As filed with the Securities and Exchange Commission on October 15, 2018

 

Registration No. 333-221906

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 3

To

FORM S-1

 

 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

DATASEA INC.

(Exact name of registrant as specified in its charter)

 

Nevada   8742   45-2019013

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

 

1 Xinghuo Rd. Changning Building, 11 th Floor

Fengtai District, Beijing, People’s Republic of China 100070

+86 10-56143568

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

 

Legal Corporate Services, Inc.

1810 E. Sahara Ave, Ste. 1214

Las Vegas, NV 89104

(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

 

Clayton E. Parker, Esq.

Matthew Ogurick, Esq.
K&L Gates LLP

Southeast Financial Center, Suite 3900

200 South Biscayne Boulevard

Miami, FL 33131-2399

Tel: 305-539-3300

Fax: 305-358-7095

 

Approximate date of proposed sale to public:

As soon as practicable after this Registration Statement is declared 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, or a smaller reporting 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. (Check one):

 

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

 

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

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities 

to be registered

  Amount to be
registered (1)(2)
    Proposed
maximum
aggregate
offering
price per
share
    Proposed
maximum
aggregate
offering
price (1)(2)
    Amount of
registration
fee
 
Common Stock, par value $0.001 per share   (2)(3)     1,150,000     $ 6.00     $ 6,900,000     $ 859.05  
Underwriter Warrants (4)     -     $ -     $ -     $ -  
Common Stock underlying Underwriter Warrants (4)     70,000     $ 9.00     $ 630,000     $ 78.44  

Total (5)

   

1,220,000

    $ -     $

7,530,000

    $

937.49

 

 

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)

Includes 150,000 shares of common stock which may be issued on exercise of a 45-day option granted to the underwriters to cover over-allotments, if any.

(3)

In accordance with Rule 416(a), the registrant is also registering an indeterminate number of additional common stocks that shall be issuable pursuant to Rule 416 to prevent dilution resulting from share splits, share dividends or similar transactions.
(4) We have agreed to issue, on the closing date of this offering, warrants to the representative of the underwriters, ViewTrade Securities, Inc., in an amount equal to 7% of the aggregate number of shares of common stock sold by us in this offering. The exercise price of the underwriter warrants is equal to 150% of the price of our common stock offered hereby. The underwriter warrants are exercisable for a period of five years from the closing date of this offering.
(5) Previously paid.

   

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                  , 2018

 

$[        ]

1,000,000 Shares of Common Stock

 

 

Datasea Inc. is offering 1,000,000 shares of common stock in this public offering. Our common stock is currently quoted on the OTCQB Market operated by OTC Markets Group, Inc. under the symbol “DTSS.” We have applied to have our common stock listed on the NASDAQ Capital Market under the symbol “DTSS.” We believe that upon the completion of the offering contemplated by this prospectus, we will meet the standards for listing on the NASDAQ Capital Market. We cannot guarantee that we will be successful in listing our common stock on the NASDAQ Capital Market; however, we will not complete this offering unless we are so listed. We expect the offering price of our common stock in this offering will be between $4.00 and $6.00 per share. The last closing price of our common stock on September     , 2018 on the OTCQB Market was $     per share.

 

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startup Act of 2012 (or the JOBS Act) and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. We will also be a “controlled company” under the corporate governance standards for NASDAQ listed companies. The combined voting power of Ms. Zhixin Liu and Mr. Fu Liu is 78.3% based on 19,170,846 shares issued and outstanding as of the date of this prospectus. See “Risk Factors” and “Management—Controlled Company.”

 

 

 

Investing in our common stock is highly speculative and involves a high degree of risk. See “Risk Factors” beginning on page 8   of this prospectus.

 

    Per Share     Total  
Public offering price   $       $    
Underwriting discounts and commissions (1)   $       $    
Proceeds to us, before expenses   $       $    

 

(1) See “Underwriting” for a description of the compensation payable to the underwriters.

 

This offering is being conducted on a firm commitment basis.  The  underwriters are obligated to take and pay for all of the shares offered by this prospectus if any such shares are taken. The underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option to purchase additional shares of common stock. We estimate that the total underwriting discounts and commissions payable will be between $280,000 and $420,000 based on an offering price between $4.00 and $6.00 per share, and the total gross proceeds to us, before commissions and expenses, will be $5 million.

 

We have granted the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to an additional 150,000 shares of common stock at the public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any.

 

Delivery of the shares is expected to be made on or about           , 2018.

 

These securities have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission nor has the Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

ViewTrade Securities, Inc.

 

The date of this prospectus is            , 2018.  

 

 

 

 

TABLE OF CONTENTS

 

  Page
  Number
   
Prospectus Summary 1
Risk Factors 8
Cautionary Note Regarding Forward-Looking Statements 27
Use of Proceeds 28
Dividend Policy 29
Capitalization 30
Dilution 31
Management’s Discussion and Analysis of Financial Conditions and Results of Operations 32
Business 36
Management 52
Executive Compensation 55
Certain Relationships and Related Party Transactions 57
Security Ownership of Certain Beneficial Owners and Management 58
Description of Securities 59
Market for Common Equity and Related Stockholder Matters 60
Shares Eligible for Future Sale 61
Underwriting 63
Legal Matters 68
Experts 68
Where You Can Find More Information 68
Index to Consolidated Financial Statements F-1

 

Through and including      , 2018 (25 days after the commencement of this offering), all dealers effecting transaction in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

You should rely only on the information contained in this prospectus and any free writing prospectus we may authorize to be delivered to you. We have not, and the underwriters have not, authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus and any related free writing prospectus. We and the underwriters take no responsibility for, and can provide no assurances as to the reliability of, any information that others may give you. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is only accurate as of the date of this prospectus, regardless of the time of delivery of this prospectus and any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

   

  i  

 

 

PROSPECTUS SUMMARY

 

This summary highlights information that we present more fully in the rest of this prospectus. This summary does not contain all of the information you should consider before buying common stock in this offering. You should read the entire prospectus carefully, including the “Risk Factors” section and the financial statements and the notes to those statements, before deciding whether to invest in this offering.

 

Our Company  

 

We are an emerging technology company in China engaged in the development of information technology (or IT) systems and network security solutions. We primarily focus on IT system security and leverage our proprietary technologies, intellectual property and market intelligence to provide comprehensive and optimized security solutions to our clients. We have been certified as one of the High Tech Enterprises ( jointly issued by the Beijing Science and Technology Commission, Beijing Finance Bureau, Beijing State Taxation Bureau and Beijing Local Taxation Bureau) and one of the Zhongguancun High Tech Enterprises (issued by the Zhongguancun Science Park Administrative Committee) in recognition of our achievement in high technology products. Our cyber security engineers and experts create, design, build and run various security programs tailored to our clients. Through our professional team and strong expertise in the system security field, we offer our clients a broad portfolio of system security solutions or services, along with strategic advice and ongoing management of their security infrastructure.   

 

We have generated very limited revenues to date, and as such we have been shifting our business focus over the past 12 months from cybersecurity to our “Safe Campus” and “Smart Elevator” security and related marketing solutions as described further below.

 

In order to provide efficient and targeted marketing services, we have independently developed the “Xin Platform,” an online platform that can identify potential customers and market products and services to targeted groups based on the data we collect through our security systems. The Xin Platform also serves as our office to office (or O2O) management platform, which can provide marketing services to traditional merchants such as supermarkets, hotels, shopping malls and restaurants. It also provides support for various other security programs that we develop and/or provide, including our “Safe Campus” security system and “Smart Elevator” security system.

 

Based on the Xin Platform, coupled with the Internet of Things (or IoT) technology and cloud computing, we developed our “Safe Campus” system as an advanced and simple solution to campus security, which has been a rising concern in China. Our “Safe Campus” system consists of student ID card terminals, radio-frequency identification (or RFID readers), campus information management platform, partner management platform and cellphone application terminals, utilizing technologies such as RFID, global positioning system (or GPS), location based services (or LBS), and cloud based calculation.

 

While we have in the past sold and may in the future sell our security solutions as a stand-alone aspect of our business, our current primary business plan anticipates generating most of our revenues from online and offline marketing services, targeted at users of our security solutions in China. For example, users of our “Safe Campus” security system will receive advertisements through our mobile application installed on their smart phones. Advertisements may also be displayed on the hardware of our “Safe Campus” security system, including on the lanyards of our smart student ID cards. Utilizing our security systems and the data collected from users of our security systems and our online platform, we will seek to provide targeted, one stop marketing solutions to businesses.

 

In the elevator security space, our “Smart Elevator” security and management system provides a solution to lower the operation cost of elevators and promote the safety of passengers. The system will include an emergency and rescue terminal and a data collection system. Once installed, our terminals will collect data of the elevator’s operation, regular maintenance services, annual inspections and any malfunctions which enables faster and more efficient error detection and repairs.

 

We also hope to become a provider of data processing services in China. We are in the process of developing systems to analyze industry trends, market and customer data, supply chain, financial information, risk detection and management.

 

Recent Developments

 

On March 15, 2018, we entered into a banking service direct sales cooperation agreement (or the Minsheng Agreement) with China Minsheng Banking Co., Ltd, Tianjin Branch (or China Minsheng Bank). Pursuant to the Minsheng Agreement, we will establish a portal on our “Xin Platform” through which the platform users may purchase financial products offered by China Minsheng Bank. In consideration, China Minsheng Bank will pay us service fees calculated based on the amount of the financial products the platform users purchase and hold. For each specific product, the service fee will be calculated according to the following formula:

 

T-days service fee = annual rate (0.12%) × the amount of the financial products the platform users maintain as of day (T-1) × net value of the financial product ÷ 365

 

The Minsheng Agreement has a term of two years and will be automatically extended one more year if neither party terminates the Minsheng Agreement within the last month of the initial two-year term. 

 

In March and April 2018, we entered into six membership service agreements with five entities and one individual, three of which are stockholders of our company, and eleven agency agreements with eleven individuals, nine of which are stockholders of our company. Pursuant to the membership service agreements, we offer member management services through our Xin Platform APP and charge the entering parties a service fee of RMB1,000 (approximately $150) per member. Pursuant to the agency agreements, the agents are authorized as agents to market Xin Platform APP in specific areas of China. Each agent is required to pay a Xin Platform APP usage fee of $750 and deposit $750 in financial products offered by China Minsheng Bank via Xin Platform APP. Each agent will receive $8 for each customer that applies for a credit card of China Minsheng Bank via Xin Platform APP.

 

On April 12, 2018, our board of directors and stockholders approved a one-for-three reverse stock split of our issued and outstanding shares of common stock, which became effective on May 1, 2018, decreasing the number of outstanding shares from 57,511,771 to 19,170,827. Subsequent to the split, the number of our outstanding shares increased from to 19,170,827 to 19,170,846 to accommodate certain shareholders’ positions due to rounding elections payable at the beneficial owner level. Unless otherwise stated, all shares and per share amounts in this prospectus have been retroactively adjusted to give effect to this stock split.

 

  1  

 

 

History

 

We were incorporated under the laws of the State of Nevada on September 26, 2014 under the name Rose Rock Inc. On May 27, 2015, we amended our articles of incorporation to change our name to Datasea Inc. Up until October 2015, our primary business activities were providing consulting services to various U.S. companies seeking to do business in China as well as Chinese companies looking to enter the U.S. markets. Nonetheless, we were considered a shell company as defined in Rule 12b-2 under the Securities Act, as we had no or nominal business operations, employees and/or assets.

 

On May 26, 2015, pursuant to the terms of a stock purchase agreement, Ms. Zhixin Liu purchased 20,000,000 shares*, or 57.14%, of the issued and outstanding shares of our common stock from Mr. Xingzhong Sun, who was our sole officer, director and majority shareholder at the time of the transaction. As part of the transaction, Zhixin Liu was appointed as the Chairman of our Board of Directors (the “Board”). 

 

On October 29, 2015, we entered into a share exchange agreement (the “Exchange Agreement”) with Ms. Zhixin Liu and Mr. Fu Liu, the members (“Members”) of Shuhai Information Skill (HK) Limited (“Shuhai Skill (HK)”), a limited liability company incorporated under the laws of the Hong Kong Special Administrative Region of the PRC, whereby the Members transferred all of their membership interests of Shuhai Skill (HK) to us in exchange for the issuance of an aggregate of 20,000,000 shares* of our common stock (the transaction, hereinafter referred to as the “Share Exchange”). Upon consummation of the Share Exchange, Shuhai Skill (HK) and its consolidated subsidiaries, Tianjin Information Sea Information Technology Co., Ltd., a limited liability company incorporated under the laws of the PRC (“Tianjin Information”), became our wholly-owned subsidiary, and Shuahi Information Technology Co., Ltd., also a limited liability company incorporated under the laws of the PRC (“Shuhai Beijing”), through its existing contractual relationship with Tianjin Information, became our variable interest entity (“VIE”). In addition, Xinzhong Sun resigned from the positions as our director, President, Secretary and Treasurer. Ms. Liu was appointed as our Chief Executive Officer, President, Interim Chief Financial Officer, Treasurer and Secretary and Mr. Liu was appointed as a director. Mr. Liu is the father of Ms. Liu.

 

As a result of the Share Exchange, we, through our consolidated subsidiaries, are engaged in the business of providing Internet security products, new media advertising, micro-marketing, data analysis services in the PRC. All business operations are conducted through our wholly-owned subsidiary, Tianjin Information, and through Shuhai Beijing, our VIE. Shuhai Beijing is considered to be a VIE because we do not have any direct ownership interest in it, but, as a result of a series of contractual agreements (the “VIE Contractual Agreements”) among Tianjin Information, Shuhai Beijing and its shareholders, we are able to exert effective control over Shuhai Beijing and receive 100% of the net profits or net losses derived from the business operations of Shuhai Beijing. The VIE Contractual Agreements are more fully described below.

 

VIE Agreements

 

Operation and Intellectual Property Service Agreement  – The Operation and Intellectual Property Service Agreement, by and among Zhixin Liu, Fu Liu, Shuhai Beijing and Tianjin Information (the “Operation and Intellectual Property Service Agreement”), allows Tianjin Information to manage and operate Shuhai Beijing and collect 100% of their net profits. Under the terms of the Operation and Intellectual Property Service Agreement, Shuhai Beijing entrusts Tianjin Information to manage its operations, manage and control its assets and financial matters, and provide intellectual property services, purchasing management services, marketing management services and inventory management services to Shuhai Beijing. Shuhai Beijing and its shareholders shall not make any decisions nor direct the activities of Shuhai Beijing without Tianjin Information’s consent.

 

Shareholders’ Voting Rights Entrustment Agreement  – Tianjin Information has entered into a shareholders’ voting rights entrustment agreement (the “Entrustment Agreement”) under which Zhixin Liu and Fu Liu (collectively, the “Shuhai Beijing Shareholders”) have vested their voting power in Shuhai Beijing to Tianjin Information or its designee(s). The Entrustment Agreement does not have an expiration date, but the parties can agree in writing to terminate the Entrustment Agreement.

 

* Without giving effect to our one-for-three reverse stock split that became effective on May 1, 2018.

 

  2  

 

 

Equity Option Agreement  – The Shuhai Beijing Shareholders and Tianjin Information entered into an equity option agreement (the “Option Agreement”), pursuant to which the Shuhai Beijing Shareholders have granted Tianjin Information or its designee(s) the irrevocable right and option to acquire all or a portion of Shuhai Beijing Shareholders’ equity interests in Shuhai Beijing for an option price of RMB0.001 for each capital contribution of RMB1.00. Pursuant to the terms of the Option Agreement, Tianjin Information and the Shuhai Beijing Shareholders have agreed to certain restrictive covenants to safeguard the rights of Tianjin Information under the Option Agreement. Tianjin Information agreed to pay RMB1.00 annually to Shuhai Beijing Shareholders to maintain the option rights. Tianjin Information may terminate the Option Agreement upon prior written notice. The Option Agreement is valid for a period of 10 years from the effective date and renewable at Tianjin Information’s option.

 

Equity Pledge Agreement  – Tianjin Information and the Shuhai Beijing Shareholders entered into an equity pledge agreement on October 27, 2015 (the “Equity Pledge Agreement”). The Equity Pledge Agreement serves to guarantee the performance by Shuhai Beijing of its obligations under the Operation and Intellectual Property Service Agreement and the Option Agreement. Pursuant to the Equity Pledge Agreement, Shuhai Beijing Shareholders have agreed to pledge all of their equity interests in Shuhai Beijing to Tianjin Information. Tianjin Information has the right to collect any and all dividends, bonuses and other forms of investment returns paid on the pledged equity interests during the pledge period. Pursuant to the terms of the Equity Pledge Agreement, the Shuhai Beijing Shareholders have agreed to certain restrictive covenants to safeguard the rights of Tianjin Information. Upon an event of default or certain other agreed events under the Operation and Intellectual Property Service Agreement, the Option Agreement and the Equity Pledge Agreement, Tianjin Information may exercise the right to enforce the pledge.

 

Corporate Structure

 

The chart below depicts the corporate structure of the Company as of the date of this prospectus.

 

 

 

* Harbin Information Sea Information Technology Co., Ltd. has had no operations since its inception.

 

Competitive Strengths

 

We believe that our quality control and marketing teams have core management experience in technology programs such as IDC and ISP. Unlike most of the security systems provided by our competitors, our “Safe Campus” security system offers comprehensive logins and user friendly interfaces and allow communication between schools, teachers, parents and students. We believe that our “Smart Elevator” security and management system is in line with the Guidelines on Elevator Emergency Response Platform Development promulgated by the PRC General Administration of Quality Supervision, Inspection and Quarantine in April 2014.

 

Implications of Being an Emerging Growth Company

 

We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We have not made a decision whether to take advantage of any or all of these exemptions. If we do take advantage of any of these exemptions, we do not know if some investors will find our common stock less attractive as a result. The result may be a less active trading market for our common stock and the price of our common stock may be more volatile.

 

  3  

 

 

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 (the “Securities Act”) for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

We will remain an “emerging growth company” until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed US$1.07 billion, (ii) the last day of our fiscal year following the fifth anniversary of April 4, 2016, the date of the first sale of common equity securities pursuant to the registration statement that went effective on April 22, 2015.; (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934 (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, or (iv) 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 office is located at 1 Xinghuo Rd., Changning Building, 11 th Floor, Fengtai District, Beijing, China, and our telephone number at that address is (86)10-56143568. Our website is http://www.shuhaixinxi.com . Information contained on our website does not constitute part of, and is not deemed incorporated by reference into, this prospectus.

 

  4  

 

 

The Offering

 

Shares of common stock to be offered  

1,000,000 shares of common stock

     
Offering price per share:  

The purchase price for the common stock being sold in this offering is expected to be between $4.00 and $6.00 per share of common stock.            

     
     
Shares of common stock outstanding after this offering (1)  

20,170,846 shares, assuming an offering price of $5.00 per share, the mid-point of the estimated range of the offering price shown on the cover page of this prospectus.

     
Proposed NASDAQ Capital Market symbol   We have applied to list our common stock on the NASDAQ Capital Market under the symbol “DTSS.”
     

Underwriter’s over-allotment option

  We have granted the underwriters an option for 45 days from the date of this prospectus to purchase up to an additional 150,000 shares of our common stock at the public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any.
     

Underwriter warrants

  Upon the closing of this offering, we will issue to the representative of the underwriters warrants entitling the representative of the underwriters to purchase 7% of the aggregate number of shares of common stock sold in this offering. The warrants shall be exercisable for a period of five years from the effective date of the Registration Statement on Form S-1 of which this prospectus forms a part. For additional information, please refer to the “Underwriting” section beginning on  page 65.
     
Use of proceeds  

We estimate that we will receive net proceeds, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, of approximately $3.95 million from this offering assuming no exercise of the underwriter’s over-allotment option or the underwriter’s warrants and completion of the offering. The net proceeds from this offering must be remitted to China before we will be able to use the funds to grow our business. We intend to use the net proceeds of this offering as follows after we complete the remittance process:

 

·          Approximately 12.5% for product innovation and development;

·          Approximately 50% for product manufacturing;

·          Approximately 25% for marketing and expansion; and

·          Approximately 12.5% for general working capital.  

 

See “Use of Proceeds” for further information.

     
Indemnification Escrow  

Net proceeds of this offering in the amount of $600,000 shall be used to fund an escrow account for a period of 18 months following the closing date of this offering, or longer if there is evidence that may reasonably result in us having to indemnify the underwriters, but in no event shall the funds be held in escrow for longer than two years following the closing of the offering, which account shall be used in the event we have to indemnify the underwriters pursuant to the terms of an underwriting agreement with the underwriters. Except as described below, the funds in the escrow account that are not subject to an indemnification claim as of the 18 month anniversary of the closing, or longer if there is evidence that may reasonably result in us having to indemnify the underwriters, but in no event longer than the two year anniversary of the closing, will be returned to us in accordance with the terms of the indemnification escrow agreement.

 

Lock-up  

All of our directors and officers and certain shareholders have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our ordinary shares or securities convertible into or exercisable or exchangeable for our ordinary shares for a period of 180 days after the date of this prospectus. See “Shares Eligible for Future Sale” and “Underwriting” for more information.

     

Share Escrow Agreement

  In connection with this offering, and as a condition to the closing of this offering, Zhixin Liu and Fu Liu have agreed to place a total of 14,250,000 shares of Common Stock into escrow with an escrow agent to be released back to Mr. Liu and Ms. Liu upon the Company satisfying certain milestones set forth in the Share Escrow Agreement.
     
Risk Factors     Investing in our common stock is highly speculative and involves a high degree of risk. As an investor, you should be able to bear a complete loss of your investment. You should carefully consider the information set forth in the “Risk Factors” section of this prospectus before deciding to invest in our common stock.

 

(1) The number of common stock to be outstanding following this offering is based on 19,170,846 shares outstanding as of the date of this prospectus.

 

  5  

 

 

Prospectus Conventions

 

Except where the context otherwise requires, “we”, “us”, “company”, “Company”, “our” and “Datasea” collectively refer to Datasea Inc., a Nevada corporation and its subsidiaries, including Shuhai Information Skill (HK) Limited, or Shuhai Skill (HK), a Hong Kong limited company, Tianjin Information Sea Information Technology Co. Ltd., or Tianjin Information, a PRC limited company and Shuhai Information Technology Co. Ltd., or Shuhai Beijing, a PRC limited liability company.

 

All references to “RMB” and “Renminbi” are to the prospectus contains translations of certain RMB amounts into U.S. dollar amounts at a specified rate solely for the convenience of the reader. Unless otherwise noted, all translations made in this prospectus are based on a rate of RMB 6.6553 to $1.00, which was the exchange rate on June 30, 2018. Unless otherwise stated, we have translated balance sheet amounts, with the exception of equity, at June 30, 2018 at RMB 6.6553 to $1.00 as compared to RMB 6.7769 to $1.00 at June 30, 2017. We have stated equity accounts at their historical conversion rates. The average translation rates applied to the statements of operations amounts for the year ended June 30, 2018 and the year ended June 30, 2017 were RMB 6.6667 and RMB 6.8113, respectively. We make no representation that the RMB or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or RMB, as the case may be, at any particular rate or at all. On October 12, 2018, the Forex exchange rate was RMB 6.9220 to $1.00. See “Risk Factors – The fluctuation of the Renminbi may have a material adverse effect on your investment” for discussions of the effects of fluctuating exchange rates on the value of our common stock. Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

 

On May 1, 2018, we effectuated a one-for-three reverse stock split of our issued and outstanding shares of common stock, decreasing the number of outstanding shares from 57,511,771 to 19,170,827. Subsequent to the split, the number of our outstanding shares increased from to 19,170,827 to 19,170,846 to accommodate certain shareholders’ positions due to rounding elections payable at the beneficial owner level. Unless otherwise stated, all shares and per share amounts in this prospectus have been retroactively adjusted to give effect to this stock split.

 

For the sake of clarity, this prospectus follows the English naming convention of first name followed by last name, regardless of whether an individual’s name is Chinese or English. For example, the name of our President and Chief Executive Officer will be presented as “Zhixin Liu,” even though, in Chinese, her name would be presented as “Liu Zhixin.”

 

Unless the context specifically requires otherwise, any references in this prospectus to shares of common stock outstanding assumes no exercise of the underwriter’s over-allotment option.

 

We have relied on statistics provided by a variety of publicly-available sources regarding China’s expectations of growth, which have not been independently verified by us, the underwriters or any of their respective affiliates or advisers. We did not, directly or indirectly, sponsor or participate in the publication of such materials, and these materials are not incorporated in this prospectus other than to the extent specifically cited in this prospectus. We have sought to provide current information in this prospectus and believe that the statistics provided in this prospectus remain up-to-date and reliable.

 

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Summary Consolidated Financial Information

 

In the table below, we provide you with summary consolidated financial data of our Company. This information is derived from our consolidated financial statements included elsewhere in this prospectus. Historical results are not necessarily indicative of the results that may be expected for any future period. When you read this historical summary consolidated financial data, it is important that you read it along with the historical statements and notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

 

(All amounts in U.S. dollars)

 

    For years ended June 30,  
    2018     2017  
             
Consolidated Statements of Operations and Comprehensive Income Data:        
Revenues     10,571       140,774  
Gross profit     5,752       55,377  
Operating expenses     1,667,179       1,308,967  
Loss from operations     (1,661,427 )     (1,253,590 )
Other income (expense)     57,286       60,374
Provision for income taxes            
Net loss     (1,604,141 )     (1,193,216 )
Other comprehensive loss:                
Foreign currency translation gain (loss)     113,103       63,551
Comprehensive loss     (1,491,038 )     (1,129,665 )
Losses per share – basic and diluted     (0.08 )     (0.06 )
Weighted average number of shares – basic and diluted     19,130,098       18,596,678  

 

    As of June 30,  
    2018     2017  
Consolidated Balance Sheet Data:                
Cash   1,031,486       1,174,950  
Total current assets     1,235,276       1,370,910  
Total assets     1,376,965       1,443,979  
Total current liabilities     190,844       885,345  
                 
Total liabilities     190,844       885,345  
Total equity     1,186,121       558,634  
Total liabilities and equity     1,376,965       1,443,979  

 

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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 our securities. No purchase of our securities 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 because of the order of presentation. Our business and operations could be seriously harmed as a result of any of these risks.  

 

Risks Relating to Our Business and Industry

 

We are an early stage company with a very limited operating history as a developer of Internet security solutions and products, new media advertising and data processing services. Our limited operating history may not provide an adequate basis to judge our future prospects and results of operations.

 

We have a very limited operating history. Our operating entity, Shuhai Beijing, was formed in February 2015 and has yet to generate material revenues and it may not generate material revenue or any profit for the foreseeable future. We are still in the process of developing, marketing and expansion of our business. We expect that our new media advertising, micro marketing and data processing services supported by our security solutions will be our core business and main revenue producing sectors in the future. We have limited experience and operating history in developing and marketing our products and services. In addition, the market for our products and services is highly competitive. If we fail to successfully develop and offer our products and services in an increasingly competitive market, we may not be able to capture the potential growth opportunities associated with our products and services or recover our development and marketing costs, and our future results of operations and growth strategies could be adversely affected. Our limited history may not provide a meaningful basis for investors to evaluate our business, financial performance and prospects.

 

Our independent registered Public Accounting firm’s auditors’ report includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.

 

We are an early and development stage company and have limited financial resources. We had cash balances of $1,031,486 and $1,174,950 as of June 30, 2018 and June 30, 2017, respectively. We have generated revenues of $10,571 during the year ended June 30, 2018, and had a deficit of approximately $4,124,000 at June 30, 2018. We have generated revenues of $140,774 during the year ended June 30, 2017 and had a deficit of approximately $2,520,000 at June 30, 2017. Our independent registered public accounting firm included an explanatory paragraph in its audit opinion on our financial statements as of and for the years ended June 30, 2018 and 2017 that states that our losses from operations raise substantial doubt about our ability to continue as a going concern.

 

Our resources and source of funds have primarily consisted of loans and capital contributions from shareholders and funds raised from equity financing. We believe these are sufficient to keep our business operations functioning for the next twelve months. We have generated little revenues from our business, and our expenses will be accrued until sufficient financing is obtained or our shareholders loan us the necessary funds to pay for these expenses. No assurances can be given that we will be able to obtain funds from our shareholders or others to continue our operations. We may need to seek additional financing. The financing sought may be in the form of equity or debt financing or a combination of both from various sources as yet unidentified. No assurances can be given that we will generate sufficient revenue or obtain the necessary financing to continue as a going concern and the failure to do so could cause us to cease our operations.

 

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Supply chain issues that increase our costs or cause a delay in our ability to fulfill orders, could have an adverse impact on our business and operating results, and our failure to estimate customer demand properly may result in excess or obsolete component supply, which could adversely affect our gross margins.

 

Currently, we do not own or operate our manufacturing facilities but instead rely on third party contractors to manufacture our products, and we expect that we will continue to rely on existing and new contractual manufacturers for the foreseeable future. The following reliance issues could have an adverse impact on the supply of our products and on our business and operating results:

 

· Any financial problems of our contract manufacturers or component suppliers could limit supply or increase costs;

 

  · Reservation of manufacturing capacity at our contract manufacturers by other companies, inside or outside of our industry, could limit supply or increase costs; and

 

  · Industry consolidation occurring within one or more component supplier markets could limit supply or increase costs.

 

In addition, the following supply chain-related issues could adversely affect our customer relationships, operating results and financial condition:

 

  · a reduction or interruption in supply of one or more components;

 

  · a significant increase in the price of one or more components;

 

  · a failure to adequately authorize procurement of inventory by our contract manufacturers; and

 

  · a failure to appropriately cancel, reschedule or adjust our requirements based on our business needs.

 

Over the long term, we intend to invest in engineering, sales, service and marketing activities, and these investments may achieve delayed, or lower than expected, benefits which could harm our operating results.

 

While we intend to focus on managing our costs and expenses, over the long term, we also intend to invest in personnel and other resources related to our engineering, sales, service and marketing functions as we realign and dedicate resources to key growth areas, such as Internet security, “Safe Campus” and “Smart Elevator” products and services. We are likely to recognize the costs and expenses associated with these investments earlier than some of the anticipated benefits, and the return on these investments may be lower, or may develop more slowly, than we expect. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our operating results may be adversely affected.

 

Our business substantially depends upon the continued growth of the internet and internet-based systems, the decrease of which could have a negative impact on our business.

 

A substantial portion of our business and revenue depends on growth and evolution of the Internet in the PRC and globally, including the continued development and expansion of the Internet. To the extent that an economic slowdown or economic uncertainty and any related reductions in capital spending adversely affect spending on Internet infrastructure, we could experience material harm to our business, operating results and financial condition.

 

Because of the rapid introduction of new products and changing customer requirements related to matters such as cost-effectiveness and security, we believe that there could be performance problems with Internet communications in the future, which could receive a high degree of publicity and visibility. Because Internet security equipment and systems are our major products and resources, our business, operating results and financial condition may be materially adversely affected, regardless of whether or not these problems are due to the performance of our own products or services. Such an event could also result in a material adverse effect on the market price of our common stock independent of direct effects on our business.

 

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Product quality problems could lead to reduced revenue, gross margins, and net income.

 

The Internet security equipment we provide is highly complex as the products incorporate both hardware and software technologies. Neither we nor our contract manufacturers have developed a sophisticated product testing program due to the limit of available technologies. There can be no assurance that the pre-shipment testing programs we develop in the future will be adequate to detect all defects, including defects in individual products or defects affecting numerous shipments. Such potential defects might interfere with customer satisfaction, reduce sales opportunities or affect gross margins. As an example, software typically contains bugs that can unexpectedly interfere with expected operations. From time to time, we will have to replace certain components and provide remediation in response to the discovery of defects or bugs in our products. There can be no assurance that such remediation, depending on the product involved, would not have a material adverse impact on our business. An inability to cure a product defect could result in the failure of a product line, temporary or permanent withdrawal from a product or market, damage to our reputation, additional inventory costs, or product reengineering expenses, any of which could have a material adverse impact on our revenue, margins and net income.

 

We will likely have to incur indebtedness or issue new equity securities to fund future growth. If we are not able to obtain additional capital, our ability to operate or expand our business may be impaired and our results of operations could be adversely affected.

 

Our business requires significant levels of capital to finance the research and development of new products and service platforms that meet the constantly evolving industry standards and consumer demands. As such, we expect that we will need additional capital to fund our future growth. We have primarily depended on loans and capital contributions from Ms. Zhixin Liu and Mr. Fu Liu, who currently serve as our only officers and directors. If cash from such sources is insufficient or unavailable, or if cash is used for unanticipated needs, we may require additional capital sooner than anticipated. Our ability to obtain additional capital on acceptable terms or at all is subject to a variety of uncertainties, including:

 

  · investors’ perceptions of, and demand for, companies operating in China;

 

  · conditions of the U.S. and other capital markets in which we may seek to raise funds;

 

  · our future results of operations, financial condition and cash flows;

 

  · governmental regulation of foreign investment in China;

 

  · economic, political and other conditions in the United States, China and other countries; and

 

  · governmental policies relating to foreign currency borrowings.

 

The sale of additional equity securities would result in dilution of our existing shareholders. In addition, the incurrence of indebtedness would result in increased debt service obligations and could result in operating and financial covenants that would restrict our operations. It is highly uncertain whether financing will be available in amounts or on terms acceptable to us, if at all. If we are not able to obtain additional capital, our ability to operate or expand our business may be impaired and our results of operations could be adversely affected.

 

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 and technical staff. In particular, our success depends on the continued efforts of Ms. Zhixin Liu, our Chairman of the Board of Directors, Chief Executive Officer, President, Interim Chief Financial Officer, Treasurer and Secretary, and Mr. Fu Liu, one of our directors and Ms. Liu’s father. Ms. Liu and Mr. Liu have been instrumental in developing our business model and are crucial to our business development. There can be no assurance that they will continue in their present capacities for any particular period of time. The loss of the services of Ms. Liu and/or Mr. Liu could materially and adversely affect our business development.

 

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The various industries we are in are characterized by constant and rapid technological change and evolving standards. If we fail to anticipate and adapt to these changes and evolutions, our sales, gross margins and profitability will be adversely affected.

 

Technologies change rapidly in the security solution, new media advertising, micro marketing and data processing industries with frequent new products and service developments and evolving industry standards. Companies operating within these industries are continuously developing new products and services with heightened performance and functionality, putting pricing pressure on existing products. Accordingly, we believe that our future success will depend on our ability to continue to anticipate technological changes and to offer additional product and service opportunities that meet evolving standards on a timely and cost-effective basis. Our failure to accurately anticipate the introduction of new technologies or adapt to fluctuations in the industry could lead to our having significant amounts of obsolete inventory that can only be sold at substantially lower prices and profit margins than anticipated. In addition, if we are unable to develop planned new technologies, we may be unable to compete effectively due to our failure to offer products or services most demanded by the marketplace. Products and services that our competitors develop or introduce may also render our products and services noncompetitive or obsolete. If any of these failures occur, our business and results of operations would be adversely affected.

 

We may face heightened competition from existing mature competitors as well as new entrants into the security equipment and service industries in which we compete within the PRC. If we are unable to compete effectively, we may lose customers and our financial results will be negatively affected.

