As filed with the U.S. Securities and Exchange Commission on April 21, 2017

Registration No. 333-          

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

JAKROO INC.

(Exact name of registrant as specified in its charter)

 

Nevada   3949   81-1565811

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

 

5906 Stoneridge Mall Road

Pleasanton, CA 94588

800-485-7067

 (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Mr. Weidong (Wayne) Du

Chief Executive Officer

5906 Stoneridge Mall Road

Pleasanton, CA 94588

800-485-7067

(Name, address including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Richard I. Anslow, Esq.

Lawrence A. Rosenbloom, Esq.

Ellenoff Grossman & Schole LLP

1345 Avenue of Americas, 11th Floor

New York, NY 10105

Tel: 212-370-1300

Fax: 212-370-7889

 

APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: From time to time after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer
         
Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company
         
      Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act . ☐

 

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities 

to be registered

 

Amount to be

registered(1)

   

Proposed

maximum

offering

price per

share

   

Proposed

maximum

aggregate

offering

price

   

Amount of

registration fee

 
common stock, par value $0.001 per share, offered by certain selling stockholders     569,550 shares (3)   $ 0.67 (2)     381,599     $ 45 .00  

 

(1) Pursuant to Rule 416 of the Securities Act of 1933, as amended (the “Securities Act”), also registered hereby are such additional and indeterminable number of shares of common stock of the registrant as may be issuable due to adjustments for changes resulting from stock dividends, stock splits and similar changes.

 

(2) Estimated pursuant to Rule 457 under the Securities Act solely for the purpose of calculating the amount of the registration fee, based on the purchase price of the registrant’s common stock sold in a private placement which closed on January 24, 2017. Currently, there is no trading market for the registrant’s common stock.  

 

(3) The 569,550 shares of common stock are being registered for resale (the “Registered Shares”) by certain selling stockholders named in this registration statement. The Registered Shares were issued by the registrant (i) in connection with the sale of 488,960 shares of common stock to London Financial Group Ltd. at an offering price of $0.4908 per share; and (ii) in connection with a private placement of 80,590 shares of our common stock at an offering price of $0.66 per share.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a) may determine.

 

 

 

 

 

 

The information in this prospectus is not complete and may be changed.  We may not sell these securities until the registration statement filed with the Securities and Exchange Commission (“SEC”) is effective.  This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Preliminary Prospectus

Subject to Completion, dated April 21, 2017

 

 

 

569,550 Shares

Common Stock

 

This prospectus relates to the sale of up to a total of 569,550 shares of common stock, par value $0.001 per share, of Jakroo Inc., a Nevada corporation, that may be sold from time to time by the selling stockholders named in this prospectus and their successors and assigns.  The shares of common stock subject to this prospectus were issued to the selling stockholders (i) in connection with the sale of 488,960 shares of our common stock to London Financial Group Ltd. as described in this prospectus; and (ii) in connection with a private placement of 80,590 shares of our common stock which closed on January 24, 2017.

 

Our common stock is not presently traded on any market or securities exchange, and we have not applied for listing or quotation on any exchange. We intend to seek sponsorship for the quotation of our common stock on the OTCQX Markets operated by OTC Markets Group, Inc. (which we refer to herein collectively as the OTC Market), which if approved would only occur following the effectiveness of the registration statement of which this prospectus forms a part. The 569,550 shares of common stock registered hereby can be sold by selling stockholders at a fixed price of $0.67 per share until our shares are quoted on the OTC Market and thereafter at prevailing market prices or privately negotiated prices. There can be no assurance that a market maker will agree to file the necessary documents with the Financial Industry Regulatory Authority (referred to herein as FINRA), nor can we provide assurance that our shares will actually be quoted on the OTC Market or, if quoted, that a viable public market will materialize or be sustained.  

 

Information regarding the selling stockholders and the time and manner in which they may offer and sell the shares under this prospectus is provided under “Selling Stockholders” and “Plan of Distribution” in this prospectus.  We have agreed to pay all the costs and expenses of this registration. We will not receive any proceeds from the sale of shares by the selling stockholders.

 

We are an “emerging growth company” under the federal securities laws and are subject to reduced public company reporting requirements.

 

An investment in our securities is highly speculative, involves a high degree of risk and should be considered only by persons who can afford the loss of their entire investment.  See “Risk Factors” beginning on page 8 of this prospectus.

 

Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus.  Any representation to the contrary is a criminal offense.

 

The date of this prospectus is            , 2017.  

 

TABLE OF CONTENTS  

 

TABLE OF CONTENTS

 

  Page
  Number
   
About This Prospectus ii
Prospectus Summary 1
Risk Factors 8
Cautionary Note Regarding Forward-Looking Statements 31
Use of Proceeds 32
Determination of Offering Price 32
Management’s Discussion and Analysis of Financial Conditions and Results of Operations 33
Business 40
Management 53
Executive Compensation 50
Certain Relationships and Related Transactions 52
Security Ownership of Certain Beneficial Owners and Management 53
Description of Securities 54
Selling Stockholders 55
Plan of Distribution 57
Market for Common Equity and Related Stockholder Matters 59
Legal Matters 60
Experts 60
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 60
Where You Can Find More Information 60
Financial Statements F-1

 

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ABOUT THIS PROSPECTUS

 

This prospectus is part of a registration statement we filed with the SEC.  You should rely only on the information provided in this prospectus and incorporated by reference in this prospectus.  We have not authorized anyone to provide you with information different from that contained in or incorporated by reference into this prospectus.  This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the common stock offered by this prospectus.  This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any common stock in any circumstances in which such offer or solicitation is unlawful.  The selling stockholders are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where such offers and sales are permitted.

 

Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus or that the information contained by reference to this prospectus is correct as of any time after such date.  The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock.  The rules of the SEC may require us to update this prospectus in the future.

 

MARKET AND INDUSTRY DATA AND FORECASTS

 

This prospectus includes estimates of market share and industry data and forecasts that we obtained from industry publications and surveys and/or internal company sources. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of such included information. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, while we believe our internal estimates with respect to our industry are reliable, our estimates have not been verified by any independent sources. Although we are not aware of any misstatements regarding any industry data presented in this prospectus, our estimates, in particular as they relate to market share and our general expectations, involve risks and uncertainties and are subject to change based on various factors, including those discussed under the section entitled “Risk Factors” beginning on page 8. Unless otherwise noted, all market share data is based on net sales in the applicable market.

 

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PROSPECTUS SUMMARY

 

This summary highlights certain information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including our financial statements and related notes, and especially the risks described under “Risk Factors” beginning at page 8. Readers are that our actual results and future events may differ significantly based upon a number of factors. The reader should not put undue reliance on the forward-looking statements in this document, which speak only as of the date on the cover of this prospectus.

 

All references to “we,” “us,” “our,” the “Company,” the “Registrant” or similar terms used in this prospectus refer to Jakroo Inc., a Nevada corporation (“Jakroo”), including its consolidated subsidiaries and variable interest entities (“VIE”), unless the context indicates otherwise. We conduct our business through our operating entities Rider Sportsfashion Limited (“Rider Beijing”), First Branch of Rider Sportsfashion Limited (“First Branch”), Dachang Branch of Rider Sportsfashion Limited (“Dachang Branch”), Rider Sportsfashion (Langfang) Limited (“Rider Langfang”), Rider Sportsfashion LLC (“Rider US”), Jakroo Canada Inc. (“Rider Canada”) and Jakroo GmbH (“Rider Austria”). Rider US, First Branch and Dachang Branch are wholly owned subsidiaries of Rider Beijing. Rider Canada and Rider Austria are wholly owned subsidiaries of Rider US. Rider Beijing is controlled by our wholly owned subsidiary Jakroo (Beijing) Sports Consulting Co. Ltd. (“WFOE”) via certain contractual arrangements.

 

As used herein, the terms “PRC” or “China” refers to the People’s Republic of China, excluding, for purposes of this prospectus, Taiwan, Hong Kong and Macau. “RMB” or “Renminbi” refers to the legal currency of China and “$,” “US$” or “U.S. Dollars” refers to the legal currency of the United States.

 

Our Business

 

We specialize in the design, manufacture and direct sale of customized technical endurance apparel for the cycling, triathlon, running and Nordic skiing markets across Asia, Europe and North America. Our made-to-order, just-in-time (“JIT”) process vertically integrates the design, sales and distribution of sporting apparel products.

 

Our global sporting apparel business is currently comprised of three core business units: inline retail, which consists of products produced and sold as part of a collection (“Inline Retail”), OEM contract manufacturing (“OEM”) and custom order retail (“Custom Order Retail”). Our Inline Retail, OEM and Customer Order Retail businesses for the year ended December 31, 2016 accounts for 21%, 12% and 67% of our sales revenue, respectively.

 

The two primary sales channels for our Inline Retail and Custom Order Retail businesses are direct sale and wholesale. Direct sale currently generates 75% of our worldwide sales revenues. Under the direct sale model, we sell our products directly to end users through our Jakroo e-commerce platform. The Jakroo platform allows customers to easily log into our platform, complete their design and place purchase orders. Wholesale currently represents 25% of our worldwide sales revenue. We act as both retailer and wholesalers of our products through our e-commerce platform and through large online retailers such as TMALL in China. Sales through both channels are executed with payments made to us online prior to production and shipment of products.

 

In order to target customers in major markets, we have set up sales offices in China, the United States, Canada and Austria that provide sales, marketing and customer service support to our regional markets. We currently lease a 64,000 square foot production facility located at the border of Beijing and Hebei Province in China. The facility has an annual capacity to produce 500,000 jerseys and manufactures all of our products. As of the date of this prospectus, we have approximately189 employees worldwide.

 

Our Strategy

 

Customer Acquisition

 

We acquire the majority of our customers online through Search Engine Marketing (SEM) and display marketing campaigns on Google, Bing and social media websites such as Facebook and Twitter. In China, comprehensive platforms such as WeChat, QQ and Weibo play an important role in our customer acquisition, engagement and social media commerce strategies. We plan to continue to invest in advertising and marketing on our website to strengthen brand awareness in key markets.

 

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Sponsorship of organized race events and charity rides has also played a key role in our customer acquisition, along with sponsorship of influential teams and athletes to establish brand credibility. We currently sponsor several large profile Gran Fondo cycling events and Triathlon events across Canada, California and Austria. We have also sponsored the Union Cycliste Internationale (“UCI”) Tour of Beijing and the UCI Tour of Hainan, both of which are high profile cycling events in China with international athlete participation and media exposure. As of January 2017, we became the exclusive race apparel sponsor of the UnitedHealthcare Pro Cycling Team, a U.S.-based pro-continental team with global recognition among the competitive cycling community. We will continue to seek sponsorship opportunities to expand our customer base and enhance brand recognition.

 

Lateral Expansion & Further Vertical Integration

 

We have experienced year over year profitable growth since 2011 and we plan to continue our international growth and expansion across Europe and the APAC regions through establishing subsidiaries and/or partnerships. Another aspect of our growth strategy is to pursue lateral expansion into related product or sport categories that can benefit from customization. Examples of such categories include apparel for high school and collegiate athletes, such as volleyball, soccer and wrestling teams. We also plan to continue investing in new product development while leveraging our self-design platform and streamlined production system to capture additional market share in these product categories.

 

Our Competitive Strengths

 

We believe the following competitive strengths provide us with a strong market position:

 

Lean Manufacturing & Vertical Integration . We own and operate all facets of our design, manufacturing and sales process. Unlike many of our competitors who rely on contract manufacturing, our direct ownership of our manufacturing facility allows us to tightly control production timelines, quality control and delivery. This vertical integration helps to improve each customer’s user experience and enhance our brand image.

 

Integrated Information Systems. Express by Jakroo, our comprehensive 3D design system, is one of the most advanced self-design platform in the industry. Express by Jakroo provides a rich user experience for our customers by allowing them to select the basic components of their designs while allowing our production team to improvise and improve back-end efficiencies during the design and manufacturing process. Our make-to-order production module further streamlines the item configuration process. With this system in place, we are able to capture and track all customer activity from the initial inbound lead through to product design and the final delivery of purchased products. This end-to-end product visibility allows us to quickly troubleshoot while enhancing efficiencies with raw material management, production scheduling and cost accounting.

 

Shortest Delivery Time in the Industry. Our average delivery time is between two to three weeks from the time we receive customers’ purchase orders, which is significantly shorter than the delivery time of our competitors, whose average delivery time is five to six weeks. Based on sales data from 2015, 88% of our U.S. customer orders were shipped within three weeks. In 2016, we implemented our advance production module which further reduces our delivery time to one to two weeks for orders of up to 24 pieces. Our advance production module positions us as the custom apparel company with the shortest delivery time in the industry.

 

Novel Design & Shopping Experience. With the use of proprietary and highly customized customer relationship management (CRM) and design applications, we are able to offer our customers two options for their design experience. Express by Jakroo, our proprietary do it yourself (DIY) application, allows customers to design on a 99% true to size 3D model. Designs created using Express by Jakroo are transferred directly to the production floor with minimal human interaction and the production process starts immediately upon placement of the purchase order.

 

Alternatively, customers can use our Pro Custom service which allows customers to experience the benefits of having a trained professional designer create each customer’s design according to specification. Customers are able to participate in the design editing process through an interactive online review and approval system. We offer this service free of charge and provide the designs to customers within 48 hours of submission of the design request.

 

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Global Presence. Most of our competitors in the endurance sports apparel market have limited geographic coverage. Many of the incumbent brands in the U.S. have minimal or no presence in the European or Asian markets. Very few Chinese domestic brands have any reasonable brand awareness in either Europe or North America. With an established presence in each of the key markets, Jakroo aims to provide superior localized support to our regional customers while simultaneously building brand loyalty.

 

Corporate History and Structure

 

Jakroo, Inc. is a holding company and we operate through several operating subsidiaries. We began our operations in March 2003 when Rider Sports Fashion Limited (“Rider Beijing”) was incorporated as one of the first Chinese companies to engage in cycling apparel development, production and sales. In 2006 and 2007, we formed two branches of Rider Beijing, First Branch of Rider Sports Fashion Limited and Garment Processing Branch of Rider Sportsfashion Limited (which has recently been replaced with Rider Sportsfashion (Langfang) Limited (“Rider Langfang”) following our opening of a new factory), with the primary function of handling domestic Chinese sales and product manufacturing, respectively. In 2008, we formed Rider Sports Fashion LLC in the United States (“Rider US”) and subsequently formed subsidiaries Jakroo Canada Inc. (“Rider Canada”) and Jakroo GmbH (“Rider Austria”) in 2014 and 2015 as part of our continued international expansion.

 

In October 2016, we formed our wholly owned subsidiary Jakroo (Beijing) Sports Consulting Co. Ltd. (“WFOE”), a wholly foreign owned entity incorporated under the laws of the PRC which is 100% owned by Jakroo Inc. Through the contractual arrangement WFOE has with Rider Beijing’s shareholders, we control Rider Beijing, Rider US, Rider Canada and Rider Austria. These contractual arrangements allow us to effectively control and derive all of the economic interest from all of our operating entities.

 

The following diagram illustrates our corporate structure, including our subsidiaries and consolidated affiliated entities, as of the date of this prospectus:

 

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Current Corporate Structure of Jakroo Inc.  

 

 

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Variable Interest Entity Arrangements  

 

In establishing our business, we have used a variable interest entity, or VIE, structure. In the PRC, investment activities by foreign investors are principally governed by the Guidance Catalog of Industries for Foreign Investment, or the Catalog, which was promulgated and is amended from time to time by the PRC Ministry of Commerce, or MOFCOM, and the PRC National Development and Reform Commission, or NDRC. The Catalog divides industries into three categories: encouraged, restricted and prohibited. Industries not listed in the Catalog are generally open to foreign investment unless specifically restricted by other PRC regulations. Jakroo and the WFOE are considered as foreign investors or foreign invested enterprises under PRC law. Although the provision of designing, manufacturing and direct sale services of customized technical endurance apparel for the cycling, triathlon, running and Nordic skiing markets, which we conduct through our VIE, is not within the category in which foreign investment is currently restricted or prohibited, we intend to centralize our management and operation in the PRC without being restricted to conduct certain business activities which are important for our current or future business but are restricted or might be restricted in the future, we believe the agreements between WFOE and Rider Beijing will be essential for our business operation. These contractual arrangements with Rider Beijing and its shareholders enable us to exercise effective control over Rider Beijing and hence consolidate its financial results as our VIE.

 

In our case, the WFOE effectively assumed management of the business activities of Rider Beijing through a series of agreements which are referred to as the VIE Agreements. Through the VIE Agreements, the WFOE has the right to appoint all executives, senior management and the members of the board of directors of Rider Beijing.  The VIE Agreements are comprised of a series of agreements, including an Equity Pledge Agreement, an Exclusive Technical Consulting and Service Agreement, a Business Operation Agreement, an Exclusive Call Option Agreement, and Powers of Attorney for each of Rider Beijing’s Shareholders. Through the VIE Agreements the WFOE has the right to advise, consult, manage and operate Rider Beijing for an annual consulting service fee in the amount of 90% of Rider Beijing’s operating revenue.  The Shareholders of Rider Beijing (the “Rider Beijing Shareholders”) have each pledged all of their right, title and equity interests in Rider Beijing as security for the WFOE to collect consulting services fees provided to Rider Beijing through the Equity Pledge Agreement.  In order to further reinforce the WFOE’s rights to control and operate Rider Beijing, the Rider Beijing Shareholders have granted the WFOE an exclusive right and option to acquire all of their equity interests in Rider Beijing through the Exclusive Call Option Agreement.

 

The VIE Agreements are detailed below as follows:

 

  Equity Pledge Agreement. The WFOE and the Rider Beijing Shareholders entered into the Equity Pledge Agreement, pursuant to which each shareholder pledges all of his or her shares in Rider Beijing to the WFOE in order to guarantee the performance of his or her obligations under the VIE Agreements. The Equity Pledge Agreement further entitles the WFOE to collect dividends from Rider Beijing during the term of the pledge.  The Equity Pledge Agreement ends when all contractual obligations under the VIE Agreements have been fully performed and all liabilities of Rider Beijing and the Rider Beijing Shareholders have been discharged. 

 

  Exclusive Technical Consulting and Service Agreement. Rider Beijing and the WFOE entered into an Exclusive Technical Consulting and Service Agreement, which provides that the WFOE will be the exclusive provider of technical consulting services to Rider Beijing, including but not limited to services related to the design, manufacture and sale of cycling apparel and other related customized endurance apparel products.  Rider Beijing will pay 90% of its total operating revenue to the WFOE for such services.  Any such payment from the Company to the WFOE would need to comply with applicable Chinese laws affecting payments from Chinese companies to non-Chinese companies.  See “Risk Factors – Risks Associated With Doing Business in China.”  The term of the Exclusive Technical Consulting and Service Agreement shall be 10 years unless terminated earlier.  

 

 

Exclusive Call Option Agreement . Pursuant to the Exclusive Call Option Agreement by and between the WFOE, Rider Beijing and each of the Rider Beijing Shareholders, Rider Beijing and the Rider Beijing Shareholders have granted the WFOE an exclusive option to acquire all assets of Rider Beijing and all of their equity interests in Rider Beijing. The WFOE has the absolute sole discretion to determine the specific time and method of exercising such options to the extent permitted under PRC law. The Exclusive Call Option Agreement terminates after all the assets and equity interests of Rider Beijing have been transferred pursuant to PRC law.

     
 

Business Operation Agreement. Pursuant to the Business Operations Agreement by and between the WFOE, Rider Beijing and each of the Rider Beijing Shareholders, the Rider Beijing Shareholders and Rider Beijing have agreed not to engage in any transactions that may have a material or adverse effect on the assets, businesses, employees, obligations, rights or operations of Rider Beijing without the WFOE’s prior consent.  The Rider Beijing Shareholders and Rider Beijing have also agreed to accept and implement any proposal made by the WFOE regarding the business management and employment matters of Rider Beijing. The term of the Business Operation Agreement is 10 years. The WFOE may terminate the Business Operation Agreement at any time upon prior written notice to Rider Beijing and the Rider Beijing Shareholders.

 

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Powers of Attorney. Each of the Rider Beijing Shareholders has entered into a power of attorney (the “Power of Attorney”) pursuant to which each of the Rider Beijing Shareholders authorizes the WFOE to act on his or her behalf as the exclusive agent and attorney with respect to all rights of such individual as a shareholder, including but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under PRC law and the Articles of Association of Rider Beijing, including but not limited to the sale or transfer or pledge or disposition of the equity interests of Rider Beijing owned by such shareholder; and (c) designating and appointing on behalf of the shareholders the legal representative, chairperson, director, supervisor, chief executive officer and other senior management members of Rider Beijing.

 

In the opinion of our PRC counsel, our current ownership structure, the ownership structure of our PRC subsidiary and our VIEs, and the contractual arrangements among our PRC subsidiary, our VIEs, and their shareholders are in compliance with existing PRC laws, rules and regulations. There are, however, substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Thus, we cannot assure you that we will be able to effectively enforce these contracts. Although we believe we are in compliance with current PRC regulations, we cannot assure you that the PRC government would agree that these contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that might be adopted in the future. PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the relevant government authorities have broad discretion in interpreting these laws and regulations. If the PRC government determines that we are not in compliance with applicable laws and regulations, it could revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, require us to restructure our operations, impose additional conditions or requirements with which we might not be able to comply, levy fines, confiscate our income or the income of our PRC subsidiary or affiliated PRC entities, or take other regulatory or enforcement actions against us that could be harmful to our business. The imposition of any of these penalties would result in an adverse effect on our ability to conduct our business. See "Risk Factors—Risks Relating to the Our Corporate Structure" and "Risk Factors—Risks Associated With Doing Business in China-Uncertainties with respect to the PRC legal system could have a material adverse effect on us."

 

Emerging Growth Company Status

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting and financial disclosure requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to: (1) presenting only two years of audited financial statements and only two years of the related management’s discussion and analysis of financial condition and results of operations in this prospectus, (2) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), (3) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and (4) exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of these exemptions. As a result, investors may find investing in our common stock less attractive as a result.

 

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. As a result, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We elected to opt out of such extended transition period and acknowledge such election is irrevocable pursuant to Section 107 of the JOBS Act.

 

We could remain an emerging growth company for up to five years or until the earliest of (1) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (2) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 months, or (3) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

 

Corporate Information

 

Our principal executive offices are located at 5906 Stoneridge Mall Road Road, Pleasanton CA 94588. Our telephone number at this address is 1-800-485-7067. Our agent for service of process in the United States is Corporation Service Company located at 2215 Renaissance Dr., Las Vegas, NV 89119. To make inquiries, investors should contact our principal executive offices at the address and telephone number listed above.

 

Our website is www.jakroo.com. The information contained on our website is not a part of this prospectus.

 

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THE OFFERING

 

Common Stock Outstanding before the Offering   10,269,550  shares
     
Common Stock Offered by Selling Stockholders  

Up to 569,550 shares of common stock held by the selling stockholders

     
Common Stock to be Outstanding After the Offering   10,269,550 shares
     
Use of proceeds   We will not receive any proceeds from the sale of the common stock offered hereby.  
     
Quotation of Common Stock   Our common stock is not presently quoted either over the counter or on a national exchange. We intend to seek sponsorship for the quotation of our common stock on the OTC Market, which if approved would only occur following the effectiveness of the registration statement of which this prospectus forms a part.
     
Rick Factors   An investment in our company is highly speculative and involves a significant degree of risk.   You should carefully consider the information set forth in this prospectus and, in particular, the specific factors set forth in the “Risk Factors” section beginning on page 8 of this prospectus before deciding whether or not to invest in shares of our common stock.

 

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RISK FACTORS

 

An investment in our common stock is highly speculative and involves a high degree of risk. You should carefully consider the following risk factors in evaluating our business before purchasing any shares of our common stock. No purchase of our common stock should be made by any person who is not in a position to lose the entire amount of his or her investment. The order of the following risk factors is presented arbitrarily. You should not conclude the significance of a risk factor based on the order of presentation. Our business and operations could be seriously harmed as a result of any of these risks.

 

Risks Related to Our Business

 

We are an early stage company with a limited operating history as a manufacturer and seller of sporting apparel products. Our limited operating history may not provide an adequate basis to judge our future prospects and results of operations.

 

We have a limited operating history. Our first operating subsidiary, Rider Sports Fashion Limited (“Rider Beijing”) was established in Beijing in March 2003 to engage in cycling apparel development, production and sales. In 2007, we established our manufacturing subsidiary, which currently manufactures all of our products. As part of our international expansion and in response to international customer demands, we established our U.S. subsidiary in 2008 and our subsidiaries in Canada and Austria in 2014 and 2015, respectively. Despite our continuous growth, we have limited experience and operating history in the sporting apparel industry. Our limited history may not provide a meaningful basis for investors to evaluate our business, financial performance and prospects.

 

Any disruption of our supply chain could have an adverse impact on our net sales and profitability.

 

We rely on third party suppliers for fabrics, accessories and printing paper and machines that are essential to our product manufacturing. We cannot predict when, or the extent to which, we will experience a disruption in our supply chain. Any such disruption could negatively impact our ability to market and sell our products and serve our customers, which could adversely impact our net sales and profitability.

 

Based on our past business practice, we place purchase orders or enter into short term agreements with our raw material suppliers. Without long term supply agreements, any of our current suppliers may discontinue selling to us at any time. Changes in the commercial practices or financial condition of any of our key suppliers could also negatively impact our results. If we lose one or more key suppliers and are unable to promptly find alternative suppliers who are willing and able to provide equally appealing raw materials or manufacturing machines at comparable prices, we may not be able to deliver quality products that satisfy the requirements of our customers.

 

We also are subject to risks, such as the price and availability of raw materials and fabrics, labor disputes, union organizing activity, strikes, inclement weather, natural disasters, war and terrorism and adverse general, economic and political conditions that might limit our suppliers’ ability to provide us with quality merchandise on a timely and cost-efficient basis. We may not be able to develop relationships with new suppliers, and materials from alternative sources, if any, may be of a lesser quality and more expensive than those we currently purchase. Any delay or failure in offering products to our customers could have a material adverse impact on our net sales and profitability.

 

Our operating results can be adversely affected by changes in the cost or availability of raw materials.

 

Pricing and availability of raw materials for use in our businesses can be volatile due to numerous factors beyond our control, including general, domestic and international economic conditions, labor costs, production levels, competition, consumer demand, import duties and tariffs and currency exchange rates. This volatility can significantly affect the availability and cost of raw materials for us, and may therefore have a material adverse effect on our business, results of operations and financial condition.

 

During periods of rising prices of raw materials, there can be no assurance that we will be able to pass any portion of such increases on to customers. Conversely, when raw material prices decline, customer demands for lower prices could result in lower sales prices and, to the extent we have existing inventory, lower margins. We currently do not hedge against our exposure to changing raw material prices. As a result, fluctuations in raw material prices could have a material adverse effect on our business, results of operations and financial condition.

 

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Supply shortages or changes in availability for any particular type of raw material can delay production or cause increases in the cost of manufacturing our products. We may be negatively affected by changes in availability and pricing of raw materials, which could negatively impact our results of operations.

 

Our sales may fluctuate and historical sales revenue may not be a meaningful indicator of future performance.

 

Our product sales may vary from quarter to quarter and year to year, and an unanticipated decline in net sales may cause the price of our common stock to fluctuate significantly. A number of factors have historically affected, and will continue to affect, our sales revenue, including:

 

  consumer preferences, buying trends and overall economic trends;

 

  our ability to identify and respond effectively to local and regional trends and customer preferences;

 

  our ability to provide quality customer service that will increase our conversion of shoppers into paying customers;

 

  competition in any of the regional markets we operate;

 

  changes in our product mix; and

 

  changes in pricing.

 

Our online retail custom order and inline retail segments are affected by general economic conditions in our markets and ongoing economic and financial uncertainties may cause a decline in consumer spending that may adversely affect our business, operations, liquidity, financial results and stock price.

 

Our customer order and internet retail segments are the core of our business, contributing to more than 80% of our sales revenue in fiscal year 2015. Both segments are retail-based and depend on consumer discretionary spending. As a result, we may be adversely affected if our customers reduce, delay or forego their purchases of our products as a result of continued job losses, bankruptcies, higher consumer debt and interest rates, higher energy and fuel costs, reduced access to credit, falling home prices, lower consumer confidence, uncertainty or changes in tax policies and tax rates and uncertainty due to national or international security concerns. Decreases in sales or online customer traffic will negatively affect our financial performance, and a prolonged period of depressed consumer spending could have a material adverse effect on our business. Promotional activities and decreased demand for consumer products could affect profitability and margins. In addition, adverse economic conditions may result in an increase in our operating expenses due to, among other things, higher costs of labor, energy, equipment and facilities. Any of the foregoing factors could have a material adverse effect on our business, results of operations and financial condition and could adversely affect our stock price.

 

Our results of operations could be materially harmed if we are unable to accurately forecast demand for our products.

 

We often place orders for raw materials with our suppliers before our customers’ orders are firm. Therefore, if we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of product to deliver to our customers. Factors that could affect our ability to accurately forecast demand for our products include:

 

  an increase or decrease in consumer demand for our products or for products of our competitors;

 

  our failure to accurately predict customer acceptance of new products;

 

  new product introductions by competitors;

 

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  unanticipated changes in general market conditions or other factors, which may result in cancellations of orders or a reduction or increase in the rate of reorders placed by retailers;

 

  weak economic conditions or consumer confidence, which could reduce demand for discretionary items such as our products; and

 

  terrorism or acts of war, or the threat of terrorism or acts of war, which could adversely affect consumer confidence and spending or interrupt production and distribution of product and raw materials.

 

Inventory levels in excess of customer demand may result in inventory write-downs and the sale of excess inventory at discounted prices, which could have an adverse effect on our business, results of operations, and financial condition. On the other hand, if we underestimate demand for our products, our manufacturing facilities may not be able to produce products to meet customer requirements, and this could result in delays in the shipment of products and lost revenues, as well as damage to our reputation and customer relationships. There can be no assurance that we will be able to successfully manage inventory levels to exactly meet future order and reorder requirements.

 

Expanding our brand into new territories may be difficult and expensive, and if we are unable to successfully expand into these territories as expected, our brand may be adversely affected, and we may not achieve our planned sales growth.

 

Our growth strategy includes continuous expansion of our brand into new territories in North America, Europe and Asia. Products that we introduce into these new markets may not be successful with the consumers we target. Our brand may also fall out of favor with our current customer base as we expand our products into new markets. In addition, if we are unable to anticipate, identify or react appropriately to evolving consumer preferences, our sporting apparel sales may not grow as fast as we plan or may decline and our brand image may suffer.

 

Achieving market acceptance for new products will likely require us to exert substantial product development and marketing efforts, which could result in a material increase in selling, general and administrative expenses, both in absolute dollars and as a percentage of revenue. There can be no assurance that we will have the resources necessary to undertake these efforts or that these efforts will sufficiently increase our sporting apparel sales. Material increases in our selling and general and administrative expenses could adversely impact our results of operations.

 

Changes in the retail industry and markets for consumer products affecting our customers or retail practices could negatively impact existing customer relationships and our results of operations.

 

While the majority of our products are sold directly to consumers, a portion of our products are sold to resellers and distribution agents. A significant deterioration in the financial condition of these wholesale customers could have a material adverse effect on our sales and profitability. As a result, we periodically monitor and evaluate the credit status of these wholesale customers and attempt to adjust sales terms as appropriate. Despite these efforts, a bankruptcy filing by a key customer could have a material adverse effect on our business, results of operations, and financial condition. We do not monitor the credit status of our retail customers or direct customer database.

 

Failure to maintain our reputation and brand image could negatively impact our business.

 

Our brand has received a certain level of recognition in China, North America and Europe. Our success depends on our ability to maintain and enhance our brand image and reputation. We could be adversely affected if our brand is tarnished or receives negative publicity. In addition, adverse publicity about regulatory or legal action against us could damage our reputation and brand image, undermine consumer confidence in us, and reduce long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our operations.

 

In addition, our success in maintaining, extending and expanding our brand image depends on our ability to adapt to a rapidly changing media and internet environment, including our reliance on online advertising. Negative posts or comments about us on social networking websites could seriously damage our reputation and brand image. If we do not maintain, extend and expand our brand image, our product sales, financial condition or results of operations could be materially and adversely affected.

 

Our core information technology platform is operated by a third party and any failure in maintenance or security of this platform could have adverse consequences on our business.

 

 Our core information technology platform runs on Oracle’s NetSuite ERP platform. This includes, all customer management (CRM), manufacturing and esource planning (ERP) and e-commerce processes. All application data, and servers and functionality are outside of our direct ownership and control. As a global service provider, Oracle is fully responsible for the maintenance and security of their platform. Additionally, all related customer payment processing is managed by PCI compliant third party processors and payment gateways such as Merchante Solutions, Cybersource, Altapay and Alipay. As such, we do not store any customer data on our computer systems. Should any of those systems become compromised, our business would be adversely affected until remedied.

 

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Failure to adequately protect or enforce our intellectual property rights could adversely affect our business.

 

We utilize trademarks on nearly all of our products and believe that having distinctive marks that are readily identifiable is an important factor in creating a market for our goods, in identifying us and in distinguishing our goods from the goods of others. We consider our “Jakroo®” series trademarks to be among our most valuable assets, and we have registered these trademarks in 19 countries and jurisdictions.

 

We believe that our trademarks, copyrights and other intellectual property rights are important to our brand, our success and our competitive position. In the future, we may encounter counterfeit reproductions of our products or that otherwise infringe on our intellectual property rights. If we are unsuccessful in challenging a party’s products on the basis of trademark or other intellectual property infringement, continued sales of these products could adversely affect our sales and our brand and result in the shift of consumer preference away from our products.

 

The actions we take to establish and protect trademarks and other intellectual property rights may not be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as violations of proprietary rights.

  

In addition, the laws of certain foreign countries may not protect or allow enforcement of intellectual property rights to the same extent as the laws of the United States. We may face significant expenses and liabilities in connection with the protection of our intellectual property rights outside the United States, and if we are unable to successfully protect our rights or resolve intellectual property conflicts with others, our business or financial condition may be adversely affected.

 

Third parties may claim that we are infringing their intellectual property rights, and these claims may be costly to defend, may require us to pay licensing fees, damages, or other amounts, and may prevent, or otherwise impose limitations on the manufacture, distribution or sale of our products.

 

From time to time, third parties may claim that we are infringing on their intellectual property rights, and we may be found to infringe those intellectual property rights. While we do not believe that any of our products infringe the valid intellectual property rights of third parties, we may be unaware of the intellectual property rights of others that may cover some of our current or planned new products. If we are forced to defend against third party claims, whether or not the claims are resolved in our favor, we could encounter expensive and time consuming litigation which could divert our management and key personnel from business operations. If we are found to be infringing on the intellectual property rights of others, we may be required to pay damages or ongoing royalty payments, or comply with other unfavorable terms. Additionally, if we are found to be infringing on the intellectual property rights of others, we may not be able to obtain license agreements on terms acceptable to us, and this may prevent us from manufacturing, marketing or selling our products. Thus, these third party claims may significantly reduce the sales of our products or increase our cost of goods sold. Any reductions in sales or cost increases could be significant, and could have a material and adverse effect on our business.

 

Our products are used for inherently risky sports activities and could give rise to product liability or product warranty claims and other loss contingencies, which could affect our earnings and financial condition.

 

Many of our products are used in applications and situations that involve certain levels of risk of personal injury. As a result, we may be exposed to product liability claims by the nature of the products we produce. Exposure occurs if one of our products is alleged to have resulted in bodily injury or other adverse effects. Any such product liability claim may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product or activities associated with the product, negligence, strict liability, and a breach of warranties. Although we maintain product liability insurance in amounts that we believe are reasonable, there can be no assurance that we will be able to maintain such insurance on acceptable terms, if at all, in the future or that product liability claims will not exceed the amount of insurance coverage. Additionally, we do not maintain product recall insurance. As a result, product recalls or product liability claims could have a material adverse effect on our business, results of operations and financial condition.

 

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As a manufacturer and distributor of consumer products, we are subject to the Consumer Products Safety Act, which empowers the Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the Consumer Products Safety Commission could require us to repurchase or recall one or more of our products. Additionally, laws regulating certain consumer products exist in some cities and states, as well as in other countries in which we sell our products, and more restrictive laws and regulations may be adopted in any of these jurisdictions in the future. Any repurchase or recall of our products could be costly to us and could damage our reputation. If we were required to remove, or we voluntarily removed, our products from the market, our reputation could be tarnished and we might have large quantities of finished products that we could not sell.

 

We spend substantial resources ensuring compliance with governmental and other applicable standards. However, compliance with these standards does not necessarily prevent individual or class action lawsuits, which can entail significant cost and risk. We do not maintain insurance against many types of claims involving alleged defects in our products that do not involve personal injury or property damage. As a result, these types of claims could have a material adverse effect on our business, results of operations and financial condition.

 

Our success is dependent on retaining key personnel who would be difficult to replace.

 

Our success depends largely on the continued services of our key management members. In particular, our success depends on the continued efforts of Mr. Weidong Du, our Chief Executive Officer, President and Sole Director, and Ms. Wei Tan, our Chief Financial Officer and Treasurer, who is also the wife of Mr. Du. Mr. Du and Ms. Tan have been instrumental in developing our business model and are crucial to our business development. There can be no assurance that Mr. Du and Ms. Tan will continue in their present capacities for any particular period of time. The loss of the services of Mr. Du and Ms. Tan could materially and adversely affect our business development. In addition, we rely on officers and directors of our operating subsidiaries such as Mr. Guichun Liu, Ms. Wen Li, Mr. Derek Wiseman, Ms. Tan and Mr. Hao Wang, for key aspects of our operations, including sales, product design, manufacturing and quality control. The loss of these key employees would negatively affect our ability to manufacture quality sporting apparel, maintain existing customers, capture new market share and generate sales revenue.

 

The legal requirements associated with being a public company, including those contained in and issued under the Sarbanes-Oxley Act, may make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of our business and our ability to obtain listing of our common stock .

 

We may be unable to attract and retain qualified officers and directors necessary to provide for our effective management because of the rules and regulations that govern publicly listed companies, including, but not limited to, certifications by principal executive officers.  Currently, our sole officer and director doesn’t have extensive experience in operating a U.S. public company. Moreover, the actual and perceived personal risks associated with compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and other public company requirements may deter qualified individuals from accepting roles as directors and executive officers. At present, we do not maintain an independent board of directors and do not have any board members who would meet the independence requirements of the various exchanges. Further, the requirements for board or committee membership, particularly with respect to an individual’s independence and level of experience in finance and accounting matters, may make it difficult to attract and retain qualified board members going forward.  If we are unable to attract and retain qualified officers and directors, the management of our business and our ability to obtain or retain the listing of our common stock on any stock exchange (assuming we are able to obtain such listing) could be adversely affected.

 

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If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately or prevent fraud.  Any inability to report and file our financial results accurately and timely could harm our business and adversely impact the trading price of our common stock

 

We are required to establish and maintain internal controls over financial reporting, disclosure controls and to comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the U.S. Securities and Exchange Commission (the “SEC”) thereunder. Our senior management, which currently consists of Mr. Weidong Du and Ms. Wei Tan, cannot guarantee that our internal controls and disclosure procedures will prevent all possible errors or all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management’s override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

 

Our compliance with complicated U.S. regulations concerning corporate governance and public disclosure will result in additional expenses. Moreover, our ability to comply with all applicable laws, rules and regulations is uncertain given our management’s relative inexperience with operating U.S. public companies.

 

As a newly public company, we will be faced with expensive, complicated and evolving disclosure, governance and compliance laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act and the Dodd–Frank Wall Street Reform and Consumer Protection Act. New or changing laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations and standards of a U.S. public company are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

 

Moreover, our sole officer and director does not have extensive experience in operating a U.S. public company, which makes our ability to comply with applicable laws, rules and regulations uncertain. Our failure to comply with all laws, rules and regulations applicable to U.S. public companies could subject us or our management to regulatory scrutiny or sanction, which could harm our reputation and stock price.

 

As an “emerging growth company” under applicable law, we will be subject to lessened disclosure requirements, which could leave our shareholders without information or rights available to shareholders of more mature companies.

 

For as long as we remain an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (which we refer to herein as the JOBS Act), we have elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:

 

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;

 

taking advantage of an extension of time to comply with new or revised financial accounting standards;

 

reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and

 

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

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We expect to take advantage of these reporting exemptions until we are no longer an “emerging growth company.” Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies.

 

Because we have elected to use the extended transition period for complying with new or revised accounting standards for an “emerging growth company,” our financial statements may not be comparable to companies that comply with public company effective dates.

 

We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. Consequently, our financial statements may not be comparable to companies that comply with public company effective dates. As such, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of shares of our common stock.

 

Risks Related to Our Industry

 

Intense competition in the sporting goods industry could limit our growth and reduce our profitability.

 

The sporting goods manufacturing and retail market in general is highly fragmented and intensely competitive. In each of the three geographic areas in which we operate, we compete directly with a number of brand name cycling apparel manufacturers, some of whom are top ranking brands in their respective geographic markets. In particular, we primarily compete with domestic Chinese brands in the China market, including Champion System, Santic, Sobike and CCN, and we compete with top cycling apparel brands in the North America and European markets.  Some of our competitors have a large base of direct consumer and reseller accounts, greater financial resources and mature commercial infrastructures. In addition, if our competitors reduce their prices, it may be difficult for us to reach our net sales goals without reducing our prices. As a result of this competitive environment, we may also need to spend more on advertising and promotion than we anticipate. If we are unable to compete effectively, our operating results will suffer.

 

Seasonal fluctuations in the sales of sporting goods could cause our annual operating results to suffer significantly.

 

We experience seasonal fluctuations in our net sales and operating results. Summer and fall are the peak selling season of our products during which time we generate more sales revenue. If we miscalculate the demand for our products generally or for our product mix during the peak season, our net sales could decline, resulting in excess inventory, which could harm our financial performance. Because a substantial portion of our operating income is derived from our net sales during the peak season, a shortfall in expected net sales during that time could cause our annual operating results to suffer significantly.

 

If we fail to anticipate changes in consumer preferences, we may experience lower net sales, higher inventory markdowns and lower margins.

 

Our products must appeal to a broad range of consumers whose preferences can only be predicted to a certain degree. These preferences are also subject to change. Our success depends upon our ability to anticipate and respond in a timely manner to trends in sporting apparel and accessories in general and cycling apparel in particular. If we fail to identify and respond to these changes, our net sales may decline.

 

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Risks Associated with Our International Operations

 

Our operations in international markets, and earnings in those markets, may be affected by legal, regulatory, political and economic risks.

 

Our operations in international markets, and earnings in those markets, may be affected by legal, regulatory, political and economic risks. Our ability to maintain the current level of operations in our existing international markets and to capitalize on growth in existing and new international markets is subject to risks associated with international operations. These include the burdens of complying with a variety of foreign laws and regulations, unexpected changes in regulatory requirements, new tariffs or other barriers to some international markets.

 

We cannot predict whether quotas, duties, taxes, exchange controls or other restrictions will be imposed by the United States, China, the European Union or other countries upon the import or export of our products in the future, or what effect any of these actions would have on our business, financial condition or results of operations. We cannot predict whether there might be changes in our ability to repatriate earnings or capital from international jurisdictions. Changes in regulatory and geopolitical policies and other factors may adversely affect our business or may require us to modify our current business practices.

 

Approximately 42% of our sales for the year ended December 31, 2015 were earned in international markets. We are exposed to risks of changes in U.S. policy for companies having business operations outside the United States, which could have a material adverse effect on our business, results of operations and financial condition.

 

We use foreign suppliers for a significant portion of our raw materials and our manufacturing facility is located in China, which poses risks to our business operations.

 

Our products are manufactured at our facility in China. Any of the following could materially and adversely affect our ability to produce or deliver our products and, as a result, have a material adverse effect on our business, financial condition and results of operations:

 

  political or labor instability in countries where our facilities, contractors, and suppliers are located;

 

  political or military conflict, which could cause a delay in the transportation of raw materials and products to us and an increase in transportation costs;

 

  heightened terrorism security concerns, which could subject imported or exported goods to additional, more frequent or more lengthy inspections, leading to delays in deliveries or impoundment of goods for extended periods or could result in decreased scrutiny by customs officials for counterfeit goods, leading to lost sales, increased costs for our anti-counterfeiting measures and damage to the reputation of our brands;

 

  imposition of regulations and quotas relating to imports and our ability to adjust timely to changes in trade regulations, which, among other things, could limit our ability to produce products in cost-effective countries that have the labor and expertise needed;

 

  imposition of duties, taxes and other charges on imports; and

 

  imposition or the repeal of laws that affect intellectual property rights.

 

Our business is subject to foreign, national, state and local laws and regulations for environmental, employment, safety and other matters. The costs of compliance with, or the violation of, such laws and regulations by us could have an adverse effect on our business, results of operations and financial condition.

 

Numerous governmental agencies in the United States and in other countries in which we have operations, enforce comprehensive national, state, and local laws and regulations on a wide range of environmental, employment, health, safety and other matters. We could be adversely affected by costs of compliance or violations of those laws and regulations. In addition, the costs of raw materials purchased by us from our suppliers could increase due to the costs of compliance by those entities. Further, violations of such laws and regulations could affect the availability of inventory, thereby affecting our net sales.

 

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Changes in foreign, cultural, political, and financial market conditions could impair our international operations and financial performance.

 

The economies of foreign countries important to our operations, including countries in Asia and Europe, could suffer slower economic growth or economic, social and/or political instability or hyperinflation in the future. International operations, including manufacturing and sales (and the international operations of our customers), are subject to inherent risks which could adversely affect us, including, among other things:

 

  protectionist policies restricting or impairing the manufacturing, sales or import and export of our products;

 

  new restrictions on access to markets;

 

  lack of developed infrastructure;

 

  inflation or recession;

 

  devaluations or fluctuations in the value of currencies;

 

  changes in and the burdens and costs of compliance with a variety of foreign laws and regulations, including tax laws, accounting standards, environmental laws and occupational health and safety laws;

 

  social, political or economic instability;

 

  acts of war and terrorism;

 

  natural disasters or other crises;

 

  reduced protection of intellectual property rights in some countries;

 

  increases in duties and taxation; and

 

  restrictions on transfer of funds and/or exchange of currencies; expropriation of assets; and other adverse changes in policies, including monetary, tax and/or lending policies, relating to foreign investment or foreign trade by our host countries.

 

Should any of these risks occur, our ability to sell our products or repatriate profits could be impaired and we could experience a loss of sales and profitability from our international operations, which could have a material adverse impact on our business and financial conditions.

 

Risks Associated With Doing Business in China

 

Changes in the political and economic policies of the PRC government may materially and adversely affect our business, financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies.

 

Most of our operations are conducted in the PRC and a substantial majority of our revenue is sourced from the PRC. Accordingly, our financial condition and results of operations are affected to a significant extent by economic, political and legal developments in the PRC.

 

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The PRC economy differs from the economies of most developed countries in many respects, including the extent of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or companies.

 

While the PRC economy has experienced significant growth in the past three decades, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may also have a negative effect on us. Our financial condition and results of operation could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. In addition, the PRC government has implemented in the past certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity, which in turn could lead to a reduction in demand for our services and consequently have a material adverse effect on our businesses, financial condition and results of operations.   

 

If relations between the United States and China worsen, investors may be unwilling to hold or buy our stock and our stock price may decrease .

 

At various times during recent years, the U.S and China have had significant disagreements over political and economic issues. Controversies may arise in the future between these two countries that may affect our economic outlook both in the U.S and in China. Any political or trade controversies between the U.S and China, whether or not directly related to our business, could reduce the price of our common stock.

 

Future inflation in China may inhibit the profitability of our business in China.

 

In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation.  Rapid economic growth can lead to growth in the money supply and rising inflation.  If prices for our services and products rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may have an adverse effect on profitability.  These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation.  High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China and thereby harm the market for our services and products.

 

The fluctuation of the Renminbi may have a material adverse effect on your investment.

 

The exchange rates between the Renminbi and the U.S. dollar and other foreign currencies are affected by, among other things, changes in China's political and economic conditions. In July 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi was permitted to fluctuate within a band against a basket of certain foreign currencies. As a result, the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. However, the People's Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals. For almost two years after July 2008, the Renminbi traded within a very narrow range against the U.S. dollar, remaining within 1% of its July 2008 high. As a consequence, the Renminbi fluctuated significantly during that period against other freely traded currencies, in tandem with the U.S. dollar. In June 2010, the PRC government announced that it would increase exchange rate flexibility of the Renminbi. However, it remains unclear how this flexibility might be implemented. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in a further and more significant appreciation of the Renminbi against the U.S. dollar.

 

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As we rely on dividends and other fees paid to us by our subsidiary and affiliated consolidated entities in China, any significant revaluation of the Renminbi could adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, shares of our common stock in foreign currency terms. To the extent that we need to convert U.S. dollars we received from our offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our common stock or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. In addition, since our functional and reporting currency is the U.S. dollar while the functional currency of our subsidiary and consolidated affiliated entities in China is Renminbi, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would have a positive or negative effect on our reported financial results, which might not reflect any underlying change in our business, financial condition or results of operations.

 

Restrictions on currency exchange may limit our ability to receive and use our revenue effectively.  

 

Substantially all of our revenue is denominated in Renminbi. Renminbi is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans, including loans we may secure from our onshore subsidiaries or variable interest entity. Currently, Jakroo (Beijing) Sports Consulting Co., Ltd (“Jakroo Beijing”), our major PRC subsidiary, which is a wholly-foreign owned enterprise, may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of the State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Since a significant amount of our future revenue will be denominated in Renminbi, 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 the PRC or pay dividends in foreign currencies to our shareholders, including holders of our common stock. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our subsidiaries and the variable interest entity.

 

Our subsidiaries and affiliated entities in China are subject to restrictions on making dividends and other payments to us.

 

We are a holding company, and we rely on dividends and other equity distributions paid by our PRC subsidiary for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. In addition, the PRC tax authorities may require Jakroo Beijing to adjust its taxable income under the contractual arrangements it currently has in place with our consolidated variable interest entity in a manner that would materially and adversely affect its ability to pay dividends and other distributions to us.

 

Under PRC laws and regulations, Jakroo Beijing is a wholly foreign-owned enterprise in China. As such, Jakroo Beijing may pay dividends only out of its accumulated after-tax profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds until the aggregate amount of such funds reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

 

Any limitation on the ability of our PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

 

Uncertainties with respect to the PRC legal system could have a material adverse effect on us.

 

The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions in a civil law system may be cited as reference but have limited precedential value. Since 1979, newly introduced PRC laws and regulations have significantly enhanced the protections available relating to foreign investments in China. Nonetheless, since these laws and regulations are relatively new and the PRC legal system continues to evolve rapidly, the interpretations of such laws and regulations may not always be consistent and enforcement of these laws and regulations involves significant uncertainties, any of which could limit the available legal protections.

 

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In addition, the PRC administrative and judicial authorities have significant discretion in interpreting, implementing or enforcing statutory rules and contractual terms, and it may be more difficult to predict the outcome of administrative and judicial proceedings and the level of legal protection we may enjoy in the PRC than under some more developed legal systems. These uncertainties may affect our decisions on the policies and actions to be taken to comply with PRC laws and regulations, and may affect our ability to enforce our contractual or tort rights. In addition, the regulatory uncertainties may be exploited through unmerited legal actions or threats in an attempt to extract payments or benefits from us. Such uncertainties may therefore increase our operating expenses and costs, and materially and adversely affect our business and results of operations.

 

Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and could have a retroactive effect. As a result, we might not be aware of our violation of any of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could adversely affect our business and impede our ability to continue our operations.

 

The PRC’s legal and judicial system may not adequately protect our business and operations and the rights of foreign investors.

 

The PRC legal and judicial system may negatively impact foreign investors. In 1982, the National People's Congress amended the Constitution of China to authorize foreign investment and guarantee the "lawful rights and interests" of foreign investors in the PRC. However, the PRC's system of laws is not yet comprehensive. The legal and judicial systems in the PRC are still rudimentary and enforcement of existing laws is inconsistent. As a result, it may be impossible to obtain swift and equitable enforcement of laws that do exist, or to obtain enforcement of the judgment of one court by a court of another jurisdiction. The PRC's legal system is based on the civil law regime, that is, it is based on written statutes. A decision by one judge does not set a legal precedent that is required to be followed by judges in other cases. In addition, the interpretation of Chinese laws may be varied to reflect domestic political changes.

 

The promulgation of new laws, changes to existing laws and the pre-emption of local regulations by national laws may adversely affect foreign investors. There can be no assurance that a change in leadership, social or political disruption, or unforeseen circumstances affecting the PRC's political, economic or social life, will not affect the PRC government's ability to continue to support and pursue these reforms. Such a shift could have a material adverse effect on our business and prospects. 

 

Because our principal assets are located outside of the United States, it may be difficult for you to enforce your rights based on U.S. federal securities laws against us or to enforce a U.S. court judgment against us or our operating subsidiaries in the PRC.

 

A substantial portion of our operations and assets are located outside of the United States. It may therefore be difficult for investors in the United States to enforce their legal rights against us based on the civil liability provisions of the U.S. federal securities laws against us in the courts of either the U.S. or the PRC and, even if civil judgments are obtained in U.S. courts, it may be difficult to enforce such judgments in PRC courts. 

 

We may be required to obtain prior approval of the China Securities Regulatory Commission (“CSRC”) of the listing and trading of our common stock.

 

On August 8, 2006, six PRC regulatory authorities, including the CSRC, jointly promulgated the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the 2006 M&A Rules, which were later amended on June 22, 2009. According to the 2006 M&A Rules, an offshore special purpose vehicle, or SPV, refers to an overseas company controlled directly or indirectly by domestic companies or individuals for purposes of overseas listing of equity interests in domestic companies (defined as enterprises in the PRC other than foreign-invested enterprises). The 2006 M&A Rules require that the overseas listing by the SPV must be approved by the CSRC. However, the applicability of the 2006 M&A Rules with respect to CSRC approval is unclear. Accordingly, the application of the 2006 M&A Rules with respect to this offering and to the contractual arrangements of our corporate structure as relates to this offering remains unclear.

 

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We believe that the 2006 M&A Rules do not require us to obtain prior CSRC approval for the listing and trading of our common stock in the U.S., given that (i) our PRC subsidiary was incorporated as a wholly foreign-owned enterprise by means of direct investment rather than by merger or acquisition by our company of the equity interest or assets of any "domestic company" as defined under the 2006 M&A Rules, and no provision in the 2006 M&A Rules classifies the contractual arrangements between our company, our PRC subsidiary and any of our consolidated affiliated entities as a type of acquisition transaction falling under the 2006 M&A Rules; and (ii) the CSRC has not yet issued any definitive rule concerning whether offerings like the offering contemplated by our company under this prospectus are subject to prior CSRC approval.

 

Nonetheless, in the event the CSRC subsequently determines that its prior approval is required, we could face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies could impose fines and penalties on our operations, limit our operating privileges, delay or restrict our sending of the proceeds from this offering into China, or take other actions that could have an adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our common stock. The CSRC or other PRC regulatory agencies also could take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the common stock offered hereby. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that such settlement and delivery might not occur.

 

We cannot predict when the CSRC will promulgate additional rules or other guidance, if at all. If implementing rules or guidance are issued prior to the completion of this offering and, consequently, we conclude that we are required to obtain CSRC approval, the effectiveness of this resale registration statement will be delayed until we obtain CSRC approval, which could take several months or longer. Moreover, the implementing rules or guidance, to the extent issued, could fail to resolve current ambiguities under the 2006 M&A Rules. Uncertainties or negative publicity regarding the 2006 M&A Rules could have an adverse effect on the trading price of our common stock. 

 

Certain PRC regulations, including the M&A Rules and national security regulations, may require a complicated review and approval process which could make it more difficult for us to pursue growth through acquisitions in China.

 

The M&A Rules established additional procedures and requirements that could make merger and acquisition activities in China by foreign investors more time-consuming and complex. For example, the MOFCOM must be notified in the event a foreign investor takes control of a PRC domestic enterprise. In addition, certain acquisitions of domestic companies by offshore companies that are related to or affiliated with the same entities or individuals of the domestic companies, are subject to approval by the MOFCOM. In addition, the Implementing Rules Concerning Security Review on Mergers and Acquisitions by Foreign Investors of Domestic Enterprises, issued by the MOFCOM in August 2011, require that mergers and acquisitions by foreign investors in “any industry with national security concerns” be subject to national security review by the MOFCOM. In addition, any activities attempting to circumvent such review process, including structuring the transaction through a proxy or contractual control arrangement, are strictly prohibited.

 

There is significant uncertainty regarding the interpretation and implementation of these regulations relating to merger and acquisition activities in China. In addition, complying with these requirements could be time-consuming, and the required notification, review or approval process may materially delay or affect our ability to complete merger and acquisition transactions in China. As a result, our ability to seek growth through acquisitions may be materially and adversely affected.

 

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In addition, if the MOFCOM determines that we should have obtained its approval for our entry into contractual arrangements with our affiliated entities, we may be required to file for remedial approvals. There is no assurance that we would be able to obtain such approval from the MOFCOM. We may also be subject to administrative fines or penalties by the MOFCOM that may require us to limit our business operations in the PRC, delay or restrict the conversion and remittance of our funds in foreign currencies into the PRC or take other actions that could have a material and adverse effect on our business, financial condition and results of operations.

 

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC subsidiary and affiliated entities, which could harm our liquidity and our ability to fund and expand our business.

 

We are an offshore holding company conducting our operations in China through our PRC subsidiary. We may make loans to our PRC subsidiary and PRC consolidated VIE subject to the approval from governmental authorities and limitations in loan size, or we may make additional capital contributions to our PRC subsidiary.

 

Any loans to our PRC subsidiary, which is treated as a foreign-invested enterprise under PRC law, are subject to PRC regulations and foreign exchange loan registrations. For example, loans by us to our PRC subsidiary to finance its activities cannot exceed statutory limits and must be registered with the local counterpart of the State Administration of Foreign Exchange, or SAFE. The statutory limit for the total amount of foreign debts of a foreign-invested company is the difference between the amount of total investment as approved by the Ministry of Commerce or its local counterpart and the amount of registered capital of such foreign-invested company. We may also decide to finance our PRC subsidiary by means of capital contributions. Our capital contributions to our PRC subsidiary must be approved by the Ministry of Commerce or its local counterpart. We cannot assure you that we will be able to complete the necessary registration or obtain the necessary approval on a timely basis, or at all. If we fail to complete the necessary registration or obtain the necessary approval, our ability to make loans or equity contributions to our PRC subsidiary may be negatively affected, which could adversely affect our PRC subsidiary's liquidity and its ability to fund its working capital and expansion projects and meet its obligations and commitments.

 

On August 29, 2008, SAFE promulgated the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency registered capital into RMB by restricting how the converted RMB may be used. SAFE Circular 142 provides that the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC unless otherwise provided by law. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of a foreign-invested company. The use of such RMB capital may not be altered without SAFE approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Violations of SAFE Circular 142 could result in severe monetary or other penalties. On July 4, 2014, SAFE issued the Circular of the SAFE on Relevant Issues Concerning the Pilot Reform in Certain Areas of the Administrative Method of the Conversion of Foreign Exchange Funds by Foreign-invested Enterprises, or SAFE Circular 36, which launched the pilot administration reform regarding conversion of foreign currency registered capitals of foreign-invested enterprises in 16 pilot areas. According to SAFE Circular 36, some of the restrictions under SAFE Circular 142 will not apply to the settlement of the foreign exchange capitals of an ordinary foreign-invested enterprise in the pilot areas, and such foreign-invested enterprise is permitted to use Renminbi converted from its foreign-currency registered capital to make equity investments in the PRC within and in accordance with the authorized business scope of such foreign-invested enterprises, subject to certain registration and settlement procedure as set forth in SAFE Circular 36. As this circular is relatively new, there remains uncertainty as to its interpretation and application and any other future foreign exchange related rules. On March 30, 2015, SAFE promulgated the Circular on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, or SAFE Circular 19, to expand the reform nationwide. SAFE Circular 19 came into force and replaced both SAFE Circular 142 and SAFE Circular 36 on June 1, 2015. However, SAFE Circular 19 continues to prohibit a foreign-invested enterprise from, among other things, using RMB funds converted from its foreign exchange capitals for expenditure beyond its authorized business scope, providing entrusted loans or repaying loans between non-financial enterprises. Violations of these Circulars could result in severe monetary or other penalties. These circulars may significantly limit our ability to use RMB converted from the net proceeds of this offering to fund the establishment of new entities in China by our PRC subsidiary, to invest in or acquire any other PRC companies through our PRC subsidiary, or to establish new consolidated VIEs in the PRC.

 

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In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiary or PRC consolidated VIE or with respect to future capital contributions by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from the private placement related to this resale registration statement and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

 

A failure by the beneficial owners of our shares who are PRC residents to comply with certain PRC foreign exchange regulations could restrict our ability to distribute profits, restrict our overseas and cross-border investment activities and subject us to liability under PRC law.

 

On July 4, 2014, SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident's Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which replaced the former Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Overseas Special Purpose Vehicles (generally known as SAFE Circular 75) promulgated by SAFE on October 21, 2005. On February 13, 2015, SAFE further promulgated the Circular on Further Simplifying and Improving the Administration of Foreign Exchange Concerning Direct Investment, or SAFE Circular 13, which took effect on June 1, 2015. This SAFE Circular 13 has amended SAFE Circular 37 by requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.

 

These SAFE circulars require PRC residents to register with qualified banks in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents' legally owned assets or equity interests in domestic enterprises or offshore assets or interests being deemed a "special purpose vehicle" pursuant to SAFE Circular 37. These circulars further require amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as an increase or decrease of capital contributed by PRC residents, share transfer or exchange, merger, division or other material events. In the event that a PRC resident holding interests in a special purpose vehicle fails to complete the required SAFE registration, the PRC subsidiary of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

 

Mr. Weidong Du, Ms. Wei Tan, Mr. Guichun Liu, Ms. Wen Li and Mr. Hao Wang, who directly or indirectly hold our shares and who are known to us as being PRC residents, have completed the initial SAFE foreign exchange registrations to reflect our corporate restructuring. However, we may not at all times be fully aware or informed of the identities of all our shareholders or beneficial owners who are required to make such registrations, and we may not always be able to compel them to comply with all relevant foreign exchange regulations. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents will at all times comply with, or in the future make or obtain any applicable registrations or approvals required by all relevant foreign exchange regulations. The failure or inability of such individuals to comply with the registration procedures set forth in these regulations may subject us to fines or legal sanctions, restrictions on our cross-border investment activities or our PRC subsidiary's ability to distribute dividends to, or obtain foreign-exchange-dominated loans from, our company, or prevent us from making distributions or paying dividends. As a result, our business operations and our ability to make distributions to you could be materially and adversely affected.

 

Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We cannot predict how these regulations will affect our business operations or future strategy. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations.

 

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You may face difficulties in protecting your interests and exercising your rights as our stockholder since we conduct the bulk of our operations in China and other foreign locations.

 

We conduct the bulk of our operations in China through Rider Beijing, our consolidated VIE in China. Because of this factor, it may be difficult for you to conduct due diligence on the Company, our executive officers or director and attend stockholders meetings if the meetings are held in China. As a result, our public stockholders may have more difficulty in protecting their interests through actions against our management, our director or major stockholders than would stockholders of a corporation doing business entirely or predominantly within the United States. 

 

The enforcement of the PRC Labor Contract Law in the PRC may adversely affect our business and our results of operations.

 

The PRC Labor Contract Law became effective and was implemented on January 1, 2008, which was amended on December 28, 2012. It has reinforced the protection of employees who, under the PRC Labor Contract Law, have the right, among others, to have written labor contracts, to enter into labor contracts with no fixed terms under certain circumstances or to receive overtime wages. Further, it requires certain terminations be based on the mandatory requirement age. In the event we decide to significantly change or decrease our workforce, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations.

 

As a result of these laws and regulations designed to enhance labor protection, we expect our labor costs will continue to increase. In addition, as the interpretation and implementation of these laws and regulations are still evolving, our employment practice may not at all times be deemed in compliance with the new laws and regulations. If we are subject to severe penalties or incur significant liabilities in connection with labor disputes or investigations, our business and results of operations may be adversely affected.

 

We may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, and we may therefore be subject to PRC income tax on our global income.

 

Under the PRC Enterprise Income Tax Law and its implementing rules, enterprises established under the laws of jurisdictions outside of China with “de facto management bodies” located in China may be considered PRC tax resident enterprises for tax purposes and may be subject to the PRC enterprise income tax at the rate of 25% on their global income. “De facto management body” refers to a managing body that exercises substantive and overall management and control over the production and business, personnel, accounting books and assets of an enterprise. The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises, not those controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises. If we were to be considered a PRC resident enterprise, we would be subject to PRC enterprise income tax at the rate of 25% on our global income. In such case, our profitability and cash flow may be materially reduced as a result of our global income being taxed under the Enterprise Income Tax Law. We believe that none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.”

 

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We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a Chinese establishment of a non-Chinese company, or immovable properties located in China owned by non-Chinese companies.

 

On February 3, 2015, the State Administration of Taxation issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Bulletin 7, which replaced or supplemented previous rules under the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or Circular 698, issued by the State Administration of Taxation, on December 10, 2009. Pursuant to this Bulletin, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such an indirect transfer may be subject to PRC enterprise income tax. According to Bulletin 7, “PRC taxable assets” include assets attributed to an establishment in China, immoveable properties located in China, and equity investments in PRC resident enterprises, in respect of which gains from their transfer by a direct holder, being a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have a real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; the replicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In respect of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income tax filing of the PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to the immoveable properties located in China or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. Where the payer fails to withhold any or withholds insufficient tax, the transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. Bulletin 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange.

