This registration statement contains a prospectus to be used in connection with the secondary public offering of 10,000,000 of the registrant’s common shares (the “SPO Prospectus”). In addition, the registrant is registering on this registration statement the resale of up to 10,986,204 common shares (the “Registrable Securities”) held by selling shareholders. Consequently, this
registration statement contains a second prospectus to cover these possible resales (the “Resale Prospectus”) by certain of the registrant’s stockholders named under the Resale Prospectus (the “selling shareholders”). The SPO Prospectus and the Resale Prospectus are substantively identical, except for the following principal points:
The registrant has included in this Registration Statement, after the financial statements, alternate pages to reflect the foregoing differences.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements which relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors,” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. In addition, the management’s assumptions about future events may prove to be inaccurate. All readers are cautioned that the forward-looking statements contained in this prospectus and in the documents incorporated by reference into this prospectus are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or that the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors described in “Risk Factors” included elsewhere in this prospectus and in the documents that we include in or incorporate by reference into this prospectus, including our Form 10-K/T for the transition period from May 1, 2019 to December 31, 2019, and our subsequent Commission filings. All forward-looking statements speak only as of the date they are made. We do not intend to update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
PROSPECTUS SUMMARY
As used in this prospectus, references to the “Company,” “we,” “our”, “us” or “Vivic” refer to Vivic Corp. unless the context otherwise indicates. The following summary highlights selected information contained in this prospectus. Before making an investment decision, you should read the entire prospectus carefully, including the “Risk Factors” on page 25 to 40 and “Financial Statements”. All dollar amounts refer to US dollars unless otherwise indicated.
Corporate Information
The Company’s executive office is located at No. 19, Jianping 3rd St., An-Ping District., Tainan City 708, Taiwan and its telephone number is 886-6-2995233. The Company’s registered office is located at 187 E. Warm Springs Rd., Suite B450 Las Vegas, NV. 89119. Its telephone number is 702-899-0818 and its website is www.vivic.biz. Information contained on or accessed through our website is not intended to constitute and shall not be deemed to constitute part of this Prospectus.
Business Overview
We were incorporated on February 16, 2017 in the State of Nevada. In addition to the US administrative office, the company currently has several offices with 30 full-time employees located in Taiwan, China, and Hong Kong. We were initially a travel agency that organized individual and group tours in the Dominican Republic, such as cultural, recreational, sport, business, ecotours and other travel tours.
We acquired Guangzhou Monte Fino Yacht Co., Ltd, a Chinese limited liability company, in October 2019 to carry out business operations in China. Guangzhou Monte Fino Yacht Co., Ltd later changed its name to Vivic Guangdong Corporation Limited.(“ Vivic Guangdong”). Khashing Guangdong has been our major business operating entity in China. It holds an exclusive license to use Kha Shing Enterprise Company’s brand name “Monte Fino” in China.
On January 3, 2021, the Company entered into a Joint Venture and Cooperation Agreement to invest in Shenzhen Ocean Way Yachts Services Co., Ltd (“Ocean Way”). During the year ended December 31, 2021, we have invested a total amount of $122,665 (RMB 780,000). Ocean Way is a medial company which edits a yachts magazine and holds accounts in main media platforms such as Weibo. However, to concentrate on yachts manufacturing and sales, on March 27, 2022, we sold the investment in Ocean Way to a third party.
On May 11, 2021, our subsidiary namely Guangzhou Khashing Yacht Company Limited ceased its operation and de-registered.
On June 23, 2021, our subsidiary namely Vivic Corporation (Fujian) Co., Limited ceased its operation and de-registered.
On June 24, 2021, our subsidiary namely Khashing Yachts Industry Development (Hainan) Co. Ltd ceased its operations and de-registered.
On September 23, 2021, we acquired an additional 25% of Vivic Corporation (Hong Kong) Co., Limited. As a result, Vivic Corporation (Hong Kong) Co., Limited becomes a wholly-owned subsidiary.
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In addition to the yacht and marina business operations beginning in August 2020, we developed our yacht and boat prototypes, especially all-electric boats which use clean energy for power, in partnership with KhaShing Enterprise Co., the leading yacht and boat manufacturing company in Taiwan.
Regarding our consulting services, we help customers find the best values and purchase products such as yachts by acting as an intermediary for their purchase and sales transactions. We also help customers obtain patents, implement product launch plans, and evaluate products. Through our assistance, some customers have sold yachts with satisfactory experiences, while others have started marina development plans in Taiwan and China.
Before the acquisition of Vivic Guangdong Corporation Limited. (formerly known as Guangzhou Monte Fino Yacht Company Limited (“MF”) by Vivic, MF had already approached local governments in Quanzhou, Chongwu and Shanwei for licenses to develop marinas in the area. As a result, after the merger, the company continued to apply for marinas and land use under the name of Vivic Corp.
We currently carry out the following business operations mainly in China and we provide some consulting services in Taiwan:
(1)
Development and operation of yacht marina. We have leased and operated a yacht marina in Wenzhou, China.
(2)
We developed and operated an online platform “Joy Wave” to provide yacht rental and time-share services in China.
(3)
We provided consulting services to other yacht marina operators related to the planning, marketing and operating of yacht marinas
(4)
Research and development of all-electric boats.
Organization & Subsidiaries
The following table sets forth our relationship with our subsidiaries whose financial statements are consolidated.
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Name of Entity
| Relationship to Us
| Nature of Business
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Vivic Corp.
| N.A.
| Holding Company
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Vivic Corp. Taiwan Branch, a Taiwan company
| 100% owned by us
| Branch Office
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Vivic Corporate (Hong Kong) Co., Limited (“Vivic HK”), a Hong Kong company
| 100% owned by us
| Holding Company
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Vivic Guangdong Corporation Limited.(“Vivic Guangdong”), a China company
| 100% owned by us
| Operates tourism, yacht rental service and Joywave online platform
|
Guangzhou Hysoul Yacht Company Limited (“GZ Hysoul”), a China company
| 100% owned by Khashing Yachts
| Operates tourism business, Yacht rental service and operates online Joywave platform.
|
Wenzhou Jiaxu Yacht Company Limited
| 100% owned by Khashing Yachts
| Operates tourism business and yacht rental service
|
Vivic Guangdong Corporation Limited. Limited, QingDao branch
| 100% owned by Khashing Yachts
| Operates ship leasing and ship sales
|
The following chart shows our corporate structure as of the date of this prospectus:
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Development and Operations of Yacht Marinas
Development and operations of yacht marinas in China is our main business goal. On November 30, 2020, our China subsidiary Vivic Guangdong entered into a contract with Wenzhou Yangfushan Marina to lease and operate Wenzhou Yangfushan Yacht Marina. Under this agreement, we leased Wenzhou Yangfushan Marina from its landowner and developer for a term of 5 years. We will assume the full management and operation of this yacht marina and receive all the revenues generated from it. Under the contract, we shall pay to the landowner and the developer a fixed annual lease fee and some percentage of the operating revenues. The services we provided at this marina include yacht chartering, wedding photography, marina advertising, sailing events, yacht training, yacht sales, electric boat bases, etc. At the same time, a membership system will be adopted so that members can enjoy various membership benefits.
Our marina operations began in 2021 and its business includes yacht chartering, wedding photography, marina advertising, sailing events, yacht training, yacht sales, electric boat bases, etc. At the same time, a membership system was adopted at the marina, and members can enjoy various services by joining the membership. The marina has 18 berths that can fit yachts up to 60 feet, and can provide temporary berths of 115 feet. At the same time, the marina also has a 2,100 square feet office space that can be used for management and sailing training. There is also 21,000 square feet space next to the marina that can be rented for events. However, due to Covid-19 pandemic, our Wenzhou Yangfushan marina has limited operations in 2021.