 

The security and marketing industries in the PRC are highly competitive. Currently, Shuhai Beijing’s primary competitors for security solutions and ISP connecting services, including our “Safe Elevator” products, are mature companies with longer operating histories, more engineering resources, relatively sophisticated distribution channels and existing customer bases. For our campus and elevator security solutions, we compete with others who also offer their own campus electronic management solutions and elevator emergency service systems. Further, there are new competitors entering our industries. As a result, we could experience difficulties in obtaining customers, capturing market share, and generating revenue from our major products and services.  

 

We depend on contract manufacturers, and our production and products could be harmed if they are unable to meet our volume and quality requirements and alternative sources are not available.

 

We rely on third party contract manufacturers to provide manufacturing services for our products. If these services become unavailable, we would be required to identify and enter into new agreements with other contract manufacturer or take the manufacturing in-house. The loss of our contract manufacturers could significantly disrupt production as well as increase the cost of production. These changes could have a material adverse effect on our business and results of operations.

 

Our “Safe Campus” and “Smart Elevator” programs may not be accepted by the intended users of our products, which could harm our future financial performance.

 

There can be no assurance that our “Safe Campus” and “Smart Elevator” systems will achieve wide acceptance by our intended users. The degree of market acceptance for products and services based on our technology will also depend upon a number of factors, including the establishment and demonstration of the ability of our proposed solutions to provide an acceptable level of security in an efficient manner. Long-term market acceptance of our products and services will depend, in part, on the capabilities and operating features of our products and technologies as compared to those of other available products and services. As a result, there can be no assurance that currently available products, or products under development for commercialization, will be able to achieve market penetration, revenue growth or profitability, which would harm our future financial performance.

 

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Changes to existing regulations may present technical, regulatory and economic barriers to the provision of our products and services, which may significantly increase our costs and adversely affect the results of our operations.

 

The cybersecurity industry in China is highly regulated by the PRC Ministry of Public Security. In particular, the Administrative Measures for Testing and Selling License of Special Products Used for the Security of Computer Information Systems (Ministry of Public Security Order No. 32) sets forth the technical standards for Internet security products as well as the procedures for applying for and maintaining licenses for selling such products. The PRC Ministry of Public Security might change the regulatory framework or impose higher technical standards in the future. As a result, we would have to incur extra costs in connection with engaging new technical staff, improving our existing products, and renewing our license.

 

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 maintain listing of our common stock .

 

We may be unable to attract and retain qualified officers and directors required 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, none of our officers or directors have 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 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 retain the listing of our common stock on any stock exchange or quotation system could be adversely affected.

 

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 and 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 (or the SEC) thereunder. Our senior management, which currently consists solely of Ms. Zhixin Liu, cannot guarantee that our internal controls and disclosure controls 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.

 

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We have identified a material weakness in our internal control over financial reporting. If our remediation of this material weakness is not effective, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our Common Stock.

 

Our management has assessed the effectiveness of our internal control over financial reporting as of June 30, 2018. The management has identified the following material weaknesses and believes that, as of June 30, 2018, our internal control over financial reporting was not effective: (i) inadequate segregation of duties and effective risk assessment; (ii) lack of personnel adequately trained in generally accepted accounting principles of the United States (or U.S. GAAP); and (iii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both U.S. GAAP and SEC guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the above material weaknesses are remediated. The remediation efforts set out above are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner. On August 21, 2018, we entered into an employment agreement with Mr. Jijin Zhang, pursuant to which he started working with the Company on August 21, 2018 for a six-month probationary period and will serve as our Chief Financial Officer upon the closing of this offering. In addition, we have adopted internal control policies, including but not limited to a cash flow control policy, review of the accounting professional’s duties and responsibilities handbook, a travel allowance policy, a budget approval process, a reimbursement policy, a receivable policies, an asset control policy, an internal auditing policy and a cost accounting policy.

 

If our remediation of this material weakness is not effective, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

 

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 new 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 executive officers have little 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.

 

Failure to comply with the Foreign Corrupt Practices Act could adversely affect our business.

 

We are required to comply with the United States Foreign Corrupt Practices Act (or FCPA), which prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in mainland China. If our competitors engage in these practices, they may receive preferential treatment from personnel of other companies or government agencies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage.  

 

We have operations, agreements with third parties, and make sales in China, which may experience corruption. We believe to date we have complied in all material respects with the provisions of the FCPA. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants and/or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

 

We may be subject to liability if private information that we receive is not secure or if we violate privacy laws and regulations.

 

Because we store, process and use data, some of which contain personal information, we are subject to complex and evolving federal, state and foreign laws and regulations regarding privacy, data protection and other matters. Many of these laws and regulations are subject to constant evolvement and change and uncertain interpretation. Any violation of these laws could result in investigations, claims, changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could materially adversely affect our business, results of operations and financial condition.

 

In November 2016, the Standing Committee of the National People’s Congress passed China’s first cybersecurity law, or CSL, which took effect in June 2017. The CSL systematically lays out cybersecurity and data protection regulatory requirements and subjects many previously under-regulated or unregulated activities in cyberspace and data management to government scrutiny. The costs of compliance with and other burdens imposed by CSL may limit the use and adoption of our products and services and could have an adverse impact on our business.

 

The European Union General Data Protection Regulation 2016/679 (“GDPR”), which came into effect on May 25, 2018, includes operational requirements for companies that receive or process personal data of residents of the European Economic Area. The GDPR establishes new requirements applicable to the processing of personal data ( i.e. , data which identifies an individual or from which an individual is identifiable), affords new data protection rights to individuals ( e.g. , the right to erasure of personal data) and imposes penalties for serious data breaches. Individuals also have a right to compensation under the GDPR for financial or non-financial losses. Although we do not conduct any business in the European Economic Area, in the event that residents of the European Economic Area access our website and input protected information, we may become subject to provisions of the GDPR. Compliance with the GDPR will impose additional responsibilities and liabilities in relation to our processing of personal data. The GDPR may require us to change our policies and procedures and, if we are not compliant, could materially adversely affect our business, results of operations and financial condition.

 

We are also subject to laws restricting disclosure of information relating to our employees. We strive to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy, data security, cybersecurity and data protection. However, given that the scope, interpretation, and application of these laws and regulations are often uncertain and may be conflicting, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us or our third-party service-providers to comply with our privacy or security policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, may result in governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect on our business and operating results.

  

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Risks Relating to Our Corporate Structure

 

Our corporate structure, in particular, our Variable Interest Entities (or VIE), and their Agreements (or VIE Agreements), are subject to significant risks, as set forth in the following risk factors.

 

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

 

Our affiliation with Shuhai Beijing is managed through the VIE Agreements, which agreements may not be as effective in providing us with control over Shuhai Beijing as direct ownership. The VIE Agreements are governed by and would be interpreted in accordance with the PRC laws. They also provide for the resolution of disputes through arbitration pursuant to PRC laws. If Shuhai Beijing fails to perform the obligations under the VIE Agreements, we may have to rely on legal remedies under the PRC law, including seeking specific performance or injunctive relief, and claiming damages. There is a risk that we may be unable to obtain any of these remedies. The legal environment in China is not as developed as in other jurisdictions. As a result, uncertainties in the PRC legal system could limit our ability to enforce the VIE Agreements, or could effect the validity of the VIE Agreements.

 

We may not be able to consolidate the financial results of some of our affiliated companies or such consolidation could materially adversely affect our operating results and financial condition.

 

All of our business is conducted through Shuhai Beijing, which is considered a VIE for accounting purposes, and we are considered the primary beneficiary, thus enabling us to consolidate our financial results in our consolidated financial statements. In the event that in the future a company we hold as a VIE no longer meets the definition of a VIE under applicable accounting rules, or we are deemed not to be the primary beneficiary, we would not be able to consolidate line by line that entity’s financial results in our consolidated financial statements for reporting purposes. Also, if in the future an affiliate company becomes a VIE and we become the primary beneficiary, we would be required to consolidate that entity’s financial results in our consolidated financial statements for accounting purposes. If such entity’s financial results were negative, this would have a corresponding negative impact on our operating results for reporting purposes.

 

Because we rely on the Operation and Intellectual Property Service Agreement with Shuhai Beijing for our revenue, the termination of this agreement would severely and detrimentally affect our continuing business viability under our current corporate structure.

 

We are a holding company and all of our business operations are conducted through the VIE Agreements. As a result, our revenues rely on dividend payments from Tianjin Information after it receives payments from Shuhai Beijing pursuant to the Operation and Intellectual Property Service Agreement. Shuhai Beijing may terminate the Operation and Intellectual Property Service Agreement for any or no reason at all. Because neither we, nor our subsidiaries, own equity interests of Shuhai Beijing, the termination of the Operation and Intellectual Property Service Agreement would sever our ability to continue receiving payments from Shuhai Beijing under our current holding company structure. While we are currently not aware of any event or reason that may cause the Operation and Intellectual Property Service Agreement to terminate, we cannot assure you that such an event or reason will not occur in the future. In the event that the Operation and Intellectual Property Service Agreement is terminated, this would have a severe and detrimental effect on our continuing business viability under our current corporate structure, which, in turn, may affect the value of your investment.

 

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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 law, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. If any of the transactions entered into by our subsidiary and our PRC operating affiliate are found not to have been conducted on an arm’s-length basis or to result in an unreasonable reduction in tax under PRC law, the PRC tax authorities have the authority to disallow tax savings, adjust the profits and losses of our respective PRC entities and assess late payment interest and penalties.

 

We conduct our business through Shuhai Beijing by means of VIE Agreements. If the PRC courts or administrative authorities determine that these contractual arrangements do not comply with applicable regulations, we could be subject to severe penalties and our business could be adversely affected. In addition, changes in such PRC laws and regulations may materially and adversely affect our business .

 

There are uncertainties regarding the interpretation and application of PRC laws, rules and regulations, including but not limited to the laws, rules and regulations governing the validity and enforcement of the contractual arrangements between Tianjin Information and Shuhai Beijing. We have been advised by our PRC counsel, Jingtian & Gongcheng, based on their understanding of the current PRC laws, rules and regulations, that (i) the structure for operating our business in China (including our corporate structure and contractual arrangements with Shuhai Beijing and its shareholders) will not result in any violation of PRC laws or regulations currently in effect; and (ii) the contractual arrangements among Tianjin Information and Shuhai Beijing and its shareholders governed by PRC law are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. However, there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations concerning foreign investment in the PRC, and their application to and effect on the legality, binding effect and enforceability of the contractual arrangements. In particular, we cannot rule out the possibility that PRC regulatory authorities, courts or arbitral tribunals may in the future adopt a different or contrary interpretation or take a view that is inconsistent with the opinion of our PRC legal counsel.

 

If any of our PRC entities or their ownership structure or the contractual arrangements are determined to be in violation of any existing or future PRC laws, rules or regulations, or any of our PRC entities fail to obtain or maintain any of the required governmental permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including:

 

  · revoking the business and operating licenses;

 

  · discontinuing or restricting the operations;

 

  · imposing conditions or requirements with which the PRC entities may not be able to comply;

 

  · requiring us and our PRC entities to restructure the relevant ownership structure or operations;

 

  · restricting or prohibiting our use of the proceeds from this offering to finance our business and operations in China; or

 

  · imposing fines.

 

The imposition of any of these penalties would severely disrupt our ability to conduct business and have a material adverse effect on our financial condition, results of operations and prospects.

 

  15  

 

 

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

 

Ms. Zhixin Liu and Mr. Fu Liu are majority shareholders of our Company and the shareholders of our VIE, Shuhai Beijing. Ms. Liu is our Chairman, Chief Executive Officer, President, Interim-CFO, Secretary and Treasurer, while Mr. Liu is one of our directors. They may have potential conflicts of interest with us. These shareholders may breach, or cause our VIE to breach, or refuse to renew, the existing contractual arrangements we have with them and our VIE, which would have a material and adverse effect on our ability to effectively control our VIE and receive substantially all the economic benefits from it. For example, the shareholders may be able to cause our agreements with Shuhai 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. We rely on Ms. Liu and Mr. Liu to abide by the laws of the State of Nevada and China, which provide that directors owe a fiduciary duty to the company that requires them to act in good faith and in what they believe to be the best interests of the company and not to use their position for personal gains. If we cannot resolve any conflict of interest or dispute between us and the shareholders of Shuhai Beijing, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

 

The draft Foreign Investment Law proposes sweeping changes to the PRC foreign investment legal regime and will likely to have a significant impact on businesses in China controlled by foreign invested enterprises primarily through contractual arrangements, such as our business.

 

On January 19, 2015, the PRC Ministry of Commerce (or MOFCOM) published a draft of the PRC Law on Foreign Investment (Draft for Comment), or the Foreign Investment Law, which was open for public comments until February 17, 2015. At the same time, MOFCOM published an accompanying explanatory note of the draft Foreign Investment Law (or the Explanatory Note), which contains important information about the draft Foreign Investment Law, including its drafting philosophy and principles, main content, plans to transition to the new legal regime and treatment of business in China controlled by foreign invested enterprises (or FIEs), primarily through contractual arrangements. The draft Foreign Investment Law is intended to replace the current foreign investment legal regime consisting of three laws: the Sino-Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-Invested Enterprise Law, as well as their respective detailed implementing rules. The draft Foreign Investment Law, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate governance and business operations in many aspects. The draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control” in determining whether a company is considered a FIE. The draft Foreign Investment Law 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 by the Ministry of Commerce, 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 a FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in a “catalogue of special administrative measures for foreign investments,” which is classified into the “catalogue of prohibitions” and the “catalogue of restrictions”, to be separately issued by the State Council later. Foreign investors are not allowed to invest in any sector set forth in the catalogue of prohibitions. However, unless the underlying business of the FIE falls within the catalogue of restrictions, which calls for market entry clearance by the Ministry of Commerce, prior approval from governmental authorities as mandated by the existing foreign investment legal regime would no longer be required for establishment of the FIE.

 

The specifics of the draft Foreign Investment Law’s application to variable interest entity structures have yet to be proposed, but it is anticipated that the draft Foreign Investment Law will regulate variable interest entities. MOFCOM suggests both registration and approval as potential options for the regulation of variable entity structures, depending on whether they are “Chinese” or “foreign-controlled”. One of the core concepts of the draft Foreign Investment Law is “de facto control”, which emphasizes substance over form in determining whether an entity is “Chinese” or “foreign-controlled”. This determination requires considering the nature of the investors that exercise control over the entity. “Chinese investors” are natural persons who are Chinese nationals, Chinese government agencies and any domestic enterprise controlled by Chinese nationals or government agencies. “Foreign investors” are foreign citizens, foreign governments, international organizations and entities controlled by foreign citizens and entities. We are majority controlled by Mr. and Ms. Liu, both of whom are PRC nationals, therefore, it increases the likelihood that our company may be deemed “Chinese” controlled. In its current form, the draft Foreign Investment Law will make it difficult for foreign financial investors, including private equity and venture capital firms, to obtain a controlling interest of a Chinese enterprise in a foreign restricted industry. However, under the proposed new law, we may no longer need to hold interests in our operating affiliate through contractual arrangements and may be able to have control through direct equity ownership.

 

On April 17, 2018, the Standing Committee of the National People's Congress published its legislation work plan for 2018, according to which the draft Foreign Investment law will be deliberated by the Standing Committee of the National People's Congress in December 2018. However, there are still substantial uncertainties regarding the draft Foreign Investment Law, including, among others, what the actual content of the law will be as well as the adoption timeline or effective date of the final form of the law. While such uncertainties exist, we cannot determine whether the new foreign investment law, when it is adopted and becomes effective, will have a material positive or negative impact on our corporate structure and business.

 

If any of our affiliated entities becomes the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy 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, substantially all 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.

 

We are a “controlled company” within the meaning of the NASDAQ Stock Market Rules and, as a result, may rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

 

We are a “controlled company” as defined under the NASDAQ Stock Market Rules because Mr. Liu and Ms. Liu hold more than 50% of our voting power. For so long as we remain a controlled company under that definition, we are permitted to elect to rely, and will rely, on certain exemptions from the obligation to comply with certain corporate governance requirements, including:

 

· the requirement that our director nominees must be selected or recommended solely by independent directors; and

 

· the requirement that we have a corporate governance and nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

 

As a result, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NASDAQ Stock Market.

 

  16  

 

 

Risks Associated With Doing Business in China

 

Changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and the profitability of our business.

 

The PRC’s economy is in a transition from a planned economy to a market-oriented economy subject to five-year and annual plans adopted by the government that set national economic development goals. Policies of the PRC government can have significant effects on the economic conditions within the PRC. The PRC government has confirmed that economic development will follow the model of a market economy. Under this direction, we believe that the PRC will continue to strengthen its economic and trading relationships with foreign countries and business development in the PRC will follow market forces. While we believe that this trend will continue, there can be no assurance that this will be the case. A change in policies by the PRC government could adversely affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises. Although the PRC government has been pursuing economic reform policies for more than two decades, there is no assurance that the government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting the PRC’s political, economic and social environment.

 

A slowdown or other adverse developments in the PRC economy may harm our customers and the demand for our services and our products.

 

All of our operations are conducted in the PRC. Although the PRC economy has grown significantly in recent years, there is no assurance that this growth will continue. A slowdown in overall economic growth, an economic downturn, a recession or other adverse economic developments in the PRC could significantly reduce the demand for our products and services.

 

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 United States 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 United States and in China. Any political or trade controversies between the United States and China, whether or not directly related to our business, could reduce the price of our common stock.

 

We must remit the offering proceeds to China before they may be used to benefit our business in China, and we cannot assure that we can finish all necessary governmental registration processes in a timely manner.

 

The proceeds of this offering must be sent back to China, and the process for sending such proceeds back to China may take as long as six months after the closing of this offering. In utilizing the proceeds of this offering in the manner described in “Use of Proceeds,” as an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Any shareholder loan or additional capital contribution are subject to PRC regulations. For example, loans by us or making additional capital contribution to our subsidiaries in China, which are foreign-invested enterprises, to finance their activities cannot exceed statutory limits, while the shareholder loan must be also registered with the 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. There is no difference between the total amount of investment and the registered capital for Tianjin Information.

 

  17  

 

 

To remit the proceeds of the offering, we must take the steps legally required under the PRC laws.

 

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 this offering and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity, our ability to fund and expand our business and our 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 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 change in value of the Renminbi against the U.S. dollar and other currencies is affected by, various factors, such as changes in China’s political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under such policy, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Later on, the People’s Bank of China has decided to further implement the reform of the RMB exchange regime and to enhance the flexibility of RMB exchange rates. Such changes in policy have resulted in a significant appreciation of the Renminbi against the U.S. dollar since 2005. 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 adjustment of the Renminbi against the U.S. dollar.

 

Any significant appreciation or revaluation of the Renminbi may have a material adverse effect on the value of, and any dividends payable on, shares of our common stock in foreign currency terms. More specifically, if we decide to convert our Renminbi into U.S. dollars, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. To the extent that we need to convert U.S. dollars we receive from this 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. In addition, appreciation or depreciation in the exchange rate of the Renminbi to the U.S. dollar could materially and adversely affect the price of shares of our common stock in U.S. dollars without giving effect to any underlying change in our business or results of operations.

 

  18  

 

 

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

 

Substantially all of our revenue is denominated in Renminbi. As a result, restrictions on currency exchange may limit our ability to use revenue generated in Renminbi to fund any business activities we may have outside China in the future or to make dividend payments to our shareholders in U.S. dollars. Under current PRC laws and regulations, Renminbi is freely convertible for current account items, such as trade and service-related foreign exchange transactions and dividend distributions. However, Renminbi is not freely convertible for direct investment or loans or investments in securities outside China, unless such use is approved by SAFE. For example, foreign exchange transactions under our subsidiary’s capital account, including principal payments in respect of foreign currency-denominated obligations, remain subject to significant foreign exchange controls and the approval requirement of SAFE. These limitations could affect our ability to convert Renminbi into foreign currency for capital expenditures.

 

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 rely principally on dividends paid by our subsidiary in China for our cash needs, including paying dividends and other cash distributions to our shareholders to the extent we choose to do so, servicing any debt we may incur and paying our operating expenses. Tianjin Information’s income in turn depends on the service fees paid by our affiliated entities in China. Current PRC regulations permit our subsidiary in China to pay dividends to us only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Under the applicable requirements of PRC law, Tianjin Information may only distribute dividends after it has made allowances to fund certain statutory reserves. These reserves are not distributable as cash dividends. In addition, if our subsidiaries or our affiliated entities in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any such restrictions may materially affect such entities’ ability to make dividends or make payments, in service fees or otherwise, to us, which may materially and adversely affect our business, financial condition and results of operations.

 

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 of interest relating to foreign investments in China. However, 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.

 

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.

 

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

 

The legal and judicial systems in the PRC are still rudimentary, and enforcement of existing laws is uncertain. 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.

 

  19  

 

 

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 and all of our directors and officers reside outside the United States, it may be difficult for you to enforce your rights based on U.S. federal securities laws against us and our officers and directors in the U.S. or to enforce a U.S. court judgment against us or them in the PRC.

 

Our directors and officers reside outside the United States. In addition, our operating subsidiaries are located in the PRC and substantially all of their 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 (or CSRC) of the listing and trading of our common stock.

 

On August 8, 2006, six PRC regulatory authorities, including the MOFCOM, the State Assets Supervision and Administration Commission, the State Administration of Taxation, State Administration for Industry and Commerce of PRC (or SAIC), CSRC and SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors , which was amended on June 22, 2009 (or the M&A Rules). The M&A Rules, among other things, require that the listing and trading on an overseas stock exchange of securities in an offshore special purpose vehicle formed for purposes of holding direct or indirect equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals be approved by the CSRC. On September 21, 2006, the CSRC published on its official website the procedures for such approval process. In particular, certain documents are required to be filed with the CSRC as part of the approval procedures and it could take several months to complete the approval process.

 

While the implementation and interpretation of the M&A Rules remains unclear, we believe, based on the advice of our PRC counsel, that approval by the CSRC is not required given that:

 

  the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to this regulation;

 

  we did not establish our PRC subsidiary, Tianjin Information, by means of merging with or acquisition of PRC domestic companies; and

 

  no provision in the M&A Rules clearly classifies contractual arrangements as a type of transaction subject to its regulation.

 

However, our PRC legal counsel has further advised us that there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that the relevant PRC regulatory authorities, including the CSRC, would reach the same conclusion as our PRC counsel. If the CSRC or other PRC regulatory authority subsequently determines that we need to obtain the CSRC’s approval for this registration, we may face sanctions by the CSRC or other PRC regulatory authorities. In such event, these regulatory authorities may, among other things, impose fines and penalties on or otherwise restrict our operations in the PRC or delay or restrict any remittance of the proceeds from this resale registration into the PRC. Any such or other actions taken could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, and the trading price of our common stock.

 

  20  

 

 

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.

 

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 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.

 

As an offshore holding company of our PRC subsidiary, we may (i) make loans to our PRC subsidiary and affiliated entities, (ii) make additional capital contributions to our PRC subsidiary, (iii) establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, and (iv) acquire offshore entities with business operations in China in an offshore transaction. However, most of these uses are subject to PRC regulations and approvals. For example:

 

  · loans by us to our wholly-owned subsidiary in China, which is a foreign-invested enterprise, cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange of the PRC (or SAFE) or its local counterparts;

 

  · loans by us to our affiliated entities, which are domestic PRC entities, over a certain threshold must be approved by the relevant government authorities and must also be registered with SAFE or its local counterparts; and

 

  · capital contributions to our wholly-owned subsidiary must file a record with the MOFCOM or its local counterparts and shall also be limited to the difference between the registered capital and the total investment amount.

 

We cannot assure you that we will be able to obtain these government registrations or filings on a timely basis, or at all. If we fail to finish such registrations or filings, our ability to use the proceeds from this offering and to capitalize our PRC subsidiary’s operations may be adversely affected, which could adversely affect our liquidity and our ability to fund and expand our business.

 

  21  

 

 

On March 30, 2015, the State Administration of Foreign Exchange (SAFE) promulgated a notice relating to the administration of foreign-invested company of its capital contribution in foreign currency into Renminbi (Hui Fa [2015]19) (or Circular 19). Although Circular 19 has fastened the administration relating to the settlement of exchange of foreign-investment, allows the foreign-invested company to settle the exchange on a voluntary basis, it still requires that the bank review the authenticity and compliance of a foreign-invested company’s settlement of exchange in previous time, and the settled in Renminbi converted from foreign currencies shall deposit on the foreign exchange settlement account, and shall not be used for several purposes as listed in the “negative list”. As a result, the notice may limit our ability to transfer funds to our operations in China through our PRC subsidiary, which may affect our ability to expand our business. Meanwhile, the foreign exchange policy is unpredictable in China, it shall be various with the nationwide economic pattern, the strict foreign exchange policy may have an adverse impact in our capital cash and may limit our business expansion.

 

Governmental control of the convertibility of Renminbi and restrictions on the transfer of cash into and out of China may constrain our liquidity and adversely affect our ability to use cash in our operation.

 

The PRC government also imposes controls on the convertibility of the Renminbi into foreign currencies. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from SAFE, by complying with certain procedural requirements. Approvals from appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may, at its discretion, impose any restriction on access of foreign currencies for current account transactions.

 

As an offshore holding company of our PRC subsidiary, the majority of our income is received in Renminbi. If the PRC government imposes restrictions on access of foreign currencies for current account transactions, we may not be able to pay dividends in foreign currencies to our shareholders.

 

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.

 

SAFE has promulgated regulations, including the Notice on Relevant Issues Relating to Domestic Residents’ Investment and Financing and Round-Trip Investment through Special Purpose Vehicles (or SAFE Circular No. 37), effective on July 4, 2014, and its appendices, that require PRC residents, including PRC institutions and individuals, to register with local branches of SAFE 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, referred to in SAFE Circular No. 37 as a “special purpose vehicle.” SAFE Circular No. 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries 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. Further, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for foreign exchange evasion.

 

These regulations apply to our direct and indirect shareholders who are PRC residents and may apply to any offshore acquisitions or share transfers that we make in the future if our shares are issued to PRC residents. However, in practice, different local SAFE branches may have different views and procedures on the application and implementation of SAFE regulations, and since SAFE Circular No. 37 was relatively new, there remains uncertainty with respect to its implementation. We have requested PRC residents who we know currently hold direct or indirect interests in our company to make the necessary applications, filings and amendments as required under SAFE Circular No. 37 and other related rules. However, we cannot assure you that these individuals or any other direct or indirect shareholders or beneficial owners of our company who are PRC residents will be able to successfully complete the registration or update the registration of their direct and indirect equity interest as required in the future. If they fail to make or update the registration, our shareholders could be subject to fines and legal penalties, and SAFE could restrict our cross-border investment activities and our foreign exchange activities, including restricting our PRC subsidiary’s ability to distribute dividends to, or obtain loans denominated in foreign currencies from, our company, or prevent us from paying dividends. As a result, our business operations and our ability to make distributions to you could be materially and adversely affected.

 

  22  

 

  

We may be subject to fine due to our insufficient payment of the social insurance and housing fund of the employees.

 

Pursuant to the Social Insurance Law of China effective from July 1, 2011, and the Housing Provident Fund Regulation which was amended and became effective on March 24, 2002, employers in China shall register with relevant social insurance agency and relevant housing provident fund management center and open special housing provident fund accounts for each of their employees, and pay contributions to the social insurance plan and the housing provident fund for their employees, such contribution amount payable shall be calculated based on the employee’s actual salary in accordance with the relevant regulations. In case the employer failed to make sufficient payment of the social insurance, it may be subject to fine up to 3 times of the insufficient amount. If the employer failed to register with relevant housing provident fund management center or failed to open special housing provident fund accounts for the employees within the ordered time limit, a fine of not less than RMB10,000 nor more than RMB50,000 may be imposed. In addition, if the employer fails to pay sufficient contributions to housing provident fund as required, the housing provident fund management center shall order it to make the payment and deposit within a prescribed time limit; where the payment has not been made after the expiration of the time limit, the housing provident fund management center may request the people's court for compulsory enforcement. On July 20, 2018, the General Office of the Communist Party of China and the General Office of the State Council jointly issued the Reform Plan on Tax Collection and Administration Systems for Local Offices of the State Administration of Taxation and Local Taxation Bureaus, according to which the collection and administration of social insurance will be transferred from the social insurance departments to competent tax authorities, and the supervision over the payment of social insurance will be significantly strengthened in the way that an enterprise must pay social insurance for its employees based on their overall salary at certain legally required rates. If we are fined due to insufficient payment of the social insurance and housing fund of the employees, our business operations could be materially and adversely affected.

 

You may face difficulties in protecting your interests and exercising your rights as a stockholder of ours since we conduct substantially all of our operations in China and all of our officers and directors reside in China.

 

We conduct substantially all of our operations in China through Shuhai Beijing, our consolidated VIE in China. All of our current officers and directors reside outside the United States and substantially all of the assets of those persons are located outside of the United States. Because of this factor, it may be difficult for you to conduct due diligence on our company, our executive officers or directors 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, directors or major stockholders than would stockholders of a corporation doing business entirely or predominantly within the United States.

 

You may experience difficulties in protecting your rights through the United States courts.

 

Currently, substantially all of our operations are conducted in China and substantially all of our assets are located in China. All of our officers are nationals or residents of the PRC and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a stockholder to effect service of process within the United States upon these persons, or to enforce judgments against us which are obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

 

In addition, it may be difficult or impossible for you to effect service of process within the United States upon us our directors and officers in the event that you believe that your rights have been violated under United States securities laws or otherwise. Even if you are successful in effecting service of process and bringing an action of this kind, the laws of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the PRC of judgments obtained in the United States.

 

Increases in labor costs in the PRC may adversely affect our business and our profitability.

 

The economy of China has been experiencing significant growth, leading to inflation and increased labor costs. China’s overall economy and the average wage in the PRC are expected to continue to grow. Future increases in China’s inflation and material increases in the cost of labor may materially and adversely affect our profitability and results of operations.

 

To the extent that our independent registered public accounting firm’s audit documentation related to their audit reports for our company are located in China, the PCAOB may not be able inspect such audit documentation and, as such, you may be deprived of the benefits of such inspection.

 

Our independent registered public accounting firm issued an audit opinion on the financial statements included in this prospectus filed with the SEC and will issue audit reports related to our company in the future. As auditors of companies that are traded publicly in the United States and a firm registered with the PCAOB, our auditor is required by the laws of the United States to undergo regular inspections by the PCAOB. However, to the extent that our auditor’s work papers are or become located in China, such work papers will not be subject to inspection by the PCAOB because the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities. Inspections of certain other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The inability of the PCAOB to conduct inspections of our auditors’ work papers in China would make it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may consequently lose confidence in our reported financial information and procedures and the quality of our financial statements. As a result, our investors may be deprived of the benefits of PCAOB’s oversight of our auditors through such inspections. 

 

We may be subject to intellectual property infringement claims, which may force us to incur substantial legal expenses and, if determined adversely to us, materially disrupt our business.

 

Internet and technology companies are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of third-party rights. The validity, enforceability and scope of protection of intellectual property in Internet-related industries, particularly in China, are uncertain and still evolving. In addition, many parties are actively developing and seeking protection for Internet-related technologies, including seeking patent protection. There may be patents issued or pending that are held by others that cover significant aspects of our technologies, products, business methods or services. As we face increasing competition and as litigation becomes more common in China in resolving commercial disputes, we face a higher risk of being the subject of intellectual property infringement claims.

 

In particular, if we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, may be ordered to pay damages or fines, and may incur licensing fees or be forced to develop alternatives. We may incur substantial expense in defending against third party infringement claims, regardless of their merit. Successful infringement claims against us may result in substantial monetary liability or may materially disrupt the conduct of our business by restricting or prohibiting our use of the intellectual property in question. Any intellectual property litigation could have a material adverse effect on our business, financial condition or results of operations.

 

  23  

 

 

Risks Relating to This Offering and Our Common Stock

 

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

 

Our officers and directors collectively hold over 78% beneficial ownership of our Company. Two directors are members of the same family. 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. These individuals also have significant control over our business, policies and affairs as officers and directors of our Company. Therefore, you should not invest in reliance on your ability to have any control over our Company.

 

An active and visible trading market for our common stock may not develop.

 

We cannot predict whether an active market for our common stock will 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 our common stock may be limited; and

 

  · A lack of visibility for our common stock may have a depressive effect on the market price for our common stock.

 

The trading price of our common stock is subject to significant fluctuations in response to variations in quarterly operating results, changes in analysts’ earnings estimates, announcements of innovations by us or our competitors, general conditions in the industry in which we operate and other factors. These fluctuations, as well as general economic and market conditions, may have a material or adverse effect on the market price of our common stock.

 

The market price for our common stock may be volatile.

 

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;

 

  24  

 

 

  · negative publicity, studies or reports;
  · conditions in Chinese and global cybersecurity product markets;
  · 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 impacting 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 is 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.

 

Our common stock is “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.

 

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 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 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 15-2 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.  

 

  25  

 

 

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 prospectus. 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 our common stock.

 

In general, under 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 Shuhai Beijing. Shuhai 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.  

 

  26  

 

 

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;

 

  our ability to manage or expand operations and to fill customers’ orders on time;

 

  our ability to maintain adequate control of our expenses 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.

 

  27  

 

 

USE OF PROCEEDS

 

After deducting the underwriting discounts and commissions and estimated expenses of this offering payable by us, we expect net proceeds from this offering of approximately $3.95 million based on an assumed offering price of $5.00 per share, the midpoint of the estimated price range set forth on the cover page of this prospectus. If the underwriters fully exercise the over-allotment option, net proceeds from this offering of approximately $4.7 million . The net proceeds from this offering must be remitted to China before we will be able to use the funds to grow our business. The procedure to remit funds may take several months after completion of this offering, and we will be unable to use the offering proceeds in China until remittance is completed. See “Risk Factors – We must remit the offering proceeds to China before they may be used to benefit our business in China, and we cannot assure that we can finish all necessary governmental registration process in a timely manner.

 

We intend to use the net proceeds of this offering as follows after we complete the remittance process:

  

  · Approximately 12.5% for product innovation and development;

  · Approximately 50% for product manufacturing;

  · Approximately 25% for marketing and expansion; and

  · Approximately 12.5% for general working capital.

 

The precise amounts and percentage of proceeds we devote to particular categories of activity, and their priority of use, will depend on prevailing market and business conditions as well as on the nature of particular opportunities that may arise from time to time. Accordingly, we reserve the right to change the use of proceeds that we presently anticipate and describe herein. Pending remitting the offering proceeds to China, we intend to invest our net proceeds in short-term, interest bearing, and investment-grade obligations.

 

  28  

 

 

DIVIDEND POLICY

 

We do not anticipate paying dividends on our common stock at any time in the foreseeable future. Our Board of Directors currently plans to retain earnings for the development and expansion of our business. Any future determination as to the payment of dividends will be at the discretion of our Board of Directors and will depend on a number of factors including future earnings, capital requirements, financial conditions and such other factors as the Board may deem relevant.