 

There is uncertainty as to the application of Bulletin 7, or previous rules under Circular 698. As Bulletin 7 was recently promulgated, it is not clear how it will be implemented. Bulletin 7 may be determined by the tax authorities to be applicable to our offshore restructuring transactions or sale of the shares of our offshore subsidiaries where non-resident enterprises, being the transferors, were involved. Furthermore, we, our non-resident enterprises and PRC subsidiaries may be required to spend valuable resources to comply with Bulletin 7 or to establish that we and our non-resident enterprises should not be taxed under Bulletin 7, for our previous and future restructuring or disposal of shares of our offshore subsidiaries, which may have a material adverse effect on our financial condition and results of operations.

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Risks Relating to Our Corporate Structure

 

Our corporate structure and, in particular, our variable interest entity contracts (the “VIE Contractual Agreements”) are subject to significant risks, as set forth in the following risk factors.

 

We depend upon the VIE Contractual Agreements in conducting our business in the PRC, which may not be as effective as direct ownership.

 

Although a substantial majority of our revenue has historically been generated by our PRC subsidiaries, we have relied and expect to continue to rely on contractual arrangements with Rider Beijing and its shareholders to operate our business. Such contractual arrangements include: (i) an Exclusive Technical Consulting and Service Agreement; (ii) an Exclusive Call Option Agreement; (iii) a Business Operation Agreement; (iv) an Equity Pledge Agreement; and (v) Powers of Attorney granted by each of Rider Beijing’s shareholders. These contractual arrangements may not be as effective as direct ownership in providing us with control over our VIE.

 

If we had direct ownership of Rider Beijing, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of Rider Beijing, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. However, under the current contractual arrangements, we rely on the performance by our VIE and its shareholders of their obligations under the contracts to exercise control over our VIE. However, the shareholders of our VIE may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate our business through the contractual arrangements with our VIE. We may replace the shareholders of our VIE at any time pursuant to our contractual arrangements with it and its shareholders. However, if any dispute relating to these contracts or the replacement of the shareholders remains unresolved, we will have to enforce our rights under these contracts through the operations of PRC law and courts and therefore will be subject to uncertainties in the PRC legal system. Therefore, our contractual arrangements with our VIE may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be.

 

Contractual arrangements entered into by our subsidiary and our PRC operating affiliate may be subject to scrutiny by the PRC tax authorities. Such scrutiny may lead to additional tax liability and fines, which would hinder our ability to achieve or maintain profitability.

 

Under PRC laws and regulations, transactions between related parties should be conducted on an arm’s-length basis and may be subject to audit or challenge by the PRC tax authorities. We could face material adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among our subsidiary in the PRC, our affiliated entities and the shareholder of Rider Beijing are not conducted on an arm’s-length basis and adjust the income of our affiliated entities through the transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in, for PRC tax purposes, increased tax liabilities of our affiliated entities. In addition, the PRC tax authorities may require us to disgorge our prior tax benefits, and require us to pay additional taxes for prior tax years and impose late payment fees and other penalties on our affiliated entities for underpayment of prior taxes. We cannot assure you that such penalties will not be imposed on us in the future. Our net income may be harmed if the tax liabilities of our affiliated entities materially increase or if they are found to be subject to additional tax obligations, late payment fees or other penalties.

 

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PRC laws and regulations governing our businesses and the validity of certain of our contractual arrangements are uncertain. In addition, changes in such PRC laws and regulations may materially and adversely affect our business.

 

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, and the enforcement and performance of our contractual arrangements with Rider Beijing and its shareholders. Although the primary business of Rider Beijing is not within the category in which foreign investment is currently restricted or prohibited, the uncertainty of PRC regulations and governmental policies affecting foreign ownership may result in us being required to hold (or, conversely, being prohibited from holding), directly or indirectly, a given percentage of Rider Beijing’s equity interests. Our contractual arrangements with Rider Beijing and its shareholders, which allow us to substantially control Rider Beijing through Jakroo (Beijing) Sports Consulting Co., Ltd, are governed by Chinese law. We cannot assure you, however, that we will be able to enforce these contracts. If we are unable to enforce these contracts, we could be required to deconsolidate Rider Beijing and its subsidiaries from our financial results.

 

In addition, Chinese laws and regulations limiting foreign ownership of domestic companies are relatively new and may be subject to change, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.

 

Although we believe we comply and will continue to comply with current PRC regulations, we cannot assure you that the PRC government would agree that these operating arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. If the PRC government determines that we do not comply with applicable law, it could revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, require us to restructure our operations, impose additional conditions or requirements with which we may not be able to comply, impose restrictions on our business operations or on our customers, or take other regulatory or enforcement actions against us that could be harmful to our business.

 

Substantial uncertainties exist with respect to the enactment timetable and final content of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.

 

The Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law in January 2015 (the "Draft FIL") aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The Draft FIL embodies an expected PRC regulatory trend to conform its foreign investment regulatory regime to prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. The Ministry of Commerce is currently soliciting comments on this draft and substantial uncertainties exist with respect to its enactment timetable, final content, interpretation and implementation.

 

Among other things, the Draft FIL expands the definition of foreign investment and introduces the principle of "actual control" in determining whether a company is considered a foreign-invested enterprise, or an FIE. The Draft FIL specifically provides that entities established in China but "controlled" by foreign investors will be treated as FIEs, whereas an entity set up in a foreign jurisdiction would nonetheless be, upon market entry clearance, treated as a PRC domestic investor provided that the entity is "controlled" by PRC entities and/or citizens. Once an entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in the "negative list," which will be separately issued by the State Council at some later date. Unless the underlying business of the FIE falls within the negative list, which calls for market entry clearance, prior approval from the government authorities as mandated by the existing foreign investment legal regime would no longer be required for establishment of the FIE. Under the Draft FIL, VIEs that are controlled via contractual arrangement would also be deemed as FIEs if they are ultimately "controlled" by foreign investors. Therefore, for any companies with a VIE structure in an industry category that is on the "negative list" the VIE structure may be deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, the VIEs will be treated as FIEs and any operation in the industry category on the "negative list" without market entry clearance may be considered as illegal.

 

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The provision of designing, manufacturing and direct sale services of customized technical endurance apparel for the cycling, triathlon, running and Nordic skiing markets, which we conduct through our VIE, is currently encouraged in foreign investment as set forth in the Catalogue of Industries for Guiding Foreign Investment, or the Catalogue, issued by the National Development and Reform Commission and the Ministry of Commerce in 2015. The Draft FIL, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate governance and business operations in many aspects.

 

 If any of our affiliated entities becomes the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy the assets held by such entity, which could materially and adversely affect our business, financial condition and results of operations.

 

We currently conduct our operations in China through contractual arrangements with our affiliated entities. As part of these arrangements, a substantial portion of our assets that are important to the operation of our business are held by our affiliated entities. If any of these entities goes bankrupt and all or part of their assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If any of our affiliated entities undergoes a voluntary or involuntary liquidation proceeding, its equity owner or unrelated third-party creditors may claim rights relating to some or all of these assets, which would hinder our ability to operate our business and could materially and adversely affect our business, our ability to generate revenue and the market price of our common stock.

 

Any failure by our consolidated variable interest entity or its shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business.

 

If our consolidated variable interest entity or its shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective under PRC laws. For example, if the shareholders of Rider Beijing were to refuse to transfer their equity interest in Rider Beijing to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations.

 

All the agreements under our contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC laws, rulings by arbitrators are final and parties cannot appeal arbitration results in court unless such rulings are revoked or determined unenforceable by a competent court. If the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expense and delay. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our consolidated variable interest entity, and our ability to conduct our business may be negatively affected.

 

If the PRC government deems that the contractual arrangements in relation to our consolidated variable interest entity do not comply with applicable PRC laws and regulations, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

Details of the VIE Agreements are set out under the caption “Corporate History and Structure – VIE Agreements” above. There are risks involved with the operation of our business in reliance on the VIE Agreements, including the risk that the VIE Agreements may be determined by PRC regulators or courts to be unenforceable. Our PRC counsel has provided a legal opinion that the VIE Agreements are binding and enforceable under PRC law, but has further advised that if the VIE Agreements were for any reason determined to be in breach of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such breach, including:

 

  Imposing economic penalties;
  Discontinuing or restricting our operations;
  Imposing conditions or requirements of the VIE Agreements with which we may not be able to comply;
  Requiring our Company to restructure the relevant ownership structure or operations;
  Taking other regulatory or enforcement actions that could adversely affect our Company’s business; and
  Revoking the business licenses and/or the licenses or certificates of Rider Sportsfashion and/or other VIE Agreements.

 

Any of these actions could adversely affect our ability to manage, operate and gain the financial benefits of Rider Sportsfashion, which would have a material adverse effect on our business, financial condition and results of operations. 

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The shareholders of our consolidated variable interest entity may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.

 

The equity interests of Rider Beijing are held by Mr. Weidong Du, Ms. Wei Tan, Mr. Guichun Liu, Ms. Wen Li and Mr. Hao Wang. Their interests in Rider Beijing may differ from the interests of our company as a whole. These shareholders may breach, or cause our consolidated variable interest entity to breach, the existing contractual arrangements we have with them and our consolidated variable interest entity, which would have a material adverse effect on our ability to effectively control our consolidated variable interest entity and receive economic benefits from it. For example, the shareholders may be able to cause our agreements with Rider Beijing to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in our favor.

 

Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company, except that we could exercise our purchase option under the exclusive call option agreement with these shareholders to request them to transfer all of their equity interests in Rider Beijing to a PRC entity or individual designated by us, to the extent permitted by PRC laws. If we cannot resolve any conflict of interest or dispute between us and the shareholders of Rider Beijing, we would have to rely on legal proceedings, which could result in the disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

 

Risks Relating to Our Common Stock

 

Our majority stockholders will control our company for the foreseeable future, including the outcome of matters requiring shareholder approval.

 

Mr. Weidong Du, our Chief Executive Officer, President and sole director and Ms. Wei Tan, our Chief Financial Officer and Treasurer, have over 83% beneficial ownership of our Company, through Kustellar LLC, which is beneficially owned by Mr. Du and Ms. Tan. In addition, 10% of our common stock is held by Custom Apparel Limited, which is beneficially owned by three of the officers and directors of our subsidiary, Rider Beijing, including Mr. Guichun Liu, Ms. Wen Li and Mr. Hao Wang. As a result, such individuals will have the ability, acting together, to control the election of our directors and the outcome of corporate actions requiring shareholder approval, such as: (i) a merger or a sale of our Company, (ii) a sale of all or substantially all of our assets, and (iii) amendments to our articles of incorporation and bylaws. This concentration of voting power and control could have a significant effect in delaying, deferring or preventing an action that might otherwise be beneficial to our other shareholders and be disadvantageous to our shareholders with interests different from those individuals. Certain of these individuals also have significant control over our business, policies and affairs as officers or directors of our company. Therefore, you should not invest in reliance on your ability to have any control over our company.

 

No public market for our common stock currently exists, and an active trading market may not develop or be sustained following this offering.

 

As we are in our early stages of development, an investment in our Company will likely require a long-term commitment, with no certainty of return. We intend to apply for quotation of our common stock on the OTC Market. Even if our common stock is quoted on the OTC Market, there is no guarantee that there will be any trading in our common stock. In addition, there is a risk that we will not be able to have our stock listed or quoted on a more established market, and even if we are able to do so (of which no assurance can be given), we cannot predict whether an active market for our common stock will ever develop in the future.  In the absence of an active trading market: 

 

investors may have difficulty buying and selling or obtaining market quotations;
     
market visibility for shares of our common stock may be limited; and
     
a lack of visibility for shares of our common stock may have a depressive effect on the market price for shares of our common stock.

While we believe our revenues and cash on hand is adequate to meet our immediate needs, we may require additional funding in order to progress our business in the future. If we are unable to raise additional capital, we could be forced to delay, reduce or eliminate portions of our business.

 

While we believe our cash, cash equivalents on hand and cash from operations are adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months, we may require an additional infusion of funds in the future to grow our business. In the event we were to experience an economic recession or a slow growth period, such an event could adversely affect our business, liquidity and future growth. In addition, should we experience instability in or a tightening of the capital markets, such an event could adversely affect our ability to obtain additional capital to grow our business on terms acceptable to us or at all.

 

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

 

We may need to raise funding in the future to further develop our business. There can be no assurance that we will be able to raise sufficient capital on acceptable terms, or at all. If such financing is not available on satisfactory terms, or is not available at all, we may be required to delay, scale back or eliminate the development of business opportunities and our operations and financial condition may be adversely affected to a significant extent.

 

If we raise additional capital by issuing equity securities, the percentage and/or economic ownership of our existing stockholders may be reduced, and accordingly these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to those of our common stock.

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Debt financing, if obtained, may involve agreements that include liens on our assets, covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, increases in our expenses and requirements that our assets be provided as a security for such debt. Debt financing would also be required to be repaid regardless of our operating results.

 

Funding from any source may be unavailable to us on acceptable terms, or at all. If we do not have sufficient capital to fund our operations and expenses, our business opportunities could be substantially diminished. 

 

Assuming we can find market makers to establish quotations for our common stock, and assuming all applicable approvals are obtained, we expect that our common stock will be quoted on the OTCQX market operated by OTC Markets Group, Inc.  These markets are relatively unorganized, inter-dealer, over-the-counter markets that provide significantly less liquidity than NASDAQ or the NYSE MKT (formerly known as the NYSE AMEX). No assurances can be given that our common stock, even if quoted on such markets, will ever trade on such markets, much less a senior market like NASDAQ or NYSE MKT. In this event, there would be a highly illiquid market for our common stock and you may be unable to dispose of your common stock at desirable prices or at all. Moreover, there is a risk that our common stock could be delisted from the OTCQX, in which case it might be listed on OTC Pink, which is even more illiquid than the OTCQX.

 

The lack of an active market impairs your ability to sell your shares of our common stock at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares of our common stock. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares of our common stock and may impair our ability to expand our operations through acquisitions by using our shares as consideration.

 

Even if our common stock becomes publicly-traded and an active trading market develops, the market price for our common stock may be volatile.

 

Even if our securities become publicly-traded and even if an active market for our common stock develops, of which no assurance can be given, the market price for our common stock may be volatile and subject to wide fluctuations due to factors such as:

 

the perception of U.S. investors and regulators of U.S. listed Chinese companies;
     
actual or anticipated fluctuations in our quarterly operating results;
     
changes in financial estimates by securities research analysts;
     
negative publicity, studies or reports;
     
our capability to match and compete with technology innovations in the industry;
     
changes in the economic performance or market valuations of other companies in the same industry;
     
announcements by us or our competitors of acquisitions, strategic partnerships, joint ventures or capital commitments;
     
addition or departure of key personnel;
     
fluctuations of exchange rates between RMB and the U.S. Dollar; and
     
general economic or political conditions in or influencing China.

 

In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies.  These market fluctuations may also materially and adversely affect the market price of our common stock.

 

Our common stock may be thinly traded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.

 

Assuming our common stock begins trading over-the-counter, our common stock may be “thinly-traded,” meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. This situation may be attributable to a number of factors, including the fact that we are relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. Broad or active public trading market for our common stock may not develop or be sustained.

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Our common stock may be considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may make it more difficult to sell. 

 

Our common stock, which we plan to have quoted for trading on the OTC Market, may be considered to be a “penny stock” if it does not qualify for one of the exemptions from the definition of “penny stock” under Section 3a51-1 of the Exchange Act, as amended.  Our common stock may be a “penny stock” if it meets one or more of the following conditions: (i) the stock trades at a price less than $5.00 per share; (ii) it is not traded on a “recognized” national exchange; (iii) it is not quoted on the Nasdaq Capital Market or, even if so, has a price of less than $5.00 per share; or (iv) is issued by a company that has been in business less than three years with net tangible assets less than $5 million.  The principal result or effect of being designated a “penny stock” is that securities broker-dealers participating in sales of our common stock will be subject to the “penny stock” regulations set forth in Rules 15g-2 through 15g-9 promulgated under the Exchange Act.  For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account.  Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor.  This procedure requires the broker-dealer to: (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives.  Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.  

 

FINRA sales practice requirements may also limit your ability to buy and sell shares of our common stock, which could depress the price of shares of our common stock.

 

FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell shares of our common stock, have an adverse effect on the market for shares of our common stock, and thereby depress price of our common stock.

 

You may face significant restrictions on the resale of your shares of our common stock due to state “blue sky” laws.

 

Each state has its own securities laws, often called “blue sky” laws, which (1) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (2) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or it must be exempt from registration. The applicable broker-dealer must also be registered in that state.

 

We do not know whether our securities will be registered or exempt from registration under the laws of any state. A determination regarding registration will be made by those broker-dealers, if any, who agree to serve as market makers for our common stock. We have not yet applied to have our securities registered in any state and will not do so until we receive expressions of interest from investors resident in specific states after they have viewed this offering document. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our securities. You should therefore consider the resale market for our common stock to be limited, as you may be unable to resell your shares without the significant expense of state registration or qualification.

 

Potential future sales under Rule 144 may depress the market price for the common stock.

 

In general, under SEC Rule 144, a person who has satisfied a minimum holding period of between six months to one-year, as well as meeting any other applicable requirements of Rule 144, may thereafter sell such shares publicly. Therefore, the possible sale of unregistered shares may, in the future, have a depressive effect on the price of our common stock in the over-the-counter market. 

 

Volatility in our common stock price may subject us to securities litigation.

 

The market for our common stock may have, when compared to seasoned issuers, significant price volatility and we expect that our share price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

 

We are not likely to pay cash dividends in the foreseeable future.

 

We currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any cash dividends in the foreseeable future, but will review this policy as circumstances dictate. Should we determine to pay dividends in the future, our ability to do so will depend upon the receipt of dividends or other payments from Rider Beijing. Rider Beijing may, from time to time, be subject to restrictions on its ability to make distributions to us, including restrictions on the conversion of RMB into U.S. dollars or other hard currency and other regulatory restrictions.  

 

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CAUTIONARY NOTE REGARDING 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. In addition, you are directed to factors discussed in the Business section and in the Management’s Discussion of Financial Condition and Results of Operations section and those discussed elsewhere in this prospectus. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include, without limitation:

 

  our ability to establish our business model and generate revenue and profit;
     
  our ability to expand our business model beyond engaging in activities on behalf of related parties;
     
  our ability to manage or expand operations and to fill customers’ orders on time;
     
  our ability to maintain adequate control of our expenses and internal accounting  processes generally as we seek to grow;
     
  our ability to establish or protect our intellectual property;
     
  the impact of significant government regulation in China;
     
  our ability to implement marketing and sales strategies and adapt and modify them as needed; and
     
  our implementation of required financial, accounting and disclosure controls and procedures and related corporate governance policies.

 

Although the forward-looking statements included herein, 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 by 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.

 

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USE OF PROCEEDS

 

This prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholders named herein.  There will be no proceeds to us from the sale of shares of common stock in this offering.

 

DETERMINATION OF OFFERING PRICE

 

The offering price of shares of common stock is a fixed price of $0.67 per share until our common stock is quoted on the OTC Market at which time the common stock may be sold at prevailing market prices or at privately negotiated prices. No assurances can be given that our common stock will ever be listed or quoted on any exchange or quotation system.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS

AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our results of operations and financial condition should be read together with our consolidated financial statements and the notes thereto and other financial information, which are included elsewhere in this registration statement. Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). In addition, our financial statements and the financial information included in this registration statement reflect our organizational transactions and have been prepared as if our current corporate structure had been in place throughout the relevant periods.

 

This section contains forward-looking statements. These forward-looking statements are subject to various factors, risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Further, as a result of these factors, risks and uncertainties, the forward-looking events may not occur. Relevant factors, risks and uncertainties include, but are not limited to, those discussed in the section entitled “Business,” “Risk Factors” and elsewhere in this registration statement. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s beliefs and opinions as of the date of this registration statement. We are not obligated to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. See “Cautionary Note Regarding Forward-Looking Statements.”

 

Overview

 

We specialize in the design, manufacture and direct sale of customized technical endurance apparel for the cycling, triathlon, running and Nordic skiing markets across Asia, Europe and North America. Our made-to-order, just-in-time (“JIT”) process vertically integrates design, sales and distribution of sporting apparel products.

 

Our global sporting apparel business is currently comprised of three core business units: inline retail, which consists of products produced and sold as part of a collection (“Inline Retail”), OEM contract manufacturing (“OEM”) and custom order retail (“Custom Order Retail”). Our Inline Retail, OEM and Customer Order Retail businesses currently account for 21%, 12% and 67% respectively, of our sales revenue for the year ended December 2016.

 

The two primary sales channels for our Inline Retail and Custom Order Retail business are direct sale and wholesale. Direct sale currently generates 75% of our worldwide sales revenues. Under the direct sale model, we sell our products directly to end users through our Jakroo e-commerce platform. The Jakroo platform allows customers to easily log onto our platform, complete their designs and place purchase orders. Wholesale currently represents 25% of our revenue. We act as both retailer and wholesaler of our products through our e-commerce platform as well as through large online retailers such as TMALL in China. Sales through both channels are executed with payments made directly to us online prior to the production and shipment of products.

 

In order to target customers in major markets, we have established sales offices in China, the United States, Canada and Austria that provide sales, marketing and customer service support to our regional markets. We currently lease a 64,000 square foot manufacturing facility at the border of Beijing and Hebei province in China. The facility has annual capacity to produce 500,000 jerseys and manufactures all of our products. As of the date of this prospectus, we have approximately 189 employees worldwide.

 

Our operating segments include North America, China and Europe.

 

We believe there is an increasing recognition of the health benefits of an active lifestyle through cycling, triathlon and running. We believe this trend provides us with an expanding potential consumer base for our products. We also believe there continues to be an increasing number of individuals participating in cycling, triathlon and running activities, thus creating an increased demand for athletic apparel from leisure, pre-athlete and amateur participants. We plan to continue to grow our business over the long term through increased sales of our apparel via our made-to-order, JIT process, and our expansion in international markets.

 

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Although we believe these trends will facilitate our growth, we also face potential challenges that could limit our ability to take advantage of these opportunities, including, among other things, the risk of general economic or market conditions that could affect consumer spending and the financial health of our retail customers. In addition, we may not be able to effectively manage our growth as our business becomes a larger and more complex global business. We may not consistently be able to anticipate consumer preferences or develop new and innovative products that meet changing consumer needs and preferences in a timely manner. Furthermore, our industry is very competitive, and competition pressures could cause us to reduce the prices of our products or otherwise affect our profitability. For a more complete discussion of the risks facing our business, refer to the “Risk Factors” section above.

 

General

 

Revenues are comprised of the sales of our technical endurance apparel products, which include OEM, inline collection and custom made to order, with the latter category assuming the highest percentage of sales of the three segments.

 

Cost of sales consist primarily of fabrics, other raw materials, overhead, manufacturing costs, inbound raw material freight and outbound duty and freight costs required to make our products floor-ready to customer specifications.

 

We include outbound freight costs associated with shipping goods to customers as cost of goods sold.

 

Our selling, general and administrative expenses consist of costs related to marketing, selling, product innovation, supply chain and corporate services. Personnel costs are included in these categories based on each employee’s function. Personnel costs include salaries, benefits and incentives.

 

Results of Operations

 

Year Ended December 31, 2016 compared to Year Ended December 31, 2015

 

The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues:

 

    Year Ended December 31  
    2016     2015  
             
Revenues   $ 9,354,365     $ 8,693,997  
Cost of sales     4,210,708       4,350,686  
Gross profit     5,143,657       4,343,311  
Selling and administrative expense     4,564,332       4,166,504  
Income before income taxes     579,325       176,807  
Income tax expense     186,310       85,579  
Net income   $ 393,015     $ 91,228  

 

As a percentage of net revenues   Year Ended December 31  
    2016     2015  
             
Revenues     100.00 %     100.00 %
Cost of sales     45.01       50.04  
Gross profit     54.99       49.96  
Selling and administrative expense     48.80       47.93  
Income before income taxes     6.19       2.03  
Income tax expense     1.99       0.98  
Net income     4.20 %     1.05 %

 

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Revenues

 

Revenues increased $0.66 million, or 8%, to $9.35 million in 2016 from $8.69 million in 2015. Revenues by business units are summarized below:

 

    Year Ended December 31,  
    2016     2015     $ Change     % Change  
OEM   $ 1,113,009     $ 1,410,035     $ (297,026 )     (21 )%
INLINE     1,941,157       2,056,183       (115,026 )     (6 )%
CUSTOM ORDER     6,300,199       5,227,779       1,072,420       21 %
Total Revenues   $ 9,354,365     $ 8,693,997     $ 660,368       8 %

 

The increase in net sales was driven primarily by increases in our made-to-order Custom Retail business unit across all regions. A decrease of Inline sales in China was primarily the result of decreases in wholesale sales to traditional brick and mortar retail shops as consumers shifted their spending to large online retailers such as TMALL. We continue to shift our capacity from OEM with lower margin to higher margin business unit, Custom Orders.

 

Gross profit

 

Gross profit increased $0.8 million to $5.14 million in 2016 from $4.34 million in 2015. Gross profit as a percentage of net revenues, or gross margin, increased by 5% to 55% in 2016 compared to 50% in 2015. The increase in gross margin percentage was primarily due to the increase of sale of Custom Order Retail which has a higher gross margin than the other two business units;

 

Cost of Sales

 

Cost of sales includes the expenses incurred from our purchase of raw materials, direct labor fees and manufacturing overhead.

 

For the year ended December 31, 2016, our total cost of sales amounted to approximately $4.2 million or approximately 45% of total revenues, as compared to approximately $4.35 million or approximately 50% of total revenues for the year ended December 31, 2015. The decrease in cost of sales as a percentage of total revenue was primarily due to the drop of OEM and Inline sales and the increase of Custom Order Retail sales which have a higher gross margin.

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses increased $0.39 million to $4.56 million in 2016 from $4.17 million in 2015. As a percentage of net revenues, selling, general and administrative expenses increased to 48.8% in 2016 from 47.9% in 2015. These changes were primarily attributable to the following increased expenses in 2016:

 

  we spent $0.2 million more for marketing activity; and

 

  with the expansion of our business, we spent $0.2 million more in employee and travel costs.

 

Provision for income taxes

 

Provision for income taxes increased $0.1 million to $0.19 in 2016 from $0.09 million in 2015. Our effective tax rate was 32.2% in 2016 compared to 48.4% in 2015. Our effective tax rate for 2015 was higher than the effective tax rate for 2016 primarily due to more income coming from our Chinese subsidiaries in 2016 as compared to 2015, which have a lower income tax rate than US and Canada.

 

Other Comprehensive Loss

 

Other comprehensive loss increased $56,504 to $216,733 in 2016 from $160,229 during 2015. These changes were primarily attributable to foreign currency translation losses caused by the decrease in the RMB to US Dollar exchange rate in 2016 as compared to 2015.

 

Segment Results of Operations

 

The net revenues and operating income (loss) associated with our segments are summarized in the following tables.

 

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Year Ended December 31, 2016 compared to Year Ended December 31, 2015

 

Revenues by segment are summarized below:

 

    Year Ended December 31  
    2016     2015     $ Change     % Change  
North America   $ 5,952,328     $ 5,027,819     $ 924,509       18.39  
China     3,233,005       3,663,872       (430,867 )     (11.76 )
Europe     169,032       2,306       166,726       7,230.09  
Total revenues   $ 9,354,365     $ 8,693,997     $ 660,368       7.60  

 

Net revenues in our North America operating segment increased $0.9 million to $5.95 million in 2016 from $5.03 million in 2015. This increase was primarily due to the increase of revenue of our Custom Order Retail business. Net revenues in China decreased $0.4 million to $3.23 million in 2016 from $3.66 million in 2015. This decrease was primarily due to a decrease of revenue in our OEM sales in China in 2016, which is aligned with the Company’s strategy to shift sales away from low margin OEM to higher margin inline and Custom Order Retail business. Our sales office in Austria operated twelve months and generated $0.17 million more revenue compared to 2015 in the European market.

 

Income (loss) before income taxes by segment is summarized below:

 

    Year Ended December 31  
    2016     2015     $ Change     % Change  
North America   $ 158,844     $ 218,147     $ (59,303 )     (27.19 )
China     572,461       1,033       571,428       55,317.33  
Europe     (151,980 )     (42,373 )     (109,607 )     258.67  
Total Income (loss) before income taxes   $ 579,325     $ 176,807     $ 402,518       227.66  

 

Operating income in our North America operating segment decreased $0.06 million to $0.16 million in 2016 from $0.22 million in 2015. This decrease was primarily due to the combined effect of increasing operating income and increasing operation costs in our sales office in Canada. Net operating income in our China operating segment increased $0.57 million to $0.57 million in 2016 from approximately $1,000 in 2015. This increase was primarily due to (1) less expenditures relating to professional services incurred in 2016; (2) The appreciation of US dollars against CNY also attributed to the revenue from China segment. With the opening of our newly established Austrian sales office at the end of 2015, we experienced an operating loss of $0.15 million from our business in Europe in 2016 with the investment in marketing, team sponsorships and hiring of additional staff to lay the foundation for future growth. As our European business continues to grow, we expect the ratio of marketing expenses to revenue will continue to decrease and stabilize to normal levels observed in our other operating subsidiaries. Both new customer accounts and net revenues have increased each quarter since the third quarter of 2016, and we expect to reach the break-even point for our European subsidiary sometime during the second half of 2017. 

 

Liquidity and Capital Resources

 

Our cash requirements have principally been for working capital and capital expenditures. We fund our working capital, inventory and capital investments from cash flows from operating activities, cash and cash equivalents on hand. Our working capital requirements generally reflect the growth in our business. Our capital investments have included purchasing factory machinery, leasehold improvements for our offices and factory, and making investments and improvements in information technology systems.

 

We believe our cash, cash equivalents on hand and cash from operations are adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months. Although we believe we have adequate sources of liquidity over the long term, an economic recession or a slow growth period could adversely affect our business and liquidity. In addition, instability in or a tightening of the capital markets could adversely affect our ability to obtain additional capital to grow our business on terms acceptable to us or at all.

 

Cash Flows

 

The following table presents the major components of net cash flows used in and provided by operating, investing and financing activities for the periods presented:

  

Year Ended December 31, 2016 compared to Year Ended December 31, 2015

 

    Year Ended December 31  
    2016     2015  
             
Net cash provided by (used in):            
Operating activities   $ 685,208     $ 478,698  
Investing activities     (96,894 )     (139,282 )
Financing activities     117,363       38,304  
Effect of exchange rate changes on cash and cash equivalents     (163,854 )     (103,419 )
Net increase in cash and cash equivalents   $ 541,823     $ 274,301  

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Operating Activities

 

Operating activities consisted primarily of net income adjusted for certain non-cash items. Adjustments to net income for non-cash items included depreciation and amortization, losses on disposals of property and equipment. In addition, operating cash flows included the effect of changes in operating assets and liabilities, consisting principally of inventories, accounts receivable, income taxes payable and receivable, prepaid expenses and other assets, accounts payable and accrued expenses.

 

Cash flows provided by in operating activities increased $0.21 million to $0.69 million in 2016 from $0.48 million of cash provided by operating activities in 2015. The increase in cash from operating activities was due to decreased net cash flows from operating assets and liabilities of approximately $111,000, partially offset by adjustments to net income for non-cash items, which increased approximately $16,000, and an increase in net income of $0.3 million.

 

Investing Activities

 

Cash used in investing activities decreased $42,000 to $97,000 in 2016 from $139,000 in 2015, primarily due to a loan of $75,000 provided to one officer in 2015 offset by $32,000 more in fixed assets acquired in 2016 as compared to 2015. On June 5, 2015, the Company provided a long term loan to Mr. Derek Wiseman, our Secretary and the Chief Operating Officer of Rider Sportsfashion LLC, in the amount of $75,000. As of the date of this filing, the loan has been repaid in full.

 

Total capital expenditure was $97,000 and $65,000 in 2016 and 2015, respectively.

 

Financing Activities

 

Financing activities consisted primarily of cash provided through loans from related parties or cash repayments to related parties. The related parties included the Company’s shareholders, officers and companies owned by our Chief Financial Officer. In 2016, the Company received $0.26 million proceeds for common stock issuance to founders and investors.

 

Off-Balance Sheet Arrangements

 

In connection with various contracts and agreements, we have agreed to indemnify counterparties against certain third party claims relating to the infringement of intellectual property rights and other items. Generally, such indemnification obligations do not apply in situations in which our counterparties are grossly negligent, engage in willful misconduct or act in bad faith. Based on our historical experience and the estimated probability of future loss, we have determined the fair value of such indemnifications is not material to our financial position or results of operations. 

 

Critical Accounting Policies

 

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). To prepare these financial statements, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosures of contingent assets and liabilities. Actual results could be significantly different from these estimates. We believe the following discussion addresses the critical accounting policies that are necessary to understand and evaluate our reported financial results.

 

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Our significant accounting policies are described in Note 2 of our audited consolidated financial statements. The SEC suggests companies provide additional disclosure on those accounting policies considered most critical. The SEC considers an accounting policy to be critical if it is important to our financial condition and results of operations and requires significant judgments and estimates on the part of management in its application. Our estimates are often based on complex judgments, probabilities and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. It is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

 

Recognition of Revenues

 

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, collectability is probable and no other significant obligations of the Company exist. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. Payments received before all relevant criteria for revenue recognition are satisfied are recorded as customer deposits which are recorded as a liability until the products are delivered.

 

Allowance for Doubtful Accounts

 

The Company makes ongoing estimates relating to the collectability of accounts receivable and maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. In determining the amount of the reserve, the Company considers historical levels of credit losses and significant economic developments within the retail environment that could impact the ability of its customers to pay outstanding balances and makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Because the Company cannot predict future changes in the financial stability of its customers, actual future losses from uncollectible accounts may differ from estimates. If the financial condition of customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In the event the Company determines a smaller or larger reserve is appropriate, it would record a benefit or charge to selling, general and administrative expense in the period in which such a determination was made.

 

Inventories

 

Inventories consist of raw materials and finished goods. Inventories are valued at the lower of cost or market. We determine cost on the basis of the weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are written down or written off. Although we believe that the assumptions we use in estimate inventory write-downs are reasonable, future changes in these assumptions could provide a significantly different result.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by valuation allowances when necessary.

 

Assessing whether deferred tax assets are realizable requires significant judgment. The Company considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. The ultimate realization of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent the Company believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against the Company’s deferred tax assets, which increase income tax expense in the period when such a determination is made.

 

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Income taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions or obtaining new information on particular tax positions may cause a change to the effective tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the consolidated statements of income.

 

Recently Issued Accounting Standards

 

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This guidance requires an entity to measure inventory at the lower of cost and net realizable value, rather than at the lower of cost or market. The guidance is effective for interim and annual periods beginning after December 15, 2016, and is to be applied prospectively. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company's financial statements.

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance makes targeted improvements to existing U.S. GAAP for financial instruments, including requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; requiring entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and requiring entities to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option. The new guidance is effective for public companies for fiscal years beginning after December 15, 2017. Early adoption of the own credit provision is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this guidance, lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee's obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs. The standard also requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements.

  

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This guidance contains multiple updates related to the accounting and financial statement presentation of share-based payment transactions. Under the new guidance, excess tax benefits will be recognized as income tax expense in the period in which the awards vest, as opposed to being recognized in additional paid-in capital when the deduction reduces taxes payable. Excess tax benefits will be classified as an operating activity within the statement of cash flows, as opposed to a financing activity. The new guidance also clarifies that cash paid by an employer when withholding shares for tax withholding purposes should be classified as a financing activity, and also permits an accounting policy election for accruing compensation cost to either estimate the number of awards that are expected to vest, similar to current U.S. GAAP, or account for forfeitures when they occur. The new guidance is effective for fiscal years beginning after December 15, 2016. The method of transition is dependent on the particular provision within the new guidance. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

 

In September 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This guidance clarifies the presentation requirements of eight specific issues within the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company's financial statements, as the Company's treatment of the relevant affected items within its consolidated statement of cash flows is consistent with the requirements of this guidance.

   

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BUSINESS

 

We specialize in the design, manufacture and direct sale of customized technical endurance apparel for the cycling, triathlon, running and Nordic skiing markets across Asia, Europe and North America. Our made-to-order, just-in-time (known as JIT) manufacturing process and vertical integration of design, sales and distribution minimizes risk, provides autonomous control of quality across all stages of our vertically integrated supply chain and maximizes value to our customers.

 

In 1996, Weidong “Wayne” Du, our Chief Executive Officer conceived of the idea of manufacturing sublimated sportswear while working as an agent serving European customers for a Chinese trading company. Sublimation is a computerized printing process that uses heat to transfer dye onto the fabric. In 2003, Mr. Du founded Rider Sportsfashion Ltd in Beijing, China to handle original equipment manufacturing (or OEM) of sublimated cycling apparel. In 2006, the Jakroo® brand was launched and focused on the manufacture and sale of cycling apparel products within the domestic Chinese market.

 

In 2010, we shifted our strategy toward customization, at which time we formed Rider Sportsfashion LLC and began marketing our products in the U.S. through our home base in Pleasanton, California. In 2014, we established Jakroo Canada Inc., based in Vancouver, British Columbia, to oversee marketing, sales and distribution in the Canadian market. Soon thereafter, in 2015, we established Jakroo GmbH, based in Rankweil, Austria, to manage marketing, sales and distribution in the European market. The Jakroo® brand is among the top three selling cycling apparel brands on China’s largest e-commerce platforms, TMALL. Among cycling enthusiasts, Jakroo ranks among the most popular cycling apparel brands in the Chinese market alongside the likes of Santic, Sobike and CCN, all of which are Chinese domestic brands. Within the U.S. and Canadian markets, the brand is considered to be among the top custom cycling wear brands along with Champion System, Hincapie, Voler, Pactimo and Louis Garneau. While the competitive landscape across Europe varies greatly by region, we consider brands such as Castelli, Bio Racer, Santini, Owayo and Cuore to be our primary competitors.

 

Our global business is currently comprised of three core business units: (1) inline retail, which consists of products produced and sold as part of a collection; (2) OEM contract manufacturing; and (3) custom retail. We will continue to maintain the current business ‘mix’ of business, although we expect our OEM business, which currently represents 12% of sales, to account for 10% or less of our total business at some point in the foreseeable future. We expect inline retail to remain stable around 20% and custom retail is expected to grow to represent 70% of our business from its current 67% share.

 

We have two primary sales channels for our inline and custom retail businesses: (1) direct to consumer sales through our website, which represents 75% of total revenues and (2) wholesale, defined as sales to retail shops, promotional distributors and event organizers, which represents, 25% of total revenues for these two channels. Both channels are sold exclusively online through our e-commerce websites or, in the case of China, through large online retailers such as TMALL. Over 98% of our business from these channels is executed with payments made to us online in advance of production and shipment of goods.

 

Our value proposition is based on fast delivery, no minimum purchase requirements and free design. We currently offer a two week turnaround time and offer customers two pathways for design: (1) Do it yourself (or DIY), through the exclusive Jakroo Express ™ design application and; (2) Jakroo Pro Custom , a free professional design service offered through the Jakroo website. We believe that the combination of these novel offerings provides us with a distinct competitive advantage.

 

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Market Overview & Opportunity

 

Overview

 

A recent survey by Paris based NPD Group estimated the cycling apparel market to be valued at $2.2 billion Euro (US$2.5 billion) in 2014 and estimates the broader active wear market will continue to experience growth and reach $178 billion by 2019. 1

 

According to the Sports & Fitness Industry Association (SFIA), participation in running, cycling and hiking in 2015 reached 140 million people worldwide. 2 Participation in cycling as a pastime in the U.S. was estimated at 67 million in 2014, as noted by the online statistics site, Statista. 3 This indicates a large potential market for cycling gear. With the inclusion of running and triathlon, we expect to see continued growth in the endurance sports participation, particularly in the youth and women’s segments. According to USA Triathlon, female participation in triathlons has grown from 27% of all participants in 2000 to more than 37% in 2014.

 

In China, the concept of cycling as a component of a healthy lifestyle has increased as a growing middle class has begun participating in cycling for recreation. In 2014, Ji Cheng, nicknamed the “breakaway killer” for his skill in controlling the speed of the peloton (i.e., the main group of riders in a cycling road race), was the first Chinese cyclist in the history of the Tour de France.

 

A recent survey entitled “Millennial Consumer Trends” by Elite Daily of more than 1,300 millennials (those born between 1980-1996) reports that more than 42% of those surveyed are deeply interested in helping companies develop future products and services, and 62% of millennials say that if a brand engages with them on social networks, they are more likely to become a loyal customer. 4

 

We believe that these trends, coupled with the rapidly growing direct-to-consumer e-commerce and product personalization markets, will create significant opportunities for companies like Jakroo that are equipped with the information and manufacturing architecture to support the new era of “social” commerce.

 

Customization is the Future

 

While gathering data to quantify the potential market size for a new product or service can be challenging, a 2013 report by Forbes magazine cites a Bain survey of more than 1,000 online shoppers among whom, although only 10% had tried online customization options, 25-30% expressed interest in doing so. While it is difficult to quantify the potential of customization, if 25% of sales from the $2.5 billion cycling apparel market were customized, that would equate to $625 million per year 5 .

 

Customization will also create distinct advantages for companies to differentiate their products from their competitors at a time when the Internet is making it easier for customers to easily compare prices and products with standard features or options.

 

 

 

1 “2014 Global Cycling Market Valued at € 35.7 Billion,” Bike Europe, 8 Dec 2015, http://www.bike-eu.com/sales-trends/nieuws/2015/12/2014-global-cycling-market-valued-at-e-35-7-billion-10125262.

 

2 SFIA survey.

 

3 “Number of Cyclists/Bike Riders Report,” Statista 2016.

http://www.statista.com/statistics/227415/number-of-cyclists-and-bike-riders-usa/

 

4 “Millennial Consumer Trends,” Elite Daily Survey 2015.

 

5 “Having It Their Way: The Big Opportunity in Personalized Products,” Forbes, Nov. 5, 2013.

 

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Within the wholesale markets, the ability to extend customization to a re-seller can provide a competitive advantage through the offering of novel versions of a company’s products, thus allowing the retailer to minimize high capital investments in inventory and avoid deep discounting which can arise as a result of overstocking on a particular item or from price wars among competitors of similar products.

 

Developments in the fields of 3D printing, DIY design applications and apparel centric wearables will expedite the acceptance and growth of personalization, creating new value and new market opportunities. We anticipate that existing companies that fail to reengineer their offerings will suffer either a significant competitive disadvantage or be forced to exit the market altogether. We believe that our highly customized information architecture, vertical integration and JIT manufacturing infrastructure will position Jakroo to assume a leadership position within our target markets.

 

The Evolution of E-commerce

 

According to a report by Statista, the number of online shoppers in the U.S. is projected to reach 215 million by 2019. This represents a 12% increase from the 191 million recorded in 2013. 6 Net sales for Amazon alone reached $37 billion in the fourth quarter of 2015. E-commerce sales in China are projected to exceed $400 billion by the end of 2016. Market research firm eMarketer projects e-commerce sales will eclipse $3.5 trillion within the next five years. The web is projected to account for 7.3% of global retail sales this year and grow to 12.4% by 2019, according to eMarketer. 7 As more than 95% of our sales are derived through e-commerce, we will continue to invest heavily in digital advertising to direct online shoppers to our customized design center and online shops. This investment includes upgrading our existing e-commerce architecture and adding new features to improve the overall user experience and enhance brand loyalty.

 

Companies such as Facebook and Twitter are making significant investments in social commerce as community and social engagement play a larger role in consumer purchasing decisions. Additionally, the gap between search and purchase domains is quickly fading. In a 2015 Surveta survey of 2,000 consumers, 44% of respondents stated they go direct to Amazon to start their product searches compared to 34% who start on a Search engine such as Google, Bing or Yahoo. 8 Jakroo’s business is poised to leverage this trend through its direct to consumer sales channel across the Jakroo group of e-commerce shopping sites as well as its sales through sites such as TMALL. In fact, since 2016, we have been leveraging these trends through investing in digital advertising on the Facebook platform. In 2017, we began selling our inline retail products on the Amazon platform in an effort to expand revenues and build brand awareness. While the immediate benefit will from using the Amazon platform will be the revenues earned from those sales, we expect to achieve additional benefits as this provides us with an additional means through of introducing customers to our custom order business through interaction with us and ongoing marketing campaigns.

 

Competitive Strengths

 

We believe that the following key competitive strengths differentiate us from our competitors and are critical to our continuing success:

 

Lean Manufacturing & Vertical Integration

 

We own and operate all facets of our design, manufacturing and sales process. This vertical integration allows us complete control over our quality assurance of products and services, user experience and brand. Unlike many of our competitors who rely on contract manufacturing, direct ownership of the manufacturing facility allows us to tightly control production timelines, quality control and delivery.

 

 

 

6 “Number of digital shoppers 2014-2019,” Statista. 2016.

http://www.statista.com/statistics/183755/number-of-us-internet-shoppers-since-2009/.

 

7 “Global e-commerce sales set to grow 25% in 2015” Matt Lindner, Internet Retailer July 2015.

https://www.internetretailer.com/2015/07/29/global-e-commerce-set-grow-25-2015

 

8 “Amazon Commands Nearly Half Of Consumers' First Product Search, BloomReach Study Finds”. 2015. Forbes“

http://www.forbes.com/sites/fionabriggs/2015/10/06/amazon-commands-nearly-half-of-consumers-first-product-search-bloomreach-study-finds/#a3ef0627b779  

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Our production facility, which had been located in the Tongzhou District of Beijing and was recently relocated to a newly built facility on the boarder of Beijing and Hebei Province, has been producing technical endurance apparel for more than 13 years. This extensive experience has allowed us to develop specially engineered processes that have been optimized to produce and deliver a high capacity of small quantity orders ranging from 1 piece to 25 pieces, on average, within 14 days, which is a substantially quicker turnaround than our competitors. The chart below shows the average delivery time of Jakroo as compared to our main competitors, as based on descriptions of delivery time found at each of our below-listed competitors’ websites.

 

 

 

 

In 2015, 77% of our production lot quantities were less than 9 pieces. Moreover, 59% of our production lot quantities were less than 5 pieces. Additionally, 88% of orders were delivered to customers in less than three weeks and 31% were delivered to customers in less than two weeks. As shown in the charts above, most of our competitors require five to six weeks’ time to manufacture, process and deliver orders.

 

While consistently delivering the value proposition of either short delivery times or low minimum orders can pose logistical challenges, Jakroo has mastered both through developing a specialized work process and complex manufacturing system. More importantly, Jakroo has developed the ability to scale those processes without degradation of quality or compromising timelines. We believe this combination is novel to Jakroo in the technical endurance sports apparel industry and allows us a significant competitive advantage.

 

Integrated Information Systems

 

Our core information system is built on a robust, cloud-based consolidated financial platform and ecommerce module. This allows us to easily deploy and manage localized subsidiary companies and e-commerce platforms across our online properties while effectively addressing local tax compliance requirements, language and currency. We’ve made significant investments in customization of the platform to meet our particular requirements and create a compelling proprietary service for our customers.

 

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We’ve developed a proprietary, comprehensive design architecture using 3D modeling and, in partnership with external vendors, developed Express by Jakroo , the industry’s most advanced self-design platform that provides a rich user experience for the customer and utilizes back-end efficiencies by our production team.

 

In the spring of 2016, we implemented our make-to-order production module in order to further streamline the item configuration process and achieve greater efficiencies with raw material asset management, production scheduling and cost accounting.

 

With this system in place, we are able to capture and track all customer activity from the initial inbound lead through to product design and the final delivery of purchased products. This end-to-end visibility allows us to quickly troubleshoot activity and scale our business.

 

Global presence

 

The current competitive landscape within the endurance sports apparel market varies significantly based on region. Many of the incumbent brands in the U.S. have minimal or no presence in the primary European or Asian markets. On the other hand, a handful of European brands have, through years of investment, gained market awareness across North America and Asia. Very few Chinese domestic brands, however, have any reasonable brand awareness in either Europe or North America. We are working to change that.

 

In addition to our operating headquarters in Pleasanton, California, we have fully functional operating subsidiaries in Beijing, China, Vancouver, British Columbia and Rankweil, Austria that provide sales, marketing and customer service support to our regional markets. This allows us to provide superior localized support to our regional customers while building brand loyalty therein.

 

With our current established presence in each of the core markets and our proven business model, we believe we are positioned to take a leadership position in the endurance sports apparel market. Our plan is to continue to establish and grow subsidiary offices and joint venture operations in key regions around the globe as part of our commitment to building trust, premium customer service and brand loyalty.

 

Significant Design & Shopping Experience

 

With the use of proprietary and highly customized customer relationship management and design applications, we are able to offer our customers two options for their design experience. Our proprietary Express by Jakroo DIY application was built to specification using state of the art technology and proprietary know-how to allow customers to design on a 99% true to size 3D model and easily purchase anytime. Unlike similar services offered by our competitors, which provide conceptual mock ups and require significant back-end interaction with designers and sales persons to process the order, designs created using Express by Jakroo are transferred directly to the production floor with minimal human interaction and enter the production process upon the customer’s placement of the order.

 

Customers who elect to use our Pro Custom service will enjoy the benefits of having a trained professional designer create their design according to specification. The customer is able to participate in the design editing process through an interactive online review/approval system. Unlike many of our competitors, who typically charge a design set-up fee and require several days to prepare the artwork, we offer this service free of charge and provide the designs within 48 hours of design request.

 

 

 

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Since 2013, we have created more than 100,000 unique products and published more than 7,000 online custom storefronts on the Jakroo e-commerce platform. These semi-private webpages, hosting the customer’s customized products, allow the customer to order at their convenience 24/7 and share their store with friends, family and team members. We believe we are presently on track to create an additional 4,000 customer storefronts in 2016. Our custom e-commerce platform has been engineered to facilitate the particular requirements of each customer, including flexible ordering dates, order windows, individual shipping and sharing of stores and products.

 

Through our online account center, customers can review pending design approvals, track the status of all of their designs as they progress through the design process, as well as submit new design requests.

 

Based on more than 4,400 individual customer reviews which we solicited through direct feedback requests since 2013, over 92% of respondents rated their overall experience with Jakroo as positive and more than 96% of respondents indicated they were either very satisfied or “blown away” by the quality of our products.

 

By addressing the ongoing challenges faced by our traditional retailing competitors with forecasting and carrying inventory, we provide a competitive offering by maintaining a full service ‘hands-free’ custom online storefront option. This allows retailers who use our system to offer a broad selection of highly customizable products to their customers without having to purchase or carry the inventory in advance. Orders are made-to-order and shipped directly to the customer from our production facility in Beijing. The combination of made-to-order, JIT and custom commerce provides retailers the ability to better differentiate their offerings in a highly competitive marketplace.

 

OUR GROWTH STRATEGY

 

Customer Acquisition

 

We acquire the majority of our direct customers online through Search Engine Marketing (SEM) and display marketing campaigns on Google, Bing and social websites such as Facebook and Twitter. In China, comprehensive platforms such as WeChat, QQ and Weibo play an important role in our customer acquisition, engagement and social commerce strategies. We will continue to invest in advertising and marketing to strengthen brand awareness in key markets.

 

Globally, sponsorship of organized race events and charity rides also plays a key role for customer acquisition, along with sponsorship of influential cycling teams and athletes to establish brand credibility. We currently sponsor several large profile Gran Fondo cycling events and Triathlon events across Canada, California and Austria. During 2013 and 2014, we sponsored the UCI Tour of Beijing and Tour of Hainan, both of these were high profile cycling events in China with international athlete participation and media exposure. Sponsorships for 2016 include the Trans Vorarlberg Triathlon in Bregenz, Austria, the Oakland Gran Fondo in Oakland California, and the EPIC Tour, Canada’s largest Fondo event with over 3000 participants. As of January 2017, we will be the exclusive race apparel sponsor of the UnitedHeathcare Pro Cycling Team, a U.S. based pro-continental team with global recognition among the competitive cycling community.

 

Vertical and Lateral Expansion

 

In the near-term, we will continue our focus on the endurance sports apparel market. We define this market as products used for cycling, triathlon, running and Nordic skiing. We aim to strengthen our brand and gain share within these core markets through: (1) investing in new product development and technologies geared toward improving the customer experience and reducing delivery times; (2) expanding geographically through establishing subsidiary companies and/or partnerships in key regions across the globe; and (3) making deeper investments in marketing partnerships and advertising.

 

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We have experienced year over year profitable growth since 2011 and we plan to continue our international expansion across Europe and the Asia-Pacific regions. Additional opportunities for growth will focus on lateral expansion into related product or sport categories that can benefit from customization. Examples of such categories include high school and collegiate level volleyball, soccer and wrestling teams.

 

In 2015, 90% of Jakroo’s sales within the North American market came from the Cycling product category, 7% from Triathlon and the remainder were shared between Running and Nordic. 70% of total revenues were generated through our direct-to-consumer channel and 30% through resellers. We’ve acquired more than 22,000 paying customers since 2013 and have acquired more than 5,000 new customers each year during 2014 and 2015. We will continue to invest in technologies aimed at improving the end-user customer experience and monetizing new leads through expediting the design-to-sale process.

 

Currently, 78% of total revenues in China come from our Inline retail product collection while the remaining 22% arise from the Custom product category. We plan to continue to drive growth within the custom product channel through investments in marketing and front-end systems. We will transition our make-to-stock production into micro-production lots (quantities of less than 50pc) to improve inventory turnover and net margins.

 

Our Wholesale channel, defined as retail shops and promotional goods distributors, represents 30% of total revenues across North America. To date, we have more than 500 paying customers with the average customer ordering $5,500.00 worth of goods. We will continue to invest in service offerings and technology platforms that provide competitive advantages for retailers.

 

We will also explore partnership and licensing opportunities using Jakroo Express as a vehicle to generate royalty-based revenue as well as evaluate target companies for acquisition.

 

Increased Margins and Return on Invested Capital

 

Our made-to-order, JIT business model mitigates the need to carry inventory, thus freeing up capital to be used for investments in future expansion. Customers pay for goods in advance of production, which allows receivables to be as low as 0.1% of total revenue. North America continues to be our fastest growing market as we continue to establish the Jakroo brand across the East Coast. Looking forward, however, we expect our newly founded European operations to consume a significant portion of global sales over the next three years.

 

Revenues and profitability were impacted in 2015 as a result of one-time costs associated with auditing, corporate restructuring, investments in IT infrastructure and the establishment of our European operations.

 

With continually improved design applications and deployment of our advanced Production Module, we expect to be able to reduce raw material waste and increase front-end efficiencies associated with customer service resulting in greater operating margins. *Audited results shown for 2014, 2015 and 2016. Values for 2017 and 2018 are projections.

 

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COMPANY OVERVIEW

 

Our Core Values

 

Our respect for our employees and community, and our emphasis on continuous improvement and social responsibility, are all borne from our core values of community, teamwork, integrity and innovation . We believe our employees are our greatest asset to help us build lasting value for all of Jakroo’s stakeholders, including our customers.

 

Compliance and Sustainability

 

We maintain an ongoing commitment to the environment and our products are OEKO-TEX® certified. OEKO-TEX® Standard 100 is an independent test and certification system for all types of textiles tested for harmful substances – from threads and fabrics to the ready-to-use items that are available for purchase in stores.

 

In our commitment to ensuring safe and healthy working conditions for our employees and community at large, our production facility in China was fully audited and certified by a globally recognized environmental compliance auditor in September of 2015 through the Business Social Compliance Initiative (BSCI) 9 that audits and certifies working conditions and environmental performance in a company’s global supply chains . Proposition 65 compliance is ongoing for the materials and fabrics used in products sold in California.

 

Experienced Management Team

 

The senior management at team at Jakroo and its subsidiaries is comprised of individuals with extensive backgrounds in the sports apparel and manufacturing industries. Our senior operations team also has extensive experience in brand management and market development within the sports apparel industry. Jakroo’s management team is described in more detail beginning on page 53 in the Management section below.

 

Employees

 

As of the date of this prospectus, we employed approximately 189 employees as follows:

 

Rider Sportsfashion LLC :15 full time, 1 part-time employee, 2 independent contractors
     
Jakroo Canada Inc .: 2 full time, 1 part-time employee
     
Jakroo GmbH : 2 full-time employee
     
Rider Sportsfashion Ltd : 166 full-time employees

 

We consider our relationships with our employees to be good. None of our employees is covered by collective bargaining agreements.

 

Properties

 

Our corporate headquarters are located in Pleasanton, California, where we own and operate 6,500 square feet of office space. In addition, we lease the following properties:

 

Jakroo Canada Inc. (Leased): 2323 Quebec Street, Unit 222, Vancouver, Canada, V5T4S7
     
Jakroo GmbH. (Leased): 6830 Langgasse 108, Rankweil, Austria
     
Rider Sportsfashion Ltd (Leased): Room 509, Building C Topbox, No 69 Beichen West Street, Beijing 100029
     

Rider Sportsfashion (Langfang) Limited (Leased): Da Dong Guan Duan, South Chang Tan Road, Da Chang, Lang Fang, Hebei Province, China

 

We recently moved our production facilities to a newly built, 64,000 sq. ft. factory located on the border of Beijing and Hebei Province. The facility has an annual capacity to produce 500,000 jerseys. The lease on this property expires in November 2026.

 

Proprietary Rights

 

Each of the “J” logo and “Jakroo” mark has been registered as a service mark or trademark within the United States Patent and Trademark Office. In addition, we have obtained trademarks in Benelux, Canada, Mainland China, Denmark, Finland, Hong Kong, Taiwan, Malaysia, France, Thailand, Japan, Germany, Korea, Norway, Sweden, Spain, Switzerland and the United Kingdom. Additional registrations of our trademarks in secondary product categories have been registered or are in process of being registered within the respective Trademark offices in the primary countries in which we do business.

 

Legal Proceedings

 

On January 12, 2017, we filed a lawsuit against the Trademark Review and Adjudication Board of State Administration For Industry & Commerce of the People’s Republic of China (“the Defendant”) with the Beijing Intellectual Property Court, requesting revocation of the verdict (Shangping Zi [2016] .0000098608)  made by the Defendant concerning the No. 11757369 “捷酷 JAKROO” trademark’s invalid declaration application. At the same time, we requested the Defendant should make the re-ruling of the invalid declaration application of “捷酷 JAKROO” trademark. On January 12, 2017, the Beijing Intellectual Property Court accepted the case. Up until now, we have not received notice of a hearing. Although the outcome of this case cannot be predicted with certainty, we do not believe that the ultimate resolution of these matters will have a material adverse effect on our financial position or on our results of operation. Other than the above, we are not presently a party to any pending lawsuits or claims.

 

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MANAGEMENT

 

The following table sets forth the name, age and position of the Company’s sole officer and director as of the date of this prospectus.   Our sole director holds his office until his successor is elected and qualified or his earlier resignation or removal. Each executive officer holds his office until he resigns, is removed by the Board, or his successor is elected and qualified.

 

Name   Age   Position
Weidong (Wayne) Du   48   Chief Executive Officer, President and Director
Wei Tan   46   Chief Financial Officer and Treasurer
Derek Wiseman   51   Secretary

 

Weidong (Wayne) Du

 

Wayne Du is co-founder of our Company and has been serving as our Chief Executive Officer since its inception. Mr. Du’s primary responsibilities include defining our global marketing, sales and finance strategies, establishing company-wide policies and overall management. As one of the pioneer entrepreneurs in the Chinese cycling apparel industry, Mr. Du has more than 20 years of experience in the endurance apparel industry. Mr. Du founded our first operating entity, Rider Beijing, in 2003 and has been leading the global expansion of our Company to various regions of Asia and the world since then. Mr. Du has served as the Managing Director of Rider Canada and Rider Austria since their inceptions and the Chief Executive Officer of Rider US since June 2008. Mr. Du holds a Bachelor of Economics degree from Zhongnan University of Finance and Economics in China.

 

Wei Tan

 

Wei Tan is co-founder of our Company and currently serving as our Chief Financial Officer. As one of our founders, Ms. Tan has served in various accounting and finance managerial positions at our operating subsidiaries since the founding of our subsidiary, Rider Beijing, in 2003. She has served as the Financial Director of Rider US since June 2013, where she manages its accounting and budgets and also developed its financial monitoring and reporting systems. Ms. Tan holds a Bachelor of Economics degree from Zhongnan University of Finance and Economics in China.

 

Derek Wiseman

 

Derek Wiseman is the Secretary of our Company and has taken various executive positions at our operating subsidiaries. He has served as the Chief Operating Officer of Rider US since June 2010. As Chief Operating Officer of Rider US, Mr. Wiseman oversees all operational and technology infrastructure for the organization including talent acquisition, provides programmatic leadership and input for all strategic plan implementation and scoping out the next level of information technology and financial systems to support the growth of specific programs and the organization overall. Mr. Wiseman has served as the Managing Director of Rider Canada and Rider Austria since 2014 and 2015, respectively. At Rider Canada and Rider Austria, Mr. Wiseman manages the forecasting, budgeting and financial planning of these subsidiaries. Mr. Wiseman holds a Bachelor’s degree in Theological Studies from Briecrest College & Seminary.

 

Family Relationship

 

Mr. Weidong (Wayne) Du, our Chief Executive Officer and director, is the husband of Ms. Wei Tan, our Chief Financial Officer and Treasurer. Mr. Du and Ms. Tan are the principal shareholders of the Company through their entity Kustellar LLC.

 

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Board Committees and Independence

 

We are not presently required to have any independent members of our board of directors (“the Board”). Our Board has determined that none of the directors are independent under applicable SEC rules. As we do not have any Board committees, the Board as a whole carries out the functions of audit, nominating and compensation committees.  

 

Involvement in Certain Legal Proceedings

 

None of our directors and executive officers have been involved in any of the following events during the past 10 years:

 

1.       any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

 

2.       any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

3.       being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from or otherwise limiting his or her involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;

 

4.       being found by a court of competent jurisdiction in a civil action, or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

 

5.       being subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

6.       being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. 

 

Code of Business Conduct and Ethics and Insider Trading Policy

 

We have not adopted a code of business conduct and ethics or an insider trading policy but plan to adopt such policies as we further develop our business and improve our corporate governance.  

 

Compensation Committee Interlocks and Insider Participation

 

Other than our subsidiaries, our officers and directors do not currently serve, or in the past year has not served, as a member of the compensation committee or director (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers serving on our Board.

 

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EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth all compensation paid to our named executive officers at the end of the fiscal years ended December 31, 2016 and December 31, 2015. Individuals we refer to as our “named executive officers” include our Chief Executive Officer and our most highly compensated executive officers whose salary and bonus for services rendered in all capacities exceeded $100,000 during the fiscal year ended December 31, 2016.

 

 

Name and principal position   Year     Salary ($)     Bonus ($)     Stock Awards ($)     Option Awards ($)     Non- Equity Incentive Plan Compensation ($)     Nonqualified Deferred Compensation Earnings ($)     All Other Compensation ($)     Total ($)  
                                                       
Weidong (Wayne) Du (1)
Chief Executive Officer,
President, and Director
    2016
2015
      128,816
125,224
      34,334
33,450
      -
-
      -
-
      -
-
      -
-
      1,846
8,540
      164,996
167,214
 
                                                                         
Wei Tan (2) Chief Financial Officer and Treasurer     2016
2015
      59,627
27,177
      7,498
-
      -
-
      -
-
      -
-
      -
-
      -
28,162
      67,125
55,339
 
                                                                         
Derek Wiseman (3) Secretary     2016
2015
      130,676
118,862
      34,334
38,764
      -
-
      -
-
      -
-
      -
-
      11,592
11,549
      176,603
169,157
 

(1) Consists of Mr. Du’s compensation from Jakroo Inc.’s operating subsidiaries, Rider US and Rider Beijing.
(2) Consists of Ms. Tan’s compensation from Jakroo Inc.’s operating subsidiaries, Rider US and Rider Beijing.
(3) Consists of Mr. Wiseman’s compensation from Jakroo Inc.’s operating subsidiary, Rider US.

Employment Agreements and Potential Payments upon Termination

As of the date of this prospectus, we have no employment agreements with our executive officers, although we intend to adopt formal written employment agreements with our executive officers in the near future.

 

2016 Equity Inventive Plan

 

On January 5, 2017, our Board of Directors and a majority of the holders of our then outstanding shares of common stock adopted the Jakroo Inc. 2016 Equity Incentive Plan (the “2016 Plan”), which sets forth the terms for the grant of stock awards to our employees. There are currently 1,164,000 shares of common stock reserved for issuance under the 2016 Plan.

 

Plan Category   Number of securities to be issued upon exercise of outstanding options, warrants and rights     Weighted-average exercise price of outstanding options, warrants and rights     Number of securities remaining available for issuance  
Equity compensation plans approved by security holders     1,164,000     $ 0.49       0  
Total     1,164,000     $ 0.49       0  

 

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The purpose our 2016 Plan is to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in our development and financial achievements. The 2016 Plan will be administered by a committee or, in the absence of a committee, by the full Board of Directors which may determine, among other things, (a) the terms and conditions of any option or stock purchase rights granted, including the exercise price and the vesting schedule, (b) the persons who are to receive options and stock purchase rights and (c) the number of shares subject to each option and stock purchase right. The 2016 Equity Incentive Plan provides for the grant of (i) “incentive” options (qualified under Section 422 of the Internal Revenue Code of 1986, as amended) to employees of our Company and (ii) non-qualified options to directors and consultants of our Company.