“Joy Wave” Online Platform
Through Khashing Guangdong, we developed and operate an internet platform named “Joy Wave”(享浪) to provide yacht time-share, rental and charter services. Yacht owners can add their yachts onto Joy Wave for rental while customers can use the platform to book yacht for creational purpose. We are still developing an app version for our “Joy Wave” platform. Joy Wave is an essential platform to support our marina development and operations business. The platform has been tested in Guangzhou, Xiamen, Wenzhou and Shenzhen, China. When the app version is available in the near future, we will promote to netizens with marketing and advertising campaigns.
Consulting Services
We provide consulting services to other developers and operators of marinas related to the planning, marketing and operating of yacht marinas. We assist marina operator clients to promote their products through marketing channels, help to build customer relationships and increase brand loyalty and awareness. We help clients to develop marketing plan and packaging procedure. We also help clients evaluate their business performance to effectively control their manpower and costs. Instead of paying on a percentage of the total transaction, our clients pay a fixed monthly fee for our service provided. We introduce clients to the internet platform and assist them with broadcasting their business to the platform. We use our experience and technology on the network platform to help our clients expand their customer base.
Our service includes following categories:
• Marketing Planning and Promotion: We assist marina operator clients to promote their products through marketing channels, help to build customer relationships and increase brand loyalty and awareness. We help clients to develop marketing plan and packaging procedure. We also help clients evaluate their business performance to effectively control their manpower and costs. Instead of paying on certain percentages of the total transaction values, our clients pay a fixed monthly fee for our service.
• Internet platform: We introduce clients to the internet platform and assist them with promoting their business on the platform. We use our experience and technology on the network platform to help our clients expand their customer base.
• Industry-University cooperation and joint research: Using customer feedback and industry data, we analyze possible future products and participate in professional technology and marina operations transfer through our joint R&D centers including marina developing, design and yacht manufacturing technology.
Our clients include marina-operating private companies and local governments planning to develop local marina business industry.
We have provided consulting services to Kinmen Marina in Taiwan. We utilized our experiences in marina design and operation to conduct preliminary planning through on-site surveys, and utilized our local connections to help the client develop and construct the Kinmen Marina.
Research and Development of All-Electric Boats
Starting August 2020, we started the research and development of all-electric boats. We have developed several prototypes and are still in the process of improving and testing the technology for commercial production. We expect that the boating industry will
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follow the electrification roadmap of the automotive industry by creating all-electric boats that meet or exceed the traditional boating consumer’s expectations of price, value and run times. In other words, all-electric boats must offer a similar recreation experience when compared to traditional fuel-powered boat in terms of size, capability and price point. Since we expedited our electric boat R&D in the past months, we anticipated that our all-electric boat commercialization will realize in the second half of 2022. But we cannot guarantee you that we may progress or the commercialization of all-electric boats may develop as expected due to lack of funding and the impact of COVID-19 pandemic.,
Industry Overview
We carried out business operations mainly in Taiwan and China. Therefore, our yacht and boating industry overview primary covers Taiwan and Chinese markets.
Overview of Taiwan's yacht industry
Based on the information found in Chapter 7 Yachts in The Law of Ships by Taiwan Ministry of Transportation and Communications and Taiwan Shipbuilding Industry Association and Wikipedia, yacht manufacturing in Taiwan began from 1958 to the 1990s. It was started by the introduction of the US military in Taiwan and the combination of domestic sampan manufacturers. Later, foreign customers used yacht design drawings to find domestic manufacturers to accept orders and import glass fibers from abroad. Some manufacturers directly purchase design drawings from customers for mass production to reduce costs, and profits increased after the rapid growth of orders. Because domestic manufacturers only focused on OEM production in the industrial chain in the 1990s, the main market for yachts started shrinking. Yacht manufacturers have begun to diversify the market and seek technological upgrades, as well as to strengthen customization and increase added value. From 2000 to 2011, Taiwan’s yacht manufacturers began to conduct strategic alliances and improve the infrastructure of manufacturing engineering. This led to the development of larger markets such as customization and mega yachts. Those yachts include fiberglass yachts, luxury yachts, customized medium and large power yachts, and high-end custom sailing boats. The yachts range from 38 feet to 150 feet, and most of them are luxury yachts from 60 feet to 80 feet.
The standards of environmental protection have been increasing in recent decades. For example, The European Union and International Maritime Organization (“IMO”) has been implementing the new marine engine emission standards since 2008. The yachts with traditional diesel engines produce massive waste and lead to environmental pollution. Nowadays, the lithium battery with its clean energy is prevailing in the electric yachts industry. As they are eco-friendly, these liquified natural gas (“LNG”) yachts and electric yachts are the latest favorites in the market. Because electric yachts are made with zero-emission and low-noise level engines, they can easily meet energy-saving and emission control requirements. The trading volume of electric yachts increased tremendously in last decades. As yachts batteries and hybrid yachts become more advanced, the industry of electric yachts will continue its growth after 2020. We believe that eventually all-electric boats and yachts will completely replace their gasoline or diesel-powered counterparts, especially in the rivers, lakes, and coastal waters. The demand for the less polluting ships in Taiwan, China, South East Asia, and Europe are particularly high as there are millions of gas or diesel-powered ships in use in these regions and have caused severe pollution to their waters.
However, one issue should be borne in mind that electric yachts replacing traditional diesel yachts is a continuing process. Both should be co-existed for a long time, like the motor vehicle with new-energy engine and the traditional one.
There are ginormous potential markets for electric yachts in the Asian countries including Japan, Taiwan, PRC, and the Middle East countries. There are 400,000 yachts and skiffs in Japan and mostly are fishing boats. The skiffs are equipped with battery electric or hybrid module for efficiency. Further, the buyers of small-sized yachts are more price-conscious. Electric yachts will cut the costs down. Japan has more potentials in product update in the future. The Asian countries, like Taiwan and PRC, and the Middle East countries are emerging markets of yachts. They are the right places for launching new products. For our marketing strategy, new products are used for capturing the new market share and increasing the existing market share.
For yacht marketing activities, the size of exhibitions reveals the tremendous potential in the Asian markets. The yacht exhibition Singapore is the largest one in Asia. Only 11 yachts participated in the yacht exhibition Singapore 2011. Favorably, approximate 100 exhibitors joined the same in 2019, more than 80 yachts participated and attracted over 16,000 people entered into it. The number of yachts participated in this exhibition approximately 8 times increased from the one in 2011. This reflects high growth rate in the Asian yacht markets.
There are different needs from different Asian yacht markets. The high-GDP groups in Hong Kong and PRC become the potential growth markets for yacht industry. However, there is great divergence among the Asian and Western customers regarding the yacht specifications. Asian markets focus on the size instead of the number of functional areas of yachts. It is because they normally cruise with short-distance in day time but not long-distance at night. Therefore, there are a lot of works to be accomplished for developing the markets. Catamarans are popular in the Asian countries because they provide more spacious areas with stable navigation. They are also able to access to the shallow water for more fun.
In the research “Global Electric Boats, Small Submarines and Autonomous Underwater Vehicles (AUV) 2015-2024 – Forecasts, Players, Opportunities” from an international market research company, Research and Markets, it shows that the market of marine electric vehicles will rapidly grow due to the new capability, affordability and legislation banning or restricting internal combustion engines. The electric water craft will increase from $2.6 billion in 2013 to $7.3 billion in 2024 (quote from Research and Markets). It is approximate RMB 45.31 billion. The prospect in the electric boats is optimistic.
Overview of China's yacht industry
Yacht Manufacturing
According to the statistics in the "China Yacht Industry Development Summary Report" of Shanghai Shipbuilding Industry Association and China Shipbuilding Industry Association Boat Branch, China’s yacht industry started in the 1950s and experienced a slow development process for decades. The initial development of the yacht industry did not appear until the beginning of this century. Based on the development and construction of leisure (or household) yachts, the development of China's yacht industry is divided into the following four stages:
The first stage, the introduction of FRP technology, digestion, and absorption stage (late 1950s-60s).