 

In addition, due to various restrictions under PRC laws on the distribution of dividends by a Wholly Foreign-owned Enterprise, we may not be able to pay dividends to our shareholders. The Wholly Foreign-owned Enterprise Law (as amended in 2016), and the Wholly Foreign-owned Enterprise Law Implementing Rules (as amended in 2014), and the Company Law of the PRC (as amended in 2013), contain the principal regulations governing dividend distributions by wholly foreign owned enterprises. Under these regulations, wholly foreign owned enterprises may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. Additionally, such companies are required to set aside at least 10% of their accumulated profits each year, if any, to fund certain reserve funds until such time as the accumulated reserve funds reach and remain above 50% of the registered capital amount. These reserves are not distributable as cash dividends except in the event of liquidation and cannot be used for working capital purposes. Furthermore, if our subsidiaries and affiliates in China incur debt on their own in the future, the instruments governing the debt may restrict our ability to pay dividends or make other payments. If we or our subsidiaries and affiliates are unable to receive all of the revenues from our operations through the current contractual arrangements, we may be unable to pay dividends on our common stock.

 

  29  

 

 

CAPITALIZATION

 

The following table sets forth our capitalization as of June 30, 2018:

 

    on an actual basis; and

 

    a pro forma basis giving effect to the sale of 1,000,000 shares of common stock in this offering at an assumed offering price of $5.00 per share, which represents the mid-point of the estimated range of the public offering price shown on the front cover of this prospectus, after deducting the commissions and discounts payable to the underwriter.

 

You should read this table in conjunction with our financial statements and related notes appearing elsewhere in this prospectus and “Use of Proceeds” and “Description of Securities.” The translation rates applied to the balance sheet amounts as of June 30, 2017 and income statement accounts for the 12 months ended June 30, 2017 were RMB 6.7769 to $1.00 and RMB 6.8113 to $1.00, respectively. The translation rates applied to the balance sheet amounts as of June 30, 2018 and income statement accounts for the 12 months ended June 30, 2018 were RMB 6.6553 to $1.00 and RMB 6.6667 to $1.00, respectively.

 

The pro forma information below is illustrative only and our capitalization following the completion of this offering is subject to adjustment based on the offering price of our common stock and other terms of this offering determined at pricing. You should read this table in conjunction with our financial statements and notes thereto included in this prospectus, and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 

    As of June 30, 2018  
    Actual     Pro Forma
Adjusted for this
Offering (1)
 
Long-term debt   $ -     $ -  
Share capital (19,170,846 shares of common stock issued and outstanding, actual; 20,170,846 shares of common stock issued and outstanding, as adjusted)     19,171       20,171  
Additional Paid-in Capital (2)     5,121,102       10,693,516  
Accumulated deficit     (4,124,947 )     (4,124,947 )
Accumulated Other Comprehensive Income     170,795       170,795  
Total Shareholders’ Equity     1,186,121       6,759,535  
Total Capitalization   $ 1,186,121     $ 6,759,535  

  

(1)

A $1.00 increase (decrease) in the assumed public offering price of $5.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) share capital and total capitalization by $1 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses. A one million share increase (decrease) in the number of shares sold by us in this offering would increase (decrease) share capital and total capitalization by approximately $  5  million, assuming a public offering price of $5.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses.

 

If the underwriters’ over-allotment option to purchase additional shares of common stock from us was exercised in full, pro forma (i) common stock would be 20,320,846 shares, (ii) additional paid-in capital would be $11,443,366, (iii) total stockholders’ equity would be $7,509,535 and (iv) total capitalization would be $7,509,535.

 

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DILUTION

 

If you invest in our common stock, your interest will be diluted to the extent of the difference between the offering price per share of common stock and the pro forma net tangible book value per share of common stock after the offering. Dilution results from the fact that the per share of common stock offering price is substantially in excess of the book value per share of common stock attributable to the existing shareholders for our presently outstanding common stock. Our net tangible book value attributable to shareholders at June 30, 2018 was $1,172,234, or approximately $0.06 per share. Net tangible book value per share of common stock as of June 30, 2018 represents the amount of total tangible assets less goodwill, acquired intangible assets and total liabilities, divided by the number of shares of common stock outstanding.

 

The dilution in net tangible book value per share to new investors, represents the difference between the amount per share paid by purchasers of shares in this offering and the pro forma net tangible book value per share immediately after completion of this offering. After giving effect to the sale of the 1,000,000 shares being sold pursuant to this offering at $5.00 per share (the mid-point of the estimated public offering price range shown on the cover page of this prospectus) and after deducting underwriting discount and commission payable by us in the amount of $630,000 and estimated offering expenses in the amount of approximately $0.7 million, our pro forma net tangible book value would be approximately $6.7 million or $0.35 per share of ordinary shares. This represents an immediate increase in net tangible book value of $0.29 per share to existing shareholders and an immediate and substantial dilution in net tangible book value of $4.65 per share to new investors purchasing the shares in this offering.

 

The following table sets forth the estimated net tangible book value per share of common stock after the offering and the dilution to persons purchasing common stock based on the foregoing offering assumptions.

 

    As of
June 30,
2018
 
Assumed public offering price per share (the mid-point of the estimated public offering price range shown on the cover page of this prospectus)   $ 5.00  
Net tangible book value per share as of June 30, 2018   $ 0.06  
Increase in pro forma net tangible book value per share attributable to price paid by new investors   $ 0.29  
Pro forma net tangible book value per share after this offering   $ 0.35  
Dilution in pro forma net tangible book value per share to new investors in this offering   $ 4.65  

 

A $1.00 increase (decrease) in the assumed public offering price would increase (decrease) our pro forma net tangible book value per share after this offering by approximately $0.06, and increase the value per share to new investors by approximately $0.06, after deducting the underwriting discounts and estimated offering expenses payable by us.

 

You will experience further dilution if the underwriters exercise their over-allotment option. If the underwriters exercise their over-allotment option in full, the pro forma net tangible book value per share would be $0.35 per share, and the dilution per share to new investors in this offering would be $4.65 per share.

 

The following table sets forth, on an as adjusted basis as of June 30, 2018, the difference between the number of common stock purchased from us, the total cash consideration paid, and the average price per share paid by our existing shareholders and by new public investors before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, using an assumed public offering price of $5.00 per share, the mid-point of the estimated public offering price range shown on the cover page of this prospectus:

 

    Shares Purchased     Total Cash Consideration        
    Number     Percent     Amount     Percent    

Average

Price Per

Share

 
Existing shareholders     19,170,846        95%        5,140,273     51%        0.27   
New investors from public offering     1,000,000        5%        5,000,000        49%        5.00   
Total     20,170,846        100%        10,140,273        100%           

 

*Total consideration represents historical capital contribution attributable to controlling shareholders of the Company, our subsidiaries and VIEs.

 

 After giving effect to the sale of common stock in this offering by us, if the underwriters exercise in full their over-allotment option, our existing shareholders would own 94% and purchasers of common stock in this offering would own 6% of the total number of shares of common stock outstanding upon completion of this offering.

 

  31  

 

 

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.

 

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 “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 were incorporated in the State of Nevada on September 26, 2014 under the name Rose Rock Inc. (“Rose Rock”) and changed our name to Datasea Inc. on May 27, 2015 by amending our articles of incorporation.

 

On October 29, 2015, we entered into a share exchange agreement (the “Exchange Agreement”) with the shareholders (the “Shareholders”) of Shuhai Information Skill (HK) Limited (“Shuhai Skill (HK)”), a limited liability company incorporated on May 15, 2015 under the laws of the Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”). Pursuant to the terms of the Exchange Agreement, the Shareholders, who together own 100% of the ownership rights in Shuhai Skill (HK), transferred all of the issued and outstanding ordinary shares of Shuhai Skill (HK) to us in exchange for the issuance of an aggregate of 20,000,000 shares of Common Stock (giving effect to the Forward Split on November 12, 2015 but without giving effect to the reverse stock split that became effective on May 1, 2018) thereby causing Shuhai Skill (HK) and its wholly owned subsidiaries, Tianjin Information Sea Information Technology Co., Ltd. (“Tianjin Information”), a limited liability company incorporated under the laws of the PRC, and Harbin Information Sea Information Technology Co., Ltd., a limited liability company incorporated under the laws of the PRC, to become our wholly-owned subsidiaries, and Shuhai Information Technology Co., Ltd., also a limited liability company incorporated under the laws of the PRC (“Shuhai Beijing”), to become our variable interest entity (“VIE”) through a series of contractual agreements between Shuhai Beijing and Tianjin Information. The transaction was accounted for as a reverse merger, with Shuhai Skill (HK) and its subsidiaries being the accounting survivor. Accordingly, the historical financial statements presented are those of Shuhai Skill (HK) and its consolidated subsidiaries. 

 

On October 29, 2015, Rose Rock’s founder, Xingzhong Sun, sold his remaining 5,000,000 shares of common stock of Rose Rock to Zhixin Liu. Following the transaction, Zhixin Liu and her father, Fu Liu, beneficially owned approximately 81.82% of the outstanding shares of our common stock. As of October 29, 2015, there were 55,000,000 (giving effect to the Forward Split on November 12, 2015 but without giving effect to the reverse stock split that became effective on May 1, 2018) shares of common stock issued and outstanding, 45,000,000 of which were owned by Zhixin Liu and Fu Liu.

 

On November 12, 2015, we effected a five-for-one forward split (the “Forward Split”) of the common stock, pursuant to which each shareholder of our Company was issued five shares of common stock in exchange for each share of their then-issued common stock. In conjunction with the Forward Split, our authorized shares of common stock increased from 75,000,000 shares to 375,000,000 shares. Immediately following the Forward Split, we had a total of 55,000,000 issued and outstanding shares of common stock (giving effect to the Forward Split on November 12, 2015 but without giving effect to the reverse stock split that became effective on May 1, 2018).

 

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Following the reverse merger, our Company, through our consolidated subsidiaries, is in the business of providing Internet security products, new media advertising, micro-marketing, and data analysis services in the PRC.

 

We started to sell our products during the calendar year 2016. In January 2016, we secured a government procurement contract with the Bureau of Public Security of Daqing City in Heilongjiang Province, China. Pursuant to the contract, we installed wireless internet terminal collection equipment and 3G wireless network cards, as well as provided training services related to the use of the equipment for a total contract price of RMB1,050,000 (approximately $157,499). The project was accepted by the customer in the quarter ended December 31, 2016.

 

We recognized $9,034 and $131,757 of revenue in connection with the project during the years ended June 30, 2018 and 2017, respectively.

 

We believe that the increased demand for security equipment and related services in China, presents a great opportunity for our Company to establish and grow its business in the next twelve months.

 

Since 2017, we have focused on the development of its “Safe Campus” program that uses our Xin Platform to provide teachers, students and families with comprehensive campus information, student safety management and integrated education information. As of the date of this prospectus, we have signed agreements with 27 schools in six provinces, to use the “Safe Campus” program. Pursuant to these agreements, we provide equipment such as smart student ID cards, PC terminals, RFID devices and relevant applications and software to the schools for free. In return, we have the right to post advertisements, operate an online shopping space and collect the data stored on the equipment and the platform. All the equipment is allowed to be used solely for our designed purpose. The terms of the agreements vary from school to school. We have begun to implement the system as well as to further introduce this program to more schools. With the increase in user base, we hope to generate revenue from sales of advertisements via its program.

 

Recent Developments

 

On March 15, 2018, we entered into a banking service direct sales cooperation agreement with China Minsheng Bank. Pursuant to the Minsheng Agreement, we will establish a portal on our “Xin Platform” through which the platform users may purchase financial products offered by China Minsheng Bank. In consideration, China Minsheng Bank will pay us service fees calculated based on the amount of the financial products the platform users purchase and hold. For each specific product, the service fee will be calculated according to the following formula:

  

T-days service fee = annual rate (0.12%) × the amount of the financial products the platform users maintain as of day (T-1) × net value of the financial product ÷ 365

 

The Minsheng Agreement has a term of two years and will be automatically extended one more year if neither party terminates the Minsheng Agreement within the last month of the initial two-year term.

 

In March and April 2018, we entered into six membership service agreements with five entities and one individual, three of which are stockholders of our company, and eleven agency agreements with eleven individuals, nine of which are stockholders of our company. Pursuant to the membership service agreements, we offer member management services through our Xin Platform APP and charge the entering parties a service fee of RMB1,000 (approximately $150) per member. Pursuant to the agency agreements, the agents are authorized as agents to market Xin Platform APP in specific areas of China. Each agent is required to pay a Xin Platform APP usage fee of $750 and deposit $750 in financial products offered by China Minsheng Bank via Xin Platform APP. Each agent will receive $8 for each customer that applies for a credit card of China Minsheng Bank via Xin Platform APP. 

 

On April 12, 2018, our board of directors and stockholders approved a one-for-three reverse stock split of our issued and outstanding shares of common stock, which became effective on May 1, 2018, decreasing the number of outstanding shares from 57,511,771 to 19,170,827. Subsequent to the split, the number of our outstanding shares increased from to 19,170,827 to 19,170,846 to accommodate certain shareholders’ positions due to rounding elections payable at the beneficial owner level. Unless otherwise stated, all shares and per share amounts in this prospectus have been retroactively adjusted to give effect to this stock split.

 

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Results of Operations

 

Years Ended June 30, 2018 and 2017

 

Revenue

 

We recognized $10,571 of revenue during year ended June 30, 2018, as compared to $140,774 for the year ended June 30, 2017, of which $131,757 was from the government procurement contract with the Bureau of Public Security of Daqing City in Heilongjiang Province, China and $9,017 was from the service rendered to the Daqing project. During 2017, we suspended our marketing efforts on the cybersecurity program in order to focus our resources on the “Safe Campus” and “Smart Elevator” programs. As such, until we decide to resume our marketing efforts for the cyber security program, it is unlikely for us to secure additional government procurement contracts or generate additional revenues under this program.

 

Cost of Goods and Gross Profit

 

We recorded $4,819 and $85,397 of cost of goods sold for the years ended June 30, 2018 and 2017, respectively.

 

We had gross profit of $5,752 and $55,377 for the years ended June 30, 2018 and 2017, respectively.

 

Selling, General and Administrative Expenses:

 

Selling expenses were $172,029 and $151,600 for the years ended June 30, 2018 and 2017, respectively.

 

General and administrative expenses were $1,133,534 and $953,767 for the years ended June 30, 2018 and 2017, respectively. The increase was primarily due to an increase in salaries since the Company hired more employees to work on the “Safe Campus” and “Smart Elevator” programs.

 

We incurred research and development expenses of $361,616 and $203,600 during years ended June 30, 2018 and 2017, respectively to advance our “Safe Campus” and “Smart Elevator” programs.

 

Net Loss

 

As a result of the foregoing, we generated net losses of $1,604,141 and $1,193,216 for the years ended June 30, 2018 and 2017, respectively.

 

Liquidity and Capital Resources

 

We have funded our operations to date primarily through the sale of our common stock and shareholder loans. Based on our current cash level and management’s forecast of operating cash flows, we expect to be able to fund our operations with our currently available resources until December 2018 and need to raise another RMB 50 to 80 million (approximately U.S. $8.5 million to U.S. $12 million) to fund our operations from January 2019 to June 2019.

 

Due to our negative cash flow from operating activities since inception, there is substantial doubt about our ability to continue as a going concern. The Company’s management recognizes that we must generate sales and obtain additional financial resources to continue to develop operations. Based on increased demand for internet services in China, including internet security and data integration, the Company expects to generate revenue during the year ending June 30, 2019, which will be used to fund its operations. In addition, the Company intends to raise additional funds through debt increases and/or equity financing or through other means that it deems necessary. However, there can be no assurance that financing will be available in amounts or on terms acceptable to the Company, if at all.

 

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As of June 30, 2018, we had a working capital of $1,044,432. Our current assets on June 30, 2018 were $1,235,276 primarily consisting of cash of $1,031,486, inventory of $75,910 and prepaid expenses and other current assets of $127,880. Our current liabilities were primarily composed of accounts payable of $13,503, accrued expenses and other payables of $150,283 and loans payable to a shareholder of $27,058. As of September 30, 2018, we have fully repaid the outstanding loans payable of $27,058.

 

Cash Flow from Operating Activities

 

Net cash used in operating activities was $1,484,730 during the year ended June 30, 2018, which consisted of our net loss of $1,604,141, offset by depreciation and amortization of $32,694, expenses paid by our president of $9,000, a change of accounts receivable of $225, a change of inventory of $27,195, a change of prepaid expenses and other current assets of $31,660, and a change of accrued expenses and other payables of $81,958.

 

Net cash used in operating activities was $1,061,538 during the year ended June 30, 2017, which consisted of our net loss of $1,193,216, offset by depreciation and amortization of $50,097, expenses paid by our president of $88,496, a change of accounts receivable of $221, a change in project in progress of $213,321, a change in inventory of $90,122, a change of prepaid expenses and other current assets of $1,479, a change of accrued expenses and other payables of $51,609, and a decrease of accounts payable of $180,023. 

 

Cash Flow from Investing Activities

 

Cash used in investing activities totaled $27,454 for the year ended June 30, 2018, which primarily related to cash paid for the acquisition of office furniture, equipment and patent.

 

Net cash used in investing activities totaled $10,676 for the year ended June 30, 2017, which primarily related to cash paid for the acquisition of intangible assets and office equipment. 

 

Cash Flow from Financing Activities

 

Net cash provided by financing activities was $1,235,870 during the year ended June 30, 2018, which primarily consisted of payment of a shareholder loan, net of $123,850, the net proceeds from issuance of the Company’s common stock of $2,118,525 offset by advance for issuance of common stock of $686,397 received in the previous period and deferred registration costs of $72,408.

 

Net cash provided by financing activities was $2,227,905 during the year ended June 30, 2017, which primarily consisted of payment of a shareholder loan, net of $131,660, the proceeds from issuance of the Company’s common stock of $1,687,740 and an advance received for issuance of common stock of $671,825. 

 

Off-Balance Sheet Arrangements

 

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Inflation

 

We do not believe our business and operations have been materially affected by inflation.  

 

Critical Accounting Policies, Assumptions and Estimates

 

Please also refer to Note 3 to the Condensed Consolidated Financial Statements.

 

USE OF ESTIMATES

 

The preparation of consolidated 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant areas requiring the use of management estimates include, but are not limited to, the estimated useful life and residual value of property and equipment, provision for staff benefits, recognition and measurement of deferred income taxes and the valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates and such differences may be material to our consolidated financial statements.

 

Contingencies

 

Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that may be pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s consolidated financial statements.

 

If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, demand deposits and short-term cash investments that are highly liquid in nature and have original maturities of three months or less.

 

Inventory

 

Inventory, principally purchased routers used in installations and electronic student cards, is valued at the lower of cost or net realizable value. The value of inventory is determined using the first-in, first-out method. The Company periodically estimates an inventory allowance for estimated unmarketable inventories when necessary. Inventory amounts are reported net of such allowances.

 

 

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BUSINESS

 

Overview

 

We are an emerging technology company in China engaged in the development of IT system and network security solutions. We primarily focus on IT system security and leverage our proprietary technologies, intellectual property, innovative products and market intelligence to provide comprehensive and optimized security solutions to our clients. We have been certified as one of the Zhongguancun High Tech Enterprises (issued by the Zhongguancun Science Park Administrative Committee) in recognition of our achievement in high technology products. Our cyber security engineers and experts create, design, build and run various security programs tailored to our clients’ needs. Through our professional team and strong expertise in the system security field, we offer our clients a broad portfolio of system security solutions or services, along with strategic advice and ongoing management of their security infrastructure. 

 

While we have in the past sold and may in the future sell our security solutions as a stand-alone aspect of our business, our current primary business plan anticipates generating most of our revenues from online and offline marketing services, targeted at users of our security solutions in China. For example, users of our “Safe Campus” security system will receive advertisements through our mobile application installed on their smart phones. Advertisements may also be displayed on the hardware of our “Safe Campus” security system, including on the lanyards of our smart student ID cards. Utilizing our security systems and the data collected from users of our security systems and our online platform, we will seek to provide targeted, one stop marketing solutions to businesses.

 

We have generated very limited revenues to date, and as such we shifted our business focus over the past 12 months from cybersecurity to our “Safe Campus” and “Smart Elevator” security and related marketing solutions as described further below.

 

In order to provide efficient and targeted marketing services, we have independently developed the “Xin Platform,” an online platform that can identify potential customers and market products and services to targeted groups based on the data we collect through our security systems. The Xin Platform also serves as our O2O management platform, which can provide marketing services to traditional merchants such as supermarkets, hotels, shopping malls and restaurants. It also provides support for various other security programs that we develop and/or provide, including our “Safe Campus” security system and “Smart Elevator” security system.

 

Based on the Xin Platform, coupled with the IoT technology and cloud computing, we developed our “Safe Campus” system as an advanced and simple solution to campus security, which has been a rising concern in China. Our “Safe Campus” system consists of student ID card terminals, RFID readers, campus information management platform, partner management platform and cellphone application terminals, utilizing technologies such as RFID, GPS, LBS, and cloud based calculation.

 

In the elevator security space, our “Smart Elevator” security and management system provides a solution to lower the operating cost of elevators and promote the safety of passengers. The system will include an emergency and rescue terminal and a data collection system. Once installed, our terminals will collect data of the elevator operation, regular maintenance services, annual inspections and any malfunctions which enables faster and more efficient error detection and repairs.

 

We also hope to become a provider of data processing services in China. We are in the process of developing systems to analyze industry trends, market and customer data, supply chain, financial information, risk detection and management.

 

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Recent Developments

 

On March 15, 2018, we entered into a banking service direct sales cooperation agreement with China Minsheng Bank. Pursuant to the Minsheng Agreement, we will establish a portal on our “Xin Platform” through which the platform users may purchase financial products offered by China Minsheng Bank. In consideration, China Minsheng Bank will pay us service fees calculated based on the amount of the financial products the platform users purchase and hold. For each specific product, the service fee will be calculated according to the following formula:

 

T-days service fee = annual rate (0.12%) × the amount of the financial products the platform users maintain as of day (T-1) × net value of the financial product ÷ 365

 

The Minsheng Agreement has a term of two years and will be automatically extended one more year if neither party terminates the Minsheng Agreement within the last month of the initial two-year term.

 

In March and April 2018, we entered into six membership service agreements with five entities and one individual, three of which are stockholders of our company, and eleven agency agreements with eleven individuals, nine of which are stockholders of our company. Pursuant to the membership service agreements, we offer member management services through our Xin Platform APP and charge the entering parties a service fee of RMB1,000 (approximately $150) per member. Pursuant to the agency agreements, the agents are authorized as agents to market Xin Platform APP in specific areas of China. Each agent is required to pay a Xin Platform APP usage fee of $750 and deposit $750 in financial products offered by China Minsheng Bank via Xin Platform APP. Each agent will receive $8 for each customer that applies for a credit card of China Minsheng Bank via Xin Platform APP.

 

On April 12, 2018, our board of directors and stockholders approved a one-for-three reverse stock split of our issued and outstanding shares of common stock, which became effective on May 1, 2018, decreasing the number of outstanding shares from 57,511,771 to 19,170,827. Subsequent to the split, the number of our outstanding shares increased from to 19,170,827 to 19,170,846 to accommodate certain shareholders’ positions due to rounding elections payable at the beneficial owner level. Unless otherwise stated, all shares and per share amounts in this prospectus have been retroactively adjusted to give effect to this stock split

 

History

 

We were incorporated under the laws of the State of Nevada on September 26, 2014 under the name Rose Rock Inc. On May 27, 2015, we amended our articles of incorporation to change our name to Datasea Inc. Up until October 2015, our primary business activities were providing consulting services to various U.S. companies seeking to do business in China as well as Chinese companies looking to enter the U.S. markets. Nonetheless, we were considered a shell company as defined in Rule 12b-2 under the Securities Act, as we had no or nominal business operations, employees and/or assets.

 

On May 26, 2015, pursuant to the terms of a stock purchase agreement, Ms. Zhixin Liu purchased 20,000,000 shares*, or 57.14%, of the issued and outstanding shares of our common stock from Mr. Xingzhong Sun, who was our sole officer, director and majority shareholder at the time of the transaction. As part of the transaction, Zhixin Liu was appointed as the Chairman of our Board of Directors (the “Board”). 

 

On October 29, 2015, we entered into a share exchange agreement (the “Exchange Agreement”) with Ms. Zhixin Liu and Mr. Fu Liu, the members (“Members”) of Shuhai Information Skill (HK) Limited (“Shuhai Skill (HK)”), a limited liability company incorporated under the laws of the Hong Kong Special Administrative Region of the PRC, whereby the Members transferred all of their membership interests of Shuhai Skill (HK) to us in exchange for the issuance of an aggregate of 20,000,000 shares* of our common stock (the transaction, hereinafter referred to as the “Share Exchange”). Upon consummation of the Share Exchange, Shuhai Skill (HK) and its consolidated subsidiaries, Tianjin Information Sea Information Technology Co., Ltd., a limited liability company incorporated under the laws of the PRC (“Tianjin Information”), became our wholly-owned subsidiary, and Shuahi Information Technology Co., Ltd., also a limited liability company incorporated under the laws of the PRC (“Shuhai Beijing”), through its existing contractual relationship with Tianjin Information, became our variable interest entity (“VIE”). In addition, Xinzhong Sun resigned from the positions as our director, President, Secretary and Treasurer. Ms. Liu was appointed as our Chairman of the Board, Chief Executive Officer, President, Interim Chief Financial Officer, Treasurer and Secretary and Mr. Liu was appointed as a director. Mr. Liu is the father of Ms. Liu.

 

As a result of the Share Exchange, we, through our consolidated subsidiaries, are engaged in the business of providing Internet security products, new media advertising, micro-marketing, data analysis services in the PRC. All business operations are conducted through our wholly-owned subsidiary, Tianjin Information, and through Shuhai Beijing, our VIE. Shuhai Beijing is considered to be a VIE because we do not have any direct ownership interest in it, but, as a result of a series of contractual agreements (the “VIE Contractual Agreements”) among Tianjin Information, Shuhai Beijing and its shareholders, we are able to exert effective control over Shuhai Beijing and receive 100% of the net profits or net losses derived from the business operations of Shuhai Beijing. The VIE Contractual Agreements are more fully described below.

 

VIE Agreements

 

Operation and Intellectual Property Service Agreement – The Operation and Intellectual Property Service Agreement allows Tianjin Information to manage and operate Shuhai Beijing and collect 100% of their net profits. Under the terms of the Operation and Intellectual Property Service Agreement, Shuhai Beijing entrusts Tianjin Information to manage its operations, manage and control its assets and financial matters, and provide intellectual property services, purchasing management services, marketing management services and inventory management services to Shuhai Beijing. Shuhai Beijing and its shareholders shall not make any decisions nor direct the activities of Shuhai Beijing without Tianjin Information’s consent.

 

Shareholders’ Voting Rights Entrustment Agreement  – Tianjin Information has entered into a shareholders’ voting rights entrustment agreement (the “Entrustment Agreement”) under which Zhixin Liu and Fu Liu (collectively the “Shuhai Beijing Shareholders”) have vested their voting power in Shuhai Beijing to Tianjin Information or its designee(s). The Entrustment Agreement does not have an expiration date, but the parties can agree in writing to terminate the Entrustment Agreement.

 

Equity Option Agreement – the Shuhai Beijing Shareholders and Tianjin Information entered into an equity option agreement (the “Option Agreement”), pursuant to which the Shuhai Beijing Shareholders have granted Tianjin Information or its designee(s) the irrevocable right and option to acquire all or a portion of Shuhai Beijing Shareholders’ equity interests in Shuhai Beijing for an option price of RMB0.001 for each capital contribution of RMB1.00. Pursuant to the terms of the Option Agreement, Tianjin Information and the Shuhai Beijing Shareholders have agreed to certain restrictive covenants to safeguard the rights of Tianjin Information under the Option Agreement. Tianjin Information agreed to pay RMB1.00 annually to Shuhai Beijing Shareholders to maintain the option rights. Tianjin Information may terminate the Option Agreement upon prior written notice. The Option Agreement is valid for a period of 10 years from the effective date and renewable at Tianjin Information’s option.

 

* Without giving effect to our one-for-three reverse stock split that became effective on May 1, 2018.

 

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Equity Pledge Agreement  – Tianjin Information and the Shuhai Beijing Shareholders entered into an equity pledge agreement on October 27, 2015 (the “Equity Pledge Agreement”). The Equity Pledge Agreement serves to guarantee the performance by Shuhai Beijing of its obligations under the Operation and Intellectual Property Service Agreement and the Option Agreement. Pursuant to the Equity Pledge Agreement, Shuhai Beijing Shareholders have agreed to pledge all of their equity interests in Shuhai Beijing to Tianjin Information. Tianjin Information has the right to collect any and all dividends, bonuses and other forms of investment returns paid on the pledged equity interests during the pledge period. Pursuant to the terms of the Equity Pledge Agreement, the Shuhai Beijing Shareholders have agreed to certain restrictive covenants to safeguard the rights of Tianjin Information. Upon an event of default or certain other agreed events under the Operation and Intellectual Property Service Agreement, the Option Agreement and the Equity Pledge Agreement, Tianjin Information may exercise the right to enforce the pledge.

 

Corporate Structure

 

The chart below depicts the corporate structure of the Company as of the date of this prospectus.

 

 

* Harbin Information Sea Information Technology Co., Ltd. has had no operations since its inception.

 

“Safe Campus” Security System

  

We are currently focusing our efforts on the promotion of our Shuhai Smart Campus Safety Management System, or “Safe Campus” security system, which provides a comprehensive campus information platform that is accessible online or via a smartphone application for teachers, students and their families to enhance the communications between them. Our “Safe Campus” users to date have included mostly elementary and middle schools, which are our target markets.

 

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The Safe Campus system consists of both hardware products and service platform, including student ID card terminals, RFID readers, campus information management platform, partner management platform and mobile applications on teachers’ and parents’ cellphones, utilizing technologies such as RFID, GPS, LBS, and cloud based calculation. Through our smart student ID cards, schools can manage the profiles of all teachers and students and send campus-wide notifications. They are also able to grant and manage authority of teachers on the school platform. Through our platform, teachers are able to communicate with students via messages and calls; communicate with parents regarding their children; review daily and weekly class schedules; send out assignments and homework to students; notify parents of any class activities; receive notifications from school and any other school activities; and publish online education videos.

 

Through our platform, parents are able to communicate with teachers, locate and track the movement of their children; review class schedules and check-in record of their children; notify teachers/schools of any absence of their children; and review school news and online education videos. Parents can also block unauthorized numbers from reaching their children on their ID cards and set access limits for their children using our smart student ID cards. Our student ID cards automatically alarm parents in the event that their children enter any limited areas or take off their student ID cards. Through the parent terminals, parents can also purchase stationary, toys and food for their children in our online student shopping mall. Students are able to check in and out of school using their ID cards as well as send alarms in case of emergency.

 

Our student ID cards are intended to be worn by students every day. Our “Safe Campus” system is expected to generate revenue through advertisement display on student ID cards, computer terminals and WeChat platform, and rotating banner spots reserved for advertisement publishers in our cellphone application. Other than advertisement placement, we also plan to generate revenue through (i) fee arrangements with O2O merchants selling through our online platform to our users; (ii) paid online education services for student users; and (iii) arrangements with financial institutions to offer financial services through our mobile application and terminals.

 

As of June 30, 2018, there have been approximately 480,000 people who downloaded our mobile application. We plan to continue marketing our products primarily in key schools in big cities and engaging in negotiations with O2O product and service providers.

 

Campus Security Background and Potential Market

 

We believe on-campus security and the safety of children in general is of great importance and has been increasingly gaining attention in the PRC in recent years. According to the data from the National Bureau of Statistics in 2017, the population aged 0-15 in China reached 244 million in 2016. In 2016, the Education Committee of the State Council issued the “Notice on Carrying out the Special Remediation on Campus Bullying.” The “Opinions on Strengthening the Prevention and Control System of Child Safety Risk in Primary and Secondary Schools” issued by the General Office of the State Council in 2017 and the No. 168 Document on Printing and Distributing the Guidelines for the Work of Safety Precautions of Primary and Secondary Schools (for Trial Implementation) jointly issued by the Ministry of Public Security and the General Office of the Ministry of Education, call for further strengthening the safety management of primary and secondary schools and kindergartens. At the PRC State Conference held on April 12, 2017, the Prime Minister of China emphasized that the measures should be taken to further ensure the security and risk control system on campus, including installation of on campus security systems.

 

According to the Report of Market Prospective and Investment Strategy Planning on China Security Industry (2018-2023) published by Forward Intelligence Co., Ltd., Shenzhen, the market size for the security industry in China reached RMB620 billion (approximately US$90 billion) in 2017, representing an annual growth of 14.8%. The report estimated that the market size would reach RMB1,436.5 billion (approximately US$200 billion) by 2023.

 

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Our “Safe Campus” security system targets elementary and middle schools where students are typically more vulnerable. Our current distribution model prioritizes elementary schools and schools in the urban areas.

 

We have completed the development of three software systems and put a small amount of the hardware into production for testing. As of the date of this prospectus, the “Safe Campus” security system is still in its trial period and has not generated any revenues. We expect our “Safe Campus” security system to generate revenues through advertisements placed on the terminals as well as advertisements displayed on the online platform. We also expect to generate revenues through the O2O shopping mall, other O2O business (including student meal and online education program providers). We are currently in negotiation with several O2O product and service providers for our platform.

 

“Smart Elevator” Security and Management System

 

With our “Smart Elevator” security and management system, we are aiming to provide a solution to lower the operation cost of elevators and promote the safety of passengers. With the real estate market boom in China, the security and management system of elevators has changed dramatically over the last few years. We believe people want faster and safer service. We believe elevator service companies are trying to keep pace with the hectic growth of the industry while at the same time trying to increase revenue from maintenance and repair, eliminate fines, increase up-time, and provide better service to their customers.

 

Our “Smart Elevator” system will include an emergency and rescue terminal and a data collection system. Once installed, our terminals will collect data of the elevator’s operation, regular maintenance services, annual inspections and any malfunctions which enables faster and more efficient error detection and repairs. If any irregular data is detected on a particular elevator by the black box in our terminal, the distant surveillance system will automatically alarm the building and other responsible parties as a means of preventing major accidents. In case of sudden power loss, our system will immediately start the backup power and alarm the maintenance team. Our system can also enable passengers to alarm the building management in case of any emergency and facilitate their communication throughout the entire rescue process.

 

Through our Xin Platform, our “Smart Elevator” system also has the ability to locate the nearest maintenance crew and notify him/her of the emergency through text messages.

 

We plan to launch our “Smart Elevator” system once we complete our testing. We expect to complete testing by the end of 2018 and enter the market in 2019. Once launched, we expect to generate revenue through advertisements displayed on our system on the elevators as well as targeted marketing of elevator maintenance services once any potential safety concern is detected.