 

In connection with the administration of our 2016 Equity Incentive Plan, our Board of Directors, or the relevant committee, will:

 

determine which employees and other persons will be granted awards under our 2016 Plan;
     
grant the awards to those selected to participate;
     
determine the exercise price for options; and
     
prescribe any limitations, restrictions and conditions placed upon any awards, including vesting conditions of awards.

 

The 2016 Plan provides that in the event of a change of control event, the Board of Directors will have the discretion to determine whether and to what extent to accelerate vesting, exercise or payment of an award.

 

In addition, our Board of Directors may amend the 2016 Plan at any time. However, without stockholder approval, our 2016 Plan may not be amended in a manner that would:

 

increase the number of shares available for issuance under the 2016 Plan;
     
materially modify the requirements for eligibility for participation in the 2016 Plan;
     
materially increase the benefits to participants provided by our 2016 Plan; or
     
otherwise disqualify our 2016 Plan for coverage under Rule 16b-3 promulgated under the Securities Exchange Act of 29134, as amended.

 

Awards previously granted under our 2016 Plan may not be impaired or affected by any amendment of our 2016 Plan, without the consent of the affected grantees.

 

Outstanding Equity Awards at December 31, 2015 and December 31, 2016

 

As our 2016 Plan was not adopted until January 2017, there were no awards outstanding as of December 31, 2015 and December 31, 2016.

 

Director Compensation

 

The following table summarizes the compensation of our directors for the fiscal years ended December 31, 2015 and 2016.

 

Name             Fees
Earned or
Paid in
Cash
($)
      Stock
Awards
($)
      Option
Awards
($)
      Non-Equity
Incentive Plan
Compensation
($)
      Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
      All Other
Compensation
($)
      Total
($)
 
Weidong (Wayne) Du (1)     2016       -       -       -       -       -       -       -  
      2015       -       -       -       -       -       -       -  

  

(1)

Consists of Mr. Du’s compensation for service as a director at Rider Beijing and Rider US. Mr. Du has received no compensation for his services as a director of Jakroo Inc. since its inception.

  

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Below are descriptions of all transactions since January 1, 2015, or which are currently being proposed, to which we were a party or will be a party, in which:

 

the amounts involved exceeded or will exceed the lesser of $120,000 and 1% of the average of our total assets at year-end for the last two completed fiscal years; and
     
any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.

 

Accounting Services Provided by Wei Tan Accounting Sole Prop

 

Wei Tan Accounting Sole Prop. (“WTASP”), a sole proprietorship owned by our Chief Financial Officer and principal shareholder Wei Tan, has provided accounting services to our operating entities in 2015 and 2016. WTASP billed the Company $90,883 and $nil for the years ended December 31, 2015 and 2016, respectively, and the company paid $51,090 and $77,533, respectively, for the same periods. The balance due to WTASP as of December 31, 2015 and 2016 was $77,553 and $nil, repsecitvely. Wei Tan is the wife of Weidong Du, our Chief Executive Officer and President.

 

Accounting Services Provided by Kustellar LLC

 

Beginning in 2016, Kustellar LLC (“Kustellar”), one of our shareholders and an entity co-owned by Mr. Du and Ms. Tan, began providing accounting services to the Company. Kustellar billed the Company $46,682 in 2016 and was paid $26,309 during that same period. The balance due to Kustellar was $20,373 as of December 31, 2016.

 

Payable to Related Parties

 

We owe certain unreimbursed business expense to certain officers and shareholders of our company. As of December 31, 2016 and 2015, the balances payable were $17,299 and $106,481, respectively.

 

An entity controlled by the Company through the VIE Agreements leased office space from Ms. Tan in China for approximately $3,000 per month during the years ending December 31, 2015 and 2016. The lease expires on May 14, 2017. Rent expense incurred to Ms. Tan was approximately $39,000 and $36,000 for the years ended December 31, 2015 and 2016, respectively.

 

Policy on Related Party Transactions

 

We currently do not have a company policy on related party transactions. In addition, none of the related party transactions disclosed above were approved by our Board. We plan to adopt a policy on related party transactions in the near term as we further develop our business and improve our corporate governance.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information concerning the ownership of the our common stock as of the date of this prospectus with respect to: (i) each person known to us to be the beneficial owner of more than five percent of our common stock; (ii) all directors; (iii) all named executive officers; and (iv) all directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC that deem shares to be beneficially owned by any person who has voting or investment power with respect to such shares. Shares of common stock subject to options or warrants that are exercisable as of the date of this prospectus or are exercisable within 60 days of such date are deemed to be outstanding and to be beneficially owned by the person holding such options for the purpose of calculating the percentage ownership of such person but are not treated as outstanding for the purpose of calculating the percentage ownership of any other person.

 

Name and Address of beneficial owner (1)   Amount and nature of
beneficial ownership of
Common Stock (2)
   

Percentage of

outstanding

Common Stock (3)

 
Weidong (Wayne) Du (4)     8,633,000       84.1 %
Wei Tan (4)     8,633,000       84.1 %
Derek Wiseman (5)     119,125       1.1 %
All directors and executive officers as a group (3 persons)     8,752,125       85.2 %
                 
Other 5% Stockholders                
Kustellar LLC (6)     8,633,000       84.1 %
Custom Apparel Limited (7)     1,067,000       10.4 %

 

(1) Unless otherwise indicated, the business address of each of the individuals is 5906 Foothill Road, Pleasanton, CA 94588.
(2) Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights.
(3) The percentage of class is based on 10,269,550 shares of common stock issued and outstanding as of the date of this prospectus.
(4) Mr. Du and Ms. Tan are husband and wife. Their shares are held by Kustellar LLC, a California limited liability company of which Mr. Du and Ms. Tan jointly own 100% of the equity interests.
(5) Consists of 10,000 shares of common stock and options to purchase 109,125 shares of common stock which were awarded to Mr. Wiseman under the Jakroo Inc. 2016 Equity Incentive Plan.
(6) Mr. Du and Ms. Tan jointly own 100% of the equity interests of Kustellar LLC. Mr. Du is the sole manager of Kustellar LLC and has voting and dispositive power over the shares held by Kustellar LLC.
(7) Ms. Wen Li and Messrs. Guichun Liu and Hao Wang collectively own 100% of, and have voting and dispositive power over, the shares held by Custom Apparel Limited. Ms. Li is the Deputy General Manager of Rider Beijing, Mr. Liu is the Production Director of Rider Beijing and Mr. Wang is the Regional General Manager – Asia of the Company.

   

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DESCRIPTION OF SECURITIES

 

Overview

 

The following description of our capital stock does not purport to be complete and is subject to and qualified in its entirety by our certificate of incorporation, our bylaws and by the applicable provisions of Nevada law.

 

Our Certificate of Incorporation authorizes the issuance of up to 100,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.   As of the date of this prospectus, 10,269,550 shares of common stock were issued and outstanding and no shares of preferred stock were issued and outstanding.

 

We may issue the debt securities as exchangeable for or convertible into shares of common stock, preferred stock or other securities. The preferred stock may also be exchangeable for and/or convertible into shares of common stock, another series of preferred stock or other securities.

 

Common Stock

 

As of January 27, 2017, there were 10,269,550 shares of common stock issued and outstanding, held of record by approximately 62 stockholders. The outstanding shares of common stock are fully paid and non-assessable. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders.

 

Holders of our common stock do not have cumulative voting rights, including with respect to the election of director or for any other purposes. Holders of our common stock do not have preemptive, conversion rights or other subscription rights. Subject to preferential rights with respect to any outstanding preferred stock, holders of our common stock are entitled to receive ratably such dividends as may be declared by our Board out of funds legally available therefore.

 

In the event of our liquidation or dissolution, the holders of our common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of our common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

 

Preferred Stock

 

Our certificate of incorporation authorizes our Board, without action by our stockholders, to issue up to 10,000,000 shares of preferred stock from time to time in one or more series. As of the date of this prospectus, no shares of preferred stock were designated or issued and outstanding. Our Board is authorized to fix the rights, designations, preferences, privileges and restrictions of our authorized but undesignated preferred shares, including:

 

dividend rights and preferences over dividends on our common stock or any series of preferred stock;
     
the dividend rate (and whether dividends are cumulative);
     
conversion rights, if any;
     
voting rights;
     
rights and terms of redemption (including sinking fund provisions, if any);
     
redemption price and liquidation preferences of any wholly unissued series of any preferred stock and the designation thereof of any of them; and
     
to increase or decrease the number of shares of any series subsequent to the issue of shares of that series but not below the number of shares then outstanding.

 

Transfer Agent and Registrar

 

VSTOCK Transfer, LLC is the transfer agent and registrar for our common stock.

 

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SELLING STOCKHOLDERS

 

The following table sets forth information with respect to our common stock known to us to be beneficially owned by the selling stockholders as of the date of this prospectus. Other than as disclosed in the footnotes to this table, no selling stockholder has, or within the past three years has had, any position, office or other material relationship with us or any of our predecessors or affiliates other than as a result of the ownership of our securities.

 

Because the selling stockholders may sell, transfer or otherwise dispose of all, some or none of their shares of common stock, we cannot determine the number of such shares that will be sold, transferred or otherwise disposed of by the selling stockholders, or the amount or percentage of shares of our common stock that will be held by the selling stockholders upon termination of any particular offering. See “Plan of Distribution.” For purposes of the table below, we assume that the selling stockholders will sell all of their shares of common stock.

 

Up to 569,550 shares of common stock are being offered by the selling stockholders under this prospectus. These shares were sold to (i) London Financial Group Ltd. pursuant to that certain subscription agreement by and among the Company, Rider Beijing, Kustellar Limited (“Kustellar”), Custom Apparel Limited (“CAL”), the shareholders of Kustellar and CAL, and London Financial Group Ltd. at a price of $0.4908 per share; and (ii) certain investors in the private placement that closed on January 24, 2017 at a price of $0.66 per share.

 

    Shares Beneficially
Owned Prior to
the Offering
    Shares Offered by this     Shares Beneficially
Owned After the
Offering (1)
 
Name of Selling Stockholders   Number (2)     Percent     Prospectus     Number     Percent  
Donglei Zhang     303        *       303              -               -  
Quan Shan     1,515        *       1,515       -       -  
Yunying Xu     788        *       788       -       -  
Jixi Shen     1,530        *       1,530       -       -  
Teng Zhang     470        *       470       -       -  
Jiguo Wu     10,015        *       10,015       -       -  
Nan Li     1,515        *       1,515       -       -  
Yang Du     1,508        *       1,508       -       -  
Kenneth J. Ginsberg     1,545        *       1,545       -       -  
Susan Ginsberg     1,545        *       1,545       -       -  
Minxing Liao     1,545        *       1,545       -       -  
Pu Yiow Hwa     1,545        *       1,545       -       -  
Tai Shen Hau     1,545        *       1,545       -       -  
Hsiaoyu Hwa     1,545        *       1,545       -       -  
Haixia Yu     1,515        *       1,515       -       -  
Derek R. Wiseman (3)     10,000        *       10,000       -       -  
Jonathan S. Ginsberg     1,545        *       1,545       -       -  
Roberto Contreras IV     333        *       333       -       -  
Lauren Ducoli     333        *       333       -       -  
Anthony Ducoli     333        *       333       -       -  
Jing Zhang     1,515        *       1,515       -       -  
Xin Wang     303        *       303       -       -  
Wah Keung Wong     1,545        *       1,545       -       -  

 

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    Shares Beneficially
Owned Prior to
the Offering
    Shares Offered by this     Shares Beneficially
Owned After the
Offering (1)
 
Name of Selling Stockholders   Number (2)     Percent     Prospectus     Number     Percent  
Bing Wang     303        *       303       -       -  
Di Sun     3,061        *       3,061       -       -  
Na Zhao     1,515        *       1,515       -       -  
Patrice E. Spyrka     1,000        *       1,000       -       -  
Ming Zhang     1,508        *       1,508       -       -  
Michael A. Hernandez     1,000        *       1,000       -       -  
Eric M. Kubli     1,000        *       1,000       -       -  
Yue Cui     992        *       992       -       -  
Jianguo Liu     1,545        *       1,545       -       -  
Siyuan Liu     1,545        *       1,545       -       -  
Yuwen Wang     1,545        *       1,545       -       -  
Eric G. Peterson     4,939        *       4,939       -       -  
Rong Tan     415        *       415       -       -  
Niklaus P. Ritter     3,333        *       3,333       -       -  
Neda Joss     300        *       300       -       -  
Ronald L. Hayman     300        *       300       -       -  
Linnaea Maureen Kershaw     306        *       306       -       -  
Helena Maria Therese Herbert     212        *       212       -       -  
Samuel Gerhard Arnold Horstmann     216        *       216       -       -  
Sharon L. Ralph     150        *       150       -       -  
Muriel Evelyn Grace Ralph     150        *       150       -       -  
Paul E. Ralph     165        *       165       -       -  
Marian Ralph     150        *       150       -       -  
Zachary Blaze Watson Ralph     150        *       150       -       -  
John P. Beriault     3,030        *       3,030       -       -  
Yongyou Wei     192        *       192       -       -  
Boqun Li     192        *       192       -       -  
Yilin Wang     192        *       192       -       -  
Jing Wang     192        *       192       -       -  
Wei Zhang     1,515        *       1,515       -       -  
Wenbin Jiang     1,515        *       1,515       -       -  
Jiazhuo Wang     152        *       152       -       -  
Shuo Zhang     1,545        *       1,545       -       -  
Yifan Zhu     192        *       192       -       -  
Yun Deng     192        *       192       -       -  
Koh Koh Cheng     1,545        *       1,545       -       -  
London Financial Group, Ltd.     488,960       4.7 %     488,960           -             -  
Total     569,550       15.9 %     569,550       -       -  

 

*    Represents less than 1% of the total outstanding common stock.

 

(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the Exchange Act. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, securities that are currently convertible or exercisable into shares of our common stock, or convertible or exercisable into shares of our common stock within 60 days of the date hereof are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Except as indicated in the footnotes to the following table, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder’s name.

  

(2) The percentage of beneficial ownership is based on 10,269,550 shares of common stock outstanding as of the date of this prospectus.
   
(3) Derek Wiseman is the Secretary of the Company and holds executive positions at the Company’s operating subsidiaries.

 

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PLAN OF DISTRIBUTION  

 

The selling stockholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of our common stock or interests in shares of our common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares or interests in our common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions.

 

The selling security holders may sell some or all of their shares at a fixed price of $0.67 per share until our shares are quoted on the OTC Market and thereafter at prevailing market prices or privately negotiated prices. Prior to being quoted on the OTC Market, shareholders may sell their shares in private transactions to other individuals.

 

Shares of our common stock are not listed or traded on any public exchange, and we have not applied for listing or quotation on any exchange. We intend to seek sponsorship for the quotation of our common stock on the OTC Market, which if approved would only occur following the effectiveness of the registration statement of which this prospectus forms a part. In order to be quoted on the OTC Market, a market maker must file an application on our behalf in order to make a market for shares of our common stock. There can be no assurance that a market maker will agree to file the necessary documents with FINRA, nor can there be any assurance that such an application for quotation will be approved.  Further, there is no assurance that an active trading market in our shares will develop, or, if developed, that it will be sustained.  In the absence of a trading market or an active trading market, investors may be unable to liquidate their investment. 

 

The selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
privately negotiated transactions;
short sales;
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
a combination of any such methods of sale; and
any other method permitted pursuant to applicable law.

 

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The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of our common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of our common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus; provided, however, that prior to any such transfer the following information (or such other information as may be required by the federal securities laws from time to time) with respect to each such selling beneficial owner must be added to the prospectus by way of a prospectus supplement or post-effective amendment, as appropriate: (1) the name of the selling beneficial owner; (2) any material relationship the selling beneficial owner has had within the past three years with us or any of our predecessors or affiliates; (3) the amount of securities of the class owned by such beneficial owner before the offering; (4) the amount to be offered for the beneficial owner’s account; and (5) the amount and (if one percent or more) the percentage of the class to be owned by such beneficial owner after the offering is complete.

 

In connection with the sale of shares of our common stock or interests therein, the selling shareholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of shares of our common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the shares to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

The aggregate proceeds to the selling stockholders from the sale of the shares offered by them will be the purchase price of the shares less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of shares to be made directly or through agents. We will not receive any of the proceeds from this offering, provided.

 

The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule.

 

The selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the shares or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.

 

To the extent required, the shares to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.

 

The maximum amount of compensation to be received by any FINRA member or independent broker-dealer for the sale of any securities registered under this prospectus will not be greater than 8.0% of the gross proceeds from the sale of such securities.

 

In order to comply with the securities laws of some states, if applicable, the shares may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the shares may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

 

We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of the shares in the market and to the activities of the selling stockholders and their affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling shareholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

 

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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS  

 

Holders

 

As of the date of this prospectus, there were 62 holders of record of our common stock. 

 

Rule 144

 

In general, under Rule 144 as currently in effect, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, any person who is not an affiliate of ours and has held their shares for at least six months, as measured by SEC rule, including the holding period of any prior owner other than one of our affiliates, may sell shares without restriction, provided current public information about us is available. In addition, under Rule 144, any person who is not an affiliate of ours and has held their shares for at least one year, as measured by SEC rule, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares immediately upon the closing of this offering without regard to whether current public information about us is available. Beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is an affiliate of ours and who has beneficially owned restricted securities for at least six months, as measured by SEC rule, including the holding period of any prior owner other than one of our affiliates, is entitled to sell a number of restricted shares within any three-month period that does not exceed the greater of:

 

1% of the number of shares of our common stock then outstanding, which will equal approximately 102,696 shares immediately after this offering; and

 

the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

 

Sales of restricted shares under Rule 144 held by our affiliates are also subject to requirements regarding the manner of sale, notice and the availability of current public information about us. Rule 144 also provides that affiliates relying on Rule 144 to sell shares of our common stock that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares, other than the holding period requirement.

 

Dividend Policy

 

Since inception, no dividends have been paid on the common stock. We intend to retain any earnings for use in our business activities, so it is not expected that any dividends on the common stock will be declared and paid in the foreseeable future. Although we intend to retain earnings, if any, to finance the exploration and growth of our business, our Board of Directors shall have the discretion to declare and pay dividends in the future.  Payment of dividends in the future will depend upon the earnings, capital requirements, and other factors which the Board of Directors may deem relevant.

 

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LEGAL MATTERS

 

The validity of our common stock offered hereby has been passed upon by Ellenoff Grossman & Schole LLP, New York, New York. Certain legal matters regarding PRC law will be passed upon for us by B&D Law Firm, Beijing, P.R. China.  

 

EXPERTS

 

The consolidated balance sheets of the Company and its subsidiaries as of December 31, 2016 and 2015 and the related consolidated statements of comprehensive income (loss), stockholders’ equity and cash flows for the fiscal years then ended appearing in this registration statement of which this prospectus forms a part have been so included in reliance on the report of Paritz & Company, P.A., an independent registered public accounting firm, appearing elsewhere in this prospectus, given on the authority of such firm as experts in accounting and auditing.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock offered by this prospectus. This prospectus is a part of the registration statement and does not contain all of the information set forth in the registration statement and its exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information about us and our common stock, you should refer to the registration statement and its exhibits and schedules. Statements in this prospectus about the contents of any contract, agreement or other document are not necessarily complete and in each instance that a copy of such contract, agreement or document has been filed as an exhibit to the registration statement, we refer you to the copy that we have filed as an exhibit.

 

We will file annual, quarterly and special reports and other information with the SEC. Our filings with the SEC are available to the public on the SEC’s website at  http://www.sec.gov . The information we file with the SEC or contained on or accessible through our corporate web site or any other web site that we may maintain is not part of this prospectus or the registration statement of which this prospectus is a part. You may also read and copy, at SEC prescribed rates, any document we file with the SEC, including the registration statement (and its exhibits) of which this prospectus is a part, at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington D.C. 20549. You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room.

 

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Jakroo Inc. and Subsidiaries

 

Years Ended December 31, 2016 and 2015    
Report of Independent Registered Public Accounting Firm   F-2
Consolidated Balance Sheets   F-3
Consolidated Statements of Comprehensive Income (Loss)   F-4
Consolidated Statements of Stockholders’ Equity   F-5
Consolidated Statements of Cash Flows   F-6
Notes to Consolidated Financial Statements   F-7

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Jakroo Inc.

 

We have audited the accompanying consolidated balance sheets of Jakroo Inc. (“Company”) as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for the years ended December 31, 2016 and 2015. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

/S/ Paritz & Company, P.A.

 

Hackensack, New Jersey

April 13, 2017

 

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Jakroo Inc. and Subsidiaries

Consolidated Balance Sheets

 

    December 31, 2016     December 31, 2015  
ASSETS            
Current assets:            
Cash and cash equivalents   $ 2,777,957     $ 2,236,134  
Accounts receivable, net     44,213       38,598  
Inventories     1,492,485       1,480,916  
Prepaid expenses and other current assets     332,612       217,647  
Loan to officer - current     74,198       -  
Total current assets     4,721,465       3,973,295  
Property and equipment, net     231,072       262,001  
Loan to officer     -       75,000  
TOTAL ASSETS   $ 4,952,537     $ 4,310,296  
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable   $ 367,015     $ 204,735  
Due to related parties     37,672       184,014  
Advance from customers     538,240       134,143  
Income taxes payable     1,965       162,405  
Other current liabilities     210,074       261,670  
Total current liabilities     1,154,966       946,967  
Stockholders’ equity:                
                 
Jakroo Inc. Stockholders' equity                
Preferred stock, $0.001 par value, 10,000,000 shares authorized; None issued and outstanding as of December 31, 2016 and 2015     -       -  
Common stock, $0.001 par value, 100,000,000 shares authorized, 10,201,475 and 9,700,000 shares issued and outstanding as of December 31, 2016 and 2015, respectively     10,201       9,700  
Additional Paid in Capital     381,460       124,001  
Statutory Reserve     136,652       136,652  
Retained earnings     3,246,645       2,892,931  
Accumulated other comprehensive loss     (304,313 )     (109,253 )
Total Jakroo Inc. Stockholders' equity     3,470,645       3,054,031  
Non-controlling Interests     326,926       309,298  
Total Stockholders’ Equity     3,797,571       3,363,329  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 4,952,537     $ 4,310,296  

 

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

 

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Jakroo Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

 

    Year Ended
December 31,
 
    2016     2015  
             
Revenues   $ 9,354,365     $ 8,693,997  
Cost of revenues     4,210,708       4,350,686  
Gross profit     5,143,657       4,343,311  
Selling, general and administrative expense     4,564,332       4,166,504  
Income before income taxes     579,325       176,807  
Income taxes     186,310       85,579  
NET INCOME     393,015       91,228  
                 
Less: Income from non-controlling interest     (39,301 )     (9,123 )
NET INCOME ATTRIBUTABLE TO JAKROO INC.     353,714       82,105  
                 
OTHER COMPREHENSIVE INCOME/(LOSS):                
Foreign currency translation adjustment     (216,733 )     (160,229 )
COMPREHENSIVE INCOME /(LOSS)     176,282       (69,001 )
                 
Less: Comprehensive income (loss) attributable to non-controlling interest     17,628       (6,900
COMPREHENSIVE INCOME/(LOSS) ATTTRIBUTABLE TO JAKROO INC.   $ 158,654     $ (62,101 )
                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING – BASIC AND DILUTED     9,732,371       9,700,000  
EARNING PER SHARE – BASIC AND DILUTED   $ 0.04     $ 0.01  

 

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

 

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Jakroo Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

 

    Jakroo Inc. Stockholders’Equity              
   

 

Common Stock

   

 

Additional Paid in

    Statutory     Retained     Accumulated Other Comprehensive         Non-controlling     Total
Stockholders’
 
    Shares     Amount     Capital     Reserve      Earnings     Income/(loss)     Total     Interest     Equity  
Balance as of
December 31, 2014
    9,700,000     $ 9,700     $ 124,001     $ 136,652     $ 2,810,826     $ 34,953     $ 3,116,132     $ 316,198     $ 3,432,330  
Net Income     -         -         -         -         82,105       -         82,105       9,123       91,228  
Foreign currency translation adjustment     -         -         -         -         -         (144,206 )     (144,206 )     (16,023 )     (160,229 )
Balance as of
December 31, 2015
    9,700,000       9,700       124,001       136,652       2,892,931       (109,253 )     3,054,031       309,298       3,363,329  
Issuance of common stock     501,475       501       257,459       -         -         -         257,960       -       257,960  
Net Income     -         -         -         -         353,714       -         353,714       39,301       393,015  
Foreign currency translation adjustment     -         -         -         -         -         (195,060 )     (195,060 )     (21,673 )     (216,733 )
Balance as of
December 31, 2016
    10,201,475     $ 10,201     $ 381,460     $ 136,652     $ 3,246,645     $ (304,313 )   $ 3,470,645     $ 326,926     $ 3,797,571  

 

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

  

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Jakroo Inc. and Subsidiaries

Consolidated Statements of Cash Flows

  

    December 31, 2016     December 31, 2015  
Cash Flows From Operating Activities:            
Net income   $ 393,015     $ 91,228  
Adjustments to reconcile net income to net cash provided by operating activities                
Depreciation     99,706       98,125  
Loss on disposal of property and equipment     20,578       5,779  
Changes in operating assets and liabilities:                
Decrease/ (Increase) in accounts receivable     (5,642 )     111,469  
Decrease/ (Increase) in inventories     (108,351 )     294,824  
Decrease/ (Increase) in prepaid expenses and other current assets     (123,021 )     (43,381 )
(Decrease)/ Increase in accounts payable     182,612       33,165  
(Decrease)/ Increase in advance from customers     424,163       21,367  
(Decrease)/ Increase in other current liabilities     (39,934 )     (74,329 )
(Decrease)/ Increase in income tax payable     (157,918 )     (59,549 )
Net cash provided by operating activities     685,208       478,698  
Cash Flows from Investing Activities:                
Loan to officer     -       (75,000 )
Acquisition of property and equipment     (97,195 )     (64,716 )
Cash received from sale of equipment     301       434  
Net cash used in investing activities     (96,894 )     (139,282 )
Cash Flows from Financing Activities:                
(Decrease)/ Increase in due to related parties     (140,597 )     38,304  
Proceeds from issuance of common stock     257,960       -  
Net cash provided by financing activities     117,363       38,304  
Effect of exchange rate changes on cash and cash equivalents     (163,854 )     (103,419 )
Net increase in cash and cash equivalents     541,823       274,301  
Cash and cash equivalents, beginning of year     2,236,134       1,961,833  
CASH AND CASH EQUIVALENTS, END OF YEAR   $ 2,777,957     $ 2,236,134  
Supplemental disclosure of cash flow information:                
Cash paid during the years for :                
Income taxes   $ 342,719     $ 124,087  

 

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.

 

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Jakroo Inc. and Subsidiaries

 Notes to the Consolidated Financial Statements

 

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Jakroo Inc. (the “Company”) was incorporated in the State of Nevada on January 25, 2016. On October 28, 2016, the Company established a wholly owned subsidiary, Jakroo (Beijing) Sports Consulting Co. Ltd. (the “WFOE”), in China.

 

On December 15, 2016, the WFOE and the shareholders of Rider Sportsfashion Ltd. (the “Rider”), entered into a series of variable interest entity agreements (the “VIE Agreements”). Through the VIE Agreements, the WFOE obtained control over Rider which allows it to receive 90% of the net profits or absorb net losses derived from the business operations of Rider.

 

Rider is a company incorporated in China specializing in the design, manufacture and sale of customized technical endurance apparel for the cycling, triathlon, running and Nordic skiing markets. Rider was founded in Beijing in 2003. In 2008, its wholly owned subsidiary, Rider Sportsfashion LLC, was established in Pleasanton, California and its wholly owned subsidiaries, Jakroo Canada Inc. in Canada and Jakroo GmbH in Rankweil, Austria were established in 2014 and 2015, respectively.

 

The VIE Agreements are comprised of a series of agreements, including an Equity Pledge Agreement, an Exclusive Technical Consulting and Service Agreement, a Business Operation Agreement, an Exclusive Call Option Agreement and Power of Attorney through which the WFOE has the right to advise, consult, manage and operate the Company for an annual consulting service fee in the amount of 90% of the Company’s operating revenue. Shareholders have pledged their right, title and equity interests in the Company as security for the WFOE to collect consulting services fees provided to the Company through an Equity Pledge Agreement.  In order to further reinforce the WFOE’s rights to control and operate the Company, the Company’s stockholders have granted the WFOE an exclusive right and option to acquire all of their equity interests in the Company through an Exclusive Call Option Agreement.

 

Since the shareholders who control Rider are the ultimate stockholders who control the Company and WFOE, the consolidation financial statements are based on the entities under common control. The consolidated financial statements are prepared as if the reorganization structure was completed on January 1, 2015.

 

2. Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation and Consolidation

 

The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and include the accounts of the Company, its subsidiaries and entities controlled through VIE agreements. All intercompany balances and transactions have been eliminated.

 

Recognition of Revenues

 

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, collectability is probable and no other significant obligations of the Company exist. Revenue is generally recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.

 

Payments received before all relevant criteria for revenue recognition are satisfied are recorded as customer deposits, which is recorded as a liability until revenue is recognized.

 

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Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less. The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits. Cash accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on such cash.

 

Deposits in banks in the PRC are not insured by any government entity or agency, and are consequently exposed to risk of loss. The Company believes the probability of a bank failure, causing loss to the Company, is remote.

 

Allowance for Doubtful Accounts

 

The Company makes ongoing estimates relating to the collectability of accounts receivable and maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. In determining the amount of the reserve, the Company considers historical levels of credit losses and significant economic developments within the retail environment that could impact the ability of its customers to pay outstanding balances and makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Because the Company cannot predict future changes in the financial stability of its customers, actual future losses from uncollectible accounts may differ from estimates. If the financial condition of customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In the event the Company determines a smaller or larger reserve is appropriate, it would record a benefit or charge to selling, general and administrative expense in the period in which such a determination was made. As of December 31, 2016 and 2015, the allowance for doubtful accounts was nil.

 

Inventories

 

Inventories consist of raw materials and finished goods. Inventories are valued at the lower of cost or market. We determine cost on the basis of the weighted average method. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are written down or written off. Although we believe that the assumptions we use to estimate inventory write-downs are reasonable, future changes in these assumptions could provide a significantly different result.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by valuation allowances when necessary.

 

Assessing whether deferred tax assets are realizable requires significant judgment. The Company considers all available positive and negative evidence, including historical operating performance and expectations of future operating performance. The ultimate realization of deferred tax assets is often dependent upon future taxable income and therefore can be uncertain. To the extent the Company believes it is more likely than not that all or some portion of the asset will not be realized, valuation allowances are established against the Company’s deferred tax assets, which increase income tax expense in the period when such a determination is made.

 

Income taxes include the largest amount of tax benefit for an uncertain tax position that is more likely than not to be sustained upon audit based on the technical merits of the tax position. Settlements with tax authorities, the expiration of statutes of limitations for particular tax positions, or obtaining new information on particular tax positions may cause a change to the effective tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the consolidated statements of income.

 

Property and Equipment

 

Property and equipment are stated at cost, including the cost of internal labor for software customized for internal use, less accumulated depreciation and amortization. Property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets: 3 to 10 years for furniture, office equipment, software and plant equipment. Leasehold and tenant improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. The Company periodically reviews assets’ estimated useful lives based upon actual experience and expected future utilization. A change in useful life is treated as a change in accounting estimate and is applied prospectively.

 

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Upon retirement or disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in selling, general and administrative expenses for that period. Major additions and betterments are capitalized to the asset accounts while maintenance and repairs, which do not improve or extend the lives of assets, are expensed as incurred.

 

Statutory Reserve

 

In China, the Company is required to make appropriation to the statutory surplus reserve at 10% of the after-tax net income annually until the total contributions equal to 50% of the entities’ registered capital. The statutory reserve funds are restricted for use to set off against prior period losses, expansion of production and operations or for the increase in the registered capital of the respective companies. This reserve is therefore not available for distribution except in liquidation.

 

Value-added tax (“VAT”)

 

In accordance with the relevant tax laws in the PRC, VAT is levied on the invoiced value of sales and is payable by the purchaser. The Company is required to remit the VAT it collects to the tax authority, but may deduct the VAT it has paid on eligible purchases. The difference between the amounts collected and paid is presented as VAT recoverable or payable balance on the balance sheet.

 

Operating Leases

 

The Company leases factories and warehouse facilities, office space and other non-real estate assets under operating leases. Operating lease agreements may contain rent escalation clauses, rent holidays or certain landlord incentives, including tenant improvement allowances. Rent expense with scheduled rent increases or landlord incentives are recognized on a straight-line basis over the lease term, beginning with the effective lease commencement date, which is generally the date in which the Company takes possession of or controls the physical use of the property.

 

Employee Benefit

 

Employees of the Company are entitled to staff welfare benefits including medical care, housing funds, unemployment insurance and pension benefits. The Company is required to accrue for these benefits based on certain percentages of the employees’ salaries, subject to certain ceilings, in accordance with the relevant regulations of the countries where the subsidiaries are registered, and make contributions to the state-sponsored plans out of the amounts accrued.

 

Advertising Costs

 

Advertising costs are charged to selling, general and administrative expenses. Advertising production costs are expensed the first time an advertisement related to such production costs is run. Media (television, print and radio) placement costs are expensed in the month during which the advertisement appears, and costs related to event sponsorships are expensed when the event occurs. In addition, advertising costs include sponsorship expenses. Accounting for sponsorship payments is based upon specific contract provisions and such payments are generally expensed uniformly over the term of the contract after recording expense related to specific performance incentives once they are deemed probable. The Company recorded advertising expenses of $180,371 and $128,774 for the years ended December 31, 2016 and 2015, respectively.

 

Shipping Costs

 

The Company charges certain customers shipping fees. These fees are recorded in net revenues. The Company includes outbound freight costs associated with shipping goods to customers as a component of cost of goods sold.

  

Foreign Currency Translation and Transactions

 

The Company’s reporting currency is the U.S. dollar. The Company’s operations in China, Canada and Austria use their local currencies as their functional currency. The financial statements in foreign currency are translated into U.S. Dollars, “USD,” in accordance with ASC Topic 830, Foreign Currency Translation. All assets and liabilities are translated at the year-end currency exchange rate, stockholders’ equity items are translated at the historical rates and income statement items are translated at the average exchange rate prevailing during the year. Translation adjustments resulting from this process are reported under other comprehensive income (“OCI”) in accordance with ASC Topic 220, Reporting Comprehensive Income as a Component of Stockholders’ Equity. Foreign exchange transaction gains and losses are reflected in the statement of comprehensive income.

 

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Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The significant areas requiring the use of management estimates include, but are not limited to, the allowance for doubtful accounts receivable, inventory mark down allowance, estimated useful life and residual value of property, plant and equipment, impairment of long-lived assets, provision for staff benefits, recognition and measurement of deferred income taxes and valuation allowance for deferred tax assets. Certain estimates, including evaluating the collectability of receivables and the fair market value of inventory, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. We re-evaluate all of our accounting estimates at least quarterly based on these conditions and record adjustments when necessary.

 

Long-Lived Assets

 

The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC Topic 360. ASC Topic 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the asset’s carrying amount. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.

 

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Fair Value of Financial Instruments

 

The Company has adopted FASB Accounting Standard Codification Topic on Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable input, which may be used to measure fair value and include the following:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Input other than Level 1 that is observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other input that is observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 - Unobservable input that is supported by little or no market activity and that is significant to the fair value of the assets or liabilities.

 

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.

 

There are no financial instruments measured at fair value on a recurring basis.

 

Recently Issued Accounting Standards

 

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This guidance requires an entity to measure inventory at the lower of cost and net realizable value, rather than at the lower of cost or market. The guidance is effective for interim and annual periods beginning after December 15, 2016, and is to be applied prospectively. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company's financial statements.

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance makes targeted improvements to existing U.S. GAAP for financial instruments, including requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; requiring entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and requiring entities to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option. The new guidance is effective for public companies for fiscal years beginning after December 15, 2017. Early adoption of the own credit provision is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this guidance, lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee's obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs. The standard also requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This guidance contains multiple updates related to the accounting and financial statement presentation of share-based payment transactions. Under the new guidance, excess tax benefits will be recognized as income tax expense in the period in which the awards vest, as opposed to being recognized in additional paid-in capital when the deduction reduces taxes payable. Excess tax benefits will be classified as an operating activity within the statement of cash flows, as opposed to a financing activity. The new guidance also clarifies that cash paid by an employer when withholding shares for tax withholding purposes should be classified as a financing activity, and also permits an accounting policy election for accruing compensation cost to either estimate the number of awards that are expected to vest, similar to current U.S. GAAP, or account for forfeitures when they occur. The new guidance is effective for fiscal years beginning after December 15, 2016. The method of transition is dependent on the particular provision within the new guidance. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

 

In September 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This guidance clarifies the presentation requirements of eight specific issues within the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company's financial statements, as the Company's treatment of the relevant affected items within its consolidated statement of cash flows is consistent with the requirements of this guidance.

 

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3. Inventories

 

Inventories consisted of the following:

 

    December 31,  
    2016     2015  
Raw materials   $ 799,518     $ 785,879  
Finished goods     692,967       695,037  
Total inventories   $ 1,492,485     $ 1,480,916  

 

No inventory mark-down was recorded for the years ended December 31, 2016 and 2015.

 

4. Property and Equipment, Net

 

Property and equipment consisted of the following:

 

    Useful   December 31,  
    Life   2016     2015  
Machinery & Equipment   3 - 10 years   $ 277,399     $ 316,628  
Computer and Other Equipment   3 - 5 years     116,019       134,657  
Furniture & Fixture   5 - 7 years     10,793       8,091  
Vehicles   4 - 5 years     146,502       99,159  
Computer Software   3 years     142,462       117,386  
Leasehold Improvement         2,223       -  
Subtotal property and equipment         695,398       675,921  
Accumulated depreciation         464,326       413,920  
Property and equipment, net       $ 231,072     $ 262,001  

 

Depreciation expense related to property and equipment was $99,706 and $98,125 for the years ended December 31, 2016 and 2015, respectively.

 

The Company disposed of certain machinery, equipment and computers and recorded a loss on disposal of $20,578 and $5,779 for the years ended December 31, 2016 and 2015, respectively.

 

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5. Loan to Officer

 

On June 5, 2015, the Company signed a loan agreement with an officer to advance $75,000 at an annual interest rate of 2.5% with payment of a minimum of $200 per month and due on May 31, 2017. The Company recorded approximately $1,400 and $1,200 of interest income for the years ended December 31, 2016 and 2015, respectively.

 

6. Commitments

 

Obligations under Operating Leases

 

The Company leases warehouse space, office facilities and space for its factory under non-cancelable operating leases. The leases expire at various dates from 2017 to 2026, excluding extensions at the Company’s option, and include provisions for rental adjustments. The following is a schedule of future minimum lease payments for non-cancelable real property operating leases held by the Company as of December 31, 2016:

 

2017   $ 219,146  
2018     171,160  
2019     141,830  
2020     113,168  
2021     113,168  
2022 – 2026     556,410  
Total future minimum lease payments   $ 1,314,882  

 

Rent expense was $217,873 and $223,704 for the years ended December 31, 2016 and 2015, respectively.

 

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7. Provision for Income Taxes

 

The Company was incorporated in the United States and has operations in four tax jurisdictions - the United States, mainland China, Canada and Austria.

 

The Company’s U.S. operations are subject to income tax according to U.S. tax law.

 

The Company’s Chinese operations are subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.

 

The Company’s Canada operation is subject to a 26% profit tax based on its taxable net profit. The Company’s Austria subsidiary is subject to a 25% profit tax based on its taxable net profit.

 

The reconciliation of income tax expense at the U.S. statutory rate in 2016 and 2015, to the Company's effective tax rate is as follows:

 

    Year Ended December 31,  
    2016     2015  
U.S. Federal statutory rate   $ 164,497     $ 50,120  
U.S. State tax     13,962       13,900  
Tax rate difference between U.S. and foreign operations     (14,440 )     (60 )
Change of valuation allowance     38,617       10,593  
Permanent difference     (16,326 )     11,026  
Effective tax rate   $ 186,310     $ 85,579  

 

The components of the provision for income taxes consisted of the following:

 

    Year Ended December 31,  
    2016     2015  
Current            
Federal   $ 44,846     $ 44,573  
State     13,962       13,900  
Other foreign countries     127,502       27,106  
    $ 186,310     $ 85,579  
                 
Deferred                
Federal   $ -     $ -  
State     -       -  
Other foreign countries     -       -  
Provision for income taxes   $ 186,310     $ 85,579  

 

The tax effects of temporary differences that give rise to the Company's net deferred tax asset as of December 31, 2016 and 2015 are as follows:

 

    As of December 31,  
    2016     2015  
Net operating loss carry forward - Foreign   $ 49,573     $ 10,956  
      49,573       10,956  
Less: valuation allowance     (49,573 )     (10,956 )
Deferred tax assets   $ -     $ -  

 

As of December 31, 2016, the Company had approximately $195,000 net operating loss carryforwards available in Austria to reduce future taxable income. The net operating loss from Austrian operations could be carried forward with no time limit from the year of the initial loss pursuant to relevant Austria tax laws and regulations. Management believes that it is more likely than not that the deferred tax assets cannot be utilized in the future because there will not be significant future earnings from the entity which generated the net operating loss. Therefore, the Company recorded a full valuation allowance on its deferred tax assets for the year ended December 31, 2016 and 2015, respectively.

 

As of December 31, 2016 and 2015, the Company has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future periods and does not believe that there will be any significant increases or decreases of unrecognized tax benefits within the next twelve months. No interest or penalties relating to income tax matters have been imposed on the Company during the two years ended December 31, 2016 and 2015, and no provision for interest and penalties is deemed necessary as of December 31, 2016 and 2015.

  

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8. Stockholders’ Equity

 

Authorized Stock

 

The Company has authorized 10,000,000 preferred shares with a par value of $0.001 per share and has authorized 100,000,000 common shares with a par value of $0.001 per share.  Holders of shares of common stock shall be entitled to cast one vote for each shares held at all stockholder’s meetings for all purposes, including the election of directors. The common stock does not have cumulative voting rights.

 

Common Share Issuances

 

The Company issued 9,700,000 shares of common stock to a group of controlling stockholders at the price of $0.001 per share for $9,700 in 2016. Those shares were treated as if they were issued as of January 1, 2015 since Jakroo Inc. and Rider are both controlled by the same group of stockholders. The Company’s consolidated financial statements was prepared based on the entities under common control.

 

During the year ended December 31, 2016, the Company issued 488,960 shares of common stock to an investor at the price of $0.49 per share for $240,000.

 

During the year ended December 31, 2016, the Company issued 12,515 shares of commons stock to three individuals at the price of $0.66 per share for $8,260.

 

9. Risk Management and Derivatives

 

Foreign Currency Risk Management

 

The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to transactions generated by its international subsidiaries in currencies other than their local currencies. These gains and losses are primarily driven by intercompany transactions, sales transactions and inventory purchases denominated in currencies other than the functional currency of the purchasing entity.

 

10. Related Party Transactions and Balances

 

(1) Wei Tan Accounting Sole Prop (“WTASP”), the company owned by Ms. Wei Tan who is a stockholder and director of the Company, provides accounting services to the Company. The Company were billed by WTASP $nil and $90,883 for accounting service provided and paid $77,533 and $51,090 for the years ended December 31, 2016 and 2015, respectively. The balances due to WTASP were $nil and $77,533 as at December 31, 2016 and 2015, respectively.

 

Since 2016, Kustellar LLC, co-owned by Mr. Weidong Du, a stockholder and director, and Ms. Wei Tan, has started to provide accounting service to the Company. The Company was billed by Kustellar LLC $46,682 for the service provided and paid $26,309 in the year ended December 31, 2016. The balance due to Kustellar LLC was $20,373 as of December 31, 2016.

 

(2) During the years ended December 31, 2016 and 2015, certain officers and stockholders of the Company paid business expenses on behalf of the company. As of December 31, 2016 and 2015, the balances payable to the stockholders and officers were $17,299 and $106,481, respectively.

 

(3) An entity controlled by the Company through VIE agreement leased office space from Ms. Wei Tan in China for approximately $3,000 per month. The lease expires on May 14, 2017. Rent expense incurred to Ms. Wei Tan was approximately $36,000 and $39,000 for the years ended December 31, 2016 and 2015, respectively.

 

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11. Segment Data and Related Information

 

The Company’s operating segments are based on how the Chief Operating Decision Maker (“CODM”) makes decisions about allocating resources and assessing performance. As such, the CODM receives discrete financial information for the Company’s principal business by geographic region based on the Company’s strategy to develop its own brand recognition. These geographic regions include North America, China and Europe. Each geographic segment operates exclusively in one industry: the development, marketing and distribution of branded performance apparel.

 

The net revenues and operating income (loss) associated with the Company’s segments are summarized in the following tables. Net revenues represent sales to external customers for each segment. In addition to net revenues, operating income (loss) is a primary financial measure used by the Company to evaluate the performance of each segment. Intercompany balances were eliminated for separate disclosure.

 

   

Years Ended December 31,

 
    2016     2015  
Revenues            
North America   $ 5,952,328     $ 5,027,819  
China     3,233,005       3,663,872  
Europe     169,032       2,306  
Total revenues   $ 9,354,365     $ 8,693,997  

 

    Years Ended December 31,  
    2016     2015  
Income (loss) before income taxes            
North America   $ 158,844     $ 218,147  
China     572,461       1,033  
Europe     (151,980 )     (42,373 )
Total Income before income taxes   $ 579,325     $ 176,807  

 

12. Subsequent Events.

 

In January 2017, the company issued 68,079 shares of common stock to 56 individuals for a cash contribution of $44,936.

 

On January 5, 2017, our Board of Directors and a majority of the stockholders of our outstanding shares of common stock adopted the 2016 Equity Incentive Plan (the “2016 Plan”), which sets forth the terms for the grant of common stock awards to our employees. There are currently 1,164,000 shares of common stock reserved for issuance under the 2016 Plan. The 2016 Plan offers the employees to exercise the option to purchase common stock at the price of $0.49 per share and shall vest over a period of four years in four equal installments beginning on January 5, 2017.

 

The Company has evaluated subsequent events that have occurred after the date of the balance sheet through April 13, 2017, the date of issuance of these consolidated financial statements and determined that no other subsequent event requires recognition or disclosure to the consolidated financial statements.

 

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PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution

 

The following table sets forth an itemization of all estimated expenses, all of which we will pay, in connection with the issuance and distribution of the securities being registered:

 

Nature of Expense   Amount  
SEC registration fee   $ 45 .00  
Legal fees and expenses   $ 155,000.00  
Accounting fees and expenses   $ 78,000.00  
TOTAL   $ 233,045.00  

 

Item 14. Indemnification of Directors and Officers  

 

Nevada Law

 

Section 78.7502 of the Nevada Revised Statutes provides that a Nevada corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he is not liable under Section 78.138 of the Nevada Revised Statutes for breach of his or her fiduciary duties to the corporation or he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

 

Section 78.7502 further provides a Nevada corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he is not liable under Section 78.138 of the Nevada Revised Statutes for breach of his or her fiduciary duties to the corporation or he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation.

 

Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

 

To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any non-derivative proceeding or any derivative proceeding, or in defense of any claim, issue or matter therein, the corporation shall indemnify him or her against expenses, including attorneys’ fees, actually and reasonably incurred in connection with the defense.

 

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Further, Nevada law permits a Nevada corporation to purchase and maintain insurance or to make other financial arrangements on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability asserted against him or her and liability and expenses incurred by him or her in his or her capacity as a director, officer, employee or agent, or arising out of his or her status as such, whether or not the corporation has the authority to indemnify him or her against such liability and expenses.

 

Charter Provisions of the Company

 

The Company’s articles of incorporation (the “Articles of Incorporation”) provide that the Company shall provide indemnification to its directors and officers to the maximum extent permitted by law. The Company shall pay advancements of expenses in advance of the final disposition of the action, suit or proceedings upon receipt of an undertaking by or on behalf of the director or officer to repay the amount even if it is ultimately determined that he or she is not entitled to indemnified by the Company. The Company is permitted by the Articles of Incorporation to purchase and maintain insurance in connection with its indemnification obligations. Insofar as indemnification for liabilities arising under the Securities Act, may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, we have been advised that the opinion of the SEC is that such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.  

 

Item 15. Recent Sales of Unregistered Securities

 

Founder Share Subscription

 

On April 22, 2016, the Company entered into a subscription agreement (the “CAL Subscription Agreement”) with Custom Apparel Limited, a Company incorporated under the laws of the British Virgin Islands (“CAL”), which is owned by three of our founders, Ms. Wen Li and Messrs. Guichun Liu and Hao Wang. Pursuant to the CAL Subscription Agreement, the Company issued and sold to Custom Apparel Limited an aggregate of 1,067,000 shares (the “CAL Shares”) of common stock at a purchase price of $0.001 per share for total cash proceeds of $1,067. The CAL Shares were offered and sold in reliance upon Regulation D of the Securities Act and are exempt from the registration requirements of the Securities Act.

 

On April 25, 2016, the Company entered into a subscription agreement (the “Kustellar Subscription Agreement”) with Kustellar LLC, a limited liability company formed under the laws of the State of California (“Kustellar”), which is jointly owned by two of our founders, Mr. Du and Ms. Tan. Pursuant to the Kustellar Subscription Agreement, the Company issued and sold to Kustellar LLC an aggregate of 8,633,000 shares (the “Kustellar Shares”) of common stock at a purchase price of $0.001 per share for total cash proceeds of $8,633. The Kustellar Shares were offered and sold in reliance upon Regulation D of the Securities Act and are exempt from the registration requirements of the Securities Act.

 

Investor Subscription

 

On May 30, 2016, the Company entered into a share purchase agreement (the “LFG Share Purchase Agreement”), amended by a supplemental agreement dated November 18, 2016, by and between the Company, CAL, Kustellar, the shareholders of CAL and Kustellar and London Financial Group Ltd., a company incorporated under the laws of the British Virgin Islands (“LFG”). Pursuant to the LFG Share Purchase Agreement, the Company issued and sold to LFG an aggregate of 488,960 shares (the “LFG Shares”) of common stock at a purchase price of $0.4908 per share for total cash proceeds of $240,000. The LFG Shares were offered and sold in reliance upon Regulation D of the Securities Act and are exempt from the registration requirements of the Securities Act.

 

2017 Private Placement

 

On January 24, 2017, we closed on a series of private placement transactions pursuant to which we sold an aggregate of 80,590 shares of our common stock to 59 investors at a purchase price of $0.66 per share, in reliance on Regulation D and Regulation S of the Securities Act. Such sales are exempt from the registration requirements of the Securities Act. No underwriters were used and no brokerage commissions were paid in connection with the above share issuances. No advertising or public solicitation was involved in the offering. The securities bear a restrictive legend.

 

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INDEX TO EXHIBITS

 

The following exhibits are filed as part of this registration statement:

 

Exhibit No.   Description
3.1   Articles of Incorporation of the Company*
3.2   Bylaws of the Company *
5.1   Opinion of B&D Law Firm**
5.2     Opinion of Ellenoff Grossman & Schole LLP**
10.1   Business Operation Agreement, dated December 15, 2016, by and among Jakroo (Beijing) Sports Consulting Co., Ltd., Rider Sportsfashion Limited and Shareholders of Rider Sportsfashion Limited*
10.2   Equity Pledge Agreement, dated December 15, 2016, by and among Jakroo (Beijing) Sports Consulting Co., Ltd., Rider Sportsfashion Limited and Shareholders of Rider Sportsfashion Limited*
10.3   Exclusive Call Option Agreement, dated December 15, 2016, by and among Jakroo (Beijing) Sports Consulting Co., Ltd., Rider Sportsfashion Limited and Shareholders of Rider Sportsfashion Limited*
10.4   Exclusive Technical Consulting and Service Agreement, dated December 15, 2016, by and between Jakroo (Beijing) Sports Consulting Co., Ltd., Rider Sportsfashion Limited*
10.5   Form of Power of Attorney*
10.6   Form of Custom Processing Framework Agreement*
10.7   Form of OEM Cooperation Agreement*
10.8   Tmall Sales Authorization Agreement, dated January 22, 2016, by and between First Branch of Rider Sportsfashion Limited and Hangzhou Fengxue Outdoor Products Co., Ltd. *
10.9   Agency Agreement, dated April 22, 2016, by and between Rider Sportsfashion Limited and Wuchang Longqi Bicycle Operation Department.*
10.10   Sales Contract, dated October 17, 2014, by and between Rider Sportsfashion Limited and Beijing Fortuna Digital Graphics Co., Ltd.*

10.11

 

Lease Agreement, dated February 25, 2014, by and between Hongzhang Zhao and Rider Sportsfashion Limited.*

10.12   Lease Agreement, dated October 18, 2016, by and between Sonxiang Zhou and Rider Sportsfashion Limited.*
10.13   Jakroo Inc. 2016 Equity Incentive Plan.*
10.14   Subscription Agreement, dated April 25, 2016, by and between the Company and Kustellar LLC. *
10.15   Subscription Agreement, dated April 22, 2016, by and between the Company and Custom Apparel Limited.*
10.16   Share Purchase Agreement, dated May 30, 2016, by and among Jakroo Inc., Kurstellar LLC, Custom Apparel Limited, Rider Sportsfashion Limited, the founders of Rider Sportsfashion Limited and London Financial Group Ltd.*
10.17   Supplemental Agreement, dated November 18, 2016, by and among Jakroo Inc., Kurstellar LLC, Custom Apparel Limited, Rider Sportsfashion Limited, the founders of Rider Sportsfashion Limited and London Financial Group Ltd.*
10.18   Form of Subscription Agreement in connection with the January 2017 Regulation D offering.*
10.19   Form of Subscription Agreement in connection with January 2017 Regulation S offering.*
21.1   Subsidiaries of the Registrant *
23.1   Consent of Paritz & Company, P.A. *
23.2   Consent of Ellenoff Grossman & Schole LLP (contained in Exhibit 5.2)

 

*Filed herein.

** To be filed by amendment.

 

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Item 17. Undertakings

 

The undersigned registrant hereby undertakes:

 

1. To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:

 

  (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933.

 

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

 

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

 

2. For purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

4. For the purpose of determining liability under the Securities Act of 1933 to any purchaser:

 

  (i) If the registrant is relying on Rule 430B:

 

  (a) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

 

  (b) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or

 

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  (ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

5. For the purposes of determining liability under the Securities Act of 1933 to any purchaser in the initial distributions of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

  (i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

  (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

  (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

  (iv)

Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

6. The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

 

7. The undersigned registrant hereby undertakes that:

 

  (i) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

  (ii) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pleasanton, California on this 21 st day of April, 2017.

 

  Jakroo Inc.
   
  By: /s/ Weidong (Wayne) Du
  Name: Weidong (Wayne) Du
  Title:

Chief Executive Officer, Director

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated below.

 

Signature   Title   Date

 

/s/ Weidong (Wayne) Du   Chief Executive Office, Director   April 21, 2017
Weidong (Wayne) Du        

 

/s/ Wei Tan   Chief Financial Officer   April 21, 2017
Wei Tan        

 

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INDEX TO EXHIBITS

 

The following exhibits are filed as part of this registration statement:

 

Exhibit No.   Description
3.1   Articles of Incorporation of the Company*
3.2   Bylaws of the Company *
5.1   Opinion of B&D Law Firm**
5.2     Opinion of Ellenoff Grossman & Schole LLP**
10.1   Business Operation Agreement, dated December 15, 2016, by and among Jakroo (Beijing) Sports Consulting Co., Ltd., Rider Sportsfashion Limited and Shareholders of Rider Sportsfashion Limited*
10.2   Equity Pledge Agreement, dated December 15, 2016, by and among Jakroo (Beijing) Sports Consulting Co., Ltd., Rider Sportsfashion Limited and Shareholders of Rider Sportsfashion Limited*
10.3   Exclusive Call Option Agreement, dated December 15, 2016, by and among Jakroo (Beijing) Sports Consulting Co., Ltd., Rider Sportsfashion Limited and Shareholders of Rider Sportsfashion Limited*
10.4   Exclusive Technical Consulting and Service Agreement, dated December 15, 2016, by and between Jakroo (Beijing) Sports Consulting Co., Ltd., Rider Sportsfashion Limited*
10.5   Form of Power of Attorney*
10.6   Form of Custom Processing Framework Agreement*
10.7   Form of OEM Cooperation Agreement*
10.8   Tmall Sales Authorization Agreement, dated January 22, 2016, by and between First Branch of Rider Sportsfashion Limited and Hangzhou Fengxue Outdoor Products Co., Ltd. *
10.9   Agency Agreement, dated April 22, 2016, by and between Rider Sportsfashion Limited and Wuchang Longqi Bicycle Operation Department.*
10.10   Sales Contract, dated October 17, 2014, by and between Rider Sportsfashion Limited and Beijing Fortuna Digital Graphics Co., Ltd.*

10. 11

 

Lease Agreement, dated February 25, 2014, by and between Hongzhang Zhao and Rider Sportsfashion Limited.*

10.12   Lease Agreement, dated October 18, 2016, by and between Sonxiang Zhou and Rider Sportsfashion Limited.*
10.13   Jakroo Inc. 2016 Equity Incentive Plan.*
10.14   Subscription Agreement, dated April 25, 2016, by and between the Company and Kustellar LLC. *
10.15   Subscription Agreement, dated April 22, 2016, by and between the Company and Custom Apparel Limited.*
10.16   Share Purchase Agreement, dated May 30, 2016, by and among Jakroo Inc., Kurstellar LLC, Custom Apparel Limited, Rider Sportsfashion Limited, the founders of Rider Sportsfashion Limited and London Financial Group Ltd.*
10.17   Supplemental Agreement, dated November 18, 2016, by and among Jakroo Inc., Kurstellar LLC, Custom Apparel Limited, Rider Sportsfashion Limited, the founders of Rider Sportsfashion Limited and London Financial Group Ltd.*
10.18   Form of Subscription Agreement in connection with the January 2017 Regulation D offering.*
10.19   Form of Subscription Agreement in connection with January 2017 Regulation S offering.*
21.1   Subsidiaries of the Registrant *
23.1   Consent of Paritz & Company, P.A. *
23.2   Consent of Ellenoff Grossman & Schole LLP (contained in Exhibit 5.2)

 

*Filed herein.

** To be filed by amendment.

 

 

II-7

 

 

Exhibit 3.1

  

          

 

BARBARA K. CEGAVSKE

Secretary of State

202 North Carson Street

Carson City, Nevada 89701-4201

(775) 684-5708

Website:  www.nvsos.gov

 

Articles of Incorporation
(PURSUANT TO NRS CHAPTER 78)

 

Filed in the office of

/s/ Barbara K. Cegavske

Document Number

20160031610-80

  Barbara K. Cegavske Filing Date and Time
  Secretary of State 11/25/2016 8:59 AM
  State of Nevada Entity Number
    E0034162016-0

  

USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

1. Name of Corporation:

JAKROO INC.

 

2. Registered Agent for Service of Process: (check only one box)

Commercial Registered Agent: CSC Services of Nevada, Inc.

                                                             Name

  ☐  Noncommercial Registered Agent OR Office or Position with Entity
  (name and address below)   (name and address below)
  Name of Noncommercial Registered Agent OR Name of Title of Office or Other Position with Entity
      Nevada
  Street Address City Zip Code
      Nevada
  Mailing Address (if different from street address) City Zip Code

3. Authorized

Stock: (number of shares corporation is authorized to issue)

Number of
shares with
par value: 110,000,000
Par value
per share: $ .001

Number of
shares
without
par value: 

4. Names and Addresses of the Board of Directors/Trustees:

(each Director/Trustee must be a natural person at least 18 years of age; attach additional page if more than two directors/trustees)

1) Weidong Du

     Name

225 Remington Loop

Street Address

 

2)

    Name

 

Street Address

 

 

Danville

City

 

 

 

 

City

 

 

CA       94526

State    Zip Code

 

 

 

 

State      Zip Code

5. Purpose: (optional; required only if Benefit Corporation status selected) The purpose of the corporation shall be:

6. Benefit Corporation:

(see instructions)    ☐ Yes

7. Name, Address and Signature of Incorporator: (attach additional page if more than one incorporator) I declare, to the best of my knowledge under penalty of perjury, that the information contained herein is correct and acknowledge that pursuant to NRS 239.330, it is a category C felony to knowingly offer any false or forged Instrument for filing in the Office of the Secretary of State.
  Megan Penick, Esq. X   /s/ Megan Penick, Esq.
 

Name 

Incorporator signature
 

EG&S 1345 Avenue of the Americas, 11th FL

Address

New York

City

NY       10105

State    Zip Code

8. Certificate of Acceptance of Appointment of Registered Agent' I hereby accept appointment as Registered Agent for the above named Entity.
  CSC Services of Nevada, Inc.    
  X By: Dave Nickelsen, Asst. VP. 01/25/2016
  Authorized Signature of Registered Agent or On Behalf of Registered Agent Entity Date

 

This form must be accompanied by appropriate fees. Nevada Secretary of State NRS 78 Articles
  Revised:    1-5-15

 

 

ARTICLES OF INCORPORATION

OF

JAKROO INC.

 

Pursuant to NRS Chapter 78

 

1.           The name of the corporation is Jakroo Inc. (the "Corporation"),

 

2.           The registered agent for services of process is CSC Services of Nevada, Inc. The address of the registered agent is 2215 Renaissance Dr., Las Vegas, NV 89119.

 

3.           (a)        The total number of shares of capital stock which the Corporation shall have authority to issue is one hundred ten million (110,000,000) shares, of which (i) one hundred million (100,000,000) shares are designated as common stock with a par value of $0.001 per share ("Common Stock"), and (ii) ten million (10,000,000) shares are designated as preferred stock, with a par value of $0.001 per share ("Preferred Stock").

 

(b)        The Preferred Stock of the Corporation shall be issued by the Board of Directors of the Corporation in one or more series and such series shall have such voting powers, full or limited, or no voting powers, and such designations, preferences, limitations or restrictions as the Board of Directors of the Corporation may determine, from time to time, including but not limited to:

 

(i)          the designation of such class or series;

 

(ii)        the dividend rate of such class or series, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any other class or classes or of any other series of capital stock, whether such dividends shall be cumulative or non-cumulative, and whether such dividends may be paid in shares of any class or series of capital stock or other securities of the Corporation;

 

(iii)       whether the shares of such class or series shall be subject to redemption by the Corporation, and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption;

 

(iv)       the terms and amount of any sinking fund provided for the purchase or redemption of the shares of such class or series;

 

(v)        whether or not the shares of such class or series shall be convertible into or exchangeable for shares of any other class or classes or series of capital stock or other securities of the Corporation, and, if provision be made for conversion or exchange, the times, prices, rates, adjustment and other terms and conditions of such conversion or exchange;

 

(vi)       the extent, if any, to which the holders of the shares of such class or series shall be entitled to vote, as a class or otherwise, with respect to the election of the directors or otherwise, and the number of votes to which the holder of each share of such class or series shall be entitled;

 

(vii)      the restrictions, if any, on the issue or reissue of any additional shares or any class or series of Preferred Stock; and

 

(viii)     the rights of the holders of the shares of such class or series upon the dissolution of, or upon the distribution of assets of, the Corporation.

 

 

 

 

(c)        Holders of shares of Common Stock shall be entitled to cast one vote for each share held at all stockholders' meetings for all purposes, including the election of directors. The Common Stock does not have cumulative voting rights.

 

(d)        No holder of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class, or of securities convertible into shares of stock of any class, whether now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend.

 

4.           The number of directors to serve on the board of directors shall be determined from time to time pursuant to the provision of the bylaws of the Corporation, except at no time shall there be less than one director. The name of the initial director of the Corporation is Weidong Du. The address of the initial director is 225 Remington Loop, Danville, CA 94526.

 

5.           The purpose of the Corporation shall be to engage in any lawful act or activity for which corporations may be organized in Nevada.

 

6.           The name, address and signature of the incorporator is:

             

  Megan Penick, Esq.
 

c/o Ellenoff Grossman & Schole LLP

1345 Avenue of the Americas, 11 th Floor 

New York, New York 10105

   
  Signature:

 

7.           Certificate of Acceptance of Appointment of Registered Agent:

 

I hereby accept appointment as Registered Agent for the above named Entity. 

 

  CSC Services of Nevada, Inc  
       
  By:    
    Name:  
    Title:  

 

8.           The provisions of NRS Sections 78.378 to 78.3793, inclusive, shall be inapplicable to the Corporation.

 

9.           The provisions of NRS Sections 78.411 to 78.444, inclusive, shall be inapplicable to the Corporation.

 

10.         Except as otherwise provided by law, a director or officer is not individually liable to the Corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that, (a) the director's or officer's act or failure to act constituted a breach of his or her fiduciary duties as a director or officer; and (b) the breach of those duties involved intentional misconduct, fraud or a knowing violation of law.

 

11.         The Corporation shall provide indemnification to its directors and officers to the maximum extent permitted by law. The Corporation shall pay advancements of expenses in advance of the final disposition of the action, suit, or proceedings upon receipt of an undertaking by or on behalf of the director or officer to repay the amount even if it is ultimately determined that he or she is not entitled to be indemnified by the Corporation. The Corporation reserves the right to purchase or procure insurance in connection with its indemnification obligations.

 

12.          The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Articles of Incorporation in the manner now or hereafter permitted by Nevada law, and all rights conferred upon stockholders granted by these Articles are subject to reservation.