The second stage is the stage of laying the technical foundation for OEM export of OEM processing (in the early 1980s-90s of the 20th century).
The third stage is the development stage of yacht manufacturing driven by market demand at home and abroad (from the late 1990s to 2008).
The fourth stage, the possible rise of opportunities caused by the financial turmoil (from 2008 to the present)
As of 2010, there were more than 370 yacht manufacturing companies in the mainland, and more than 30 companies with an output value of more than 10 million yuan. These companies are mainly concentrated in Shenzhen, Shanghai, Qingdao, Tianjin, Xiamen, Zhuhai and other cities. In 2017, Taiwan's export volume of mega yachts ranked first in Asia and fifth in the world. Exported 120 mega yachts with a total value of 200 million U.S. dollars. Taiwan has firmly established itself as a leader in the production of mega yachts in Asia. Because of this, many Chinese yacht manufacturers use Taiwan’s managers and designs.
According to the China's Yacht Industry Report 2016-2021 (DUBLIN, April 06, 2017 /PRNewswire), manufacturing costs of yachts is 20% to 30% lower in China than that in Europe or North American countries. The yacht market is expected to remain an annual growth rate of over 10% because of the increasing high-income earners and yacht registration policies in China in the next few years.
Yacht Sale
According to the statistics of the article "The current situation of China's yacht industry in 2019, changes in consumption concepts, and the prospects for yacht consumption" by Huajing Information Network (huaon.com), with the rapid economic development and the improvement of living standards, some coastal cities in China already have the economic conditions to consume yachts. As such, the development of the yacht industry is entering a golden age. In 2018, China’s yacht production reached 2010, of which the luxury yacht market sales were approximately RMB 5.11 billion, accounting for 44.6% of the entire yacht industry, with an average annual growth rate of more than 30%. In 2018, the total number of Chinese yachts reached 22,060, and it is estimated that by 2025, the total number of Chinese yachts will reach 163,510. According to customs data, China’s yacht exports in 2017 were US$258 million, an increase of 24.1%, and imports also increased by 24.1% year-on-year to US$218 million. In 2018, the import volume of Chinese yachts fell by 47% compared with the previous year, but the value of imports increased by 47% compared with the previous year. The unit price of imported yachts reached a record high, reaching 75,300 US dollars per yacht.
Marina and Yacht Club
In terms of yacht marinas and clubs, the yacht industry is highly emphasized by many local governments as an emerging industry and that they have high hopes for and regard its development as a benchmark for urban success. According to CCYIA statistics, China currently has 149 yacht clubs, 93 of which are registered with the National Maritime Safety Department. There are 12,000 berths and 2,700 open-air berths on the land. China has a total of 11,184 miles of coastline, 6,530 islands, 8,700 miles of island coastline, and many rivers and lakes. This provides vast natural resources for yacht development, and because southern China is not affected much by the seasonal climate, visitors are able to enjoy the unique geographical conditions the coast has to offer.
Competitive Strengths
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We face strong competition from well-established companies and small independent companies. We may be at a competitive disadvantage in obtaining the facilities, employees, financing, and other resources required to provide our services and products to customers. Our opportunity to obtain customers may be limited by our financial resources and other assets.
We believe we have the following competitive strengths. Some of our competitors may have these or other competitive strengths.
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| Advanced R&D and Design Capabilities. Our Operating Subsidiaries have currently been granted several patents, including invention patents, utility model patents, and design patents. The core team of our R&D department currently consists of three professionals who are in charge of yacht design, mechanical engineering, and shipbuilding engineering, respectively.
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| Strict Quality Control. Our Operating Subsidiaries pay great attention to the control of yacht quality and have established a comprehensive quality management system to strictly manage the purchase of raw materials and the production processes.
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| High Brand Recognition in the Industry and Commitment to Differentiated Services. In addition to affiliations with the renowned Kha Shing brand, our Operating Subsidiaries have registered a series of trademarks and created the independent brand of “VIVIC” through years of hard work in the field of recreational boating industry. Our Operating Subsidiaries provide our customers with individual design solutions and our diverse manufacturing technologies enable us to produce specialized and customized recreational boars according to their project needs.
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| High-Quality After-sales Maintenance and Market Development. Our Operating Subsidiaries have assigned dedicated personnel to be responsible for maintaining after-sales services in different regional markets.
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Experienced Management Team: Our management team members have many years of experiences in yacht and marina industry and their experiences allow us to grow our business more efficiently and swiftly.
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Strong Relationship with Kha Shing Enterprise Company., Kha Shing Enterprise Company is one of the leading yacht manufacturers in Taiwan and has high reputation in Taiwan, China and other countries. Having strong relationship with Kha Shing Enterprise allows us to be able to grow our business with the strong support from Kha Shing’s expertise and resources.
Transfers of Cash to and from Our Subsidiaries
Vivic Corp. is a holding company with no operations of its own. We conduct our operations in China primarily through our subsidiaries in China. We may depend on dividends to be paid by our PRC subsidiaries to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.
VIVic Corp. is permitted under the Nevada laws to provide funding to our subsidiaries in Taiwan, Hong Kong and PRC through loans or capital contributions without restrictions on the amount of the funds, subject to satisfaction of applicable government registration, approval and filing requirements. Vivic Corporate (Hong Kong) Co., Limited (“Vivic HK”) is also permitted under the laws of Hong Kong to provide funding to Vivic Corp. through dividend distribution without restrictions on the amount of the funds. As of the date of this prospectus, there has been no distribution of dividends or assets among the holding company or the subsidiaries. We currently do not have any cash management policies in place.
We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing instruments.
Subject to the Nevada Business Corporation Act and our bylaws, our board of directors may authorize and declare a dividend to shareholders at such time and of such an amount as they think fit if they are satisfied, on reasonable grounds, that immediately following the dividend the value of our assets will exceed our liabilities and we will be able to pay our debts as they become due. There is no further Nevada statutory restriction on the amount of funds which may be distributed by us by dividends.
Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us. The laws and regulations of the PRC do not currently have any material impact on transfer of cash from Vivic Corp. to Vivic HK or from Vivic HK to VIVic Corp. There are no restrictions or limitation under the laws of Hong Kong imposed on the conversion of HK dollar into foreign currencies and the remittance of currencies out of Hong Kong or across borders and to U.S investors.
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Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.
The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations, we may be unable to pay dividends on our common stock.
Cash dividends, if any, on our common stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10.0%.
In order for us to pay dividends to our shareholders, we will rely on payments made from our PRC subsidiaries to us. Certain payments from our PRC subsidiaries to us are subject to PRC taxes, including business taxes and VAT. As of the date of this prospectus, our PRC subsidiaries have not made any transfers or distributions.
Foreign Exchange Fund Transfer Regulations
China
According to the Foreign Investment Law of the People’s Republic of China and its implementing rules, which jointly established the legal framework for the administration of foreign-invested companies, a foreign investor may, in accordance with other applicable laws, freely transfer into or out of China its contributions, profits, capital earnings, income from asset disposal, intellectual property rights royalties acquired, compensation or indemnity legally obtained, and income from liquidation, made or derived within the territory of China in RMB or any foreign currency, and any entity or individual shall not illegally restrict such transfer in terms of the currency, amount and frequency. According to the Company Law of the People’s Republic of China and other Chinese laws and regulations, our PRC subsidiaries may pay dividends only out of their respective accumulated profits as determined in accordance with Chinese accounting standards and regulations. In addition, each of our PRC subsidiaries is required to set aside at least 10% of its accumulated after-tax profits, if any, each year to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Where the statutory reserve fund is insufficient to cover any loss the Chinese subsidiary incurred in the previous financial year, its current financial year’s accumulated after-tax profits shall first be used to cover the loss before any statutory reserve fund is drawn therefrom. Such statutory reserve funds and the accumulated after-tax profits that are used for covering the loss cannot be distributed to us as dividends. At their discretion, our PRC subsidiaries may allocate a portion of their after-tax profits based on Chinese accounting standards to a discretionary reserve fund.