 

Data Processing Services

 

We also hope to become a provider of data processing services in China’s education industry. Currently, we are in the process of developing systems to analyze industry trends, market and customer data, supply chain, financial information, risk detection and management. We believe such processing services will be of use to businesses in a wide range of industries. In order to have the technical capacity to provide such services, our research and development process has two phases: data collection and data analysis. Through our “Safe Campus” platform, we obtain raw data on students, parents, teachers and schools. Since 2017, we have focused on collecting data from these platform end users to establish our database. We completed screening and cleaning the data by storing them into various categories based on marketplace needs in June 2018. We are in the process of analyzing the data by using mathematical formulas or algorithms to identify relationships among the variables, such as correlation or causation, and in particular, to investigate the behavioral tendencies of the students, parents, teachers and school administrations. Our goal is by the end of 2018 to have a clean and robust database structure on data of students, parents, teachers and schools and to have a deeper plan of collection and application in connection with our “Safe Campus” products. As of the date of this prospectus, we are in the data collection phase.

 

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Cybersecurity System and Equipment

 

We offer cybersecurity solutions based on our Xin Platform to provide cybersecurity and online surveillance services by recording activities of the terminal users, including application/software usages and access to certain individualized websites and software. It can also limit access to software and websites of the terminal users. We believe that our cybersecurity system meets the technical standards prescribed by the Ministry of Public Security of PRC and also aims to satisfy market demands for commercial cybersecurity products. We have developed three types of indoor equipment designed for facilities of different sizes and one type of outdoor equipment primarily for use by local branches of the Ministry of Public Security. In January 2016, we secured a government procurement contract with the Bureau of Public Security of Daqing City in Heilongjiang Province, pursuant to which we installed wireless internet terminal collection equipment and 3G wireless network cards, as well as provided training services related to the use of the equipment. The project was completed and accepted by the customer in the quarter ended December 31, 2016, generating $140,774 of revenue during year ended June 30, 2017. Because of the relatively low profit margin of our cybersecurity program, our business focus has shifted over the past 12 months from cybersecurity systems to our “Safe Campus “and “Smart Elevator” and related marketing programs. Our management has decided not to actively promote or internally advance our cybersecurity project for the time being. However, we are still maintaining our developed market and our products and may resume marketing activities for our cybersecurity system if management decides that market conditions are favorable.

 

Internet Service Provider Connecting Service

 

We have the technical capacity to provide ISP connecting service and also obtained the Value-Added Telecommunication Business Operating License in August 2015 from the PRC government to provide ISP connecting service. The major target consumers of ISP connecting services are merchants and public institutions that are users of Internet security equipment.

 

Competitive Strengths

 

We believe that our quality control and marketing teams have core management experience in technology programs such as IDC and ISP. Unlike most of the security systems provided by our competitors, our “Safe Campus” security system offers comprehensive logins and user friendly interfaces and allow communication between schools, teachers, parents and students. We believe that our “Smart Elevator” security and management system is in line with the Guidelines on Elevator Emergency Response Platform Development promulgated by the PRC General Administration of Quality Supervision, Inspection and Quarantine in April 2014.

 

Growth Strategy

 

We plan to vigorously market our “Safe Campus” system and  “Smart Elevator” systems through different channels such as charities, industry conferences and forums, online platforms and social media such as Weibo and free trials.  Our plan anticipates that with the increase in user base of our security solutions, we will generate revenues from advertising placements on our platforms and hardware as well as revenue sharing with other product and service providers utilizing our platforms.

 

Additionally, we hope to become a provider of data processing services in the PRC. To this end, we are developing systems to analyze industry trends, market and customer data, supply chain, financial information, risk detection and management. Such processing services can be used by businesses in a wide range of industries. In order to have the technical capacity to provide such services, our research and development process has two phases: data collection and data analysis. As the user base of our security solutions increase, we will have access to more data to support the development of our data processing service.

 

Research and Development

 

Our research and development effort is focused on developing new hardware and software and on enhancing and improving our existing products and services. Our engineering team has deep networking and security expertise and works closely with end-customers to identify their current and future needs. We believe that innovation and timely development of new features and products is essential to meeting the needs of our end-customer and improving our competitive position. We test our products thoroughly to certify and ensure their quality and interoperability with third-party hardware and software products.

 

For the fiscal years ended June 30, 2018 and 2017, our research and development expenses were approximately $361,616 and $203,600, respectively. We plan to continue to invest in resources to conduct our research and development efforts.

 

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Product Manufacturing

 

For cost savings purposes, we have outsourced the manufacture of hardware for our “Safe Campus” program to Shenzhen Yanze Technology Co., Ltd. (“Yanze”), a third party located in Guangdong Province. We have entered into three product purchase agreements – one dated September 6, 2016 and two dated April 1, 2017, respectively (collectively the “Yanze Agreement”). Pursuant to the Yanze Agreement, we agreed to purchase 4s electronic student cards, attendance machine and point-of-sale machines. We also agreed to pay 30% of the total price upon the execution of such agreement and another 70% within 10 days upon Yanze’s request when the products are ready. Yanze has the obligation to deliver the product within 30 days upon the receipt of first payment and meet the technical standards set forth by us and offers a warranty of 13 months.

 

Historically, we outsourced the production of Internet security equipment to Shenzhen Shunxin Technology Co., Ltd. (“Shunxin”), a third-party entity in Guangdong Province, China. We entered into a framework agreement dated October 12, 2015, pursuant to which we authorized Shunxin to use our trademark and logo on its Internet security equipment that meets both the standard issued by the PRC Public Security Bureau and requirements set by us. If the demand for our products increases in the future, we would need to negotiate agreements with new manufacturing contractors or build our own manufacturing facilities to meet increasing customer demands for our equipment. There has been no further substantive action taken by Shunxin or us under such framework agreement.

 

We are exploring corporative opportunities with other manufacturers and may change our suppliers from time to time.

 

Marketing

 

We currently focus on the marketing of our “Safe Campus” security program. We promote our products and services through both traditional and new media marketing channels. We are partnering with various organizations, including China Council for the Promotion of National Trade, the Next Generation Foundation and other charitable foundations focused on the welfare of children to promote our “Safe Campus” system. We are in the process of establishing a nationwide distribution network consisting of agents in different regions for our “Safe Campus” security system and also plan to utilize social media, online commercials, industry forums and trade conferences to market the “Safe Campus” system. As of the date of this prospectus, we have signed agreements with 27 schools in six provinces to use our “Safe Campus” program.

 

In addition, we maintain 12 full-time employees who focus on sales and marketing efforts relating to the promotion of our products and services. The marketing employees arrange for advertising events and prepare corporate literature for distribution to promote our products and services. By leveraging our technological expertise in new media marketing, we also target our potential customers through the social media application WeChat and our own Xin Platform.

 

Suppliers

 

Substantially all of our hardware products are currently manufactured and supplied by outsourcing partners. Shenzhen Yanze Technology Co., Ltd. is our hardware manufacturer and supplier for our “Safe Campus” program. Historically we also had Shunxin as the manufacturer and supplier of our Internet security equipment.

 

Customers

 

During the years ended June 30, 2018 and 2017, 85.1% and 100% of our revenue was generated through our historical cybersecurity business under a government procurement contract with the Bureau of Public Security of Daqing City in Heilongjiang Province, China, respectively.

 

Competition

 

For our campus security solutions, we compete with Guozeweiye Technology and Culture Co., Ltd. and Jiangsu Yuanpan technology Co., Ltd., which offer their own campus electronic management solutions.

 

The cybersecurity industry in the PRC is highly competitive. With the rapid development of the Internet over the past two decades, new cybersecurity technology has been continuously developing and new cybersecurity products have been continuously entering the market. We have several competitors in both the cybersecurity equipment and new media advertising markets. In this area, our three largest competitors in China are Zhangqi Hangyuan Technology Co. Ltd. and Zhongyun Data Technology Co., Ltd. Our competitors in the ISP connecting service market are primarily China Telecom and China Unicom.

 

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We also generally compete with Dalian Aoyuan Electronic Co., Ltd. which offers cloud based calculation and related services as well as Zhongyuan Intelligence Technology Co., Ltd., which offers life recognition, internet, data, smart office and security system.

 

Intellectual Property

 

We currently hold a broad collection of intellectual property rights relating to certain aspects of our software and services. This includes patents, software copyrights and trademarks in China. Although we believe the ownership of such intellectual property rights is an important factor in our business and that our success does depend in part on such ownership, we rely primarily on the innovative skills, technical competence and marketing abilities of our personnel.

 

As of the date of this prospectus, we have obtained 20 copyright registrations in China for our software, including Shuhai Information Platform Internet Behavior Auditing Security Management System, Shuhai Information Micro Mall System, Shuhai Information Platform Micro Marketing System, Shuhai Media Advertising System, Shuhai Information Platform 3G Web Content Management System, Shuhai Information Platform SMS Platform System, Shuhai Information Platform Wireless Terminal Characteristic Collection Management System, Shuhai Safe Campus Security Management System v2.0, Shuhai Safe Campus Terminal – Security Management System v2.0, Shuhai Xin Platform Smart Elevator Detection Terminal Control System v2.0, Shuhai Xin Platform Smart Elevator Detect and Alarm Management Platform v2.0, Shuhai Xin Platform Smart Elevator Real Time Surveillance and Alarm Management Platform v2.0, Shuhai Xin Platform Smart Elevator Display Equipment Control System v2.0, Shuhai Xin Platform Intelligent Advertisement Placement System v.2.0, Shuhai Information Smart Safe Campus Management System v1.0, Shuhai Information Platform Security Management System (IOS Version) v2.2.1, Shuhai Information Platform Security Management System (Android Version) v2.2.1, Shuhai Information College Big-data Innovative Laboratory Platform v1.0, Shuhai Information Administrative Affairs Big-data Smart Decision-making Platform v1.0, and Shuhai Information Smart Campus Information Management Platform v1.0.

 

In addition, we have also obtained 3 patents in China. These patents relate to mobile device configuration based on different conditions, and a smart photo-taking assistance system on mobile devices.

 

We own the Chinese registered trademark for our Xin Platform.

 

Readers are advised that there may be patents issued or pending that are held by others and cover significant parts of our products or services, which may hinder our ability to obtain intellectual property protection for some of our products and services.

 

Government Regulation; Licenses

 

Our operations are subject to and affected by PRC laws and regulations. The primary governmental regulation regulating the Internet security equipment industry in the PRC is the Cyber Security Law, which governs entities providing “critical information infrastructure”. This statute provides basic protections for Internet users, such as not selling individual’s data to other companies without the user’s permission and not knowingly distributing malware. This law is in effect as of June 1, 2017. Major PRC regulations applicable to our products and services and the Internet security industry include Administrative Measures for Testing and Selling License of Special Products Used for the Security of Computer Information Systems (Ministry of Public Security Order No. 32) (“Order 32”) and the Provisions on the Technical Measures for the Protection of the Security of the Internet (Ministry of Public Security Order No. 82) (“Order 82”). Order 32 sets forth the license requirement for Internet security products providers and related approval procedures of license applications. Order 82 specifies certain security measures Internet service providers shall take to ensure Internet security. Providers of ISP connecting service and Internet-based data processing service are within the scope of Order 82.

 

The primary governmental regulations applicable to our “Safe Campus” system are (i) Security Management Regulations on Kindergartens, Elementary Schools, Middle Schools and High Schools promulgated by the Ministry of Education which requires the school management to comply with its specific requirements; (ii) The Twelfth Five Year Plan of National Education XI promulgated by the Ministry of Education in 2012 urging schools to increase investment in key areas and weak links, and constantly improve school information, modernization, and enhance the development of education system; (iii) “Notice from the Ministry of Education and Other Nine Ministries and Commissions on Accelerating the Advancement of Educational Information on a Number of Key Work” (Teaching [2012]); (iv) Ministry of Public Security, General Office of the Ministry of Public Security (2015) No. 168 "On the Issuance of Security Regulations of Kindergartens, Elementary Schools, Middle Schools and High Schools (Trial) Notice" which allows the installation of electronic surveillance systems on campus; (v) Office of the State Council Education Steering Committee (National Education Supervision letter [2016] No. 22) "On the Implementation of the Campus Bullying Prevention Governance;" and (vi) "Opinions of the General Office of the State Council on Strengthening the Construction of Safety Risk Prevention and Control System for Kindergartens, Elementary Schools, Middle Schools and High Schools (Trial) Notice" (Guo Ban Fa [2017] No. 35).

 

The primary governmental regulations applicable to our “Smart Elevator” system is the "AQSIQ on the Promotion of Elevator Emergency Service Platform Construction Guidance" (State Quality Inspection [2014] No. 433) which requires the establishment of elevator emergency service platform.

 

Shuhai Beijing currently maintains the following licenses issued by the PRC government:

 

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· Business License issued by Beijing Municipal Industry and Commerce Administration;

 

  · High Tech Enterprises Certificate jointly issued by the Beijing Science and Technology Commission, Beijing Finance Bureau, Beijing State Taxation Bureau and Beijing Local Taxation Bureau;

 

· Zhongguancun High Tech Enterprises Certificate issued by Zhongguancun Science Park Administrative Committee;

 

· Value-Added Telecommunications Business Operating License issued by Ministry of Industry and Information Technology;

 

· Two Sales Permits in relation to the security products in computer information system issued by Ministry of Public Security;

 

· China Compulsory Certification issued by China Quality Certification Centre; and

 

· Radio Transmission Equipment Type Approval Certificate issued by the Ministry of Industry and Information Technology.

 

Employees

 

As of the date of this prospectus, we have a total of 49 full-time employees. The following table sets forth the number of our employees categorized by function as of that date:

 

Function   Total Number of Employees
Management   3
Marketing and Sales   12
Research & Development   12
Human Resource   2
Finance & Accounting   5
Operations   4
Administrative   5
Legal   1
Investment and Financing   3
Business Development   1
Media Center   1
Total   49

 

Facilities 

 

Our headquarters is located at 1 Xinghuo Rd. Changning Building, 11th Floor, Fengtai District, Beijing, China, in a facility that we lease, encompassing approximately 890 square meters of space. The lease for this facility expires on February 28, 2019. We pay annual rent of approximately $5,167 for this space. We also lease a small office at Room 18, 32/F Building C14, Fudan Street, West Harbin Nangangha Street for our Harbin branch office under a lease that expires on April 30, 2019, as amended on May 1, 2018 . We pay an annual rent of approximately $3,112 for this space. We believe the rented space is sufficient for our current operations. We believe our facilities are sufficient for our current needs.

 

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PRC Regulations

 

This section sets forth a summary of the most significant laws, rules and regulations that affect our business and operations in China.

 

Regulations Relating to Foreign Investment

 

Laws of Wholly Foreign-owned Enterprise

 

The establishment procedures, examination and approval procedures, registered capital requirement, foreign exchange restriction, accounting practices, taxation and labor matters of a wholly foreign-owned enterprise are governed by the Wholly Foreign-owned Enterprise Law of China, or the Whole Foreign-owned Enterprise Law, which was promulgated by the Standing Committee of the National People’s Congress, or NPCSC, and became effective on April 12, 1986, amended on October 31, 2000 and September 3,2016 and the Implementation Rules for the Wholly Foreign-owned Enterprise Law, which was promulgated by the Ministry of Foreign Economic Relations and Trade on December 12,1990 and amended on April 12,2001 and February 19, 2014 by the State Council. According to the Wholly Foreign-owned Enterprise Law and its Implementation Rules, the establishment of wholly foreign-owned enterprises shall be subject to the examination and approval by the Ministry of Commerce, or MOFCOM, or the Chinese Government level of province, autonomous region, municipality directly under the central Chinese Government, municipality separately listed on the State plan or special economic zone, as authorized by the State Council, which will issue a certificate of approval in respect thereof. Where the establishment of wholly foreign-owned enterprises does not involve the implementation of special access administrative measures prescribed by the State, the establishment of wholly foreign-owned enterprises are subject to record-filing management. Profits, other legal rights and interests obtained by foreign investors in China shall be protected by Chinese laws, and legitimate profits, other lawful income and post-liquidation funds received by foreign investors from the wholly foreign-owned enterprises may be remitted abroad.

 

The Guidance Catalog of Industries for Foreign Investment

 

Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment, or the Catalogue, which was jointly promulgated by the National Development and Reform Commission and the MOFCOM issued on June 28, 2017 and came into effect on July 28, 2017. The Catalogue was revised by the Special Management Measures (Negative List) for the Access of Foreign Investment (2018), or the Negative List, on June 28, 2018, which came into effect on July 28, 2018. The Catalogue divides industries into three categories: encouraged, restricted and prohibited, while other industries not listed in the Catalogue are generally open to foreign investment unless specifically restricted by other PRC regulations. Establishment of wholly foreign-owned enterprises is generally allowed in encouraged and permitted industries. Some restricted industries are limited to equity or contractual joint ventures, while Chinese partners are required to hold the majority interests in such joint ventures on a case-by-case basis. Investment activities within the restricted category are subject to higher-level government approval. Foreign investors are not allowed to invest in industries in the prohibited category. According to the Negative List, the provision of value-added telecommunications services falls within the restricted category and the percentage of foreign ownership shall not exceed 50%, with a few exceptions.

 

The M&A Rules

 

The Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, was jointly promulgated by MOFCOM, China Securities Regulatory Commission, or CSRC, the State-owned Assets Supervision and Administration Commission of the State Council, State Administration of Taxation, State Administration of Industry and Commerce and State Administration of Foreign Exchange, or SAFE, on August 8, 2006 and became effective as of September 8, 2006, and were later amended on June 22, 2009. This M&A Rules governs among other things, the purchase and subscription by foreign investors of equity interests in a domestic enterprise, and the purchase and operation by foreign investors of the assets and business of a domestic enterprise. An offshore special purpose vehicle, or SPV, is defined under the M&A Rules as an offshore entity directly or indirectly controlled by Chinese individuals or enterprises for the purpose of an overseas listing, and the main assets of which are the rights and interests in affiliated domestic enterprises. Under the M&A Rules, if a SPV intends to merge with or acquire any domestic enterprise affiliated from the Chinese individuals or enterprises that control the SPV, such proposed merger or acquisition shall be submitted to the MOFCOM for approval. The M&A Rules also require that a SPV shall obtain an approval from the CSRC prior to the listing and trading of its securities on an overseas stock exchange.

 

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Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-invested Enterprises

 

In order to provide more guidance for foreign-invested Enterprises, the Ministry of Commerce promulgated the Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-invested Enterprises (Revised in 2018), or the Measures, on June 29, 2018 and became effective on June 30, 2018. The Measures provided detail instructions for foreign-invested enterprise to carry out record filing in terms of the incorporation and change of a foreign-invested enterprise that does not involve the implementation of special access administrative measures prescribed in China.

 

The Draft PRC Foreign Investment Law

 

The draft Foreign Investment Law specifically provides that entities established in China but "controlled" by foreign investors, such as via contracts or trust, will be treated as Foreign-invested enterprises, or FIEs, whereas foreign investment in China in the foreign investment restricted industries by a foreign investor may nonetheless apply for being, when approving market entry clearance by the foreign investment administration authority, treated as a PRC domestic investment if the foreign investor is determined by the foreign investment administration authority as being "controlled" by PRC entities and/or citizens. In this connection, "actual control" is broadly defined in the draft Foreign Investment Law to cover the following summarized categories: (i) holding 50% of more of the voting rights of the subject entity; (ii) holding less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting power to materially influence the board, the shareholders' meeting or other equivalent decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity's operations, financial matters or other key aspects of business operations. According to the draft Foreign Investment Law, VIEs would also be deemed as FIEs, if they are ultimately "controlled" by foreign investors, and be subject to restrictions on foreign investments. However, the draft Foreign Investment Law has not taken a position on what actions will be taken with respect to the existing companies with the "variable interest entity" structure, whether or not these companies are controlled by Chinese parties.

 

On April 17, 2018, the Standing Committee of the National People's Congress published its legislation work plan for 2018, according to which the draft Foreign Investment law will be deliberated by the Standing Committee of the National People's Congress in December 2018. However, it is still uncertain when the draft would be signed into law and whether the final version would have any substantial changes from this draft.

 

Regulation Relating to Value-added Telecommunications Services

 

Licenses for Value-Added Telecommunications Services

 

The State Council issued the Regulations on Telecommunications of China, or the Telecommunications Regulations, on September 25, 2000 which was amended on July 29, 2014 and February 6, 2016, respectively, to regulate telecommunications activities in China. The Telecommunications Regulations divide the telecommunications services into two categories, namely "infrastructure telecommunications services" and "value-added telecommunications services." According to the Telecommunications Regulations, operators of value-added telecommunications services must first obtain a Value-added Telecommunications Business Operating License, or VAT License, from the Ministry of Industry and Information Technology, or MIIT, or its provincial level counterparts. On July 3, 2017, the MIIT promulgated the Administrative Measures for the Licensing of Telecommunications Business, effective as of September 1, 2017, which sets forth more specific regulations regarding the types of licenses required to operate value-added telecommunications services, the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses.

 

According to the Catalog of Classification of Telecommunications Businesses effective from April 1, 2003, internet information services, also called internet content services, or ICP services, are regarded as a type of value-added telecommunications services. On December 28, 2015, the MIIT published a revised Catalog of Classification of Telecommunication Business, (2015 Version) or the 2015 MIIT Catalog, which took effect on March 1, 2016. Pursuant to the 2015 MIIT Catalog, internet information services, which include information release and delivery services, information search and query services, information community platform services, information real-times interactive services, and information protection and processing services, continues to be classified as a category of value-added telecommunication services. The Administrative Measures on Internet Information Services, or ICP Measures, also promulgated by the PRC State Council on September 25, 2000 and amended on January 8, 2011, provided more specific rules on the provision of ICP services. According to ICP Measures, any company that engages in the provision of commercial ICP services shall obtain a sub-category VAT License for Internet Information Services, or ICP License, from the competent government authorities before providing any commercial internet content services within the PRC, and for the ICP services involve areas of news, publication, education, medical treatment, health, pharmaceuticals and medical equipment, and if required by law or relevant regulations, specific approval from the respective regulatory authorities must be obtained prior to applying for the ICP License from the MIIT or its provincial level counterpart. Pursuant to the above mentioned regulations, "commercial ICP services" generally refers to provision of specific information content, online advertising, web page construction and other online application services through internet for profit making purpose.

 

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Foreign Investment in Value-Added Telecommunication Services

 

The Regulations on Administration of Foreign-Invested Telecommunications Enterprises, or the FITE Regulations, which took effect on January 1, 2002 and amended on September 10, 2008 and February 6, 2016, are the dominant regulations that regulate foreign direct investment in telecommunications companies in China. The FITE Regulations stipulate that the foreign investor of a telecommunications enterprise is prohibited from holding more than 50% of the equity interest in a foreign-invested enterprise that offers value-added telecommunications services. Moreover, for a foreign investor to acquire any equity interest in a business providing value-added telecommunications services in China, it must demonstrate a positive track record and experience in providing such services.

 

Regulation on Internet Service Provider

 

The Circular of the Ministry of Industry and Information Technology of the People’s Republic of China on Further Standardizing the Market-Access related Work for Businesses Concerning Internet Data Centers and Internet Service Providers, or the Circular, was promulgated by the Ministry of Industry and Information Technology, or MIIT, on December 1, 2012. According to the Circular, Telecom enterprises who attempt to carry out ISP businesses may apply to competent telecom authorities for the business license according to the Implementing Rules on Further Standardizing the Market-Access related Work for Businesses Concerning Internet Data Centers and Internet Service Providers and other relevant regulations as of December 1, 2012. The competent authorities are responsible for acceptance of such applications and shall verify whether the applicants satisfy relevant conditions and decide on whether to approve the applications or not. The Circular also provided that competent authorities shall establish a mechanism for evaluating the ISP-related corporate reputation on the market from time to time.

 

Law of Cyber Security

 

For the purpose of ensuring cyber security, safeguarding cyberspace sovereignty, national security and public interests, the Standing Committee of the National People’s Congress promulgated the Cyber Security Law of the People’s Republic of China, or Cyber Security Law, on November 7, 2016 and became effective on June 1, 2017. According to the Cyber Security Law, the national cyberspace administration authority is responsible for the overall planning and coordination of cyber security work and relevant supervision and administration work. Network operators, while carrying out business and service activities, shall abide by laws and administrative regulations. Also, any individual and organization using the network shall comply with the constitution and the laws, follow the public order and respect social moralities, and shall neither endanger cyber security, nor engage in activities by making use of the network that endanger the national security. Network product and services shall comply with the compulsory requirements of the relevant national standards, provide security maintenance for their products and services. Where network products and services have the function of collecting users’ information, the provider shall clearly notify their users and obtain their consent.

 

Network operators or providers of cyber products and service, who fail to perform relevant obligation of protecting cyber security or in violation of relevant provision and infringe the right that personal information shall be protected in accordance with the law, they shall be ordered to effect rectification, subject to warning or a fine.

 

Measure for Protecting Security on the Internet

 

In order to regulate the technical prevention for the sake of Internet security and guarantee the network security and information security of the Internet, the Ministry of Public Security promulgated the Provisions on the Technical Measures for the Protection of the Security of the Internet, or Order 82, on January 13, 2006 and became effective as of March 1, 2006. According to Order 82, the provider of the Internet services and entity user of the network shall not make public or divulge the registered information of the users without the approval of the users, unless otherwise provided for by any law or regulation. In addition, the providers of the Internet services and entity users of the network shall provide technical measures for the protection of the Internet security, find and terminate the transmission of any illegal information in the public information services and keep relevant records. Moreover, the provider shall not unlawfully interfere with the execution of the technical facility, or intentionally destroy the technical facility for the protection of the Internet security.

 

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Pursuant to Order 82, the term “providers of the Internet services” is defined as entities that provide to users Internet access services, Internet data center services, Internet information services, and Internet surfing services. “Entity users of the network” refers to the entities that are connected to and use the network to meet the application requirements of the said entity.

 

License for Selling Computer Information System Security Product

 

The Ministry of Public Security promulgated the Administrative Measures for Testing and Selling License of Special Products Used for the Security of Computer Information Systems, or Administrative Measures, on December 12, 1997 for the purposes of strengthening the management of special products used for the security of computer information systems. The term “special products used for the security of computer information systems” is defined by the Administrative Measures as the special hardware and software used to protect the security of computer information systems. According to the Administrative Measures, the producers of the special security products shall, before their products come into the market, apply for and obtain a selling license. In order to pass the criteria and obtain such license, the security function of the product shall be tested and recognized by the computer management and supervision department of the Ministry of Public Security. Pursuant to the Administrative Measures, the selling license shall only apply to the special security products for which the sale applications have been made. A new application for selling license shall be made where the functions of the special security product are changed.

 

Where any harmful data contained in the special security products so that the security of computer information systems will be endangered, punishment shall be imposed. If it constitutes a crime, criminal liability shall be imposed according to the laws.

 

Regulations Relating to Privacy Protection

 

The PRC Constitution states that PRC law protects the freedom and privacy of communications of citizens and prohibits infringement of these rights. In recent years, PRC government authorities have enacted laws and regulations on internet use to protect personal information from any unauthorized disclosure. Pursuant to the Decision on Strengthening the Protection of Online Information issued by the NPCSC on December 28, 2012 and the Provisions on Protection of Personal Information of Telecommunication and Internet Users issued by the MIIT on July 16, 2013, any collection and use of user personal information must obtain the prior consent from the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. "Personal information" is defined in these regulations as information that identifies a user, the time or location for his or her use of telecommunication and internet services, or involves privacy of the user such as name, the date of birth, ID card number, and address. An ICP services provider must also keep information collected strictly confidential, and is further prohibited from divulging, tampering or destroying of any such information, or selling or providing such information to other parties. Any violation of the above decision or provisions may subject the ICP service provider to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities.

 

Regulations Relating to Intellectual Property Rights

 

Copyright and Software Registration

 

The NPCSC adopted the Copyright Law in 1990 and amended it in 2001 and 2010, respectively. The amended Copyright Law extends copyright protection to cover Internet activities, products disseminated over the Internet and software products. In addition, there is a voluntary registration system administered by the China Copyright Protection Center. The amended Copyright Law also requires registration of a copyright pledge. To address the problem of copyright infringement regarding the content posted or transmitted over the Internet, the National Copyright Administration and the MIIT jointly promulgated the Measures for Administrative Protection of Internet Copyright on April 29, 2005, which became effective on May 30, 2005.

 

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The Computer Software Protection Regulations was promulgated by the State Council on December 20, 2001 and amended on January 30, 2013 which stipulates that Chinese citizens, legal entities or other organizations enjoy, in accordance with these Regulations, copyright in the software which they have developed, whether published or not. In order to further implement the Computer Software Protection Regulations, the National Copyright Administration issued the Computer Software Copyright Registration Procedures on February 20, 2002, which apply to software copyright registration, license contract registration and transfer contract registration.

 

Patents

 

The NPCSC adopted the Patent Law of the PRC in 1984 and amended it in 1992, 2000 and 2008, respectively. A patentable invention, utility model or design must meet three conditions: novelty, inventiveness and practical applicability. Patents cannot be granted for scientific discoveries, rules and methods for intellectual activities, methods used to diagnose or treat diseases, animal and plant breeds or substances obtained by means of nuclear transformation. The Patent Office under the State Intellectual Property Office is responsible for receiving, examining and approving patent applications. A patent is valid for a twenty-year term for an invention and a ten-year term for a utility model or design, starting from the application date. Except under certain specific circumstances provided by law, any third party user must obtain consent or a proper license from the patent owner to use the patent, otherwise the use will constitute an infringement of the rights of the patent holder.

 

Domain Name

 

On November 5, 2004, the MIIT promulgated the Measures for Administration of Domain Names for the Chinese Internet, or the Domain Name Measures 2004. According to the Domain Name Measures 2004, “domain name” shall refer to the character identifier for identifying and locating the hierarchical structure of a computer on the Internet, which corresponds to the Internet protocol (IP) address of the computer concerned. A domain name registration service shall observe the principle of “first apply, first register”. Where the domain name is completed, the applicant for the domain name registration shall be the holder of the domain name. The holder of the domain name shall pay operation fees for a registered domain name on a regular basis. If the domain name holder fails to pay the corresponding operation fees as required, the original domain name registry shall write it off and notify the holder of the domain name in written form.

 

On August 24, 2017, the MIIT promulgated the Administrative Measures for Internet Domain Names, or the Domain Name Measures 2017. The Domain Name Measures 2017 repealed the Domain Name Measures 2004 and became effective on November 1, 2017. According to the Domain Name Measures 2017, the internet domain name system of China shall be announced by the MIIT. The MIIT may introduce adjustments to the internet domain name system of China, depending on actualities on the development of domain names. A domain Name shall refer to the character mark of hierarchical structure, which identifies and locates a computer on the Internet and corresponds to the IP address of such computer. D omain name registration services are subject to the principle of “first apply, first register.”

 

Trademark

 

Trademarks are protected by the PRC Trademark Law which was adopted in 1982 and subsequently amended in 1993, 2001 and 2013 as well as the Implementation Regulations of the PRC Trademark Law adopted by the State Council in 2002 and amended in 2014. The Trademark Office under the SAIC handles trademark registrations and grants a term of ten years to registered trademarks which may be renewed for consecutive ten-year periods upon request by the trademark owner. Trademark license agreements are required to file with the Trademark Office for record. The PRC Trademark Law has adopted a "first-to-file" principle regarding the trademark registration. Where a trademark for which a registration has been made is identical or similar to another trademark which has already been registered or been subject to a preliminary examination and approval for use on the same kind of or similar commodities or services, the application for registration of such trademark may be rejected. Any person applying for the registration of a trademark may not prejudice the existing right first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a "sufficient degree of reputation" through such party's use.

 

Regulations on Foreign Exchange

 

Foreign Exchange Settlement

 

The Circular of the State Administration of Foreign Exchange on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, which was promulgated by the SAFE on March 30, 2015 and became effective as of June 1, 2015, adopts the approach of discretional foreign exchange settlement, under which the foreign exchange capital in the capital account of a foreign-invested enterprise for which the foreign-invested enterprise has obtained confirmation by the local SAFE branches regarding the rights and interests of monetary contribution (or the book-entry registration of monetary contribution by the banks) can be settled at the banks based on the actual operation needs of such foreign-invested enterprise. The capital in Renminbi obtained by the foreign-invested enterprise from the discretionary settlement of foreign exchange capital shall be managed under the account pending for foreign exchange settlement payment. The proportion of discretionary settlement of foreign exchange capital is temporarily determined as 100%, subject to the adjustment of the SAFE.

 

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Regulations Relating to Foreign Exchange Registration of Overseas Investment by PRC Residents

 

SAFE Circular on Relevant Issues Relating to Domestic Residents’ Investment and Financing and Round-Trip Investment through Special Purpose Vehicles, or Circular 37, issued by SAFE and became effective on July 4, 2014, regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities seeking to obtain offshore investment and financing and conduct round-trip investment in China. Under Circular 37, a SPV is defined as an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate domestic or offshore assets or interests, while "round-trip investment" refers to the direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. Circular 37 provided that, before making contribution into an SPV, PRC residents or entities are required to complete foreign exchange registration with the SAFE or its local branch. SAFE Circular 37 further provides that option or share-based incentive tool holders of a non-listed SPV can exercise the options or share incentive tools to become a shareholder of such non-listed SPV, subject to registration with SAFE or its local branch.

 

PRC residents or entities who have contributed legitimate domestic or offshore interests or assets to SPVs but have yet to obtain SAFE registration before the implementation of the Circular 37 shall register their ownership interests or control in such SPVs with SAFE or its local branch. An amendment to the registration is required for any material change in the SPV registered, such as any change of basic information (including change of such PRC residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. Failure to comply with the registration procedures set forth in Circular 37, or making misrepresentation on or failure to disclose controllers of foreign-invested enterprise that is established through round-trip investment, may result in restrictions on the foreign exchange activities of the relevant foreign-invested enterprises, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant PRC residents or entities to penalties under PRC foreign exchange administration regulations.

 

NDRC promulgated the Administrative Measures for the Offshore Investment of Enterprises, or Circular 11, on December 26, 2017 which took effect on March 1, 2018. According to Circular 11, to make offshore investment, an enterprise located within the territory of the PRC (“investor”) shall go through the formalities to have a proposed overseas investment project approved or filed on the record, report relevant information, and cooperate with supervision and inspection. Projects subject to approval administration shall be sensitive projects carried out by investors either directly or through overseas enterprises under their control. The authority in charge of examining and approving such projects shall be the NDRC. Projects subject to record-filing administration shall be non-sensitive projects carried out directly by investors, in other words, non-sensitive projects carried out by investors to make direct investment with assets and equities or provide financing or a guarantee. For projects subject to record-filing administration, the authority in charge of record-filing shall be: (1) the NDRC, if the investor is an enterprise under the administration of the Central Government (including financing institutions under the administration of the Central Government and enterprises under the direct administration of the State Council or its subordinate organs, the same below); (2) the NDRC, if the investor is a local enterprise but the amount of investment made by the Chinese investor amounts to USD300 million or above; and (3) the development and reform authority under the provincial government at the place where the investor is registered if the investor is a local enterprise and the amount of investment made by the Chinese investor is less than USD300 million. Where natural persons within the territory of China make investments abroad through overseas enterprises under their control or through enterprises located in Hong Kong, Macao and Taiwan, the above mentioned approval or record filing measures shall apply mutatis mutandis.