 

# # #

 

 

 

 

 

 

 

 

 

CORPORATE CHARTER

 

I, BARBARA K. CEGAVSKE, the duly elected and qualified Nevada Secretary of State, do hereby certify that JAKROO INC. , did on January 25, 2016, file in this office the original Articles of Incorporation; that said Articles of Incorporation are now on file and of record in the office of the Secretary of State of the State of Nevada, and further, that said Articles contain all the provisions required by the law of said State of Nevada.

 

 

 

 

 

 

   

IN WITNESS WHEREOF, I have hereunto set my

hand and affixed the Great Seal of State, at my

office on January 25, 2016.

 

 

     

Certified By: Stephen Loff

Certificate Number: C20160125-0890

You may verify this certificate

online at http://www.nvsos.gov/

 

BARBARA K. CEGAVSKE

          Secretary of State

 

 

 

 

 

 

Exhibit 3.2

 

BYLAWS OF

JAKROO INC.

(a Nevada Corporation)

 

(adopted effective as of June 22, 2016)

 

ARTICLE 1

 

OFFICES

 

SECTION 1.1. Principal Office . The principal offices of Jakroo Inc. (the “ Corporation ”) shall be in such location as the Board of Directors of the Corporation (the “ Board of Directors ”) may determine.

 

SECTION 1.2. Other Offices . The Corporation may also have offices at such other places both within and without the State of Nevada as the Board of Directors may from time to time determine or the business of the Corporation may require.

 

ARTICLE 2

 

MEETINGS OF STOCKHOLDERS

 

SECTION 2.1. Place of Meeting; Chairman . All meetings of stockholders shall be held at such place, either within or without the State of Nevada, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. The Chairman of the Board of the Corporation (or the Executive Chairman of the Corporation, if such office is designated and filled in accordance with these Bylaws) (the “ Chairman of the Board ”) or any other person specifically designated by the Board of Directors shall act as the Chairman for any meeting of stockholders of the Corporation. The Chairman of the Board (or his or her designee) shall have full authority to control the process of any stockholder or Board of Directors meeting, including, without limitation, determining whether any proposals or nominations were properly brought before such meeting, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies and such other persons as the Chairman of the Board (or his or her designee) shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, requiring ballots by written consent, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot.

 

SECTION 2.2. Annual Meetings . The annual meeting of stockholders of the Corporation shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, subject to any postponement in the Board of Directors’ sole discretion, upon notice of such postponement given in any manner deeded reasonable by the Board of Directors.

 

SECTION 2.3. Special Meetings . Special meetings of the stockholders of the Corporation, for any purpose or purposes, unless otherwise prescribed by the Nevada Revised Statutes (“ NRS ”) or by the Articles of Incorporation of the Corporation (the “ Articles of Incorporation ”), may be called exclusively by: (i) the Chairman of the Board or the Chief Executive Officer, President or other executive officer of the Corporation, (ii) the Board of Directors or (iii) the request in writing of stockholders of record, and only of record, owning not less than sixty-six and two-thirds percent (66 2/3%) of the entire capital stock of the Corporation issued and outstanding and entitled to vote (the “ Requisite Percent ”). Such request shall state the purpose or purposes of the proposed meeting. The officers or directors shall fix the date, time and any place, either within or without the State of Nevada, as the place for holding such meeting; provided, however, that the date of any such special meeting shall be not more than ninety (90) days after the date on which a special meeting request properly brought pursuant to Sections 2.3 and 2.5 are delivered to the Secretary of the Corporation.

 

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SECTION 2.4. Notice of Meeting . Written notice of the annual and each special meeting of stockholders of the Corporation, stating the time, place and purpose or purposes thereof, shall be given to each stockholder entitled to vote thereat, not less than ten (10) nor more than sixty (60) days before the meeting and shall be signed by the Chairman of the Board, the President or the Secretary of the Corporation (the “ Secretary ”). The Board of Directors may postpone a special meeting in its sole discretion in any manner it deems reasonable. In no event shall any adjournment or postponement of an annual meeting or special meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described below.

 

SECTION 2.5. Business Conducted at Meetings .

 

Section 2.5.1 At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be: (a) specified in the notice of meeting (or any supplement thereto provided within the notice period specified in Section 2.4) given by or at the direction of the Chairman of the Board, the President or the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder or stockholders of record, and only of record, holding the Requisite Percent in accordance with applicable law, these Bylaws or otherwise. In addition to any other applicable requirements set forth in these Bylaws, the U.S. federal securities laws or otherwise, for business to be properly brought before a meeting called by stockholders representing the Requisite Percent, such stockholder(s) must have given timely notice thereof in writing to the Secretary. Any special meeting of the Corporation proposed to be called by a stockholder or stockholders in such capacity shall not be required to be held: (i) with respect to any matter, within 12 months after any annual or special meeting of stockholders at which the same matter was included on the agenda, or if the same matter will be included on the agenda at an annual meeting to be held within 90 days after the receipt by the Corporation of such request (the election or removal of directors to be deemed the same matter with respect to all matters involving the election or removal of directors) or (ii) if the purpose of the special meeting is not a lawful purpose or if such request violates applicable law. A stockholder may revoke a request for a special meeting at any time by written revocation delivered to the Secretary, and if, following such revocation, there are un-revoked requests from stockholders holding in the aggregate less than the requisite number of shares entitling the stockholders to request the calling of a special meeting, the Board of Directors, in its discretion, may cancel the special meeting. If none of the stockholders who submitted the request for a special meeting appears or sends a qualified representative to present the nominations proposed to be presented or other business proposed to be conducted at the special meeting, the Corporation need not present such nominations or other business for a vote at such meeting.

 

Section 2.5.2 To be timely, a stockholder’s notice of a proposal to be included at an annual meeting must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary of the date on which the Corporation first mailed its proxy materials for the previous year’s annual meeting of stockholders (or the date on which the Corporation mails its proxy materials for the current year if during the prior year the Corporation did not hold an annual meeting or if the date of the annual meeting was changed more than thirty (30) days from the prior year).

 

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Section 2.5.3 A record stockholders’ notice to the Secretary shall set forth in writing as to each matter the stockholder(s) propose to bring before the meeting: (a) a detailed description of the business desired to be brought before the meeting and the reasons for proposing such business, including the complete text of any resolutions, bylaws or Articles of Incorporation amendments proposed for consideration (b) the name and address, as they appear on the Corporation’s books, of the stockholders proposing such business, (c) the class and number of shares of the Corporation which are owned directly or indirectly of record and directly or indirectly beneficially owned by the stockholders and each of its affiliates (within the meaning of Rule 144 promulgated under the Securities Act of 1933, as amended, or any successor rule thereto (“ Rule 144 ”)), including any shares of the Corporation owned or controlled via derivatives, synthetic securities, hedged positions and other economic and voting mechanisms, (d) any material interest of the stockholders in such proposed business and any agreements or understandings to which such stockholders are a party which relate in any way, directly or indirectly, to the proposed business to be conducted, including a description of all arrangements or understandings between such stockholder and any other person or persons (including their names), (e) a representation as to whether or not such stockholder intends to solicit proxies; (f) a representation as to whether or not such stockholder intends to appear in person or by proxy at the applicable meeting, and (g) such other information regarding the stockholder in his, her or its capacity as a proponent of a stockholder proposal that would be required to be disclosed in a proxy statement or other filing with the United States Securities and Exchange Commission (“ SEC ”) required to be made in connection with the contested solicitation of proxies pursuant to the SEC’s proxy rules.

 

Section 2.5.4 Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 2.5. The Chairman of the meeting shall, in his or her sole discretion, determine and declare to the meeting whether or not any business was properly brought before the meeting. Any such business not properly brought before the meeting shall not be transacted. Nothing in this Section 2.5 shall affect the right of a stockholder to request inclusion of a proposal in the Corporation’s proxy statement to the extent that such right is provided by an applicable rule of the SEC. Notwithstanding the foregoing, the advance notice provisions of these Bylaws shall apply to all stockholder proposals regardless of whether such proposal is sought to be included in the Corporation’s proxy statement or in a separate proxy statement.

 

SECTION 2.6. Nomination of Directors. Nomination of candidates for election as directors of the Corporation at any meeting of stockholders called for the election of directors, in whole or in part (an “ Election Meeting ”), must be made by the Board of Directors or by any stockholder entitled to vote at such Election Meeting, in accordance with the following procedures.

 

Section 2.6.1. Nominations made by the Board of Directors shall be made at a meeting of the Board of Directors or by written consent of the directors in lieu of a meeting prior to the date of the Election Meeting. At the request of the Corporation, each proposed individual nominated by the Board of Directors shall provide the Corporation with such information concerning himself or herself as is required, under the rules of the SEC and any applicable securities exchange, to be included in the Corporation’s proxy statement soliciting proxies for his or her election as a director.

 

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Section 2.6.2. The exclusive means by which a stockholder may nominate a director shall be: (i) in the case of the nomination of a director for election at an annual meeting, by delivery of a notice to the Secretary, not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary of the date on which the Corporation first mailed its proxy materials for the previous year’s annual meeting of stockholders (or the date on which the Corporation mails its proxy materials for the current year if during the prior year the Corporation did not hold an annual meeting or if the date of the annual meeting was changed more than thirty (30) days from the prior year); or (ii) in the case of the nomination of a director for election at a special meeting (other than pursuant to a special meeting request in accordance with the requirements set forth in Sections 2.3 and 2.5), not less than ninety (90) days nor more than one hundred twenty (120) days prior to such special meeting or, if later, the tenth (10th) day following the day on which public disclosure (of the date of such special meeting was first made, setting forth: (a) the name, age, business address and the primary legal residence address of each nominee proposed in such notice, (b) the principal occupation or employment of such nominee, (c) the number of shares of capital stock of the Corporation which are owned directly or indirectly of record and directly or indirectly beneficially owned by the nominee and each of its affiliates (within the meaning of Rule 144), including any shares of the Corporation owned or controlled via derivatives, hedged positions and other economic and voting mechanisms, (d) any material agreements, understandings or relationships, including financial transactions and compensation, between the nominating stockholder and the proposed nominees and (d) such other information concerning each such nominee as would be required, under the rules of the SEC, in a proxy statement soliciting proxies in a contested election of such nominees. Such notice shall include a signed consent of each such nominee to serve as a director of the Corporation, if elected. In addition, any stockholder nominee, to be validly nominated, shall submit to the Secretary the questionnaire required pursuant to Section 2.6.3 of these Bylaws. A stockholder intending to nominate one or more candidates for election as directors must comply with the advance notice bylaw provisions specifically applicable to the nomination of candidates for election as directors for such nomination to be properly brought before the meeting. For purposes of these Bylaws, “public disclosure” shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the SEC pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended.

 

Section 2.6.3 To be eligible to be a director nominee nominated by a stockholder or stockholders for election or reelection as a director of the Corporation, such nominee must deliver (in accordance with the time periods prescribed for delivery of notice under Section 2.6.2 of these Bylaws) to the Secretary at the principal executive offices of the Corporation a written questionnaire (the “ Questionnaire ”) with respect to the background, qualification and experience of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be in the form approved by the Corporation and provided by the Secretary or such Secretary’s designee) and a written representation and agreement that such person: (a) will abide by the requirements of these Bylaws and the Articles of Incorporation as in effect at the time of their nomination and as validly amended, (b) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a “ Voting Commitment ”) that has not been disclosed to the Corporation or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, (c) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, and (d) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation. If, prior to the Election Meeting, there is a change in any information set forth on the Questionnaire, then such director candidate shall promptly notify the Secretary by submitting a revised Questionnaire.

 

Section 2.6.4. In the event that a person is validly designated by the Board of Directors as a nominee in accordance with this Section 2.6 and shall thereafter become unable or willing to stand for election to the Board of Directors, the Board of Directors may designate a substitute nominee who meets all applicable standards under these Bylaws.

 

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Section 2.6.5. If the Chairman of the Election Meeting determines that a nomination was not made in accordance with the foregoing procedures, such nomination shall be void.

 

SECTION 2.7. Quorum; Adjournment .

 

Section 2.7.1 The holders of a majority of the shares of capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy (provided the proxy has authority to vote on at least one matter at such meeting), shall constitute a quorum at any meeting of stockholders for the transaction of business, except when stockholders are required to vote by class, in which event a majority of the issued and outstanding shares of the appropriate class shall be present in person or by proxy (provided the proxy has authority to vote on at least one matter at such meeting) in order to constitute a quorum as to such class vote, and except as otherwise provided by the NRS or by the Articles of Incorporation. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to have less than a quorum if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.

 

Section 2.7.2 Notwithstanding any other provision of the Articles of Incorporation or these Bylaws, at any annual or special meeting of stockholders of the Corporation, whether or not a quorum is present, the Chairman of the Board or the person presiding as Chairman of the meeting shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, whether or not a quorum shall be present or represented. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting in accordance with Section 2.4 of these Bylaws. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.

 

SECTION 2.8. Voting; Proxies .

 

Section 2.8.1 Except as provided for below or by applicable law, rule or regulation, when a quorum is present at any meeting of the stockholders, any action by the stockholders on a matter except the election of directors shall be approved if approved by the majority of the votes cast. Each nominee for director shall be elected by the majority of the votes cast with respect to that nominee’s election at any meeting for the election of directors at which a quorum is present, provided, however, that, in the case of a director nominee in a Contested Election, the Board of Directors, in its sole discretion, may determine that directors shall be elected by a plurality of the votes cast in any Contested Election, such determination to be made no later than five (5) days prior to the date of the Election Meeting as initially announced. For purposes of these Bylaws, a “ Contested Election ” means an election of directors with respect to which the Board of Directors determines that the number of nominees exceeds the number of directors to be elected and the Board of Directors has not rescinded such determination by the date that is five (5) days prior to the date of the Election Meeting as initially announced. In determining the number of votes cast in a Contested Election, abstentions and broker non-votes, if any, will not be treated as votes cast. The provisions of this paragraph will govern with respect to all votes of stockholders except as otherwise provided for in the Articles of Incorporation or by a specific statutory provision superseding the provisions of these Bylaws.

 

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Section 2.8.2 Every stockholder having the right to vote shall be entitled to vote in person, or by proxy: (a) appointed by an instrument in writing subscribed by such stockholder or by his or her duly authorized attorney or (b) authorized by the transmission of an electronic record by the stockholder to the person who will be the holder of the proxy or to a firm which solicits proxies or like agent who is authorized by the person who will be the holder of the proxy to receive the transmission subject to any procedures the Board of Directors may adopt from time to time to determine that the electronic record is authorized by the stockholder; provided, however, that no such proxy shall be valid after the expiration of six (6) months from the date of its execution, unless coupled with an interest, or unless the person executing it specifies therein the length of time for which it is to continue in force, which in no case shall exceed seven (7) years from the date of its execution. If such instrument or record shall designate two (2) or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or if only one (1) be present, then such powers may be exercised by that one (1). Unless required by the NRS or determined by the Chairman of the meeting to be advisable, the vote on any matter need not be by written ballot. No stockholder shall have cumulative voting rights.

 

SECTION 2.9. Consent of Stockholders . Whenever the vote of the stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, the meeting and vote of stockholders may be dispensed with if stockholders, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, consent in writing to such corporate action being taken; provided, that in no case shall the written consent be by the holders of stock having less than the minimum percentage of the vote required by the NRS. Any action by consent of the stockholders pursuant to this Section 2.9 must follow the notice and timing procedures of Section 2.5 applicable to any business to be conducted at a stockholder meeting. Further, upon the request of a stockholder to conduct a consent solicitation, the Board of Directors shall adopt a resolution fixing a record date within ten (10) days of the date on which a request therefor is received, provided that such record date shall not be more than ten (10) days after the date of the adoption of such resolution.

 

SECTION 2.10. Voting of Stock of Certain Holders . Shares standing in the name of another entity, domestic or foreign, may be voted by such officer, agent or proxy as the governing documents of such entity may prescribe, or in the absence of such provision, as the Board of Directors or governing body of such entity may determine. Shares standing in the name of a deceased person may be voted by the executor or administrator of such deceased person, either in person or by proxy. Shares standing in the name of a guardian, conservator or trustee may be voted by such fiduciary, either in person or by proxy, but no such fiduciary shall be entitled to vote shares held in such fiduciary capacity without a transfer of such shares into the name of such fiduciary. Shares outstanding in the name of a receiver may be voted by such receiver. A stockholder whose shares are pledged shall be entitled to vote such shares, unless in the transfer by the pledgor on the books of the Corporation, he or she has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his or her proxy, may represent the stock and vote thereon.

 

SECTION 2.11. Treasury Stock . The Corporation shall not vote, directly or indirectly, shares of its own stock owned by it; and such shares shall not be counted in determining the total number of outstanding shares.

 

SECTION 2.12. Fixing Record Date . The Board of Directors may fix in advance a date for any meeting of stockholders (which date shall not be more than sixty (60) nor less than ten (10) days preceding the date of any such meeting of stockholders), a date for payment of any dividend or distribution, a date for the allotment of rights, a date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining a consent of stockholders (which date shall not precede or be more than ten (10) days after the date the resolution setting such record date is adopted by the Board of Directors), in each case as a record date (the “ Record Date ”) for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, to receive payment of any such dividend or distribution, to receive any such allotment of rights, to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, as the case may be. In any such case such stockholders and only such stockholders as shall be stockholders of record on the Record Date shall be entitled to such notice of and to vote at any such meeting and any adjournment thereof, to receive payment of such dividend or distribution, to receive such allotment of rights, to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such Record Date.

 

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ARTICLE 3

 

BOARD OF DIRECTORS

 

SECTION 3.1. Powers . The business and affairs of the Corporation shall be managed by the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Subject to compliance with the provisions of the NRS, the powers of the Board of Directors shall include the power to make a liquidating distribution of the assets, and wind up the affairs of, the Corporation.

 

SECTION 3.2. Number and Qualifications . The number of directors which shall constitute the whole Board of Directors shall be not less than one (1) and not more than nine (9). Within the limits above specified, the number of the directors of the Corporation shall be determined solely in the discretion of the Board of Directors from time to time. All directors shall be elected annually. Directors need not be residents of Nevada or stockholders of the Corporation.

 

SECTION 3.3. Vacancies, Additional Directors; Removal From Office; Resignation .

 

SECTION 3.3.1 If any vacancy occurs in the Board of Directors caused by death, resignation, retirement, disqualification, removal from office or otherwise, or if any new directorship is created in accordance with Section 3.2 by an increase in the authorized number of directors, a majority of the directors then in office, though less than a quorum, or a sole remaining director, but not the stockholders of the Corporation, may choose a successor or fill the newly created directorship. Any director so chosen shall hold office for the unexpired term of his or her predecessor in his or her office and until his or her successor shall be elected and qualified, unless sooner displaced.

 

SECTION 3.3.2 No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

 

SECTION 3.3.3 The stockholders of the Corporation may remove a member of the Board of Directors by the affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the issued and outstanding stock entitled to vote.

 

SECTION 3.3.4 Any director may resign or voluntarily retire upon giving written notice to the Chairman of the Board or the Board of Directors. Such retirement or resignation shall be effective upon the giving of the notice, unless the notice specifies a later time for its effectiveness. If such retirement or resignation is effective at a future time, the Board of Directors may elect a successor to take office when the retirement or resignation becomes effective.

 

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SECTION 3.4. Regular Meetings . A regular meeting of the Board of Directors shall be held each year, without notice other than this Bylaw provision, at the place of, and immediately prior to and/or following, the annual meeting of stockholders; and other regular meetings of the Board of Directors shall be held during each year, at such time and place as the Board of Directors may from time to time provide by resolution, either within or without the State of Nevada, without any notice other than such resolution. The Board of Directors shall keep minutes of its regular meetings.

 

SECTION 3.5. Special Meetings . Special meetings of the Board of Directors may be called by the Chairman of the Board or by the President and shall be called by the Secretary on the written request of at least one (1) director. The Chairman of the Board or President so calling, or the directors so requesting, any such meeting shall fix the time and any place, either within or without the State of Nevada, as the place for holding such meeting. The Board of Directors shall keep minutes of its special meetings.

 

SECTION 3.6. Notice of Special Meeting . Written notice (including via e-mail) of special meetings of the Board of Directors shall be given to each director at least twenty-four (24) hours prior to the time of a special meeting. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting solely for the purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, except that notice shall be given with respect to any matter when notice is required by the NRS.

 

SECTION 3.7. Quorum . A majority of the Board of Directors then serving shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and the act of a majority of the directors present at any meeting at which there is quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by the NRS, by the Articles of Incorporation or by these Bylaws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting, without notice other than announcement at the meeting, until a quorum shall be present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved of by at least a majority of the required quorum for that meeting.

 

SECTION 3.8. Action Without Meeting . Unless otherwise restricted by the Articles of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof as provided in Article 4 of these Bylaws, may be taken without a meeting, if a written consent thereto is signed by all of the members of the Board of Directors or of such committee, as the case may be. Evidence of any consent to action under this Section 3.9 may be provided in writing, including electronically via email or facsimile.

 

SECTION 3.9. Meeting by Telephone . Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken by means of a meeting by telephone conference or similar communications method so long as all persons participating in the meeting can hear each other. Any person participating in such meeting shall be deemed to be present in person at such meeting.

 

SECTION 3.10. Compensation . Directors, as such, may receive reasonable compensation for their services, which shall be set by the Board of Directors, and expenses of attendance at each regular or special meeting of the Board of Directors; provided, however, that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving additional compensation therefor. Members of special or standing committees may be allowed like compensation for their services on committees.

 

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SECTION 3.11. Rights of Inspection . Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the Corporation and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and includes the right to copy and obtain extracts.

 

SECTION 3.12 Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if: (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or their committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

 

ARTICLE 4

 

COMMITTEES OF DIRECTORS

 

SECTION 4.1. Generally . The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more additional special or standing committees, each such additional committee to consist of one or more of the directors of the Corporation. Each such committee shall have and may exercise such of the powers of the Board of Directors in the management of the business and affairs of the Corporation as may be provided in such resolution, except as delegated by these Bylaws or by the Board of Directors to another standing or special committee or as may be prohibited by law.

 

SECTION 4.2. Committee Operations . A majority of a committee shall constitute a quorum for the transaction of any committee business. Such committee or committees shall have such name or names and such limitations of authority as provided in these Bylaws or as may be determined from time to time by resolution adopted by the Board of Directors. The Corporation shall pay all expenses of committee operations. The Board of Directors may designate one or more appropriate directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of any members of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another appropriate member of the Board of Directors to act at the meeting in the place of any absent or disqualified member.

 

SECTION 4.3. Minutes . Each committee of directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. The Corporation’s Secretary, or any other person designated by the applicable committee shall (a) serve as the Secretary of the special or standing committees of the Board of Directors of the Corporation, (b) keep regular minutes of standing or special committee proceedings, (c) make available to the Board of Directors, as required, copies of all resolutions adopted or minutes or reports of other actions recommended or taken by any such standing or special committee and (d) otherwise as requested keep the members of the Board of Directors apprised of the actions taken by such standing or special committees.

 

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ARTICLE 5

 

NOTICE

 

SECTION 5.1. Methods of Giving Notice .

 

SECTION 5.1.1. Notice to Directors or Committee Members . Whenever under the provisions of the NRS, the Articles of Incorporation or these Bylaws, notice is required to be given to any director or member of any committee of the Board of Directors, personal notice is not required but such notice may be: (a) given in writing and mailed to such director or committee member, (b) sent by electronic transmission (including via e-mail) to such director or committee member, or (c) given orally or by telephone; provided, however, that any notice from a stockholder to any director or member of any committee of the Board of Directors must be given in writing and mailed to such director or member and shall be deemed to be given upon receipt by such director or member. If mailed, notice to a director or member of a committee of the Board of Directors shall be deemed to be given when deposited in the United States mail first class, or by overnight courier, in a sealed envelope, with postage thereon prepaid, addressed, to such person at his or her business address. If sent by electronic transmission, notice to a director or member of a committee of the Board of Directors shall be deemed to be given if by (i) facsimile transmission, when receipt of the fax is confirmed electronically, (ii) electronic mail, when delivered to an electronic mail address of the director or member, (iii) a posting on an electronic network together with a separate notice to the director or member of the specific posting, upon the later of (1) such posting and (2) the giving of the separate notice (which notice may be given in any of the manners provided above), or (iv) any other form of electronic transmission, when delivered to the director or member.

 

SECTION 5.1.2. Notices to Stockholders . Whenever under the provisions of the NRS, the Articles of Incorporation or these Bylaws, notice is required to be given to any stockholder, personal notice is not required but such notice may be given: (a) in writing and mailed to such stockholder, (b) by a form of electronic transmission consented to by the stockholder to whom the notice is given or (c) as otherwise permitted by the SEC. If mailed, notice to a stockholder shall be deemed to be given when deposited in the United States mail in a sealed envelope, with postage thereon prepaid, addressed to the stockholder at the stockholder’s address as it appears on the records of the Corporation. If sent by electronic transmission, notice to a stockholder shall be deemed to be given if by (i) facsimile transmission, when directed to a number at which the stockholder has consented to receive notice, (ii) electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice, (iii) a posting on an electronic network together with a separate notice to the stockholder of the specific posting, upon the later of (1) such posting and (2) the giving of the separate notice (which notice may be given in any of the manners provided above), or (iv) any other form of electronic transmission, when directed to the stockholder.

 

SECTION 5.2. Written Waiver . Whenever any notice is required to be given by the NRS, the Articles of Incorporation or these Bylaws, a waiver thereof in a signed writing or sent by the transmission of an electronic record attributed to the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

 

SECTION 5.3. Consent . Whenever all parties entitled to vote at any meeting, whether of directors or stockholders, consent, either by a writing on the records of the meeting or filed with the Secretary, or by presence at such meeting and oral consent entered in the minutes of such meeting, or by taking part in the deliberations at such meeting without objection, the actions taken at such meeting shall be as valid as if such action had been taken at a meeting regularly called and noticed. At such meeting any business may be transacted which is not excepted from the written consent or to the consideration of which no objection for lack of notice is made at the time, and if any meeting be irregular for lack of notice or such consent, provided a quorum was present at such meeting, the proceedings of such meeting may be ratified and approved and rendered valid and the irregularity or defect therein waived by a writing signed by all parties having the right to vote thereat. Such consent or approval, if given by stockholders, may be by proxy or power of attorney, but all such proxies and powers of attorney must be in writing.

 

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ARTICLE 6

 

OFFICERS

 

SECTION 6.1. Officers .

 

SECTION 6.1.1 The officers of the Corporation shall include the Chairman of the Board (or Executive Chairman, if the Board of Directors designates such office), the President, the Secretary and the Treasurer, each as approved and appointed by the Board of Directors.

 

SECTION 6.1.2 The officers of the Corporation may further include a Chief Executive Officer and a Chief Financial Officer, each as approved and appointed by the Board of Directors, and may further include, without limitation, such other executive or subordinate officers and agents, including, without limitation, one or more Vice Presidents (any one or more of which may be designated Senior Executive Vice President, Executive Vice President, Senior Vice President or such other title as may be determined by the Board of Directors), Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, in each case as the Board of Directors deems necessary and approve and appoint.

 

SECTION 6.1.3 The Board of Directors may in its discretion delegate to the President the power and authority to appoint subordinate officers of the Corporation and to prescribe their respective duties and powers, but in any instance the Chairman of the Board, the President, the Secretary, the Treasurer and, if designated, the Chief Executive Officer, Chief Financial Officer or any other officer responsible for a principal business unit, division or function of the Corporation (such as sales, administration or finance), or any other officer who performs a policy making function (collectively, the “ Principal Officers ”), shall be subject to the approval of and appointment by the Board of Directors.

 

SECTION 6.1.4 All officers of the Corporation shall hold their offices for such terms and shall exercise such powers and perform such duties as prescribed by these Bylaws, the Board of Directors or President, as applicable. Any two or more offices may be held by the same person. The Chairman of the Board shall be elected from among the directors. With the foregoing exception, none of the other officers need be a director, and none of the officers need be a stockholder of the Corporation.

 

SECTION 6.2. Election and Term of Office . The Principal Officers shall each be elected only by, and shall serve only with the consent of, the Board of Directors. All other officers of the Corporation may be appointed as the Board of Directors or the President deem necessary to elect or appoint. The officers of the Corporation shall be elected or ratified annually by the Board of Directors at its first regular meeting held concurrently with or after the annual meeting of stockholders or as soon thereafter as conveniently possible (or, in the case of those officers elected or appointed other than by the Board of Directors, ratified at the Board of Directors’ first regular meeting held following their election or appointment or as soon thereafter as conveniently possible). Subject to the terms and conditions of any applicable contract between an officer and the Corporation, each officer shall hold office until his or her successor shall have been chosen and shall have qualified or until his or her death or the effective date of his or her resignation or removal, or until he or she shall cease to be a director in the case of the Chairman of the Board.

 

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SECTION 6.3. Removal and Resignation . Any officer or agent may be removed, either with or without cause, by the affirmative vote of a majority of the Board of Directors and, other than the Principal Officers, may also be removed, either with or without cause, by action of the President whenever, in his, her judgment, the best interests of the Corporation shall be served thereby, but such right of removal and any purported removal shall be without prejudice to the contractual rights, if any, of the person so removed. Any Principal Officer or other officer or agent may resign at any time by giving written notice to the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

 

SECTION 6.4. Vacancies . Any vacancy occurring in any Principal Officer office by death, resignation, removal or otherwise, shall be filled by the Board of Directors for the unexpired portion of the term. Any vacancy in any other office may be filled as the Board of Directors or President deem necessary.

 

SECTION 6.5. Compensation . The compensation of the Principal Officers shall be determined by the Board of Directors or a designated committee thereof. Compensation of all other officers and employees of the Corporation shall be determined by the President in consultation with the Board of Directors or a designated committee thereof and in accordance with any charter of any such committee as has been approved by the Board of Directors or any policies as have been approved by the Board of Directors. No officer who is also a director shall be prevented from receiving such compensation by reason of his or her also being a director.

 

SECTION 6.6. Chairman of the Board . The Chairman of the Board (who may also be designated as Executive Chairman with the approval of the Board of Directors), shall preside at all meetings of the Board of Directors and of the stockholders of the Corporation. In the Chairman of the Board’s absence, such duties shall be attended to by any vice chairman of the Board of Directors, or if there is no vice chairman, or such vice chairman is absent, then by the President. The Chairman of the Board shall act as liaison between the Board of Directors and the executive officers of the Corporation and shall be responsible for general oversight of such executive officers. The Chairman of the Board may also hold the position of Chief Executive Officer or President, if so approved or appointed by the Board of Directors. The Chairman of the Board shall formulate and submit to the Board of Directors matters of general policy for the Corporation and shall perform such other duties as usually appertain to the office or as may be prescribed by the Board of Directors. He or she may sign with the President or any other officer of the Corporation thereunto authorized by the Board of Directors certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors, and any deeds or bonds, which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof has been expressly delegated or reserved by these Bylaws or by the Board of Directors to some other officer or agent of the Corporation, or shall be required by law to be otherwise executed.

 

SECTION 6.7. President . The President shall, subject to the oversight by and control of the Board of Directors, have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President may also, but shall not be required to, hold the position of Chief Executive Officer of the Corporation, if so approved or appointed by the Board of Directors. The President shall keep the Board of Directors fully informed and shall consult them concerning the business of the Corporation. Subject to the supervisory powers of the Board of Directors, the President may sign with the Chairman of the Board or any other officer of the Corporation thereunto authorized by the Board of Directors, certificates for shares of capital stock of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors, and any deeds, bonds, mortgages, contracts, checks, notes, drafts or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof has been expressly delegated by these Bylaws or by the Board of Directors to some other officer or agent of the Corporation, or shall be required by law to be otherwise executed. In general, the President shall perform all other duties normally incident to the office of the President, except any duties expressly delegated to other persons by these Bylaws, the Board of Directors and such other duties as may be prescribed by the Board of Directors from time to time.

 

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SECTION 6.8. Chief Executive Officer . The Chief Executive Officer, if any, shall, in general, perform such duties as usually pertain to the position of chief executive officer and such duties as may be prescribed by the Board of Directors.

 

SECTION 6.9. Chief Financial Officer . The Chief Financial Officer, if any, shall, in general, perform such duties as usually pertain to the position of chief financial officer and such duties as may be prescribed by the Board of Directors. The Chief Financial Officer (or the Treasurer, if the office of Chief Financial Officer is unoccupied) shall prepare annually (by the thirtieth (30th) day following the end of each fiscal year) a customary and appropriate financial and operational budget of income, expense and cash flows of the Company for the upcoming fiscal year, which budget shall be reviewed and approved by the Board of Directors. Such budget shall be updated quarterly (including a reconciliation of the Company’s actual performance versus the approved budget) and presented to the Board of Directors for review and revision as determined by the Board of Directors.

 

SECTION 6.10. Secretary . The Secretary shall: (a) keep the minutes of the meetings of the stockholders, the Board of Directors and committees of directors; (b) see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law; (c) be custodian of the corporate records and of the seal of the Corporation, and see that the seal of the Corporation or a facsimile thereof is affixed to all certificates for shares prior to the issuance thereof and to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these Bylaws; (d) keep or cause to be kept a register of the post office address of each stockholder which shall be furnished by such stockholder; (e) have general charge of other stock transfer books of the Corporation; and (f) in general, perform all duties normally incident to the office of the Secretary and such other duties as from time to time may be assigned to him or her by the Chairman of the Board, the President or the Board of Directors.

 

SECTION 6.11. Treasurer . The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation; receive and give receipts for monies due and payable to the Corporation from any source whatsoever and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Section 7.3 of these Bylaws; and (b) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the Board of Directors or the President. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the Board of Directors shall determine.

 

SECTION 6.12. Interim Officer Status . Any office of the Corporation may be designated by the Board of Directors as interim, and such interim status shall be on such terms and for such duration as may be designated by the Board of Directors.

 

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ARTICLE 7

 

EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION

 

SECTION 7.1. Contracts . Subject to the provisions of Section 6.1, the Board of Directors may authorize any officer, officers, agent or agents to enter into any contract or execute and deliver an instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

 

SECTION 7.2. Checks, etc . All checks, demands, drafts or other orders for the payment of money, and notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers or such agent or agents of the Corporation, and in such manner, as shall be determined by the Board of Directors.

 

SECTION 7.3. Deposits . All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the the President, the Treasurer or the Chief Financial Officer may be empowered by the Board of Directors to select or as the Board of Directors may select.

 

SECTION 7.4. Voting of Securities Owned by Corporation . All stock and other securities of any other corporation owned or held by the Corporation for itself, or for other parties in any capacity, and all proxies with respect thereto shall be executed by the person authorized to do so by resolution of the Board of Directors or, in the absence of such authorization, by any Principal Officer.

 

ARTICLE 8

 

SHARES OF STOCK

 

SECTION 8.1. Issuance . Each stockholder of the Corporation shall be entitled to a certificate or certificates showing the number of shares of stock registered in his or her name on the books of the Corporation. The certificates shall be in such form as may be determined by the Board of Directors, shall be issued in numerical order and shall be entered in the books of the Corporation as they are issued. They shall exhibit the holder’s name and the number of shares and shall be signed by the Chairman of the Board and the President or such other officers as may from time to time be authorized by resolution of the Board of Directors. Any or all the signatures on the certificate may be a facsimile. In case any officer who has signed or whose facsimile signature has been placed upon any such certificate shall have ceased to be such officer before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as if such officer had not ceased to be such officer at the date of its issue. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designation, preferences and relative participating, option or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class of stock; provided that except as otherwise provided by the NRS, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish to each stockholder who so requests the designations, preferences and relative participating, option or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in the case of a lost, stolen, destroyed or mutilated certificate a new certificate (or uncertificated shares in lieu of a new certificate) may be issued therefor upon such terms and with such indemnity, if any, to the Corporation as the Board of Directors may prescribe. In addition to the above, all certificates (or uncertificated shares in lieu of a new certificate) evidencing shares of the Corporation’s stock or other securities issued by the Corporation shall contain such legend or legends as may from time to time be required by the NRS.

 

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SECTION 8.2. Lost Certificates . The Board of Directors may direct that a new certificate or certificates (or uncertificated shares in lieu of a new certificate) be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates (or uncertificated shares in lieu of a new certificate), the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate or certificates alleged to have been lost, stolen or destroyed, or both.

 

SECTION 8.3. Transfers . In the case of shares of stock represented by a certificate, upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Transfers of shares shall be made only on the books of the Corporation by the registered holder thereof, or by his or her attorney thereunto authorized by power of attorney and filed with the Secretary and the Corporation’s transfer agent, if any.

 

SECTION 8.4. Registered Stockholders . The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Nevada.

 

SECTION 8.5. Uncertificated Shares . The Board of Directors may approve the issuance of uncertificated shares of some or all of the shares of any or all of its classes or series of capital stock.

 

ARTICLE 9

 

DIVIDENDS

 

SECTION 9.1. Declaration . Dividends upon the capital stock of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of capital stock, subject to the provisions of the Articles of Incorporation.

 

SECTION 9.2. Reserve . Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

 

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ARTICLE 10

 

LIMITATION ON LIABILITY AND INDEMNIFICATION

 

SECTION 10.1 No director or officer shall be personally liable to the Corporation or its shareholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law: (i) for acts or omissions not in good faith or which involve intentional misconduct, fraud or a knowing violation of law, or (ii) for any transaction from which the director derived an improper personal benefit. If the NRS is hereafter amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by applicable law. No amendment to or repeal of this Section shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.

 

SECTION 10.2 The Corporation shall, to the maximum extent permitted under applicable law, and except as set forth below, indemnify, hold harmless and, upon request, advance expenses to each person (and the heirs, executors or administrators of such person) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan (any such person being referred to hereafter as an “ Indemnitee ”), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf in connection with such action, suit or proceeding and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Notwithstanding anything to the contrary in this Section, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with any action, suit, proceeding, claim or counterclaim, or part thereof initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors.

 

SECTION 10.3 Advance of Expenses. Notwithstanding any other provisions of the Articles of Incorporation, these Bylaws, or any agreement, vote of stockholder or disinterested directors, or arrangement to the contrary, the Corporation may, at the determination of the Board, advance payment of expenses incurred by an Indemnitee in advance of the final disposition of any matter only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Section. Such undertaking may be accepted without reference to the financial ability of the Indemnitee to make such repayment.

 

SECTION 10.4 Subsequent Amendment. No amendment, termination or repeal of this Article 10 or of the relevant provisions of Chapter 78 of the NRS or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal.

 

SECTION 10.5 Other Rights . The Corporation may, to the extent authorized from time to time by the Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Section.

 

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SECTION 10.6 Reliance. Persons who after the date of the adoption of this provision become or remain directors or officers of the Corporation or who, while a director or officer of the Corporation, become or remain a director, officer, employee or agent of a subsidiary, shall be conclusively presumed to have relied on the rights to indemnity, advance of expenses and other rights contained in this Section in entering into or continuing such service. The rights to indemnification and to the advance of expenses conferred in this Section shall apply to claims made against an Indemnitee arising out of acts or omissions which occurred or occur both prior and subsequent to the adoption hereof.

 

SECTION 10.7 Merger or Consolidation. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the Corporation under this Section with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation,

 

SECTION 10.8 Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was, or has agreed to become, a director, officer, employee or agent of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan, against all expenses (including attorney's fees) judgments, fines or amounts paid in settlement incurred by such person in any such capacity or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such expenses under Chapter 78 of the NRS.

 

SECTION 10.9 Savings Clause. If this Article 10 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses, including attorneys' fees, judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article 10 that shall not have been invalidated and to the fullest extent permitted by applicable law.

 

SECTION 10.10 Contested Director Indemnification . Notwithstanding anything to the contrary contained in these Bylaws, a director who was elected in any Contested Election who is not a continuing director shall not be entitled to any indemnification or advancement of expenses unless and until a majority of the continuing directors vote that the indemnification provisions set forth in this Article 10 shall apply to such newly elected director.

 

ARTICLE 11

 

MISCELLANEOUS

 

SECTION 11.1. Books . The books of the Corporation may be kept within or without the State of Nevada (subject to any provisions contained in the NRS) at such place or places as may be designated from time to time by the Board of Directors.

 

SECTION 11.2. Fiscal Year . The fiscal year of the Corporation shall be such fiscal year as may be designated by the Board of Directors.

 

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SECTION 11.3 Forum Selection. Unless the Corporation consents in writing to the selection of an alternative forum, a state or federal court located in the County of Alameda in the State of California shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim for breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any actions asserting a claim arising pursuant to any provision of the NRS, the Articles of Incorporation or these Bylaws, in each case as amended, or (iv) any action asserting a claim governed by the internal affairs doctrine, in each such case subject to such court having personal jurisdiction over the indispensable parties named as defendants therein. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 11.3.

 

ARTICLE 12

 

AMENDMENTS

 

SECTION 12.1 Amendment by Stockholders. The stockholders of the Corporation may alter, amend, repeal or the remove these Bylaws or any portion thereof only by the affirmative vote of sixty-six and two thirds percent (66 2/3%) of the stockholders entitled to vote at a meeting of the stockholders, duly called; provided, however, that no such change to any Bylaw shall alter, modify, waive, abrogate or diminish the Corporation’s obligation to provide the indemnity called for by Article 10 of these Bylaws, the Articles of Incorporation or applicable law.

 

SECTION 12.2 Amendment by the Board of Directors . Notwithstanding Section 12.1, the Board of Directors may, by majority vote of those present at any meeting at which a quorum is present, alter, amend or repeal these Bylaws or any portion thereof, or enact such other Bylaws as in their judgment may be advisable for the regulation of the conduct of the affairs of the Corporation.

 

# # #

 

 

18

Exhibit 10.1

 

Business Operation Agreement

 

This Business Operation Agreement (this “ Agreement ”) is entered into in Beijing, the People’s Republic of China (the “ PRC ”) on December 15, 2016 by and between the following Parties:

 

Party A: Jakroo (Beijing) Sports Consulting Co., Ltd.

Address: Room 509, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, PRC

 

Party B: Rider Sportsfashion Limited

Address: Room 507, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, PRC

 

Party C:

 

Shareholder 1: Weidong Du

 

Shareholder 2: Wei Tan

 

Shareholder 3: Guichun Liu

 

Shareholder 4: Wen Li

 

Shareholder 5: Hao Wang

 

(In this Agreement, the above parties are hereinafter referred to individually as a “ Party ” and collectively as the “ Parties .”)

 

WHEREAS:

 

1. Party A is a wholly foreign-owned enterprise incorporated and validly existing in the PRC;

 

2. Party B is a limited liability company incorporated in the PRC;

 

3. Party A and Party B have established a business relationship by entering into a certain Exclusive Technical Consulting and Services Agreement, pursuant to which Party B will make various payments to Party A and therefore Party B’s activities in its ordinary course of business will have a material effect upon its ability to make such payments to Party A; and

 

4. Each of the individuals listed as Party C is a shareholder of Party B (collectively, the “ Founding Shareholders ”), of which Weidong Du, Wei Tan, Guichun Liu, Wen Li and Hao Wang each holds 50%, 39%, 5%,3%, 3%, respectively, of Party B.

 

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NOW, THEREFORE, the Parties, through amicable consultations and based on the principle of equality and mutual benefit, hereby agree as follows:

 

Article1 Negative Obligations

 

In order to guarantee the performance of Party B in relation to this Agreement and all of Party B’s in relation to its obligations towards Party A, the Founding Shareholders hereby acknowledge, agree and jointly and severally warrant that without the prior written consent of Party A or any party designated by Party A, Party B shall not engage in any transaction which may have a material or adverse effect on any of its assets, businesses, employees, obligations, rights or operations, including without limitation:

 

1.1 Conduct any activity outside its ordinary course of business or in a manner inconsistent with its past practice;

 

1.2 Make any borrowing or undertake any indebtedness from any third party;

 

1.3 Change or remove any of its directors or senior officers;

 

1.4 Sell, acquire or otherwise dispose of any assets or rights, including without limitation any intellectual property rights, with any third party;

 

1.5 Create or cause the creation of any guarantee, pledge or any other security on any of its assets, including intellectual property, in favor of any third party, or create any encumbrance on any such assets;

 

1.6 Change its articles of association or its scope of business;

 

1.7 Change its ordinary course of business or materially alter its bylaws;

 

1.8 Transfer any of its rights or obligations under this Agreement to any third party;

 

1.9 Make or cause any material change to its business pattern, marketing strategy, business plan or customer relationships; and

 

1.10 Make or cause a distribution of any bonus or dividend.

 

Article 2 Business Management and Human Resources Arrangement

 

2.1 Party B and the Founding Shareholders hereby jointly agree to accept and strictly implement any proposal made by Party A from time to time regarding the employment and removal of Party B’s employees, its day-to-day business management and the financial management system of Party B.

 

2.2 Party B and the Founding Shareholders hereby jointly agree that the Founding Shareholders will elect or appoint, as applicable, any person designated by Party A as Party B’s director, chairman, president, chief financial officer and any other executive officers in accordance with relevant laws, regulations and its articles of association.

 

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2.3 Upon termination of his or her employment with Party A, either voluntarily or by Party A, each of the directors or senior officers elected or appointed under Section 2.2 will be simultaneously disqualified to hold any position in Party B; under such circumstance, the Founding Shareholders will elect any other person designated by Party A for such position.

 

2.4 For purpose of Section 2.3, the Founding Shareholders will take any actions required under relevant laws, articles of association and this Agreement to effect the employment and termination provided under Sections 2.2 and 2.3.

 

2.5 The Founding Shareholders hereby agree that, in conjunction with the execution of this Agreement, they will execute an irrevocable power of attorney authorizing Party A to exercise their respective rights as shareholders of Party B and respective voting rights at Party B’s shareholders meeting.

 

Article 3 Other Agreements

 

3.1 Upon termination or expiration of any agreement between Party A and Party B, Party A may elect to terminate all of its agreements with Party B, including without limitation the Exclusive Technical Consulting and Services Agreement.

 

3.2 Considering the business relationship established between Party A and Party B based on the executed Exclusive Technical Consulting and Services Agreement, Party B’s activities in its ordinary course of business will have a material effect upon its ability to make relevant payments to Party A. The Founding Shareholders agree that any bonus, dividend or any other benefit or interest receivable by it as shareholder of Party B will be unconditionally and automatically paid or transferred to Party A.

 

Article 4 Entire Agreements and Amendments to the Agreement

 

4.1 This Agreement and all of the agreements and/or documents referred to or expressly included herein constitute the entire agreement among the Parties with respect to the subject matter hereto and supersedes all prior agreements, contracts, understandings and communications, whether written or oral, among the Parties with respect to the same.

 

4.2 This Agreement may not be amended unless by agreement of all of the Parties in writing. Any amendment or supplement hereto duly executed by the Parties shall be an integral part of and have the same effect with this Agreement.

 

Article 5 Governing Law

 

The execution, validity, performance of this Agreement and the resolution of any dispute arising from this Agreement shall be governed in accordance with the laws of the PRC.

 

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Article 6 Dispute Resolution

 

6.1 Should any dispute arise in connection with construction or performance of any provision under this Agreement, the Parties shall seek in good faith to resolve such dispute through negotiations. If the negotiations fail, any of the Parties may submit the dispute to the China International Economic and Trade Arbitration Commission (“CIETAC”) for arbitration in Beijing in accordance with CIETAC’s arbitration rules then in effect. The arbitration shall be conducted in Chinese. CIETAC’s judgment shall be final and binding on each of the Parties.

 

6.2 Except for the matter under dispute, each of the Parties shall continue to perform its obligations under this Agreement in good faith.

 

Article 7 Notices

 

All notices made by each of the Parties to exercise any of its rights or perform any of its obligations hereunder shall be in writing and given to the following address in person, by registered mail, prepaid mail, recognized courier service, or by fax.

 

To Party A:   Jakroo (Beijing) Sports Consulting Co., Ltd.
Address:   Room 509, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, PRC
Attention:   Wen Li

 

To Party B:   Rider Sportsfashion Limited
Address:  

Room 507, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, PRC

Attention:   Weidong Du

 

To Party C:

Shareholder 1

Address: Room 507, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, PRC

Fax: 010-5877 3378

Attention: Weidong Du

 

Shareholder 2

Address: Room 507, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, PRC

Fax: 010-5877 3378

Attention: Wei Tan

 

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Shareholder 3

Address: Room 507, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, PRC

Fax: 010-5877 3378

Attention: Guichun Liu

 

Shareholder 4

Address: Room 507, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, PRC

Fax: 010-5877 3378

Attention: Wen Li

 

Shareholder 5

Address: Room 507, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, PRC

Fax: 010-5877 3378

Attention: Hao Wang

 

Article 8 Effectiveness, Term of this Agreement

 

8.1 Any written consent, proposal, appointment and any other decision made in connection with this Agreement which may have a material effect on Party B’s day-to-day business operations shall be made by Party A’s board of directors.

 

8.2 This Agreement shall become effective upon execution by each of the Parties on the date first written above. The term of this Agreement will be ten (10) years unless Party A terminates the agreement earlier. Upon request from Party A, the Parties may extend the term of this Agreement prior to its expiration or enter into a separate business agreement, each as requested by Party A.

 

8.3 During the term of this Agreement, none of Party B or the Founding Shareholders may terminate this Agreement. Party A shall have the sole right to terminate this Agreement at any time, provided that Party A gives prior written notice to Party B and its Shareholders.

 

8.4 If any term or provision hereof is found to be illegal or unenforceable under applicable laws, such term or provision shall be deemed deleted from this Agreement and the remainder of this Agreement shall remain in full force and effect as if such term or provision had never been contained herein. The Parties shall negotiate to replace such deleted term or provision with a lawful and valid term or provision acceptable to each of the Parties.

 

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8.5 Failure to exercise any right, power or privilege hereunder shall not be deemed a waiver thereof. Any single or partial exercise of any right, power or privilege hereunder shall not preclude exercise of any other right, power or privilege under this Agreement.

 

Article 9 Miscellaneous

 

9.1  This Agreement is written in English with a Chinese translation. In the event of any discrepancy between the two versions, the English version shall prevail. This Agreement is made with seven (7) original copies, of which Party A and Party B will each hold one copy respectively, and each shareholder of Party C will hold one copy.
   
9.2  The headings in this Agreement are written for ease of reference only and in no event shall they affect the interpretation of any terms of this Agreement.
   
9.3  Matters not covered in this Agreement shall be determined by the Parties separately through consultation.

 

 

 

 

 

[THIS SPACE IS INTENTIONALLY LEFT BLANK]

 

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[Signature Page of Business Operation Agreement]

 

IN WITNESS WHEREOF , the Parties have caused this Agreement to be duly executed by their duly authorized representatives on the date first written above.

 

Party A: Jakroo (Beijing) Sports Consulting Co., Ltd. (Seal)

 

Authorized Representative (Signature): /s/ Wen Li
  Name: Wen Li

 

Party B: Rider Sportsfashion Limited (Seal)

 

Authorized Representative (Signature): /s/ Weidong Du
  Name: Weidong Du

 

Party C:

 

Shareholder 1: Weidong Du (Signature): /s/ Weidong Du
   
Shareholder 2: Wei Tan (Signature): /s/ Wei Tan
   
Shareholder 3: Guichun Liu (Signature): /s/ Guichun Liu
   
Shareholder 4: Wen Li (Signature): /s/ Wen Li
   
Shareholder 5: Hao Wang (Signature): /s/ Hao Wang

 

 

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Exhibit 10.2

 

Equity Pledge Agreement

 

This Equity Pledge Agreement (this “ Agreement ”) is entered into in Beijing, the People’s Republic of China (the “ PRC ”) on December 15, 2016 by and between the following Parties:

 

1. Shareholder 1: Weidong Du

 

2. Shareholder 2: Wei Tan

 

3. Shareholder 3: Guichun Liu

 

4. Shareholder 4: Wen Li

 

5. Shareholder 5: Hao Wang

 

(Weidong Du, Wei Tan, Guichun Liu, Wen Li and Hao Wang are hereinafter referred to individually as a “ Pledgor ” and collectively as the “ Pledgors .”)

 

6. Jakroo (Beijing) Sports Consulting Co., Ltd. (the “ Pledgee ”)

Registered address: Room 509, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, PRC

 

7. Rider Sportsfashion Limited (the “ Company ”)

 

Registered address: Room 507, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing

 

(In this Agreement, the above parties are hereinafter referred to individually as a “ Party ” and collectively as the “ Parties .”)

 

WHEREAS:

 

(1) The Pledgors are the registered shareholders of the Company, legally holding all of the equity interest in the Company (the “ Company Equity Interest ”). Appendix 1 sets forth the capital contribution amount and the shareholding percentage of each Pledgor in the registered capital of the Company on the signing date of this Agreement.

 

(2) The Pledgee is a wholly foreign owned company duly incorporated and existing under the laws of the PRC.

 

(3) The Parties to this Agreement entered into the Exclusive Call Option Agreement (the “ Call Option Agreement ”) on December 15, 2016. Each Pledgor provided Power of Attorney to the Pledgee on December 15, 2016. Under the Call Option Agreement, the Pledgors shall, to the extent permitted under PRC Law, transfer all or part of their equity interests in the Company to the Pledgee and/or any other entity or individual designated by the Pledgee based on the Pledgee’s request.

 

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(4) As the Pledgors’ security for the performance of the Contractual Obligations (as defined below) and the discharge of the Secured Liabilities (as defined below), the Pledgors are willing to pledge all the Company Equity Interest held by each in favor of the Pledgee and grant the Pledgee first priority, and the Company agrees to such equity interest pledge arrangement.

 

NOW, THEREFORE, the Parties, through amicable negotiation, agree as follows:

 

Article 1 Definitions

 

1.1 Unless otherwise indicated in context of this Agreement, the following terms shall be interpreted as follows.

 

Contractual Obligations ” means all the contractual obligations of the Pledgors under the Exclusive Call Option Agreement, Business Operation Agreement, the Exclusive Technical Consulting and Service Agreement, Power of Attorney, and all the contractual obligations of the Pledgors and the Company under this Agreement.

 

Secured Liabilities ” means all the direct, indirect and derivative losses and loss of foreseeable interest incurred by the Pledgee due to any Event of Default (as defined below) on the part of the Pledgors and/or the Company; the basis for determining the amount of such losses includes but is not limited to the reasonable commercial plan and profit forecast of the Pledgee; and all the expenses incurred by the Pledgee to enforce the performance by the Pledgors and/or the Company of their Contractual Obligations.

 

Transaction Documents ” means the Exclusive Call Option Agreement, Power of Attorney, Business Operation Agreement and the Exclusive Technical Consulting and Service Agreement.

 

Pledged Equity Interest ” means all of the Company Equity Interest lawfully owned by the Pledgors and to be pledged to the Pledgee in accordance with this Agreement as security for the performance of the Contractual Obligations by the Pledgors and the Company (see Appendix 1 for the specific Pledged Equity Interest of each Pledgor), and the increased capital contribution amount and dividend as provided in Article 2.6 and Article 2.7 of this Agreement.

 

PRC ” means the People’s Republic of China, excluding the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan.

 

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PRC Law ” means the then-effective laws, administrative regulations, administrative rules, local regulations, judicial interpretations and other binding regulatory documents of the PRC.

 

1.2 Any reference to any PRC Law in this Agreement shall be deemed (1) to include references to the amendments, changes, supplements and restatement of such PRC Law, irrespective of whether they take effect before or after the execution of this Agreement, and (2) to include the references to other decisions, notices and regulations enacted in accordance therewith or effective as a result thereof.

 

1.3 Unless otherwise specified in the context herein, any reference to an Article, clause, item or paragraph in this Agreement shall refer only to the corresponding part of this Agreement.

 

Article 2 Pledge of Equity Interest

 

2.1 The Pledgors hereby agree to pledge the Pledged Equity Interest, which they lawfully own and are entitled to dispose of, to the Pledgee in accordance with the provisions of this Agreement as the security for the performance of the Contractual Obligations and the discharge of the Secured Liabilities, if any. The Company hereby agrees to the Pledgors’ pledge of the Pledged Equity Interest to the Pledgee in accordance with the provisions of this Agreement.

 

2.2 The Pledgors undertake to be responsible for registering the equity interest pledge arrangement (the “ Equity Pledge ”) under this Agreement on the Company’s register of shareholders immediately upon the execution date of this Agreement. The Parties shall use their best efforts to apply to the registration authority in charge of the Company for registration of the Equity Pledge under this Agreement immediately after the signing of this Agreement.

 

2.3 During the valid term of this Agreement, unless directly attributable to the Pledgee’s willful misconduct or the Pledgee’s gross negligence in relation to the performance of this Agreement and/or the transactions related hereto, the Pledgee shall in no way be held liable for any reduction in the value of the Pledged Equity Interest, and the Pledgors shall have no right to claim any compensation against the Pledgee.

 

2.4 Without breaching the provisions of Article 2.3 above, if there is any probability that the value of the Pledged Equity Interest will notably reduce in such a way as to jeopardize the rights of the Pledgee, the Pledgee may at any time auction or sell the Pledged Equity Interest on behalf of the Pledgors, and may reach agreement with the Pledgors to use the proceeds from such auction or sales to prepay the Secured Liabilities or to deposit such proceeds with the notary office in the place where the Pledgee is domiciled (all expenses so incurred shall be assumed by the Pledgee). Further, if requested by the Pledgee, the Pledgors shall offer additional security interest over other property.

 

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2.5 Upon the occurrence of any Event of Default, the Pledgee has the right to dispose of the Pledged Equity Interest in accordance with Article 4 of this Agreement.

 

2.6 The Pledgors shall not increase the registered capital of the Company without the Pledgee’s prior consent. The increased capital contribution amount of the Pledgors in the registered capital of the Company as a result of such capital increase of the Company shall be a part of the Pledged Equity Interest.

 

2.7 No dividend or capital bonus on the Pledged Equity Interest shall be distributed to the Pledgors without the Pledgee’s prior written consent. The Pledgors agree that during the term of pledge, the Pledgee has the right to collect any dividend or capital bonus out of the Pledged Equity Interest. The Company shall pay such amount into the bank account designated by the Pledgee.

 

Article 3 Release of Pledge

 

3.1 After the Pledgors and the Company have fully and completely performed all of the Contractual Obligations and discharged all of the Secured Liabilities, the Pledgee shall, upon the Pledgors’ request, release the Equity Pledge under this Agreement and cooperate with the Pledgors to cancel the registration of the Equity Pledge on the Company’s register of shareholders and with the administration of industry and commerce in charge of the Company. The Pledgee shall assume the reasonable expenses arising out of the release of the Equity Pledge.

 

Article 4 Disposal of Pledged Equity Interest

 

4.1 The Parties agree that if any Event of Default occurs, the Pledgee has the right to, by notifying the Pledgors in writing, exercise all the remedial rights and powers that it is entitled to under PRC Law, the Transaction Documents and the provisions of this Agreement, including but not limited to being compensated in first priority with proceeds from auctions or sales of the Pledged Equity Interest. The Pledgee shall not be liable for any loss caused by its reasonable exercise of such rights and powers.

 

4.2 The Pledgee has the right to delegate in writing to its lawyers or other agents the ability to exercise all or any part of its rights and powers above, and neither the Pledgors nor the Company may oppose such actions.

 

4.3 The Pledgee has the right to deduct the reasonable expenses actually incurred from its exercise of all or any part of its rights and powers set forth above from the proceeds gained from its exercise of such rights and powers.

 

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4.4 The proceeds gained from the Pledgee’s exercise of its rights and powers shall be settled in the following order of priority:

 

(1) pay all expenses arising out of the disposal of the Pledged Equity Interest and the Pledgee’s exercise of its rights and powers (including the remuneration paid to its lawyers and agents);

 

(2) pay all taxes and charges payable owed in relation to the disposal of the Pledged Equity Interest; and

 

(3) repay the Secured Liabilities to the Pledgee.

 

If there is any balance remaining after the payment of the above amounts, the Pledgee shall return the balance to the Pledgors or any other person entitled to such amount pursuant to relevant laws and regulations, or deposit such amount with the notary office in the place where the Pledgee is domiciled (all expenses so incurred to be assumed by the Pledgee).

 

4.5 The Pledgee has the discretion to, simultaneously or separately, exercise any remedies it may be entitled to in relation to any event of default. The Pledgee may exercise its rights to auction or sell the Pledged Equity Interest under this Agreement without first exercising any other remedy that may be available in an event of default.

 

Article 5 Costs and Expenses

 

5.1 All actual expenses related to the creation of the Equity Pledge under this Agreement, including but not limited to, stamp duty, any other taxes, and all legal fees shall be assumed as incurred by each respective Party.

 

Article 6 Continuity and No Waiver

 

6.1 The Equity Pledge created under this Agreement is a continuing assurance, which shall be valid until the Contractual Obligations are fully performed or the Secured Liabilities are fully discharged. No waiver or grace period of any event of default of the Pledgors given by the Pledgee, nor the Pledgee’s late exercise of any of its rights under the Transaction Documents and this Agreement, shall affect the rights of the Pledgee pursuant to this Agreement, the Transaction Documents or the relevant PRC Law as it may require at any time thereafter the Pledgors’ strict implementation of the Transaction Documents and this Agreement, or the rights the Pledgee is entitled to with respect to the Pledgors’ subsequent breach of the Transaction Documents and/or this Agreement.

 

Article 7 Pledgors’ Representations and Warranties

 

Each of the Pledgors respectively represents and warrants to the Pledgee as follows:

 

7.1 The Pledgors are PRC citizens with full legal capacity, having full civil rights and powers to execute this Agreement and assume the legal obligations in accordance with this Agreement.

 

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7.2 All the reports, documents and information related to the Pledgors and all matters required under this Agreement that the Pledgors provided to the Pledgee prior to the effectiveness of this Agreement are true and accurate in all material respects as of the effectiveness of this Agreement.

 

7.3 All the reports, documents and information related to the Pledgors and all the matters required under this Agreement to be provided by the Pledgors to the Pledgee after the effectiveness of this Agreement will be true and valid in all material respects upon provision.

 

7.4 Upon the effectiveness of this Agreement, the Pledgors are the sole legal owners of the Pledged Equity Interest. There are no pending disputes on the ownership of the Pledged Equity Interest. The Pledgors are entitled to dispose of the Pledged Equity Interest or any part thereof.

 

7.5 Except the security interest created over the Pledged Equity Interest under this Agreement and the rights created under the Transaction Documents, there are no other security interests or third party rights or any other encumbrance over the Pledged Equity Interest.

 

7.6 The Pledged Equity Interest can be legally pledged and transferred, and the Pledgors have full rights and powers to pledge the Pledged Equity Interest to the Pledgee in accordance with the provisions of this Agreement.

 

7.7 This Agreement, upon due execution by the Pledgors, constitutes the lawful, valid and binding obligations of the Pledgors after the signing of this Agreement.

 

7.8 Any third party approvals, permits, waivers and authorizations, any required governmental approvals, permits and waivers or any registration or filing formalities with any government authorities (if legally required), which are required with respect to the execution and performance of this Agreement and the Equity Pledge under this Agreement, have been obtained or completed (subject to Article 2.2), and will be fully effective during the term of this Agreement.

 

7.9 Each Pledgor’s execution and performance of this Agreement does not violate or conflict with any laws applicable thereto, any agreement to which it is a party or by which its assets are bound, or any court adjudication, any arbitration award or any decision of administrative authorities.

 

7.10 The pledge under this Agreement constitutes a first priority security interest over the Pledged Equity Interest.

 

7.11 Unless otherwise provided by the Equity Interest Transfer Agreement, all taxes and expenses payable for obtaining the Pledged Equity Interest have been paid by the Pledgors in full.

 

7.12 The Pledgors hereby undertake to the Pledgee that the above representations and warranties will all be true and accurate and be fully complied with under any circumstance and at all times before the Contractual Obligations are due to be performed in full or the Secured Liabilities are discharged in full.

 

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Article 8 Company’s Representations and Warranties

 

The Company represents and warrants to the Pledgee as follows:

 

8.1 The Company is a limited liability company duly registered and lawfully existing under the laws of the PRC with independent legal person status, and can be an independent party to a lawsuit.

 

8.2 All the reports, documents and information related to the Pledged Equity Interest and all the matters required under this Agreement which the Company provided to the Pledgee prior to the effectiveness of this Agreement are true and accurate in all material respects as of the effectiveness of this Agreement.

 

8.3 All the reports, documents and information related to the Pledged Equity Interest and all the matters required under this Agreement to be provided by the Company to the Pledgee after the effectiveness of this Agreement will be true and valid in all material respects upon provision.

 

8.4 This Agreement, upon due execution by the Company, constitutes the lawful, valid and binding obligations of the Company.

 

8.5 The Company has full internal corporate power and authorization to execute and deliver this Agreement and all other documents related to the transaction contemplated in this Agreement and to be executed by it. It has full power and authorization to complete the transaction contemplated in this Agreement.

 

8.6 The Company hereby agrees to assume the joint and several liability to the Pledgee with respect to the representations and warranties made by each of the Pledgors under Article 7.4, Article 7.5, Article 7.6, Article 7.8 and Article 7.10 of this Agreement.

 

8.8 The Company hereby undertakes to the Pledgee that the above representations and warranties will all be true and accurate and be fully complied with under any and all circumstances and at any time up until the Contractual Obligations are performed in full and the Secured Liabilities are discharged in full.

 

Article 9 Pledgors’ Undertakings

 

Each Pledgor hereby respectively undertakes to the Pledgee as follows:

 

9.1 Without the prior written consent of the Pledgee, the Pledgors shall not create, or allow to be created, any new pledge or any other security interest over the Pledged Equity Interest. Any pledge or other security interest created over all or any part of the Pledged Equity Interest without the prior written consent of the Pledgee shall be invalid.