Renminbi is not freely convertible into other currencies. As result, any restriction on currency exchange may limit the ability of our PRC subsidiaries to use their potential future renminbi incomes to pay dividends to us. The Chinese government imposes controls on the convertibility of renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. Shortages in availability of foreign currency may then restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to our offshore entities for our offshore entities to pay dividends or make other payments or otherwise to satisfy our foreign-currency-denominated obligations. The renminbi is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, without the need of the approval of the State Administration of Foreign Exchange of China (“SAFE”). By contrast, the renminbi under the “capital account,” which includes foreign direct investment and foreign currency debt, including loans we may secure for our onshore subsidiaries, may be converted into other currencies upon the approval of the SAFE and the conversion is also subject to other restrictions or limitations, e.g., control of a Chinese entity’s foreign debt quota. Currently, our PRC subsidiaries may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of the SAFE by complying with certain procedural requirements. However, the relevant Chinese governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. The Chinese government may continue to strengthen its capital controls, and additional restrictions and substantial vetting processes may be instituted by SAFE for cross-border transactions falling under both the current account and the capital account. Any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in renminbi to fund our business activities outside of China or pay dividends in foreign currencies to holders of our securities. Foreign
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exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant Chinese governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our subsidiaries.
Hong Kong
There are no restrictions or limitations under the laws of Hong Kong imposed on the conversion of HK dollar into foreign currencies and the remittance of currencies out of Hong Kong, nor is there any restriction on any foreign exchange to transfer cash between the Company and its subsidiaries, across borders and to investors outside of PRC, nor is there any restrictions and limitations to distribute earnings from the subsidiaries, to the Company and investors outside of PRC and amounts owed.
Taiwan
Regulations Relating to Foreign Exchange
Taiwan Foreign Exchange Control Law and regulations provide that all foreign exchange transactions must be executed by banks designated by Taiwan’s Financial Supervisory Commission and the Central Bank of the Republic of China (Taiwan) to engage in such transactions. Current regulations favor trade-related or service-related foreign exchange transactions. Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters, and all foreign currency needed for the importation of merchandise and services may be purchased freely from the designated foreign exchange banks.
Apart from trade-related or service-related foreign exchange transactions, Taiwan companies and individual residents reaching the age of 20 may, without foreign exchange approval, remit foreign currency of up to US$50 million (or its equivalent) and US$5 million (or its equivalent) to and from Taiwan (or such other amount as determined by the Central Bank of the Republic of China (Taiwan) from time to time at its discretion in consideration of Taiwan’s economic and financial conditions or the needs to maintain the order of foreign exchange market in Taiwan), respectively, in each calendar year. The above limits apply to remittances involving either a conversion of NTD into a foreign currency or a conversion of foreign currency into NTD. In addition, a requirement is also imposed on all enterprises to register medium- and long-term foreign debt with the Central Bank of the Republic of China (Taiwan).
Subject to specified requirements but without foreign exchange approval of the Central Bank of the Republic of China (Taiwan), foreign persons may remit to and from Taiwan foreign currencies of up to US$100,000 (or its equivalent) per remittance if the required documentation is provided to the authorities in Taiwan. The above limit applies to remittances involving either a conversion of NTD into a foreign currency or a conversion of foreign currency into NTD.
Regulations Relating to Dividend Distribution and Fund Transfer
Except under limited circumstances, a Taiwanese company will not be permitted to distribute dividends or make other distributions to shareholders in any given year in which it did not record net income or retained earnings (excluding reserves). The Taiwan Company Act requires that 10% of annual net income (less prior years’ losses, if any, and applicable income taxes) be set aside as a legal reserve until the accumulated legal reserve equals the paid-in capital of the company. The company will be permitted to make distributions to its shareholders in cash or in the form of common shares from legal reserves if it has no accumulated loss, provided that the distribution payable out of the company’s legal reserve can only come from the amount exceeding 25% of the total paid-in capital.
Enforceability of Judgment Against Our China-based Officers and Directors
Some of our directors and officers are located in China. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these individuals, or to bring an action against us or these individuals in the United States, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.
China has not entered into treaties or arrangements providing for the recognition and enforcement of judgments made by courts of most other jurisdictions. Any final judgment obtained against our directors or officers located in China in any court other than the courts of the PRC in connection with any legal suit or proceeding arising out of or relating to our securities will be enforced by the courts of the PRC in connection with any legal suit or proceeding arising out of or relating to our securities will be enforced by the courts of the PRC without further review of the merits only if the court of the PRC in which enforcement is sought is satisfied that:
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| the court rendering the judgment has jurisdiction over the subject matter according to the laws of the PRC;
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| the judgment and the court procedure resulting in the judgment are not contrary to the public order or good morals of the PRC;
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| if the judgment was rendered by default by the court rendering the judgment, our directors or officers were duly served within a reasonable period of time in accordance with the laws and regulations of the jurisdiction of the court or process was served on them with judicial assistance of the PRC; and
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| judgments at the courts of the PRC are recognized and enforceable in the court rendering the judgment on a reciprocal basis.
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Our PRC counsel, Liuhe (Wenzhou) Law Firm, has advised us that there is uncertainty as to whether PRC courts would:
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| recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or
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| entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.
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The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States that provides for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if it decides that the judgment violates the basic principles of PRC law or national sovereignty, security, or public interest. As a result, it is uncertain whether, and on what basis, a PRC court would enforce a judgment rendered by a court in the United States. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against a company in China for disputes if they can establish sufficient nexus to the PRC for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit. It will be, however, difficult for U.S. shareholders to originate actions against us in the PRC in accordance with PRC laws by virtue only of holding the common shares, to establish a connection to the PRC for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.
If you fail to establish the foregoing to the satisfaction of the courts in the PRC, you may not be able to enforce a judgment against our officers or directors rendered by a court in the United States.
Further, pursuant to the Civil Procedures Law of the PRC, any matter, including matters arising under U.S. federal securities laws, in relation to assets or personal relationships may be brought as an original action in China, only if the institution of such action satisfies the conditions specified in the Civil Procedures Law of the PRC. As a result of the conditions set forth in the Civil Procedures Law and the discretion of the PRC courts to determine whether the conditions are satisfied and whether to accept action for adjudication, there remains uncertainty as to whether an investor will be able to bring an original action in a PRC court based on U.S. federal securities laws. See also “Risk Factors - Risks Related to Doing Business in China - You may have difficulty effecting service of legal process, enforcing judgments or bringing actions against us and our management”.
Our Challenges and Risks.
We recommend that you consider carefully the risks discussed below and under the heading “Risk Factors” beginning on page 11 of this prospectus before purchasing our common shares. If any of these risks occur, our business, prospects, financial condition, liquidity, results of operations and ability to make distributions to our shareholders could be materially and adversely affected. In that case, the trading price of our common shares could decline and you could lose some or all of your investment. These risks include, among others, the following:
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The market in which we participate is intensely competitive, and we may not be able to compete successfully with our current or future competitors.
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We rely on contracts with the PRC and Taiwan government to use land. If the PRC or Taiwan revokes our land use rights, we would have no operational capabilities or ability to conduct our business.
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We are subject to PRC and Taiwan laws and regulations. Changes in the laws, regulations or current policies of the PRC and Taiwan could negatively affect our ability to conduct our business or eliminate certain tax-related benefits that we enjoy.
These and other risks are discussed more fully in the section of this Prospectus “Risk Factors” on page 25 to 40.
