers registered with the SEC. Bigc Securities,Inc.
is not a broker-dealer registered with the SEC and does not intend to
make any offers or sales of the ordinary shares within the U.S. or
to any U.S. persons.
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
Public offering price
Underwriting fees and commissions (7%)
Proceeds, before expenses, to us
In addition to the cash commission, we will also reimburse the
Underwriter for accountable out-of-pocket expenses not to exceed
$ . Such accountable out-of-pocket expenses include no more than
$ in Underwriter's legal counsel fees, due diligence and other like
expenses not to exceed $ and road show, travel, on-boarding fees
and other reasonable out-of-pocket accountable expenses not to
exceed $ , background checks expenses not to exceed $ , and DTC
eligibility fees and expenses not to exceed $ . 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 $.
We are discussing the offering with some underwriters. As of the
date of this prospectus, we have not yet determined that the
underwriters have entered into an underwriting agreement.
The underwriting data used below is derived from industry
practice and normal fees, which will not be formally recognized
until an underwriting agreement is reached. The foregoing does
not purport to be a complete statement of the terms and conditions
of the underwriting agreement and subscription agreement.
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Lock-Up Agreements
Each of our directors, executive officers, and principal shareholders
(5% or more shareholders) of our Ordinary Shares has also entered
into a similar lock-up agreement for a period of six (6) months from
the effective date of this registration statement of which this prospectus
forms a part, subject to certain exceptions, with respect to our Ordinary
Shares and securities that are substantially similar to our Ordinary Shares.
Pricing of the Offering
Prior to the completion of this offering, there has been no public
market for our Ordinary Shares. The initial public offering price of
the Ordinary Shares has been negotiated between us and the
underwriters. Among the factors considered in determining the
initial public offering price of the Ordinary Shares, in addition to
the prevailing market conditions, are our historical performance,
estimates of our business potential and earnings prospects, an
assessment of our management, and the consideration of the
above factors in relation to market valuation of companies in
related businesses.
Electronic Offer, Sale, and Distribution of Ordinary Shares
A prospectus in electronic format may be made available on
the websites maintained by the underwriters or selling group
members, if any, participating in this offering and the underwriters
may distribute prospectuses electronically. The underwriters may
agree to allocate a number of Ordinary Shares to selling group
members for sale to its online brokerage account holders. The
Ordinary Shares to be sold pursuant to internet distributions will
be allocated on the same basis as other allocations. Other than
the prospectus in electronic format, the information on these
websites is not part of, nor incorporated by reference into, this
prospectus or the registration statement of which this prospectus
forms a part, has not been approved or endorsed by us or the
underwriters, and should not be relied upon by investors.
Price Stabilization
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.
Selling Restrictions
No action has been taken in any jurisdiction (except in the
United States) that would permit a public offering of the
Ordinary Shares, or the possession, circulation or distribution
of this prospectus or any other material relating to us or the
Ordinary Shares, where action for that purpose is required.
Accordingly, the Ordinary Shares may not be offered or sold,
directly or indirectly, and neither this prospectus nor any other
offering material or advertisements in connection with the Ordinary
Shares may be distributed or published, in or from any country
or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.
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LEGAL MATTERS
We are being represented by with respect to certain legal
matters of U.S. federal securities. Certain legal matters as to
PRC law will be passed upon for us by . The underwriters are
being represented by in connection with this offering.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form
F-1 (including the exhibits, schedules and amendments to the
registration statement) under the Securities Act with respect to
the shares of our common stock offered by this prospectus. This
prospectus does not contain all the information set forth in the
registration statement. For further information with respect to us
and the shares of our common stock to be sold in this offering,
we refer you to the registration statement. Statements contained
in this prospectus as to the contents of any contract, agreement
or other documents to which we make reference are not necessarily
complete. In each instance, we refer you to the copy of such contract,
agreement or other document filed as an exhibit to the
registration statement.
We file annual, quarterly and current reports, and other information
with the SEC. Our filings with the SEC are available to the public on
the SEC's website at http://www.sec.gov. The information we file with
the SEC or contained on or accessible through our corporate web site
or any other web site that we may maintain is not part of this prospectus
or the registration statement of which this prospectus is a part. You may
read and copy this information at the Public Reference Room of the SEC
located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the operation of the Public
Reference Room. The SEC maintains an internet site that contains periodic
and current reports, information statements and other information
regarding issuers that file electronically with the SEC. The address of
the SEC's website is http://www.sec.gov.
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INFORMATION NOT REQUIRED IN A PROSPECTUS
Item 1 SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, the registrant has duly caused this registration
statement on Form F-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Ningbo,
China, on the March 6, 2024.
NINGBO ZHENGHE TRADE LIMITED
By: /s/
Name: JiJian You
Title: Chairman of Board of Directors and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
as amended, this registration statement has been signed by
the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
Title
Date
JiJian You
Chairman of Board of Directors and Chief Executive Officer
March 6, 2024.
Yahoo Xu
Vice Chairman of the Board and General Manager
March 6, 2024.
Ye Wang
President, General Manager and Director
March 6, 2024.
Ms Lai
Chief Operating Officer and Director
March 6, 2024.
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