 

Regulations Relating to Foreign Debts

 

Considering that certain foreign debts may be generated during the oversea or domestic investment from PRC residents, the State Administration of Foreign Exchange promulgated the Administrative Measures for Registration of Foreign Debts, or the Measures, on April 28, 2013 and became effective on May 13, 2013. This Measures require the entity to complete several regulatory procedures in terms of foreign debts. For example, after borrowing the foreign debts, debtors shall carry out registration on local SAFE in relation to the execution of the contract, the drawdown, the prepayment or the foreign exchange settlement and sales within a specific period. For any change of the foreign debts contract, an amendment registration shall be carried out with the local SAFE.

 

Regulations Relating to Employment and Social Insurance

 

Pursuant to the PRC Labor Law effective as of January 1, 1995 (as amended on August 27, 2009), and the PRC Labor Contract Law effective as of January 1, 2008 (as amended on December 28, 2012), a written labor contract shall be executed by employer and an employee when the employment relationship is established, and an employer is under an obligation to sign an unlimited-term labor contract with any employee who has worked for the employer for ten consecutive years. In addition, if an employee requests or agrees to renew a fixed-term labor contract that has already been entered into twice consecutively, the resulting contract must include an unlimited term, with certain exceptions. All employers are required to establish a system for labor safety and sanitation, strictly abide by state rules and standards and provide employees with appropriate workplace safety training. Moreover, all PRC enterprises are generally required to implement a standard working time system of eight hours a day and no more than forty-four hours a week, and if the implementation of such standard working time system is not appropriate due to the nature of the job or the characteristics of business operation, the enterprise may implement a flexible working time system or comprehensive working time system after obtaining approvals from the relevant authorities.

 

According to the Social Insurance Law of China effective from July 1, 2011, and the Housing Provident Fund Regulation which was amended and became effective on March 24, 2002, employers in China shall register with relevant social insurance agency and relevant housing provident fund management center and open special housing provident fund accounts for each of their employees, and pay contributions to the social insurance plan and the housing provident fund for their employees, and such contribution amount payable shall be calculated based on the employee’s actual salary in accordance with the relevant regulations. On July 20, 2018, the General Office of the Communist Party of China and the General Office of the State Council jointly issued the Reform Plan on Tax Collection and Administration Systems for Local Offices of the State Administration of Taxation and Local Taxation Bureaus, according to which the collection and administration of social insurance will be transferred from the social insurance departments to competent tax authorities, and the supervision over the payment of social insurance will be significantly strengthened in the way that an enterprise must pay social insurance for its employees based on their overall salary at certain legally required rates.

 

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Regulations on Tax

 

PRC Enterprise Income Tax Law

 

In January 2008, the PRC Enterprise Income Tax Law, or the EIT Law, took effect (revised and took effect on February 24, 2017). The EIT Law applies a uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, except where tax incentives are granted to special industries and projects. An enterprise established outside China with "de facto management bodies" within China is considered a "resident enterprise" for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. According to the EIT Law and its implementation regulations, certain high and new technology enterprises which have proprietary intellectual property rights and simultaneously meet the prescribed requirements as stipulated in the implementation regulations of the EIT Law and other relevant regulations are permitted to enjoy a reduced EIT rate of 15%.

 

Under the EIT Law and its implementation regulations, dividends generated from the business of a PRC subsidiary after January 1, 2008 and payable to its foreign investor may be subject to a withholding tax rate of 10% if the PRC tax authorities determine that the foreign investor is a non-resident enterprise, except where a tax treaty with China that provides for a preferential withholding tax rate. Distributions of earnings generated before January 1, 2008 are exempt from PRC withholding tax.

 

Under the PRC Enterprise Income Tax Law, an enterprise established outside China with "de facto management bodies" within China is considered a "resident enterprise" for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. The implementing regulations of the EIT Law define the term “de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise. On April 22, 2009, the State Administration of Taxation, or SAT issued the Circular on Issues Concerning the Identification of Chinese-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance With the Actual Standards of Organizational Management, or Circular 82, which set forth certain specific criteria for determining whether the “de facto management bodies” of a PRC-controlled enterprise that is incorporated offshore is located in China. However, there are no further detailed rules or precedents governing the procedures and specific criteria for determining “de facto management body.”

 

PRC Value-added Tax Law

 

Pursuant to the Interim Regulations on Value-added Tax of China, or VAT Regulations which was promulgated by the State Council on December 13, 1993 and became effective as of January 1, 1994 and further amended on November 10, 2008, February 6, 2016 and November 19, 2017, and the last amendment of which became effective on November 19, 2017, all units and individuals engaging in the sale of goods, provision of processing, repair and fitting services, and importation of goods within the territory of China are taxpayers of value-added tax (or VAT), and shall pay VAT in accordance with the VAT Regulations. According to the VAT Regulations, a VAT tax rate at 17% applies to the Chinese enterprises unless otherwise exempted or reduced according to the VAT Regulations and other relevant regulations. On March 28, 2018, the executive meeting of the State Council decided to reduce the current applied 17% VAT to 16% from May 1, 2018.

 

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MANAGEMENT

 

The following table sets forth the name, age, and position of our officers and directors as of the date of this prospectus.   Each 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   Director or Officer Since
Zhixin Liu   32   Chairman of the Board, CEO, President, Interim Chief Financial Officer, Secretary and Treasurer   October 2015
Jijin Zhang   49   Chief Financial Officer   Candidate*
Fu Liu   53   Director    October 2015 
Tongjun Si   77   Independent Director   Director nominee*
Stephen (Chun Kwok) Wong   36   Independent Director   Director nominee*
Ling Wang   62   Independent Director   Director nominee*

 

*The appointment of the three independent director nominees to our board of directors and the election of our new Chief Financial Officer will be effective upon the closing of this offering.

 

Biographical Information

 

Ms. Zhixin Liu.  Ms. Liu currently serves as our Chairman of the Board, Chief Executive Officer, President, Interim-Chief Financial Officer, Secretary and Treasurer. Ms. Liu will resign as Interim Chief Financial Officer upon closing of this offering. Prior to founding Shuhai Beijing in February of 2015, from February 2012 to January 2015, Ms. Liu also worked as the General Manager of Harbin Jinfenglvyuan Bio-Technology Co., Ltd. where she was responsible for implementing the company’s annual work plan, financial budget report, profit distribution, utilization plan, conducting the daily management of the company, and signing agreements on behalf of the company. From January 2011 to February 2012, Ms. Liu worked as a board director in Beijing Jinyajianguo Refrigeration Plants Manufacturing Co., Ltd., a private company. From January 2010 to January 2011, Ms. Liu worked as the Vice General Manager and Director of the Board at Beijing Time Garden Digital Technologies Co., Ltd where she was responsible for the management of several departments and assisted the General Manager with internal and external affairs. Ms. Liu studied IT Management at Employee University directly under Heilongjiang Provincial Governmental Departments. She also had business administration courses at China Agricultural University. As our President and Chief Executive Officer, Ms. Liu brings to the Board an intimate understanding of the industry and our operations. We believe Ms. Liu’s experience qualifies her to serve on our board of directors.

 

Mr. Jijin Zhang . Mr. Zhang will serve as our Chief Financial Officer upon closing of this offering. Prior to joining our company, Mr. Zhang was the member of the Board of Supervisors of Beijing Tongfang Shenhuo Co., Ltd. overseeing its internal accounting practice, and the Chief Financial Officer of Hebei Tsinghua Tongfang Electronics Co., Ltd. from 2005 to August 2018. He served as Chief Financial Officer of Beijing Hede Group Co., Ltd. from 1995 to 2005. Mr. Zhang received his Bachelor’s degree in accounting from North China University of Technology in 1995.

 

Mr. Fu Liu . Mr. Liu currently serves as a member of our Board of Directors. Mr. Liu has served as the chairman of the board of directors of Shuhai Beijing since February 2015. Prior to his service on the board of Shuhai Beijing, from February 2012 to January 2015, Mr. Liu served as the Chairman of Board of Directors of Harbin Jinfenglvyuan Bio-Technology Co. Ltd. From January 2011 to January 2015, he served as a director of Beijing Jinyajianguo Refrigeration Equipment Co., Ltd. Prior to that, Mr. Liu was the director of Kedong County Rural Economic Management Office of Heilongjiang Province from January 2005 to January 2012. Mr. Liu received a bachelor’s degree in accounting from Heilongjiang Institute of Finance and Economics in June of 1987 and a bachelor’s degree in law from the CPC Party School Heilongjiang Provincial Committee in 1989. Among other qualifications, Mr. Liu brings to the Board extensive knowledge of our business, relevant executive officer experience as well as governmental and political expertise. We believe Mr. Liu’s experience qualifies him to serve on our board of directors.  

 

Mr. Stephen (Chun Kwok) Wong . Mr. Wong will serve as a member of our Board of Directors upon closing of this offering. Mr. Wong currently serves as the chief executive officer of Splendid Holding Limited, an interior design company incorporated in Hong Kong. Mr. Wong served as the group financial controller for Fitness World (Group) Limited and MJ Medical Beauty Limited from February 2017 to August 2018. He was a senior associate at Pricewaterhouse Coopers Limited (PwC) from January 2016 to January 2017. He worked at Moore Stephens Associates Limited (Hong Kong) as a senior associate from October 2010 to December 2015. He was a supervisor at KLC Kennic Lui & Co. from July 2009 to August 2010 and an auditor at KLC CPA Limited from October 2005 to June 2008.  Mr. Wong studied accounting and received his Bachelor of Commerce degree in Accounting from Macquarie University in Sydney, Australia in 2005. We believe Mr. Wong’s experience qualifies him to serve on our board of directors.

 

Mr. Tongjun Si . Mr. Si will serve as a member of our Board of Directors upon closing of this offering. Since January 1998, Mr. Si served as the commissioner of 12 th precinct, the chief of the technology bureau and the director of the Police Association of China of the Ministry of Public Security. After retiring in 2002, he has been serving as the vice chairman of China Security & protection Industry Association. Mr. Si graduated from Xi’an Military Telecommunication Engineering Institute (now Xidian University) in 1960. We believe Mr. Si’s experience qualifies him to serve on our board of directors.

 

Ms. Ling Wang . Ms. Ling Wang will serve as a member of our Board of Directors upon closing of this offering. Ms. Wang served as the Secretary of Party Committee at University of International Business and Economics from 2004 to 2016. She also worked at Consulate General of the People's Republic of China in San Francisco from 1999 to 2003. From 1987 to 1999, she served various positions at the Ministry of Education of the People's Republic of China. Ms. Wang received a Master’s degree in law from Renmin University of China in 1983. We believe Ms. Wang’s experience qualifies her to serve on our board of directors.

 

Employment Agreements

 

We had entered into an employment agreement with Ms. Zhixin Liu on February 11, 2018, pursuant to which she serves as our Chief Executive Officer until February 10, 2021 and receives a base monthly salary of RMB 20,000 (approximately $3,011). Ms. Liu is also eligible to receive bonuses, transport allowances and housing allowances. The entire package for Ms. Liu is an annual compensation of RMB 600,000 (approximately $90,340). The employment agreement and its amendment may be terminated in accordance with the provisions of PRC Labor Law. The employment agreement also contains other customary terms under PRC law. 

 

On August 21, 2018, we entered into an employment agreement with Mr. Jijin Zhang, pursuant to which he started working with the Company on August 21, 2018 for a six-month probationary period and will serve as our Chief Financial Officer upon the closing of this offering. The probationary period allows for Mr. Zhang to familiarize with our business and operations. During the probationary period and before the closing of this offering, Mr. Zhang does not assume any responsibilities of the Chief Financial Officer. Mr. Zhang is paid RMB 12,800 (approximately $1,880) during the probationary period and will get a package of RMB 16,000 (approximately $2,350 upon his service as our Chief Financial Officer after the closing of this offering. The employment agreement may be terminated in accordance with the provisions of PRC Labor Law and contains other customary terms under PRC law.

 

In connection with the closing of this offering, we intend to enter into agreements with all director nominees upon the closing of this offering. Pursuant to the offer letter, each director nominee will agree to attend and participate in such number of meetings of the Board and of the committees of which he or she may become a member as regularly or specially called, and will agree to serve as a director for a year and be up for re-election each year at our annual shareholder meeting. The directors’ services will be compensated by cash under the offer letter, in an amount to be determined by the Board.

 

Family Relationship

 

Mr. Liu, one of our directors, is the father of Ms. Liu, our Chairman of the Board, Chief Executive Officer, President, interim Chief Financial Officer, Secretary and Treasurer.

 

Other than disclosed above, there are no family relationships, or other arrangements or understandings between or among any of the directors, executive officers or other person pursuant to which such person was selected to serve as a director or officer.

 

Controlled Company

 

Upon completion of this offering, Mr. Liu and Ms. Liu will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” for purposes of the NASDAQ Stock Market Rules. As a controlled company, we are permitted to elect to rely, and will rely, on certain exemptions from the obligation to comply with certain corporate governance requirements, including:

 

· the requirement that our director nominees be selected or recommended solely by independent directors; and

 

· the requirement that we have a corporate governance and nomination committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

 

We intend to utilize these exemptions. As a result, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NASDAQ Stock Market.

 

Board Committees

 

Upon the closing of this offering, our Board of Directors will have an Audit Committee, Compensation Committee, and Nomination and Corporate Governance Committee. The Audit Committee will be composed of Stephen Wong, Tongjun Si and Ling Wang. The Compensation Committee will be composed of Ling Wang, Stephen Wong and Tongjun Si. The Nomination and Corporate Governance Committee will be composed of Tongjun Si, Ling Wang and Stephen Wong.

 

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Our Audit Committee, Compensation Committee, and Nomination and Corporate Governance Committee will each comply with the listing requirements of the Nasdaq Marketplace Rules. At least one member of the Audit Committee will be an “audit committee financial expert,” as that term is defined in Item 407(d)(5)(ii) of Regulation S-K, and each member will be “independent” as that term is defined in Rule 5605(a) of the Nasdaq Marketplace Rules. Our Board of Directors has determined that Stephen Wong will meet those requirements.

 

Audit Committee

 

Stephen Wong, Tongjun Si and Ling Wang will be the members of our Audit Committee and Stephen Wong shall serve as the chairperson. All proposed members of our Audit Committee will satisfy the independence standards promulgated by the SEC and by NASDAQ as such standards apply specifically to members of audit committees.

 

We intend to adopt and approve a charter for the Audit Committee prior to consummation of this offering. In accordance with our Audit Committee Charter, our Audit Committee shall perform several functions, including:

 

· evaluate the independence and performance of, and assesses the qualifications of, our independent auditor, and engages such independent auditor;
   
· approve the plan and fees for the annual audit, quarterly reviews, tax and other audit-related services, and approves in advance any non-audit service to be provided by the independent auditor;
   
· monitor the independence of the independent auditor and the rotation of partners of the independent auditor on our engagement team as required by law;
   
· review the financial statements to be included in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and reviews with management and the independent auditors the results of the annual audit and reviews of our quarterly financial statements;
   
· oversee all aspects our systems of internal accounting control and corporate governance functions on behalf of the board;
   
· review and approves in advance any proposed related-party transactions and report to the full board of directors on any approved transactions; and
   
· provide oversight assistance in connection with legal, ethical and risk management compliance programs established by management and the board of directors, including Sarbanes-Oxley Act implementation, and makes recommendations to the board of directors regarding corporate governance issues and policy decisions.

 

It is determined that Stephen Wong possesses accounting or related financial management experience that qualifies him as an "audit committee financial expert" as defined by the rules and regulations of the SEC. 

 

Compensation Committee

 

Ling Wang, Stephen Wong and Tongjun Si will be the members of our Compensation Committee and Ling Wang shall be the chairperson. All members of our Compensation Committee will be qualified as independent under the current definition promulgated by NASDAQ. We intend to adopt a charter for the Compensation Committee prior to consummation of this offering. In accordance with the Compensation Committee’s Charter, the Compensation Committee shall be responsible for overseeing and making recommendations to the board of directors regarding the salaries and other compensation of our executive officers and general employees and providing assistance and recommendations with respect to our compensation policies and practices.

 

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Nomination and Corporate Governance Committee

 

Tongjun Si, Ling Wang and Stephen Wong will be the members of our Nomination and Corporate Governance Committee and Tongjun Si shall serve as the chairperson. All members of our Nomination and Corporate Governance Committee will be qualified as independent under the current definition promulgated by NASDAQ. The board of directors intends to adopt and approve a charter for the Nomination and Corporate Governance Committee prior to consummation of this offering. In accordance with the Nomination and Corporate Governance Committee’s Charter, the Nomination and Corporate Governance Committee shall be responsible to identity and propose new potential director nominees to the board of directors for consideration and review our corporate governance policies.

 

Code of Ethics

 

Prior to the closing of this offering, we will adopt a written code of ethics that applies to all of our directors, officers and employees in accordance with the rules of the NASDAQ Stock Market and the SEC. We will file a copy of our code of ethics as an exhibit to the registration statement of which this prospectus is a part. You will be able to review these documents by accessing our public filings at the SEC’s web site at www.sec.gov . In addition, a copy of the code of ethics will be provided without charge upon request from us. We intend to disclose any amendments to or waivers of certain provisions of our code of ethics in a Current Report on Form 8-K.

 

Involvement in Certain Legal Proceedings

 

None of our directors and executive officers have been involved in any of the following events during the past ten 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 from or otherwise limiting his 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, 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.

 

Compensation Committee Interlocks and Insider Participation

 

None of the members of our Compensation Committee is or has been an officer or employee of our Company. None of our officers and directors currently serves, or in the past year has served, as a member of the compensation committee or other board committee performing equivalent functions of any entity that has one or more executive officers serving on our board of directors or Compensation Committee.

 

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EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table provides disclosure concerning all compensation paid for services to our company in all capacities for our fiscal years ended June 30, 2018 and 2017 for (i) each person serving as our principal executive officer (“PEO”), (ii) each person serving as our principal financial officer (“PFO”) and (iii) our two most highly compensated executive officers other than our PEO and PFO whose total compensation exceeded $100,000 (collectively with the PEO, referred to as the “named executive officers” in this Executive Compensation section).

 

Summary Compensation Table

 

Name and   Fiscal   Salary     Bonus     Stock
Awards
    Option
Awards
    Other
Compensation
    Total  
Principal Position   Year   ($)     ($)     ($)     ($)     ($)     ($)  
                                         
Ms.  Zhixin Liu   2018   $ 27,642 (1)                             $ 27,642  
Chairman, CEO, President, Interim-CFO, Secretary and Treasurer   2017   $ 27,642 (1)                           $ 27,642  

 

(1) Since January 1, 2017, the actual monthly salary Ms. Liu received was approximately RMB 16,000 net of taxes and fringe benefits (approximately $2,300). According to the amendment to the employment agreement, Ms. Liu is entitled to a monthly salary of RMB 20,000 (approximately $3,011) plus any bonuses, transport allowances and housing allowances. Ms. Liu waived her rights of receiving any allowances or bonuses that have not been paid in fiscal year 2018 and 2017.

  

Equity Compensation Plan Information

 

On August 22, 2018, our Board of Directors and majority stockholders adopted a 2018 Equity Incentive Plan, or the 2018 Plan, for our company to award up to a maximum of 4,000,000 shares of our common stock, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants and promote the success of our business. No awards have been granted under the 2018 Plan as of the date of this prospectus, but our Board of Directors or a designated committee thereof will have the ability in its discretion from time to time to make awards under the 2018 Plan, including to our officers and directors.

 

The following paragraphs describe the principal terms of the 2018 Plan.

 

Types of Awards.  The 2018 Plan permits the awards of options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards and/or performance compensation awards.

 

Plan Administration.  Our Board of Directors or a committee appointed by our Board of Directors will administer the 2018 Plan. Such plan administrator will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each grant.

 

Award Agreement.  Awards granted under the 2018 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event of the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

 

Eligibility.  We may grant awards to our employees, directors and consultants or prospective employees, directors, officers, consultants or advisors who have accepted offers of employment or consultancy from our company or our affiliates.

 

Exercise of Options.  The plan administrator determines the expiration date of each award. However, the term of any award may not exceed ten years from the date of a grant. If any such award is not exercised prior to expiration, the award will be deemed forfeited.

 

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Transfer Restrictions . Awards may not be transferred in any manner by the recipient other than by will or the laws of descent and distribution, except as otherwise provided by the plan administrator.

 

Amendment and Termination of the 2018 Plan.   Our Board of Directors has the authority to amend, alter, suspend, discontinue, or terminate the plan. However, no such action may adversely affect in any material way any awards previously granted unless agreed by the recipient.

 

Director Compensation

 

We did not compensate our directors for their services as members of our board of directors during the year ended June 30, 2018. Directors are generally reimbursed for their reasonable out-of-pocket expenses incurred when attending board or committee meetings. We do not currently have an established plan or policy with regard to compensation of members of our board of directors.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

On May 26, 2015, pursuant to the terms of a stock purchase agreement, Zhixin Liu, our President and Chief Executive Officer, purchased 20,000,000 shares (giving effect to the Forward Split on November 12, 2015 but without giving effect to the reverse stock split that became effective on May 1, 2018), or 57.14%, of our issued and outstanding common stock from Xingzhong Sun, who was our sole officer, director and majority shareholder at the time of the transaction. As part of the transaction, Ms. Liu was appointed as our Chairman of the Board.

 

Ms. Liu has paid certain operating expenses on behalf of us for product research and development, market expansion and general operation. As of June 30, 2018 and 2017, the amounts due to the President were $27,058 and $129,874, respectively. These amounts are not evidenced by a formal agreement, are interest-free, unsecured and due on demand. As of September 30, 2018, we have fully repaid the outstanding loans.

 

On January 1, 2016, the Company’s President entered into a car rental agreement with the Company. Pursuant to the agreement, the Company rents a car from the President for a monthly rent of approximately $750. The agreement expired on December 31, 2016. The agreement was renewed and the term was extended to December 31, 2018. The rent paid under this agreement was $9,000 and $8,808 for the years ended June 30, 2018 and 2017, respectively.

 

On November 11, 2017, we bought a used car for $3,054 from Harbin Jinfenglvyuan Biotechnology Co., Ltd, a related entity owned by Mr. Fu Liu.

 

In March and April 2018, we entered into six membership service agreements with five entities and one individual, three of which are stockholders of our company, and eleven agency agreements with eleven individuals, nine of which are stockholders of our company. Pursuant to the membership service agreements, we offer member management services through our Xin Platform APP and charge the entering parties a service fee of RMB1,000 (approximately $150) per member. Pursuant to the agency agreements, the agents are authorized as agents to market Xin Platform APP in specific areas of China. Each agent is required to pay a Xin Platform APP usage fee of $750 and deposit $750 in financial products offered by China Minsheng Bank via Xin Platform APP. Each agent will receive $8 for each customer that applies for a credit card of China Minsheng Bank via Xin Platform APP.

 

Mr. Liu, our director, is the father of Ms. Liu, our Chairman, Chief Executive Officer, President, interim Chief Financial Officer, Treasurer and Secretary.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

As of the date of this prospectus, there are 19,170,846 shares of common stock outstanding. The following table sets forth certain information known to us with respect to the beneficial ownership of common stock as of that date by (i) each of our directors and director nominees, (ii) each of our executive officers, (iii) all of our directors, director nominees and executive officers as a group, and (iv) each person, or group of affiliated persons, whom we know to beneficially own more than 5% of our common stock.

 

We have determined beneficial ownership in accordance with the rules of the SEC, which generally define beneficial ownership to include any shares over which a person exercises sole or shared voting or investment power. Such determination is not necessarily indicative of beneficial ownership for any other purpose. Unless otherwise indicated, we believe, based on the information furnished to us, that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them. None of the stockholders listed in the table are a broker-dealer or an affiliate of a broker dealer. None of the stockholders listed in the table are located in the United States and none of the shares held by them are located in the United States. Applicable percentage ownership prior to the offering is based on 19,170,846 shares of common stock outstanding as of the date of this prospectus. The table also lists the percentage ownership after this offering based on 20,170,846 shares of common stock outstanding immediately after the completion of this offering, assuming no exercise of the underwriters’ over-allotment option to purchase additional shares of common stock from us in this offering.

 

    Prior to Offering     After Offering  
Name and Address of Beneficial Owner (1)   Amount and
Nature of
Beneficial
Ownership
    Approximate
Percentage of
Outstanding
Shares (2)
    Amount and
Nature of
Beneficial
Ownership
    Approximate
Percentage of
Outstanding
Shares (3)
 
Zhixin Liu
Chairman of the Board, CEO, President, Interim-CFO, Secretary and Treasurer
    9,583,335 (4)      50.0 %     9,583,335         47.5 %
Fu Liu
Director
    5,416,668 (5)      28.3 %     5,416,668       26.9 %

Tongjun Si

Director Nominee

    -       -       -       -  

Stephen (Chun Kwok) Wong

Director Nominee

    -       -       -       -  

Ling Wang

Director Nominee

    -         -     -       -  
All officers, directors and director nominees as a group (five individuals)     15,000,003       78.3 %     15,000,003       74.4 %

 

 

(1) Unless otherwise indicated, the business address of each of the individuals is 1 Xinghuo Rd. Changning Building, 11 th Floor, Fengtai District, Beijing, People’s Republic of China.
  (2)

Based on 19,170,846 shares issued and outstanding as of October 11, 2018.

  (3)

Based on 20,170,846 shares issued and outstanding immediately after this offering.

  (4) Pursuant to the Share Escrow Agreement that will be entered into in connection with this offering, Ms. Liu has agreed to place a total of 9,104,167 shares of common stock into escrow that may be cancelled in the event we do not meet the performance thresholds for the following 5 fiscal years set forth in the Share Escrow Agreement.  
  (5) Pursuant to the Share Escrow Agreement that will be entered into in connection with this offering, Mr. Liu has agreed to place a total of 5,145,833 shares of common stock into escrow that may be cancelled in the event we do not meet the performance thresholds for the following 5 fiscal years set forth in the Share Escrow Agreement.

 

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DESCRIPTION OF SECURITIES

 

As of the date of this prospectus, we are authorized to issue 375,000,000 shares of common stock, par value $0.001 per share. As of the date of this prospectus, 19,170,846 shares of common stock were issued and outstanding and no shares of preferred stock were issued and outstanding. At the completion of this offering, there will be 20,170,846 shares of common stock issued and outstanding. If the underwriters exercise in full their over-allotment option to purchase additional shares of common stock from us, at the completion of this offering, there would be 20,320,846 common shares issued and outstanding.

 

Common Stock

 

Each share of our common stock is entitled to one vote on all matters submitted to a vote of the stockholders, including the election of directors. Except as otherwise required by law, the holders of common stock will possess all voting power. Generally, all matters to be voted on by stockholders must be approved by a majority of the votes entitled to be cast by all shares of common stock that are present in person or represented by proxy. Holders of common stock representing a majority of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders.  Our Articles of Incorporation do not provide for cumulative voting in the election of directors. Holders of common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.

 

Non-cumulative Voting

 

Holders of shares of our common stock do not have cumulative voting rights; meaning that the holders of 50.1% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, and, in such event, the holders of the remaining shares will not be able to elect any of our directors.

 

Cash Dividends

 

As of the date of this prospectus, we have not paid any cash dividends to stockholders. The declaration of any future cash dividend will be at the discretion of our Board and will depend upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.

 

Transfer Agent and Registrar

 

The transfer agent for our common stock is West Coast Stock Transfer, Inc. located at 721 N. Vulcan Ave. Ste. 205, Encinitas, CA 92024, telephone number 619-664-4780 and facsimile are 619-664-4780 and 760-452-4423.

 

Listing

 

We have applied to list our common stock on the NASDAQ Capital Market under the trading symbol “DTSS.” We cannot guarantee that we will be successful in listing our common stock on the NASDAQ Capital Market; however, we will not complete this offering unless we are so listed.

 

Indemnification of Officers and Directors

 

Pursuant to our Articles of Incorporation as amended, and Amended and Restated Bylaws, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to our best interest, provided, however, that (i) we will not indemnify such person against expenses incurred in connection with an action if he is threatened but does not become a party unless the incurring of such expenses was authorized by the Board of Directors and (ii) we will not indemnify against any amount paid in settlement unless our Board of Directors has consented to such settlement.

 

An officer or director is not entitled to indemnification against costs or expenses incurred in connection with any action, commenced by such person against us or any person who is or was a director, officer, fiduciary, employee or agent of our company unless and to the extent that the officer or directors is successful on the merits in any such proceeding as to which such person is to be indemnified, we must indemnify him against all expenses incurred, including attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or directors is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada.

 

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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Our common stock is currently trading on the OTCQB under the symbol “DTSS.” We have applied to list our common stock on the NASDAQ Capital Market under the trading symbol “DTSS.” We cannot guarantee that we will be successful in listing our common stock on the NASDAQ Capital Market; however, we will not complete this offering unless we are so listed.

 

Holders

 

As of the date of this prospectus, there are 427 holders of record of our common stock.

 

Dividends

 

We do not expect to pay cash dividends or make any other distributions in the foreseeable future.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Our Board of Directors and our stockholders have adopted the 2018 Plan and reserve an aggregate of 4,000,000 shares of common stock for issuance under the 2018 Plan. The 2018 Plan permits the grant of options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards and/or performance compensation awards. As of the date of this prospectus, there are no outstanding awards under the 2018 Plan.

 

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SHARES ELIGIBLE FOR FUTURE SALE

 

Our common stock is currently trading on the OTCQB under the symbol “DTSS.” We have applied to list our common stock on the NASDAQ Capital Market under the trading symbol “DTSS.” We make no prediction as to the effect, if any, that market sales of our common stock or the availability of our common stock for sale will have on the market price of common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of equity securities.

 

Upon the completion of this offering, we will have an aggregate of 20,170,846 shares of common stock outstanding. All of the  shares of common stock sold in this offering, including any shares sold upon exercise of the underwriters’ over-allotment option, will be freely tradable, except that any common stock purchased by “affiliates” (as that term is defined in Rule 144 under the Securities Act), may only be sold in compliance with the limitations described below. After this offering,              shares of common stock (excluding any shares issuable upon exercise of outstanding options) will be deemed “restricted securities” as defined in Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or Rule 701, promulgated under the Securities Act, which rules are summarized below.

 

As a result of the contractual restrictions described below and the provisions of Rule 144 and Rule 701, the restricted shares will be available for sale in the public market as follows:              shares of common stock will be eligible for sale upon the expiration of the lock-up agreements, described below, beginning 180 days after the completion of the offering subject to extension in certain circumstances.

 

Lock-up Agreements

 

We and our directors, executive officers and certain other shareholders holding in the aggregate   % of our outstanding common stock have agreed, subject to some exceptions, not to sell, transfer or dispose of, directly or indirectly, any of our common stock, or any securities convertible into or exchangeable or exercisable for our common stock, for a period of 180 days after the completion of the offering. After the expiration of the 180-day period, our common stock held by our directors, executive officers or our other existing shareholders may be sold subject to the restrictions under Rule 144 under the Securities Act or other exemptions from registration with the SEC or by means of SEC-registered public offerings.

 

Rule 144

 

In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.

 

In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

 

· 1% of the number of shares of common stock then outstanding, which will equal approximately              shares immediately after this offering; or

 

· 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 such sale. 

 

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Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

 

Rule 701

 

In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchase shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering are entitled to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period requirements or other restrictions contained in Rule 701.

 

The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than affiliates, subject only to the manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with its one-year minimum holding period requirement.

 

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UNDERWRITING

 

We have entered into an underwriting agreement with ViewTrade Securities, Inc. to act as representative for the underwriters named below. Subject to the terms and conditions of the underwriting agreement, the underwriters named below have agreed to purchase, and we have agreed to sell to them, the number of our common stock at the public offering price, less the underwriting discounts and commissions, as set forth on the cover page of this prospectus and as indicated below:

 

Underwriter   Number of
Shares
 
ViewTrade Securities, Inc.      
Total      

 

The underwriting agreement provides that the obligations of the underwriters to pay for and accept delivery of the shares of the common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to other conditions. The underwriters are obligated to take and pay for all of the common stock offered by this prospectus if any such shares are taken. 

  

We have granted an option to the underwriter, exercisable for 45 days after the date of the date of this prospectus, to purchase up to 150,000 additional shares of common stock at the public offering price, less the underwriting discounts and commissions.

 

We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.

 

The underwriters will initially offer the shares to be sold in this offering directly to the public at the public offering price set forth on the cover of this prospectus and to selected dealers at the public offering price less a selling concession not in excess of $      per share. After the offering, the underwriters may change the offering price and other selling terms. No change in those terms will change the amount of proceeds to be received by us as set forth on the cover of this prospectus.

 

We have applied to list our common stock on the NASDAQ Capital Market under the symbol “DTSS.” We cannot guarantee that we will be successful in listing our common stock; however, we will not complete this offering unless we are so listed.

  

The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us (assuming both no exercise and full exercise of the underwriter’s over-allotment option):  

 

          Total  
    Per
Share (1)
    Without
Over-
Allotment
    With
Over-
Allotment
 
Public offering price                  
Underwriting discounts and commissions                        
Proceeds, before expenses, to us                        

 

(1) Selling concession (4%); Underwriting Fee (1.5%); Management Fee (1.5%). Does not include other expenses described below. 

 

In addition, we have agreed to pay up to $150,000 for certain costs and expenses incurred by the underwriters in connection with the offering, as provided in the underwriting agreement, to the underwriters.

 

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We shall also be responsible for all expenses relating to the offering, including, without limitation, (a) all filing fees and communication and printing expenses relating to the registration of the shares to be sold in the offering with the SEC and the filing of the offering materials with the Financial Industry Regulatory Authority, Inc., or FINRA; (b) costs of preparing, printing and delivering exhibits to the registration statement; (c) fees of our counsel and accountants, including fees associated with “blue sky” filings; (d) fees to translate documents for due diligence purposes; and (e) reasonable costs for road show meetings, including the cost of informational meetings.

 

In addition, we have agreed to issue warrants to the representative of the underwriters to purchase a number of shares of common stock equal to 7% of the total number of shares of common stock sold in this offering at an exercise price equal to 150% of the offering price of the common stock sold in this offering. These warrants may be purchased in cash or via cashless exercise, will be exercisable for five years from the closing of this offering and will terminate on the fifth anniversary of the closing of this offering. The warrants and the underlying shares will be deemed compensation by FINRA, and therefore will be subject to FINRA Rule 5110(g)(1). In accordance with FINRA Rule 5110(g)(1), neither the underwriter warrants nor any of our shares issued upon exercise of the underwriter warrants may be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities by any person, for a period of 180 days immediately following the date of effectiveness or commencement of sales of the offering pursuant to which the underwriter warrants are being issued, subject to certain exceptions.

 

We estimate that the total expenses of the offering payable by us, excluding the underwriting discounts and commissions, will be approximately $      .