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
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We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our common shares held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period.
Intellectual Property and Patents
We expect to rely on, trade secrets, copyrights, know-how, trademarks, license agreements and contractual provisions to establish our intellectual property rights and protect our brand and services. These legal means, however, afford only limited protection and may not adequately protect our rights. Litigation may be necessary in the future to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. Litigation could result in substantial costs and diversion of resources and management attention.
We intend to seek the widest possible protection for significant product and process developments in our major markets through a combination of trade secrets, trademarks, copyrights, and patents, if applicable. We anticipate that the form of protection will vary depending upon the level of protection afforded by the particular jurisdiction.
We intend to register trademarks as a means of protecting the brand names of our companies and products. We intend protect our trademarks against infringement and seek to register design protection where appropriate.
We rely on trade secrets and unpatentable know-how that we seek to protect, in part, by confidentiality agreements. We expect that, where applicable, we will require our employees to execute confidentiality agreements upon the commencement of employment with us. We expect these agreements to provide that all confidential information developed or made known to the individual during the course of the individual's relationship with us is to be kept confidential and not disclosed to third parties except in specific limited circumstances. The agreements will also provide that all inventions conceived by the individual while rendering services to us shall be assigned to us as the exclusive property of our company. There can be no assurance, however, that all persons who we desire to sign such agreements will sign, or if they do, that these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets or unpatentable know-how will not otherwise become known or be independently developed by competitors.
We currently hold or submitted application for the following licensed patents:
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Khashing Yachts Industry (Gougdong) Limited holds the patent of product outlook design in China, number ZL 2021 3 064100.5 which was granted on February 15, 2022.
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Guangzhou Hysoul Yacht Company Limited holds the software intellectual property patent in China, number 2021SR1144816 which was granted on August 4, 2021.
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Guangzhou Hysoul Yacht Company Limited holds the software intellectual property patent in China, number 2021SR1145446 which was granted on August 4, 2021.
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Guangzhou Hysoul Yacht Company Limited holds the software intellectual property patent in China, number 2021SR1145445 which was granted on August 4, 2021.
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Guangzhou Hysoul Yacht Company Limited holds the software intellectual property patent in China, number 2021SR1149124 which was granted on August 4, 2021.
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Guangzhou Hysoul Yacht Company Limited holds the software intellectual property patent in China, number 2021SR1145444 which was granted on August 4, 2021.
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Guangzhou Hysoul Yacht Company Limited holds the software intellectual property patent in China, number 2021SR1144815 which was granted on August 4, 2021.
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Guangzhou Hysoul Yacht Company Limited holds the software intellectual property patent in China, number 2021SR1150088 which was granted on August 4, 2021.
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Guangzhou Hysoul Yacht Company Limited holds the software intellectual property patent in China, number 2021SR1149123 which was granted on August 4, 2021.
We currently hold or submitted application for the following trademarks:
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Vivic Corporation holds the trademark in China, number 37996389 which is registered on January 7, 2020 and valid until January 6, 2030.
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Guangzhou Hysoul Yacht Company Limited holds the trademark in China, number 43040712 which was registered on October 7, 2020 and valid until October 6, 2030.
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Guangzhou Hysoul Yacht Company Limited holds the trademark in China, number 43044195 which was registered on December 21, 2020 and valid until December 20, 2030.
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Guangzhou Hysoul Yacht Company Limited holds the trademark in China, number 43052680 which was registered on December 21, 2020 and valid until December 20, 2030.
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Guangzhou Hysoul Yacht Company Limited holds the trademark in China, number 43048081 which was registered on October 7, 2020 and valid until October 6, 2030.
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Guangzhou Hysoul Yacht Company Limited holds the trademark in China, number 43043622 which was registered on December 14, 2020 and valid until December 13, 2030.
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Vivic Corp. holds the trademark in Nevada, USA, Reference Number 16460524 on December 29, 2020 covering Class 35 and National Classes 100, 101 and 102.
Summary of Risks Affecting Our Company
Our business is subject to numerous risks described in the section titled “Risk Factors” and elsewhere in this prospectus. The main risks set forth below and others you should consider are discussed more fully in the section entitled “Risk Factors – Risks Related to Our Business,” “Risk Factors – Risk Related to Our Industry,” “Risk Factors – Risks Related to Doing Business in the PRC,” “Risk Factors – Risks Related to Doing Business in Taiwan,” and “Risk Factors- Risks Related to Ownership of Our Common Stock” which you should read in its entirety starting from page 18.
Risks Related to Conducting Operations in PRC
Currently, our business operations are mainly based in the PRC. Because of such ties to China, we may be subjected to the laws, rules and regulations of the PRC. For more detailed description of the below risks and other risks related to acquiring and operating business in China and Hong Kong, see “Risk Factors — Risks Related to Conducting Operations in PRC” beginning on page 20. These risks include, but are not limited to, the following:
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A downturn in the PRC or global economy, and economic and political policies of the PRC could materially and adversely affect our business and financial condition. For more detailed discussion of this risk, please refer to “Risks Factors – Risks Related to Doing Business in the PRC - A downturn in the PRC or global economy, and economic and political policies of the PRC could materially and adversely affect our business and financial condition” on page 20.
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Uncertainties with respect to the PRC legal system could adversely affect us. For more detailed discussion of this risk, please refer to “Risks Factors – Risks Related to Doing Business in the PRC - Uncertainties with respect to the PRC legal system could adversely affect us” on page 20.
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As our production and operations are currently conducted in the PRC, we are subject to certain legal and operational risks associated with our PRC operating subsidiaries. Changes in the policies, regulations, rules, and the enforcement of laws of the PRC government may be quick with little advance notice and could have a significant impact upon our ability to operate profitably in the PRC and the value of our securities. For more detailed discussion of this risk, please refer to “Risks Factors – Risks Related to Doing Business in the PRC - Changes in the policies, regulations, rules, and the enforcement of laws of the PRC government may be quick with little advance notice and could have a significant impact upon our ability to operate profitably in the PRC and may cause the value of our securities to significantly decline or be worthless” on page 20.
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The Chinese government may exercise significant oversight and discretion over the conduct of business in the PRC and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of our securities. We are currently not required to obtain any pre-approval or fulfill the filing and reporting obligation from or to Chinese authorities to list on U.S. exchanges; however, if we are required to obtain approval or fulfill the filing and reporting in the future and are 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. For more detailed discussion of this risk, please refer to “Risks Factors – Risks Related to Doing Business in the PRC - The Chinese government may exercise significant oversight and discretion over the conduct of business in the PRC and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of our securities. We are currently not required to obtain any pre-approval or fulfill the filing and reporting obligation from or to Chinese authorities to list on U.S. exchanges; however, if we are required to obtain approval or fulfill the filing and reporting in the future and are 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
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interest of the investors” on page 21.
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The Chinese government may intervene in or influence our business operations at any time or may exert more control over offerings conducted overseas and foreign investment in China based issuers, which could result in a material change in our business operations and significantly and adversely impact the value of our securities. 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. For more detailed discussion of this risk, please refer to “Risks Factors – Risks Related to Doing Business in the PRC - The Chinese government may intervene in or influence our business operations at any time or may exert more control over offerings conducted overseas and foreign investment in China based issuers, which could result in a material change in our business operations and significantly and adversely impact the value of our securities. 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” on page 22.
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Compliance with China’s new Data Security Law, Cybersecurity Review Measures, Personal Information Protection Law, regulations and guidelines relating to the multi-level protection scheme and any other future laws and regulations may entail significant expenses and could materially affect our business. For more detailed discussion of this risk, please refer to “Risks Factors – Risks Related to Doing Business in the PRC - Compliance with China’s new Data Security Law, Cybersecurity Review Measures, Personal Information Protection Law, regulations and guidelines relating to the multi-level protection scheme and any other future laws and regulations may entail significant expenses and could materially affect our business” on page 24.