 

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9.2 Without the prior written notice to and the prior written consent of the Pledgee, the Pledgors shall not transfer the Pledged Equity Interest and all activities of the Pledgors to transfer the Pledged Equity Interest shall be invalid. The proceeds obtained from the Pledgors’ transfer of the Pledged Equity Interest shall be used first to prepay the Secured Liabilities to the Pledgee or to be deposited with a third party as agreed with the Pledgee.

 

9.3 In the event of the occurrence of any lawsuit, arbitration or other claim which may have an adverse effect on the interests of the Pledgors or the Pledgee under the Transaction Documents and this Agreement or on the Pledged Equity Interest, the Pledgors undertake to notify the Pledgee in writing as soon as possible and in a timely manner, and, as reasonably required by the Pledgee, to take all necessary measures to ensure that the Pledgee secures and maintains all rights, title and interest to the Pledged Equity Interest.

 

9.4 The Pledgors undertake to complete the registration formalities to extend the business term of the Company three months before the expiration of the business term of the Company so as to continue the effect of this Agreement.

 

9.5 The Pledgors shall not take, or allow to be taken, any activity or action which may have an adverse effect on the Pledgee’s interest under the Transaction Documents and this Agreement or on the Pledged Equity Interest. The Pledgors waive the right of first refusal to purchase the Pledged Equity Interest when the Pledgee realizes its pledge rights.

 

9.6 The Pledgors shall, after signing this Agreement, use their best efforts and take all necessary measures to register the Equity Pledge under this Agreement with the relevant administration of industry and commerce as soon as possible, and the Pledgors undertake to, as reasonably required by the Pledgee, take all necessary measures and execute all necessary documents (including but not limited to any agreement supplemental to this Agreement) to ensure the transfer of all rights, title and interest to the Pledged Equity Interest.

 

9.7 When the right of pledge of the Pledged Equity Interest is exercised under this Agreement, the Pledgors shall undertake to take all measures to complete such transfer.

 

9.8 The Pledgors shall ensure that the convening process, voting methods and resolutions of the shareholders meetings and board meetings of the Company convened for the purpose of the exercise of the right of pledge under this Agreement shall not be in conflict with the laws, administrative regulations or the articles of association of the Company.

 

Article 10 Company’s Undertakings

 

10.1 If any third party approval, permit, waiver or authorization, or any required governmental approval, permit or waiver, or any registration or filing formalities with any government authorities (if legally required) is required to be obtained or completed for the execution and performance of this Agreement and for the Equity Pledge under this Agreement, the Company shall endeavor to assist the Parties in obtaining it and keeping it fully effective during the valid term of this Agreement.

 

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10.2 Without the prior written consent of the Pledgee, the Company shall not assist the Pledgors in obtaining or allow the Pledgors’ creation of any new pledge or other security interest over the Pledged Equity Interest.

 

10.3 Without the prior written consent of the Pledgee, the Company shall not assist in or allow the Pledgors’ transfer of the Pledged Equity Interest.

 

10.4 In the event of the occurrence of any lawsuit, arbitration or other claim which may have an adverse effect on the Company, the Pledged Equity Interest or the Pledgee’s interest under the Transaction Documents and this Agreement, the Company undertakes to notify the Pledgee in writing as soon as possible and in a timely manner, and, as reasonably required by the Pledgee, to take all necessary measures to ensure the pledge interest of the Pledgee over the Pledged Equity Interest.

 

10.5 The Company undertakes to complete the registration formalities to extend its business term three months before the expiration of its business term so as to continue the effect of this Agreement.

 

10.6 The Company shall not take, or allow to be taken, any activity or action which may have an adverse effect on the Pledgee’s interest under the Transaction Documents and this Agreement or on the Pledged Equity Interest, including but not limited to any activity or action restricted under Article 9.

 

10.7 The Company shall, in the first month of each calendar quarter, provide the Pledgee with the financial statements of the Company for the immediately preceding calendar quarter, including but not limited to the balance sheet, the profit and loss statements and the cash flow statements.

 

10.8 The Company undertakes to, as reasonably required by the Pledgee, take all necessary measures and execute all necessary documents (including but not limited to any agreement supplemental to this Agreement) to ensure the exercise and realization of the transfer of the Pledged Equity Interest to the Pledgee.

 

10.9 At such time as the exercise of the right of pledge under this Agreement results in the transfer of any Pledged Equity Interest, the Company undertakes to take all measures to ensure completion of such transfer.

 

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Article 11 Change of Circumstances

 

11.1 As a supplement to and not with the intent of conflicting with the Transaction Documents or other provisions of this Agreement, if at any time, due to the promulgation of or change in any PRC Law, rules or regulations, or the change in interpretation or application of such laws, regulations or rules, or the change of relevant registration procedures, the Pledgee believes that it is illegal or in conflict with such laws, rules and regulations to keep this Agreement effective, to keep the right of pledge under this Agreement effective and/or to dispose of the Pledged Equity Interest in accordance with this Agreement, the Pledgors and the Company shall promptly take any and all actions and/or execute any agreements or other documents upon written instruction by the Pledgee and as reasonably required by the Pledgee, so as to:

 

  (1) keep this Agreement and the right of pledge under this Agreement effective;
     
  (2) facilitate the disposal of the Pledged Equity Interest in accordance with this Agreement; and/or
     
  (3) keep or realize the security created or intended by this Agreement.

 

Article 12 Effectiveness and Term of this Agreement

 

12.1 This Agreement shall come into effect upon the satisfaction of all of the following conditions:

 

  (1) this Agreement has been duly executed by the Parties;
     
  (2) the Equity Pledge under this Agreement has been duly registered on the register of shareholders of the Company.

 

The Pledgors shall provide the Pledgee with evidence of the registration of the Equity Pledge on the register of shareholders in a form satisfactory to the Pledgee and shall, after the registration of the Equity Pledge is completed and as required by the Pledgee, provide the Pledgee with the pledge certificate issued by the administration of industry and commerce in form to the satisfaction of the Pledgee.

 

12.2 The term of this Agreement shall end upon the full performance of the Contractual Obligations or the full discharge of the Secured Liabilities.

 

Article 13 Notices

 

13.1 Any notice, request, demand and other correspondence required by this Agreement or made in accordance with this Agreement shall be delivered in writing to the relevant Party.

 

13.2 If any such notice or other correspondence is transmitted by facsimile or telex, it shall be treated as delivered immediately upon transmission; if delivered in person, it shall be treated as delivered at the time of delivery; if posted by mail, it shall be treated as delivered five (5) days after posting.

 

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Article 14 Miscellaneous

 

14.1 The Pledgors and the Company agree that the Pledgee may, upon written notice to the Pledgors and the Company, assign the Pledgee’s rights and/or obligations hereunder to any third party. However, the Pledgors or the Company shall not, without the Pledgee’s prior written consent, assign their rights, obligations or liabilities hereunder to any third party. The successors or permitted assignees (if any) of the Pledgors and the Company shall continue to perform the respective obligations of the Pledgors and the Company under this Agreement.

 

14.2 When the Pledgee exercises its right of pledge to the Pledged Equity Interest pursuant to the provisions hereof, the amount of the Secured Liabilities determined by the Pledgee at its own discretion shall be regarded as the conclusive evidence of the Secured Liabilities hereunder.

 

14.3 This Agreement is written in English and has been translated into Chinese. In the event of any discrepancy between the two versions, the English version shall prevail. This Agreement is made with eight (8) original copies, with one (1) original to be retained by each Party hereto. One (1) original is to be used for the application to the Local Administration of Industry and Commerce in charge of the Company for registration of the Equity Pledge under this Agreement.

 

14.4 The execution, effectiveness, performance, revision, interpretation and termination of this Agreement shall be governed by the PRC Law.

 

14.5 Any dispute arising out of and in connection with this Agreement shall be resolved through consultations among the Parties. In case the Parties fail to reach agreement within thirty (30) days after the dispute arises, such dispute shall be submitted to the China International Economic and Trade Arbitration Commission (CIETAC) for arbitration in Beijing in accordance with such Commission’s arbitration rules then in effect at the time of applying for arbitration, and the language of arbitration shall be in Chinese. The arbitration award shall be final and binding on the Parties.

 

14.6 Each provision contained herein shall be severable and independent from each of the other provisions. If any one or more provision herein is deemed invalid, illegal or unenforceable at any time, the validity, legality and enforceability of the remaining provisions herein shall not be affected as a result thereof.

 

14.7 Any amendments or supplements to this Agreement shall be made in writing. Except for any assignment by the Pledgee of its rights hereunder according to Article 14.1, the amendments or supplements to this Agreement shall take effect only upon the due execution by the Parties to this Agreement. If any amendments or supplements to this Agreement legally require any approval of and/or any registration or filing with any government authority, the Parties shall obtain such approval and/or complete such registration or filing in accordance with law.

 

14.8 This Agreement shall be binding upon the legal successors of the Parties.

 

14.9 Upon execution of this Agreement, each Pledgor shall sign a power of attorney (the “ Power of Attorney ”) to authorize any person designated by the Pledgee to sign on the Pledgor’s behalf according to the terms of this Agreement any and all legal documents necessary for the exercise of the Pledgee’s rights hereunder. Such Power of Attorney shall be delivered to the Pledgee to keep in custody and, when necessary and as needed, the Pledgee may at any time submit the Power of Attorney to the relevant government authority.

 

 

 

 

 

 

 

 

 

 

 

[THIS SPACE IS INTENTIONALLY LEFT BLANK]

 

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[Signature Page of Equity Pledge Agreement]

 

IN WITNESS WHEREOF, the following Parties have executed this Equity Pledge Agreement on the date and at the place first above written.

 

Shareholder 1: Weidong Du  (Signature): /s/ WeiDong Du
   
Shareholder 2: Wei Tan (Signature): /s/ Wei Tan
   
Shareholder 3: Guichun  Liu  (Signature): /s/ Guichun Liu
   
Shareholder 4: Wen Li  (Signature): /s/ Wen Li
   
Shareholder 5: Hao Wang  (Signature): /s/ Hao Wang
   
Jakroo (Beijing) Sports Consulting Co., Ltd. (Seal)  
   
Authorized Representative (Signature): /s/ Wen Li
  Name: Wen Li
   
Rider Sportsfashion Limited (Seal)  
   
Authorized Representative (Signature): /s/ Weidong Du
 

Name: Weidong Du

 

 

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Exhibit 10.3

 

Exclusive Call Option Agreement

 

This Exclusive Call Option Agreement (this “ Agreement ”) is entered into in Beijing, the People’s Republic of China (the “ PRC ”) on December 15, 2016 by and between the following Parties:

 

1. Shareholder 1: Weidong Du

 

2. Shareholder 2: Wei Tan

 

3. Shareholder 3: Guichun Liu

 

4. Shareholder 4: Wen Li

 

5. Shareholder 5: Hao Wang

 

(Weidong Du, Wei Tan, Guichun Liu, Wen Li and Hao Wang are hereinafter referred to individually as a “ Company Shareholder ” and collectively as the “ Company Shareholders .”)

 

6. Jakroo (Beijing) Sports Consulting Co., Ltd. (the “WFOE”)

Registered address: Room 509, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, PRC

 

7. Rider Sportsfashion Limited (the “Company”)

 

Registered address: Room 507, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing

 

(In this Agreement, the above parties are hereinafter referred to individually as a “ Party ” and collectively as the “ Parties .”)

  

Whereas:

 

(1) The Company Shareholders are the registered shareholders of the Company, legally holding all the equity interest in the Company. Appendix 1 sets forth the capital contribution amount made by each of the Company Shareholders and the shareholding percentage of each as reflected in the registered capital of the Company as of the date of this Agreement.

 

(2) To the extent not in violation of PRC Law, the Company Shareholders intend to transfer all of their respective equity interest in the Company to the WFOE and/or any other entity or individual so designated by the WFOE, and the WFOE intends to accept such transfer.

 

 

 

(3) To the extent not in violation of PRC Law, the Company intends to transfer its assets to the WFOE and/or any other entity or individual so designated by the WFOE, and the WFOE intends to accept such transfer.

 

(4) For purposes of the foregoing equity interest and asset transfer, the Company Shareholders and the Company agree to grant to the WFOE the exclusive and irrevocable Equity Transfer Option (as defined below) and Asset Purchase Option (as defined below), respectively. Pursuant to such Equity Transfer Option and Asset Purchase Option, at the WFOE’s sole request, the Company Shareholders or the Company shall, to the extent permitted by the PRC Law, transfer the Shareholder Equity (as defined below) or the Company Assets (as defined below) to the WFOE and/or any other entity or individual so designated by the WFOE pursuant to the provisions of this Agreement.

 

(5) The Company agrees that the Company Shareholders grant the Equity Transfer Option to the WFOE pursuant to the provisions of this Agreement.

 

(6) The Company Shareholders agree that the Company grants the Asset Purchase Option to the WFOE pursuant to the provisions of this Agreement.

 

NOW, THEREFORE, the Parties, after amicable consultations, hereby agree as follows:

 

Article 1 Definitions

  

1.1 As used in this Agreement, the following terms shall be interpreted to have the following meanings, unless otherwise interpreted pursuant to the context:

  

Asset Purchase Option ” shall mean the option to purchase any Company Assets as granted to the WFOE by the Company pursuant to the terms and conditions of this Agreement.

 

Business Permits ” shall mean any approvals, permits, filings, or registrations which the Company is required to obtain in order to legally and validly operate all of its businesses, including without limitation, its business license and such other relevant permits and licenses as may be required by the then-effective PRC Law.

 

Company Assets ” shall mean all the tangible and intangible assets which the Company owns or has the right to dispose of during the term of this Agreement, including without limitation, any immoveable and moveable assets, intellectual property rights such as trademarks, copyrights, patents, know-how, domain names and software use rights, and any investment interests.

 

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Company Registered Capital ” shall mean the registered capital of the Company as of the signing date of this Agreement, (i.e. RMB 1,000,000), which shall include any expanded registered capital as a result of any capital increase in any form during the term of this Agreement.

 

Equity Transfer Option ” shall mean the option to purchase all of the Shareholder Equity held by each respective Company Shareholder as granted to the WFOE by the Company Shareholders pursuant to the terms and conditions of this Agreement.

 

Exercise of Option ” shall mean the exercise of the Equity Transfer Option or the Asset Purchase Option by the WFOE.

  

Material Asset ” shall mean any asset which has a book value of RMB100,000 or more or has a material effect on the business operations of any Party.

 

Material Agreement ” shall mean, in respect to the Company, any agreement to which the Company is a party and which has a material effect on the business or assets of the Company, including without limitation, the Exclusive Technical Consulting and Service Agreement entered into by the Company and the WFOE on December 15, 2016 and other important agreements regarding the business of the Company; in respect of a Subsidiary, any agreement to which such Subsidiary is a party and which has a material effect on the business or assets of such Subsidiary.

 

PRC ” shall mean the People’s Republic of China, which, for purposes of this Agreement only, excludes the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan.

 

PRC Law ” shall mean the then-effective laws, administrative regulations, administrative rules, local regulations, judicial interpretations and other binding regulatory documents of the PRC.

 

Shareholder Equity ” shall mean, in respect of each of the Company Shareholders, all the equity interest held by him or her in the Company Registered Capital, respectively, in respect of all the Company Shareholders, the equity interest covering 100% of the Company Registered Capital.

 

Transferred Assets ” shall mean the Company Assets which the WFOE has the right to require the Company to transfer to it or its designated entity or individual in accordance with Article 3 hereof when the WFOE exercises its Asset Purchase Option, the quantity of which may be all or part of the Company Assets and the details of which shall be determined by the WFOE at its sole discretion in accordance with the then-effective PRC Law and based on its commercial consideration.

 

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Transferred Equity ” shall mean the equity interest in the Company which the WFOE has the right to request either of the Company Shareholders to transfer to it or its designated entity or individual in accordance with Article 3 hereof when the WFOE exercises its Equity Transfer Option, the quantity of which may be all or part of the Shareholder Equity and the specific amount of which shall be determined by the WFOE at its sole discretion in accordance with the then-effective PRC Law and based on its commercial consideration.

 

Transfer Price ” shall mean all the consideration that the WFOE or its designated entity or individual is required to pay to the Company Shareholders or the Company in order to obtain the Transferred Equity or the Transferred Assets upon each Exercise of Option as provided herein.

 

1.2 The references to any PRC Law herein shall be deemed to:

 

  (1) simultaneously include any and all references to the amendments, changes, supplements and restatements of such PRC Law, irrespective of whether they take effect before or after the execution of this Agreement; and

 

(2) simultaneously include the references to other decisions, notices and regulations enacted in accordance therewith or effective as a result thereof.

 

1.3 Except as otherwise stated in the context herein, all references to an Article, clause, item or paragraph shall refer to the corresponding part of this Agreement.

 

Article 2 Grant of Equity Transfer Option and Asset Purchase Option

 

2.1 The Company Shareholders hereby severally and jointly agree to grant the WFOE an irrevocable, unconditional and exclusive Equity Transfer Option. Pursuant to such Equity Transfer Option, the WFOE is entitled, to the extent permitted under PRC Law, to request the Company Shareholders transfer the Shareholder Equity to the WFOE, or the WFOE’s designated entity or individual, according to the terms and conditions hereunder. The WFOE also agrees to accept such Equity Transfer Option.

 

2.2 The Company hereby agrees that the Company Shareholders grant such Equity Transfer Option to the WFOE according to Article 2.1 above and other provisions of this Agreement.

 

2.3 The Company hereby agrees to grant the WFOE an irrevocable, unconditional and exclusive Asset Purchase Option. Pursuant to such Asset Purchase Option, the WFOE is entitled, to the extent permitted under PRC Law, to request the Company to transfer all or part of the Company Assets to the WFOE, or the WFOE’s designated entity or individual, according to the terms and conditions hereunder. The WFOE also agrees to accept such Asset Purchase Option.

 

2.4 The Company Shareholders hereby severally and jointly agree that the Company grants such Asset Purchase Option to the WFOE according to Article 2.3 above and other provisions of this Agreement.

 

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Article 3 Method of Exercise of Option

 

3.1. Subject to the terms and conditions of this Agreement, the WFOE shall have the absolute sole discretion to determine the specific time, method and times of its Exercise of Option to the extent permitted under PRC Law.

 

3.2. Subject to the terms and conditions of this Agreement and to the extent not in violation of the then-effective PRC Law, the WFOE shall have the right, at any time, to request to acquire the Transferred Equity from the Company Shareholders by itself or through any other entity or individual so designated by the WFOE.

 

3.3. Subject to the terms and conditions of this Agreement and to the extent not in violation of the then-effective PRC Law, the WFOE shall have the right, at any time, to request to acquire the Transferred Assets from the Company by itself or through any other entity or individual so designated by the WFOE.

 

3.4. With regard to the Equity Transfer Option, at each Exercise of Option, the WFOE shall have the right to arbitrarily determine the amount of the Transferred Equity to be transferred by the Company Shareholders to the WFOE and/or any other entity or individual designated by it. The Company Shareholders shall respectively transfer the Transferred Equity to the WFOE and/or any other entity or individual designated by it in the amount requested by the WFOE. The WFOE and/or any other entity or individual designated by it shall pay the Transfer Price with respect to the Transferred Equity acquired at each Exercise of Option to the Company Shareholder transferring such Transferred Equity.

 

3.5. With regard to the Asset Purchase Option, at each Exercise of Option, the WFOE shall have the right to determine the specific Company Assets to be transferred by the Company to the WFOE and/or any other entity or individual designated by it. The Company shall transfer the Transferred Assets to the WFOE and/or any other entity or individual designated by it in accordance with the WFOE’s requirement. The WFOE and/or any other entity or individual designated by it shall pay the Transfer Price to the Company with respect to the Transferred Assets acquired at each Exercise of Option.

 

3.6. At each Exercise of Option, the WFOE may acquire the Transferred Equity or Transferred Assets by itself or designate any third party to acquire all or part of the Transferred Equity or Transferred Assets.

 

3.7. Having decided each Exercise of Option, the WFOE shall issue to the Company Shareholders or the Company a notice for exercising the Equity Transfer Option or a notice for exercising the Asset Purchase Option (the “Exercise Notice,” the form of which is set out in Appendix 2, Appendix 3, Appendix 4, Appendix 5 and Appendix 6 hereto). The Company Shareholders or the Company shall, upon receipt of the Exercise Notice, forthwith transfer all the Transferred Equity or Transferred Assets in accordance with the Exercise Notice to the WFOE and/or any other entity or individual designated by the WFOE in such method as described in Article 3.4 or Article 3.5 hereof.

 

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Article 4 Transfer Price

 

4.1. With regard to the Equity Transfer Option, the total Transfer Price to be paid by the WFOE or any other entity or individual designated by the WFOE to each Company Shareholder at each Exercise of Option by the WFOE shall be the capital contribution mirrored by the corresponding Transferred Equity in the Company Registered Capital. But if the lowest price permitted by the then-effective PRC Law is higher than the above capital contribution, the Transfer Price shall be the lowest price permitted by the PRC Law.

 

4.2. With regard to the Asset Purchase Option, the Transfer Price to be paid by the WFOE or any other entity or individual designated by the WFOE to the Company at each Exercise of Option by the WFOE shall be the net book value of the relevant Transferred Assets. But if the lowest price permitted by the then-effective PRC Law is higher than the net book value of the Transferred Assets, the Transfer Price shall be the lowest price permitted under PRC Law.

 

Article 5 Representations and Warranties

 

5.1 The Company Shareholders hereby severally and jointly represent and warrant that:

 

  5.1.1. Each of the Company Shareholders is a Chinese citizen. Each of them has the full and independent legal status and legal capacity to execute, deliver and perform this Agreement and may act independently as a party to a lawsuit.

 

  5.1.2 Each of them has the full power and authority to execute, deliver and perform this Agreement and all other documents relating to the transaction contemplated hereby and to be executed by them. Each of them has the full power and authority to consummate the transaction contemplated hereby.

 

  5.1.3 This Agreement is legally and duly executed and delivered by the Company Shareholders. This Agreement shall constitute their legal and binding obligations and shall be enforceable against them in accordance with the terms of this Agreement.

 

  5.1.4 The Company Shareholders are the legitimate owners of the Shareholder Equity as of the effective date of this Agreement, and except for the rights created under the Equity Pledge Agreement executed by the Company, the WFOE and the Company Shareholders on the date hereof, the Shareholder Equity is free from and clear of any lien, pledge, claim and other encumbrances and third party rights. Pursuant to this Agreement, the WFOE and/or any other entity or individual designated by it may, after the Exercise of Option, acquire good and legal title to the Transferred Equity, free from and clear of any lien, pledge, claim and other encumbrances or third party rights.

 

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  5.1.5 To the knowledge of the Company Shareholders, the Company Assets are free from and clear of any lien, mortgage, claim and other encumbrances and third party rights. Pursuant to this Agreement, the WFOE and/or any other entity or individual designated by it may, after the Exercise of Option, acquire good title to the Company Assets, free and clear of any lien, mortgage, claim and other encumbrances or third party rights.

 

  5.1.6 The execution, delivery and performance by the Company Shareholders of this Agreement and the consummation by the Company Shareholders of the transaction contemplated hereby do not violate any PRC Law or any agreement, contract or other arrangement with any third party by which the Company Shareholders are bound.

 

5.2 The Company hereby represents and warrants that:

 

  5.2.1 The Company is a limited liability company duly registered and legitimately existing under PRC Law with an independent legal personality. It has the full and independent legal status and may act independently as a party to a lawsuit.

 

  5.2.2 The Company has the full internal corporate power and authority to execute, deliver and perform this Agreement and all other documents relating to the transaction contemplated hereby and to be executed by it. It has the full power and authority to consummate the transaction contemplated hereby.

 

  5.2.3  This Agreement is legally and duly executed and delivered by the Company and constitutes a legal and binding obligation against it.

 

  5.2.4 The Company Assets are free from and clear of any lien, mortgage, claim or other encumbrance or third party right. Pursuant to this Agreement, the WFOE and/or any other entity or individual designated by it will, after the Exercise of Option, acquire good title to the Company Assets, free from and clear of any lien, mortgage, claim and other encumbrances or third party rights.

 

  5.2.5 The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transaction contemplated hereby does not violate any PRC Law or any agreement, contract or other arrangement with any third party by which it is bound.

 

5.3 The WFOE hereby represents and warrants that:

 

  5.3.1. The WFOE is a wholly foreign-owned enterprise duly registered and legally existing under PRC Law. The WFOE has the full and independent legal status and may act independently as a party to lawsuit.

 

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  5.3.2. The WFOE has the full internal corporate power and authority to execute, deliver and perform this Agreement and all other documents relating to the transaction contemplated hereby and to be executed by it. It has the full power and authority to consummate the transaction contemplated hereby.

 

  5.3.3. This Agreement is legally and duly executed and delivered by the WFOE. This Agreement shall constitute a legal and binding obligation against it.

 

Article 6 Undertakings by the Company Shareholders

 

Each of the Company Shareholders hereby severally undertakes that:

 

6.1 Within the valid term of this Agreement, without the WFOE’s prior written consent, any Company Shareholder:

 

  6.1.1. shall not transfer or otherwise dispose of any Shareholder Equity or create any encumbrance or other third party rights on any Shareholder Equity;

 

  6.1.2. shall not increase or decrease the Company Registered Capital or cause or permit the Company to be divided or merged with any other entity;

 

  6.1.3. shall not dispose of or cause the management of the Company to dispose of any Material Asset (other than in the ordinary course of business), or create any encumbrance or other third party rights on any Material Asset;

 

  6.1.4. shall not terminate or cause the management of the Company to terminate any Material Agreement entered into by the Company, or enter into any other agreement in conflict with the existing Material Agreements;

 

  6.1.5. shall not appoint or dismiss and replace any director or supervisor of the Company or any other management personnel of the Company who shall be appointed or dismissed by the Company Shareholders;

 

  6.1.6. shall not cause the Company to declare the distribution of or release any distributable profit, dividend, share profit or share interest;

 

  6.1.7. shall ensure that the Company maintains its valid legal existence and that such status is not terminated, liquidated or dissolved;

 

  6.1.8. shall not amend the articles of association of the Company; 

 

  6.1.9. shall ensure that the Company will not lend or borrow any money, or provide any guarantee or engage in security activities in any other form, or bear any substantial obligations other than in the ordinary course of business; and

 

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  6.1.10. shall not cause the Company or the management of the Company to approve any of the following acts of any of the Company’s subsidiaries or affiliates (collectively, the “ Subsidiaries ”), including:

 

  (a) increase or decrease any Subsidiary’s registered capital or cause or permit any Subsidiary to be divided or merged with any other entity;

 

  (b) dispose of or cause the management of the Subsidiaries to dispose of any Material Asset of any Subsidiary (other than in the ordinary course of business), or create any encumbrance or other third party rights on such assets;

 

  (c) terminate or cause the management of the Subsidiaries to terminate any Material Agreement entered into by any Subsidiary, or enter into any other agreement in conflict with the existing Material Agreements;

 

  (d) appoint or dismiss and replace any director or supervisor of any Subsidiary or any other management personnel of such Subsidiary who shall be appointed or dismissed by the Company;

 

  (e) terminate, liquidate or dissolve any Subsidiary or act in any way that damages or is likely to damage the valid existence of any Subsidiary;

 

  (f) amend the articles of association of any Subsidiary; or

 

  (g) lend or borrow any money, provide any guarantee, engage in security activities in any other form, or bear any substantial obligations other than in the ordinary course of business.

 

6.2 During the term of this Agreement, the Company Shareholders shall endeavor to the best of their ability to develop the business of the Company and ensure that the Company’s operations are legal and in compliance with the regulations, and they will not engage in any act or omission which may damage the Company’s (or its Subsidiaries’) assets and/or goodwill or affect the validity of the Business Permits of the Company.

 

6.3  During the term of this Agreement, the Company Shareholders shall notify the WFOE of any circumstances that may have a material adverse effect on the existence, business operations, financial conditions, assets or goodwill of the Company (including the Subsidiaries’) and take all the measures approved by the WFOE to remove such adverse circumstances or take effective remedial measures with respect thereto in a timely manner.

 

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6.4  Once the WFOE gives the Exercise Notice:

 

  6.4.1. the Company Shareholders shall promptly convene a meeting of the shareholders, pass shareholders’ resolutions and take all other necessary actions to approve any Company Shareholder and the Company to transfer all the Transferred Equity or the Transferred Assets at the Transfer Price to the WFOE, and/or any other entity or individual designated by the WFOE, and waive any preemptive right to purchase such interests enjoyed by the Company Shareholders (if any);

 

  6.4.2. the Company Shareholders shall promptly enter into an equity transfer agreement with the WFOE and/or any other entity or individual designated by the WFOE to transfer all the Transferred Equity at the Transfer Price to the WFOE and/or any other entity or individual designated by the WFOE and provide necessary support to the WFOE (including the provision and execution of all relevant legal documents, performance of all government approval and registration procedures and assumption of all relevant obligations) in accordance with the WFOE’s requirements and the PRC Law so that the WFOE and/or any other entity or individual designated by the WFOE may acquire all the Transferred Equity, free from and clear of any legal defect or any encumbrance, third party restriction or any other restrictions on the Transferred Equity.

 

6.5 If the total Transfer Price obtained by any Company Shareholder with respect to the Transferred Equity held by the shareholder is higher than the capital contribution corresponding with such Transferred Equity in the Company Registered Capital, or the Company Shareholder receives any form of profit distribution, share profit, share interest or dividend from the Company, then such Company Shareholder agrees, so long as it does not violate any PRC Laws, to waive the premium earnings and any profit distribution, share profit, share interest or dividend (after the deduction of relevant taxes) and the WFOE shall be entitled to such profit distribution, share profit, interest or dividend. Otherwise, such Company Shareholder shall compensate the WFOE and/or any other entity or individual designated by the WFOE for any loss incurred as a result thereof.

 

Article 7 Undertakings by the Company

 

7.1 The Company hereby undertakes that:

 

  7.1.1. If any consent, permit, waiver or authorization by any third party, or any approval, permit or exemption by any government authority, or any registration or filing formalities (if required by law) with any government authority needs to be obtained or handled with respect to the execution and performance of this Agreement and grant of the Equity Transfer Option or Asset Purchase Option hereunder, the Company shall endeavor to assist in satisfying the above conditions.

 

  7.1.2. Without the WFOE’s prior written consent, the Company shall not assist or permit the Company Shareholders to transfer or otherwise dispose of any Shareholder Equity or create any encumbrance or other third party rights on any Shareholder Equity.

 

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  7.1.3. Without the WFOE’s prior written consent, the Company shall not transfer or otherwise dispose of any Material Asset (other than in the ordinary course of business) or create any encumbrance or other third party rights on any Company Assets.

 

  7.1.4. The Company shall not itself nor permit others to act in such a way as to adversely affect the interests of the WFOE under this Agreement, including without limitation, any behavior or action that is subject to Article 6.1.

 

7.2 Within the valid term of this Agreement, once the WFOE gives its Exercise Notice:

 

  7.2.1 the Company shall promptly cause the Company Shareholders to convene a meeting of the shareholders, pass shareholders resolutions and take all other necessary actions to approve the Company’s transfer of all of the Transferred Assets at the Transfer Price to the WFOE and/or any other entity or individual so designated by the WFOE;

 

  7.2.2 the Company shall promptly enter into an asset transfer agreement with the WFOE and/or any other entity or individual designated by the WFOE to transfer all of the Transferred Assets at the Transfer Price to the WFOE and/or any other entity or individual designated by the WFOE, and cause the Company Shareholders to provide necessary support to the WFOE (including provision and execution of all relevant legal documents, performing all government approval and registration procedures and assuming all relevant obligations) in accordance with the WFOE’s requirements and the PRC Law so that the WFOE and/or any other entity or individual designated by the WFOE may acquire all the Transferred Assets, free from and clear of any legal defect or any encumbrance, third party restriction or any other restrictions on the Transferred Assets.

 

Article 8 Confidentiality Obligations

 

8.1 Regardless of whether this Agreement is terminated or not, each Party shall keep strictly confidential all business secrets, proprietary information, customer information and all other information of a confidential nature concerning the other Parties known by it during the execution and performance of this Agreement (collectively, the “Confidential Information”). Unless a prior written consent is obtained from the Party disclosing the Confidential Information (the “Disclosing Party”) or unless it is required to be disclosed to third parties in accordance with relevant laws, rules and regulations (including those of the United States Securities and Exchange Commission) or the requirements of the place where any affiliate is listed on a stock exchange, the Party receiving the Confidential Information (the “Receiving Party”) shall not disclose to any third party any Confidential Information. The Receiving Party shall not use any Confidential Information other than for the purpose of performing this Agreement.

 

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8.2 The following information shall not be deemed part of the Confidential Information:

 

  (a) any information that has been lawfully acquired by the receiving Party prior to entering into the Agreement as evidenced by other written documents;

 

  (b) any information entering the public domain not attributable to the fault of the Party receiving the information; or

 

  (c) any information lawfully acquired by the Party receiving the information through other sources after its receipt of such information.

 

8.3 For purposes of performing this Agreement, the Receiving Party may disclose the Confidential Information to its relevant employees, agents or professionals retained by it. However, the Receiving Party shall ensure that the aforesaid persons shall comply with all relevant terms and conditions of this Article 8. In addition, the Receiving Party shall be responsible for any liability incurred as a result of such persons’ breach of the relevant terms and conditions of this Article 8.

 

8.4 Notwithstanding any other provision contained herein, the effect of this Article 8 shall not be affected by the termination of this Agreement.

 

Article 9 Term of Agreement

 

This Agreement shall become effective immediately upon the signing of this Agreement by all parties. This Agreement shall terminate after all the Shareholder Equity and the Company Assets are lawfully transferred to the WFOE and/or any other entity or individual designated by the WFOE pursuant to the provisions of this Agreement.

 

Article 10 Notices

 

10.1 Any notice, request, demand and other correspondence required pursuant to this Agreement or made in accordance with this Agreement shall be delivered in writing to the relevant Party.

 

10.2 If any such notice or other correspondence is transmitted by facsimile or telex, it shall be treated as delivered immediately upon transmission; if delivered in person, it shall be treated as delivered at the time of delivery; if posted by mail, it shall be treated as delivered five (5) days after posting.

 

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Article 11 Defaulting Liability

 

11.1 The Parties agree and confirm that, if any of the Parties (the “ Defaulting Party ”) substantially violates any agreement herein or substantially fails to perform or delays performance of any of the obligations hereunder, such violation, failure or delay shall constitute a default under this Agreement (a “ Default ”). The non-defaulting Party shall have the right, within a reasonable period, to request the Defaulting Party to rectify or take remedial actions. If the Defaulting Party fails to rectify such Default or take remedial actions within such reasonable period or within ten (10) days after the non-defaulting Party notifies the Defaulting Party in writing requiring the Default to be rectified, then the non-default Party will be entitled to decide at its own discretion as follows:

 

11.1.1. if any Company Shareholder or the Company is the Defaulting Party, the WFOE shall be entitled to terminate this Agreement and require the Defaulting Party to indemnify the non-defaulting parties for any and all damages;

 

  11.1.2. if the WFOE is the Defaulting Party, the non-defaulting Party shall be entitled to indemnification from the Defaulting Party, but unless otherwise provided for by the PRC Law, the non-defaulting Party has no right to terminate or cancel this Agreement under any circumstances.

 

11.2 Notwithstanding any other provision herein, the effect of this Article 11 shall not be affected by the termination of this Agreement.

 

Article 12 Miscellaneous

 

12.1 This Agreement is written in English and translated into Chinese. In the event of any discrepancy between the two versions, the English version shall prevail. This Agreement is made with seven (7) original copies, with one (1) original to be retained by each Party hereto.

 

12.2 The execution, effectiveness, performance, revision, interpretation and termination of this Agreement shall be governed by PRC Law.

 

12.3 Any dispute arising out of or in connection with this Agreement shall be resolved through consultations among the Parties. In case the Parties fail to reach agreement within thirty (30) days after a dispute arises, such dispute shall be submitted to the China International Economic and Trade Arbitration Commission (CIETAC) for arbitration in Beijing in accordance with such Commission’s arbitration rules in effect at the time of applying for arbitration. The arbitration shall be conducted in Chinese. The arbitration judgment shall be final and binding on the Parties.

 

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12.4 Each provision contained herein shall be severable and independent from each of the other provisions. If any one or more provision herein is deemed invalid, illegal or unenforceable at any time, the validity, legality and enforceability of the remaining provisions herein shall not be affected as a result thereof.

 

12.5 This Agreement, when signed, shall supersede any prior legal documents executed by and among the Parties with respect to the subject matter hereof. Any amendment or supplement hereto shall be made in writing and shall become effective only upon due execution by the Parties hereto.

 

12.6 Without the WFOE’s prior written consent, each Company Shareholder or the Company itself shall not transfer any of its rights and/or obligations hereunder to any third party. The Company Shareholders and the Company hereby agree that the WFOE shall be entitled to transfer any of its rights and/or obligations hereunder to any third party upon written notice thereof to the Company Shareholders and the Company.

 

12.7 This Agreement shall be binding on the legal successors or assigns of the Parties.

  

[THIS SPACE IS INTENTIONALLY LEFT BLANK]

 

  14 / 21  

 

   

[Signature Page of Exclusive Call Option Agreement]

 

IN WITNESS WHEREOF , the following Parties have executed this Exclusive Call Option Agreement to be executed on the date and at the place first above written.

 

Shareholder 1: Weidong Du (Signature): /s/ Weidong Du
   
Shareholder 2: Wei Tan (Signature): /s/ Wei Tan
   
Shareholder 3: Guichun Liu (Signature): /s/ Guichun Liu
   
Shareholder 4:Wen Li (Signature): /s/ Wen Li
   
Shareholder 5: Hao Wang (Signature): /s/ Hao Wang

 

Jakroo (Beijing) Sports Consulting Co., Ltd. (Seal)

 

Authorized Representative (Signature): By: /s/ Wen Li
  Name: Wen Li

 

Rider Sportsfashion Limited (Seal)

 

AuthorizedRepresentative(Signature): By: /s/ Weidong Du
  Name: Weidong Du

 

  15 / 21  

 

 

Appendix 1:

 

Company’s General Information

 

Company name:   Rider Sportsfashion Limited
     
Registered address:   Room 507, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, P.R. China
     

Registered capital:

 

Legal Representative

 

RMB 1,000,000

 

Weidong Du

     
Shareholding structure:    

 

Shareholder’s name   Contribution in
registered capital
  Percentage of
contribution
    Method of
contribution
 
Weidong Du   RMB 500,000     50 %     Currency  
Wei Tan   RMB 390,000     39 %     Currency  
Guichun Liu   RMB 50,000     5 %     Currency  
Wen Li   RMB 30,000     3 %     Currency  
Hao Wang   RMB 30,000     3 %     Currency  
                     
Total   RMB 1,000,000     100 %     Currency  

 

  16 / 21  

 

 

Appendix 2:

 

Form of Exercise Notice

 

To: Weidong Du

 

WHEREAS, we, Rider Sportsfashion Limited (the “Company”), Wei Tan, Guichun Liu, Wen Li, Hao Wang and you entered into an Exclusive Call Option Agreement (the “Option Agreement”) on December 15, 2016 and reached an agreement that you shall transfer the equity interest you hold in the Company to us or any third party designated by us at our request to the extent permitted under PRC laws, rules and regulations.

 

Therefore, we hereby give this notice to you as follows:

 

We hereby exercise the Equity Transfer Option under the Option Agreement and we/[name of company/individual so designated by us] will acquire the [●]% of the equity interest you hold in the Company (the “Proposed Acquired Equity”). Upon your receipt of this notice, you shall immediately transfer all the Proposed Acquired Equity to us/[name of designated company/individual] pursuant to the provisions of the Option Agreement.

 

Regards,

 

  Jakroo (Beijing) Sports Consulting Co., Ltd.
  (Seal)
  Authorized representative:
  Date:

 

  17 / 21  

 

 

Appendix 3:

 

Form of Exercise Notice

 

To: Wei Tan

 

WHEREAS, we, Rider Sportsfashion Limited (the “Company”), Weidong Du, Guichun Liu, Wen Li, Hao Wang and you entered into an Exclusive Call Option Agreement (the “Option Agreement”) on December 15, 2016 and reached an agreement that you shall transfer the equity interest you hold in the Company to us or any third party designated by us at our request to the extent permitted under PRC laws, rules and regulations.

 

Therefore, we hereby give this notice to you as follows:

 

We hereby exercise the Equity Transfer Option under the Option Agreement and we/[name of company/individual so designated by us] will acquire the [●]% of the equity interest you hold in the Company (the “Proposed Acquired Equity”). Upon your receipt of this notice, you shall immediately transfer all the Proposed Acquired Equity to us/[name of designated company/individual] pursuant to the provisions of the Option Agreement.

 

Regards,

 

  Jakroo (Beijing) Sports Consulting Co., Ltd.
  (Seal)
  Authorized representative:
  Date:

 

  18 / 21  

 

 

Appendix 4:

 

Form of Exercise Notice

 

To: Guichun Liu

 

WHEREAS, we, Rider Sportsfashion Limited (the “Company”), Weidong Du, Wei Tan, Wen Li, Hao Wang and you entered into an Exclusive Call Option Agreement (the “Option Agreement”) on December 15, 2016 and reached an agreement that you shall transfer the equity interest you hold in the Company to us or any third party designated by us at our request to the extent permitted under PRC laws, rules and regulations.

 

Therefore, we hereby give this notice to you as follows:

 

We hereby exercise the Equity Transfer Option under the Option Agreement and we/[name of company/individual so designated by us] will acquire the [●]% of the equity interest you hold in the Company (the “Proposed Acquired Equity”). Upon your receipt of this notice, you shall immediately transfer all the Proposed Acquired Equity to us/[name of designated company/individual] pursuant to the provisions of the Option Agreement.

 

Regards,

 

  Jakroo (Beijing) Sports Consulting Co., Ltd.
  (Seal)
  Authorized representative:
  Date:

 

  19 / 21  

 

 

Appendix 5:

 

Form of Exercise Notice

 

To: Wen Li

 

WHEREAS, we, Rider Sportsfashion Limited (the “Company”), Weidong Du, Wei Tan, Guichun Liu, Hao Wang and you entered into an Exclusive Call Option Agreement (the “Option Agreement”) on December 15, 2016 and reached an agreement that you shall transfer the equity interest you hold in the Company to us or any third party designated by us at our request to the extent permitted under PRC laws, rules and regulations.

 

Therefore, we hereby give this notice to you as follows:

 

We hereby exercise the Equity Transfer Option under the Option Agreement and we/[name of company/individual so designated by us] will acquire the [●]% of the equity interest you hold in the Company (the “Proposed Acquired Equity”). Upon your receipt of this notice, you shall immediately transfer all the Proposed Acquired Equity to us/[name of designated company/individual] pursuant to the provisions of the Option Agreement.

 

Regards,

 

  Jakroo (Beijing) Sports Consulting Co., Ltd.
  (Seal)
  Authorized representative:
  Date:

 

  20 / 21  

 

 

Appendix 6:

 

Form of Exercise Notice

 

To: Hao Wang

 

WHEREAS, we, Rider Sportsfashion Limited (the “Company”), Weidong Du, Wei Tan, Guichun Liu, Wen Li and you entered into an Exclusive Call Option Agreement (the “Option Agreement”) on December 15,2016 and reached an agreement that you shall transfer the equity interest you hold in the Company to us or any third party designated by us at our request to the extent permitted under PRC laws, rules and regulations.

 

Therefore, we hereby give this notice to you as follows:

 

We hereby exercise the Equity Transfer Option under the Option Agreement and we/[name of company/individual so designated by us] will acquire the [●]% of the equity interest you hold in the Company (the “Proposed Acquired Equity”). Upon your receipt of this notice, you shall immediately transfer all the Proposed Acquired Equity to us/[name of designated company/individual] pursuant to the provisions of the Option Agreement.

 

Regards,

 

  Jakroo (Beijing) Sports Consulting Co., Ltd.
  (Seal)
  Authorized representative:
  Date:

 

 

21 / 21

 

Exhibit 10.4

 

Exclusive Technical Consulting and Service Agreement

 

This Exclusive Technical Consulting and Service Agreement (this “ Agreement ”) is entered into in Beijing, the People’s Republic of China (the “ PRC ”) on December 15, 2016 by and between the following Parties:

 

Party A: Jakroo (Beijing) Sports Consulting Co., Ltd.

Address: Room 509, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, PRC

 

Party B: Rider Sportsfashion Limited

Address: Room 507, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing, PRC

 

(Party A and Party B may be referred to herein individually as, a “ Party ” and collectively as the “ Parties .”)

 

Whereas:

 

(1) Party A is a wholly foreign-owned enterprise, duly incorporated and validly existing under the laws of the PRC:

 

(2) Party B is a limited liability company, incorporated in Beijing, China and validly existing under the laws of the PRC: and

 

(3) For the purpose of operating its business, Party B has decided to employ Party A as its exclusive technical service supplier to provide Party B with relevant services, such as technical consulting services for Party B’s design, manufacture, and sale of cycling apparel and other related customized endurance apparel products. Party A agrees to provide Party B with the corresponding technical services in accordance with the provisions of this Agreement.

 

NOW, THEREFORE, the parties, through amicable consultation, hereby agree as follows in respect of the specific issues concerning the exclusive technical service is to be provided by Party A to Party B:

 

1 Definition and Interpretation

 

1.1 Except as otherwise defined in the terms or context hereof, the following terms in this Agreement shall have the following meanings:

 

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Service Fees ” shall mean all fees to be paid by Party B to Party A pursuant to Article 2 of this Agreement in respect of the Services provided by Party A.

 

Operating Revenue ” shall mean, in any single fiscal year during the term of this Agreement, the total revenue generated by Party B in its daily operation of the business of that year as recorded under the column entitled “Revenue of Main Business” (or other such similarly named column) in the audited financial statements prepared in accordance with the accounting standards of the PRC.

 

1.2 References to any laws and regulations (the “Law”) herein shall be deemed to include (1) references to any amendments, changes, supplements and reenactments of such Law, irrespective of whether they take effect before or after the execution of this Agreement; and (2) references to any other decisions, notices or regulations enacted in accordance therewith or effective as a result thereof.
   
1.3 Except as otherwise stated in the context herein, all references to an article, clause, item or paragraph shall refer to the relevant part of this Agreement.

 

2 Exclusive Technical Consulting Services

 

2.1 Party A is the exclusive technology service provider to Party B, except for the circumstances set forth in Article 2.2 or Article 2.3 of this Agreement, any technical service (including but not limited to technical consulting services for Party B’s design, manufacture, sale of cycling apparel and other related customized endurance apparel products) as required during the course of business operated by Party B must be rendered by Party A on an exclusive basis. Without the prior written consent of Party A, Party B shall not seek any technical service under this Agreement rendered by any third party by any means other than Party A.
   
2.2 Party B agrees that in event that Party A does not possess the capability to render specific technical services to Party B objectively, such technical service shall be rendered by an appropriate third party solely appointed by Party A in accordance with the terms and conditions of this Agreement. Party B further agrees that, in any case, Party A shall have the right to appoint any third party adequately qualified in absence of any reason to replace Party A and render technical service which should have been rendered by Party A in accordance with the Agreement, and Party B agrees to accept appropriate technical services rendered by such appropriate third party entrusted by Party A.

 

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2.3 If any of the following circumstances occurs, Party B has the right to seek for any third party to render technical service to Party B:

 

  2.3.1 Party A has voluntarily waived its rights as the exclusive technical service provider and agreed in writing that such technical service shall be rendered by a third party to Party B;
     
  2.3.2 Party A is unable to provide a certain technical service to Party B objectively and fails to appoint an appropriate third party to provide such technical service to Party B; or
     
  2.3.3 Party A decides not to provide a certain technical service to Party B and fails to appoint an appropriate third party to provide such technical service to Party B.

 

Article 3 Payment

 

3.1  In respect of the Services to be provided by Party A pursuant to the terms of this Agreement, Party B shall pay to Party A the Service Fees as follows:

 

  3.1.1 Service Fees equivalent to ninety percent (90%) of the total Operating Revenue of Party B or such other amount otherwise agreed by the Parties; and
     
  3.1.2 Services Fees otherwise confirmed by the Parties for specific technical services and consulting services provided by Party A in accordance with Party B’s requirement from time to time.

 

3.2 Party B shall, within three months of the end of each calendar year, pay the Service Fees determined under Article 3.1 hereof into a bank account designated by Party A on a lump-sum basis. In case Party A changes its bank account, it shall notify Party B in writing of such change at least seven (7) working days in advance of such change.

 

3.3 The Parties agree that, in principle, the payment of said Services Fee shall not cause any difficulty to either Party’s operation for any year. For the aforesaid purposes, Party A may agree to the deferred payment of the Services Fee by Party B, or upon the mutual agreement by the Parties through negotiation, Party A may adjust, pursuant to a written agreement with Party B, the percentage of calculation and/or the specific amount of the Services Fee payable by Party B to Party A as specified in Article 3.1 above.

 

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3.4 If Party A designates a third party to provide Party B with the Technology Service in accordance with this Agreement, Party A may choose any of the following ways of payment for such third party’s fees and require Party B to implement:

 

  3.4.1  Party B pays the fees for the Technology Service to the third party directly; or
     
  3.4.2 Party B pays the fees for the Technology Service to Party A directly and Party A is responsible for settling with such third party.
     
  3.5   Where Party A designates a third party to provide Party B with the Technology Service in accordance with this Agreement, in the event Party A, assumes any joint and several liability to such third party at the request of Party B, Party B shall compensate Party A for all economic losses incurred thereby.

 

Article 4 Working Product, Intellectual Property and Proprietary Information

 

4.1 The Parties agree and confirm that Party A shall hold the ownership of work product, intellectual property and proprietary information during its term of providing the consulting services, except for the following:

 

  4.1.1 Intellectual property owned legally by a third party which is licensed to or otherwise permitted to be used by Party A or Party B; and
     
  4.1.2 As may otherwise be agreed to by both Parties in writing.

 

4.2 During the term of this Agreement, if Party B requires the use of Party A’s software, technical systems or other intellectual property (together, the “systems”), both parties shall enter into a separate agreement defining the scope, method and fee for the use of such systems.

 

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Article 5 Confidentiality

 

5.1  Both Parties shall maintain the confidentiality of any confidential material and information which became known to the other Party or was accessed by the other Party due to the execution or performance of this Agreement (the “ Confidential Information ”). Without the other Party’s written consent, neither Party shall disclose, give or transfer such Confidential Information to any third parties, except as may be required in accordance with any applicable law, rule or regulation.

 

5.2    If requested by either Party, the other Party shall return, destroy, or otherwise dispose of all of the documents, materials and software that contains or may contain any Confidential Information as requested, and promptly stop using such Confidential Information.

 

5.3  The Parties’ obligations under this Article shall survive the termination of this Agreement. Either Party shall still comply with the confidentiality terms of this Agreement and fulfill the confidentiality obligations as promised, until the other Party gives consent to the release of such obligations or as a matter of fact, violation of the confidentiality terms herein will not cause damage of any form to the other Party.

 

Article 6 Payment of Taxes

 

6.1  The Parties shall respectively pay taxes to relevant tax authorities in accordance with all relevant laws, regulations and State policies.

 

6.2  In the event that either Party pays any tax for the other Party, the paying Party shall submit the tax certificate to the payable Party as soon as possible, and the payable Party shall compensate the equivalent amount to the paying Party within seven days after the receipt of such tax certificate.

 

Article 7 Representations, Covenants and Warranties

 

7.1 Both of the Parties represent, covenant and warrant to the other Party as follows:

 

  7.1.1  It is a company lawfully established and duly existing pursuant to the laws of the PRC;
     
  7.1.2  It is qualified to conduct the transaction hereunder and such transaction is in line with its business scope;
     
  7.1.3 It has full power and authority to enter into this Agreement, and its authorized representative has obtained full authorization to execute this Agreement on its behalf;

 

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  7.1.4 It has the ability to perform its obligations hereunder, and such performance will not violate any restrictions of legal documents binding upon it;
     
  7.1.5 It is not subject to any liquidation, dissolution or bankruptcy procedures.

 

7.2 Party B covenants that during the term of this Agreement, Party B shall notify Party A of any change in Party B’s shareholding structure thirty days in advance of any such change.

 

7.3 Party B shall neither conduct, nor allow any third party to conduct, any act or omission that is detrimental to Party A’s ownership of technology or any other intellectual property or any other rights of Party A.

 

Article 8 Liability for Breach of Contract

 

8.1 Either Party’s direct or indirect violation of any provisions herein, or failure in assuming or untimely or insufficient assumption of, any of its obligations hereunder shall constitute a breach of contract. The non-defaulting Party (the “ Non-Defaulting Party ”) is entitled to send to the defaulting Party (the “ Defaulting Party ”) a written notice, requesting the Defaulting Party to rectify its breach, take sufficient, effective and timely measures to eliminate the effects of breach, and compensate the Non-Defaulting Party for any losses incurred by the breach.

 

8.2 After the occurrence of breach, and in the event that such a breach has made it impossible or unfair for the Non-Defaulting Party to perform its corresponding obligations hereunder based on the Non-Defaulting Party’s reasonable and objective judgments, the Non-Defaulting Party is entitled to send to the Defaulting Party a written notice of its temporary suspension of performance of corresponding obligations hereunder, until the Defaulting Party stops the breach, takes sufficient, effective and timely measures to eliminate the effects of breach, and compensate the Non- Defaulting Party for any losses incurred by the breach.

 

8.3 The losses of the Non-Defaulting Party that should be compensated by the Defaulting Party include direct economic losses and any foreseeable indirect losses and extra expenses incurred by the breach, including without limitation, attorneys fees, litigation and arbitration fees, financial expenses and travel charges.

 

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Article 9 Force Majeure

 

9.1 Force Majeure ” shall mean events beyond the reasonable control of the Parties that are unforeseeable or foreseeable but unavoidable, which cause obstruction in, impact on or delay in either Party’s performance of part or all of its obligations in accordance with this Agreement, including without limitation, government acts, natural disasters, wars, hacker attacks or any other similar events.

 

9.2  The Party affected by Force Majeure may suspend the performance of relevant obligations hereunder that cannot be performed due to Force Majeure until the effects of Force Majeure are eliminated, without having to assume any liability for breach of contract, provided however that such Party shall endeavor to overcome such events and reduce the negative effects to the best of its abilities.

 

9.3  The Party affected by Force Majeure shall provide the other Party with valid certificate documents verifying the occurrence of Force Majeure events, which documents shall be issued by the notary office where the events occur (or other appropriate agencies). In case the Party affected by Force Majeure cannot provide such certificate documents, the other Party may request such certificate documents in order to assume the liability for breach of contract in accordance with this Agreement.

 

Article 10 Effectiveness, Amendment, Termination and Term of the Agreement

 

10.1 This Agreement takes effect as of the date when it is signed and stamped by the authorized representatives of the Parties, and shall be terminated on the date when Party B dissolves according to law.

 

10.2 The term of this Agreement will be ten (10) years unless Party A terminates the agreement early. Upon request from Party A, the Parties may extend the term of this Agreement prior to its expiration or enter into a separate business agreement, each as requested by Party A.

 

10.3  Unless provided otherwise herein, Party A is entitled to unilaterally exercise immediate early termination of this Agreement by sending a written notice to Party B should any of the following events were to occur:

 

  10.3.1 arty B breaches this Agreement, and within thirty (30) days after Party A sends out written notice of breach to Party B, Party B fails to rectify its breach, take sufficient, effective and timely measures to eliminate the effects of breach and compensate Party A for any losses incurred by the breach;
     
  10.3.2 Party B is bankrupt or is subject to any liquidation procedure and such procedure is not revoked within seven (7) days; and

 

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  10.3.3 due to any event of Force Majeure, Party B’s failure to perform this Agreement lasts for more than twenty (20) days.

 

10.4 The early termination of this Agreement shall not affect the rights and obligations of the Parties arising out of this Agreement prior to the early termination date.

 

Article 11 Delivery of Notice

 

11.1 Notices relevant to this Agreement sent by one Party to the other shall be made in written form and delivered in person, or by fax, telegram, telex or email, or by registered mail (postage paid) or express mail. As to those delivered in person or by fax, telegram, telex or email, the delivery date shall be the date when it is sent; as to those delivered by registered mail (postage paid) or express mail, the delivery date shall be the third day after it is sent.

 

Article 12 Dispute Resolution

 

12.1 With regard to disputes arising out of the interpretation and performance of the terms hereunder, the Parties shall resolve the disputes through consultations in good faith. 

 

12.2 In case no resolution can be made, the dispute shall be submitted to the China International Economic and Trade Arbitration Commission (CIETAC) for arbitration in Beijing in accordance with its arbitration rules then in effect. The arbitration shall be conducted in Chinese. The arbitration judgment shall be final and binding upon the Parties.

 

12.3 The conclusion, effectiveness, implementation and interpretation of this Agreement and resolution of any disputes related thereto shall all be governed pursuant to the laws of the PRC.

 

Article 13 Miscellaneous

 

13.1  This Agreement is written in English and translated into Chinese. In the event of any discrepancy between the two versions, the English version shall prevail. This Agreement is made with two (2) original copies, with one (1) original to be retained by each Party hereto.

 

13.2  The headings in this Agreement are written for ease of reference only and in no event shall they affect the interpretation of any terms of this Agreement.

 

13.3  The Parties may amend and supplement this Agreement in the way of a written agreement. Any Amended agreements and supplemental agreements executed by the Parties will become part of this Agreement, having the same legal effect as this Agreement.

 

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13.4  In case any term herein becomes all or partly invalid or unenforceable due to violation of law or governmental regulations or other reasons, the affected part of such term shall be considered to have been removed, provided that the removal of the affected part of such term shall not affect the legal effect of the remaining part of such term or other terms herein. The Parties shall conclude new terms through consultations to replace such invalid or unenforceable terms.

 

13.5  Unless provided otherwise, a Party’s failure or delay in exercising any of the rights, powers or privileges that it is entitled to under this Agreement shall not be considered a waiver of such rights, powers or privileges, nor shall any single or partial exercise of any rights, powers or privileges by a Party preclude its exercise of any other rights, powers or privileges.

 

13.6  This Agreement constitutes all agreements reached by the Parties on the subject matter of the cooperation project, and supersedes any previous or concurrent oral and written agreement, understanding and correspondence relevant to the subject matter of the cooperation project between the Parties. Unless specifically provided herein, there is no other explicit or implicit obligation or covenant between the Parties.

 

13.7  Matters not covered in this Agreement shall be determined by the Parties separately through consultation.

 

[THIS SPACE IS INTENTIONALLY LEFT BLANK]

 

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[Signature Page of Exclusive Technical Consulting and Service Agreement]

 

IN WITNESS WHEREOF, the Parties have caused this Exclusive Technical Consulting and Services Agreement to be executed on the date and at the place first above written.

 

Party A: Jakroo (Beijing) Sports Consulting Co., Ltd. (Seal)

 

Authorized Representative (Signature): /s/ Wen Li
  Name: Wen Li

 

Party B: Rider Sportsfashion Limited (Seal)

 

Authorized Representative (Signature): /s/ Weidong Du
  Name: Weidong Du

 

 

10 / 10

 

Exhibit 10.5

 

Form of Power of Attorney

 

The undersigned, _______, a citizen of the People’s Republic of China (the “PRC”) with ID No. of __________, shareholder of __ % of the equity interests (the “Shares”) of Rider Sportsfashion Limited (“the Company”), hereby irrevocably authorizes any natural person duly appointed by Jakroo (Beijing) Sports Consulting Co., Ltd. (the “WFOE”) to exercise the following rights during the term of this Power of Attorney:

 

Any natural person appointed by the WFOE is hereby authorized, in lieu of the undersigned, to exercise on behalf of the undersigned as her sole and exclusive agent the rights in respect of the Shares including without limitation:

 

(1) attend shareholders’ meeting of the Company and sign resolutions thereof on behalf of the undersigned;

 

(2) exercise all rights of the undersigned as a shareholder of the Company according to the laws and articles of association of the Company, including without limitation the rights to vote and to sell, transfer, pledge or dispose of all or any portion of the Shares; and

 

(3) designate and appoint on behalf of the undersigned the legal representative, chairperson, director, supervisor, chief executive officer and any other senior management of the Company.

 

In the event of a conflict between the acts of WFOE as granted herein above and the acts of the undersigned, the acts of the WOFE shall prevail. Subject to the powers and authorities provided under this Power of Attorney, the WFOE will have the right to sign on behalf of the undersigned any transfer agreement contemplated under the Exclusive Call Option Agreement to which the undersigned will be a party, and to perform the Equity Pledge Agreement and the Exclusive Call Option Agreement, each of which is dated as of the date hereof and to which the undersigned is a party.  Exercise of such right will not have any restriction upon this Power of Attorney.

 

Unless otherwise provided under this Power of Attorney, the WFOE has the right to transfer, apply or otherwise dispose of any cash dividend, bonus and any other non-cash gain arising from the Shareholding on reliance of any oral or written instruction from the undersigned.

 

Unless otherwise provided under this Power of Attorney, the WFOE has the right to take any action regarding the Shareholding without any oral or written instruction from the undersigned.

 

Any and all the actions associated with the Shares made by the WFOE will be deemed as the action of the undersigned, and any and all documents relating to the Shares executed by the WFOE shall be deemed to be executed and acknowledged by the undersigned.

 

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The WFOE may delegate this power of attorney by assigning its rights relating to the conduct of the aforesaid matter and exercise of the Shares to any other person or entity at its own discretion without prior notice to or consent from the undersigned.

 

This Power of Attorney is irrevocable and effective as of the date hereof as long as the undersigned is a shareholder of the Company. This Power of Attorney supersedes any other power of attorney previously signed by the undersigned.

 

During the term of this Power of Attorney, the undersigned hereby waives all of the rights associated with the Shares which have been authorized to the WFOE and will not exercise any such right.

 

 

 

 

Dated: December 15, 2016

 

 

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Exhibit 10.6

 

Form of Custom Processing Framework Agreement

 

Agreement Number:           

 

This Custom Processing Framework Agreement (this “Agreement”) is entered into on 【 】 by and between the following Parties:

 

Party A:

 

Add.:

Tel:

Fax:

 

Party B: Rider Sports Fashion Limited

 

Add.: Room 507, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing

Tel: +86-10-5877 2070

Fax: +86-10-5877 3378

 

Whereas,

 

1.Party B is focusing on designing and manufacturing cycling apparel and other related products.

 

2. Party A entrust Party B to design and manufacture cycling apparel and other related products;

 

THEREFORE, with regard to issues on custom processing cycling apparel and other related products, the Parties, through amicable negotiation, agree as follows:

 

Article 1 Custom Processing

 

1. The category, pattern, fabric, size, quantity, unit price, total price of the product, which Party A entrust Party B to design and manufacture, shall subject to the order that Party A provide through Party B’s online custom platform or the communication records of both parties’ employees;

 

 

 

 

2. The appearance of custom processing products shall consist with the renderings confirmed by the parties through online custom platform. Both parties agree to regard the confirmed design records on online custom platform as the final proof.

 

Article 2 Delivery, Shipment and Payment

 

1. Party B warrants that the delivery period of custom processing products shall be two(2) to three(3) weeks as of the date when the parties confirm final renderings through online custom platform; Any party claiming for advanced or delayed delivery shall negotiate with the other party and come to a written agreement in advance, and both parties shall perform accordingly; With regard to the delayed deliveries which are not resulted from Party B’s subjective reasons, including without limitations those attributed to customs or carriers, the losses caused hereby shall not be assumed by Party B.

 

2. The forms of shipment shall be confirmed by both parties through online custom platform or email, and Party B shall assume the shipping charges.

 

3. Both parties agree that once the parties confirm the product renderings through online custom platform, Party A shall pay fifty percent of the total payment (hereinafter referred to as “Advanced Payment”); After Party B’s production of the products and before the delivery, Party A shall pay the remaining fifty percent of the total payment(hereinafter referred to as “Remaining Payment”); Party B shall arrange delivery upon receipt of the Remaining Payment.

 

Article 3 Intellectual Property Right

 

1. Party A hereby authorizes Party B to use the LOGO, pictures and any other Intellectual Property Rights provided by Party A on custom processing products; Party A further warrants that, such LOGO, pictures and any other Intellectual Property Rights are owned by itself or it has the right to use or it is legally authorized or licensed by other related person and entitled to authorize or license to other parties.

 

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2. Any infringement complaints, arbitration, and litigation etc from any third party, caused by the fact that Party B uses the LOGO, pictures and any other Intellectual Property Right provided by Party A on the custom processing product, shall be assumed by Party A, and Party A shall also compensate Party B’s losses caused thereby.

 

3. The Intellectual Property Right of the custom processing products belongs to Party B, except the LOGO, pictures and other Intellectual Property Rights provided by Party A.

 

Article 4 Product Quality and Customer Service

 

1. Party B hereby warrants that the quality of its products meets the national standard;

 

2. Within one month as of the date of Party A’s receipt of the products, in the event of the unqualified products by Party B, and in cases that the Parties confirm that the quality problems are caused by production and processing defects, Party B shall reproduce and replace the products free of charge, and the shipping cost caused thereby shall be assumed by Party B.

 

Article 5 Both Parties’ Rights and Obligations

 

1. Party A is entitled to supervise Party B’s manufacture work under this agreement, however, it shall not interfere with the normal work of Party B.

 

2. Party A shall help Party B with its manufacture work as set forth in this agreement. If Party B isn’t able to complete custom processing work within the period as agreed in this agreement resulting from Party A’s failure to perform its assisting obligations, Party B is entitled to extend the delivery period specified in this agreement.

 

3. Party A shall pay to Party B as agreed in this agreement.

 

4. Party B shall, consisting with the deadline and quality specified in this agreement, provide Party A with the custom processing products as agreed upon this agreement.