 

Indemnification Escrow Agreement

 

We have agreed with the underwriters in this offering to establish an escrow account in the United States and to fund such account with $600,000 from this offering that may be utilized by the underwriters to fund any bona fide indemnification claims of the underwriters arising during an 18-month period following the offering, or longer if there is evidence that may reasonably result in us having to indemnify the underwriters, but in no event shall the funds be held in escrow for longer than two years following the offering. The escrow account will not be interest bearing, and we will be free to invest the assets in securities. All funds that are not subject to an indemnification claim will be returned to us after the applicable period expires.

 

No Sales of Similar Securities

 

We have agreed not to offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any common stock or any securities convertible into or exercisable or exchangeable for common stock or enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any such transaction is to be settled by delivery of common stock or such other securities, in cash or otherwise, without the prior written consent of the representative, for a period of 180 days from the effective date of the registration statement of which this prospectus is a part.

 

In addition, our directors, executive officers and holders of more than     % of our common stock will enter into lock-up agreements with the representative prior to the commencement of this offering pursuant to which each of these persons or entities, for a period of 180 days from the effective date of the registration statement of which this prospectus is a part, agree not to: (1) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, any common stock or any securities convertible into, exercisable or exchangeable for or that represent the right to receive common stock (including common stock which may be deemed to be beneficially owned by such person in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant) whether now owned or hereafter acquired; (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the foregoing securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to, the registration of any common stock or any security convertible into or exercisable or exchangeable for common stock; or (4) publicly disclose the intention to do any of the foregoing.

 

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The lock-up restrictions described in the immediately preceding paragraph do not apply with respect to any transfer:

 

  (i) as a bona fide gift or gifts,

 

  (ii) to any trust for the direct or indirect benefit of the holder or the immediate family of the holder,

 

  (iii) if the holder is a corporation, partnership, limited liability company, trust or other business entity (1) transfers to another corporation, partnership, limited liability company, trust or other business entity that is a direct or indirect affiliate of the holder or (2) distributions of our common stock or any security convertible into or exercisable for our common stock to limited partners, limited liability company members or stockholders of the holder,

 

  (iv) if the holder is a trust, transfers to the beneficiary of such trust,

 

  (v) by testate succession or intestate succession; or

 

  (vi) pursuant to the underwriting agreement;

 

provided, in the case of clauses (i)-(v), that (x) such transfer will not involve a disposition for value, (y) the transferee agrees in writing with the representative to be bound by the terms of a lock-up agreement, and (z) no filing by any party under Section 16(a) of the Exchange Act will be required or will be made voluntarily in connection with such transfer. Furthermore, notwithstanding the foregoing, the holder may transfer common stock in a transaction not involving a public offering or public resale; provided that (x) the transferee agrees in writing with the representative to be bound by the terms of a lock-up agreement, and (y) no filing by any party under Section 16(a) of the Exchange Act is required or is made voluntarily in connection with such transfer.

 

Electronic Offer, Sale and Distribution of Securities

 

A prospectus in electronic format may be made available on the websites maintained by the underwriters or selling group members, if any, participating in this offering and the underwriters may distribute prospectuses electronically. The underwriters may agree to allocate a number of common stock to selling group members for sale to their online brokerage account holders. The common stock to be sold pursuant to Internet distributions will be allocated on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or the underwriters, and should not be relied upon by investors.

 

Price Stabilization, Short Positions and Penalty Bids

 

In connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under option to purchase additional shares. The underwriters can close out a covered short sale by exercising the over-allotment option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the option to purchase additional shares. The underwriters may also sell shares in excess of the option to purchase additional shares, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

 

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The underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing our common stock in this offering because the underwriters repurchase those shares in stabilizing or short covering transactions.

 

Finally, the underwriters may bid for, and purchase, our common stock in market making transactions, including “passive” market making transactions as described below.

 

These activities may stabilize or maintain the market price of our common stock at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters are not required to engage in these activities, and may discontinue any of these activities at any time without notice. These transactions may be effected on the NASDAQ Capital Market, in the over-the-counter market, or otherwise.

 

Passive Market Making

 

In connection with this offering, the underwriters may engage in passive market making transactions in our common stock on the NASDAQ Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.

 

Potential Conflicts of Interest

 

The underwriters and their affiliates may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own accounts and for the accounts of their customers and such investment and securities activities may involve securities and/or instruments of our Company. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

  

Selling Restrictions

 

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

 

The underwriters are expected to make offers and sales both in and outside the United States through their respective selling agents. Any offers and sales in the United States will be conducted by broker-dealers registered with the SEC.

 

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Hong Kong

 

The common stock may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 622, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder.

 

People’s Republic of China

 

This prospectus has not been and will not be circulated or distributed in China, and common stock may not be offered or sold, and will not be offered or sold to any person for re-offering or resale, directly or indirectly, to any resident of China except pursuant to applicable laws and regulations of China. For the purpose of this paragraph, China does not include Taiwan, and the special administrative regions of Hong Kong and Macau.

 

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LEGAL MATTERS

 

Ellenoff Grossman & Schole LLP, New York, New York, will pass upon the validity of the issuance of the shares of our common stock offered by this prospectus as our counsel. K&L Gates LLP is acting as counsel to the underwriters in connection with this offering.

 

EXPERTS

 

The consolidated balance sheets of our Company and its subsidiaries as of June 30, 2017 and 2018, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flow for the 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 Wei, Wei & Co. LLP, an independent registered public accounting firm, appearing elsewhere in this prospectus, given the authority of such firm as experts in accounting and auditing.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

On August 30, 2017, we dismissed our independent registered public accounting firm, Anton & Chia, LLP. The decision to change the independent registered public accounting firm was recommended and approved by our Board of Directors. Anton & Chia, LLP’s report on our financial statements for the year ended June 30, 2016 did not contain any adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles, except that the audit report contained an uncertainty about our ability to continue as a going concern. In connection with the audit of the year ended June 30, 2016 and through August 30, 2017, there were (1) no disagreements with Anton & Chia, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Anton & Chia, LLP would have caused Anton & Chia, LLP to make reference to the subject matter of the disagreement(s) in connection with its reports, and (2) no reportable events as such term is defined in Item 304(a)(1)(v) of Regulation S-K. A copy of Anton & Chia, LLP’s letter addressed to the SEC is filed as Exhibit 16.1 to the current report on Form 8-K filed with the SEC on August 31, 2017.

 

On August 30, 2017, we, upon the approval of our Board of Directors, engaged Wei, Wei & Co., LLP as our new independent registered public accounting firm to audit and review our financial statements. During the years ended June 30, 2016 and 2017 and the subsequent interim period through August 30, 2017, we (or any person on our behalf) did not consult with Wei, Wei & Co., LLP regarding any of the matters described in Items 304(a)(2)(i) or 304(a)(2)(ii) of Regulation S-K.

 

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 our 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.

  

  68  

 

 

DATASEA INC.

  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
Reports of Independent Registered Public Accounting Firms F-2
   
Consolidated Balance Sheets F-3
   
Consolidated Statements of Operations and Comprehensive Loss F-4
   
Consolidated Statements of Changes in Stockholders’ Equity F-5
   
Consolidated Statements of Cash Flows F-6
   
Notes to Consolidated Financial Statements F-7 – F-16

 

  F- 1  

 

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders of Datasea, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Datasea, Inc. and subsidiaries (the “Company”) as of June 30, 2018 and 2017, and the related statements of operations, change in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and 2017, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

  

Emphasis of Matter – Going Concern

 

The accompanying financial statements have been prepared assuming that Datasea, Inc. and subsidiaries will continue as a going concern. As more fully described in Note 2, the Company has reported net losses of approximately $1,604,000 and $1,193,000 for the years ended June 30, 2018 and 2017 respectively. At June 30, 2018, the Company has deficit of $4,124,947. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

 

/s/ Wei, Wei & Co., LLP

 

We have served as the Company’s auditor since 2017.

 

Flushing, New York 

September 13, 2018

 

  F- 2  

 

 

DATASEA INC. 

CONSOLIDATED BALANCE SHEETS

 

    June 30,     June 30,  
    2018     2017  
             
ASSETS                
Current Assets                
Cash   $ 1,031,486     $ 1,174,950  
Accounts receivable           221  
Inventory     75,910       101,300  
Prepaid expenses and other current assets     127,880       94,439  
Total Current Assets     1,235,276       1,370,910  
                 
Property and equipment, net     55,270       59,286  
Intangible assets, net     13,887       13,783  
Deferred registration costs     72,532        
Total Assets   $ 1,376,965     $ 1,443,979  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
Current Liabilities                
Accounts payable   $ 13,503     $ 13,261  
Accrued expenses and other payables     150,283       66,975  
Advance for sale of common stock           675,235  
Loan payable-shareholder     27,058       129,874  
Total Current Liabilities     190,844       885,345  
                 
Stockholders’ Equity                
                 
Common stock, $0.001 par value, 375,000,000 shares authorized, 19,170,846 and 18,870,346 shares issued and outstanding at June 30, 2018 and 2017, respectively     19,171       18,870  
Additional paid-in capital     5,121,102       3,002,878  
Accumulated comprehensive income     170,795       57,692  
Deficit     (4,124,947 )     (2,520,806 )
Total Stockholders’ Equity     1,186,121       558,634  
                 
Total Liabilities and Stockholders’ Equity   $ 1,376,965     $ 1,443,979  

 

See accompanying notes to the consolidated financial statements

 

  F- 3  

 

 

DATASEA INC. 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS 

 

    Years Ended  
    June 30, 2018     June 30, 2017  
             
Revenues   $ 10,571     $ 140,774  
Cost of goods sold     4,819       85,397  
Gross profit     5,752       55,377  
                 
Operating expenses                
Selling expenses     172,029       151,600  
General and administrative expenses     1,133,534       953,767  
Research and development expenses     361,616       203,600  
Total operating expenses     1,667,179       1,308,967  
                 
Loss from operations     (1,661,427 )     (1,253,590 )
                 
Other income                
   Other income, net     57,560       59,368  
Interest expense     (274 )     1,006  
Total other income(expense)     57,286       60,374  
                 
Net loss     (1,604,141 )     (1,193,216 )
Other comprehensive loss                
Foreign currency translation adjustment     113,103       63,551  
Total comprehensive loss   $ (1,491,038 )   $ (1,129,665 )
                 
Net loss per share                
Basic and diluted   $ (0.08 )   $ (0.06 )
                 
Weighted average shares outstanding                
Basic and diluted     19,130,098       18,596,678  

 

See accompanying notes to the consolidated financial statements

 

  F- 4  

 

   

DATASEA INC. 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

    Common
Shares
    Par
Value
    Additional
Paid in
Capital
    Deficit     Accumulated
Other
Comprehensive
(Loss)Income
    Total
Stockholders’
Equity
 
Balance at June 30, 2016     18,462,680     $ 18,462     $ 1,315,546     $ (1,327,590 )   $ (5,859 )   $ 559  
Issuance of common stock     407,666       408       1,687,332                   1,687,740  
Net loss                       (1,193,216 )           (1,193,216 )
Foreign currency translation gain                             63,551       63,551  
Balance at June 30, 2017     18,870,346       18,870       3,002,878       (2,520,806     57,692       558,634  
Issuance of common stock     300,500       301       2,118,224                       2,118,525  
Net loss                       (1,604,141 )           (1,604,141 )
Foreign currency translation gain                             113,103       113,103  
Balance at June 30, 2018     19,170,846     $ 19,171     $ 5,121,102     $ (4,124,947 )   $ 170,795     $ 1,186,121  

 

See accompanying notes to the consolidated financial statements

 

  F- 5  

 

 

DATASEA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    Years Ended  
    June 30, 2018     June 30, 2017  
             
Cash flows from operating activities:                
Net loss   $ (1,604,141 )   $ (1,193,216 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     32,694       50,097  
Expenses paid by president     9,000       88,496  
Changes in current assets and current liabilities:                
Accounts receivable     225       (221 )
Project in progress           213,321  
Inventory     27,195       (90,122 )
Prepaid expenses and other current assets     (31,660 )     (1,479 )
Accounts payable           (180,023 )
Accrued expenses and other payables     81,958       51,609  
Net cash (used in) operating activities     (1,484,730 )     (1,061,538 )
                 
Cash flows from investing activities:                
Acquisition of office equipment and intangible assets     (27,454 )     (10,676 )
Net cash (used in) investing activities     (27,454 )     (10,676 )
                 
Cash flows from financing activities:                
(Payment) of loan payable - shareholder, net     (123,850 )     (131,660 )
Net proceeds from issuance of common stock     1,432,128       1,687,740  
(Payment)deferred registration costs     (72,408 )      
Advances for issuance of common stock           671,825  
Net cash provided by financing activities     1,235,870       2,227,905  
                 
Effect of exchange rate changes on cash     132,850       7,457  
                 
Net (decrease)increase in cash     (143,464 )     1,163,148  
                 
Cash – beginning of year     1,174,950       11,802  
                 
Cash – ending of year   $ 1,031,486     $ 1,174,950  
                 
Supplemental disclosures of cash flow information:                
Cash paid for interest   $     $  
Cash paid for income taxes   $     $  
                 
Non-cash financing activity:                
Expenses paid by president   $ 9,000     $ 88,496  

 

See accompanying notes to the consolidated financial statements

 

  F- 6  

 

 

DATASEA INC. 

Notes to Consolidated Financial Statements

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Datasea Inc. (the “Company”) was incorporated in the State of Nevada on September 26, 2014 under the name Rose Rock Inc. and changed its name to Datasea Inc. on May 27, 2015 by amending its articles of incorporation. On May 26, 2015, the Company’s founder, Xingzhong Sun, sold 20,000,000 shares (giving effect to the Forward Split on November 12, 2015 but without giving effect to the reverse stock split that became effective on May 1, 2018) of his common stock of the Company (the “Common Stock”) to Zhixin Liu, one of the owners of Shuhai Skill (HK) as defined below. On October 29, 2015, Mr. Sun sold his remaining 5,000,000 shares of Common Stock of the Company to Ms. Liu.

 

On October 29, 2015, the Company entered into a share exchange agreement (the “Exchange Agreement”) with the shareholders (the “Shareholders”) of Shuhai Information Skill (HK) Limited (“Shuhai Skill (HK)”), a limited liability company incorporated on May 15, 2015 under the laws of the Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”). Pursuant to the terms of the Exchange Agreement, the Shareholders, who together own 100% of the ownership rights in Shuhai Skill (HK), transferred all of the issued and outstanding ordinary shares of Shuhai Skill (HK) to the Company in exchange for the issuance of an aggregate of 20,000,000 shares (giving effect to the Forward Split on November 12, 2015 but without giving effect to the reverse stock split that became effective on May 1, 2018) of Common Stock, thereby causing Shuhai Skill (HK) and its wholly owned subsidiaries, Tianjin Information Sea Information Technology Co., Ltd. (“Tianjin Information”), a limited liability company incorporated under the laws of the PRC, and Harbin Information Sea Information Technology Co., Ltd., a limited liability company incorporated under the laws of the PRC, to become wholly-owned subsidiaries of the Company, and Shuhai Information Technology Co., Ltd., also a limited liability company incorporated under the laws of the PRC (“Shuhai Beijing”), to become a variable interest entity (“VIE”) of the Company through a series of contractual agreements between Shuhai Beijing and Tianjin Information. The transaction was accounted for as a reverse merger, with Shuhai Skill (HK) and its subsidiaries being the accounting survivor. Accordingly, the historical financial statements presented are those of Shuhai Skill (HK) and its consolidated subsidiaries.

 

Following the Share Exchange, the Shareholders, being Zhixin Liu and her father, Fu Liu, owned approximately 81.82% of the outstanding shares of Common Stock. As of October 29, 2015, there were 55,000,000 shares (giving effect to the Forward Split on November 12, 2015 but without giving effect to the reverse stock split that became effective on May 1, 2018) of Common Stock issued and outstanding, 45,000,000 of which were beneficially owned by Zhixin Liu and Fu Liu.

 

On May 1, 2018, the Company had a 1 of 3 reverse stock split decreasing the shares outstanding from 57,511,711 to 19,170,827. The consolidated financial statements have been retroactively adjusted to reflect the reverse split.

 

After the Share Exchange, the Company, through its consolidated subsidiaries and VIE is engaged in the business of providing Internet security products, new media advertising, micro-marketing, and data analysis services in the PRC.

 

NOTE 2 – GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company has generated losses of ($1,604,141) and ($1,193,216) during the years ended June 30, 2018 and 2017, has a deficit of approximately ($4,124,000) and ($2,521,000) at June 30, 2018 and 2017, and continues to incur significant losses since inception. These circumstances, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company’s management recognizes that the Company must generate sales and additional resources to enable it to continue to develop its operations. Based on increased demand for internet services in China, including internet security and data integration, the Company’s management team expects healthy growth in its business. The Company’s management intends to raise additional financing through debt and/or equity financing or through other means that it deems necessary, with a view to moving forward and sustaining prolonged growth in its initial phases. However, no assurance can be given that the Company will be successful in raising additional capital or obtaining financing on acceptable terms and ultimately achieving profitable operations to sustain the Company.

 

Basis of Presentation and Consolidation

 

The accompanying consolidated financial statements include the financial statements of the Company and its 100% owned subsidiaries of Shuhai Skill (HK), Tianjin Information and its VIE, Shuhai Beijing.

 

  F- 7  

 

 

DATASEA INC. 

Notes to Consolidated Financial Statements

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

VARIABLE INTEREST ENTITY

 

Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 810, “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial statements, the financial statements of its variable interest entity (“VIE”). ASC 810 requires a VIE to be consolidated if the company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. A VIE is an entity in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.

 

Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The reporting entity’s determination of whether it has this power is not affected by the existence of kick-out rights or participating rights, unless a single enterprise, including its related parties and de - facto agents, have the unilateral ability to exercise those rights. Shuhai Beijing’s actual stockholders do not hold any kick-out rights that affect the consolidation determination.

 

Through the VIE agreements, the Company is deemed the primary beneficiary of Shuhai Beijing. Accordingly, the results of Shuhai Beijing have been included in the accompanying consolidated financial statements. Shuhai Beijing has no assets that are collateral for or restricted solely to settle their obligations. The creditors of Shuhai Beijing do not have recourse to the Company’s general credit.

 

VIE Agreements

 

Operation and Intellectual Property Service Agreement – This agreement allows Tianjin Information to manage and operate Shuhai Beijing and collect 100% of their net profits. Under the terms of the Operation and Intellectual Property Service Agreement, Shuhai Beijing entrusts Tianjin Information to manage its operations, manage and control its assets and financial matters, and provide intellectual property services, purchasing management services, marketing management services and inventory management services to Shuhai Beijing. Shuhai Beijing and its shareholders shall not make any decisions nor direct the activities of Shuhai Beijing without Tianjin Information’s consent.

 

Shareholders’ Voting Rights Entrustment Agreement  – Tianjin Information has entered into a shareholders’ voting rights entrustment agreement (the “Entrustment Agreement”) under which Zhixin Liu and Fu Liu (collectively the “Shuhai Beijing Shareholders”) have vested their voting power in Shuhai Beijing to Tianjin Information or its designee(s).  The Entrustment Agreement does not have an expiration date.

 
Equity Option Agreement –the Shuhai Beijing Shareholders and Tianjin Information entered into an equity option agreement (the “Option Agreement”), pursuant to which the Shuhai Beijing Shareholders have granted Tianjin Information or its designee(s) the irrevocable right and option to acquire all or a portion of Shuhai Beijing Shareholders’ equity interests in Shuhai Beijing for an option price of RMB0.001 for each capital contribution of RMB1.00. Pursuant to the terms of the Option Agreement, Tianjin Information and the Shuhai Beijing Shareholders have agreed to certain restrictive covenants to safeguard the rights of Tianjin Information under the Option Agreement. Tianjin Information agreed to pay RMB1.00 annually to Shuhai Beijing Shareholders to maintain the option rights. Tianjin Information may terminate the Option Agreement upon prior written notice. The Option Agreement is valid for a period of 10 years from the effective date and renewable at Tianjin Information’s option. 

 

  F- 8  

 

 

DATASEA INC. 

Notes to Consolidated Financial Statements

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Equity Pledge Agreement – Tianjin Information and the Shuhai Beijing Shareholders entered into an equity pledge agreement on October 27, 2015 (the “Equity Pledge Agreement”). The Equity Pledge Agreement serves to guarantee the performance by Shuhai Beijing of its obligations under the Operation and Intellectual Property Service Agreement and the Option Agreement. Pursuant to the Equity Pledge Agreement, Shuhai Beijing Shareholders have agreed to pledge all of their equity interests in Shuhai Beijing to Tianjin Information. Tianjin Information has the right to collect any and all dividends, bonuses and other forms of investment returns paid on the pledged equity interests during the pledge period. Pursuant to the terms of the Equity Pledge Agreement, the Shuhai Beijing Shareholders have agreed to certain restrictive covenants to safeguard the rights of Tianjin Information. Upon an event of default or certain other agreed events under the Operation and Intellectual Property Service Agreement, the Option Agreement and the Equity Pledge Agreement, Tianjin Information may exercise the right to enforce the pledge.

 

USE OF ESTIMATES

 

The preparation of consolidated 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant areas requiring the use of management estimates include, but are not limited to, the estimated useful life and residual value of property and equipment, provision for staff benefits, recognition and measurement of deferred income taxes and the valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates and such differences may be material to our consolidated financial statements.

 

Contingencies

 

Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that may be pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s consolidated financial statements.

 

If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. As of June 30, 2018 and 2017, the Company has no contingencies.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, demand deposits and short-term cash investments that are highly liquid in nature and have original maturities of three months or less. The Company has no cash equivalents as of June 30, 2018 and 2017.

 

Inventory

 

Inventory, principally purchased routers used in installations and electronic student cards, is valued at the lower of cost or net realizable value. The value of inventory is determined using the first-in, first-out method. The Company periodically estimates an inventory allowance for estimated unmarketable inventories when necessary. Inventory amounts are reported net of such allowances. There were no allowances for inventory as of June 30, 2018 and 2017.

 

  F- 9  

 

 

DATASEA INC. 

Notes to Consolidated Financial Statements

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Deferred REGISTRATION Costs

 

The Company defers certain legal, accounting and other third-party fees that are directly associated with in-process equity financings as deferred registration costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the offering. Should the equity financing for which those costs relate no longer be considered probable of being consummated, all deferred registration costs will be charged to operating expenses in the statement of operations at such time. The Company had deferred registration costs of $72,532 as of June 30, 2018.

 

PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost, less accumulated depreciation. Major repairs and improvements that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs are expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method over estimated useful lives as follows:

 

Furniture and fixtures       5-10 years  
Office equipment     3-5 years  

 

INTANGIBLE ASSETS

 

Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Evaluation of the recoverability of intangible assets is made to take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. No impairment of intangible assets has been identified as of the balance sheet dates.

 

Intangible assets include licenses and certificates and are amortized over their useful life of ten years.

 

FAIR VALUE MEASUREMENTS AND DISCLOSURES

 

FASB ASC Topic 820, “Fair Value Measurements,” defines fair value, and establishes a three-level valuation hierarchy for disclosures that enhances disclosure requirements for fair value measures. The three levels are defined as follows:

 

· Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

· Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

· Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The carrying value of cash, accounts receivable, inventory, prepaid expenses and other current assets, accounts payable, accrued expenses and other payables, advances for issuance of common stock and loan payable-shareholder, approximate their fair values due to their short maturities.   

 

As of June 30, 2018, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value on a recurring basis. 

 

  F- 10  

 

 

DATASEA INC. 

Notes to Consolidated Financial Statements

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

IMPAIRMENT OF LONG-LIVED ASSETS

 

In accordance with FASB ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, or it is reasonably possible that these assets could become impaired as a result of technological or other industrial changes. The determination of recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future undiscounted cash flows to be generated by the assets.

 

If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. During the reporting periods there was no impairment loss recognized on long-lived assets.

 

Revenue Recognition

 

The Company recognizes revenues from professional services contracts. Customers are billed, according to individual agreements. Revenues from professional services are recognized on a completed-contract basis, in accordance with ASC Topic 605, Under the completed-contract basis, contract costs are recorded to projects in process and billings and/or cash received are recorded to a deferred revenue liability account during the periods of construction. Costs include direct material, direct labor and subcontract labor. All revenues, costs, and profits are recognized in operations upon completion of the contract. A contract is considered completed when all costs except insignificant items have been incurred and final acceptance has been received from the customer. Corporate general and administrative expenses are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss as incurred. For uncompleted contracts, the deferred asset (accumulated contract costs) in excess of the deferred liability (billings and/or cash received) is classified under current assets as costs in excess of billings on uncompleted contracts. The deferred liability (billings and/or cash received) in excess of the deferred asset (accumulated contract costs) is classified under current liabilities as billings in excess of costs on uncompleted contracts. Contract retentions are included in accounts receivable.

 

During the years ended June 30, 2018 and 2017, one customer accounted for 85.1% and 100% of the Company’s total sales, respectively.

 

INCOME TAXES

 

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting years. 

 

RESEARCH AND DEVELOPMENT EXPENSES

 

Research and development expenses are expensed in the period when they are incurred. For the years ended June 30, 2018 and 2017, the Company incurred research and development expenses of $361,616 and $203,600, respectively. 

 

  F- 11  

 

 

DATASEA INC. 

Notes to Consolidated Financial Statements

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

CONCENTRATION OF CREDIT RISK 

 

The Company maintains cash in accounts with state-owned banks within the PRC. Cash in state-owned banks is not covered by insurance. Should any of these institutions holding the Company’s cash become insolvent, or if the Company is unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in these bank accounts.

 

FOREIGN CURRENCY TRANSLATION AND COMPREHENSIVE INCOME (LOSS)

 

The accounts of the Company’s Chinese entities are maintained in RMB and the accounts of the U.S. parent company are maintained in United States dollars (“USD”) The accounts of the Chinese entities were translated into USD in accordance with FASB ASC Topic 830 “Foreign Currency Matters.” All assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and the statements of operations and cash flows are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported in other comprehensive income in accordance with FASB ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the foreign currency transactions are reflected in the statements of operations. 

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the FASB issued ASU 2016-02 Amendments to ASC 842 Leases. This update requires a lessee to recognize the assets and liability (the lease liability) arising from operating leases on the balance sheet for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Within a twelve months or less lease term, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. If a lessee makes this election, it should recognize lease expense on a straight-line basis over the lease term. In transition, this update will be effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company does not currently expect the adoption of ASU 2016-02 to have a material impact on the Company’s financial statements unless it enters into a new long-term lease. 

 

In September 2017, the FASB issued ASU 2017-13, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842). The main objective of this pronouncement is to clarify the effective date of the adoption of ASC Topic 606 and ASC Topic 842 and the definition of public business entity as stipulated in ASU 2014-09 and ASU 2016-02. ASU 2014-09 provides that a public business entity and certain other specified entities adopt ASC Topic 606 for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities are required to adopt ASC Topic 606 for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. ASU 2016-12 requires that “a public business entity and certain other specified entities adopt ASC Topic 842 for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. All other entities are required to adopt ASC Topic 842 for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020”. ASU 2017-13 clarifies that the SEC would not object to certain public business entities electing to use the non-public business entities effective dates for applying ASC 606 and ASC 842. ASU 2017-13, however, limits such election to certain public business entities that “otherwise would not meet the definition of a public business entity except for a requirement to include or inclusion of its financial statements or financial information in another entity’s filings with the SEC”.

 

  F- 12  

 

 

DATASEA INC. 

Notes to Consolidated Financial Statements

 

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Basically, these amendments provide a screen to determine when a set is not a business. If the screen is not met, the amendments in this ASU first, require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and second, remove the evaluation of whether a market participant could replace missing elements. These amendments take effect for public businesses for fiscal years beginning after December 15, 2017 and interim periods within those periods, and all other entities should apply these amendments for fiscal years beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.

 

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company does not expect the adoption of the amendment in this ASU to have a significant impact on the Company’s consolidated financial statements.

 

In November 2016, the FASB issued ASU 2016-18, Restricted Cash. The amendments in this update address diversity in practice that exists in the classification and presentation of changes in restricted cash and require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 is effective for the Company beginning January 1, 2018 and is required to be applied using a retrospective transition method to each period presented. The Company does not expect the adoption of the amendment in this ASU to have a significant impact on the Company’s consolidated financial statements.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying consolidated financial statements.

 

Note 4 – deferred financing costs

 

The Company incurred and deferred registration costs of $72,532 as of June 30, 2018. Such costs consist of professional fees associated with the Company’s proposed public offering of Common Stock.

 

Note 5 – PROPERTY AND EQUIPMENT

 

Property and equipment are summarized as follows:

 

    June 30,
2018
    June 30,
2017
 
Office furniture and fixtures   $ 71,027     $ 58,064  
Office equipment     55,041       40,248  
Subtotal     126,068       98,312  
Less: Accumulated depreciation     70,798       39,026  
Total   $ 55,270     $ 59,286  

 

Depreciation expense for the years ended June 30, 2018 and 2017 were $31,007 and $48,626, respectively.

 

NOTE 6 –intangible assets

 

Intangible assets are summarized as follows:

 

    June 30,
2018
    June 30,
2017
 
Software registration rights   $ 4,929     $ 4,508  
Patent     1,203        
Value-added telecommunications business license     12,049       11,833  
Subtotal     18,181       16,341  
Less: Accumulated depreciation     4,294       2,558  
Total   $ 13,887     $ 13,783  

 

Amortization expense for the years ended June 30, 2018 and 2017 were $1,687 and $1,471, respectively.

 

  F- 13  

 

 

DATASEA INC. 

Notes to Consolidated Financial Statements

 

Note 7 – Prepaid expenses and other current assets

 

Prepaid expenses and other current assets consisted of the following:

 

    June 30,
2018
    June 30,
2017
 
Security deposit   $ 55,156     $ 54,830  
Prepaid expenses and advances     65,769       32,471  
Others     6,955       7,138  
Total   $ 127,880     $ 94,439  

 

Note 8 – accrued expenses and other payables

 

Accrued expenses and other payable consisted of the following:

 

    June 30,
2018
    June 30,
2017
 
Deposit   $ 31,493     $ 30,515  
Salaries and other payables     115,785       36,460  
Advances from customers     3,005        
Total   $ 150,283     $ 66,975  

 

Note 9 – related party transactions

 

The Company’s President, Zhixin Liu, paid certain operating expenses on behalf of the Company. As of June 30, 2018 and 2017, the amounts due to the President were $27,059 and $129,874, respectively. These amounts are interest-free, unsecured and due on demand. The Company has not received any demand for payments.

 

On January 1, 2016, the Company’s President entered into a car rental agreement with the Company. Pursuant to the agreement, the Company rents a car from the President for a monthly rent of approximately $750. The agreement expired on December 31, 2016. The agreement was renewed and the term was extended to December 31, 2018. The rent paid under this agreement was $9,000 and $8,808 for the years ended June 30, 2018 and 2017 respectively.

 

On November 11, 2017, the Company bought a second-hand car for $3,000 from Harbin Jinfenglvyuan Biotechnology Co., Ltd, a related entity owned by Mr. Fu Liu.

 

In April 2017, the Company’s President entered into an apartment rental agreement with the Company. Pursuant to the agreement, the Company rents an apartment from the president with an annual rent of approximately $3,000. The agreement was renewed and the term was extended to April 30, 2019.

 

In March and April 2018, we entered into six membership service agreements with five entities and one individual, three of which are stockholders of our company, and eleven agency agreements with eleven individuals, nine of which are stockholders of our company. Pursuant to the membership service agreements, we offer member management services through our Xin Platform APP and charge the entering parties a service fee of RMB1,000 (approximately $150) per member. Pursuant to the agency agreements, the agents are authorized as agents to market Xin Platform APP in specific areas of China. Each agent is required to pay a Xin Platform APP usage fee of $750 and deposit $750 in financial products offered by China Minsheng Bank via Xin Platform APP. Each agent will receive $8 for each customer that applies for a credit card of China Minsheng Bank via Xin Platform APP.

 

  F- 14  

 

 

DATASEA INC. 

Notes to Consolidated Financial Statements

 

Note 10 – income taxes

 

The Company was incorporated in the United States of America, is subject to U.S. tax and plans to file U.S. federal income tax returns. The Company conducts all of its businesses through its subsidiaries and affiliated entities, principally in the PRC. No provision for US federal income tax was made for the years ended June 30, 2018 and 2017 as the US entity incurred losses.

 

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. Additionally, the Tax Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. However, this one-time transition tax has no effect on the Company’s income tax expense as the Company has no undistributed foreign earnings prior to June 30, 2018, as the Company has cumulative foreign losses as of June 30, 2018.

 

The Company’s offshore subsidiary, Shuhai Skill (HK), did not earn any income that was derived in Hong Kong for the years ended June 30, 2018 and 2017, and therefore did not incur any Hong Kong Profits tax.

 

Under the Corporate Income Tax Law of the PRC, the corporate income tax rate is 25%.

 

The Company has net operating losses (“NOL”) of approximately $1,604,000 and $1,193,000 during years ended June 30, 2018 and 2017 respectively. Management believes that it is more likely than not that the benefit from the NOL carryforwards will not be realized. In recognition of this risk, the Company has provided a 100% valuation allowance as of June 30, 2018 and 2017 and no deferred tax asset benefit has been recorded.

 

The reconciliation of income tax expense (benefit) at the PRC statutory rate of 21% to the Company’s effective tax is as follows:

 

    Year Ended June 30,  
    2018     2017  
             
PRC Statutory rate   $ (401,036 )   $ (298,305 )
Change in valuation allowance     401,036       298,305  
Effective tax   $     $  

 

The provisions for income taxes are summarized as follows:

 

    Year
ended  
June 30,
2018
    Year ended
June 30,
2017
 
Current   $     $  
Deferred     401,036       298,305  
Change in valuation allowance     (401,036 )     (298,305 )
Total   $     $  

 

The valuation allowance increased by $401,036 and $298,305 for the years ended June 30, 2018 and 2017, respectively.

 

The Company’s net deferred tax asset as of June 30, 2018 and June 30, 2017 is as follows:

 

    June 30,
2018
    June 30,
2017
 
Deferred tax asset   $ 986,095     $ 585,059  
Valuation allowance     (986,095 )     (585,059 )
Net deferred tax asset   $     $  

 

For United States Income tax reporting purposes, the six months ended June 30, 2015 and the years ending June 30, 2017 and 2016 remain open and subject to audit.

 

As of June 30, 2018, the tax years ended June 30, 2015 through June 30, 2017 for the Company’s PRC subsidiaries remain open for statutory examination by PRC tax authorities. As of June 30, 2018, the tax years ended June 30, 2015 through June 30, 2017 for the Company’s PRC subsidiaries remain open for statutory examination by PRC tax authorities.

 

  F- 15  

 

 

DATASEA INC. 

Notes to Consolidated Financial Statements

 

NOTE 11 – CommiTments

 

Lease Agreement

 

In December 2017, the Company renewed the one-year operating lease agreement. The lease will expire on February 28, 2019 and has a monthly rent of RMB 35,192 (or approximately $5,279). Future rental payment due under the lease is RMB 281,536 or approximately $42,230).

 

Rent expense for the years ended June 30, 2018 and 2017 was $63,345 and $63,790, respectively.

 

In December 2017, the Company renewed the one-year property management contract. The contract will expire on February 28, 2019 and has a monthly management fee of RMB 70,384 (or approximately $10,558). Future management fees due under the contract are RMB 563,072 (or approximately $84,460).