Legal and Operational Risks Related to Operations in PRC
We conduct certain operations through our subsidiaries in PRC and we also have direct and indirect wholly-owned subsidiaries with some operations in the PRC, which may subject us to certain laws and regulations in the PRC. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulations and state ownership. Our ability to conduct business may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, property and other matters. Also, economic, political and legal developments in the PRC will affect our business, financial condition, results of operations and prospects. Policies, regulations, rules, and the enforcement of laws of the PRC government can have significant effects on economic conditions in the PRC and the ability of business to operate profitably. Our ability to operate profitably in the PRC may be adversely affected by changes in policies by the PRC government, including changes in laws, regulations or their interpretation, particularly those dealing with the Internet, including censorship and other restriction on material which can be transmitted over the Internet, security, intellectual property, money laundering, taxation and other laws that affect our ability to operate our business in China. As such, these may result in a material change in our operations and/or the value of the securities we are registering for sale or 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.
Regulatory Actions and Statements to Regulate Business Operations in PRC
We are aware that 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 VIE structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. Since these regulatory actions and statements 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 business operations in China, the ability to accept foreign investments and list on a U.S. or other foreign exchange. Although currently our business is not affected under these regulatory actions, however, if the legislative or administrative regulation making bodies change their focus to the sector which we operate in, it may impact our ability to conduct our business, accept foreign investments, or list on a U.S. or other foreign exchange. Any future action by the Chinese government expanding the categories of industries and companies whose foreign securities offerings are subject to government review could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and could cause the value of such securities to significantly decline or be worthless. For a detailed description of the risks related to doing business in the PRC and Taiwan, and the offering, see “Risks Related to Doing Business in the PRC” and “Risks Related to Doing Business in Taiwan” in the Risk Factors section.
The recent joint statement by the SEC and PCAOB, and the Holding Foreign Companies Accountable Act and the Accelerating 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. Trading in our securities may be prohibited under the Holding Foreign Companies Accountable Act and the Accelerating the Holding Foreign Companies Accountable Act if the PCAOB determines that it cannot inspect or investigate completely our
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auditor, and that as a result, an exchange may determine to delist our securities. Our auditor is based in the U.S. and is subject to PCAOB inspection. It is not subject to the determinations announced by the PCAOB on December 16, 2021. Due to the recent developments in connection with the implementation of the Holding Foreign Companies Accountable Act and the Accelerating the Holding Foreign Companies Accountable Act, we cannot assure you whether the SEC or other regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. The requirement in the HFCA Act that the PCAOB be permitted to inspect the issuer’s public accounting firm within two or three years, may result in the delisting of our securities from applicable trading markets in the U.S, in the future if the PCAOB is unable to inspect our accounting firm at such future time. Please see “Risk Factors- The Holding Foreign Companies Accountable Act requires the Public Company Accounting Oversight Board (PCAOB) to be permitted to inspect the issuer’s public accounting firm within three years. There are uncertainties under the PRC Securities Law relating to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S. securities regulatory agencies are unable to conduct such investigations, they may suspend or de-register our registration with the SEC and delist our securities from applicable trading market within the US.”
Proposed PRC Cybersecurity Measures
The amendment to the Cybersecurity Review Measures published by CAC on December 28, 2021, which has become effective on February 15, 2022 replaced the former Cybersecurity Review Measures. On November 14, 2021, the CAC released a draft of the Administrative Regulations on Network Data Security, or Draft Regulations, for public comments. The amended Cybersecurity Review Measures stipulate that, among other items, if an issuer is classified as a “network platform operator” and such issuer possesses personal information of more than one million users and intends to be listed on a securities exchange in a foreign country, it must complete a cybersecurity review. Alternatively, relevant governmental authorities in China may initiate a cybersecurity review if such governmental authorities determine an operator’s cyber products or services, data processing or potential listing in a foreign country affect or may affect national security. The Draft Regulations also stipulate that, among other items, for any listing to be done on a securities exchange in a foreign country involving a “data processing operator” with personal information of more than one million users, such “data processing operator” shall report to the CAC for a cybersecurity review. The Draft Regulations were released for public comment only, and the draft provisions and anticipated adoption or effective date are subject to changes and thus its interpretation and implementation remain substantially uncertain. We cannot predict the impact of the draft measures, if any, on the operations of our Company at this stage.
“Data processing operators” is defined under the Draft Regulations as “any individual or organization that autonomously determines the purpose and manner of the processing of network data” and “network platform operators” is not defined under the amended Cybersecurity Review Measures. While the exact scope of “network platform” and “data processing operators” remains unclear, the Chinese government authorities may have wide discretion in the interpretation and enforcement of these laws. Currently, the draft amended Cybersecurity Review Measures and the Draft Regulations have not materially affected our business and operations and we do not believe our business activities affect or may be interpreted to affect PRC’s national security. As of the date of this prospectus, we have not been informed by any relevant Chinese government authorities that we are identified as or considered a “network platform operator” or “data processing operator.” We are not aware of any requirement that we should file for a cybersecurity review, nor have we received any inquiry, notice, warning, sanction in such respect or any regulatory objections to this offering. However, in anticipation of the strengthened implementation of cybersecurity laws and regulations, there can be no assurance that we will not be deemed as a network platform operator or data processing operator under the Chinese cybersecurity laws and regulations in the future, or that the amended Cybersecurity Review Measures and the Draft Regulations will not be further amended or other laws or regulations will not be promulgated to subject us to the cybersecurity review or other compliance requirements. In such case, we may face challenges in addressing such enhanced regulatory requirements. For additional information, see “Risk Factors––Risks related to Our Business and Industry—Our failure to comply with data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results,” “Risk Factors — Risks Related to Conducting Operations in PRC —Compliance with China’s new Data Security Law, Cybersecurity Review Measures, Personal Information Protection Law, regulations and guidelines relating to the multi-level protection scheme and any other future laws and regulations may entail significant expenses and could materially affect our business,” and “Risk Factors — Risks Related to Doing Business in the PRC — The approval of the CSRC or other Chinese regulatory agencies may be required in connection with this offering under Chinese law.”
PRC Regulations on Tax
Enterprise Income Tax
The Enterprise Income Tax Law of the People’s Republic of China (the “EIT Law”) was promulgated by the Standing Committee of the National People’s Congress on March 16, 2007 and became effective on January 1, 2008, and was later amended on February 24, 2017. The Implementation Rules of the EIT Law (the “Implementation Rules”) were promulgated by the State Council on December 6, 2007 and became effective on January 1, 2008. According to the EIT Law and the Implementation Rules, enterprises
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are divided into resident enterprises and non-resident enterprises. Resident enterprises shall pay enterprise income tax on their incomes obtained in and outside the PRC at the rate of 25%. Non-resident enterprises setting up institutions in the PRC shall pay enterprise income tax on the incomes obtained by such institutions in and outside the PRC at the rate of 25%. Non-resident enterprises with no institutions in the PRC, and non-resident enterprises whose incomes having no substantial connection with their institutions in the PRC, shall pay enterprise income tax on their incomes obtained in the PRC at a reduced rate of 10%.
The Arrangement between the PRC and Hong Kong Special Administrative Region for the Avoidance of Double Taxation the Prevention of Fiscal Evasion with respect to Taxes on Income (the “Arrangement”) was promulgated by the State Administration of Taxation (“SAT”) on August 21, 2006 and came into effect on December 8, 2006. According to the Arrangement, a company incorporated in Hong Kong will be subject to withholding tax at the lower rate of 5% on dividends it receives from a company incorporated in the PRC if it holds a 25% interest or more in the PRC company. The Notice on the Understanding and Identification of the Beneficial Owners in the Tax Treaty (the “Notice”) was promulgated by SAT and became effective on October 27, 2009. According to the Notice, a beneficial ownership analysis will be used based on a substance-over-form principle to determine whether to grant tax treaty benefits.