 

5. Without the written consent from Party A, Party B shall not use all of Party A’s LOGO, pictures and other Intellectual Property Rights which are authorized by Party A under this agreement, on the custom processing products of any third party.

 

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Article 6 Effectiveness and Termination

 

1. This Agreement takes effect as of the date when it is signed by the Parties. The term of this Agreement is one (1) year unless otherwise agreed by both parties or early termination occurs in accordance with Article 6.2 under this Agreement. This Agreement shall be extended upon both parties’ written confirmation prior to the expiration of this Agreement and the extended term shall be determined by both parties.

 

2. Unless provided otherwise herein, any party is entitled to exercise immediate early termination of this Agreement by sending a written notice should any of the following events were to occur:

 

a) one party breaches this Agreement, and within thirty (30) days after the other party sends out the written notice, fails to rectify its breach, take sufficient, effective and timely measures to eliminate the effects of breach, and compensate the other party for any losses incurred by the breach.

 

b) one party is bankrupt or is subject to any liquidation procedure and such procedure is not revoked within seven (7) days; and

 

c) due to any event of Force Majeure, one party ’s failure to perform this Agreement lasts for over twenty (20) days.

 

Article 7 Force Majeure

 

1.“Force Majeure” shall mean events beyond the reasonable control of the Parties that are unforeseeable or foreseeable but unavoidable, which cause obstruction in, impact on or delay in either Party’s performance of part or all of its obligations in accordance with this Agreement, including without limitation, government acts, natural disasters, wars, hacker attacks or any other similar events.

 

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2. The Party affected by Force Majeure may suspend the performance of relevant obligations hereunder that cannot be performed due to Force Majeure until the effects of Force Majeure are eliminated, without having to assume any liability for breach of contract, provided however that, such Party shall endeavor to overcome such events and reduce the negative effects to the best of its abilities.

 

3. The Party affected by Force Majeure shall provide the other Party with valid certificate documents verifying the occurrence of Force Majeure events, which documents shall be issued by the notary office where the events occur (or other appropriate agencies). In case the Party affected by Force Majeure cannot provide such certificate documents, the other Party may request such certificate documents in order to assume the liability for breach of contract in accordance with this Agreement.

 

Article 8 Confidentiality

 

1. Either Party shall keep confidential any confidential material and information of the other Party known or accessed due to the execution or performance of this Agreement (the “Confidential Information”). Without the other Party’s written consent, neither Party shall disclose, give or transfer such Confidential Information to any third parties.

 

2. If requested by either Party, the other Party shall return, destroy, or otherwise dispose of all of the documents, materials, or software that contain any Confidential Information as requested, and stop using the Confidential Information.

 

3. The Parties’ obligations under this Article shall survive the termination of this Agreement. Either Party shall still comply with the confidentiality terms of this Agreement and fulfill the confidentiality obligations as promised, unless the other Party gives consent to the release of such obligations or as a matter of fact, violation of the confidentiality terms herein will not cause damage of any form to the other Party.

 

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Article 9 Liability for Breach of Contract

 

1. Either Party’s direct or indirect violation of any provisions herein or failure in assuming or untimely or insufficient assumption of any of its obligations hereunder shall constitute a breach of contract. The non-default Party (the “Non-default Party”) is entitled to send to the default Party (the “Default Party”) a written notice, requesting the Breaching Party to rectify its breach, take sufficient, effective and timely measures to eliminate the effects of breach, and compensate the Non-Breaching Party for any losses incurred by the breach.

 

2. After the occurrence of breach, and in the event that such a breach has made it impossible or unfair for the Non-Breaching Party to perform its corresponding obligations hereunder based on the Non-Breaching Party’s reasonable and objective judgments, the Non-Breaching Party is entitled to send to the Breaching Party a written notice of its temporary suspension of performance of corresponding obligations hereunder, until the Breaching Party stops the breach, takes sufficient, effective and timely measures to eliminate the effects of breach, and compensate the Non-Breaching Party for any losses incurred by the breach.

 

3. The losses of the Non-Breaching Party that shall be compensated by the Breaching Party include direct economic losses and any foreseeable indirect losses and extra expenses incurred by the breach, including without limitation, the attorneys’ fee, litigation and arbitration fee, financial expense and travel charge.

 

4. Once Party B has started production in accordance with the custom renderings as confirmed by both parties, in the event that Party A changes its requirements on products’ appearance or other aspects, the “Advanced Payment” that Party A have paid to Party B shall be taken as liquidated damages to Party B as a result of Party A’s breach of contract. If such amount is insufficient to cover Party B’s losses, Party A shall compensate other losses of Party B as well. Under this condition , if Party B need to redesign and reprocessing according to Party A’s updated requirements based on mutual agreement by both parties, Party A shall pay for the redesign and reprocessing separately, the amount of payment shall be decided upon mutual agreement by both parties.

 

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Article 10 Dispute Resolution and Governing Law

 

1. With regard to disputes arising out of the interpretation and performance of the terms hereunder, the Parties shall resolve the disputes through consultations in good faith.

 

2. In case no resolution can be made, the dispute shall be submitted to for Beijing Arbitration Commission in accordance with its arbitration rules then effective. The arbitration shall be conducted in Chinese. The arbitration judgment shall be final and binding upon the Parties.

 

3. The termination, effectiveness, implementation and interpretation of this Agreement and resolution of disputes shall all be governed by laws of the PRC.

 

Article 11 Delivery of Notice

 

Notices relevant to this Agreement sent by one Party to the other shall be made in written form and delivered in person, or by fax, telegram, telex or email, or by registered mail (postage paid) or express mail. As to those delivered in person or by fax, telegram, telex or email, the delivery date shall be the date when it is sent; as to those delivered by registered mail (postage paid) or express mail, the delivery date shall be the third day after it is sent.

 

Article 12 Miscellaneous

 

1. This Agreement is written in Chinese with a English translation. In the event of any discrepancy between the two versions, the Chinese version shall prevail. This Agreement is made with two(2) original copies, with one (1) original to be retained by each Party hereto.

 

2. The Parties may amend and supplement this Agreement in the way of a written agreement. Amendment agreements and supplement agreements executed by the Parties are both part of this Agreement, having the same legal effect as this Agreement.

 

3. Matters not covered in this Agreement shall be determined by the Parties separately through consultations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[No text below]

 

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[Signature Page of Custom Processing Framework Agreement]

 

IN WITNESS HEREOF, the Parties have caused this Custom Processing Framework Agreement to be executed on the date and at the place first above written.

 

Party A:

 

Authorized Representative (Signature):

 

Party B: Rider Sports Fashion Limited (Seal)

 

Authorized Representative (Signature):

 

 

8 / 8

 

 

Exhibit 10.7

 

Form of OEM Cooperation Agreement

 

Agreement Number: 【】

 

This OEM Cooperation Agreement (this “Agreement”) is entered into on 【 】 by and between the following Parties:

 

Party A:

 

Add.:

Tel:

Fax:

 

Party B: Rider Sports Fashion Limited

 

Add.: Room 507, Unit 3, No.69 Beichen West Road, Chaoyang District, Beijing

Tel: +86-10-5877 2070

Fax: +86-10-5877 3378

 

Whereas,

 

1. Party A and Party B are both focusing on designing, manufacturing and selling cycling apparel and other related products;

 

2. Both Parties agree that Party A shall sell the products by OEM. Meanwhile, Party B shall manufacture and provide the products by OEM. The brand of the products are designated and authorized by Party A.

 

THEREFORE , the Parties, through amicable negotiation, agree as follows:

 

Article 1 Definition and Interpretations.

 

Unless otherwise indicated in the context, in this Agreement, the following terms shall be interpreted as follows.

 

1. “Products” means all the products related to rider sports apparel which are designed, manufactured and provided by Party B, as required by Party A.

 

 

 

 

2. “OEM” means a cooperation model, under which, as required by Party A, Party B shall manufacture and provide products (whose brand is designated and authorized by Party A) to Party B.

 

3. “OEM Order” means an order from Party A to Party B set forth in email, which contains purchase details, including but not limited to name of the products, size quantities, price and total amount.

 

Article 2 Trademark

 

1. Party A grants Party B the right to use Party A’s trademarks on the products.

 

2. Party B shall use the trademark provided by Party A in the scope and ways approved by both parties. Party B shall not violate Party A’s legal rights on its trademarks.

 

3. Party A represents and warrants that the trademarks do not infringe any admissible intellectual property right of any third party. Otherwise, Party A shall indemnify Party B’s loss and damage resulting from such infringement (including but not limited to direct economic losses and attorney fee).

 

4. Party A shall provide Party B with the corresponding trademark documents and other relevant design. The cost of printing the trademark on the Products shall be assumed by Party B.

 

Article 3 Quality Standards of the products

 

1. In order to ensure the product quality, both parties agree that Party B shall manufacture one sample after the order is confirmed by both parties. Upon Party A’s confirmation about the appearance and quality of the sample, Party B shall conduct batch production in accordance with samples’ quality and appearance.

 

2. Party B hereby represents and warrants that if its products fail to meet Party A’s requirements, Party B shall offer Party A discounts or reproduce the products, the related costs herein shall be assumed by Party B.

 

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Article 4 Both Parties’ Rights and Obligations

 

1. Party A represents and warrants that it shall not disclose relevant technical materials of Party B to a third party. In case of violation by Party A, Party B shall have the right to terminate this Agreement immediately after giving written notice to Party A, and Party A shall indemnify Party B’s loss and damage result from such violation.

 

2. Party A further represents and warrants that it will not counterfeit the Products. In case of violation by Party A, Party B shall have the right to terminate this Agreement immediately after giving written notice to Party A, and Party A shall indemnify Party B’s loss and damage result from such violation.

 

3. Party B represents and warrants that it shall not directly or indirectly contact with Party A’s customer or sell products directly or indirectly to Party A’s customer, except for the approval of Party A.

 

Article 5 Intellectual Property.

 

The Intellectual Property in connection with the Products produced and manufactured by Party B in accordance with this agreement belongs to Party A. Any infringement on the third parties’ Intellectual Property Rights and the expenses resulting from such infringement shall be assumed by Party A.

 

Article 6 Order

 

1. Party A shall send every order to Party B through email. The email shall include the product name, size, price, quantity, shipment, insurance, payment, inspection and so on.

 

2. The Parties may confirm product design and pattern by negotiation through email. If the product shall be designed by Party B, then Party A shall pay Party B the design fee, the exact amount of which shall be negotiated by both parties.

 

3. Party B shall accept or refuse or request to changes on order within 5 working days through email.

 

4. Once Party B accepts the purchase order, Party A shall not change or cancel it without the written approval of Party B.

 

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Article 7 Effectiveness and Termination

 

1. This Agreement takes effect as of the date when it is signed by the Parties. The term of this Agreement is one (1) year unless otherwise agreed by both parties or early termination occurs in accordance with Article 7.2 under this Agreement. This Agreement shall be extended upon both parties’ written confirmation prior to the expiration of this Agreement and the extended term shall be determined by both parties.

 

2. Unless provided otherwise herein, any party is entitled to exercise immediate early termination of this Agreement by sending a written notice should any of the following events were to occur:

 

a) one party breaches this Agreement, and within thirty (30) days after the other party sends out the written notice, fails to rectify its breach, take sufficient, effective and timely measures to eliminate the effects of breach, and compensate the other party for any losses incurred by the breach.

 

b) one party is bankrupt or is subject to any liquidation procedure and such procedure is not revoked within seven (7) days; and

 

c) due to any event of Force Majeure, one party ’s failure to perform this Agreement lasts for over twenty (20) days.

 

Article 8 Force Majeure

 

1.“Force Majeure” shall mean events beyond the reasonable control of the Parties that are unforeseeable or foreseeable but unavoidable, which cause obstruction in, impact on or delay in either Party’s performance of part or all of its obligations in accordance with this Agreement, including without limitation, government acts, natural disasters, wars, hacker attacks or any other similar events.

 

2. The Party affected by Force Majeure may suspend the performance of relevant obligations hereunder that cannot be performed due to Force Majeure until the effects of Force Majeure are eliminated, without having to assume any liability for breach of contract, provided however that, such Party shall endeavor to overcome such events and reduce the negative effects to the best of its abilities.

 

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3. The Party affected by Force Majeure shall provide the other Party with valid certificate documents verifying the occurrence of Force Majeure events, which documents shall be issued by the notary office where the events occur (or other appropriate agencies). In case the Party affected by Force Majeure cannot provide such certificate documents, the other Party may request such certificate documents in order to assume the liability for breach of contract in accordance with this Agreement.

 

Article 9 Confidentiality

 

1. Either Party shall keep confidential any confidential material and information of the other Party known or accessed due to the execution or performance of this Agreement (the “Confidential Information”). Without the other Party’s written consent, neither Party shall disclose, give or transfer such Confidential Information to any third parties.

 

2. If requested by either Party, the other Party shall return, destroy, or otherwise dispose of all of the documents, materials, or software that contain any Confidential Information as requested, and stop using the Confidential Information.

 

3. The Parties’ obligations under this Article shall survive the termination of this Agreement. Either Party shall still comply with the confidentiality terms of this Agreement and fulfill the confidentiality obligations as promised, unless the other Party gives consent to the release of such obligations or as a matter of fact, violation of the confidentiality terms herein will not cause damage of any form to the other Party.

 

Article 10 Liability for Breach of Contract

 

1. Either Party’s direct or indirect violation of any provisions herein or failure in assuming or untimely or insufficient assumption of any of its obligations hereunder shall constitute a breach of contract. The non-default Party (the “Non-default Party”) is entitled to send to the default Party (the “Default Party”) a written notice, requesting the Breaching Party to rectify its breach, take sufficient, effective and timely measures to eliminate the effects of breach, and compensate the Non-Breaching Party for any losses incurred by the breach.

 

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2. After the occurrence of breach, and in the event that such a breach has made it impossible or unfair for the Non-Breaching Party to perform its corresponding obligations hereunder based on the Non-Breaching Party’s reasonable and objective judgments, the Non-Breaching Party is entitled to send to the Breaching Party a written notice of its temporary suspension of performance of corresponding obligations hereunder, until the Breaching Party stops the breach, takes sufficient, effective and timely measures to eliminate the effects of breach, and compensate the Non-Breaching Party for any losses incurred by the breach.

 

3. The losses of the Non-Breaching Party that shall be compensated by the Breaching Party include direct economic losses and any foreseeable indirect losses and extra expenses incurred by the breach, including without limitation, the attorneys’ fee, litigation and arbitration fee, financial expense and travel charge.

 

Article 11 Dispute Resolution and Governing Law

 

1. With regard to disputes arising out of the interpretation and performance of the terms hereunder, the Parties shall resolve the disputes through consultations in good faith.

 

2. In case no resolution can be made, the dispute shall be submitted to for Beijing Arbitration Commission in accordance with its arbitration rules then effective. The arbitration shall be conducted in Chinese. The arbitration judgment shall be final and binding upon the Parties.

 

3. The termination, effectiveness, implementation and interpretation of this Agreement and resolution of disputes shall all be governed by laws of the PRC.

 

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Article 12 Delivery of Notice

 

Notices relevant to this Agreement sent by one Party to the other shall be made in written form and delivered in person, or by fax, telegram, telex or email, or by registered mail (postage paid) or express mail. As to those delivered in person or by fax, telegram, telex or email, the delivery date shall be the date when it is sent; as to those delivered by registered mail (postage paid) or express mail, the delivery date shall be the third day after it is sent.

 

Article 13 Miscellaneous

 

1. This Agreement is written in Chinese with a English translation. In the event of any discrepancy between the two versions, the Chinese version shall prevail. This Agreement is made with two (2) original copies, with one (1) original to be retained by each Party hereto.

 

2. The Parties may amend and supplement this Agreement in the way of a written agreement. Amendment agreements and supplement agreements executed by the Parties are both part of this Agreement, having the same legal effect as this Agreement.

 

3. Matters not covered in this Agreement shall be determined by the Parties separately through consultations.

 

 

 

 

 

 

[No text below]

 

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[Signature Page of OEM Cooperation Agreement]

 

IN WITNESS HEREOF, the Parties have caused this OEM Cooperation Agreement to be executed on the date and at the place first above written.

 

Party A:

Authorized Representative (Signature):

 

Party B: Rider Sports Fashion Limited (Seal)

Authorized Representative (Signature):

 

8 / 8

 

 

Exhibit 10.8

 

Agreement on Sales Authorization of Tmall

 

Party A : First Branch of Rider Sportsfashion Limited (hereafter referred to as “Party A”)

Legal representative: Hao Wang

Address: Room 509, Building C, Junfeng Huating, No.69, Beichen West Road, Beijing

Tel.: 010-58772071

Postal code: 100029

 

Party B : Hangzhou Fengxue Outdoor Products Co., Ltd. (hereafter referred to as “Party B”)

Legal representative:

Address: 3/F, Building 10, Loft 49, No. 111, Tongyi Road, Gongshu District, Hangzhou

Tel.: 0571-87819391-809

Postal code: 310000

 

Whereas Party A authorizes Party B to sell Party A’s products at Tmall (Taobao Mall: website: http://jakroo.tmall.com/ ), the following agreement regarding the sales (hereafter referred to as “this Agreement”) is made and entered into by Party A and Party B on the principle of equality and mutual benefits after reaching a consensus via negotiation:

 

I. Items and Scope of Authorization

 

1.1 Party A hereby authorizes Party B to sell Party A’s products at Tmall (Taobao Mall), including the products with “ ” trademark or label and ancillary products. Any change of scope of Party A’s products shall be subject to the products designated by Party A.

 

1.2 Party B’s sales channel authorized by Party A is limited to network sales through Tmall (Taobao Mall)’s authorized online store.

 

1.3 The authorized online store stated herein refers only to:

 

1.4 “AiqiSports Outdoor Franchise Store”, the website of which is http://aqydhw.tmall.com/.

 

1.5 “Jakroo Aiqi Franchise Store” refers to the online store, the website of which is “http://jakrooaq.tmall.com/;

 

1.6 “Aiqi Sports Outdoor Franchise Store” or "Jakroo Aiqi Franchise Store” is not allowed to sell cycling clothes products of other brands but Party A’s brand.

 

1.7 Party A hereby authorizes Party B to sell Jakroo Brand cycling clothes through the online store stated above. In addition, Party B is not allowed to serve as the online or offline agent of Party A’s products through any other channels.

 

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1.8 Party B is not allowed to deal with any matters in the name of Party A or make publicity or promotion in the name of Party A and/or Party A’s product agent, Party A’s subsidiary or branch or use “捷酷” and/or “Jakroo” as the name, trademark, or use Party A’s name, logo or label in any form (including the combination of Chinese characters and English letters in any form and/or capitalized and lowercased fonts) or register any trademark or domain name that is identical or similar to “捷酷” and/or ‘Jakroo’’s name, trademark, Party A’s name, logo, etc. (including the combination of Chinese characters and English letters in any form and/or capitalized and lowercased fonts) or make publications or statements to a third party which are not in line with the fact or conceal the fact that should have been informed to the third party.

 

II. Term of Sales

 

2.1 Party A hereby agrees and confirms to authorize Party B to sell Party A’s products at Tmall (Taobao Mall) for one year, from January 1, 2016 to December 31, 2016. Party B is not allowed to transfer the authorization above to any third party in any form, either partially or wholly.

 

2.2 Where Party A terminates this Agreement by exercising the right of interpretation as stated herein and/or legal right of interpretation, the term of authorization shall be terminated unconditionally upon Party A releasing the notice of termination.

 

2.3 Where both parties hereto decide to renew this Agreement, both parties shall determine the term of new authorization via negotiation. Both parties will no longer renew this Agreement in case of failure to reach an agreement regarding the term of authorization.

 

2.4 Should the term of authorization expire, Party B is not allowed to make sales authorized in this Agreement continuously with the online shop or domain name authorized in this Agreement or similar domain name or through any other potential channels.

 

III. Sales Task and Award

 

3.1 Party B hereby agrees and commits to purchase the products, the total amount of which shall be no less than RMB 3.5 million from Party A within the term of authorization and the amount shall be subject to the payment made to Party A after both parties make settlement at the end of the year.

 

3.2 Party A hereby agrees and commits that if the amount of products purchased by Party B from Party A within the term of authorization reaches the amount below, Party A shall grant Party B award which shall be paid to Party B by returning Party B’s goods payment in equal amount after both parties make settlement at the end of the year.

 

(1.) The discount of the spot goods purchased by Party B shall be 44% of the tag price.

(2.) The discount of future goods purchased by Party B shall be subject to the sales contract.

(3.) If the amount of spot goods purchased by Party B reaches over RMB 1 million, Party A shall grant Party B commission which shall be 1.5% of the amount above in form of advanced deposit (inclusive).

 

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IV. Supply Price and Retailing Price

 

4.1 Party B shall have the rights to enjoy Party A’s discount price of internet authorized sellers in 2016.

 

4.2 Where Party A launches promotion or discount activities, the supply price of Party A’s products involved in the activities above shall be subject to the list of supply price for this promotion or discount sales activity as provided by Party A to Party B.

 

4.3 The supply price provided by Party A to Party B shall be 44% of the standard retailing price issued at Party A’s official website

(http://jakrooshop.b2bzx.shopexdrp.cn/).

 

4.4 Party B may purchase commodities from Party A by purchasing future goods with 42% of the standard retailing price issued at Party A’s official website

(http://jakooshop.b2bzx.shopexdrp.cn).

 

4.5 Party B’s sales price shall be based on the retailing price published at Party A’s official website. The scope and discount limit of Party A’s products of Party A’s promotion or discount sales activities in 2016 shall be uniformly determined by Party A; Party B shall enjoy the rights of first sales of Party A’s special products and accessories in season exclusively through online network; Party B can negotiate with Party A on the discount percentage and contents of activities.

 

4.6 Party B hereby agrees and commits that the price of Party A’s products sold by Party B online by authorization shall be consistent and synchronous with the retailing price issued on Party A’s official website, but such price shall be no lower than the retailing price or the price in promotion activities organized by Party A in any form. If it is agreed by Party A in writing in advance, Party B can sell Party A’s products in holidays , store celebration or activities alike with the sales price and in the way agreed by Party A. Party B’s customer service staff are not allowed to grant a buyer more discounts privately in any form.

 

V. Party A’s Rights and Obligations

 

5.1 Party A shall inform Party B of the relevant information of its new products timely;

 

5.2 Party A shall be entitled to adjust and standardize market order by taking necessary measures; where Party B sells the products with a price lower than that stated in this Agreement, Party A is entitled to the right terminate this Agreement;

 

5.3 Where Party B strictly and fully performs each of the provisions in this agreement prior to the expiration date, Party A is not allowed to authorize any third party as an online seller within the term specified.

 

5.4 Party A shall never disclose or publish Party B's commercial and technical secrets, etc. acquired by signing and performing this Agreement to any third party, either within the term of this Agreement or within 2 years after this Agreement is terminated or rescinded, unless otherwise required by competent authorities. Party B’s information that is acquired by Party A by signing and performing this Agreement but is not disclosed by Party B to any third party or can not be acquired through public means shall be considered as Party B’s commercial secrets.

 

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VI. Party B’s Rights and Obligations

 

6.1 Party B shall strictly abide by relevant national laws, regulations and industrial codes and do business legally;

 

6.2 Where Party B organizes medium or large cycling activities, Party B may apply to Party A for in-kind sponsorship through submitting materials required; Party A may, based on the scale of activity, decide whether to grant the corresponding sponsorship and confirm the quantity of the in-kind sponsor;

 

6.3 Where Party B accepts the Purchase Order of group purchasing (one buyer purchases more than 10 single products in one time), the sales price shall be no lower than 20% discount price of the standard retailing price issued at Party A’s official website (http://jakrooshop.b2bzx.shopexdrp.cn) and Party B shall not publicly disclose the sales price;

 

6.4 Party B, in addition to the group purchasing business specified in Article 6.3 hereof, is not allowed to deal with wholesales or develop network dealers;

 

6.5 Party B shall submit all the publicity data related to Party A’s products as printed by Party B to Party A for audit and Party B can not print all these data without Party A’s written agreement. Party B shall bear the fees of the publicity data above which shall never violate laws and regulations. In case of selling products or making publicity, Party B is not allowed to use the intellectual properties legally owned by Party A or any third party without the consent of Party A or relevant obligee. Should Party B breaches this term, Party A shall be entitled to cancel relevant discounts and awards granted to Party B; if the breach is serious, Party A shall be entitled to investigate Party B’s breach liabilities;

 

6.6 Party B shall maintain the image and good reputation of Party A and Party A’s products consciously. In course of selling the products regulated herein, Party B, without the permission of Party A or relevant obligee, is not allowed to use any intellectual properties and product designs lawfully owned by Party A or any third party (including but not limited to copyright), such as patent, trademark, copyright and domain name; otherwise, Party A is entitled to terminate this Contract unilaterally and claim all the losses incurred (if any).

 

6.7 Where Party B finds counterfeited products or other unfair competition during the term of this Agreement, Party B shall inform Party A as soon as possible and assist Party A safeguard his rights;

 

6.8 Party B shall bear the loss brought or caused by its own commercial behavior and legal behavior and improper operation and management during the whole process of selling the products stated herein;

 

6.9 Party B shall, within ten working days upon receiving goods, examine the goods. In case of loss of goods, destruction or inconsistent quality or quantity, Party B shall, within two working days after the acceptance, send a written notice to Party A. The products supplied by Party A are viewed as meeting the requirements of this Agreement if Party B fails to organize acceptance or send a written notice to Party A within the time limit above;

 

6.10 Party B is not allowed to sell Party A’s products outside the region specified in this Agreement;

 

  4  

 

 

6.11 Party B is not allowed to purchase goods from other parties or sell counterfeited products by adulteration;

 

6.12 Party B, without Party A’s explicit written consent, is not allowed to continue selling Party A’s products when this Agreement expires or is terminated or this Agreement is rescinded according to the provisions stated herein;

 

6.13 Party B shall keep confidential for Party A’s commercial and technical secrets acquired by signing and performing this Agreement during the term of this Agreement or within two years after the termination or rescission of this Agreement, unless otherwise required by competent authorities. Party A’s information that is acquired by Party B by signing and performing this Agreement but is not disclosed by Party A to any third party or can not be acquired through public means shall be considered as Party A’s commercial secrets.

 

VII. Ordering, Goods Exchange, Return and Mode of Transportation

 

7.1 Ordering: Party B shall place Purchase Orders through Party A’s official website ( http://jakrooshop.b2bzx.shopexdrpc.n ) and Party A shall, upon receiving payment, make deliveries.

 

7.2 Party B can enjoy a discounted price which is 42% of the standard retailing price issued at Party A’s official website ( http://jakrooshop.b2bexdrp.cn ) for the future products ordered and the order for single batch of future products shall be at least RMB 5,000. In case of ordering future products, Party B is required to make a down payment that equals to 30% of the total payment and pay off the rest on the day before delivery. Should Party B fail to make settlement within the time limit above, Party A shall be entitled to dispose Party B’s future products ordered and deduct the down payment paid by Party B for the future products above.

 

7.3 Where Party B’s store is closed or Party B is unable to operate continuously as a result of improper operation or other causes, Party A shall not return the products;

 

7.4 Mode of transportation: Party A may make delivery by air, railway, highway or mail with the freight borne by Party B. The risks of the products shall be transferred from Party A to Party B after Party A delivers the products to the carrier or makes delivery by mail.

 

VIII. Liabilities for breach of contract

 

8.1 Both parties hereto shall abide by the provisions of this contract faithfully. In case of breaching the provisions stated herein, the default party shall pay observant party liquidated damages in the amount of RMB 50,000, except for force majeure or unless otherwise the default party is exempted from the liabilities after both parties reach an agreement via negotiation;

 

8.2 Provided that the default party causes a loss which is higher than the liquidated damages specified in the preceding paragraph to the other party, the default party shall also pay the difference between the aforesaid liquidated damages and actual loss, in addition to the liquidated damages stated above;

 

  5  

 

 

8.3 Party B shall, upon the execution of this Agreement, pay Party A margin of RMB 20,000 which shall be returned by Party A upon the expiration of this Agreement on the premise that Party B has performed all the obligations stated herein comprehensively. If, however, Party B breaches this Agreement during the term of performance, Party A can request Party B to pay liquidated damages as per Article 8.1 hereof and/or compensate Party A’s actual loss according to Article 8.2 hereof, in addition to deducting the margin unconditionally;

 

8.4 Management of underselling

Definition and category of underselling: underselling refers to selling the products with a price lower than the retailing price issued on the website of the Company’s dealers, among which, indirect underselling refers to the situation that Party B supplies products to the dealers at a lower level or retailers directly.

Underselling punishment standard:

 

Party A shall warn Party B for the first time;

Party A shall warn Party B and deduct margin of RMB 5,000 for the second time; Party B shall, within three working days after deducting the margin above, make up the margin without undue delay;

 

Should Party B be involved in underselling for at least three times, Party A shall be entitled to terminate this Agreement and all of Party B’s rights based on this Agreement shall be terminated instantly.

 

IX. Force Majeure

 

9.1 In case of being unable to perform this Agreement according to the terms and conditions specified by force majeure that can not be predicted, prevented or avoided such as earthquake, typhoon war or other similar events, the affected party shall notify the other party via call, fax or telegraph (the contact mode has been specified in the homepage of this Agreement) and shall within fifteen days upon the occurrence, provide the detailed material and other valid documents, which can demonstrate its obligations set forth in this Agreement cannot be performed, either wholly or partially or that performance of obligations will be delayed, as issued by the local competent organizations. Both parties shall, based on the influence of the event on the performance of this Agreement, decide whether to terminate this Agreement, or exempt or postpone the performance of some provisions contained herein.

 

X. Modification, Termination and Renewal of this Agreement

 

10.1 Where both parties try to modify, correct or supplement this Agreement, they shall sign written supplementary agreement based on negotiation; otherwise, any change of this Agreement shall be invalid. The supplementary agreement to this Agreement, if any, shall have the same legal effect as this Agreement;

 

10.2 Party B is not allowed to sell Party A's products beyond the scope of authorization stated in this Agreement in any form without Party A’s written consent; provided that the price issued by Party B and/or at which, Party B’s sale of Party A’s products is consistent with the retailing price issued on Party A’s official website, Party A shall be entitled to warn Party B and investigate Party B’s breach liabilities according to Article 8 hereof. Party B shall, within three days after Party A proposes the warning, corrects the illegal behavior above and makes up margin (if the margin has been deducted by Party A); otherwise, Party A may terminate the authorization for internet sales for Party B by terminating this Agreement upon sending a written notice to Party B and investigate Party B’s breach liabilities as per the provisions of Article 8 hereof;

 

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10.3 If either party breaches this Agreement or the relevant laws and regulations or damages the other party’s interest seriously, the other party may terminate this Agreement in writing and investigate the default party’s responsibilities per the provisions of Article 8 hereof;

 

10.4 As specified in this Agreement, this Agreement shall be terminated automatically after the agency sales period of Party B expires;

 

10.5 Both parties shall, at least three months before the expiration of this Agreement, decide whether to renew this Agreement based on negotiation; provided that both parties agree to renew this Agreement after reaching consensus, both parties shall renew this Agreement.

 

XI. Dispute Resolution

 

11.1 Any dispute arising out of or in relation with this Agreement shall be resolved by both parties via negotiation; in case of failure in negotiation, either party can apply to the Beijing Arbitration Commission for arbitration which shall be carried out according to the then arbitration rules valid. The arbitration award is final and binding to both parties. Unless otherwise specified in the arbitration award, the arbitration fees shall be borne by the losing party.

 

XII. Miscellaneous

 

12.1 For the matters not covered herein, both parties can specify them by executing supplementary agreement via negotiation; the supplementary agreement, if any, shall serve as an indispensable part of this Agreement with the same legal effect;

 

12.2 This Agreement is signed in Chinese and can be translated into other languages. In case of any inconsistency among the versions of different languages, the Chinese version shall prevail;

 

12.3 This Agreement shall come into effect upon the signature and stamp by both parties;

 

12.4 This Agreement is executed in duplicate with each party holding one with the same legal effect.

 

(The remainder of this Agreement is intentionally left blank)

 

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Party A: First Branch of Rider Sportsfashion Limited Party B: Hangzhou Fengxue Outdoor Products Co., Ltd.
   
Representative: Bo Zhao Representative:

(Seal)

Seal: First Branch of Rider Sportsfashion Limited

(Seal)

Seal: Hangzhou Fengxue Outdoor Products Co., Ltd.

January 22, 2016 January 22, 2016

 

 

8

Exhibit 10.9

 

 

RIDER SPORTSFASHION Limited

 

 

Agency Agreement

 

Party A: RIDER SPORTSFASHION.Limited (hereinafter referred to as “Party A”)

 

Authorised Representative: Jin Guangwei

Title: Regional Sales Mangager

Address: Room 509, Building C, Junfeng Huating, No., 69, Beichen West Road, Chaoyang District, Beijing

Tel.: 010-58772071

Postal code: 100029

 

Party B: Wuchang Longqi Bicycle Operation Department, Wuhan (hereinafter referred to as “Party B”)

 

Legal representative: Liu Yong

Title: General manager

Address: No.95 Shouyi Mingju, Shouyi Road, Wuchang District

Tel.: 027-88060259

Postal code: 430070

 

Whereas Party A hereby authorizes Party B to sell Party A’s relevant products in the region designated, the following agreement (hereinafter referred to as “this Agreement”) is made and entered into by and between both parties on the principle of equality and mutual benefits after reaching consensus via negotiation:

 

I. Requirements for Distributor

 

1. Independent legal personality qualification and legally registered bicycle store or outdoor equipment store with an area of over 100m 2 ;

 

2. Agreeing on the operation and management mode of JAKROO brand and looking for joint long-term development;

 

3. Capable of implementing and abiding by all market policies, coordinating the implementation of all marketing schemes actively and finishing sales objective.

 

II. Sales Region and Term

 

1. Party A hereby authorizes Party B to sell Jakroo mainstream products;
   
2. Party A authorizes Party B to sell the products in Wuhan, Hubei Province
   
3. The term of agency is as of January 1, 2016 to December 31, 2016 ;

 

III. Amount of Products Purchased

 

Party B shall purchase products which shall cost no lower than RMB 400,000 per year from Party A.

 

IV. Purchase Price and Sales Price

 

1. Party B’s purchase price shall be 56% of the retailing price issued on Party A’s ordering website.
   
2. Party B’s retailing sales price shall be subject to the retailing price issued on Party A’s ordering website and may float within the range of 20% based on the actual conditions.
   
3. Party B’s group purchasing sales price shall not be lower than 75% of the retailing price issued on Party A’s ordering website, i.e., not lower than 25% discount.

 

 

 

 

 

V. Party A’s Rights and Obligations

 

1. Party A shall supply goods to Party B in accordance with time and quantity agreed by both parties and ensure the quality of the products supplied meets the relevant national standards;
   
2. Party A shall provide Party B with product information, store publicity materials and supporting sales tools on a timely basis;
   
3. Party A shall be entitled to adjust and standardize market order by taking required measures;
   
4. Party A shall keep Party B’s commercial secrets acquired through dealing with activities confidential.
   
5. Should Party B’s trial sales period expire, Party A shall issue relevant information about Party B’s operation site and declare that Party B is the dealer legally authorized by Party A on its website (www.jakroo.com.cn).
   
6. Party A shall reserve the right to sell commodities through internet.

 

VI. Party B’s Rights and Obligations

 

1. Party B shall strictly abide relevant national laws, regulations and industrial codes and conduct business according to laws.
   
2. Party B is not allowed to sell Party A’s products online in any form.
   
3. Party B is not allowed to sell Party A’s products beyond the scope of the distribution regions specified in this Agreement.
   
4. Party B may, before displaying and decorating Party A’s products, apply to Party A for display support.
   
5. In case of customized service needed, Party B shall enjoy a 20% discount of Party A’s market customization price.
   
6. Where Party B organizes medium and large-sized cycling activities, Party B can apply to Party A for in-kind sponsorship by submitting relevant materials. Party A shall, based on the scale of activity, provide in-kind sponsor service accordingly.
   
7. Party B shall submit all the publicity materials related to Party A’s products as printed by Party B to Party A for audit and Party B cannot print any of these materials without Party A’s written consent. Party B shall bear the fees of printing the above which shall never violate Chinese laws and regulations. Party B is not allowed to use the intellectual properties legally owned by Party A or any third party without the consent of Party A or relevant obligee, including but not limited to copyright.
   
8. Party B shall maintain the image and good reputation of Party A and Party A’s products consciously. In course of selling the products regulated herein, Party B, without the permission of Party A or relevant obligee, is not allowed to use any intellectual property or product design legally owned by Party A or any third party, such as patent, trademark, copyright and domain name;

 

 

 

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9. Party B shall bear the loss resulting from or caused by its own commercial activities, legal activities and improper operation and management during the whole process of selling the products stated herein;
   
10. Party B shall, within ten working days upon receiving goods, examine the goods. In case of goods loss, destruction or inconsistent quality or quantity, Party B shall, within two working days upon the acceptance, send a written notice to Party A. The products supplied by Party A shall be viewed to have met the provisions of this Agreement if Party B fails to organize acceptance or send a written notice to Party A within the time limit above;
   
11. Party B, without Party A’s explicit written consent, is not allowed to continue distributing Party A’s products after this Agreement expires or is terminated or this Agreement is rescinded according to the provisions of this agreement.
   
12. Party B shall keep confidential for Party A's commercial secrets known through its activities as an agent.

 

VII. Liabilities for breach of contract

 

1. In case of breaching the provisions stated herein (force majeure) seriously, the default party shall pay observant party liquidated damages which shall be RMB 50,000.
     
2. Provided that the default party causes losses which are more than the liquidated damages above to the other party, the default party shall also pay the difference between the aforesaid liquidated damages and actual losses, in addition to the liquidated damages stated above.

 

X. Force Majeure

 

In case of to the failure to perform the obligations set forth in this Agreement according to the terms and conditions specified by force majeure that can not be predicted, prevented or avoided such as earthquake, typhoon, flood or war, the affected party shall notify the other party via call, fax or telegraph and shall within fifteen days upon the occurrence, provide the detailed materials and other valid documents, which can prove that this Agreement cannot be performed, either wholly or partially or will be delayed, as issued by the local notary organization. Both parties shall, based on the influence of the event on the performance of this Agreement, decide whether to terminate this Agreement, or exempt or postpone the performance of some obligations contained herein.

 

XI. Modification, Termination and Renewal of this Agreement

 

1. Both parties can modify or supplement this Agreement in writing after reaching agreement via negotiation.
   
2. Provided that Party B sells Party A’s products online, Party A may stop supplying goods by terminating this Agreement, as the case may be.
   
3. Where Party B sells Party A’s products with a price lower than the sales price specified, Party A may stop supplying goods by terminating this Agreement as the case may be.

 

 

 

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4. Provided that Party B sells Party A’s products beyond the scope of distribution region specified herein, Party A may stop supplying goods by terminating this Agreement, as the case may be.
   
5. Provided that Party B has not purchased goods from Party A for consecutive three months or the amount of purchase is less than RMB 5,000 during the validity of this Agreement, this Agreement shall become invalid automatically.
   
6. Should any provision contained herein be declared as invalid or non-enforceable, the rest provisions of this Agreement shall remain valid continuously.
   
7. This Agreement becomes invalid automatically if Party B fails to pay margin within fifteen days upon the execution of this Agreement.
   
8. Where either party breaches any term herein or breaks relevant laws seriously or damages the other party’s interests, the other party shall be entitled to terminate this Agreement in writing in advance. However, the early termination of this Agreement by the other party does not affect the other party from claiming damages against the default party according to the provisions of Article 10 of this Agreement.
   
9. As specified in this Agreement, this Agreement shall be terminated automatically after the authorized sales period of Party B expires;
   
10. Both parties shall, three months before the expiration of this Agreement, decide whether to renew this Agreement via negotiation; provided that both parties agree to renew this Agreement after reaching an agreement, both parties shall renew this Agreement.

 

XII. Miscellaneous

 

1. Any dispute or claim arising out of or in relation with this Agreement shall be resolved by both parties via friendly negotiation; in case of failure in negotiation, either party can file a lawsuit to the People’s Court at the place of Party A.
   
2. For the matters not covered herein, both parties can specify such matter by executing a supplementary agreement via negotiation; the supplementary agreement, if any, shall serve as an indispensable part of this Agreement with the same legal effect;
   
3. This Agreement is signed in Chinese and can be translated into other languages. In case of any inconsistency among the versions of different languages, the Chinese version shall prevail.
   
4. This Agreement is executed in duplicate with each party holding one with the same legal effect.
   
5. This Agreement shall come into effect upon the signature and stamp by both parties.

 

Party A: RIDER SPORTSFASHION Limited  

Party B: Wuchang Longqi Bicycle Operation Department, Wuhan

 

Representative: Jin Guangwei   Representative: Liu Yong

 

RIDER SPORTSFASHION Limited (seal)

 

 

Wuchang Longqi Bicycle Operation Department, Wuhan (seal)

April 22, 2016   April 22, 2016

 

 

 

 

4

 

 

Exhibit 10.10

 

 

  Fortuna Digital Graphics No.: 0121284

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract for Sales of Products

 

 

 

 

 

 

 

 

 

 

 

 

 

Note for execution, of the contract:

 

1. This contract will only be used as the contract for the sales of products manufactured and sold by Fortuna instead of other purposes.

 

2. All contents of the contract shall become valid only after they are filled in with black pen or a black signing pen;

 

3. All contents of the contract shall be filled in completely without any blank left; and

 

4. The appendixes herewith shall serve as an indispensable part of the contract and have the same legal force with the contract.

 

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Date of execution: October 17, 2014   Place of execution : Beijing
     

Party A: Rider Sportsfashion Limited

Seal: special contract seal of Rider Sportsfashion Limited

 

Party B: Beijing Fortuna Digital Graphics Co., Ltd.

Seal: special contract seal of Beijing Fortuna Digital Graphics Co., Ltd.

Add.: Room 509, Building C, Junfeng Huating, No., 69, Beichen West Road, Beijing   Add.: 22/F, Qingyun Dangdai Mansion, No. 43 West Street of North 3 rd Ring Road, Haidian District, Beijing
Postal code: 100029   Postal code: 100086
Tel.: 010-58773375   Tel.: 010-82511122
Fax: 010-58773378   Fax: 010-82511388
Entrusted representative: Geng Li   Entrusted representative: Qin Peng

 

In strict accordance with the stipulations of Contract Law of the People’s Republic of China and other relevant regulations, the contract regarding the fact that Party B’s products are purchased by Party A (hereinafter referred to as “this Contract”) is made and entered into by and between Party A and Party B based on the principle of equality and mutual benefit after reaching a consensus through negotiation, in order to define each party’s rights and obligations respectively.

 

Article 1 Products Details

 

Product brand/ name Model/Specification Unit Qty. Unit price (RMB Yuan) Total (RMB Yuan)
Epson F7180 Pcs 1 105,000.00 105,000.00
           
           
Additional products purchased (Appendix 3)          
Total         105,000.00

 

Total: RMB 105,000.00

 

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Article 2 Payment and Delivery Time

 

Party A shall, within 3 days upon the execution of this Contract, pay off all payment for goods hereto above, RMB     /    (say: RMB     /    ) in lump sum. Party B shall deliver equipment within     /    the day (s) upon receiving all payment for goods (the payment in cash shall be subject to date of payment while other payment modes shall be subject to the time when the payment for goods is delivered to the appointed account by Party B).

 

Article 3 Equipment Delivery and Acceptance

 

1. Both parties agree that Party B shall deliver and accept goods based on the     /    (in words) mode set forth below.

 

1) Party A shall be held liable for delivering the products to Party B’s company where the products shall be handed over and accepted.

 

2) Where the site of delivery and acceptance is Party B’s company and Party B delivers the goods to the place designated by Party A for Party A after passing acceptance as mutually agreed, Party A shall bear all transportation fees and premiums (only applicable to the case that the destination is in the same city as the authorized signatory).

 

3) Where Party A needs Party B to assist with delivering the equipment to other cities appointed, Party A shall appoint transportation mode and carrier; Party B is considered to have delivered equipment upon consignment (subject to waybill of transportation unit appointed by Party A). Both parties shall accept goods at the site where Party A receives equipment and Party A shall bear all freights and premiums incurred accordingly.

 

2. Both parties shall make acceptance together and make confirmation through signature upon the equipment being accepted. The product accessories shall be subject to the list in Appendix 3 herewith and the former manufacturer’s product instruction and sample provided by Party B shall be considered as quality standard for acceptance.

 

3. Where both parties select the third goods delivery mode, Party A is not allowed to unpack box or install or use the machine without Party B’s consent in writing upon receiving the products; otherwise, the machine is considered qualified, and Party B will no longer make acceptance.

 

4. Party B shall, at the delivery site, deliver the equipment to Party A. Where the delivery is delayed due to objective conditions that are unforeseeable, inevitable and insuperable, Party B shall not bear any relevant liability or liabilities.

 

5. Both parties shall, within 24 hours upon Party A receiving goods, make acceptance at the delivery site and Party A shall submit Equipment Acceptance Report signed and sealed to Party B at the same time.

 

6. Where Party A finds inconsistency, inferior quality or defects of model, specification, quantity and technical properties of equipment, due to the manufacturers’ or Party B’s liabilities during acceptance, Party A shall, on the date of delivery or no later than 3 days after the date of delivery, notify Party B of the cases above in writing without undue delay and Party B shall be responsible for handling that; otherwise, the equipment is considered to have met the requirements of this Contract and appendixes hereof.

 

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Article 4 Equipment Maintenance and Post-Sales Service

 

1. Party B shall authorize the appointed company to provide such service as equipment maintenance and after-sales service; for power of attorney, see Appendix 5 hereof.

 

2. The maintenance and post-sale service for various products shall be governed by Appendix 1 General Rules for Equipment Maintenance Service of Fortuna Digital Graphics , Appendix 2 Maintenance Service Standard of Contract Product and supplementary agreement(s) made and entered into by and between both parties (if any).

 

3. Party B shall provide door-to-door installation and debugging service and 2-day user training.

 

4. Before Party B designates technical service personnel to make installation, debugging and training, Party A shall provide necessary conditions for normal work in the aspect of operators and sites and notify Party B in writing.

 

5. The second-hand equipment is not included within the scope of services set forth in the four provisions hereto above, the maintenance and post-sale service of which shall be determined by both parties additionally by signing appendixes through negotiation.

 

Article 5 Liabilities for Breach of Contract

 

1. In case of failure to delivering goods on time, Party B shall pay Party A liquidated damages which shall be 0.03% of contract price for each day overdue; in case that the delivery is delayed for more than 20 days, Party B is considered to fail to deliver goods.

 

2. Where Party B cannot deliver goods, it shall, in writing, notify Party A in advance and return Party A payment for goods paid by Party A.

 

3. Provided that Party A returns goods within 2 weeks upon delivery of goods, Party A shall pay Party B liquidated damages which shall be 10% of the contract price and bear all costs for delivering goods to Party B; Party B should return the payment for goods to Party A upon making acceptance for the machine. Party A is not allowed to return goods 2 weeks after delivery of goods.

 

4. Where Party A finds the goods are not original or new, or cannot be used normally or destroyed seriously in the course of installation or acceptance at its place under the premise that the defects above are not caused by transportation, Party B shall replace such goods with new equipment of same model without additional charges and bear freight and transportation risks.

 

5. In case of failure to pick up goods within two weeks of the delivery term regulated herein, Party A is considered to have abandoned the purchase and the transaction shall be terminated.

 

6. The default party shall bear the liabilities for breach (excluding joint liabilities caused by such breach) set forth in this contract, which shall not be borne by the non-default party.

 

7. Where the goods cannot be delivered as a result of force majeure, Party B shall return funds paid by Party A only and the transaction shall be terminated.

 

  4  

 

 

Article 6 Dispute Resolution

 

Any dispute arising out of or in relation with the performance of this Contract shall be resolved by both parties through amicable negotiation; in case of failure in negotiation, either party shall be submitted to the Beijing Arbitration Commission for arbitration in accordance with its arbitration rules then effective; the arbitration award shall be final and binding upon both parties. The arbitration fees and winning party’s counsel fee shall be borne by the losing party.

 

Article 7 Matters not covered in this Agreement shall be determined by the Parties separately through negotiation. This Contract (including appendixes hereof) is executed in triplicates with one for Party A and two for Party B and becomes valid upon signature (stamp) of both parties.

 

Party A: Rider Sportsfashion Limited

Seal: special seal for contract of Rider Sportsfashion Limited

 

Party B: Beijing Fortuna Digital Graphics Co., Ltd.

Seal: special seal for contract of Beijing Fortuna Digital Graphics Co., Ltd.

Authorized representative: Geng Li   Authorized representative: Qin Peng
Date: October 17, 2014   Date: October 17, 2014

 

  5  

 

 

Appendix 1:

 

General Rules for Equipment Maintenance Service of Fortuna Digital Graphics

 

1. Technical service center of Fortuna Digital Graphics exclusively owns the right of interpretation of the General Rules and neither individual nor other unit shall have the right to modify or interpret the General Rules .

 

2. These provisions hereto are only applicable to the equipment, the maintenance service of which is provided by Fortuna Digital Graphics rather than those maintained by other manufacturers according to the relevant requirements.

 

3. The instruction and interpretation for technical index of equipment sold shall be subject to technical data provided by the equipment manufacturer (based on product instruction or relevant industrial standards) and the interpretation made by other institutions or persons is null and void.

 

4. All equipment shall be provided with valid receipts and warranty cards provided by Fortuna Digital Graphics. For the equipment, the valid receipt or warranty card of which cannot be provided, Fortuna Digital Graphics shall be entitled to refuse to provide relevant post-sales service such as maintenance.

 

5. Fortuna Digital Graphics shall only be responsible for warranty liabilities but not any other joint compensation liabilities for any equipment defects.

 

6. For the equipment, the on-site warranty service of which is provided for free for 1 year, we are liable for solving hardware defect of equipment only; for the problems caused by software or other relevant equipment, we only provide technical consultation service.

 

7. 48-hour service response means that the Company prepares solution plan or designate maintenance engineers to provide door-to-door service within 2 consecutive working days (except for national legal holidays) upon the conformation for hardware fault of users’ equipment as per relevant service articles and clauses. In case of failure in designating suitable personnel within 48 hours due to technical issues, the Company shall make interpretation in advance and determine specific time limit.

 

8. The Company shall be responsible for maintaining equipment against faults under the premise that the equipment can be used normally within warranty period.

 

9. The Company may charge maintenance fee within the warranty period, based on practical conditions if any of the following circumstances happens, as the case may be:

 

(Maintenance fee= man-hour fee+ spare part fee+ travel expense)

 

  * The user cannot provide warranty card or other valid certificates;

 

  * The user cannot provide “warranty seal of Fortuna Digital Graphics”;

 

  * The defect is caused by the user who operates improperly;

 

  * The defect is caused by external power supply system or computers;

 

  * The defect or damage is caused by collision;

 

  * The defect is caused by userstransforming or maintaining equipment arbitrarily without authorization;

 

  * Accidental disasters (flood, fire disaster…)

 

  6  

 

 

10. Users shall keep external package of the equipment after the equipment is installed in order to facilitate maintaining or delivering the equipment in the further.

 

11. Where the equipment is damaged during transportation, users should make solution by contacting with the carrier or insurance company.

 

12. If finding the equipment is malfunctioning, users shall contact technical service center of Fortuna Digital Graphics and inform them of the practical conditions in order to handle that properly; users may not otherwise consult non-specialists or dismantle the machine arbitrarily lest result in more serious losses.

 

13. The consumables of equipment are not within the warranty scope. (For specific contents, see service manual of equipment)

 

14. If the user who purchases a printer uses ink not appointed by Fortuna Digital Graphics arbitrarily without authorization, he or she is considered to abandon relevant warranty rights with regard to equipment.

 

15. We will provide installation, use and technical support service for software sold singly or with the equipment for free for 6 months (off-site service)

 

16. We will charge updating service fees for software and hardware based on relevant regulations.

 

17. In case of changing your correspondence address, please inform us actively and immediately in order to contact each other when necessary.

 

18. We will maintain the equipment beyond warranty period by charging maintenance fee based on current maintenance charging standard.

 

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Appendix 2:

 

Maintenance Service Standard of Fortuna Digital Graphics

 

Please do read through all contents stated in Appendix 1 ( General Rules for Equipment Maintenance Service of Fortuna Digital Graphics) which shall serve as an indispensable part of this maintenance service standard. Fortuna Digital Graphics shall provide maintenance service below for contract products:

 

I. Equipment Warranty and Service:

 

1. Painting equipment

 

The parts maintained for free (committed by equipment manufacturer)

 

Equipment manufacturer commits to provide warranty service for such parts as all kinds of circuit boards, motors, motor drivers, power supply transformers, special data line, frequency converters, power boxes, sensors, raster decoders, transmission belts, driving wheels, bearings, guide rails and paper pressing wheels installed on equipment as committed by equipment manufacturer.

 

Warranty period for free maintenance: 12 months Warranty mode (note): on-site (Ö)/ off-site ( )

 

The parts not warranted (The parts below belong to consumable or external package, all of which are out of warranty scope)

 

Equipment manufacturer does not commit to providing warranty service for parts such as graphite head, graphite, paper knife, tampon, doctor blade, ink sac (ink tank), ink place, ink place support, grating, components of ink pump, ink filter, ink pipe, waste ink tank, graphite head data line, equipment shell, vacuum cleaner and packing box.

 

2. Carving equipment

 

The parts maintained for free (committed by equipment manufacturer)

 

Equipment manufacturer commits providing warranty service for parts such as all kinds of circuit boards, motor, motor driver, power supply transformer, special data line, frequency converter, power box, bearing, sensor, lead screw, driving belt, driving wheel and laser tube installed on equipment.

 

Warranty period for free maintenance: 12 months Warranty mode (note): on-site ( )/ off-site ( )

 

The parts not warranted (The parts below belong to consumable or external package, all of which are out of warranty scope)

 

Equipment manufacturer does not commit to providing warranty service for parts such as mesa, all kinds of fixtures, reflectors, focusing mirror, exhaust fan, equipment shell and packing box.

  

Note: Off-site refers to all local technical service centers of Fortuna Digital Graphics; in off-site warranty condition, the door-to-door service fee shall be charged for on-site maintenance and service required by clients according to relevant regulations of Fortuna Digital Graphics.

 

  8  

 

 

II. The costs and expenses incurred below against parts unwarranted or the maintenance beyond warranty scope:

 

transportation fee and accommodation fee from Fortuna Digital Graphics to the clients’ spot

 

Man-hour fee : the fees calculated based on days of business trip of Fortuna Digital Graphics service engineers (if the business trip is less than a day, a whole day shall be accounted):

 

Man-hour fee in the city: RMB 300 day;

 

Man-hour fee out of the city: RMB 500 day

 

(The days of business trip shall be calculated based on the date of ticket; if the business trip is less than a day, the man-hour fee shall be calculated based on one day)

 

Fitting fees : fees for fittings changed and used

 

III. Training for Use of Equipment

 

a) Fortuna Digital Graphics shall provide 2-day (8 hour each day) on-site installation and use training service for equipment.

 

b) The users can participate in Fortuna Digital Graphics’s Fortuna Digital Graphics Express                     person(s) (The clients shall pay for travel expenses of those participating in the training according to relevant documents of Fortuna Digital Graphics).

 

  9  

 

 

Appendix 4:

 

Other Articles and Clauses (valid upon stamp/ signature of both parties)

 

j Delivered and installed on October 20, 2014; all funds were paid off 3 months after the installation.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Party A: (seal & signature) Geng Li Party B: (seal & signature) Qin Peng
October 17, 2014 October 17, 2014
Seal: special contract seal of Rider Sportsfashion Limited Seal: special contract seal of Beijing Fortuna Digital Graphics Co., Ltd.
 
 
 
 
 
 

 

 10

Exhibit 10.11

 

Stamp: Chaoyang District, Local Taxation Bureau of Beijing

 Dedicated stamp for stamp duty No. 03

  Tax paid: 1500

 Tax payment certificate No.: 0001725924

 Tax payment date: Mar. 4, 2014

  

Lease Contract

 

Lessor (Party A): Hongzhang Zhao

 

Lessee (Party B): Rider Sportsfashion Limited

 

In accordance with the regulations of “Contract Law of the People’s Republic of China” and other relevant laws, and in reference to the Land Lease Contract and Supplementary Agreement executed by the village committee of Liersi Village in Zhangjiawan Town, Tongzhou District, Beijing, and Li Zhixue, both parties hereto, on the basis of principles of equality, voluntariness, and consensus, have reached the following agreement in respect of Party B renting plants from Party A:

 

I. Subject of the contract

 

The subject referred to herein is located at the industrial zone in Liersi Village, Zhangjiawan Town, Tongzhou District, Beijing, which covers 8 mu (1 mu=666  ), including 2 industrial plants, 1 office building, 21 bungalows for living and auxiliary space. See the schedule attached for the concrete locations and sizes.

 

II. Term of the lease

 

The term of the lease is three years (from July 1, 2014 to June 30, 2017)

 

III. Rent, mode of payment, and payment schedule:

 

1. The annual rent of the said plant is RMB 500,000 yuan, and the rent remains unchanged for three years.

 

2. The time of payment by Party B: in two installments annually; payment is made to Party A before July 15 and January 15, respectively.

 

3. Mode of payment: Check

 

IV. Property management

 

1. The factories, office buildings, and living quarters leased by Party B from Party A shall be equipped with water, electricity, heating and other facilities. After the delivery, Party B can make transformation as needed after it has been agreed by and filed with Party A, with the costs borne by Party B.

 

  1  

 

 

2. The production and office equipment purchased by Party B during the term of lease belong to Party B; Party B is entitled to dispose of the equipment upon the expiry of the lease, provided that no damage is caused to the housing structure. Party B is responsible for the repair and restoration in case of damage.

 

3. If there is a change of intended use of the housing or decoration and renovation during the term of the lease, Party B shall serve a prior notice to Party A for consent. The renovation can only be implemented after Party A gives written confirmation. Upon the expiration of the lease, Party A may keep the decoration part for free.

 

4. During the term of this lease, Party A will not engage a property management company for management. Party B is responsible for the normal repair and maintenance of the subject under this contract. The housing and facilities maintenance (such as housing leaks, cracks, deformation or settlement) not attributed to Party B shall be borne by Party A. Party A shall provide active assistance and cooperation.

 

V. Rights and obligations of Party A:

 

1. Party A delivers the leased plant to Party B for use on the date and based on standards stipulated herein.

 

2. Party A is entitled to charge rent pursuant to this contract.

 

3. Party A is entitled to inspect the status of the plant rented by Party B, who shall provide convenience for the inspection by Party A. In case of improper use by Party B, Party A is entitled to make criticism and provide opinions for improvement.

 

4. Party A shall ensure that during the term of the lease, the rented housing complies with the relevant laws and building codes and standards, and ensure the safety of building structure of the subject herein under the condition of reasonable use.

 

5. Party A shall ensure that the ownership of the subject belongs to Party A during the term of the lease.

 

6. Prior to the delivery of the subject, Party A is obliged to cooperate with Party B in improving the necessary facilities for living and production, including electricity and water supply facilities.

 

7. If this lease contract shall be terminated due to the changes in land use rights (such as requisition by the state or relocation) during the term of the lease, the state and government compensation for the buildings belongs to Party A, while the compensation for full economic losses of enterprises belongs to Party B. Party A shall refund the rent to Party B on the basis of actual number of months of rental. If the lease contract is needed to be terminated due to the change of land use rights before_________ (date), Party A shall, before Party B moving out of the rented housing, additionally pay an amount equal to 30% of the annual rent to Party B as the compensation for equipment and facilities investment and the compensation for suspension of operations.

 

  2  

 

 

8. During the term of the lease, Party B is not allowed to transform or change the purpose of the rented plant and the buildings attached thereto without the consent of Party A.

 

9. During the term of the lease, Party A is not allowed to unilaterally terminate this contract and take back the said housing.

 

10. Party A must furnish to Party B the housing rental invoice issued by the local taxation authority within 30 days upon receiving the rent.

 

VI. Rights and obligations of Party B

 

1. Party B shall pay rent on time and assume stamp duty attributed to Party B.

 

2. Party B shall bear the fees for water, electricity, and heating, etc. on his own during the term of the lease.

 

3. Before moving into the rented housing, Party B shall inspect the quality and safety of housing as well as the reasonableness and safety of supporting facilities.

 

4. Part B must engage in operations according to the law and take measures against fire and theft. If Party A or the both parties hereto incur property loss due to Party B’s reasons, Party B shall bear liability and provide corresponding compensation to Party A.

 

5. In order that the plant will be run in order during the term of the lease, Party B shall carry out normal maintenance and repair of the plant.

 

6. Party B is entitled to sublet the rented plant or seek co-tenant during the term of the lease, provided that it must be filed with Party A.

 

7. Party B shall not under any condition indicate, either expressly or implicitly, to a third party that it has ownership or right of disposal of the rented subject, nor shall Party B mortgage the rented subject. Should Party B get involved in disputes about debts or bankruptcy, Party B shall clearly state that the rented subject is unrelated to the debts of Party B.

 

8. At the expiration of the lease, Party B has the priority to renew the lease contract under the same conditions. The terms and conditions including the period of renewal, rent, and mode of payment shall be confirmed by both parties through negotiation within three months before the expiration of the contract, and the renewed lease contract will be signed separately.

 

9. Party B must give a three-month prior notice to Party A if it needs to terminate this contract due to its own reasons during the term of the lease.

 

10. If Party B will not renew the lease upon the expiration of the lease, Party B shall move all the articles and goods out of the rented subject within thirty days. Failure to move the goods out within thirty days is deemed as a waiver of ownership by Party B, and Party A is entitled to dispose of the remainder goods.

 

  3  

 

 

VII. Liability for breach of contract:

 

1. Party A shall, as from the date of execution of the contract, deliver the workshops, offices, living areas, roads and related facilities (including supporting facilities required by Party B) to Party B for use. The term of the lease commences only when the representatives of Party B have conducted the acceptance inspection of all equipment and facilities. Party A is not liable if the delivery is overdue for 15 days. If it is overdue for more than 15 days, Party A shall pay to Party B the liquidated damages amounting to 3‰ of the annual rent for each overdue day.

 

2. If Party B fails to pay the rent timely, Party B shall pay Party A the liquidated damages amounting to 1‰ of the annual rent for each overdue day.

 

3. Party A will be deemed to breach the contract if he terminates the contract without consultation with Party B. The defaulting party shall pay the observant party the liquidated damages amounting to 10% of the annual rent, and the observant party is entitled to terminate the contract.

 

VIII. Exemption conditions:

 

Neither party is liable to the other party if the loss is caused to the plant by force, including flood, earthquake, and wars, etc.

 

IX. Dispute resolution:

 

1. Any disputes arising from the performance of the contract by the parties hereto shall be settled through friendly negotiation. In case of failure of negotiation, either party may file a lawsuit to the people’s court at the place where the real estate is located.

 

X. This contract is made out in duplicate, with each party holding one copy with the same legal effect. The contract becomes effective on the date of execution by both parties hereto.

 

  /s/ Hongzhang Zhao      
Lessor:

Hongzhang Zhao

 

Lessee: Rider Sportsfashion Limited (Seal)

Date: Feb. 25, 2014   Date: Feb. 25, 2014

  

  4  

 

  

 

 

Plan of the factory zone

 

Area: 3773.3 m 2

 

  5  

 

 

Supplementary Agreement

 

1. The land lease contract concluded between the village committee of Liersi Village in Zhangjiawan Town, Tongzhou District, Beijing and Li Zhixue is assigned to a third party, Zhao Hongzhang for development and use through mutual agreement. Zhao Hongzhang replaces Li Zhixue as the legal representative.

 

2. There is the land with an area of 2.4 under the high-voltage power lines to the east of the land under this contract. On the condition of meeting the power needs, a piece of land equivalent to 1.2 is for the development and use by Zhao Hongzhang. The clauses of the lease contract have the same effect as this contract.

 

Party A : village committee of Liersi Village in Zhangjiawan Town, Tongzhou District, Beijing

 

Legal representative:    

 

 

Stamp: village committee of Liersi Village in Zhangjiawan Town, Tongzhou District, Beijing

 

Party B : /s/ Zhixue Li
  Zhixue Li  
     
Third party : /s/ Hongzhang Zhao  
  Hongzhang Zhao  

 

 

Date:

 

 

6

Exhibit 10.12

Lease Agreement

Lessor (Party A): Songxiang Zhou, 132822196408153538

Lessee (Party B): Rider Sportsfashion Limited

This Agreement is made and entered into by and between Party A and Party B in respect of Party B renting the property from Party A on the basis of equality, voluntariness and consensus pursuant to the Contract Law of the People’s Republic of China and relevant laws and regulations:

I. Subject of the contract

1. The subject referred to herein is located at Dadongguan Section, Changtan Road, Qigezhuang Village, Dachang Hui Autonomous Prefecture, covering an area of 7 mu (1 mu = 666㎡). It includes the five-story complex building of ​​5304.88 square meters in the north and the auxiliary land of the dormitory of 30 meters long and 23 meters wide in the east. It is available for the use of Party B. See the annex for the specific location and size.

2. The dormitory building in the east covers an area of ​​about 669.60 square meters. It is currently being planned and the construction is not commenced yet.

II. Lease period

1. The lease period is 10 years, from November 30, 2016 to November 30, 2026. If it is not completed due to the reason of Party A, the beginning date is the date when Party A completes the work and the property reaches the conditions for the settlement of Party B.

2. The second item of dormitory of 669.6 square meters under the contract is available for settlement in no later than June 2017, and the rent is calculated as from the actual delivery date.