 

NOTE 12 – SUBSEQUENT EVENTS 

 

On August 22, 2018, the Company’s Board of Directors and majority stockholders adopted a 2018 Equity Incentive Plan, or the 2018 Plan, for the Company to award up to a maximum of 4,000,000 shares of their common stock, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants and promote the success of their business. No awards have been granted under the 2018 Plan as of the date of this prospectus, but the Company’s Board of Directors or a designated committee thereof will have the ability in its discretion from time to time to make awards under the 2018 Plan, including to their officers and directors.

 

  F- 16  

 

 

 

1,000,000 SHARES OF COMMON STOCK

 

PROSPECTUS

           , 2018

 

 

 

 

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution

 

The estimated expenses payable by us in connection with the offering described in this registration statement (other than the underwriting discounts and commissions) will be as follows:

 

SEC Registration Fees   $ 666  
FINRA Filing Fees     2,180  
Accounting fees and expenses    

64,500

 
Printing and engraving expenses    

12,000

 
NASDAQ Stock Market listing fee     75,000  
Legal fees and expenses    

333,000

 
Miscellaneous (1)    

209,240

 
Total     696,586*

 

 

 

(1) This amount represents additional expenses that may be incurred by us in connection with the offering over and above those specifically listed above, including distribution and mailing costs.

* Estimated

 

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.

 

  69  

 

 

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.

 

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

 

Pursuant to our Articles of Incorporation, as amended and Amended and Restate Bylaws, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to our best interest, provided, however, that (i) we will not indemnify such person against expenses incurred in connection with an action if he is threatened but does not become a party unless the incurring of such expenses was authorized by the Board of Directors and (ii) we will not indemnify against any amount paid in settlement unless our Board of Directors has consented to such settlement.

 

An officer or director is not entitled to indemnification against costs or expenses incurred in connection with any action, commenced by such person against us or any person who is or was a director, officer, fiduciary, employee or agent of our company unless and to the extent that the officer or directors is successful on the merits in any such proceeding as to which such person is to be indemnified, we must indemnify him against all expenses incurred, including attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or directors is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada.

 

Item 15. Recent Sales of Unregistered Securities

 

Set forth below is information regarding shares of common stock issued by us in the past three years that were not registered under the Securities Act of 1933.

 

On October 29, 2015, pursuant to the closing of the Share Exchange Agreement dated October 29, 2015, by and between us and the Shareholders of Shuhai Skill (HK), we issued a total of 20,000,000 shares of common stock (giving effect to the Forward Split on November 12, 2015 but without giving effect to the reverse stock split that became effective on May 1, 2018) to Zhixin Liu and Fu Liu in exchange of all of the issued and outstanding ordinary shares of Shuhai Skill (HK) thereby making Shuhai Skill (HK) and Tianjin Information, our wholly owned subsidiary and Shuhai Beijing, our VIE. For the above share issuances, the shares were not registered under the Securities Act in reliance upon the exemption from registration provided in Rule 4(a)(2) of the Securities Act. No underwriters were used, nor were any brokerage commissions paid in connection with the above share issuances. No advertising or public solicitation was involved. The securities bear a restrictive legend and no commissions were paid in connection with the above share issuance.

 

  70  

 

 

On May 31, 2016, we sold to certain investors an aggregate of 140,271 shares of common stock for total cash proceeds of $193,574. All the investors are non-U.S. persons, as defined in Regulation S. The Investors are all individuals residing in the People’s Republic of China.

 

In August 2016, we sold to certain investors an aggregate of 75,000 shares of common stock for total cash proceeds of $103,500. All the investors are non-U.S. persons, as defined in Regulation S. The Investors are all individuals residing in the People’s Republic of China.

 

On September 30, 2016, we sold to certain investors an aggregate of 230,000 shares of common stock for total cash proceeds of $317,400. All the investors are non-U.S. persons, as defined in Regulation S. The Investors are all individuals residing in the People’s Republic of China.

 

From September to November 2016, we sold to certain investors an aggregate of 260,000 shares of common stock for total cash proceeds of $358,800. All the investors are non-U.S. persons, as defined in Regulation S. The Investors are all individuals residing in the People’s Republic of China.

 

From November 2016 to January 2017, we sold to certain investors an aggregate of 202,500 shares of common stock for total cash proceeds of $279,450. All the investors are non-U.S. persons, as defined in Regulation S. The Investors are all individuals residing in the People’s Republic of China.

   

From January to April 2017, we sold to certain investors an aggregate of 237,000 shares of common stock for total cash proceeds of $327,060. All the investors are non-U.S. persons, as defined in Regulation S. The Investors are all individuals residing in the People’s Republic of China.

 

On June 6, 2017, we sold to certain investors an aggregate of 218,500 shares of common stock for total cash proceeds of $301,530. All the investors are non-U.S. persons, as defined in Regulation S. The Investors are all individuals residing in the People’s Republic of China.

 

On July 14, 2017, we sold to certain investors an aggregate of 286,000 shares of our common stock for total cash proceeds of $672,100. The investors are all individuals residing in the People’s Republic of China.

 

On August 21, 2017, we sold to certain investors an aggregate of 355,500 shares of our common stock for total cash proceeds of $835,425. The investors are all individuals residing in the People’s Republic of China.

 

On September 21, 2017, we sold to certain investors an aggregate of 260,000 shares of our common stock for total cash proceeds of $611,000. The Investors are all individuals residing in the People’s Republic of China.

  

  71  

 

 

Item 16. Exhibits

 

Exhibit

No.

  Description

1.1

 

Form of Underwriting Agreement*

2.1   Share Exchange Agreement, dated October 29, 2015, by and among Datasea Inc., Shuhai Information Skill (HK) Limited, Zhixin Liu and Fu Liu, incorporated herein by reference to Exhibit 10.1 of the Post-Effective Amendment No. 1 to Form S-1 filed on February 10, 2016
3.1   Articles of Incorporation, incorporated herein by reference to Exhibit 3.1 of the Registration Statement on Form S-1 filed on February 13, 2015.
3.2   First Amendment to Articles of Incorporation, dated May 27, 2015, incorporated herein by reference to Exhibit 3.1(ii) of the Post-Effective Amendment No. 1 to Form S-1 filed on February 10, 2016
3.3   Certificate of Change, dated November 12, 2015, incorporated herein by reference to Exhibit 3.1 of Form 8-K filed on November 19, 2015.
3.4   Amended and Restated Bylaws, adopted on August 20, 2015, incorporated herein by reference to Exhibit 3.2(ii) of the Post-Effective Amendment No. 1 to Form S-1 filed on February 10, 2016
3.5   Certificate of Amendment to Articles of Incorporation of Datasea Inc., incorporated herein by reference to Exhibit 3.1 of the Form 8-K filed on April 20, 2018

4.1

 

Form of Underwriter’s Warrant*

5.1   Legal Opinion of Ellenoff Grossman & Schole LLP*
10.1   Operation and Intellectual Property Service Agreement, dated October 20, 2015, by and among Tianjin Information Sea Information Technology Co., Ltd. and Shuhai Information Technology Co. Ltd., Fu Liu and Zhixin Liu, incorporated herein by reference to Exhibit 10.2 of the Post-Effective Amendment No. 1 to Form S-1 filed on February 10, 2016
10.2   Shareholder’s Voting Rights Entrustment Agreement, dated October 27, 2015, by and among Tianjin Information Sea Information Technology Co., Ltd. and Shuhai Information Technology Co. Ltd., Fu Liu and Zhixin Liu, incorporated herein by reference to Exhibit 10.3 of the Post-Effective Amendment No. 1 to Form S-1 filed on February 10, 2016
10.3   Option Agreement, dated October 27, 2015, by and between Tianjin Information Sea Information Technology Co., Ltd. and Fu Liu and Zhixin Liu, incorporated herein by reference to Exhibit 10.4 of the Post-Effective Amendment No. 1 to Form S-1 filed on February 10, 2016
10.4   Equity Pledge Agreement, dated October 27, 2015 by and between Tianjin Information Sea Information Technology Co., Ltd. and Fu Liu and Zhixin Liu, incorporated herein by reference to Exhibit 10.5 of the Post-Effective Amendment No. 1 to Form S-1 filed on February 10, 2016
10.5   Employment Agreement, dated February 11, 2015 by and between Shuhai Information Technology Co., Ltd. and Ms. Zhixin Liu, incorporated herein by reference to Exhibit 10.6 of the Post-Effective Amendment No. 1 to Form S-1 filed on February 10, 2016
10.6   Translation of the Amendment to the Employment Agreement by and between Shuhai Information Technology Co., Ltd. and Ms. Zhixin Liu dated January 1, 2017, incorporated herein by reference to Exhibit 10.6 of the S-1/A filed on January 31, 2018.
10.7   Wireless Internet Access In Public Places Security Management and Control Systems Feature Collection Equipment Purchase Contract, dated January 8, 2016, by and between Shuhai Information Technology Co., Ltd. and Daqing City Public Security Bureau, incorporated herein by reference to Exhibit 10.7 of the Post-Effective Amendment No. 1 to Form S-1 filed on February 10, 2016.
10.8   The 2018 Equity Incentive Plan of Datasea Inc., incorporated herein by reference to Exhibit 10.14 of the Form 10-K for the year ended June 30, 2018 filed on September 13, 2018.
10.9  

Form of Indemnification Escrow Agreement*

10.10   Translation of the Lease Agreement by and between Shuhai Information Technology Co., Ltd. and Beijing Chang Ning Machinery Electric Science and Technology Co., Ltd. dated December 29, 2017, incorporated herein by reference to Exhibit 10.10 of the S-1/A filed on January 31, 2018.
10.11   Translation of the Building Property Management Contract by and between Shuhai Information Technology Co., Ltd. and Zhuozhou City Changning Property Service Co., Ltd. dated December 29, 2017, incorporated herein by reference to Exhibit 10.11 of the S-1/A filed on January 31, 2018.
10.12   Translation of the Lease Agreement by and between Shuhai Information Technology Co., Ltd. and Beijing Chang Ning Machinery Electric Science and Technology Co., Ltd. dated December 8, 2016, incorporated herein by reference to Exhibit 10.12 of the S-1/A filed on January 31, 2018.
10.13   Translation of the Building Property Management Contract by and between Shuhai Information Technology Co., Ltd. and Beijing Changning Property Service Co., Ltd. dated December 8, 2016, incorporated herein by reference to Exhibit 10.13 of the S-1/A filed on January 31, 2018.
10.14   Employment Agreement, dated February 11, 2018 by and between Shuhai Information Technology Co., Ltd. and Ms. Zhixin Liu., incorporated herein by reference to Exhibit 10.14 of the S-1/A filed on April 5, 2018.
10.15   Translation of the Banking Service Direct Sales Cooperation Agreement Between China Minsheng Bank Co. and Shuhai Information Technology Co., Ltd. dated March 15, 2018, incorporated herein by reference to Exhibit 10.15 of the S-1/A filed on April 5, 2018.
10.16   Form of Share Escrow Agreement*
10.17   Translation of Employment Agreement, dated August 21, 2018 by and between Shuhai Information Technology Co., Ltd. and Mr. Jijin Zhang.*
10.18   Form of Director Offer Letter*
14.1   Code of Ethics*
21.1  

List of Subsidiaries, incorporated herein by reference to Exhibit 21.1 of the Form 10-K filed on September 13, 2018.

23.1   Consent of Wei, Wei & Co., LLP*
23.2   Consent of Ellenoff Grossman & Schole LLP (included in Exhibit 5.1)*
24.1   Power of Attorney (included on signature page of Form S-1 filed on December 5, 2017)
99.1   Consent of Stephen (Chun Kwok) Wong*
99.2   Consent of Tongjun Si*
99.3   Consent of Ling Wang*

101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema Document
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*   XBRL Extension Definition Linkbase Document
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith

** To be filed by amendment 

 

  72  

 

 

Item 17. Undertakings

 

The undersigned registrant hereby undertakes:

 

(a) The undersigned registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

 

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

(c) The undersigned registrant hereby undertakes that:

 

(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 percent 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, 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.

 

(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 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.

 

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(5) For the purpose of determining liability of a registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of an 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 an 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.

 

(d) For purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Beijing, China, on the 15 th day of October, 2018.

 

  DATASEA INC.
   
  By: /s/ Zhixin Liu
  Name: Zhixin Liu
  Title: President, Chief Executive Officer (principal executive officer) and Interim Chief Financial Officer (principal accounting and financial officer)

 

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

 

Signature   Title   Date
         
/s/ Zhixin Liu   Chairman of the Board, President, Chief Executive Officer (principal executive officer) and Interim Chief Financial Officer (principal accounting and financial officer)  

October 15, 2018

Zhixin Liu      

 

         
/s/ Fu Liu   Director  

October 15, 2018

Fu Liu        

 

  75  

 

Exhibit 1.1

 

UNDERWRITING AGREEMENT

 

[●], 2018

 

ViewTrade Securities, Inc. 

7280 W. Palmetto Park Road 

Suite 310 

Boca Raton, Florida 33433

 

As Representative of the Underwriters  

named on Annex A hereto

 

Ladies and Gentlemen:

 

The undersigned, Datasea Inc., a Nevada corporation (the “ Company ”), hereby confirms its agreement (this “ Agreement ”) with the several underwriters (such underwriters, for whom ViewTrade Securities, Inc. is acting as representative (in such capacity, the “ Representative ,” if there are no underwriters other than the Representative, reference to multiple underwriters shall be disregarded and the term Representative as used herein shall have the same meaning as underwriter, the “ Underwriters ” and each an “ Underwriter ”) to issue and sell to the Underwriters an aggregate of [●] shares of common stock, $0.001 par value per share (“ Common Stock ”), of the Company (the “ Firm Shares ”). The Company has also granted to the several Underwriters an option to purchase up to [●] additional shares of Common Stock, on the terms and for the purposes set forth in Section 1(b) hereof (the “ Option Shares ”). The Firm Shares and any Option Shares purchased pursuant to this Agreement are herein collectively called the “Securities.” The offering and sale of securities contemplated by this Agreement is referred to herein as the “ Offering .”

 

(1)        Purchase of Securities/Consideration.

 

(a)        Firm Shares . On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Underwriters, severally and not jointly, an aggregate of [●] Firm Shares at a purchase price (net of discount and commissions) of $[●] per share. The Underwriters, severally and not jointly, agree to purchase from the Company the Firm Shares set forth opposite their respective names on Annex A attached hereto and made a part hereof.

 

(b)        Option Shares . On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company hereby grants to the several Underwriters an option to purchase, severally and not jointly, all or any portion of the Option Shares at the same purchase price as the Firm Shares. The option granted hereunder may be exercised in whole or in part at any time (but not more than once) within 45 days after the date of the Prospectus upon notice (confirmed in writing) by the Representative to the Company setting forth the aggregate number of Option Shares as to which the Underwriters are exercising the option and the date and time, as determined by the Representative, when the Option Shares are to be delivered, but in no event earlier than the First Closing Date nor earlier than the second Business Day or later than the tenth Business Day after the date on which the option shall have been exercised. The number of Option Shares to be purchased by each Underwriter shall be the same percentage of the total number of Option Shares to be purchased by the Underwriters as the number of Firm Shares to be purchased by such Underwriter is of the total number of Firm Shares to be purchased by the Underwriters, as adjusted by the Representative in such manner as the Representative deems advisable to avoid fractional shares. No Option Shares shall be sold and delivered unless the Firm Shares previously have been, or simultaneously are, sold and delivered.

 

(c)       In consideration of the services to be provided for hereunder, the Company shall pay to the Underwriters or their respective designees their pro rata portion (based on the Securities purchased) of (i) an underwriting discount equal to eight percent (7%) of the aggregate gross proceeds raised in the Offering (the “ Underwriting Fee ”). In addition, the Company shall reimburse the Representative for certain out-of-pocket accountable expenses, as set forth in Section 4(i), which reimbursement shall be reduced by any Advances previously paid to the Representative. To the extent that the Underwriters’ incurred expenses are less than the Advances previously paid, the Underwriters will return to the Company that portion of the Advances not offset by out-of-pocket accountable expenses.

  

 

 

 

 (2)       Delivery and Payment.

 

(a)        Delivery of and Payment for Securities . Delivery of and payment for the Firm Shares shall be made at 10:00 A.M., Eastern time, on [●], 2018 (the second Business Day after the date of this Agreement) or at such other time as shall be agreed upon in writing by the Representative and the Company and, with respect to the Option Shares, 10:00 A.M., Eastern time, on the date specified by the Representative in the written notice given by the Representative of the Underwriters’ election to purchase such Option Shares, or at such other time as shall be agreed upon by the Representative and the Company. The hour and date of delivery of and payment for the Firm Shares is called the “ First Closing Date ,” and the time and date for delivery of the Option Shares, if not the First Closing Date, is called a “ Second Closing Date ,” and each such closing of the payment of the purchase price for, and delivery of certificates representing, Securities is referred to herein as a “ Closing .” Each Closing shall be at the offices of the Representative or at such other place as shall be agreed upon by the Representative and the Company, and each Closing may be undertaken by remote electronic exchange of Closing documentation. Payment for the Securities shall be made on the applicable Closing Date by wire transfer in Federal (same day) funds upon delivery to the Representative of the Securities through the full fast transfer facilities of the Depository Trust Company (the “ DTC ”)) for the account of the Underwriters. The Securities shall be registered in such names and in such denominations as the Representative may request in writing at least two (2) Business Days prior to the applicable Closing Date. The Company shall not be obligated to sell or deliver the Securities to be purchased on the applicable Closing Date except upon tender of payment by the Representative for all such Securities.

 

(b)        Indemnification Escrow . Concurrently with the execution and delivery of this Agreement, the Company, the Representative and Pearlman Law Group LLP, as escrow agent (the “ Escrow Agent ”), shall enter into an escrow agreement (the “ Escrow Agreement ”), pursuant to which $600,000 in gross proceeds from the Offering shall be deposited by the Company at Closing in an interest bearing escrow account (the “ Escrow Account ”). All remaining funds in the Escrow Account that are not subject to an indemnification claim as of the eighteen-month anniversary of the Closing, or longer if there is evidence that may reasonably result in the Company having to indemnify the Underwriter but in no event longer than the second anniversary of the Closing, will be returned to the Company in accordance with the terms of the Escrow Agreement. The Company shall pay the reasonable fees and expenses of the Escrow Agent.

 

(c)        Underwriter Warrants . On the First Closing Date, the Company shall issue to the Representative (and/or its designees), warrants (the “ Underwriter Warrants ”), substantially in the form filed as an exhibit to the Registration Statement (as defined below), for the purchase of an aggregate of [●] shares of Common Stock, which shall be registered in the name or names and shall be in such denominations as the Representative may request (subject to compliance with the applicable rules of FINRA (as defined below)) at least one (1) Business Day before the First Closing Date.

 

(d)        Share Escrow Agreement . Concurrently with the execution and delivery of this Agreement, the Company, the Representative and the Company’s registrar and transfer agent for the Common Stock, as escrow agent (the “ Share Escrow Agent ”), shall enter into a share escrow agreement (the “ Share Escrow Agreement ”), pursuant to which certain shares of Common Stock held by certain stockholders of the Company, to be agreed upon by the parties prior to Closing, shall be deposited with the Share Escrow Agent prior to Closing in accordance with the terms of the Share Escrow Agreement.

 

(3)        Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, each of the Underwriters that, as of the date hereof and as of each Closing Date (as if made at the applicable Closing Date):

 

(a)        Filing of Registration Statement . The Company has filed with the Commission a registration statement, and an amendment or amendments thereto, on Form S-1 (File No. 333-221906), including any related prospectus or prospectuses, for the registration of the Securities under the Securities Act, which registration statement and amendment or amendments have been prepared by the Company in conformity with the requirements of the Securities Act. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement became effective (including the Preliminary Prospectus included in the registration statement, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A of the Securities Act (the “ Rule 430A Information ”), is referred to herein as the “ Registration Statement .” If the Company files any registration statement pursuant to Rule 462(b) of the Securities Act, then after such filing, the term “Registration Statement” shall include such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on the date hereof.

 

2  

 

 

Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “ Preliminary Prospectus .” The Preliminary Prospectus, subject to completion and filed with the Commission on [●], 2018, that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the “ Pricing Prospectus .” The final prospectus in the form first furnished to the Underwriters for use in the Offering is hereinafter called the “ Prospectus .” Any reference to the “most recent Preliminary Prospectus” shall be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement.

 

For purposes of this Agreement:

 

Applicable Time ” means [●] p.m., Eastern Time, on [●], 2018.

 

Business Day ” means any day other than a Saturday, a Sunday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City.

 

Commission ” means the U.S. Securities and Exchange Commission.

 

Effective Date ” means each date and time that the Registration Statement, any post-effective amendment or amendments thereto became or becomes effective.

 

Execution Time ” means the date and time that this Agreement is executed and delivered by the parties to this Agreement.

 

Issuer Free Writing Prospectus ” means any “issuer free writing prospectus,” as defined in Rule 433 under the Securities Act (“ Rule 433 ”), including any “free writing prospectus” (as defined in Rule 405 under the Securities Act) relating to the Securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Securities or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).

 

Marketing Materials ” means written roadshow materials prepared by or on behalf of the Company and used or referred to by the Company or with the Company’s express consent.

 

Offering ” means the offering and sale of the Securities.

 

Pricing Disclosure Package ” means the Pricing Prospectus, any Permitted Free Writing Prospectuses set forth on Schedule II and the information included on Schedule I hereto, all considered together.

 

Registration Statement ” means the registration statement referred to in Section 3(a) hereof including exhibits and financial statements and any prospectus supplement relating to the Securities that is filed with the Commission pursuant to Rule 424(b) and deemed part of such registration statement pursuant to Rule 430A, as amended, on each Effective Date and, in the event any post-effective amendment thereto becomes effective prior to the First Closing Date, shall also mean such registration statement as so amended.

 

Rule 158 ,” “ Rule 163 ,” “ Rule 164 ,” “ Rule 172 ,” “ Rule 405 ,” “ Rule 415 ,” “ Rule 424 ,” “ Rule 430A ,” “ Rule 430B ” and “ Rule 433 ” refer to such rules under the Securities Act.

 

SEC Filings ” means any filings made by the Company with the Commission.

 

Trading Day ” means any day on which the Exchange is open for trading.

 

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder.

 

3  

 

 

(b)            Disclosures in Registration Statement.

 

(i) Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the Securities Act. Each Preliminary Prospectus, including the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, and the Prospectus, at the time each was filed with the Commission, complied in all material respects with the requirements of the Securities Act. Each Preliminary Prospectus delivered to the Underwriters for use in connection with this Offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system (“ EDGAR ”), except to the extent permitted by Regulation S-T;

 

(ii) Neither the Registration Statement nor any amendment thereto, at the time each part thereto became effective pursuant to the Securities Act, as of the date of this Agreement, at each Closing Date, contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided however that this representation and warranty shall not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by the Representative expressly for use in the Registration Statement, the Pricing Prospectus or the Prospectus or any amendment thereof or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of the Underwriters consists solely of (i) the name of the Underwriters disclosed in the “Underwriting” section of the Prospectus and (ii) (A) the sentence related to selling concessions appearing in the 4th paragraph, (B) the paragraph under the sub-caption “Electronic Offer, Sale and Distribution of Securities”, (C) the paragraph under the sub-caption “Price Stabilization, Short Positions and Penalty Bids”, (D) the paragraph under the sub-caption “Passive Market Making” and (E) the paragraph under the sub-caption “Selling Restrictions”, in each case under the caption “Underwriting” in the Prospectus (the “ Underwriter Information ”);

 

(iii) The Pricing Disclosure Package, as of the Applicable Time, as of the date of this Agreement, and at each Closing Date, did not, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to the Underwriter Information. Each Issuer Free Writing Prospectus does not conflict with the information contained in the Registration Statement, the Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each Issuer Free Writing Prospectus, as supplemented by and taken together with the Pricing Prospectus as of the Applicable Time, did not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to the Underwriter Information; and

 

(iv) Neither the Prospectus nor any amendment or supplement thereto, as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), or at each Closing Date, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to the Underwriter Information.

 

(c)        Disclosure of Agreements . The agreements and documents described in the Registration Statement, the Pricing Disclosure Package and the Prospectus conform in all material respects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities Act to be described in the Registration Statement, the Pricing Disclosure Package or the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed. Each agreement or other instrument (however characterized or described) to which any of the Company or its Subsidiaries (as defined below) is a party or by which any of them is or may be bound or affected and (i) that is referred to in the Registration Statement, the Pricing Disclosure Package or the Prospectus, or (ii) that is material to the business of the Company and its Subsidiaries, has been duly authorized and validly executed by the Company or a Subsidiary, as applicable, is in full force and effect in all material respects and is enforceable against the Company or such Subsidiary, as applicable, and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (y) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. None of such agreements or instruments has been assigned by any of the Company or its Subsidiaries, and neither the Company or such Subsidiary, as applicable, nor, to the Company’s knowledge, any other party is in default thereunder and, to the Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute a default thereunder. To the best of the Company’s knowledge, performance by the Company or a Subsidiary, as applicable, of such agreements or instruments will not result in a violation of any existing applicable law, rule, regulation, judgment, order or decree of any governmental authority, agency or court, domestic or foreign, having jurisdiction over the Company or its Subsidiaries or any of their respective assets or businesses, including those relating to environmental laws and regulations, except to the extent that the violation would not result in a Material Adverse Change.

 

4  

 

 

(d)        Good Standing . The Company has been duly incorporated, is validly existing as a company limited by shares in good standing under the laws of the State of Nevada, has the corporate power and authority to own its property and to conduct its business as described in the Pricing Disclosure Package and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not result in a Material Adverse Change.

 

(e)        Subsidiaries . Each of the Company’s direct and indirect subsidiaries (each a “ Subsidiary ” and collectively, the “ Subsidiaries ”) has been identified on Schedule III hereto. Each of the Subsidiaries has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Pricing Disclosure Package; all of the outstanding equity interests of each Subsidiary have been duly and validly authorized and issued, are owned directly or indirectly by the Company, are fully paid and non-assessable and, except as described in the Pricing Disclosure Package, are free and clear of all liens, encumbrances, equities or claims. None of the outstanding share capital or equity interest in any Subsidiary was issued in violation of preemptive or similar rights of any security holder of such Subsidiary. All of the constitutive or organizational documents of each of the Subsidiaries comply with the requirements of applicable laws of its jurisdiction of incorporation or organization and are in full force and effect. Apart from the Subsidiaries, the Company has no direct or indirect subsidiaries or any other company over which it has direct or indirect effective control.

 

(f)        [Reserved]

 

(g)        Prior Securities Transactions . No securities of the Company have been sold by the Company or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by or under common control with the Company, except as disclosed in the Pricing Disclosure Package and the Preliminary Prospectus.

 

(h)        Regulations.

 

(i) The disclosures in the Pricing Disclosure Package and the Prospectus concerning the effects of federal, state, local and all foreign regulation on the Offering and the Company’s business as currently contemplated are correct in all material respects and no other such regulations are required to be disclosed pursuant to the Securities Act in the Registration Statement, the Pricing Disclosure Package or the Prospectus which are not so disclosed.

 

(ii) Except as described in the Pricing Disclosure Package and the Prospectus, each of the Company and its Subsidiaries has complied, and has taken all steps to ensure compliance by each of its shareholders, directors and officers that is, or is directly or indirectly owned or controlled by, a PRC resident or citizen with any applicable rules and regulations of the relevant PRC government agencies in effect on the applicable Closing Date (including but not limited to the Ministry of Commerce, the National Development and Reform Commission, the China Securities Regulatory Commission (“ CSRC ”) and the State Administration of Foreign Exchange) (the “ SAFE ”) relating to overseas investment by PRC residents and citizens (the “ PRC Overseas Investment and Listing Regulations ”), including, requesting each such person that is, or is directly or indirectly owned or controlled by, a PRC resident or citizen to complete any registration and other procedures required under applicable PRC Overseas Investment and Listing Regulations (including any applicable rules and regulations of the SAFE).

 

5  

 

 

(iii) The Company is aware of and has been advised as to the content of the Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors and any official clarifications, guidance, interpretations or implementation rules in connection with or related thereto in effect on the applicable Closing Date (the “ PRC Mergers and Acquisitions Rules ”) jointly promulgated by the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Tax Administration, the State Administration of Industry and Commerce, the CSRC and the State Administration of Foreign Exchange on August 8, 2006, including the provisions thereof which purport to require offshore special purpose entities formed for listing purposes and controlled directly or indirectly by PRC companies or individuals to obtain the approval of the CSRC prior to the listing and trading of their securities on an overseas stock exchange. The Company has received legal advice specifically with respect to the PRC Mergers and Acquisitions Rules from its PRC counsel, and the Company understands such legal advice. In addition, the Company has communicated such legal advice in full to each of its directors that signed the Registration Statement and each such director has confirmed that he or she understands such legal advice. The issuance and sale of the Securities, the listing and trading of the Securities on the Exchange (as defined below) and the consummation of the transactions contemplated by this Agreement, the Escrow Agreement, the Share Escrow Agreement and the Underwriter Warrants (A) are not and will not be, as of the date hereof or at each Closing Date, as the case may be, adversely affected by the PRC Mergers and Acquisitions Rules and (B) do not require the prior approval of the CSRC.

 

(i)        Absence of Certain Events. Except as contemplated in the Pricing Disclosure Package and in the Prospectus, subsequent to the respective dates as of which information is given in the Pricing Disclosure Package, none of the Company or its Subsidiaries has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, or declared or paid any dividends or made any distribution of any kind with respect to its capital stock; and there has not been any change in the capital stock (other than a change in the number of outstanding Common Stock of the Company due to the issuance of shares upon the exercise of outstanding options or warrants or conversion of convertible securities), or any material change in the short-term or long-term debt (other than as a result of the conversion of convertible securities of the Company), or any issuance of options, warrants, convertible securities or other rights to purchase the capital stock of the Company or any of its Subsidiaries, or any material adverse change in the general affairs, condition (financial or otherwise), business, prospects, management, properties, operations or results of operations of the Company and its Subsidiaries, taken as a whole (“ Material Adverse Change ”), or any development which could reasonably be expected to result in any Material Adverse Change.

 

(j)        Independent Accountants. Wei, Wei & Co., LLP, the Company’s current independent public accounting firm (the “ Auditor ”), which has expressed its opinions with respect to the financial statements and schedules filed as a part of the Registration Statement and included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, is (i) an independent public accounting firm within the meaning of the Securities Act, (ii) a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”)) and (iii) not in violation of the auditor independence requirements of the Sarbanes-Oxley Act.

 

(k)        Financial Statements, etc. The financial statements, including the notes thereto and supporting schedules included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, comply in all material respects with the requirements of the Securities Act and fairly present the financial position and the results of operations of the Company and its Subsidiaries at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“ GAAP ”), consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to year-end audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes required by GAAP); and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. Except as included therein, no historical or pro forma financial statements are required to be included in the Registration Statement, the Pricing Disclosure Package or the Prospectus under the Securities Act. All disclosures contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission), if any, comply with Item 10 of Regulation S-K of the Securities Act. Each of the Registration Statement, the Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company and its Subsidiaries with unconsolidated entities or other persons that may have a material current or future effect on the financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses of the Company and its Subsidiaries.

 

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(l)        Capitalization; the Securities; Registration Rights . All of the issued and outstanding shares of capital stock of the Company, including the outstanding Common Stock, are duly authorized and validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state and foreign securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities that have not been waived in writing (a copy of which has been delivered to counsel to the Underwriters), and the holders thereof are not subject to personal liability by reason of being such holders; the Securities which may be sold hereunder by the Company have been duly authorized and, when issued, delivered and paid for in accordance with the terms of this Agreement, will have been validly issued and will be fully paid and nonassessable, and the holders thereof will not be subject to personal liability by reason of being such holders; and the capital stock of the Company, including the Common Stock, conforms to the description thereof in the Registration Statement, in the Pricing Disclosure Package and in the Prospectus. Except as otherwise stated in the Registration Statement, in the Pricing Disclosure Package and in the Prospectus, (i) there are no preemptive rights or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any Common Stock pursuant to the Company’s charter, by-laws (or other organizational documents) or any agreement or other instrument to which the Company is a party or by which the Company is bound, (ii) neither the filing of the Registration Statement nor the offering or sale of the Securities as contemplated by this Agreement gives rise to any rights for or relating to the registration of any Common Stock or other securities of the Company (collectively “ Registration Rights ”) and (iii) any person to whom the Company has granted Registration Rights has agreed not to exercise such rights until after the date that is 180 days after the date of the Prospectus. The Company has an authorized and outstanding capitalization as set forth in the Registration Statement, in the Pricing Disclosure Package and in the Prospectus under the caption “Capitalization.” The Common Stock (including the Securities) conform in all material respects to the description thereof contained in the Pricing Disclosure Package and the Prospectus.

 

(m)        Stock Options . Except as described in the Registration Statement, in the Pricing Disclosure Package and in the Prospectus, there are no options, warrants, agreements, contracts or other rights in existence to purchase or acquire from the Company any shares of the capital stock of the Company. The description of the Company’s stock option, stock bonus and other stock plans or arrangements (the “ Company Stock Plans ”), and the options (the “ Options ”) or other rights granted thereunder, set forth in the Pricing Disclosure Package and the Prospectus accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. Each grant of an Option (i) was duly authorized no later than the date on which the grant of such Option was by its terms to be effective by all necessary corporate action, including, as applicable, approval by the board of directors of the Company (or a duly constituted and authorized committee thereof) and any required shareholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto and (ii) was made in accordance with the terms of the applicable Company Stock Plan, and all applicable laws and regulatory rules or requirements, including all applicable federal securities laws.

 

(n)        Validity and Binding Effect of Agreements . Each of this Agreement, the Escrow Agreement, the Share Escrow Agreement and the Underwriter Warrants has been duly and validly authorized by the Company, and, when executed and delivered, will constitute, a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (ii) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

 

(o)        No Conflicts, etc . The execution, delivery and performance by the Company of this Agreement, the Escrow Agreement, the Share Escrow Agreement and the Underwriter Warrants, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the lapse of time or both: (i) result in a breach of, or conflict with any of the terms and provisions of, or constitute a default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of any of the Company and the Subsidiaries pursuant to the terms of any agreement or instrument to which any of the Company or the Subsidiaries, as applicable, is a party; (ii) result in any violation of the provisions of the Company’s Articles of Incorporation or the Company’s Bylaws (as each may be amended or restated from time to time, the “ Organizational Documents ”); or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental authority as of the date hereof, except in the case of (i) or (iii), such as would not result in a Material Adverse Change.

 

(p)        No Defaults; Violations . No default exists, and no event has occurred which, with notice or lapse of time or both, would constitute a default, in the due performance and observance of any term, covenant or condition of any license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which any of the Company or its Subsidiaries is a party or by which any of the Company or its Subsidiaries may be bound or to which any of their respective properties or assets is subject. None of the Company or its Subsidiaries is (i) in violation of any term or provision of its constitutive or organizational documents, or (ii) in violation of any franchise, license, permit, applicable law, rule, regulation, judgment or decree of any governmental authority, except such as would not result in a Material Adverse Change.