In April 2009, the Ministry of Finance, or MOF, and SAT jointly issued the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business, or Circular 59. In December 2009, SAT issued the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or Circular 698. Both Circular 59 and Circular 698 became effective retroactively as of January 2008. In February 2011, SAT issued the Notice on Several Issues Regarding the Income Tax of Non-PRC Resident Enterprises, or SAT Circular 24, effective April 2011. By promulgating and implementing these circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise.
Under Circular 698, where a non-resident enterprise conducts an “indirect transfer” by transferring the equity interests of a PRC “resident enterprise” indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial purposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.
In February 2015, the SAT issued Circular 7 to replace the rules relating to indirect transfers in Circular 698. Circular 7 has introduced a new tax regime that is significantly different from that under Circular 698. Circular 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular 698 but also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, Circular 7 provides clearer criteria than Circular 698 on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. Circular 7 also brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.
On October 17, 2017, the SAT issued a Notice Concerning Withholding Income Tax of Non-Resident Enterprise, or SAT Notice No. 37, which abolishes Circular 698 and certain provisions of Circular 7. SAT Notice No. 37 reduces the burden of the withholding obligator, such as revocation of contract filing requirements and tax liquidation procedures, strengthens the cooperation of tax authorities in different places, and clarifies the calculation of tax payable and mechanism of foreign exchange.
Value-added Tax
Pursuant to the Provisional Regulations on Value-added Tax of the PRC, or the VAT Regulations, which were promulgated by the State Council on December 13, 1993, took effect on January 1, 1994, and were amended on November 10, 2008, February 6, 2016, and November 19, 2017, respectively, and the Rules for the Implementation of the Provisional Regulations on Value-added Tax of the PRC, which were promulgated by the MOF on December 25, 1993, and were amended on December 15, 2008, and October 28, 2011, respectively, entities and individuals that sell goods or labor services of processing, repair or replacement, sell services, intangible assets, or immovables, or import goods within the territory of the People’s Republic of China are taxpayers of value-added tax. The VAT rate is 17% for taxpayers selling goods, labor services, or tangible movable property leasing services or importing goods, except otherwise specified; 11% for taxpayers selling services of transportation, postal, basic telecommunications,
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construction, and lease of immovable, selling immovable, transferring land use rights, selling, and importing other specified goods including fertilizers; 6% for taxpayers selling services or intangible assets.
According to the Notice on the Adjustment to the Value-added Tax Rates issued by the SAT and the MOF on April 4, 2018, where taxpayers make VAT taxable sales or import goods, the applicable tax rates shall be adjusted from 17% to 16% and from 11% to 10%, respectively. Subsequently, the Notice on Policies for Deepening Reform of Value-added Tax was issued by the SAT, the MOF and the General Administration of Customs on March 30, 2019 and took effective on April 1, 2019, which further adjusted the applicable tax rate for taxpayers making VAT taxable sales or importing goods. The applicable tax rates shall be adjusted from 16% to 13% and from 10% to 9%, respectively.
Dividend Withholding Tax
The Enterprise Income Tax Law provides that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends declared to non-PRC resident investors that do not have an establishment or place of business in the PRC, or that have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC.
PRC Laws and Regulations on Employment and Social Welfare
Labor Law of the PRC
Pursuant to the Labor Law of the PRC, which was promulgated by the Standing Committee of the NPC on July 5, 1994 with an effective date of January 1, 1995 and was last amended on August 27, 2009 and the Labor Contract Law of the PRC, which was promulgated on June 29, 2007, became effective on January 1, 2008 and was last amended on December 28, 2012, with the amendments coming into effect on July 1, 2013, enterprises and institutions shall ensure the safety and hygiene of a workplace, strictly comply with applicable rules and standards on workplace safety and hygiene in China, and educate employees on such rules and standards. Furthermore, employers and employees shall enter into written employment contracts to establish their employment relationships. Employers are required to inform their employees about their job responsibilities, working conditions, occupational hazards, remuneration and other matters with which the employees may be concerned. Employers shall pay remuneration to employees on time and in full accordance with the commitments set forth in their employment contracts and with the relevant PRC laws and regulations. Our China subsidiaries currently comply with PRC laws and regulations.
Social Insurance and Housing Fund
Pursuant to the Social Insurance Law of the PRC, which was promulgated by the Standing Committee of the NPC on October 28, 2010 and became effective on July 1, 2011, employers in the PRC shall provide their employees with welfare schemes covering basic pension insurance, basic medical insurance, unemployment insurance, maternity insurance, and occupational injury insurance. Our Hong Kong subsidiary has not deposited the social insurance fees in full for all the employees in compliance with the relevant regulations. We may be ordered by the social security premium collection agency to make or supplement contributions within a stipulated period, and shall be subject to a late payment fine computed from the due date at the rate of 0.05% per day; where payment is not made within the stipulated period, the relevant administrative authorities shall impose a fine ranging from one to three times the amount of the amount in arrears. Our China subsidiaries have deposited the social insurance fees as required by relevant regulations.
In accordance with the Regulations on Management of Housing Provident Fund, which were promulgated by the State Council on April 3, 1999 and last amended on March 24, 2002, employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds. Employers and employees are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary of the employee in the preceding year in full and on time. Our subsidiaries have not registered at the designated administrative centers nor opened bank accounts for depositing employees’ housing funds. They also have not deposited employees’ housing funds. Our subsidiaries may be ordered by the housing provident fund management center to complete the registration formalities, open bank accounts, make the payment and deposit within a prescribed time limit if they become subject to PRC laws. Failing to register or open bank accounts at the expiration of the time limit could result in fines of not less than 10,000 yuan nor more than 50,000 yuan. And an application may be made to a people’s court for compulsory enforcement if payment and deposit has not been made after the expiration of the time limit.
PRC Regulations Relating to Foreign Exchange
General Administration of Foreign Exchange
The principal regulation governing foreign currency exchange in the PRC is the Administrative Regulations of the PRC on Foreign Exchange (the “Foreign Exchange Regulations”), which were promulgated on January 29, 1996, became effective on April 1, 1996 and were last amended on August 5, 2008. Under these rules, Renminbi is generally freely convertible for payments of current
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account items, such as trade- and service-related foreign exchange transactions and dividend payments, but not freely convertible for capital account items, such as capital transfer, direct investment, investment in securities, derivative products or loans unless prior approval by competent authorities for the administration of foreign exchange is obtained. Under the Foreign Exchange Regulations, foreign-invested enterprises in the PRC may purchase foreign exchange without the approval of SAFE to pay dividends by providing certain evidentiary documents, including board resolutions, tax certificates, or for trade- and services-related foreign exchange transactions, by providing commercial documents evidencing such transactions.
Circular No. 37 and Circular No. 13
Circular 37 was released by SAFE on July 4, 2014 and abolished Circular 75 which had been in effect since November 1, 2005. Pursuant to Circular 37, a PRC resident should apply to SAFE for foreign exchange registration of overseas investments before it makes any capital contribution to a special purpose vehicle, or SPV, using his or her legitimate domestic or offshore assets or interests. SPVs are offshore enterprises directly established or indirectly controlled by domestic residents for the purpose of investment and financing by utilizing domestic or offshore assets or interests they legally hold. Following any significant change in a registered offshore SPV, such as capital increase, reduction, equity transfer or swap, consolidation or division involving domestic resident individuals, the domestic individuals shall amend the registration with SAFE. Where an SPV intends to repatriate funds raised after completion of offshore financing to the PRC, it shall comply with relevant PRC regulations on foreign investment and foreign debt management. A foreign-invested enterprise established through return investment shall complete relevant foreign exchange registration formalities in accordance with the prevailing foreign exchange administration regulations on foreign direct investment and truthfully disclose information on the actual controller of its shareholders.