III. Rent, mode of payment, and date of payment:

1. Annual rent

A. Dec. 2016 – Dec. 2019: RMB ​​0.36 per square meter per day according to the building area; the rent remains unchanged for three years.

B. Dec. 2019 – Dec. 2022: RMB ​​0.36 per square meter per day according to the building area; Party A and Party B may revise the rent upward or downward by 3% per square meter per day according to the market situation through negotiation; the rent remains unchanged for three years.

C. Dec. 2022 – Dec. 2026: RMB ​​0.36 per square meter per day according to the building area; Party A and Party B may revise the rent upward or downward by 3% per square meter per day based on the prior range according to the market situation through negotiation; the rent remains unchanged for four years.

2. The rent is payable semiannually on November 30 and June 30.

   

 

3. Mode of payment: settlement by check or wire.

IV. Property management:

1. The property leased by Party A to Party B should be equipped with water, electricity, heating and other facilities. If Party B needs to make transformation after delivery, Party B needs to report for approval and file the scheme with Party A, with the costs borne by Party B.

2. The production and office supplies purchased by Party B during the lease period shall be owned by Party B; after the expiry of the lease, Party B shall have the right of disposal, save that Party B shall not damage the structure of the property. Party B shall be responsible for repairing and restoring the property to the original condition in case of the damage.

3. If Party B changes the purpose of the property and makes renovation during the lease period, Party B shall report it to Party A for approval and can only carry out the renovation with the confirmation of Party A. After the expiration of the contract period, the decoration will be left to Party A free of charge.

4. Party A does not place the management under the property management company during the lease period. Party B is in charge of the maintenance and custody of the subject matter during the normal scope. Party A is responsible for the maintenance of the premises and facilities (such as leakage, cracks, deformation or settlement) not attributed to the reasons of Party B. Party A should offer active cooperation.

V. Rights and obligations of Party A:

1. Party A shall, according to the time and standard stipulated in the contract, hand over the rented property to Party B for use.

2. Party A has the right to receive rent according to the contract.

3. Party A has the right to inspect the use of the property rented by Party B, and Party B shall cooperate with Party A in the inspection. For the improper use by Party B, Party A shall have the right to make criticism and raise opinions for improvement.

4. During the lease period, Party A shall guarantee that the leased property complies with the relevant legal codes and standards on building and, in the case of reasonable use, ensure the safety of architectural structure of the subject matter.

5. Party A shall guarantee that the ownership of the subject matter belongs to Party A during the lease period.

6. Prior to the delivery of the subject matter for use, Party A is obliged to cooperate with Party B in improving necessary facilities for production and living such as electricity and water.

7. If the changes in land use rights (such as expropriation of land or relocation by the state) necessitate the termination of the lease contract during the lease period, the state and the governmental compensation for buildings belongs to Party A, and the compensation for all economic losses for the enterprise belongs to Party B. Party A shall return the rent to Party B according to the number of months for use. If change of land use right necessitates the termination of the lease contract prior or __________, Party A shall pay an additional 30% of annual rent as the equipment investment compensation and shutdown compensation for Party B before Party B moves out of the said leased premises.

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8. Party A shall not change the purpose of the leased premises and the corresponding land during the lease period without the consent of Party B.

9. During the lease period, Party A shall not terminate the contract and recover the room ahead of schedule without permission.

10. Party A must provide formal rent invoice for Party B within 30 days upon receiving the rent each time, with taxes and fees borne by Party A.

11. Party A is responsible for handling procedures for the examination and acceptance of firefighting facilities and environmental protection in production, with the relevant costs borne by Party A.

VI. Rights and obligations of Party B:

1. Party B shall pay the rent on time.

2. Party B solely bears the costs for water, electricity, and heating, etc. during the lease period.

3. Party B should inspect the quality and safety performance of the subject matter and the safety and soundness of the supporting facilities before moving into the premises.

4. Party B must engage in operations according to the law and make precautions against fire and burglary. If Party A or both parties incurs property damage due to the reasons of Party B, Party B bears the responsibility and indemnifies Party A against the corresponding loss.

5. In order to ensure the normal use of the factory during the lease, Party B should maintain normal maintenance and repair of the plant.

6. Party B has the right to sublease the property or look for co-rent or partners during the lease period, save that this must be filed with Party A for the record.

7. In any case, Party B shall not state to a third party, expressly or implicitly, that Party B has the right of ownership or disposal over the subject matter rented, nor mortgage the subject matter. In the event that Party B is involved in the disputes of creditor’s rights and debts or goes bankrupt, Party B shall clearly state that the subject matter of the lease is not related to the creditor’s rights and debts of Party B.

8. After the expiration of the lease term, Party B shall have the right of priority in renewal under the same conditions. The terms such as lease term, rent and mode of payment shall be negotiated and confirmed by both parties hereto within three months before the expiration of the contract, and the lease contract is separately signed.

  3  

 

9. If, during the lease period, Party B needs to terminate the contract in advance due to their own reasons, Party B must notify Party A three months in advance before cancelling the contract.

10. If Party B does not renew the contract at the expiry of the lease, Party B shall remove all items from the said property within thirty days. If the remaining goods are not disposed of within thirty days, it is deemed that Party B waives the ownership and Party A has the right to make disposal.

VII. Liability for breach of contract:

1. Party A shall deliver the property, roads and relevant supporting facilities (including the supporting facilities required by Party B) to Party B from the date of signing of the contract, and the lease period starts from the date after the representative of Party B has examined and accepted all equipment and facilities. Party A is not liable for breach of contract if it is overdue within 15 days. If it is overdue for more than 15 days, Party A shall pay to Party B the liquidated damages amounting to 0.3% of the annual rent for each overdue day.

2. If Party B falls into arrears with the rent, Party B shall pay to Party A the liquidated damages amounting to 0.1% of the annual rent for each overdue day.

3. Party A terminates the contract ahead of schedule without consultation with Party B is deemed as the breach of the contract, and the defaulting party shall pay to the observing party the liquidated damages amounting to 10% of the annual rent and the observing party shall have the right to terminate the contract.

VIII. Liability exemption condition:

Neither party is held responsible to the other party if the property is damaged due to the force majeure events such as floods, earthquakes, or war.

IX. Dispute resolution:

1. Any dispute arising from the performance of this contract should be resolved by the two parties through friendly consultations. If the negotiation fails, either party may take legal proceedings at the people’s court at the place where the real estate is located.

X. The original of this contract is made out in duplicate. Each party holds one copy of the same legal effect which enters into force as from the date of signing by both parties.

Lessor:   Lessee: Rider Sportsfashion Limited (Seal)
     
/s/ Songxiang Zhou   Date: October 18, 2016
Songxiang Zhou    
     
Date: October 18, 2016    

 

  4  

Exhibit 10.13

 

JAKROO INC.
2016 EQUITY INCENTIVE PLAN
 

1. Purpose . The purpose of the Jakroo Inc. 2016 Equity Incentive Plan is to provide a means through which the Company and its Affiliates may attract and retain key personnel and to provide a means whereby directors, officers, managers, employees, consultants and advisors (and prospective directors, officers, managers, employees, consultants and advisors) of the Company and its Affiliates can acquire and maintain an equity interest in the Company, or be paid incentive compensation, which may (but need not) be measured by reference to the value of Common Shares, thereby strengthening their commitment to the welfare of the Company and its Affiliates and aligning their interests with those of the Company’s stockholders.

 

2. Definitions . The following definitions shall be applicable throughout this Plan:

 

(a) “ Affiliate ” means (i) any person or entity that directly or indirectly controls, is controlled by or is under common control with the Company and/or (ii) to the extent provided by the Committee, any person or entity in which the Company has a significant interest as determined by the Committee in its discretion. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as applied to any person or entity, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting or other securities, by contract or otherwise.

 

(b) “ Award ” means, individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Stock Bonus Award and Performance Compensation Award granted under this Plan. An “ Award agreement ” means an agreement (including, without limitation, any employment or consulting agreement, as the case may be) memorializing an Award. An Award agreement may be in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company).

 

(c) “ Board ” means the Board of Directors of the Company.

 

(d) “ Business Combination ” has the meaning given such term in the definition of “Change in Control.”

 

(e) Business Day means any day other than a Saturday, a Sunday or a day on which banking institutions in New York City are authorized or obligated by federal law or executive order to be closed.

 

(f) “ Cause ” means, in the case of a particular Award, unless the applicable Award agreement states otherwise: (i) the Company or an Affiliate having “cause” to terminate a Participant’s employment or service, as defined in any employment or consulting agreement or similar document or policy between the Participant and the Company or an Affiliate in effect at the time of such termination or (ii) in the absence of any such employment or consulting agreement, document or policy (or the absence of any definition of “Cause” contained therein): (A) a continuing material breach or material default (including, without limitation, any material dereliction of duty) by Participant of any agreement between the Participant and the Company, except for any such breach or default which is caused by the physical disability of the Participant (as determined by a neutral physician), or a continuing failure by the Participant to follow the direction of a duly authorized representative of the Company; (B) gross negligence, willful misfeasance or breach of fiduciary duty by the Participant; (C) the commission by the Participant of an act of fraud, embezzlement or any felony or other crime of dishonesty in connection with the Participant’s duties; or (D) conviction of the Participant of a felony or any other crime that would materially and adversely affect: (i) the business reputation of the Company or (ii) the performance of the Participant’s duties to the Company. Any determination of whether Cause exists shall be made by the Committee in its sole discretion.

 

 

 

 

(g) “ Change in Control ” shall, in the case of a particular Award, unless the applicable Award agreement states otherwise or contains a different definition of “Change in Control,” be deemed to occur upon:

 

(i) An acquisition (whether directly from the Company or otherwise) of any voting securities of the Company (the “ Voting Securities ”) by any “Person” (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities and Exchange Act of 1934, as amended (the “ Exchange Act ”)), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of the combined voting power of the Company’s then outstanding Voting Securities.

 

(ii) The individuals who constitute the members of the Board cease, by reason of a financing, merger, combination, acquisition, takeover or other non-ordinary course transaction affecting the Company, to constitute at least fifty-one percent (51%) of the members of the Board; or

 

(iii) The consummation of any of the following events:

 

(A) A merger, consolidation or reorganization involving the Company, where either or both of the events described in clauses (i) or (ii) above would be the result;

 

(B) A liquidation or dissolution of or appointment of a receiver, rehabilitator, conservator or similar person for, or the filing by a third party of an involuntary bankruptcy against, the Company; provided, however, that to the extent necessary to comply with Section 409A of the Code, the occurrence of an event described in this subsection (B) shall not permit the settlement of Restricted Stock Units granted under this Plan; or

 

(C) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a subsidiary of the Company).

 

(h) “ Closing Price ” means (i) during such time as the Common Shares are registered under Section 12 of the Exchange Act, the closing price of the Common Shares as reported by an established stock exchange or automated quotation system on the day for which such value is to be determined, or, if no sale of the Common Shares shall have been made on any such stock exchange or automated quotation system that day, on the next preceding day on which there was a sale of such Common Shares, or (ii) during any such time as the Common Shares are not listed upon an established stock exchange or automated quotation system, the average “bid” and “ask” prices of the Common Shares in the over-the-counter market on the day for which such value is to be determined, as reported by the OTC Markets Group, Inc. (www.otcmarkets.com) or any successor or alternative recognized over-the-counter market or another inter-dealer quotation system, or (C) during any such time as the Common Shares cannot be valued pursuant to (i) or (ii) above, the fair market value shall be as determined by the Committee considering all relevant information including, by example and not by limitation, the most recent price at which Common Shares were issued to third party investors.

 

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(i) “ Code ” means the Internal Revenue Code of 1986, as amended, and any successor thereto. References in this Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulations or guidance.

 

(j) “ Committee ” means a committee of at least two people as the Board may appoint to administer this Plan or, if no such committee has been appointed by the Board, the Board. Unless altered by an action of the Board, the Committee shall be the Compensation Committee of the Board.

 

(k) “ Common Shares ” means the common stock, par value $.001 per share, of the Company (and any stock or other securities into which such common shares may be converted or into which they may be exchanged).

 

(l) “ Company ” means Jakroo Inc., a Nevada corporation, together with its successors and assigns.

 

(m) “ Date of Grant ” means the date on which the granting of an Award is authorized, or such other date as may be specified in such authorization.

 

(n) “ Disability ” means (unless the applicable Award, employment or consulting agreement between the Participant and the Company states otherwise) a “permanent and total” disability incurred by a Participant while in the employ of the Company or an Affiliate. For this purpose, a permanent and total disability shall mean that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months.

 

(o) “ Effective Date ” means the date this Plan is approved and adopted by the Board and the stockholders of the Company holding a majority of the outstanding Common Shares.

 

(p) “ Eligible Director ” means a person who is (i) a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act, and (ii) an “outside director” within the meaning of Section 162(m) of the Code.

 

(q) “ Eligible Person ” means any (i) individual employed by the Company or an Affiliate; provided , however , that no such employee covered by a collective bargaining agreement shall be an Eligible Person unless and to the extent that such eligibility is set forth in such collective bargaining agreement or in an agreement or instrument relating thereto; (ii) director of the Company or an Affiliate; (iii) consultant or advisor to the Company or an Affiliate, provided that if the Securities Act applies such persons must be eligible to be offered securities registrable on Form S-8 under the Securities Act; or (iv) prospective employees, directors, officers, consultants or advisors who have accepted offers of employment or consultancy from the Company or its Affiliates (and would satisfy the provisions of clauses (i) through (iii) above once he or she begins employment with or begins providing services to the Company or its Affiliates).

 

(r) “ Exchange Act ” has the meaning given such term in the definition of “Change in Control,” and any reference in this Plan to any section of (or rule promulgated under) the Exchange Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.

 

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(s) “ Exercise Price ” has the meaning given such term in Section 7(b) of this Plan.

 

(t) “ Fair Market Value ”, unless otherwise provided by the Committee in accordance with all applicable laws, rules regulations and standards, means, on a given date, (i) if the Common Shares (A) are listed on a national securities exchange or automated quotation system or (B) are not listed on a national securities exchange, but is quoted by the OTC Markets Group, Inc. (www.otcmarkets.com) or any successor or alternative recognized over-the-counter market or another inter-dealer quotation system, on a last sale basis, the average selling price of the Common Shares reported on such national securities exchange or other inter-dealer quotation system, determined as the arithmetic mean of such selling prices over the thirty (30)-Business Day period preceding the Date of Grant, weighted based on the volume of trading of such Common Shares on each trading day during such period; or (ii) if the Common Shares are not listed on a national securities exchange or quoted in an inter-dealer quotation system on a last sale basis, the amount determined by the Committee in good faith to be the fair market value of the Common Shares.

 

(u) “ Immediate Family Members ” shall have the meaning set forth in Section 15(b) of this Plan.

 

(v) “ Incentive Stock Option ” means an Option that is designated by the Committee as an incentive stock option as described in Section 422 of the Code and otherwise meets the requirements set forth in this Plan.

 

(w) “ Indemnifiable Person ” shall have the meaning set forth in Section 4(e) of this Plan.

 

(x) “IPO ” shall have the meaning set forth in Section 5(b) of this Plan.

 

(y) “ Negative Discretion ” shall mean the discretion authorized by this Plan to be applied by the Committee to eliminate or reduce the size of a Performance Compensation Award consistent with Section 162(m) of the Code.

 

(z) “ Nonqualified Stock Option ” means an Option that is not designated by the Committee as an Incentive Stock Option.

 

(aa) “ Option ” means an Award granted under Section 7 of this Plan.

 

(bb) “ Option Period ” has the meaning given such term in Section 7(c) of this Plan.

 

(cc) “ Participant ” means an Eligible Person who has been selected by the Committee to participate in this Plan and to receive an Award pursuant to Section 6 of this Plan.

 

(dd) “ Performance Compensation Award ” shall mean any Award designated by the Committee as a Performance Compensation Award pursuant to Section 11 of this Plan.

 

(ee) “ Performance Criteria ” shall mean the criterion or criteria that the Committee shall select for purposes of establishing the Performance Goal(s) for a Performance Period with respect to any Performance Compensation Award under this Plan.

 

(ff) “ Performance Formula ” shall mean, for a Performance Period, the one or more objective formulae applied against the relevant Performance Goal to determine, with regard to the Performance Compensation Award of a particular Participant, whether all, some portion but less than all, or none of the Performance Compensation Award has been earned for the Performance Period.

 

(gg) “ Performance Goals ” shall mean, for a Performance Period, the one or more goals established by the Committee for the Performance Period based upon the Performance Criteria.

 

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(hh) “ Performance Period ” shall mean the one or more periods of time, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance Compensation Award.

 

(ii) “ Permitted Transferee ” shall have the meaning set forth in Section 15(b) of this Plan.

 

(jj) “ Person ” has the meaning given such term in the definition of “Change in Control.”

 

(kk) “ Plan ” means this Jakroo Inc. 2016 Equity Incentive Plan, as amended from time to time.

 

(ll) “ Retirement ” means the fulfillment of each of the following conditions: (i) the Participant is in good standing with the Company as determined by the Committee; (ii) the voluntary termination by a Participant of such Participant’s employment or service to the Company and (B) that at the time of such voluntary termination, the sum of: (1) the Participant’s age (calculated to the nearest month, with any resulting fraction of a year being calculated as the number of months in the year divided by 12) and (2) the Participant’s years of employment or service with the Company (calculated to the nearest month, with any resulting fraction of a year being calculated as the number of months in the year divided by 12) equals at least 62 (provided that, in any case, the foregoing shall only be applicable if, at the time of Retirement, the Participant shall be at least 55 years of age and shall have been employed by or served with the Company for no less than 5 years).

 

(mm) “ Restricted Period ” means the period of time determined by the Committee during which an Award is subject to restrictions or, as applicable, the period of time within which performance is measured for purposes of determining whether an Award has been earned.

 

(nn) “ Restricted Stock Unit ” means an unfunded and unsecured promise to deliver Common Shares, cash, other securities or other property, subject to certain restrictions (including, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of this Plan.

 

(oo) “ Restricted Stock ” means Common Shares, subject to certain specified restrictions (including, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of this Plan.

 

(pp) “ SAR Period ” has the meaning given such term in Section 8(c) of this Plan.

 

(qq) “ Securities Act ” means the Securities Act of 1933, as amended, and any successor thereto. Reference in this Plan to any section of the Securities Act shall be deemed to include any rules, regulations or other official interpretative guidance under such section, and any amendments or successor provisions to such section, rules, regulations or guidance.

 

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(rr) “ Stock Appreciation Right ” or SAR means an Award granted under Section 8 of this Plan which meets all of the requirements of Section 1.409A-1(b)(5)(i)(B) of the Treasury Regulations.

 

(ss) “ Stock Bonus Award ” shall mean an Award granted under Section 10 of this Plan.

 

(tt) “ Strike Price ” means, except as otherwise provided by the Committee in the case of Substitute Awards, (i) in the case of a SAR granted in tandem with an Option, the Exercise Price of the related Option, or (ii) in the case of a SAR granted independent of an Option, the Fair Market Value on the Date of Grant.

 

(uu) “ Subsidiary ” means, with respect to any specified Person (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Outstanding Company Voting Securities (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (ii) any partnership or limited liability company (or any comparable foreign entity) (a) the sole general partner or managing member (or functional equivalent thereof) or the managing general partner of which is such Person or Subsidiary of such Person or (b) the only general partners or managing members (or functional equivalents thereof) of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).

 

(vv) “ Substitute Award ” has the meaning given such term in Section 5(e).

 

(ww) “ Treasury Regulations ” means any regulations, whether proposed, temporary or final, promulgated by the U.S. Department of Treasury under the Code, and any successor provisions.

 

3. Effective Date; Duration . The Plan shall be effective as of the Effective Date, but no Award shall be exercised or paid (or, in the case of a stock Award, shall be granted unless contingent on stockholder approval) unless and until this Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months after the date this Plan is adopted by the Board. The expiration date of this Plan, on and after which date no Awards may be granted hereunder, shall be the tenth anniversary of the Effective Date; provided , however , that such expiration shall not affect Awards then outstanding, and the terms and conditions of this Plan shall continue to apply to such Awards.

 

4. Administration .

 

(a) The Committee shall administer this Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act (if the Board is not acting as the Committee under this Plan) or necessary to obtain the exception for performance-based compensation under Section 162(m) of the Code, as applicable, it is intended that each member of the Committee shall, at the time he takes any action with respect to an Award under this Plan, be an Eligible Director. However, the fact that a Committee member shall fail to qualify as an Eligible Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under this Plan. The acts of a majority of the members present at any meeting at which a quorum is present or acts approved in writing by a majority of the Committee shall be deemed the acts of the Committee. Whether a quorum is present shall be determined based on the Committee’s charter as approved by the Board.

 

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(b) Subject to the provisions of this Plan and applicable law, the Committee shall have the sole and plenary authority, in addition to other express powers and authorizations conferred on the Committee by this Plan and its charter, to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of Common Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Common Shares, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, Common Shares, other securities, other Awards or other property and other amounts payable with respect to an Award; (vii) interpret, administer, reconcile any inconsistency in, settle any controversy regarding, correct any defect in and/or complete any omission in this Plan and any instrument or agreement relating to, or Award granted under, this Plan; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee shall deem appropriate for the proper administration of this Plan; (ix) accelerate the vesting or exercisability of, payment for or lapse of restrictions on, Awards; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of this Plan.

 

(c) The Committee may delegate to one or more officers of the Company or any Affiliate the authority to act on behalf of the Committee with respect to any matter, right, obligation, or election that is the responsibility of or that is allocated to the Committee herein, and that may be so delegated as a matter of law, except for grants of Awards to persons (i) subject to Section 16 of the Exchange Act or (ii) who are, or who are reasonably expected to be, “covered employees” for purposes of Section 162(m) of the Code.

 

(d) Unless otherwise expressly provided in this Plan, all designations, determinations, interpretations, and other decisions under or with respect to this Plan or any Award or any documents evidencing Awards granted pursuant to this Plan shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons or entities, including, without limitation, the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, and any stockholder of the Company.

 

(e) No member of the Board, the Committee, delegate of the Committee or any employee, advisor or agent of the Company or the Board or the Committee (each such person, an “ Indemnifiable Person ”) shall be liable for any action taken or omitted to be taken or any determination made in good faith with respect to this Plan or any Award hereunder. Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from (and the Company shall pay or reimburse on demand for) any loss, cost, liability, or expense (including attorneys’ fees) that may be imposed upon or incurred by such Indemnifiable Person in connection with or resulting from any action, suit or proceeding to which such Indemnifiable Person may be a party or in which such Indemnifiable Person may be involved by reason of any action taken or omitted to be taken under this Plan or any Award agreement and against and from any and all amounts paid by such Indemnifiable Person with the Company’s approval, in settlement thereof, or paid by such Indemnifiable Person in satisfaction of any judgment in any such action, suit or proceeding against such Indemnifiable Person, provided , that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Company’s choice. The foregoing right of indemnification shall not be available to an Indemnifiable Person to the extent that a final judgment or other final adjudication (in either case not subject to further appeal) binding upon such Indemnifiable Person determines that the acts or omissions of such Indemnifiable Person giving rise to the indemnification claim resulted from such Indemnifiable Person’s bad faith, fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by law or by the Company’s Certificate of Incorporation or Bylaws. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such Indemnifiable Persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any other power that the Company may have to indemnify such Indemnifiable Persons or hold them harmless.

 

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(f) Notwithstanding anything to the contrary contained in this Plan, the Board may, in its sole discretion, at any time and from time to time, grant Awards and administer this Plan with respect to such Awards. In any such case, the Board shall have all the authority granted to the Committee under this Plan.

 

5. Grant of Awards; Shares Subject to this Plan; Limitations .

 

(a) The Committee may, from time to time, grant Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Stock Bonus Awards and/or Performance Compensation Awards to one or more Eligible Persons.

 

(b) Subject to Sections 3, 11 and 12 of this Plan, the Committee is authorized to deliver under this Plan an aggregate of an amount equal to the less of: (i) 9,000,000 and (ii) twelve percent (12%) of the outstanding Common Shares following the final closing of the Offering. Each Common Share subject to an Option or a Stock Appreciation Right will reduce the number of Common Shares available for issuance by one share, and each Common Share underlying an Award of Restricted Stock, Restricted Stock Units, Stock Bonus Awards and Performance Compensation Awards will reduce the number of Common Shares available for issuance by 1.15 shares.

 

(c) Common Shares underlying Awards under this Plan that are forfeited, cancelled, expire unexercised, or are settled in cash shall be available again for Awards under this Plan at the same ratio at which they were previously granted. Notwithstanding the foregoing, the following Common Shares shall not be available again for Awards under the Plan: (i) shares tendered or held back upon the exercise of an Option or settlement of an Award to cover the Exercise Price of an Award; (ii) shares that are used or withheld to satisfy tax obligations of the Participant; and (iii) shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of the SAR upon exercise thereof.

 

(d) Common Shares delivered by the Company in settlement of Awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the open market or by private purchase, or a combination of the foregoing.

 

(e) Subject to compliance with Section 1.409A-3(f) of the Treasury Regulations, Awards may, in the sole discretion of the Committee, be granted under this Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity acquired by the Company or with which the Company combines (“ Substitute Awards ”). The number of Common Shares underlying any Substitute Awards shall be counted against the aggregate number of Common Shares available for Awards under this Plan.

 

(f) Notwithstanding any provision in the Plan to the contrary (but subject to adjustment as provided in Section 12), the Committee shall not grant to any one Eligible Person in any one calendar year Awards (i) for more than 1,500,000 Common Shares in the aggregate or (ii) payable in cash in an amount, when added to any cash fees paid by the Company as compensation to such Eligible Person, exceeding $2,500,000 in the aggregate.

 

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(g) Notwithstanding any provision in the Plan to the contrary (but subject to adjustment as provided in Section 12), the aggregate value of all compensation paid or granted, as applicable, to any individual for service as a non-employee director (as defined in Rule 16b-3(b)(3) of the Exchange Act) with respect to any calendar year, including Awards granted and any cash fees paid by the Company as compensation to such non-employee director, shall not exceed $300,000 in total value. For purposes of this Section 5(g), the value of the Awards shall be based on the grant date fair value of such Awards for financial reporting purposes.

 

6. Eligibility . Participation shall be limited to Eligible Persons who have entered into an Award agreement or who have received written notification from the Committee, or from a person designated by the Committee, that they have been selected to participate in this Plan.

 

7. Options .

 

(a) Generally . Each Option granted under this Plan shall be evidenced by an Award agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each Option so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with this Plan as may be reflected in the applicable Award agreement. All Options granted under this Plan shall be Nonqualified Stock Options unless the applicable Award agreement expressly states that the Option is intended to be an Incentive Stock Option. Notwithstanding any designation of an Option, to the extent that the aggregate Fair Market Value of Common Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company or any Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonqualified Stock Options. Incentive Stock Options shall be granted only to Eligible Persons who are employees of the Company and its Affiliates, and no Incentive Stock Option shall be granted to any Eligible Person who is ineligible to receive an Incentive Stock Option under the Code. No Option shall be treated as an Incentive Stock Option unless this Plan has been approved by the stockholders of the Company in a manner intended to comply with the stockholder approval requirements of Section 422(b)(1) of the Code, provided that any Option intended to be an Incentive Stock Option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such Option shall be treated as a Nonqualified Stock Option unless and until such approval is obtained. In the case of an Incentive Stock Option, the terms and conditions of such grant shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code. If for any reason an Option intended to be an Incentive Stock Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option or portion thereof shall be regarded as a Nonqualified Stock Option appropriately granted under this Plan.

 

(b) Exercise Price . The exercise price (“ Exercise Price ”) per Common Share for each Option shall not be less than 100% of the Fair Market Value of such share determined as of the Date of Grant; provided, however , that in the case of an Incentive Stock Option granted to an employee who, at the time of the grant of such Option, owns shares representing more than 10% of the voting power of all classes of shares of the Company or any Affiliate, the Exercise Price per share shall not be less than 110% of the Fair Market Value per share on the Date of Grant; and, provided further, that notwithstanding any provision herein to the contrary, the Exercise Price shall not be less than the par value per Common Share.

 

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(c) Vesting and Expiration . Options shall vest and become exercisable in such manner and on such date or dates determined by the Committee and as set forth in the applicable Award agreement, and shall expire after such period, not to exceed ten (10) years from the Date of Grant, as may be determined by the Committee (the “ Option Period ”); provided , however , that the Option Period shall not exceed five (5) years from the Date of Grant in the case of an Incentive Stock Option granted to a Participant who on the Date of Grant owns shares representing more than 10% of the voting power of all classes of shares of the Company or any Affiliate; and, provided , further , that notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any Option, which acceleration shall not affect the terms and conditions of such Option other than with respect to exercisability. Unless otherwise provided by the Committee in an Award agreement:

 

(i) an Option shall vest in three (3) equal annual installments beginning on the first (1 st ) anniversary of the Date of Grant and become exercisable with respect to 100% of the Common Shares subject to such Option on the third (3 rd ) anniversary of the Date of Grant;

 

(ii) the unvested portion of an Option shall expire upon termination of employment or service of the Participant granted the Option, and the vested portion of such Option shall remain exercisable for:

 

(A) one year following termination of employment or service by reason of such Participant’s death or Disability (with the determination of Disability to be made by the Committee on a case by case basis), but not later than the expiration of the Option Period;

 

(B) for directors, officers and employees of the Company only, for the remainder of the Option Period following termination of employment or service by reason of such Participant’s Retirement (it being understood that any Incentive Stock Option held by the Participant shall be treated as a Nonqualified Stock Option if exercise is not undertaken within 90 days of the date of Retirement);

 

(C) 90 calendar days following termination of employment or service for any reason other than such Participant’s death, Disability or Retirement, and other than such Participant’s termination of employment or service for Cause, but not later than the expiration of the Option Period; and

 

(iii) both the unvested and the vested portion of an Option shall immediately expire upon the termination of the Participant’s employment or service by the Company for Cause.

 

(d) Method of Exercise and Form of Payment . No Common Shares shall be delivered pursuant to any exercise of an Option until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company an amount equal to any federal, state, local and non-U.S. income and employment taxes required to be withheld. Options that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award agreement accompanied by payment of the Exercise Price. The Exercise Price shall be payable (i) in cash, check (subject to collection), cash equivalent and/or vested Common Shares valued at the Closing Price at the time the Option is exercised (including, pursuant to procedures approved by the Committee, by means of attestation of ownership of a sufficient number of Common Shares in lieu of actual delivery of such shares to the Company); provided , however, that such Common Shares are not subject to any pledge or other security interest and; (ii) by such other method as the Committee may permit in accordance with applicable law, in its sole discretion, including without limitation: (A) in other property having a fair market value (as determined by the Committee in its discretion) on the date of exercise equal to the Exercise Price or (B) if there is a public market for the Common Shares at such time, by means of a broker-assisted “cashless exercise” pursuant to which the Company is delivered a copy of irrevocable instructions to a stockbroker to sell the Common Shares otherwise deliverable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price or (C) by a “net exercise” method whereby the Company withholds from the delivery of the Common Shares for which the Option was exercised that number of Common Shares having a Closing Price equal to the aggregate Exercise Price for the Common Shares for which the Option was exercised. Any fractional Common Shares shall be settled in cash.

 

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(e) Notification Upon Disqualifying Disposition of an Incentive Stock Option . Each Participant awarded an Incentive Stock Option under this Plan shall notify the Company in writing immediately after the date he makes a disqualifying disposition of any Common Shares acquired pursuant to the exercise of such Incentive Stock Option. A “disqualifying disposition” is any disposition (including, without limitation, any sale) of such Common Shares before the later of (A) two years after the Date of Grant of the Incentive Stock Option or (B) one year after the date of exercise of the Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures established by the Committee, retain possession of any Common Shares acquired pursuant to the exercise of an Incentive Stock Option as agent for the applicable Participant until the end of the period described in the preceding sentence.

 

(f) Compliance With Laws, etc . Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a manner that the Committee determines would violate the Sarbanes-Oxley Act of 2002, if applicable, or any other applicable law or the applicable rules and regulations of the Securities and Exchange Commission or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded.

 

8. Stock Appreciation Rights .

 

(a) Generally . Each SAR granted under this Plan shall be evidenced by an Award agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each SAR so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with this Plan as may be reflected in the applicable Award agreement. Any Option granted under this Plan may include tandem SARs. The Committee also may award SARs to Eligible Persons independent of any Option.

 

(b) Exercise Price . The Exercise Price per Common Share for each SAR shall not be less than 100% of the Fair Market Value of such share determined as of the Date of Grant.

 

(c) Vesting and Expiration . A SAR granted in connection with an Option shall become exercisable and shall expire according to the same vesting schedule and expiration provisions as the corresponding Option. A SAR granted independent of an Option shall vest and become exercisable and shall expire in such manner and on such date or dates determined by the Committee and shall expire after such period, not to exceed ten years, as may be determined by the Committee (the “ SAR Period ”); provided, however , that notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any SAR, which acceleration shall not affect the terms and conditions of such SAR other than with respect to exercisability. Unless otherwise provided by the Committee in an Award agreement:

 

(i) a SAR shall vest in three (3) equal annual installments beginning on the first (1 st ) anniversary of the Date of Grant and become exercisable with respect to 100% of the Common Shares subject to such SAR on the third anniversary of the Date of Grant;

 

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(ii) the unvested portion of a SAR shall expire upon termination of employment or service of the Participant granted the SAR, and the vested portion of such SAR shall remain exercisable for:

 

(A) one year following termination of employment or service by reason of such Participant’s death or Disability (with the determination of Disability to be made by the Committee on a case by case basis), but not later than the expiration of the SAR Period;

 

(B) for directors, officers and employees of the Company only, for the remainder of the SAR Period following termination of employment or service by reason of such Participant’s Retirement;

 

(C) 90 calendar days following termination of employment or service for any reason other than such Participant’s death, Disability or Retirement, and other than such Participant’s termination of employment or service for Cause, but not later than the expiration of the SAR Period; and

 

(iii) both the unvested and the vested portion of a SAR shall expire immediately upon the termination of the Participant’s employment or service by the Company for Cause.

 

(d) Method of Exercise . SARs that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award, specifying the number of SARs to be exercised and the date on which such SARs were awarded. Notwithstanding the foregoing, if on the last day of the Option Period (or in the case of a SAR independent of an option, the SAR Period), the Closing Price exceeds the Strike Price, the Participant has not exercised the SAR or the corresponding Option (if applicable), and neither the SAR nor the corresponding Option (if applicable) has expired, such SAR shall be deemed to have been exercised by the Participant on such last day and the Company shall make the appropriate payment therefor.

 

(e) Payment . Upon the exercise of a SAR, the Company shall pay to the Participant an amount equal to the number of shares subject to the SAR that are being exercised multiplied by the excess, if any, of the Closing Price of one Common Share on the exercise date over the Strike Price, less an amount equal to any federal, state, local and non-U.S. income and employment taxes required to be withheld. The Company shall pay such amount in cash, in Common Shares valued at fair market value, or any combination thereof, as determined by the Committee. Any fractional Common Share shall be settled in cash.

 

9. Restricted Stock and Restricted Stock Units .

 

(a) Generally . Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each such grant shall be subject to the conditions set forth in this Section 9, and to such other conditions not inconsistent with this Plan as may be reflected in the applicable Award agreement.

 

(b) Restricted Accounts; Escrow or Similar Arrangement . Upon the grant of Restricted Stock, a book entry in a restricted account shall be established in the Participant’s name at the Company’s transfer agent and, if the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than held in such restricted account pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (i) an escrow agreement satisfactory to the Committee, if applicable, and (ii) the appropriate share power (endorsed in blank) with respect to the Restricted Stock covered by such agreement. If a Participant shall fail to execute an agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and blank share power within the amount of time specified by the Committee, the Award shall be null and void ab initio . Subject to the restrictions set forth in this Section 9 and the applicable Award agreement, the Participant generally shall have the rights and privileges of a stockholder as to such Restricted Stock, including without limitation the right to vote such Restricted Stock and the right to receive dividends, if applicable. To the extent shares of Restricted Stock are forfeited, any share certificates issued to the Participant evidencing such shares shall be returned to the Company, and all rights of the Participant to such shares and as a stockholder with respect thereto shall terminate without further obligation on the part of the Company.

 

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(c) Vesting; Acceleration of Lapse of Restrictions . Unless otherwise provided by the Committee in an Award agreement: (i) the Restricted Period shall lapse in three (3) equal annual installments beginning on the first (1 st ) anniversary of the Date of Grant and shall lapse with respect to 100% of the Restricted Stock and Restricted Stock Units on the third (3 rd ) anniversary of the Date of Grant; and (ii) the unvested portion of Restricted Stock and Restricted Stock Units shall terminate and be forfeited upon termination of employment or service of the Participant granted the applicable Award.

 

(d) Delivery of Restricted Stock and Settlement of Restricted Stock Units . (i) Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in the applicable Award agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award agreement. If an escrow arrangement is used, upon such expiration, the Company shall deliver to the Participant, or his beneficiary, without charge, the share certificate evidencing the shares of Restricted Stock that have not then been forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share). Dividends, if any, that may have been withheld by the Committee and attributable to any particular share of Restricted Stock shall be distributed to the Participant in cash or, at the sole discretion of the Committee, in Common Shares having a Closing Price equal to the amount of such dividends, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends (except as otherwise set forth by the Committee in the applicable Award agreement).

 

(ii) Unless otherwise provided by the Committee in an Award agreement, upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall deliver to the Participant, or his beneficiary, without charge, one Common Share for each such outstanding Restricted Stock Unit; provided , however , that the Committee may, in its sole discretion and subject to the requirements of Section 409A of the Code, elect to (i) pay cash or part cash and part Common Share in lieu of delivering only Common Shares in respect of such Restricted Stock Units or (ii) defer the delivery of Common Shares (or cash or part Common Shares and part cash, as the case may be) beyond the expiration of the Restricted Period if such delivery would result in a violation of applicable law until such time as is no longer the case. If a cash payment is made in lieu of delivering Common Shares, the amount of such payment shall be equal to the Closing Price of the Common Shares as of the date on which the Restricted Period lapsed with respect to such Restricted Stock Units, less an amount equal to any federal, state, local and non-U.S. income and employment taxes required to be withheld.

 

10. Stock Bonus Awards . The Committee may issue unrestricted Common Shares, or other Awards denominated in Common Shares, under this Plan to Eligible Persons, either alone or in tandem with other awards, in such amounts as the Committee shall from time to time in its sole discretion determine. Each Stock Bonus Award granted under this Plan shall be evidenced by an Award agreement. Each Stock Bonus Award so granted shall be subject to such conditions not inconsistent with this Plan as may be reflected in the applicable Award agreement.

 

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11. Performance Compensation Awards .

 

(a) Generally . The Committee shall have the authority, at the time of grant of any Award described in Sections 7 through 10 of this Plan, to designate such Award as a Performance Compensation Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code. The Committee shall have the authority to make an award of a cash bonus to any Participant and designate such Award as a Performance Compensation Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code.

 

(b) Discretion of Committee with Respect to Performance Compensation Awards . With regard to a particular Performance Period, the Committee shall have sole discretion to select the length of such Performance Period, the type(s) of Performance Compensation Awards to be issued, the Performance Criteria that will be used to establish the Performance Goal(s), the kind(s) and/or level(s) of the Performance Goals(s) that is (are) to apply and the Performance Formula. Within the first 90 calendar days of a Performance Period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code, if applicable), the Committee shall, with regard to the Performance Compensation Awards to be issued for such Performance Period, exercise its discretion with respect to each of the matters enumerated in the immediately preceding sentence and record the same in writing.

 

(c) Performance Criteria . The Performance Criteria that will be used to establish the Performance Goal(s) shall be based on the attainment of specific levels of performance of the Company and/or one or more Affiliates, divisions or operational units, or any combination of the foregoing, as determined by the Committee , which criteria will be based on one or more of the following business criteria: (i) revenue; (ii) sales; (iii) profit (net profit, gross profit, operating profit, economic profit, profit margins or other corporate profit measures); (iv) earnings (EBIT, EBITDA, earnings per share, or other corporate earnings measures); (v) net income (before or after taxes, operating income or other income measures); (vi) cash (cash flow, cash generation or other cash measures); (vii) stock price or performance; (viii) total stockholder return (stock price appreciation plus reinvested dividends divided by beginning share price); (ix) economic value added; (x) return measures (including, but not limited to, return on assets, capital, equity, investments or sales, and cash flow return on assets, capital, equity, or sales); (xi) market share; (xii) improvements in capital structure; (xiii) expenses (expense management, expense ratio, expense efficiency ratios or other expense measures); (xiv) business expansion or consolidation (acquisitions and divestitures); (xv) internal rate of return or increase in net present value; (xvi) working capital targets relating to inventory and/or accounts receivable; (xvii) inventory management; (xviii) service or product delivery or quality; (xix) customer satisfaction; (xx) employee retention; (xxi) safety standards; (xxii) productivity measures; (xxiii) cost reduction measures; and/or (xxiv) strategic plan development and implementation. Any one or more of the Performance Criteria adopted by the Committee may be used on an absolute or relative basis to measure the performance of the Company and/or one or more Affiliates as a whole or any business unit(s) of the Company and/or one or more Affiliates or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Criteria may be compared to the performance of a selected group of comparison companies, or a published or special index that the Committee, in its sole discretion, deems appropriate, or as compared to various stock market indices. The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of Performance Goals pursuant to the Performance Criteria specified in this paragraph. To the extent required under Section 162(m) of the Code, the Committee shall, within the first 90 calendar days of a Performance Period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code), define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period and thereafter promptly communicate such Performance Criteria to the Participant.

 

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(d) Modification of Performance Goal(s) . In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Criteria without obtaining stockholder approval of such alterations, the Committee shall have sole discretion to make such alterations without obtaining stockholder approval. The Committee is authorized at any time during the first 90 calendar days of a Performance Period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code, if applicable), or at any time thereafter to the extent the exercise of such authority at such time would not cause the Performance Compensation Awards granted to any Participant for such Performance Period to fail to qualify as “performance-based compensation” under Section 162(m) of the Code, in its sole discretion, to adjust or modify the calculation of a Performance Goal for such Performance Period, based on and in order to appropriately reflect the following events: (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results; (iv) any reorganization and restructuring programs; (v) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 (or any successor pronouncement thereto) and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year; (vi) acquisitions or divestitures; (vii) any other specific unusual or nonrecurring events, or objectively determinable category thereof; (viii) foreign exchange gains and losses; and (ix) a change in the Company’s fiscal year.

 

(e) Payment of Performance Compensation Awards .

 

(i) Condition to Receipt of Payment . Unless otherwise provided in the applicable Award agreement, a Participant must be employed by the Company on the last day of a Performance Period to be eligible for payment in respect of a Performance Compensation Award for such Performance Period.

 

(ii) Limitation . A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that: (A) the Performance Goals for such period are achieved; and (B) all or some of the portion of such Participant’s Performance Compensation Award has been earned for the Performance Period based on the application of the Performance Formula to such achieved Performance Goals.

 

(iii) Certification . Following the completion of a Performance Period, the Committee shall review and certify in writing whether, and to what extent, the Performance Goals for the Performance Period have been achieved and, if so, calculate and certify in writing that amount of the Performance Compensation Awards earned for the period based upon the Performance Formula. The Committee shall then determine the amount of each Participant’s Performance Compensation Award actually payable for the Performance Period and, in so doing, may apply Negative Discretion.

 

(iv) Use of Negative Discretion . In determining the actual amount of an individual Participant’s Performance Compensation Award for a Performance Period, the Committee may reduce or eliminate the amount of the Performance Compensation Award earned under the Performance Formula in the Performance Period through the use of Negative Discretion if, in its sole judgment, such reduction or elimination is appropriate. The Committee shall not have the discretion, except as is otherwise provided in this Plan, to (A) grant or provide payment in respect of Performance Compensation Awards for a Performance Period if the Performance Goals for such Performance Period have not been attained; or (B) increase a Performance Compensation Award above the applicable limitations set forth in Section 5 of this Plan.

 

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(f) Timing of Award Payments . Performance Compensation Awards granted for a Performance Period shall be paid to Participants as soon as administratively practicable following completion of the certifications required by this Section 11, but in no event later than two-and-one-half months following the end of the fiscal year during which the Performance Period is completed in order to comply with the short-term deferral rules under Section 1.409A-1(b)(4) of the Treasury Regulations. Notwithstanding the foregoing, payment of a Performance Compensation Award may be delayed, as permitted by Section 1.409A-2(b)(7)(i) of the Treasury Regulations, to the extent that the Company reasonably anticipates that if such payment were made as scheduled, the Company’s tax deduction with respect to such payment would not be permitted due to the application of Section 162(m) of the Code.

 

12. Changes in Capital Structure and Similar Events . In the event of (a) any dividend or other distribution (whether in the form of cash, Common Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, amalgamation, consolidation, split-up, split-off, combination, repurchase or exchange of Common Shares or other securities of the Company, issuance of warrants or other rights to acquire Common Shares or other securities of the Company, or other similar corporate transaction or event (including, without limitation, a Change in Control) that affects the Common Shares, or (b) unusual or nonrecurring events (including, without limitation, a Change in Control) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, such that in either case an adjustment is determined by the Committee in its sole discretion to be necessary or appropriate, then the Committee shall make any such adjustments that are equitable, including without limitation any or all of the following:

 

(i) adjusting any or all of (A) the number of Common Shares or other securities of the Company (or number and kind of other securities or other property) that may be delivered in respect of Awards or with respect to which Awards may be granted under this Plan (including, without limitation, adjusting any or all of the limitations under Section 5 of this Plan) and (B) the terms of any outstanding Award, including, without limitation, (1) the number of Common Shares or other securities of the Company (or number and kind of other securities or other property) subject to outstanding Awards or to which outstanding Awards relate, (2) the Exercise Price or Strike Price with respect to any Award or (3) any applicable performance measures (including, without limitation, Performance Criteria and Performance Goals);

 

(ii) providing for a substitution or assumption of Awards, accelerating the exercisability of, lapse of restrictions on, or termination of, Awards or providing for a period of time for exercise prior to the occurrence of such event; and

 

(iii) subject to the requirements of Section 409A of the Code, canceling any one or more outstanding Awards and causing to be paid to the holders thereof, in cash, Common Shares, other securities or other property, or any combination thereof, the value of such Awards, if any, as determined by the Committee (which if applicable may be based upon the price per Common Share received or to be received by other stockholders of the Company in such event), including without limitation, in the case of an outstanding Option or SAR, a cash payment in an amount equal to the excess, if any, of the fair market value (as of a date specified by the Committee) of the Common Shares subject to such Option or SAR over the aggregate Exercise Price or Strike Price of such Option or SAR, respectively (it being understood that, in such event, any Option or SAR having a per share Exercise Price or Strike Price equal to, or in excess of, the fair market value of a Common Share subject thereto may be canceled and terminated without any payment or consideration therefor);

 

provided , however , that in the case of any “equity restructuring” (within the meaning of the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004) or ASC Topic 718, or any successor thereto), the Committee shall make an equitable or proportionate adjustment to outstanding Awards to reflect such equity restructuring. Any adjustment in Incentive Stock Options under this Section 12 (other than any cancellation of Incentive Stock Options) shall be made only to the extent not constituting a “modification” within the meaning of Section 424(h)(3) of the Code, and any adjustments under this Section 12 shall be made in a manner that does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes.

 

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13. Effect of Change in Control . Except to the extent otherwise provided in an Award agreement, in the event of a Change in Control, notwithstanding any provision of this Plan to the contrary, with respect to all or any portion of a particular outstanding Award or Awards:

 

(a) all of the then outstanding Options and SARs shall immediately vest and become immediately exercisable as of a time prior to the Change in Control;

 

(b) the Restricted Period shall expire as of a time prior to the Change in Control (including without limitation a waiver of any applicable Performance Goals);

 

(c) Performance Periods in effect on the date the Change in Control occurs shall end on such date, and the Committee shall (i) determine the extent to which Performance Goals with respect to each such Performance Period have been met based upon such audited or unaudited financial information or other information then available as it deems relevant and (ii) cause the Participant to receive partial or full payment of Awards for each such Performance Period based upon the Committee’s determination of the degree of attainment of the Performance Goals, or assuming that the applicable “target” levels of performance have been attained or on such other basis determined by the Committee.

 

To the extent practicable, any actions taken by the Committee under the immediately preceding clauses (a) through (c) shall occur in a manner and at a time which allows affected Participants the ability to participate in the Change in Control transactions with respect to the Common Shares subject to their Awards.

 

14. Amendments and Termination .

 

(a) Amendment and Termination of this Plan . The Board may amend, alter, suspend, discontinue, or terminate this Plan or any portion thereof at any time; provided , that (i) no amendment to the definition of Eligible Employee in Section 2, Section 5(i), Section 11(c) or Section 14(b) (to the extent required by the proviso in such Section 14(b)) shall be made without stockholder approval and (ii) no such amendment, alteration, suspension, discontinuation or termination shall be made without stockholder approval if such approval is necessary to comply with any tax or regulatory requirement applicable to this Plan (including, without limitation, as necessary to comply with any rules or requirements of any securities exchange or inter-dealer quotation system on which the Common Shares may be listed or quoted or to prevent the Company from being denied a tax deduction under Section 162(m) of the Code); and, provided , further , that any such amendment, alteration, suspension, discontinuance or termination that would materially and adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the prior written consent of the affected Participant, holder or beneficiary.

 

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(b) Amendment of Award Agreements . The Committee may, to the extent consistent with the terms of any applicable Award agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the associated Award agreement, prospectively or retroactively; provided, however that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any Participant with respect to any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant; and, provided , further , that without stockholder approval, except as otherwise permitted under Section 12 of this Plan, (i) no amendment or modification may reduce the Exercise Price of any Option or the Strike Price of any SAR, (ii) the Committee may not cancel any outstanding Option or SAR and replace it with a new Option or SAR, another Award or cash or take any action that would have the effect of treating such Award as a new Award for tax or accounting purposes and (iii) the Committee may not take any other action that is considered a “repricing” for purposes of the stockholder approval rules of the applicable securities exchange or inter-dealer quotation system on which the Common Shares are listed or quoted.

 

15. General .

 

(a) Award Agreements . Each Award under this Plan shall be evidenced by an Award agreement, which shall be delivered to the Participant and shall specify the terms and conditions of the Award and any rules applicable thereto, including without limitation, the effect on such Award of the death, Disability or termination of employment or service of a Participant, or of such other events as may be determined by the Committee. The Company’s failure to specify any term of any Award in any particular Award agreement shall not invalidate such term, provided such terms was duly adopted by the Board or the Committee.

 

(b) Nontransferability; Trading Restrictions .

 

(i) Each Award shall be exercisable only by a Participant during the Participant’s lifetime, or, if permissible under applicable law, by the Participant’s legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or an Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.

 

(ii) Notwithstanding the foregoing, the Committee may, in its sole discretion, permit Awards (other than Incentive Stock Options) to be transferred by a Participant, with or without consideration, subject to such rules as the Committee may adopt consistent with any applicable Award agreement to preserve the purposes of this Plan, to: (A) any person who is a “family member” of the Participant, as such term is used in the instructions to Form S-8 under the Securities Act (collectively, the “ Immediate Family Members ”); (B) a trust solely for the benefit of the Participant and his or her Immediate Family Members; or (C) a partnership or limited liability company whose only partners or stockholders are the Participant and his or her Immediate Family Members; or (D) any other transferee as may be approved either (I) by the Board or the Committee in its sole discretion, or (II) as provided in the applicable Award agreement (each transferee described in clauses (A), (B) (C) and (D) above is hereinafter referred to as a “ Permitted Transferee ”); provided, that the Participant gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Participant in writing that such a transfer would comply with the requirements of this Plan.

 

(iii) The terms of any Award transferred in accordance with the immediately preceding sentence shall apply to the Permitted Transferee and any reference in this Plan, or in any applicable Award agreement, to a Participant shall be deemed to refer to the Permitted Transferee, except that (A) Permitted Transferees shall not be entitled to transfer any Award, other than by will or the laws of descent and distribution; (B) Permitted Transferees shall not be entitled to exercise any transferred Option unless there shall be in effect a registration statement on an appropriate form covering the Common Shares to be acquired pursuant to the exercise of such Option if the Committee determines, consistent with any applicable Award agreement, that such a registration statement is necessary or appropriate; (C) the Committee or the Company shall not be required to provide any notice to a Permitted Transferee, whether or not such notice is or would otherwise have been required to be given to the Participant under this Plan or otherwise; and (D) the consequences of the termination of the Participant’s employment by, or services to, the Company or an Affiliate under the terms of this Plan and the applicable Award agreement shall continue to be applied with respect to the Participant, including, without limitation, that an Option shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in this Plan and the applicable Award agreement.

 

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(iv) The Committee shall have the right, either on an Award-by-Award basis or as a matter of policy for all Awards or one or more classes of Awards, to condition the delivery of vested Common Shares received in connection with such Award on the Participant’s agreement to such restrictions as the Committee may determine.

 

(c) Tax Withholding .

 

(i) A Participant shall be required to pay to the Company or any Affiliate, or the Company or any Affiliate shall have the right and is hereby authorized to withhold, from any cash, Common Shares, other securities or other property deliverable under any Award or from any compensation or other amounts owing to a Participant, the amount (in cash, Common Shares, other securities or other property) of any required withholding taxes in respect of an Award, its exercise, or any payment or transfer under an Award or under this Plan and to take such other action as may be necessary in the opinion of the Committee or the Company to satisfy all obligations for the payment of such withholding and taxes.

 

(ii) Without limiting the generality of clause (i) above, the Committee may, in its sole discretion, permit a Participant to satisfy, in whole or in part, the foregoing withholding liability by (A) the delivery of Common Shares (which are not subject to any pledge or other security interest) owned by the Participant having a fair market value equal to such withholding liability or (B) having the Company withhold from the number of Common Shares otherwise issuable or deliverable pursuant to the exercise or settlement of the Award a number of shares with a fair market value equal to such withholding liability (but no more than the minimum required statutory withholding liability).

 

(d) No Claim to Awards; No Rights to Continued Employment; Waiver . No employee of the Company or an Affiliate, or other person, shall have any claim or right to be granted an Award under this Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither this Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ or service of the Company or an Affiliate, nor shall it be construed as giving any Participant any rights to continued service on the Board. The Company or any of its Affiliates may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under this Plan, unless otherwise expressly provided in this Plan or any Award agreement. By accepting an Award under this Plan, a Participant shall thereby be deemed to have waived any claim to continued exercise or vesting of an Award or to damages or severance entitlement related to non-continuation of the Award beyond the period provided under this Plan or any Award agreement, notwithstanding any provision to the contrary in any written employment contract or other agreement between the Company and its Affiliates and the Participant, whether any such agreement is executed before, on or after the Date of Grant.

 

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(e) International Participants . With respect to Participants who reside or work outside of the United States of America and who are not (and who are not expected to be) “covered employees” within the meaning of Section 162(m) of the Code, the Committee may in its sole discretion amend the terms of this Plan or outstanding Awards (or establish a sub-plan) with respect to such Participants in order to conform such terms with the requirements of local law or to obtain more favorable tax or other treatment for a Participant, the Company or its Affiliates.

 

(f) Designation and Change of Beneficiary . Each Participant may file with the Committee a written designation of one or more persons as the beneficiary(ies) who shall be entitled to receive the amounts payable with respect to an Award, if any, due under this Plan upon his or her death. A Participant may, from time to time, revoke or change his or her beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation filed with the Committee shall be controlling; provided , however , that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant’s death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by a Participant, the beneficiary shall be deemed to be his or her spouse or, if the Participant is unmarried at the time of death, his or her estate. Upon the occurrence of a Participant’s divorce (as evidenced by a final order or decree of divorce), any spousal designation previously given by such Participant shall automatically terminate.

 

(g) Termination of Employment/Service . Unless determined otherwise by the Committee at any point following such event: (i) neither a temporary absence from employment or service due to illness, vacation or leave of absence nor a transfer from employment or service with the Company to employment or service with an Affiliate (or vice-versa) shall be considered a termination of employment or service with the Company or an Affiliate; and (ii) if a Participant’s employment with the Company and its Affiliates terminates, but such Participant continues to provide services to the Company and its Affiliates in a non-employee capacity (or vice-versa), such change in status shall not be considered a termination of employment with the Company or an Affiliate.

 

(h) No Rights as a Stockholder . Except as otherwise specifically provided in this Plan or any Award agreement, no person shall be entitled to the privileges of ownership in respect of Common Shares that are subject to Awards hereunder until such shares have been issued or delivered to that person.

 

(i) Government and Other Regulations .

 

(i) The obligation of the Company to settle Awards in Common Shares or other consideration shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling, any Common Shares pursuant to an Award unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel, satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale under the Securities Act any of the Common Shares to be offered or sold under this Plan. The Committee shall have the authority to provide that all certificates for Common Shares or other securities of the Company or any Affiliate delivered under this Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under this Plan, the applicable Award agreement, the federal securities laws, or the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or inter-dealer quotation system upon which such shares or other securities are then listed or quoted and any other applicable federal, state, local or non-U.S. laws, and, without limiting the generality of Section 9 of this Plan, the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. Notwithstanding any provision in this Plan to the contrary, the Committee reserves the right to add any additional terms or provisions to any Award granted under this Plan that it in its sole discretion deems necessary or advisable in order that such Award complies with the legal requirements of any governmental entity to whose jurisdiction the Award is subject.

 

  20  

 

 

(ii) The Committee may cancel an Award or any portion thereof if it determines, in its sole discretion, that legal or contractual restrictions and/or blockage and/or other market considerations would make the Company’s acquisition of Common Shares from the public markets, the Company’s issuance of Common Shares to the Participant, the Participant’s acquisition of Common Shares from the Company and/or the Participant’s sale of Common Shares to the public markets, illegal, impracticable or inadvisable. If the Committee determines to cancel all or any portion of an Award in accordance with the foregoing, unless doing so would violate Section 409A of the Code, the Company shall pay to the Participant an amount equal to the excess of (A) the aggregate fair market value of the Common Shares subject to such Award or portion thereof canceled (determined as of the applicable exercise date, or the date that the shares would have been vested or delivered, as applicable), over (B) the aggregate Exercise Price or Strike Price (in the case of an Option or SAR, respectively) or any amount payable as a condition of delivery of Common Shares (in the case of any other Award). Such amount shall be delivered to the Participant as soon as practicable following the cancellation of such Award or portion thereof. The Committee shall have the discretion to consider and take action to mitigate the tax consequence to the Participant in cancelling an Award in accordance with this clause.

 

(j) Payments to Persons Other Than Participants . If the Committee shall find that any person to whom any amount is payable under this Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.

 

(k) Nonexclusivity of this Plan . Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options or other equity-based awards otherwise than under this Plan, and such arrangements may be either applicable generally or only in specific cases.

 

(l) No Trust or Fund Created . Neither this Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate, on the one hand, and a Participant or other person or entity, on the other hand. No provision of this Plan or any Award shall require the Company, for the purpose of satisfying any obligations under this Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under this Plan other than as general unsecured creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under general law.

 

  21  

 

 

(m) Reliance on Reports . Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act, as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any report made by the independent public accountant of the Company and its Affiliates and/or any other information furnished in connection with this Plan by any agent of the Company or the Committee or the Board, other than himself.

 

(n) Relationship to Other Benefits . No payment under this Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company except as otherwise specifically provided in such other plan.

 

(o) Governing Law . The Plan shall be governed by and construed in accordance with the internal laws of the State of Nevada, without giving effect to the conflict of laws provisions.

 

(p) Severability . If any provision of this Plan or any Award or Award agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any person or entity or Award, or would disqualify this Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws in the manner that most closely reflects the original intent of the Award or the Plan, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of this Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, person or entity or Award and the remainder of this Plan and any such Award shall remain in full force and effect.

 

(q) Obligations Binding on Successors . The obligations of the Company under this Plan shall be binding upon any successor corporation or organization resulting from the merger, amalgamation, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.

 

(r) Code Section 162(m) Approval . If so determined by the Committee, the provisions of this Plan regarding Performance Compensation Awards shall be disclosed and reapproved by stockholders no later than the first stockholder meeting that occurs in the fifth year following the year in which stockholders previously approved such provisions, in each case in order for certain Awards granted after such time to be exempt from the deduction limitations of Section 162(m) of the Code. Nothing in this clause, however, shall affect the validity of Awards granted after such time if such stockholder approval has not been obtained.

 

(s) Expenses; Gender; Titles and Headings . The expenses of administering this Plan shall be borne by the Company and its Affiliates. Masculine pronouns and other words of masculine gender shall refer to both men and women. The titles and headings of the sections in this Plan are for convenience of reference only, and in the event of any conflict, the text of this Plan, rather than such titles or headings shall control.

 

(t) Other Agreements . Notwithstanding the above, the Committee may require, as a condition to the grant of and/or the receipt of Common Shares under an Award, that the Participant execute lock-up, stockholder or other agreements, as it may determine in its sole and absolute discretion.

 

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(u) Section 409A. The Plan and all Awards granted hereunder are intended to comply with, or otherwise be exempt from, the requirements of Section 409A of the Code. The Plan and all Awards granted under this Plan shall be administered, interpreted, and construed in a manner consistent with Section 409A of the Code to the extent necessary to avoid the imposition of additional taxes under Section 409A(a)(1)(B) of the Code. Notwithstanding anything in this Plan to the contrary, in no event shall the Committee exercise its discretion to accelerate the payment or settlement of an Award where such payment or settlement constitutes deferred compensation within the meaning of Section 409A of the Code unless, and solely to the extent that, such accelerated payment or settlement is permissible under Section 1.409A-3(j)(4) of the Treasury Regulations. If a Participant is a “specified employee” (within the meaning of Section 1.409A-1(i) of the Treasury Regulations) at any time during the twelve (12)-month period ending on the date of his termination of employment, and any Award hereunder subject to the requirements of Section 409A of the Code is to be satisfied on account of the Participant’s termination of employment, satisfaction of such Award shall be suspended until the date that is six (6) months after the date of such termination of employment.

 

(v) Payments . Participants shall be required to pay, to the extent required by applicable law, any amounts required to receive Common Shares under any Award made under this Plan.

 

*      *      *

 

As adopted by the Board on January 5, 2017.

 

As approved by the holders of a majority of the outstanding Common Shares on January 5, 2017.

 

 

23

 

Exhibit 10.14

 

SUBSCRIPTION AGREEMENT

 

JAKROO INC.

 

1. SUBSCRIPTION .

 

Subject to the terms and conditions hereinafter set forth, the undersigned purchaser (the “Purchaser”) hereby subscribes for and agrees to purchase 8,633,000 shares (the “Shares”) of common stock, par value $0.001 per share, of Jakroo Inc., a Nevada corporation (the “Company”), and agrees to contribute to the Company a cash amount of $0.001 per share or total cash consideration of $8,633.00 (the “Purchase Price”), payable upon execution and delivery of this agreement in immediately available funds to an account designated by the Company.

 

2. REPRESENTATIONS AND WARRANTIES . The Purchaser hereby represents to the Company as follows:

 

(a)      The Purchaser recognizes that the purchase of the Shares is extremely speculative and involves a high degree of risk. Such risks include, among others: (i) the Company’s present lack of operations or assets; (ii) limited liquidity of Purchaser's Shares; (iii) limited transferability of the Shares; and (iv) the potential for sustaining a loss, including a loss of its entire investment in the Shares. Purchaser is capable of bearing the economic impact of such loss.

 

(b)       The Purchaser has been advised of and acknowledges that (i) there is currently no market for the Shares being purchased herein, and no assurances can be given that any market will develop; and (ii) the Purchaser may not be able to liquidate this investment.

 

(c)       The Purchaser has such knowledge and experience in financial and business matters that the Purchaser is capable of evaluating the merits and risks of an investment in the Company.

 

(d)       The Purchaser has been furnished by the Company during the course of Purchaser’s evaluation of an investment in the Shares with all information regarding the Company which the Purchaser has requested or desired to know and that the Purchaser has had access to all material information concerning the Company and has been afforded the opportunity to ask questions of and receive answers from duly authorized officers and/or other representatives of the Company and any additional information which the Purchaser had requested.

 

 

 

 

(e)       The Purchaser hereby acknowledges that the Purchaser has been advised that the offer of the Shares by the Company has not been registered with, or reviewed by, the Securities and Exchange Commission (the “SEC”) because such offer is intended to be a non-public offering pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), or applicable regulations thereunder. The Purchaser represents that the Shares are being purchased for the Purchaser's own account, for investment purposes only and not with a view towards distribution or resale to others. The Purchaser agrees that the Purchaser will not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any portion of the Shares unless they are registered under the Securities Act or unless in the opinion of counsel satisfactory to the Company an exemption from such registration is available. The Purchaser understands and agrees that the following restriction and limitation is applicable to the Purchaser's investment in the Shares pursuant to Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder (“Regulation D”) and that certificates evidencing the Shares will bear the following restrictive legend:

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.

 

(f)        The Purchaser is not acquiring the Shares as a result of any form of general solicitation or general advertising as those terms are used in Regulation D, including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media or broadcast over television, radio or Internet or any seminar or meeting where the Purchaser was invited by general solicitation or general advertising.

 

(g)      The execution, delivery and performance by the Purchaser of the Subscription Agreement are within the powers of the Purchaser, have been duly authorized and will not constitute or result in a breach or default under, or conflict with, any order, ruling or regulation of any court or other tribunal or of any governmental commission or agency, or any agreement or other undertaking, to which the Purchaser is a party or by which the Purchaser is bound. The signatures on the Subscription Agreement are genuine; the Purchaser has legal competence and capacity to execute the same and the Subscription Agreement constitutes the legal, valid and binding obligations of the Purchaser, enforceable in accordance with its terms.