If any shareholder who is a PRC resident (as determined by the Circular No. 37) holds any interest in an offshore SPV and fails to fulfil the required foreign exchange registration with the local SAFE branches, the PRC subsidiaries of that offshore SPV may be prohibited from distributing their profits and dividends to their offshore parent company or from carrying out other subsequent cross-border foreign exchange activities. The offshore SPV may also be restricted in its ability to contribute additional capital to its PRC subsidiaries. Where a domestic resident fails to complete relevant foreign exchange registration as required, fails to truthfully disclose information on the actual controller of the enterprise involved in the return investment or otherwise makes false statements, the foreign exchange control authority may order them to take remedial actions, issue a warning, and impose a fine of less than RMB 300,000 on an institution or less than RMB 50,000 on an individual.
Circular 13 was issued by SAFE on February 13, 2015, and became effective on June 1, 2015. Pursuant to Circular 13, a domestic resident who makes a capital contribution to an SPV using his or her legitimate domestic or offshore assets or interests is no longer required to apply to SAFE for foreign exchange registration of his or her overseas investments. Instead, he or she shall register with a bank in the place where the assets or interests of the domestic enterprise in which he or she has interests are located if the domestic resident individually seeks to make a capital contribution to the SPV using his or her legitimate domestic assets or interests; or he or she shall register with a local bank at his or her permanent residence if the domestic resident individually seeks to make a capital contribution to the SPV using his or her legitimate offshore assets or interests.
We cannot assure that our PRC beneficial shareholders have completed registrations in accordance with Circular 37.
Circular 19 and Circular 16
Circular 19 was promulgated by SAFE on March 30, 2015, and became effective on June 1, 2015. According to Circular 19, the foreign exchange capital in the capital account of foreign-invested enterprises, meaning the monetary contribution confirmed by the foreign exchange authorities or the monetary contribution registered for account entry through banks, shall be granted the benefits of Discretional Foreign Exchange Settlement (“Discretional Foreign Exchange Settlement”). With Discretional Foreign Exchange Settlement, foreign capital in the capital account of a foreign-invested enterprise for which the rights and interests of monetary contribution have been confirmed by the local foreign exchange bureau, or for which book-entry registration of monetary contribution has been completed by the bank, can be settled at the bank based on the actual operational needs of the foreign-invested enterprise. The allowed Discretional Foreign Exchange Settlement percentage of the foreign capital of a foreign-invested enterprise has been temporarily set to be 100%. The Renminbi converted from the foreign capital will be kept in a designated account and if a foreign-invested enterprise needs to make any further payment from such account, it will still need to provide supporting documents and to complete the review process with its bank.
Furthermore, Circular 19 stipulates that foreign-invested enterprises shall make bona fide use of their capital for their own needs within their business scopes. The capital of a foreign-invested enterprise and the Renminbi it obtained from foreign exchange settlement shall not be used for the following purposes:
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| directly or indirectly used for expenses beyond its business scope or prohibited by relevant laws or regulations;
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| directly or indirectly used for investment in securities unless otherwise provided by relevant laws or regulations;
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| directly or indirectly used for entrusted loan in Renminbi (unless within its permitted scope of business), repayment of inter-company loans (including advances by a third party) or repayment of bank loans in Renminbi that have been sub-lent to a third party; or
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| directly or indirectly used for expenses related to the purchase of real estate that is not for self-use (except for foreign-invested real estate enterprises).
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Circular 16 was issued by SAFE on June 9, 2016. Pursuant to Circular 16, enterprises registered in the PRC may also convert their foreign debts from foreign currency to Renminbi on a self-discretionary basis. Circular 16 provides an integrated standard for conversion of foreign exchange capital items (including but not limited to foreign currency capital and foreign debts) on a self-discretionary basis applicable to all enterprises registered in the PRC. Circular 16 reiterates the principle that an enterprise’s Renminbi capital converted from foreign currency-denominated capital may not be directly or indirectly used for purposes beyond its business scope or purposes prohibited by PRC laws or regulations, and such converted Renminbi capital shall not be provided as loans to non-affiliated entities.
Our PRC subsidiaries’ distributions to their offshore parents are required to comply with the requirements as described above.
PRC Share Option Rules
Under the Administration Measures on Individual Foreign Exchange Control issued by the PBOC on December 25, 2006, all foreign exchange matters involved in employee share ownership plans and share option plans in which PRC citizens participate require approval from SAFE or its authorized branch. Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. In addition, under the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Share Incentive Plans of Overseas Publicly-Listed Companies, or the Share Option Rules, issued by SAFE on February 15, 2012, PRC residents who are granted shares or share options by companies listed on overseas stock exchanges under share incentive plans are required to (i) register with SAFE or its local branches, (ii) retain a qualified PRC agent, which may be a PRC subsidiary of the overseas listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the share incentive plans on behalf of the participants, and (iii) retain an overseas institution to handle matters in connection with their exercise of share options, purchase and sale of shares or interests and funds transfers.
PRC Regulation of Dividend Distributions
The principal laws, rules and regulations governing dividend distributions by foreign-invested enterprises in the PRC are the Company Law of the PRC, as amended, the Wholly Foreign-owned Enterprise Law and its implementation regulations, the Chinese-foreign Cooperative Joint Venture Law and its implementation regulations, and the Chinese-foreign Equity Joint Venture Law and its implementation regulations. Under these laws, rules and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set aside a general reserve of at least 10% of their after-tax profit, until the cumulative amount of such reserve reaches 50% of their registered capital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
Corporate Control
We have adopted a share structure consisting of common shares and Preferred Shares. In respect of matters requiring the votes of shareholders, each common share is entitled to one vote and each Preferred Share is entitled to fifty (50) votes. Each Preferred Shares may be converted into ten (10) common shares by its holder.
We have authorized 5,000,000 Preferred Shares and Honetech Inc, a Samoa company, beneficially owns all of the 832,200 issued and outstanding Preferred Shares. Mr. Yun-Kuang Kung through the appointment by Honetech Inc, exercise the voting power of these preferred stock. Therefore, Honetech Inc and Yun-Kuang Kung both control 41,600,000 votes, which constitute approximately 54.7% of the aggregate voting power of the Company assuming we are able to successfully sell all the 10,000,000 shares registered in this Prospectus.
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THE OFFERING
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Securities offered by us:
| 10,000,000 shares of our common stock, par value $ 0.001 per share. (1)
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Offering price:
| $1.00
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Duration of offering:
| 12 months
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Net proceeds to us:
| $10,000,000 assuming the maximum number of shares sold. Such $10,000,000 in net proceeds does not account for the offering expenses in this offering. We estimate that we will bear offering expenses of 1%of gross proceeds. For further information on the Use of Proceeds, see page 40.
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Market for the common shares:
| Our common stock is already traded on the OTCQB market or the OTC markets. There is no assurance that a trading market will develop, or, if developed, that it will be sustained. Consequently, a purchaser of our common stock may find it difficult to resell the securities offered herein should the purchaser desire to do so when eligible for public resale.
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Shares outstanding prior to offering:
| 25,546,810
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Shares outstanding after offering:
| 35,546,810 (assuming all 10,000,000 shares are sold)
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Transfer Agent
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Dynamic Stock Transfer, Inc.
14542 Ventura Blvd., Suite 205
Sherman Oaks, CA 91403
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Risk Factors:
| The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” on page 25 to 40.
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(1) We are also concurrently registering for resale under a separate prospectus up to 10,986,204 common shares held by the selling shareholders named under the prospectus. None of the shares is being offered by us and we will not receive any proceeds from the sales.
(2) You should be aware that our share price on OTC Market quotations reflect inter-dealer prices only, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
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