 

(f)        The Purchaser is an “accredited investor” within the meaning of the Regulation D.

 

The foregoing representations and warranties are true and accurate as of the date hereof and shall survive the issuance and delivery of the Shares. If, in any respect, those representations and warranties shall not be true and accurate prior to delivery of the payment pursuant to Paragraph 1, the undersigned shall immediately give written notice to the Company specifying which representations and warranties are not true and accurate and the reason therefor. It is specifically understood and agreed by the Purchaser that neither the Company nor its officers or directors has made, nor by this Subscription Agreement shall be construed to make, directly or indirectly, explicitly or by implication, any representation, warranty, projection, assumption, promise, covenant, opinion, recommendation or other statement of any kind or nature with respect to the anticipated operations, investment returns, cash flows, profits or losses of the Company.

 

3. MISCELLANEOUS .

 

(a)       This Subscription Agreement shall not be changed, modified or amended except by a writing signed by the parties to be charged, and this Agreement may not be discharged except by performance in accordance with its terms or by a writing signed by the party to be charged.

 

(b)       This Subscription Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, legal representatives, successors and assigns. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any kind and every nature among them.

 

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(c)       This Subscription Agreement shall be governed by the laws of the state of Nevada exclusive of its conflict of laws provisions.

 

(d)       This Subscription Agreement may be executed in counterparts, all of which taken together shall constitute one agreement binding on all the parties notwithstanding that all the parties are not signatories to the original or the same counterpart. Delivery between the parties hereto of a counterpart by facsimile or other electronic transmission shall not in any way impair the validity of such counterpart, and any counterpart so delivered shall be valid and binding as if an original.

 

IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement on the day set forth below.

 

Kustellar LLC          Tax ID Number
     
By: /s/ Weidong Du  
  Name: Weidong Du  
  Title:   Member  

 

April 25, 2016   228 Kuss Road, Danvelle, CA 94526
Date                           Address

 

ACCEPTED AND AGREED:  
     
JAKROO INC.  
     
By: /s/ Weidong Du  
  Name: Weidong Du  
  Title:   President  

 

 

 3

 

 

Exhibit 10.15

 

SUBSCRIPTION AGREEMENT

 

JAKROO INC.

 

1. SUBSCRIPTION .

 

Subject to the terms and conditions hereinafter set forth, the undersigned purchaser (the “Purchaser”) hereby subscribes for and agrees to purchase 1,067,000 shares (the “Shares”) of common stock, par value $0.001 per share, of Jakroo Inc., a Nevada corporation (the “Company”), and agrees to contribute to the Company a cash amount of $0.001 per share or total cash consideration of $1,067.00 (the “Purchase Price”), payable upon execution and delivery of this agreement in immediately available funds to an account designated by the Company.

 

2. REPRESENTATIONS AND WARRANTIES . The Purchaser hereby represents to the Company as follows:

 

(a)        The Purchaser recognizes that the purchase of the Shares is extremely speculative and involves a high degree of risk. Such risks include, among others: (i) the Company’s present lack of operations or assets; (ii) limited liquidity of Purchaser's Shares; (iii) limited transferability of the Shares; and (iv) the potential for sustaining a loss, including a loss of its entire investment in the Shares. Purchaser is capable of bearing the economic impact of such loss.

 

(b)       The Purchaser has been advised of and acknowledges that (i) there is currently no market for the Shares being purchased herein, and no assurances can be given that any market will develop; and (ii) the Purchaser may not be able to liquidate this investment.

 

(c)       The Purchaser has such knowledge and experience in financial and business matters that the Purchaser is capable of evaluating the merits and risks of an investment in the Company.

 

(d)       The Purchaser has been furnished by the Company during the course of Purchaser’s evaluation of an investment in the Shares with all information regarding the Company which the Purchaser has requested or desired to know and that the Purchaser has had access to all material information concerning the Company and has been afforded the opportunity to ask questions of and receive answers from duly authorized officers and/or other representatives of the Company and any additional information which the Purchaser had requested.

 

(e)        The Purchaser hereby acknowledges that the Purchaser has been advised that the offer of the Shares by the Company has not been registered with, or reviewed by, the Securities and Exchange Commission (the “SEC”) because such offer is intended to be a non-public offering pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), or applicable regulations thereunder. The Purchaser represents that the Shares are being purchased for the Purchaser's own account, for investment purposes only and not with a view towards distribution or resale to others. The Purchaser agrees that the Purchaser will not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any portion of the Shares unless they are registered under the Securities Act or unless in the opinion of counsel satisfactory to the Company an exemption from such registration is available. The Purchaser understands and agrees that the following restriction and limitation is applicable to the Purchaser's investment in the Shares pursuant to Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder (“Regulation D”) and that certificates evidencing the Shares will bear the following restrictive legend:

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.

 

 

 

 

(f)        The Purchaser is not acquiring the Shares as a result of any form of general solicitation or general advertising as those terms are used in Regulation D, including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media or broadcast over television, radio or Internet or any seminar or meeting where the Purchaser was invited by general solicitation or general advertising.

 

(g)        The execution, delivery and performance by the Purchaser of the Subscription Agreement are within the powers of the Purchaser, have been duly authorized and will not constitute or result in a breach or default under, or conflict with, any order, ruling or regulation of any court or other tribunal or of any governmental commission or agency, or any agreement or other undertaking, to which the Purchaser is a party or by which the Purchaser is bound. The signatures on the Subscription Agreement are genuine; the Purchaser has legal competence and capacity to execute the same and the Subscription Agreement constitutes the legal, valid and binding obligations of the Purchaser, enforceable in accordance with its terms.

 

(f)       The Purchaser is an “accredited investor” within the meaning of the Regulation D.

 

The foregoing representations and warranties are true and accurate as of the date hereof and shall survive the issuance and delivery of the Shares. If, in any respect, those representations and warranties shall not be true and accurate prior to delivery of the payment pursuant to Paragraph 1, the undersigned shall immediately give written notice to the Company specifying which representations and warranties are not true and accurate and the reason therefor. It is specifically understood and agreed by the Purchaser that neither the Company nor its officers or directors has made, nor by this Subscription Agreement shall be construed to make, directly or indirectly, explicitly or by implication, any representation, warranty, projection, assumption, promise, covenant, opinion, recommendation or other statement of any kind or nature with respect to the anticipated operations, investment returns, cash flows, profits or losses of the Company.

 

3. MISCELLANEOUS .

 

(a)        This Subscription Agreement shall not be changed, modified or amended except by a writing signed by the parties to be charged, and this Agreement may not be discharged except by performance in accordance with its terms or by a writing signed by the party to be charged.

 

(b)        This Subscription Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, legal representatives, successors and assigns. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any kind and every nature among them.

 

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(c)        This Subscription Agreement shall be governed by the laws of the state of Nevada exclusive of its conflict of laws provisions.

 

(d)       This Subscription Agreement may be executed in counterparts, all of which taken together shall constitute one agreement binding on all the parties notwithstanding that all the parties are not signatories to the original or the same counterpart. Delivery between the parties hereto of a counterpart by facsimile or other electronic transmission shall not in any way impair the validity of such counterpart, and any counterpart so delivered shall be valid and binding as if an original.

 

IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement on the day set forth below.

  

Custom Apparel Limited

  

By: /s/ Li Wen   Tax ID Number  
  Name: Li Wen    
  Title:   Director    

 

April 22, 2016   Sertus Chambers, P.O. Box 905, Quastisky Building,
Road Town, Tortola, British Virgin Islands
Date                                   Address

 

ACCEPTED AND AGREED:

 

JAKROO INC.

 

By: /s/ Weidong Du  
  Name: Weidong Du  
  Title:   President  

 

 

3

 

 

Exhibit 10.16

 

SHARE PURCHASE AGREEMENT

 

THE SHARE PURCHASE AGREEMENT (the “ Agreement ”) is made and entered into as of May 30, 2016 by and among:

 

1. Jakroo Inc., a company duly incorporated and validly existing under the laws of the State of Nevada, U.S.A (the “ Company ”);

 

2. Kustellar LLC, a company duly incorporated and validly existing under the laws of the State of California, U.S.A., which is owned by Weidong Du and Wei Tan; Custom Apparel Limited, a company duly incorporated and validly existing under the laws of the British Virgin Islands, which is owned by Guichun Liu, Wen Li and Hao Wang (collectively, the “ Holding Companies ” and, individually, the “ Holding Company ”);

 

3. Weidong Du, Wei Tan, Guichun Liu and Wen Li, Hao Wang each of whom is a citizen of the PRC (collectively, the “ Founders ” and, individually, a “ Founder ”);

 

4. Rider Sportsfashion Limited, a company duly incorporated and validly existing under the laws of the PRC (the “ Domestic Enterprise ”); and

 

5. London Financial Group Ltd., a company duly incorporated and validly existing under the laws of the British Virgin Islands (the “ Subscriber ”).

 

  6. The Company, the Holding Companies and the Domestic Enterprise hereinafter shall be referred to collectively as the “ Group Companies ” and, individually, as a “ Group Company .”

 

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RECITALS

 

A.       The Domestic Enterprise is a limited liability company established on March 7, 2003 under the laws of the PRC. Weidong Du, Wei Tan, Guichun Liu, Wen Li and Hao Wang collectively own 100% of the equity interests of the Domestic Enterprise as of the date of this Agreement;

 

B.       The group companies are in the process of completing the following restructuring: (i) the Founders have applied for the approvals and registration required by the State Administration of Foreign Exchange (the “ SAFE ”) under the Notice of the State Administration of Foreign Exchange on Issues concerning Foreign Exchange Administration of the Overseas Investment and Financing and the Round-tripping Investment Made by Domestic Residents through Special-Purpose Companies (the “ SAFE Circular 37 ”); (ii) the Company intends to establish a wholly foreign owned enterprise (“ WFOE ”), taking on the consulting service with regard to the manufacture and sale of sporting clothing and equipment, including cycling-related apparel (hereinafter referred to as the “ Principal Business ”); and (iii) the Domestic Enterprise intends to sign an exclusive technological consulting service agreement and a series of related agreements with the WFOE. The Documents in the aforementioned restructuring process shall be referred to herein as “ Restructuring Documents .”

 

C.       The Subscriber desires to invest into the Company with an aggregate investment amount of US$240,000 (the “ Aggregate Investment Amount ”) for the subscription of shares of common stock of the Company, par value $0.001 per share (the “ Common Stock ”), at a purchase price of US$1.2124 per share; and

 

D.       The Company desires to issue and sell to the Subscriber, and the Subscriber desires to purchase from the Company, an aggregate of 197,960 shares of Common Stock of the Company, on the terms and conditions set forth in this Agreement. The shareholding structures of the Company before the Closing and after the Closing shall be as set forth in the Capitalization Table attached as Schedule I hereto.

 

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AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 

1. AGREEMENT TO PURCHASE AND SELL SHARES

 

1.1        Total Investment . As of the Closing, the Subscriber shall, directly or through its affiliate, invest an aggregate of US$240,000 in the Company for the subscription of 197,960 shares of Common Stock in accordance with the terms and conditions hereof.

 

1.2        Authorization . As of the Closing, the Company shall have authorized the issuance, pursuant to the terms and conditions of this Agreement, of 197,960 shares of Common Stock, which shall have been duly adopted by the Company as of the Closing.

 

1.3        Agreement to Purchase and Sell . Subject to the terms and conditions hereof, the Company hereby agrees to issue and sell to the Subscriber, and the Subscriber hereby agrees to purchase from the Company, on the Closing Date (as defined in Section 2.1) a total of 197,960 shares of Common Stock at a price of US$1.2124 per share, amounting to an aggregate purchase price of US$240,000 (the “ Purchase Price ”).

 

The shares of Common Stock to be purchased by and sold to the Subscriber pursuant to this Agreement will be collectively hereinafter referred to as the “ Purchased Shares .”

 

1.4        Payment of Purchase Price . Subject to the terms and conditions of this Agreement, the Purchase Price shall be paid by the Subscriber by wire transfer of immediately available funds in US dollars to a bank account designated by the Company within forty-five (45) business days following the execution of this Agreement, provided that wire transfer instructions are delivered to the Subscriber at least five (5) business day prior to the Closing.

 

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2. CLOSINGS; DELIVERY

 

2.1        Closing . Subject to the fulfillment of the conditions to closing as set forth in Section 6, the purchase and sale of the Purchased Shares (the “ Closing ”) shall be held in Beijing, or at such other place as the Subscriber and the Company may mutually agree, on a date no later than five (5) business days after the satisfaction or waiver of all of the conditions precedent set forth in Section 6 (such date being designated the “ Closing Date ”). The Closing may be conducted by remote electronic delivery of Closing documentation.

 

2.2        Delivery . At the Closing, (i) the Company will deliver to the Subscriber all items the delivery of which is made an express closing condition pursuant to Section 6 of this Agreement and a certificate representing the Purchased Shares that the Subscriber is purchasing pursuant to Section 1.3; and (ii) the Subscriber will deliver to the Company all items the delivery of which is made an express closing condition pursuant to Section 7, including, without limitation, the Purchase Price thereof pursuant to Section 1.3. Subscriber understands that Subscriber may sell or otherwise transfer the Shares only if registered under the United States Securities Act of 1933 (the “ Securities Act ”) or if exemptions from such registration provisions are available in the sole opinion of the Company. Any certificates or other documents representing the Purchased Shares will contain a restrictive legend reflecting this restriction.

 

3. REPRESENTATIONS AND WARRANTIES OF THE GROUP COMPANIES AND THE FOUNDERS

 

Each of the Group Companies and the Founders (collectively the “ Warrantors ”), jointly and severally, hereby represent and warrant to the Subscriber, as of the date hereof and the Closing Date hereunder (except for those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time which need only be true and correct as of such date or with respect to such time period), as follows.

 

3.1        Organization, Standing and Qualification . Each Group Company is duly organized, validly existing and in good standing under the laws of the place of its incorporation and has all requisite power and authority to own its properties and assets and to carry on its business as now conducted and as proposed to be conducted, and to perform each of its obligations hereunder and under any agreements contemplated hereunder to which it is a party. Each Group Company is qualified to do business and is in good standing in each jurisdiction and there has been no material adverse effect on the condition (financial or otherwise), assets relating to, or results of operation of business (as presently conducted and proposed to be conducted) of any Group Company (a “ Material Adverse Effect ”).

 

  4 /25  

 

 

3.2       Capitalization. On Schedule I , attached hereto, the Company has detailed the following:

 

(a) Current Equity StrucBture of the Company . (i) a complete list of all outstanding shareholders of the Company as of the date of this Agreement, indicating the type and number of shares held by each shareholder, and (ii) a list of all Common Stock or other securities of the Company (including preferred stock, options and warrants) reserved for issuance before the date hereof; and

 

(b) Post Closing Capitalization . (i) a complete list of all outstanding shareholders of the Company immediately after the Closing, indicating the type and number of shares held by each shareholder, and (ii) a list of all Common Stock or other securities of the Company reserved for issuance after the Closing, which disclosure is set forth in Schedule I.

 

3.3        Due Authorization . All corporate action on the part of the Holding Companies, the Company, the Domestic Enterprise and, as applicable, their respective officers, directors and shareholders necessary for (i) the authorization, execution and delivery of this Agreement and the performance of all obligations thereunder by the Holding Companies, the Company and the Domestic Enterprise, respectively and (ii) the authorization and issuance of all of the Purchased Shares being sold under this Agreement has been taken or will be taken prior to the Closing.

 

3.4        Valid Issuance of Purchased Shares .

 

(a)       The Purchased Shares will be duly authorized and validly issued, fully paid, non-assessable and free of any liens, pledges, claims, charges, encumbrances or any other third party rights.

 

(b)       The outstanding shares of Common Stock of the Company are duly and validly issued, fully paid and non-assessable, and all outstanding shares, options, warrants and other securities of the Company have been issued in full compliance with the requirements of all applicable securities laws and regulations including, to the extent applicable, the registration and prospectus delivery requirements of the Securities Act, or in compliance with applicable exemptions therein, and all other provisions of applicable securities laws and regulations, including, without limitation, anti-fraud provisions.

 

  5 /25  

 

 

3.5        Litigation. There is no action, suit, proceeding, claim, arbitration or investigation (each an “ Action ”) pending or currently threatened against any of the Group Companies, any Group Company's activities, properties or assets or against any officer, director or employee of each Group Company in connection with such officer's, director's or employee's relationship with, or actions taken on behalf of the Group Company, or otherwise. To the best knowledge of the Warrantors, there is no factual or legal basis for any such Action that is likely to result, individually or in the aggregate, in any Material Adverse Effect on the business, properties, assets, financial condition, affairs or prospects of any Group Company. By way of example, but not by way of limitation, there are no Actions pending against any of the Group Companies or, to the best knowledge of the Warrantors, threatened against any of the Group Companies, relating to the use by any employee of any Group Company of any information, technology or techniques allegedly proprietary to any of their former employers, clients or other parties. No Group Company is a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality and there is no Action by any Group Company currently pending or which it intends to initiate.

 

3.6        Compliance with Laws . None of the Group Companies has knowingly conducted any activity in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any agency thereof in respect to the conduct of its business or the ownership of its properties.

 

3.7        Tax Matters . The provisions for taxes in the respective Financial Statements are sufficient for the payment of all accrued and unpaid applicable taxes of the covered applicable Group Company, whether or not assessed or disputed as of the date of each such balance sheet. Each Group Company has duly filed all tax returns required to have been filed by it and paid all taxes shown to be due on such returns. Each Group Company is not subject to any waivers of applicable statutes of limitations with respect to taxes for any year.

 

  6 /25  

 

 

3.8        Environmental and Safety Laws . None of the Group Companies is in violation of any applicable statute, law, or regulation relating to the environment or occupational health and safety and no material expenditures are or will be required in order to comply with any such existing statute, law or regulation.

 

3.9        Employee Matters . Each of the Group Companies has complied in all material respects with all applicable employment and labor laws of the jurisdiction of its incorporation. None of the Group Companies is aware that any of its officers or key employees upon which its business depends (the “ Key Employees ”) intends to terminate their employment with such Group Company, nor does any Group Company have a present intention to terminate the employment of any officer or Key Employee. Each employee, officer, director and consultant of the Group Companies has duly executed an employment contract with the relevant Group Company and neither the Group Companies nor any Founder is aware, after reasonable investigation, that any such employees, officers, directors or consultants are in violation thereof.

 

3.10        Minute Books . The minute books of each Group Company which have been made available to the Subscriber contain a complete summary of all meetings and actions taken by directors and shareholders or owners of such Group Company since its time of formation, and reflect all transactions referred to in such minutes accurately in all material respects.

 

3.11        Representations and Warranties Relating to the Founders

 

(a) There is no action, suit, proceeding, claim, arbitration or investigation pending against any of the Founders in connection with their involvement with any of the Group Companies. No Founder is a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality and there is no action, suit, proceeding, claim, arbitration or investigation which a Founder intends to initiate in connection with his or her involvement with any of the Group Companies.

 

(b) Each of the Founders has all requisite power, authority and capacity to enter into the Agreement and to perform his or her obligations thereunder.

 

  7 /25  

 

 

4. REPRESENTATIONS AND WARRANTIES OF THE Subscriber

 

The Subscriber hereby represents and warrants to the Warrantors as follows:

 

4.1        Organization . The Subscriber is duly organized, validly existing and in good standing under the laws of the jurisdiction under which it is organized, and has the requisite legal, corporate or partnership power and authority to execute and deliver this Agreement and to carry out and perform its obligations under the terms of this Agreement.

 

4.2        Authorization . The Subscriber has all requisite power, authority and capacity to enter into this Agreement and to perform its obligations hereunder. This Agreement has been duly authorized, executed and delivered by the Subscriber. This Agreement, when executed and delivered by the Subscriber, will constitute valid and legally binding obligations of the Subscriber, subject, as to the enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors' rights generally and to general equitable principles.

 

4.3        Sufficient Funds . The Subscriber will make available sufficient funds in cash to enable it to purchase the Purchased Shares on the terms and conditions contemplated herein.

 

4.4        No Understandings on Distribution . Subscriber is acquiring the Purchased Shares as principal for its own account and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of the Purchased Shares.

 

4.5        Experience. Subscriber, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Purchased Shares, and has so evaluated the merits and risks of such investment. Subscriber understands and acknowledges that an investment in the Purchased Shares is subject to significant risks and is able to bear the economic risk of an investment in the Purchased Shares and is able to afford a complete loss of such investment.

 

4.6        No Company Advice . Subscriber understands that nothing in this Agreement or any other materials presented to Subscriber in connection with the purchase and sale of the Purchased Shares constitutes legal, tax or investment advice by the Company or any individual or entity acting on behalf of the Company. Subscriber has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Purchased Shares.

 

  8 /25  

 

 

4.7        Accredited Investor . Subscriber is an “accredited investor” as that term is defined under Regulation D promulgated under the Securities Act.

 

5. COVENANTS OF THE GROUP COMPANIES AND THE FOUNDERS AFTER THE CLOSING.

 

Each of the Group Companies and the Founders covenants to the Subscriber as follows:

 

5.1        Business of the Domestic Enterprise . The business of the Domestic Enterprise shall be restricted to the Principal Business, unless otherwise approved by the board of directors of the Company.

 

5.2        Use of Proceeds from the Sale of Purchased Shares. The Aggregate Investment Amount, including the proceeds from the sale of the Purchased Shares hereof, shall be used for business development and working capital of the Company and its subsidiaries, including the Domestic Enterprise.

 

5.3        Operation of Principal Business . The Domestic Enterprise undertakes to, and the Founders and the Company shall covenant the Domestic Enterprise to, operate the Principal Business to the extent permitted by PRC laws. The Domestic Enterprise undertakes that, and the Founders and the Company shall covenant that, (i) the Domestic Enterprise shall obtain all licenses, permits, qualifications and other Governmental Authorizations as required for the Principal Business or other business currently conducted by it in accordance with applicable PRC laws, and (ii) the Domestic Enterprise shall obtain any asset and intellectual property, recruit employees, and enter into business agreements, which, upon the decisions of the board of directors of the Company, are deemed to be necessary and appropriate for the daily operation of the Domestic Enterprise.

 

5.4        Indemnity . Each of the Group Companies and their Founders (each, an “ Indemnitor ”) hereby, jointly and severally, indemnify and hold harmless the Subscriber and the directors, officers, employees, affiliates, agents and assigns of the Subscriber (each, an “ Indemnitee ”) against any and all Indemnifiable Loss incurred by such Indemnitee, directly or indirectly, as a result of, or based upon or arising from any inaccuracy in, breach of, or nonperformance of any of the representations, warranties, covenants or agreements made by the Group Companies and the Founders in or pursuant to this Agreement. For purposes of this Section, “ Indemnifiable Loss ” means, with respect to any Indemnitee, any action, cost, damage, disbursement, expense, liability, loss, deficiency, diminution in value, obligation, penalty or settlement of any kind or nature, whether foreseeable or unforeseeable, including, but not limited to, (i) interest or other carrying costs, penalties, legal, accounting and other professional fees and expenses reasonably incurred in the investigation, collection, prosecution and defense of claims and amounts paid in settlement, that may be imposed on or otherwise incurred or suffered by such Indemnitee and (ii) any taxes that may be payable by such Indemnitee as a result of the indemnification of any Indemnifiable Loss hereunder.

 

  9 /25  

 

 

5.5        Compliance by Group Companies . Each of the Group Companies shall, at its own expense, fully comply with all applicable laws and regulations of the jurisdiction of its incorporation as well as all requirements of the competent government authorities with respect to its conduct of business on a continuing basis.

 

If, at any time before the Closing, any of the Company, the Domestic Enterprise, or any Founder comes to know of any material fact or event which: (a) is in any way materially inconsistent with any of the representations and warranties given by the Group Companies and the Founders, and/or (b) suggests that any material fact warranted may not be as warranted or may be materially misleading, and/or (c) might affect the willingness of a prudent Subscriber to purchase the Purchased Shares or the amount of consideration which the Subscriber would be prepared to pay for the Purchased Shares, the Company, the Domestic Enterprise, or any Founder shall give immediate written notice thereof to the Subscriber in which event the Subscriber may within fourteen (14) business days of receiving such notice terminate this Agreement by written notice without any penalty whatsoever and without prejudice to any rights that the Subscriber may have under this Agreement or applicable law.

 

6. CONDITIONS TO THE SUBSCRIBER’S OBLIGATIONS AT THE CLOSING.

 

The obligation of the Subscriber to purchase and pay for the Purchased Shares at the Closing is subject to the fulfillment, to the satisfaction of the Subscriber on or prior to the Closing, or the waiver by the Subscriber, of the following conditions:

 

6.1        Representations and Warranties True and Correct . The representations and warranties made by the Warrantors in Section 3 hereof shall be true and correct and complete when made, and shall be true and correct and complete as of the date of the Closing with the same force and effect as if they had been made on and as of such date (except for those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time which need only be true and correct as of such date or with respect to such time period), subject to changes contemplated by this Agreement.

 

  10 /25  

 

 

6.2        Performance of Obligations . Each of the Group Companies and the Founders shall have performed and complied with this Agreement, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing.

 

6.3        Proceedings and Documents . All the approvals, registrations and filings necessary in connection with the transactions contemplated hereby have been completed. The Company shall have provided to the Subscriber the originals or certified copies of the shareholders’ resolutions and the board resolutions of the Company to approve, among other things, (A) the issuance of the Purchased Shares to the Subscriber; (B) the entry of the Subscriber in the Company's register of stockholders as the registered holder of the Purchased Shares, and (C) the execution by the Company of this Agreement.

 

6.4        Approvals, Consents and Waivers . Each Group Company shall have obtained any and all approvals, consents and waivers necessary for consummation of the transactions contemplated by this Agreement.

 

6.5        Compliance Certificate . The Company and the Founders shall have delivered to the Subscriber a certificate, dated the date of the Closing, signed by the chief executive officer of the Company and each Founder certifying that the conditions specified in this Sections 6 have been fulfilled and stating that there shall have been no Material Adverse Effect on the business, affairs, prospects, operations, properties, assets or condition of the Company.

 

6.6        Employment Agreement . Each of the Founders and each of the senior managers and the Key Employees of the Group Companies shall have entered into an Employment Agreement with a Group Company.

 

  11 /25  

 

 

6.7        Confidentiality Agreement with the Company . Each Key Employee shall have entered into a Confidentiality Agreement with a Group Company.

 

6.8        No Material Adverse Effect . There shall have been no Material Adverse Effect since the date of this Agreement and no change or revision to the current laws or regulations of the PRC that would result in such Material Adverse Effect.

 

6.9        Bank Account . The Company shall maintain a bank account to hold the proceeds from the investment by the Subscriber and the funds from operations.

 

7. CONDITIONS TO COMPANY’ OBLIGATIONS AT THE CLOSING

 

The obligations of the Company under this Agreement with respect to the issuance of the Purchased Shares are subject to the fulfillment at or before the Closing of the following conditions by the Subscriber:

 

7.1        Representations and Warranties . The representations and warranties of the Subscriber contained in Section 4 hereof shall be true and correct as of the Closing.

 

7.2        Payment of Purchase Price . The Subscriber shall have delivered to the Company the Purchase Price in accordance with Section 1.3.

 

8. SHARE REPURCHASE

 

Upon one (1) year following the Company’s filing of a registration statement on Form S-1 (the “ Form S-1 ”) with the Securities and Exchange Commission (the “ SEC ”), in the event that the company fails to have its shares of Common Stock listed or quoted for trading on the OTCQB Market or OTCQX Market operated by OTC Markets Group, Inc., the Subscriber is entitled, through written notice, to require the company to repurchase the shares and return to the Subscriber the Aggregate Investment Amount. The company shall repurchase the Purchased Shares and wire transfer the Aggregate Investment Amount to the Subscriber’s designated bank account within seven (7) working days upon receiving such notice.

 

  12 /25  

 

 

9. MISCELLANEOUS

 

9.1        Governing Law . This Agreement shall be governed in all respects by the laws of the State of Nevada, U.S.A., without regard to such state’s conflict of laws principles.

 

9.2        Survival . The representations, warranties, covenants and agreements made herein shall survive any investigation made by any party hereto and be valid for three (3) years after the Closing.

 

9.3        Amendments . Any term of this Agreement may be amended only with the written consent of all the parties hereto.

 

9.4        Interpretation; Titles and Subtitles . This Agreement shall be construed according to its fair language. The rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in interpreting this Agreement. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. Unless otherwise expressly provided herein, all references to sections, schedules and exhibits herein are to sections, schedules and exhibits of this Agreement.

 

9.5        Counterparts . This Agreement may be executed in any number of counterparts, each of which shall constitute an original, but all of which when taken together shall constitute one instrument. Counterparts may be delivered via facsimile, electronic mail (including PDF), or other transmission method, and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

 

9.6        Severability . If any provision of this Agreement is found to be invalid or unenforceable, then such provision shall be construed, to the extent feasible, so as to render the provision enforceable and to provide for the consummation of the transactions contemplated hereby on substantially the same terms as originally set forth herein, and if no feasible interpretation would save such provision, it shall be severed from the remainder of this Agreement, which shall remain in full force and effect unless the severed provision is essential to the rights or benefits intended by the parties. In such event, the parties shall use best efforts to negotiate, in good faith, a substitute, valid and enforceable provision or agreement which most nearly reflects the parties’ intent in entering into this Agreement.

 

  13 /25  

 

 

9.7        Confidentiality. The Parties acknowledge that the existence and terms of this Agreement, along with any oral or written information exchanged between the Parties in connection with the preparation and performance of this Agreement, are considered confidential information. Each Party shall maintain confidentiality of all such confidential information and, without obtaining the express written consent of the other Party, it shall not disclose any relevant confidential information to any third parties except for the information that: (a) is in the public domain (other than through the receiving Party’s unauthorized disclosure); (b) is required to be disclosed pursuant to the applicable laws or regulations, the rules of any stock exchange or electronic trading platform, or orders of the court or other government authorities; or (c) is required to be disclosed by any Party to its shareholders, investors, legal counsel or financial advisors regarding the transaction contemplated hereunder, provided that such shareholders, investors, legal counsel or financial advisors shall be bound by the same confidentiality obligations set forth in this Section. Disclosure of any confidential information by staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such Party, which Party shall be held liable for breach of this Agreement. This Section shall survive indefinitely, regardless of whether the Agreement itself is terminated.

 

9.8        Further Assurances . Each party shall from time to time and at all times hereafter make, do, execute, or cause or procure to be made, done and executed such further acts, deeds, conveyances, consents and assurances without further consideration, which may reasonably be required to effect the transactions contemplated by this Agreement.

 

9.9        Dispute Resolution .

 

(a) Negotiation Among Parties . The parties agree to negotiate in good faith to resolve any dispute that may arise regarding this Agreement. If the negotiations do not resolve the dispute to the reasonable satisfaction of all parties within thirty (30) days, the Parties shall resolve such dispute in accordance with Section 9.9 (b) of this Agreement.

 

(b) Arbitration . In the event the parties are unable to settle a dispute between them regarding this Agreement in accordance with subsection (a) above, such dispute shall be referred to and finally settled by arbitration at the China International Economic and Trade Arbitration Commission in Beijing in accordance with such Commission’s arbitration rules in effect at the time of applying for arbitration, and the language of arbitration shall be in English. The arbitration award shall be final and binding on the parties.

 

9.10      Termination. This Agreement may be terminated as follows: by mutual consent of the Holding Companies, the Company, the Domestic Enterprise, the Founders and the Subscriber as evidenced in writing signed by each party.

 

- remainder of this page left intentionally blank -

 

[Signature Page of Share Purchase Agreement]

 

  14 /25  

 

 

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

The Company:

 

Jakroo Inc.

 

By: /s/ Weidong Du  
Name:  Weidong Du  
Title: Director  

 

  15 /25  

 

 

[Signature Page of Share Purchase Agreement]

 

IN WITNESS WHEREOF, the parties have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

The Domestic Enterprise:

 

Rider Sportsfashion Limited

 

By: /s/ Weidong Du  
Name:  Weidong Du  
Title: Authorized Representative  

 

  16 /25  

 

 

[Signature Page of Share Purchase Agreement]

 

IN WITNESS WHEREOF, the parties have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

Founder:

 

Weidong Du

 

By: /s/ Weidong Du  

 

  17 /25  

 

 

[Signature Page of Share Purchase Agreement]

 

IN WITNESS WHEREOF, the parties have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

Founder:

 

Wei Tan

 

By: /s/ Wei Tan  

 

  18 /25  

 

 

[Signature Page of Share Purchase Agreement]

 

IN WITNESS WHEREOF, the parties have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

Founder:

 

Guichun Liu

 

By: /s/ Guichun Liu  

 

  19 /25  

 

 

[Signature Page of Share Purchase Agreement]

 

IN WITNESS WHEREOF, the parties have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

Founder:

 

Wen Li

 

By: /s/ Wen Li  

 

  20 /25  

 

 

[Signature Page of Share Purchase Agreement]

 

IN WITNESS WHEREOF, the parties have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

Founder:

 

Hao Wang

 

By: /s/ Hao Wang  

 

  21 /25  

 

 

[Signature Page of Share Purchase Agreement]

 

IN WITNESS WHEREOF, the parties have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

The Holding Company:

 

Kustellar LLC

 

By: /s/ Weidong Du  
Name:  Weidong Du  
Title: President  

 

  22 /25  

 

 

[Signature Page of Share Purchase Agreement]

 

IN WITNESS WHEREOF, the parties have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

The Holding Company:

 

Custom Apparel Limited

 

By: /s/ Wen Li  
Name:  Wen Li  
Title: Director  

 

  23 /25  

 

 

[Signature Page of Share Purchase Agreement]

 

IN WITNESS WHEREOF, the parties have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

London Financial Group Ltd.

 

By: /s/ Gruz Gaspar Guendalyn  
Name:  GRUZ GASPAR GUENDALYN  
Title: President  

 

  24 /25  

 

 

SCHEDULE I

 

Capitalization Table Before the Closing

 

Shareholders Shares of Common Stock Percentage of Ownership
Holding Company Shareholders of Holding Company Holding Company Shareholder of Holding Company Holding Company Shareholder of Holding Company
Kustellar LLC Weidong Du 8,633,000 4,850,000 89% 50%
Wei Tan 3,783,000 39%
Custom Apparel Limited Guichun Liu 1,067,000 485,000 11% 5%
Wen Li 291,000 3%
Hao Wang 291,000 3%
Total 9,700,000 100%

 

 

Capitalization Table After the Closing

 

Shareholders Shares of Common Stock Percentage of Ownership     
Holding Company Shareholders of Holding Company Holding Company Shareholder of Holding Company Holding Company Shareholder of Holding Company
Kustellar LLC Weidong Du 8,633,000 4,850,000 87.22% 49.00%
Wei Tan 3,783,000 38.22%
Custom Apparel Limited Guichun Liu 1,067,000 485,000 10.78% 4.90%
Wen Li 291,000 2.94%
Hao Wang 291,000 2.94%
London Financial Group Ltd. 197,960 2.00%
Total 9,897,960 100%

 

 

 

25/25

 

 

Exhibit 10.17

 

Supplemental Agreement

 

to the Share Purchase Agreement dated May 30, 2016

 

THIS SUPPLEMENTAL AGREEMENT (hereinafter referred to as the “Supplemental Agreement”), is made and entered into on November 18, 2016, by and between:

 

1. Jakroo Inc., a company duly incorporated and validly existing under the laws of the State of Nevada, U.S.A (the “ Company ”);
2. Kustellar LLC, a company duly incorporated and validly existing under the laws of the State of California, U.S.A., which is
3. owned by Weidong Du and Wei Tan; Custom Apparel Limited, a company duly incorporated and validly existing under the laws of the British Virgin Islands, which is owned by Guichun Liu, Wen Li and Hao Wang (collectively, the “ Holding Companies ” and, individually, the “ Holding Company ”);
4. Weidong Du, Wei Tan, Guichun Liu and Wen Li, Hao Wang each of whom is a citizen of the PRC (collectively, the “ Founders ” and, individually, a “ Founder ”);
5. Rider Sportsfashion Limited, a company duly incorporated and validly existing under the laws of the PRC (the “ Domestic Enterprise ”); and
6. London Financial Group Ltd., a company duly incorporated and validly existing under the laws of the British Virgin Islands (the “ Subscriber ”).
  7. The Company, the Holding Companies and the Domestic Enterprise hereinafter shall be referred to collectively as the “ Group Companies ” and, individually, as a “ Group Company .”

  1 / 13  
 

 

(hereinafter jointly referred to as the “ Parties ” or individually as a “ Party ”).

 

RECITALS

 

(A) The Parties entered into the Share Purchase Agreement (the “ Original Agreement ”) on May 30, 2016 pursuant to which the Subscriber desires to invest into the Company an aggregate investment amount of US$240,000 and the Company desires to issue and sell to the Subscriber an aggregate of 197,960 shares of Common Stock of the Company, which the Company desires to adjust based on a $0.4908 per share purchase price.

 

(B) As such, the Parties have agreed to amend the Original Agreement by entering into this Supplemental Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. New Clause

New Clause 10 shall be added to the Original Agreement as follows:

“10. Based upon the amicable communication between the parties, the Company has decided to issue to the Subscriber a revised aggregate of 488,960 shares of the Company’s Common Stock, at a purchase price of US$0.4908 per share. The revision amounts to an increase of 291,000 shares from the originally agreed upon aggregate of 197,960 shares, as stipulated in the Share Purchase Agreement dated May 30 th , 2016, pursuant to which the Subscriber’s original aggregate investment amount of US$240,000 remains unaffected.”

 

  2 / 13  
 

2. MISCELLANEOUS

2.1        Governing Law . This Agreement shall be governed in all respects by the laws of the State of Nevada, U.S.A., without regard to such state’s conflict of laws principles.

2.2        Amendments . Any term of this Agreement may be amended only with the written consent of all the parties hereto.

2.3        Dispute Resolution .

(a)        Negotiation Among Parties . The parties agree to negotiate in good faith to resolve any dispute that may arise regarding this Agreement. If the negotiations do not resolve the dispute to the reasonable satisfaction of all parties within thirty (30) days, the Parties shall resolve such dispute in accordance with Section 2.3 (b) of this Agreement.

(b)        Arbitration . In the event the parties are unable to settle a dispute between them regarding this Agreement in accordance with subsection (a) above, such dispute shall be referred to and finally settled by arbitration at the China International Economic and Trade Arbitration Commission in Beijing in accordance with such Commission’s arbitration rules in effect at the time of applying for arbitration, and the language of arbitration shall be in English. The arbitration award shall be final and binding on the parties.

2.4        Termination. This Agreement may be terminated as follows: by mutual consent of the Holding Companies, the Company, the Domestic Enterprise, the Founders and the Subscriber as evidenced in writing signed by each party.

 

- remainder of this page left intentionally blank -

 

  3 / 13  
 

[Signature Page of Supplemental Agreement]  

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

The Company:
     
Jakroo Inc.
     
By: /s/ Weidong Du  
Name: Weidong Du  
Title: Director  

  4 / 13  
 

[Signature Page of Supplemental Agreement]

 

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

The Domestic Enterprise:
 
Rider Sportsfashion Limited
     
By: /s/ Weidong Du  
Name: Weidong Du  
Title: Authorized Representative  

  5 / 13  
 

[Signature Page of Supplemental Agreement] 

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

Founder:  
   
/s/ Weidong Du  
Weidong Du  

 

  6 / 13  
 

 

[Signature Page of Supplemental Agreement]  

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

 

Founder:  
   
/s/ Wei Tan  
Wei Tan  

 

  7 / 13  
 

 

[Signature Page of Supplemental Agreement]

 

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written. 

Founder:  
   
/s/ Guichun Liu  
Guichun Liu  

 

  8 / 13  
 

 

[Signature Page of Supplemental Agreement]

 

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written. 

 

Founder:  
   
/s/ Wen Li  
Wen Li  

 

  9 / 13  
 

[Signature Page of Supplemental Agreement]  

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written. 

Founder:  
   
/s/ Hao Wang  
Hao Wang  

 

  10 / 13  
 

[Signature Page of Supplemental Agreement]  

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written. 

The Holding Company:
     
Kustellar LLC
     
By: /s/ Weidong Du  
Name: Weidong Du  
Title: President  

 

  11 / 13  
 

[Signature Page of Supplemental Agreement]  

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written. 

The Holding Company:
     
Custom Apparel Limited
 
By: /s/ Wen Li  
Name: Wen Li  
Title: Director  

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[Signature Page of Supplemental Agreement]  

IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized representatives to execute this Agreement as of the date and year first above written.

London Financial Group Ltd.
     
By: /s/ Gruz Gaspar Guendalyn  
Name: GRUZ GASPAR GUENDALYN  
Title: President  

 

13 / 13

 

Exhibit 10.18

 

SUBSCRIPTION AGREEMENT

 

JAKROO INC.

 

1. SUBSCRIPTION .

 

Subject to the terms and conditions hereinafter set forth, the undersigned purchaser (the “Purchaser”) hereby subscribes for and agrees to purchase _______ shares (the “Shares”) of common stock, par value $0.001 per share, of Jakroo Inc., a Nevada corporation (the “Company”), and agrees to contribute to the Company a cash amount of $_________ per share or total cash consideration of $_______ (the “Purchase Price”), payable upon execution and delivery of this agreement in immediately available funds to an account designated by the Company.

 

2. REPRESENTATIONS AND WARRANTIES . The Purchaser hereby represents to the Company as follows:

 

(a)       The Purchaser recognizes that the purchase of the Shares is extremely speculative and involves a high degree of risk. Such risks include, among others: (i) the Company’s present lack of operations or assets; (ii) limited liquidity of the Purchaser's Shares; (iii) limited transferability of the Shares; and (iv) the potential for sustaining a loss, including a loss of its entire investment in the Shares. Purchaser is capable of bearing the economic impact of such loss.

 

(b)       The Purchaser has been advised of and acknowledges that (i) there is currently no market for the Shares being purchased herein, and no assurances can be given that any market will develop; and (ii) the Purchaser may not be able to liquidate this investment.

 

(c)       The Purchaser has such knowledge and experience in financial and business matters that the Purchaser is capable of evaluating the merits and risks of an investment in the Company.

 

(d)       The Purchaser has been furnished by the Company during the course of the Purchaser’s evaluation of an investment in the Shares with all information regarding the Company which the Purchaser has requested or desired to know and that the Purchaser has had access to all material information concerning the Company and has been afforded the opportunity to ask questions of and receive answers from duly authorized officers and/or other representatives of the Company and any additional information which the Purchaser had requested.

 

(e)       The Purchaser hereby acknowledges that the Purchaser has been advised that the offer of the Shares by the Company has not been registered with, or reviewed by, the Securities and Exchange Commission (the “SEC”) because such offer is intended to be a non-public offering pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), or applicable regulations thereunder. The Purchaser represents that the Shares are being purchased for the Purchaser's own account, for investment purposes only and not with a view towards distribution or resale to others. The Purchaser agrees that the Purchaser will not attempt to sell, transfer, assign, pledge or otherwise dispose of all or any portion of the Shares unless they are registered under the Securities Act or unless in the opinion of counsel satisfactory to the Company an exemption from such registration is available. The Purchaser understands and agrees that the following restriction and limitation is applicable to the Purchaser's investment in the Shares pursuant to Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder (“Regulation D”) and that certificates evidencing the Shares will bear the following restrictive legend:

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.

 

 

 

 

(f)       The Purchaser is not acquiring the Shares as a result of any form of general solicitation or general advertising as those terms are used in Regulation D, including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media or broadcast over television, radio or Internet or any seminar or meeting where the Purchaser was invited by general solicitation or general advertising.

 

(g)      The execution, delivery and performance by the Purchaser of the Subscription Agreement are within the powers of the Purchaser, have been duly authorized and will not constitute or result in a breach or default under, or conflict with, any order, ruling or regulation of any court or other tribunal or of any governmental commission or agency, or any agreement or other undertaking, to which the Purchaser is a party or by which the Purchaser is bound. The signatures on the Subscription Agreement are genuine; the Purchaser has legal competence and capacity to execute the same and the Subscription Agreement constitutes the legal, valid and binding obligations of the Purchaser, enforceable in accordance with its terms.

 

(f)        The Purchaser is an “accredited investor” within the meaning of the Regulation D.

 

The foregoing representations and warranties are true and accurate as of the date hereof and shall survive the issuance and delivery of the Shares. If, in any respect, those representations and warranties shall not be true and accurate prior to delivery of the payment pursuant to Paragraph 1, the undersigned shall immediately give written notice to the Company specifying which representations and warranties are not true and accurate and the reason therefor. It is specifically understood and agreed by the Purchaser that neither the Company nor its officers or directors has made, nor by this Subscription Agreement shall be construed to make, directly or indirectly, explicitly or by implication, any representation, warranty, projection, assumption, promise, covenant, opinion, recommendation or other statement of any kind or nature with respect to the anticipated operations, investment returns, cash flows, profits or losses of the Company.

 

3. MISCELLANEOUS .

 

(a)       This Subscription Agreement shall not be changed, modified or amended except by a writing signed by the parties to be charged, and this Agreement may not be discharged except by performance in accordance with its terms or by a writing signed by the party to be charged.

 

(b)       This Subscription Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, legal representatives, successors and assigns. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any kind and every nature among them.

 

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(c)       This Subscription Agreement shall be governed by the laws of the state of Nevada exclusive of its conflict of laws provisions.

 

(d)       This Subscription Agreement may be executed in counterparts, all of which taken together shall constitute one agreement binding on all the parties notwithstanding that all the parties are not signatories to the original or the same counterpart. Delivery between the parties hereto of a counterpart by facsimile or other electronic transmission shall not in any way impair the validity of such counterpart, and any counterpart so delivered shall be valid and binding as if an original.

 

IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement on the day set forth below.

 

         
      Tax ID Number  
         
         
  Date   Address  

 

ACCEPTED AND AGREED:  
   
JAKROO INC.  
     
By:                   
  Name: Weidong Du  
  Title:   President  

 

 

 

 

Exhibit 10.19

 

FORM OF SUBSCRIPTION AGREEMENT

 

This SUBSCRIPTION AGREEMENT (this “ Agreement ”) is made as of this ___ day of _______________________, 2016 by and between Jakroo Inc., a company incorporated under the laws of Nevada, USA (the “ Company ”), having its principal place of business at 567 W. Las Positas Blvd., Suite 201, Pleasanton, CA 94588, and the person or entity listed on the signature page hereto under the heading “Subscriber” (the “ Subscriber ”).

 

WHEREAS , the Company desires to sell up to an aggregate of _________ shares (the “ Shares ”) of the Company’s common stock, par value US$0.001 per share (the “ Common Stock ”), for a per share purchase price of US$_______;

 

WHEREAS , the Subscriber desires to purchase a number of Shares from the Company on such terms, subject to the terms, conditions and restrictions set forth herein; and

 

WHEREAS , the offer and sale of the Shares by the Company (the “ Offering ”) is being made in reliance upon the provisions of Regulation S (“ Regulation S ”) promulgated by the Securities and Exchange Commission (the “ SEC ”) under the Securities Act of 1933, as amended (the “ Securities Act ”).

 

NOW, THEREFORE , for and in consideration of the premises and the mutual covenants hereinafter set forth, the Company and the Subscriber do hereby agree as follows:

 

1.             Agreement to Subscribe

 

1.1        Purchase and Issuance of the Shares .  The Subscriber is hereby subscribing for the number of Shares indicated on the signature page hereto by the caption “Number of Shares Subscribed for” (the “ Subscriber’s Shares ”), which Subscriber’s Shares will be issued solely to the Subscriber.  The aggregate purchase price for such Subscriber’s Shares (the “ Purchase Price ”) is indicated on the signature page hereto by the caption, “Purchase Price.”

 

1.2        Delivery of the Purchase Price .  Upon execution of this Agreement, the Subscriber shall be bound to fulfill its obligations hereunder and hereby irrevocably commits to deliver to the Company, on the date hereof, the Purchase Price by bank check, wire transfer or such other form of payment as shall be acceptable to the Company in its sole and absolute discretion.

 

2.            Representations and Warranties of the Subscriber

 

The Subscriber represents and warrants to the Company that:

 

2.1        Subscriber .  The information concerning the Subscriber provided by the Subscriber to the Company (including the information regarding the Subscriber set forth on the signature page hereto and in the Investor Suitability Questionnaire) is true, complete and accurate in all respects.  The Subscriber has provided to the Company a true, complete and accurate copy of his, her or its People’s Republic of China identification card or other valid photo identification.

 

2.2        Intent .  The Subscriber is purchasing the Subscriber’s Shares solely for investment purposes, for the Subscriber’s own account and not for the account or benefit of any U.S. Person (as defined below) or any other person or entity (whether located in the People’s Republic of China or elsewhere), and not with a view towards the distribution or dissemination thereof.  The Subscriber has no present arrangement to sell or otherwise transfer or dispose of the Subscriber’s Shares to or through any person or entity.  The Subscriber understands that the Subscriber’s Shares must be held indefinitely unless such Subscriber’s Shares are resold in accordance with the provisions of Regulation S, are subsequently registered under the Securities Act or an exemption from registration is available.   

 

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2.3        No Obligation to Register Shares .  The Subscriber understands that the Company is under no obligation to register the Subscriber’s Shares under the Securities Act, or to assist the Subscriber in complying with the Securities Act or the securities laws of any state of the United States or of any foreign jurisdiction other than as expressly provided herein.

 

2.4        Investment Experience .  The Subscriber, or the Subscriber’s professional advisors, have such knowledge and experience in finance, securities, taxation, investments and other business matters so as to evaluate investments of the kind described in this Agreement.  By reason of the business and financial experience of the Subscriber or his or her professional advisors (who are not affiliated with or compensated in any way by the Company or any of its affiliates or selling agents), the Subscriber can protect his or her own interests in connection with the transactions described in this Agreement.  The Subscriber is able to afford the loss of his, her or its entire investment in the Subscriber’s Shares.

 

2.5        Independent Investigation .  The Subscriber, in making the decision to purchase the Subscriber’s Shares, has relied upon an independent investigation of the Company and has not relied upon any information or representations made by any third parties, or upon any oral or written representations or assurances from the Company, its officers, directors or employees or any other representatives or agents of the Company, other than as set forth in this Agreement and the exhibits and schedules attached hereto.  The Subscriber is familiar with the business, operations and financial condition of the Company and has had an opportunity to ask questions of, and receive answers from, the Company’s officers and directors concerning the Company and the terms and conditions of the offering of the Shares and has had full access to such other information concerning the Company as the Subscriber has requested.

 

2.6        Authority .  This Agreement has been validly authorized, executed and delivered by the Subscriber and is a valid and binding agreement enforceable in accordance with its terms, subject to the general principles of equity and to bankruptcy or other laws affecting the enforcement of creditors’ rights generally. The execution, delivery and performance of this Agreement by the Subscriber does not and will not conflict with, violate or cause a breach of any agreement, contract or instrument to which the Subscriber is a party.  In case the Subscriber is an entity, it was not formed for the specific purpose of acquiring the Subscriber’s Shares, is a company incorporated, duly organized, validly existing and in good standing under the laws of the jurisdiction where it is incorporated. Entering into this Agreement and the transactions contemplated hereby do not and will not result in the violation of any of the terms and provisions of any law applicable to, or the charter or other organizational documents, bylaws or other governing documents of, the Subscriber or of any agreement, written or oral, to which the Subscriber may be a party or by which the Subscriber is or may be bound.

 

2.7        Not a Broker-Dealer .  The Subscriber is neither a registered representative under the Financial Industry Regulatory Authority (“ FINRA ”), a member of FINRA or associated or Affiliated (as defined below) with any member of FINRA, nor a broker-dealer registered with the SEC under the Exchange Act of 1934, as amended (“ Exchange Act ”) or engaged in a business that would require it to be so registered, nor is it an Affiliate of a broker-dealer or any Person engaged in a business that would require it to be registered as a broker-dealer.  In the event that such Subscriber is a member of FINRA, or associated or Affiliated with a member of FINRA, such Subscriber agrees, if requested by FINRA, to sign a lock-up, the form of which shall be satisfactory to FINRA with respect to the Subscriber’s Shares. As used herein, “ Affiliate ” means, with respect to any specified Person: (i) if such Person is an individual, the spouse of that Person and, if deceased or disabled, his heirs, executors, or legal representatives, if applicable, or any trusts for the benefit of such individual or such individual’s spouse and/or lineal descendants, or (ii) another Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Person specified. As used in this definition, “control” shall mean the possession, directly or indirectly, of the power to cause the direction of the management and policies of a Person, whether through the ownership of voting securities or by contract or other written instrument. “Person” shall mean an individual, entity, corporation, partnership, association, limited liability company, limited liability partnership, joint-stock company, trust or unincorporated organization.   

 

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2.8        Not an Underwriter .  The Subscriber is not an underwriter of the Subscriber’s Shares, nor is it an Affiliate of an underwriter of the Subscriber’s Shares.

 

2.9        No Advice from Company .   The Subscriber acknowledges that he, she or it has had the opportunity to review this Agreement, the exhibits hereto (including the risk factors relating to the Company attached hereto) and the transactions contemplated by this Agreement with the Subscriber’s own legal counsel and investment and tax advisors.  Except for any statements or representations of the Company made in this Agreement, the Subscriber is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction. The Subscriber has consulted, to the extent deemed appropriate by the Subscriber, with the Subscriber’s own advisers as to the financial, tax, legal and related matters concerning an investment in the Subscriber’s Shares and on that basis believes that investing in the Subscriber’s Shares is suitable and appropriate for the Subscriber.

 

2.10      Regulation S Exemption .  The Subscriber understands that the Subscriber’s Shares are being offered and sold to him, her or it in reliance on an exemption from the registration requirements of United States federal and state securities laws under Regulation S promulgated under the Securities Act and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Subscriber set forth herein in order to determine the applicability of such exemptions and the suitability of the Subscriber to acquire the Subscriber’s Shares.  In this regard, the Subscriber represents, warrants and agrees that:

 

(i)           The Subscriber is not a U.S. Person and is not an Affiliate of the Company and is not acquiring the Subscriber’s Shares for the account or benefit of a U.S. Person.  A “ U.S. Person ” means any one of the following:

 

(A)           any natural person resident in the United States of America;

 

(B)           any partnership, limited liability company, corporation or other entity organized or incorporated under the laws of the United States of America;

 

(C)           any estate of which any executor or administrator is a U.S. Person;

 

(D)           any trust of which any trustee is a U.S. Person;

 

(E)           any agency or branch of a foreign entity located in the United States of America;

 

(F)           any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person; 

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(G)           any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated or (if an individual) resident in the United States of America; and

 

(H)           any partnership, company, corporation or other entity if:

 

(1)           organized or incorporated under the laws of any foreign jurisdiction; and

 

(2)           formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act, unless it is organized or incorporated, and owned, by accredited investors   (as defined in Rule 501(a) under the Securities Act) who are not natural persons, estates or trusts.

 

(ii)           At the time of the origination of contact concerning this Agreement and the date of the execution and delivery of this Agreement, the Subscriber was outside of the United States.

 

(iii)           The Subscriber will not, during the period commencing on the date of issuance of the Subscriber’s Shares and ending on the six-month anniversary of such date, or such shorter period as may be permitted by Regulation S or other applicable securities law (the “ Restricted Period ”), offer, sell, pledge or otherwise transfer the Subscriber’s Shares in the United States, or to a U.S. Person for the account or for the benefit of a U.S. Person, or otherwise in a manner that is not in compliance with Regulation S.

 

(iv)           The Subscriber will, after the expiration of the Restricted Period, offer, sell, pledge or otherwise transfer the Subscriber’s Shares only pursuant to registration under the Securities Act or an available exemption therefrom and in accordance with all applicable state and foreign securities laws.

 

(v)            The Subscriber was not in the United States engaged in, and prior to the expiration of the Restricted Period will not engage in, any short selling of or any hedging transaction with respect to the Subscriber’s Shares, including without limitation, any put, call or other option transaction, option writing or equity swap.

 

(vi)           Neither the Subscriber nor any person acting on his behalf has engaged, nor will engage, in any directed selling efforts to a U.S. Person with respect to the Subscriber’s Shares and the Subscriber and any person acting on his or her behalf has complied and will comply with the “offering restrictions” requirements of Regulation S under the Securities Act.

 

(vii)         The transactions contemplated by this Agreement have not been pre-arranged with a buyer located in the United States or with a U.S. Person, and are not part of a plan or scheme to evade the registration requirements of the Securities Act.

 

(viii)         Neither the Subscriber nor any person acting on its behalf has undertaken or carried out any activity for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States, its territories or possessions, for any of the Subscriber’s Shares.  The Subscriber agrees not to cause any advertisement of the Subscriber’s Shares to be published in any newspaper or periodical or posted in any public place and not to issue any circular relating to the Subscriber’s Shares, except such advertisements that include the statements required by Regulation S under the Securities Act, and only offshore and not in the U.S. or its territories, and only in compliance with any local applicable securities laws.

 

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(ix)           The Subscriber has carefully reviewed and completed the investor questionnaire annexed hereto as Exhibit A

 

2.11      No Advertisements .  The Subscriber is not subscribing for the Subscriber’s Shares as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio or via the Internet, or presented at any seminar or meeting, and is not aware of any public advertisement or general solicitation in respect of the Company or its securities.

 

2.12      Legend .  The Subscriber acknowledges and agrees that the Subscriber’s Shares shall bear a restrictive legend (the “ Legend ”), in the form and substance as set forth in Section 4 hereof, prohibiting the offer, sale, pledge or transfer of the securities, except (i) pursuant to an effective registration statement filed under the Securities Act, (ii) in accordance with the applicable provisions of Regulation S, promulgated under the Securities Act, (iii) pursuant to an exemption from registration provided by Rule 144 under the Securities Act (if available), and (iv) pursuant to any other exemption from the registration requirements of the Securities Act or for estate planning purposes (subject to any escrow restrictions).

 

2.13      Economic Considerations .  The Subscriber is not relying on the Company, or its affiliates or agents with respect to economic considerations involved in this investment.  The Subscriber has relied solely on his or her own advisors.

 

2.14      Compliance with Laws .  Any resale of the Subscriber’s Shares during the “distribution compliance period” as defined in Rule 902(f) to Regulation S shall only be made in compliance with exemptions from registration afforded by Regulation S.  Further, any such sale of the Subscriber’s Shares in any jurisdiction outside of the United States will be made in compliance with the securities laws of such jurisdiction.  The Subscriber will not offer to sell or sell the Subscriber’s Shares in any jurisdiction unless the Subscriber obtains all required consents, if any. The Subscriber acknowledges that such Subscriber is familiar with Rule 144 (“ Rule 144 ”) under the Securities Act, and has been advised that Rule 144 permits resales only under certain circumstances. The Subscriber understands that to the extent that Rule 144 is not available, such Subscriber will be unable to sell any Subscriber’s Shares without either registration under the Securities Act or the existence of another exemption from such registration requirement.

 

2.15      Investment Commitment .  The Subscriber's overall commitment to investments which are not readily marketable is not disproportionate to the Subscriber's net worth, and an investment in the Subscriber’s Shares will not cause such overall commitment to become excessive.

 

2.16      Receipt of Information .  The Subscriber has received all documents, records, books and other information pertaining to the Subscriber’s investment in the Company that has been requested by the Subscriber. 

 

2.17      No Governmental Review .  The Subscriber is aware that no federal or state agency has (i) made any finding or determination as to the fairness of this investment, (ii) made any recommendation or endorsement of the Subscriber’s Shares or the Company, or (iii) guaranteed or insured any investment in the Subscriber’s Shares or any investment made by the Company.

 

2.18      Potential Loss of Investment; Risk Factors .  The Subscriber understands that an investment in the Subscriber’s Shares is a speculative investment which involves a high degree of risk and the potential loss of his or her entire investment. The Subscriber has considered carefully and understands the risks associated with an investment in the Subscriber’s Shares, a summary of which risks is annexed hereto as Exhibit B .

 

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3.            Representations and Warranties of the Company

 

The Company represents and warrants to the Subscriber that:

 

3.1        Valid Issuance of Capital Stock .  The total number of shares of all classes of capital stock which the Company has authority to issue is 100,000,000 shares of Common Stock and 10,000,000 shares of preferred stock.  As of the date hereof, the Company has 10,188,960 shares of Common Stock issued and outstanding.  All of the issued shares of capital stock of the Company have been duly authorized, validly issued, and are fully paid and non-assessable.

 

3.2        Organization and Qualification .  The Company is a corporation duly incorporated and existing in good standing under the laws of Nevada and has the requisite corporate power to own its properties and assets and to carry on its business as now being conducted.

 

4.            Legends, etc.

 

4.1        Legend . Each certificate representing the Subscriber’s Shares shall be endorsed with the following legends, in addition to any other legend required to be placed thereon by applicable federal or state securities laws:

 

“THESE SECURITIES ARE BEING OFFERED TO INVESTORS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“THE SECURITIES ACT”) AND WITHOUT REGISTRATION WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT IN RELIANCE UPON REGULATION S PROMULGATED UNDER THE SECURITIES ACT.”

 

“TRANSFER OF THESE SECURITIES IS PROHIBITED, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES ACT, PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AVAILABLE EXEMPTION FROM REGISTRATION.  HEDGING TRANSACTIONS MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.”

 

4.2        Subscriber’s Compliance . Nothing in this Section 4 shall affect in any way a Subscriber’s obligations and agreement to comply with all applicable securities laws upon resale of the Subscriber’s Shares.

 

4.3        Company’s Refusal to Register Transfer of Shares . The Company shall refuse to register any transfer of the Subscriber’s Shares not made in accordance with (i) the provisions of Regulation S, (ii) pursuant to an effective registration statement filed under the Securities Act, or (iii) pursuant to an available exemption from the registration requirements of the Securities Act.

 

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5.            Governing Law; Jurisdiction; Waiver of Jury Trial

 

This Agreement shall be governed by and construed in accordance with the laws of the State of New York, USA, without regard to the conflicts of laws principals thereof. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state and county of New York. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY.

 

6.            Assignment; Entire Agreement; Amendment

 

6.1        Assignment . Neither this Agreement nor any rights hereunder may be assigned by any party to any other person other than by Subscriber to a person agreeing to be bound by the terms hereof.

 

6.2        Entire Agreement . This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter thereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.

 

6.3        Amendment .  Except as expressly provided in this Agreement, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge, or termination is sought.

 

6.4        Binding Upon Successors . This Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, legal representatives, successors and assigns.

 

7.             Notices; Indemnity

 

7.1        Notices . Unless otherwise provided herein, all notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, e-mail or facsimile, addressed as set forth on the signature pages hereto or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by e-mail or facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.

 

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7.2        Indemnification .  The Subscriber shall indemnify and hold the Company and its officers, directors, employees, agents and affiliates harmless from and against any loss, cost or damages (including reasonable attorney’s fees and expenses) incurred as a result of the Subscriber’s breach of any representation, warranty, covenant or agreement in this Agreement.

 

8 .            Counterparts

 

This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties executing such counterparts, and all of which together shall constitute one instrument.  Such counterparts may be delivered by facsimile or other electronic transmission, which shall not impair the validity thereof.

 

9.            Survival; Severability

 

9.1        Survival . The representations, warranties, covenants and agreements of the parties hereto shall survive the date hereof and the issuance of the Subscriber’s Shares.

 

9.2        Severability . In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party.  

 

10.          Titles and Subtitles

 

The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

  

[Signature page follows]

 

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SIGNATURE PAGE

 

IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the day and year this subscription has been accepted by the Company as set forth below.

 

Number of Shares    
Subscribed For:   Print Name of Subscriber:  

 

____________

Purchase Price: US$_____ per share    
  By:  
    (Signature of Subscriber or Authorized Signatory)
     
  Address:  
     
     
  Telephone:  
     
  Fax:  
     
  Email:  

 

     
  Identification Number:  

 

If the Subscriber’s Shares will be held as joint tenants, tenants in common, or community property, please complete the following:

 

   
  Print name of spouse or other co-subscriber
   
   
  Signature of spouse or other co-subscriber
   
   
  Print manner in which Subscriber’s Shares will be held
   
   
  Identification Number

 

  9  

 

 

ACCEPTANCE OF SUBSCRIPTION

 

   
  Name of Subscriber

 

ACCEPTED BY:

 

JAKROO INC.

  

By:    
  Name: Weidong Du  
  Title:   President  

 

Date:  ______________________, 2016

 

Accepted for   ________ Shares

 

Address for notices:

567 W. Las Positas Blvd., Suite 201,

Pleasanton, CA 94588

 

Email: waynedu@jakroo.com

 

 

10  

 

 

Exhibit 21.1

 

Entity Jurisdiction
Jakroo (Beijing) Sports Consulting Co. Ltd. People’s Republic of China
Rider Sportsfashion Limited People’s Republic of China
Garment Processing Branch of Rider Sportsfashion Limited People’s Republic of China
First Branch of Rider Sportsfashion Limited People’s Republic of China
Rider Sportsfashion (Langfang) Limited People’s Republic of China
Dachang Branch of Rider Sportsfashion Limited People’s Republic of China
Rider Sportsfashion LLC State of California, U.S.A
Jakroo Canada Inc. British Columbia, Canada
Jakroo GmbH Austria

 

 

Exhibit 23.1

 

 

 

 

 

Jakroo, Inc.

5906 Foothill Road

Pleasanton, CA 94588 

 

We consent to the use in this Registration Statement on Form S-1 of our report dated April 13, 2017 relating to the consolidated financial statements of Jakroo Inc. as of and for the years ended December 31, 2016 and 2015, and to the reference to us under the heading “Experts” in such Registration Statement. 

 

/s/ Paritz & Company, P.A.

 

 

Hackensack, New Jersey

April 21, 2017