 

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(q)        Corporate Power; Licenses; Consents .

 

(i) Conduct of Business . Each of the Company and its Subsidiaries has all requisite corporate power and authority, and has all necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies that it needs as of the date hereof to conduct its business as described in the Pricing Disclosure Package and the Prospectus.

 

(ii) Transactions Contemplated Herein . The Company has all corporate power and authority to enter into this Agreement, the Escrow Agreement, the Share Escrow Agreement and the Underwriter Warrants and to carry out the provisions and conditions hereof and thereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained. No consent, authorization or order of, and no filing with, any court, government agency or other body is required for the valid issuance, sale and delivery of the Securities and the consummation of the transactions and agreements contemplated by this Agreement, the Escrow Agreement and the Underwriter Warrants and as contemplated by the Pricing Disclosure Package and the Prospectus, except with respect to applicable federal and state securities laws and the rules and regulations of the Financial Industry Regulatory Authority, Inc. (“ FINRA ”).

 

(r)        D&O Information . All information concerning the Company’s directors, officers and principal shareholders described in the Pricing Disclosure Package and the Prospectus, is true and correct in all material respects and the Company has not become aware of any information which would cause such information to become materially inaccurate or incorrect.

 

(s)        Litigation; Governmental Proceedings . Except as set forth in the Pricing Disclosure Package and in the Prospectus, there is not pending or, to the knowledge of the Company, threatened or contemplated, any action, suit or proceeding (i) to which the Company or any Subsidiary is a party or (ii) which has as the subject thereof any officer or director of, any employee benefit plan sponsored or any property or assets owned or leased by, the Company or any Subsidiary before or by any court or governmental authority, or any arbitrator, which, individually or in the aggregate, might result in any Material Adverse Change, or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement, the Escrow Agreement, the Share Escrow Agreement or the Underwriter Warrants or which are otherwise material in the context of the sale of the Securities. There are no current or, to the knowledge of the Company, pending, legal, governmental or regulatory actions, suits or proceedings (x) to which the Company or any Subsidiary is subject or (y) which has as the subject thereof any officer or director of, any employee plan sponsored by or any property or assets owned or leased by, the Company or any Subsidiary, that are required to be described in the Registration Statement, Pricing Disclosure Package and Prospectus and that have not been so described.

 

(t)        Insurance . Except as disclosed in the Pricing Disclosure Package and the Prospectus, each of the Company and its Subsidiaries carries, or is covered by, insurance from reputable insurers in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties and as is customary for companies engaged in similar businesses in similar industries; all policies of insurance and any fidelity or surety bonds insuring any of the Company or its Subsidiaries or their respective businesses, assets, employees, officers and directors are in full force and effect; each of the Company and its Subsidiaries is in compliance with the terms of such policies and instruments in all material respects; there are no claims by any of the Company or its Subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; none of the Company or its Subsidiaries has been refused any insurance coverage sought or applied for; and none of the Company or its Subsidiaries has reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not result in a Material Adverse Change.

 

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(u)        Transactions Affecting Disclosure to FINRA .

 

(i) Finder’s Fees . Except as described in the Pricing Disclosure Package and the Prospectus, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder’s, broker’s, agent’s, consulting or origination fee by the Company or any Subsidiary with respect to the sale of the Securities hereunder or any other arrangements, agreements or understandings of the Company or any Subsidiary or, to the Company’s knowledge, any of its shareholders that may affect the Underwriters’ compensation, as determined by FINRA.

 

(ii) Payments Within Twelve Months . Except as described in the Pricing Disclosure Package and the Prospectus, none of the Company or its Subsidiaries has made any direct or indirect payments (in cash, securities or otherwise) to: (A) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (B) any FINRA member; or (C) any person or entity that has any direct or indirect affiliation or association with any FINRA member, within the twelve months prior to the Effective Date, other than the payment to the Underwriters as provided hereunder in connection with the Offering.

 

(iii) Use of Proceeds . None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates, except as specifically authorized herein.

 

(iv) FINRA Affiliation . There are no affiliations or associations between (A) any member of the FINRA and (B) the Company or any of its Subsidiaries or any of their respective officers, directors or, to the knowledge of the Company, 5% or greater security holders or, to the knowledge of the Company, any beneficial owner of the Company’s unregistered equity securities that were acquired at any time on or after the 180th day immediately preceding the date that the Registration Statement was initially filed with the Commission.

 

(v) Information . All information provided by the Company in its FINRA questionnaire to the Underwriters’ counsel specifically for use by the Underwriters’ counsel in connection with its Public Offering System filings (and related disclosure) with FINRA is true, correct and complete in all material respects.

 

(v)        Foreign Corrupt Practices Act . Neither the Company nor any of its Subsidiaries or their respective affiliates, nor any director or officer, nor, to the Company’s knowledge, any employee, agent or representative of the Company or of any of its Subsidiaries or their respective affiliates, has (A) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (B) taken or will take any action in furtherance of an offer, payment, promise to pay, or authorization or approval of the payment or giving of money, property, gifts or anything else of value, directly or indirectly, to any “government official” (including any officer or employee of a government or government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office) to influence official action or secure an improper advantage; or (C) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit; and the Company and its Subsidiaries and their respective affiliates have conducted their businesses in compliance with applicable anti-corruption laws and have instituted and maintain and will continue to maintain policies and procedures designed to promote and achieve compliance with such laws and with the representation and warranty contained herein.

 

(w)        Compliance with OFAC .

 

(i) None of the Company or its Subsidiaries, nor any director, officer or employee thereof, nor, to the Company’s knowledge, any agent, affiliate or representative of any of the Company or its Subsidiaries, is an individual or entity that is, or is owned or controlled by an individual or entity that is:

 

(A) the subject of any sanctions administered or enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority (collectively, “ Sanctions ”), nor

 

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(B) located, organized or resident in a country or territory that is the subject of Sanctions (including, Burma/Myanmar, Iran, Libya, North Korea, Sudan and Syria).

 

(ii) The Company will not, directly or indirectly, use the proceeds of the Offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other individual or entity:

 

(C) to fund or facilitate any activities or business of or with any individual or entity or in any country or territory that, at the time of such funding or facilitation, is the subject of Sanctions; or

 

(D) in any other manner that will result in a violation of Sanctions by any individual or entity (including any individual or entity participating in the offering, whether as underwriter, advisor, investor or otherwise).

 

(iii) For the past five years, none of the Company or its Subsidiaries has knowingly engaged in, and is now knowingly engaged in, any dealings or transactions with any individual or entity, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions.

 

(x)        Money Laundering Laws . None of the Company or its Subsidiaries, their respective affiliates nor any of their respective officers, directors, supervisors, managers, agents, or employees, has violated, the Company’s participation in the Offering will not violate, and the Company and its Subsidiaries have instituted and maintain policies and procedures designed to ensure continued compliance with, each of the following laws: (A) anti-bribery laws, including but not limited to, any applicable law, rule, or regulation of any locality, including but not limited to any law, rule, or regulation promulgated to implement the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, signed December 17, 1997, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act 2010, or any other law, rule or regulation of similar purposes and scope or (B) anti-money laundering laws, including but not limited to, applicable federal, state, international, foreign or other laws, regulations or government guidance regarding anti-money laundering, including, Title 18 US. Code section 1956 and 1957, the Patriot Act, the Bank Secrecy Act, and international anti-money laundering principles or procedures by an intergovernmental group or organization, such as the Financial Action Task Force on Money Laundering, of which the United States is a member and with which designation the United States representative to the group or organization continues to concur, all as amended, and any Executive order, directive, or regulation pursuant to the authority of any of the foregoing, or any orders or licenses issued thereunder.

 

(y)        Lock-Up Agreements . Schedule IV hereto contains a complete and accurate list of the Company’s officers, directors and each beneficial owner of the Company’s outstanding Common Stock (or securities convertible or exercisable into Common Stock) (collectively, the “ Lock-Up Parties ”). The Company has caused each of the Lock-Up Parties to deliver to the Representative an executed Lock-Up Agreement, in the form attached hereto as Exhibit A (the “ Lock-Up Agreement ”), prior to the execution of this Agreement. The Company will enforce the terms of each Lock-Up Agreement and issue stop-transfer instructions to its transfer agent and registrar for the Common Stock with respect to any transaction or contemplated transaction that would constitute a breach of or default under the applicable Lock-Up Agreement. If the Representative, in its sole discretion, agrees to release or waive the restrictions of any Lock-Up Agreement between an officer or director of the Company and the Representative and provides the Company with notice of the impending release or waiver at least three Business Days before the effective date of such release or waiver, the Company agrees to announce the impending release or waiver by means of a press release substantially in the form of Exhibit B hereto, issued through a major news service, at least two Business Days before the effective date of the release or waiver.

 

(z)        Related Party Transactions . There are no business relationships or related party transactions involving the Company or any of its Subsidiaries or any other person required to be described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that have not been described as required.

 

(aa)      Sarbanes-Oxley Compliance . Except in each case as disclosed in the Registration Statement, in the Pricing Disclosure Package and in the Prospectus:

 

(i) Disclosure Controls . The Company has established and maintains disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended (including the rules and regulations promulgated thereunder, the “ Exchange Act ”) and such controls and procedures are effective in ensuring that material information relating to the Company is made known to the principal executive officer and the principal financial officer. The Company has utilized such controls and procedures in preparing and evaluating the disclosures in the Registration Statement, in the Pricing Disclosure Package and in the Prospectus.

 

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(ii) Compliance . The Company is in compliance with the provisions of the Sarbanes-Oxley Act applicable to it, and has implemented or will implement such programs and taken reasonable steps to ensure its future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the provisions of the Sarbanes-Oxley Act.

 

(iii) Accounting Controls . The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management’s general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles in the United States and to maintain accountability for assets; (C) access to assets is permitted only in accordance with management’s general or specific authorization; and (D) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company’s internal control over financial reporting is effective and none of the Company, its board of directors and audit committee is aware of any “significant deficiencies” or “material weaknesses” (each as defined by the Public Company Accounting Oversight Board) in its internal control over financial reporting, or any fraud, whether or not material, that involves management or other employees of the Company who have a significant role in the Company’s internal controls; and since the end of the latest audited fiscal year, there has been no change in the Company’s internal control over financial reporting (whether or not remediated) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company’s board of directors has, subject to the exceptions, cure periods and the phase-in periods specified in the applicable rules of the Exchange (“ Exchange Rules ”), validly appointed an audit committee to oversee internal accounting controls whose composition satisfies the applicable requirements of the Exchange Rules and the Company’s board of directors and/or the audit committee has adopted a charter that satisfies the requirements of the Exchange Rules.

 

(bb)         Investment Company Act . None of the Company or its Subsidiaries is or, after giving effect to the Offering and the application of the proceeds thereof as described in the Pricing Disclosure Package and the Prospectus, will be, required to register as an “investment company,” as defined in the Investment Company Act of 1940, as amended.

 

(cc)         No Labor Disputes. No labor problem or dispute with the employees of any of the Company or its Subsidiaries exists or is threatened or imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or its Subsidiaries’ principal suppliers, contractors or customers, that could result in a Material Adverse Change.

 

(dd)         Intellectual Property Rights. Each of the Company and its Subsidiaries owns or possesses or has valid rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and similar rights (“ Intellectual Property Rights ”) necessary for the conduct of its business as currently carried on and as described in the Pricing Disclosure Package and the Prospectus. No action or use by any of the Company or its Subsidiaries necessary for the conduct of its business as currently carried on and as described in the Pricing Disclosure Package and the Prospectus will involve or give rise to any infringement of, or license or similar fees for, any Intellectual Property Rights of others. None of the Company or its Subsidiaries has received any notice alleging any such infringement, fee or conflict with asserted Intellectual Property Rights of others. Except as would not result, individually or in the aggregate, in a Material Adverse Change (A) to the knowledge of the Company, there is no infringement, misappropriation or violation by third parties of any of the Intellectual Property Rights owned by any of the Company or its Subsidiaries; (B) there is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the rights of any of the Company or its Subsidiaries in or to any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim, that would, individually or in the aggregate, together with any other claims in this Section 3(dd), reasonably be expected to result in a Material Adverse Change; (C) the Intellectual Property Rights owned by each of the Company or its Subsidiaries and, to the knowledge of the Company, the Intellectual Property Rights licensed to any of the Company or its Subsidiaries have not been adjudged by a court of competent jurisdiction invalid or unenforceable, in whole or in part, and there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 3(dd), reasonably be expected to result in a Material Adverse Change; (D) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others that any of the Company or its Subsidiaries infringes, misappropriates or otherwise violates any Intellectual Property Rights or other proprietary rights of others, the Company has not received any written notice of such claim and the Company is unaware of any other facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 3(dd), reasonably be expected to result in a Material Adverse Change; and (E) to the Company’s knowledge, no employee of the Company or its Subsidiaries is in or has ever been in violation in any material respect of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the basis of such violation relates to such employee’s employment with the Company or its Subsidiaries, or actions undertaken by the employee while employed with any of the Company or its Subsidiaries. To the Company’s knowledge, all material technical information developed by and belonging to any of the Company or its Subsidiaries which has not been patented has been kept confidential. None of the Company or its Subsidiaries is a party to or bound by any options, licenses or agreements with respect to the Intellectual Property Rights of any other person or entity that are required to be set forth in the Pricing Disclosure Package and the Prospectus and are not described therein. The Pricing Disclosure Package and the Prospectus contain in all material respects the same description of the matters set forth in the preceding sentence. None of the technology employed by any of the Company or its Subsidiaries has been obtained or is being used by any of them in violation of any contractual obligation binding on any of the Company or its Subsidiaries or, to the Company’s knowledge, any of their respective officers, directors or employees, or otherwise in violation of the rights of any persons.

 

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(ee)         Taxes. Each of the Company and its Subsidiaries has filed all returns (as defined below) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof. Each of the Company and its Subsidiaries has paid all taxes (as defined below) shown as due on such returns that were filed and has paid all taxes imposed on or assessed against it. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. No issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from any of the Company or its Subsidiaries and no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from any of the Company or its Subsidiaries. The term “taxes” means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto. The term “returns” means all returns, declarations, reports, statements and other documents required to be filed in respect to taxes.

 

(ff)         ERISA and Employee Benefits Matters . None of the Company or its Subsidiaries maintains any “employee benefit plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, including any stock purchase, stock option, stock-based severance, employment, change-in-control, medical, disability, fringe benefit, bonus, incentive, deferred compensation, employee loan and all other employee benefit plans, agreements, programs, policies or other arrangements, under which (i) any current or former employee, director or independent contractor has any present or future right to benefits and which are contributed to, sponsored by or maintained by any of the Company or its Subsidiaries or (ii) any of the Company or its Subsidiaries has had or has any present or future obligation or liability.

 

(gg)        Compliance with Laws. Each of the Company and its Subsidiaries holds, and is operating in compliance in all material respects with, all franchises, grants, authorizations, licenses, permits, easements, consents, certificates and orders of any governmental authority or self-regulatory body required for the conduct of its business and all such franchises, grants, authorizations, licenses, permits, easements, consents, certifications and orders are valid and in full force and effect; and none of the Company or its Subsidiaries has received notice of any revocation or modification of any such franchise, grant, authorization, license, permit, easement, consent, certification or order or has reason to believe that any such franchise, grant, authorization, license, permit, easement, consent, certification or order will not be renewed in the ordinary course; and each of the Company and its Subsidiaries is in compliance in all material respects with all applicable federal, state, local and foreign laws, regulations, orders and decrees.

 

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(hh)       Ownership of Assets . Each of the Company and its Subsidiaries has good and marketable title (valid land use rights and building ownership certificates in the case of real property located in the PRC) to all property (whether real or personal) described in the Pricing Disclosure Package and the Prospectus as being owned by it, in each case free and clear of all liens, claims, security interests, other encumbrances or defects except such as are described in the Pricing Disclosure Package and the Prospectus. The property held under lease by any of the Company or its Subsidiaries is held by it under valid, subsisting and enforceable leases with only such exceptions with respect to any particular lease as do not interfere in any material respect with the conduct of the business of the Company or its Subsidiaries, as applicable.

 

(ii)        Compliance with Environmental Laws . Except as disclosed in the Pricing Disclosure Package and the Prospectus, none of the Company or its Subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental authority or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “ Environmental Laws ”), owns or operates any real property contaminated with any substance that is subject to any Environmental Laws, is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim would, individually or in the aggregate, result in a Material Adverse Change; and none of the Company or its Subsidiaries is aware of any pending investigation which might lead to such a claim. None of the Company or its Subsidiaries anticipates incurring any material capital expenditures relating to compliance with Environmental Laws.

 

(jj)       Compliance with Occupational Laws . Each of the Company and its Subsidiaries (i) is in compliance, in all material respects, with any and all applicable foreign, federal, state and local laws, rules, regulations, treaties, statutes and codes promulgated by any and all governmental authorities (including pursuant to the Occupational Health and Safety Act) relating to the protection of human health and safety in the workplace (“ Occupational Laws ”); (ii) has received all material permits, licenses or other approvals required of it under applicable Occupational Laws to conduct its business as currently conducted; and (iii) is in compliance, in all material respects, with all terms and conditions of such permit, license or approval. No action, proceeding, revocation proceeding, writ, injunction or claim is pending or, to the Company’s knowledge, threatened against any of the Company or its Subsidiaries relating to Occupational Laws, and the Company does not have knowledge of any facts, circumstances or developments relating to its operations or cost accounting practices that could reasonably be expected to form the basis for or give rise to such actions, suits, investigations or proceedings.

 

(kk)       Ineligible Issuer. At the time of filing the Registration Statement and any post-effective amendment thereto, at the time of effectiveness of the Registration Statement and any amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Securities Act) of any of the Securities and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.

 

(ll)         Business Arrangements . Except as disclosed in the Pricing Disclosure Package and the Prospectus, none of the Company or its Subsidiaries has granted rights to develop, manufacture, produce, assemble, distribute, license, market or sell its products to any other person or is bound by any agreement that affects the exclusive right of any of the Company or its Subsidiaries to develop, manufacture, produce, assemble, distribute, license, market or sell its products.

 

(mm)       Industry Data. The statistical and market-related data included in each of the Pricing Disclosure Package and the Prospectus are based on or derived from sources that the Company reasonably and in good faith believes are reliable and accurate or represent the Company’s good faith estimates that are made on the basis of data derived from such sources. The Company has obtained all consents required for the inclusion of such statistical and market-related data in each of the Pricing Disclosure Package and the Prospectus.

 

(nn)        Forward-looking Statements . No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

 

(oo)        Emerging Growth Company. From the time of initial filing of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication (as defined below)) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “ Emerging Growth Company ”). “ Testing-the-Waters Communication ” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.

 

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(pp)         Testing-the-Waters Communications. The Company (i) has not alone engaged in any Testing-the-Waters Communications, other than Testing-the-Waters Communications with the prior consent of the Representative with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) has not authorized anyone other than the Underwriters to engage in Testing-the-Waters Communications. The Company reconfirms that the Underwriters has been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications (as defined below) other than those listed on Schedule V hereto. “ Written Testing-the-Waters Communication ” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act. Any individual Written Testing-the-Waters Communication does not conflict with the information contained in the Registration Statement or the Pricing Disclosure Package, complied in all material respects with the Securities Act, and when taken together with the Pricing Disclosure Package as of the Applicable Time, did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

(qq)         No Other Offering Materials . The Company has not distributed and will not distribute any prospectus or other offering material in connection with the Offering other than any Pricing Prospectus, the Pricing Disclosure Package or the Prospectus or other materials permitted by the Securities Act to be distributed by the Company; provided, however, that, except as set forth on Schedule II , the Company has not made and will not make any offer relating to the Securities that would constitute a free writing prospectus, except in accordance with the provisions of Section 4(m) of this Agreement and, except as set forth on Schedule II , the Company has not made and will not make any communication relating to the Securities that would constitute a Testing-the-Waters Communication, except in accordance with the provisions of Section 4(m) of this Agreement.

 

(rr)         Payments of Dividends; Payments in Foreign Currency . Except as described in the Pricing Disclosure Package, (i) none of the Company or its Subsidiaries is prohibited, directly or indirectly, from (A) paying any dividends or making any other distributions on its share capital, (B) making or repaying any loan or advance to the Company or any other Subsidiary or (C) transferring any of its properties or assets to the Company or any other Subsidiary; and (ii) all dividends and other distributions declared and payable upon the share capital of the Company or any of its Subsidiaries (A) may be converted into foreign currency that may be freely transferred out of such person’s jurisdiction of incorporation, without the consent, approval, authorization or order of, or qualification with, any court or governmental agency or body in such person’s jurisdiction of incorporation or tax residence, and (B) are not and will not be subject to withholding, value added or other taxes under the currently effective laws and regulations of such person’s jurisdiction of incorporation, without the necessity of obtaining any consents, approvals, authorizations, orders, registrations, clearances or qualifications of or with any court or governmental agency or body having jurisdiction over such person.

 

(ss)         PFIC Status . Based on the Company’s current income and assets and projections as to the value of its assets and the market value of its Shares, including the current and anticipated valuation of its assets, the Company does not believe it was a Passive Foreign Investment Company (“ PFIC ”) within the meaning of Section 1297 of the United States Internal Revenue Code of 1986, as amended, for its most recent taxable year, and does not expect to become a PFIC for its current taxable year or in the foreseeable future.

 

(tt)         Margin Securities . The Company owns no “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “ Federal Reserve Board ”), and none of the proceeds of Offering will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Common Stock to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.

 

(uu)         Stock Exchange Listing . The Securities have been approved for listing on the Exchange upon official notice of issuance and, on the date the Registration Statement became effective, the Company’s Registration Statement on Form 8-A or other applicable form under the Exchange Act, became effective.

 

(vv)         No Stop Orders, etc. Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus or the Prospectus or has instituted or, to the Company’s knowledge, threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission for additional information.

 

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(ww)        No Immunity . None of the Company or its Subsidiaries or any of their respective properties, assets or revenues has any right of immunity, under the laws of the PRC, the State of Nevada, the State of New York or the State of Florida, from any legal action, suit or proceeding, the giving of any relief in any such legal action, suit or proceeding, set-off or counterclaim, the jurisdiction of any PRC, Nevada, New York, Florida or United States federal court, service of process, attachment upon or prior to judgment, or attachment in aid of execution of judgment, or execution of a judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of a judgment, in any such court, with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Agreement, the Escrow Agreement, the Share Escrow Agreement or the Underwriter Warrants; and, to the extent that the Company or any of its Subsidiaries or any of their respective properties, assets or revenues may have or may hereafter become entitled to any such right of immunity in any such court in which proceedings may at any time be commenced, each of the Company and its Subsidiaries waives or will waive such right to the extent permitted by law and has consented to such relief and enforcement as provided in this Agreement, the Escrow Agreement, the Share Escrow Agreement and the Underwriter Warrants.

 

(xx)        Validity of Choice of Law . The choice of the laws of the State of New York as the governing law of this Agreement, the Underwriter Warrants and the Share Escrow Agreement is a valid choice of law under the laws of the State of Nevada and the PRC and will be honored by courts in the State of Nevada and the PRC. The Company has the power to submit, and pursuant to this Agreement, the Underwriter Warrants and the Share Escrow Agreement, has legally, validly, effectively and irrevocably submitted, to the personal jurisdiction of each New York State and United States Federal court sitting in The City of New York (each, a “ New York Court ”) and has validly and irrevocably waived any objection to the laying of venue of any suit, action or proceeding brought in any such court; and the Company has the power to designate, appoint and empower, and pursuant to this Agreement, the Underwriter Warrants and the Share Escrow Agreement, has legally, validly, effectively and irrevocably designated, appointed and empowered, an authorized agent for service of process in any action arising out of or relating to this Agreement, the Underwriter Warrants and the Share Escrow Agreement, any preliminary prospectus, the Pricing Disclosure Package, the Prospectus, the Registration Statement, or the offering of the Securities in any New York Court, and service of process effected on such authorized agent will be effective to confer valid personal jurisdiction over the Company as provided in this Agreement, the Underwriter Warrants and the Share Escrow Agreement. The choice of the laws of the State of Florida as the governing law of the Escrow Agreement is a valid choice of law under the laws of the State of Nevada and the PRC and will be honored by courts in the State of Nevada and the PRC. The Company has the power to submit, and pursuant to the Escrow Agreement, has legally, validly, effectively and irrevocably submitted, to the personal jurisdiction of each Florida State and United States Federal court sitting in the State of Florida (each, a “ Florida Court ”) and has validly and irrevocably waived any objection to the laying of venue of any suit, action or proceeding brought in any such court; and the Company has the power to designate, appoint and empower, and pursuant to the Escrow Agreement, has legally, validly, effectively and irrevocably designated, appointed and empowered, an authorized agent for service of process in any action arising out of or relating to the Escrow Agreement, any preliminary prospectus, the Pricing Disclosure Package, the Prospectus, the Registration Statement, or the offering of the Securities in any Florida Court, and service of process effected on such authorized agent will be effective to confer valid personal jurisdiction over the Company as provided in the Escrow Agreement.

 

(yy)         Enforceability of Judgment . Any final judgment for a fixed or readily calculable sum of money rendered by a New York Court or a Florida Court, as applicable, having jurisdiction under its own domestic laws in respect of any suit, action or proceeding against the Company based upon this Agreement, the Underwriter Warrants, the Share Escrow Agreement, or the Escrow Agreement, as applicable, and any instruments or agreements entered into for the consummation of the transactions contemplated herein and therein would be declared enforceable against the Company, without re-examination or review of the merits of the cause of action in respect of which the original judgment was given or re-litigation of the matters adjudicated upon, by the courts of the State of Nevada. The Company is not aware of any reason why the enforcement in the State of Nevada of such a New York Court judgment, or a Florida Court judgment, as applicable, would be, as of the date hereof, contrary to public policy of the State of Nevada.

 

(zz)         Officer’s Certificate . Any certificate signed by any duly authorized officer of the Company and delivered to you or to the Underwriters’ counsel shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.

 

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(4)        Certain Agreements of the Company . The Company agrees with the Underwriters as follows:

 

(a)        Required Filings. The Company will prepare and file a Prospectus with the Commission containing the Rule 430A Information omitted from the Preliminary Prospectus within the time period required by, and otherwise in accordance with the provisions of, Rules 424(b) and 430A of the Securities Act. If the Company has elected to rely upon Rule 462(b) of the Securities Act to increase the size of the offering registered under the Securities Act and the Rule 462(b) Registration Statement has not yet been filed and become effective, the Company will prepare and file the Rule 462 Registration Statement with the Commission within the time period required by, and otherwise in accordance with the provisions of, Rule 462(b) and the Securities Act. The Company will prepare and file with the Commission, promptly upon the Representative’s request, any amendments or supplements to the Registration Statement or Prospectus that, in the Representative’s opinion, may be necessary or advisable in connection with the distribution of the Securities by the Underwriters; and the Company will furnish the Representative and its counsel a copy of any proposed amendment or supplement to the Registration Statement or Prospectus and will not file any amendment or supplement to the Registration Statement or Prospectus to which the Representative shall reasonably object by notice to the Company after having been furnished a copy a reasonable time prior to the filing.

 

(b)        Notification of Certain Commission Actions. The Company will advise the Representative, promptly after it shall receive notice or obtain knowledge thereof, of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, or any post-effective amendment thereto or preventing or suspending the use of any Preliminary Prospectus, the Pricing Disclosure Package, the Prospectus or any Issuer Free Writing Prospectus, of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceeding for any such purpose; and the Company will promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such a stop order should be issued.

 

(c)        Continued Compliance with Securities Laws .

 

(i) Within the time during which a prospectus (assuming the absence of Rule172) relating to the Securities is required to be delivered under the Securities Act by the Underwriters or any dealer, the Company will comply with all requirements imposed upon it by the Securities Act, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Securities as contemplated by the provisions hereof, the Pricing Disclosure Package and the Prospectus. If during such period any event occurs as a result of which the Prospectus (or if the Prospectus is not yet available to prospective purchasers, the Pricing Disclosure Package) would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary to amend the Registration Statement or supplement the Prospectus (or if the Prospectus is not yet available to prospective investors, the Pricing Disclosure Package) to comply with the Securities Act, the Company promptly will (x) notify the Representative of such untrue statement or omission, (y) amend the Registration Statement or supplement the Prospectus (or, if the Prospectus is not yet available to prospective purchasers, the Pricing Disclosure Package) (at the expense of the Company) so as to correct such statement or omission or effect such compliance and (z) notify the Representative when any amendment to the Registration Statement is filed or becomes effective or when any supplement to the Prospectus (or, if the Prospectus is not yet available to prospective purchasers, the Pricing Disclosure Package) is filed.

 

(ii) If at any time following issuance of an Issuer Free Writing Prospectus or Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus or Written Testing-the-Waters Communication conflicted or would conflict with the information contained in the Registration Statement, any Preliminary Prospectus or the Prospectus relating to the Securities or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances prevailing at that subsequent time, not misleading, the Company (x) has promptly notified or promptly will notify the Representative of such conflict, untrue statement or omission, (y) has promptly amended or will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus or Written Testing-the-Waters Communication to eliminate or correct such conflict, untrue statement or omission and (z) has notified or promptly will notify the Representative when such amendment or supplement was or is filed with the Commission to the extent required to be filed by the Securities Act.

 

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(d)        Rule 158 . The Company will make generally available to its security holders as soon as practicable, but in no event later than 16 months after the end of the Company’s current fiscal quarter, an earnings statement (which need not be audited) covering a 12-month period beginning after the effective date of the Registration Statement (which, for purposes of this paragraph, will be deemed to be the effective date of the Rule 462(b) Registration Statement, if applicable) that shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.

 

(e)        Furnishing of Prospectuses. The Company will furnish to the Underwriters copies of the Registration Statement, including all exhibits, any Statutory Prospectus relating to the Securities, the Final Prospectus and all amendments and supplements to such documents, in each case as soon as available and in such quantities as the Underwriters reasonably requests. The Company will pay the expenses of printing and distributing to the Underwriters all such documents.

 

(f)        Blue Sky Qualifications . The Company shall take or cause to be taken all necessary action to qualify the Securities for sale under the securities laws of such domestic United States or foreign jurisdictions as the Underwriters may reasonably designate and to continue such qualifications in effect so long as required for the distribution of the Securities, except that the Company shall not be required in connection therewith to qualify as a foreign corporation or to execute a general consent to service of process in any state.

 

(g)        Provision of Documents . The Company will furnish, at its own expense, to the Underwriters and their counsel copies of the Registration Statement (one of which will be signed and will include all consents and exhibits filed therewith), and to the Underwriters and any dealer each Preliminary Prospectus, the Pricing Disclosure Package, the Prospectus, any Issuer Free Writing Prospectus and all amendments and supplements to such documents, in each case as soon as available and in such quantities as the Underwriters may from time to time reasonably request.

 

(h)        Reporting Requirements . For a period of twenty-four (24) months from the Closing, the Company will use commercially reasonable efforts to file on a timely basis with the Commission such periodic and special reports as required by the Exchange Act.

 

(i)        Payment of Expenses . The Company shall be responsible for and shall pay all expenses relating to the Offering, including (i) all filing fees and communication and printing expenses relating to the registration of the Securities and the filing of the offering materials with FINRA; (ii) costs of preparing, printing and delivering exhibits to the Registration Statement; (iii) fees of the Company’s counsel and accountants, including fees associated with “blue sky” filings; (iv) fees to translate documents for due diligence purposes; and (v) reasonable costs for road show meetings, including the cost of informational meetings. In addition, the Company shall reimburse the underwriters for all expenses of the Representative related to the Offering, including legal expenses, travel and lodging expenses, expenses related to printing, road show, due diligence, virtual data room and background checks, and other related expenses; provided, that such reimbursement obligation shall not exceed $150,000. In the event that the Offering is terminated, the Company agrees to reimburse the Underwriters pursuant to Section 7 hereof.

 

(j)        Use of Proceeds . The Company will apply the net proceeds from the sale of the Securities to be sold by it hereunder for the purposes set forth in the Pricing Disclosure Package and in the Prospectus and will file such reports with the Commission with respect to the sale of the Securities and the application of the proceeds therefrom as may be required in accordance with Rule 463 under the Securities Act.

 

(k)        Absence of Manipulation . The Company has not taken and will not take, directly or indirectly, any action designed to or which might reasonably be expected to cause or result in, or which has constituted, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities, and has not effected any sales of Common Stock which are required to be disclosed in response to Item 701 of Regulation S-K under the Securities Act which have not been so disclosed in the Registration Statement.

 

(l)        Emerging Growth Company . The Company will promptly notify the Representative if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of Securities within the meaning of the Securities Act and (B) completion of the 180-day restricted period referenced to in Section 4(l) hereof.

 

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(m)        Free Writing Prospectuses . The Company represents and agrees that, unless it obtains the prior written consent of the Representative, and the Underwriters represent and agree that, unless it obtains the prior written consent of the Company, it has not made and will not make any offer relating to the Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a free writing prospectus required to be filed with the Commission; provided that the prior written consent of the parties hereto shall be deemed to have been given in respect of the free writing prospectuses included in Schedule II . Any such free writing prospectus consented to by the Company or the Representative is hereinafter referred to as a “ Permitted Free Writing Prospectus .” The Company represents that it has treated or agrees that it will treat each Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus, and has complied and will comply with the requirements of Rules 164 and 433 under the Securities Act applicable to any Permitted Free Writing Prospectus. The Company represents that it has satisfied and agrees that it will satisfy the conditions in Rule 433 to avoid a requirement to file with the Commission any electronic road show. Each Underwriter represents and agrees that, (A) unless it obtains the prior written consent of the Company, it has not distributed, and will not distribute any Written Testing-the-Waters Communication other than those listed on Schedule V , and (B) any Testing-the-Waters Communication undertaken by it was with entities that are qualified institutional buyers with the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act.

 

(n)        Company Lock Up . The Company will not, without the prior written consent of the Representative, from the date of execution of this Agreement and continuing to and including the date 180 days after the date of the Prospectus (the “ Lock-Up Period ”), (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, except to the Underwriters pursuant to this Agreement. The Company agrees not to accelerate the vesting of any option or warrant or the lapse of any repurchase right prior to the expiration of the Lock-Up Period.

 

(o)        Transfer Agent . The Company shall maintain, at its expense, a registrar and transfer agent for the Common Stock reasonably acceptable to the Representative, and shall retain such transfer agent for a period of not less than one year from the final Closing Date.

 

(p)        Press Releases . The Company shall not issue any press release without the Representative’s prior written consent (such consent will not be unreasonably withheld or delayed), commencing on the date of this Agreement and continuing for a period of 40 days from the Closing, other than normal and customary releases issued in the ordinary course of the Company’s business, of which the Representative shall have a reasonable right to review in advance of publication.

 

(q)        PRC Compliance . The Company shall comply with the PRC Overseas Investment and Listing Regulations, and use its reasonable efforts to cause holders of its Common Stock that are, or that are directly or indirectly owned or controlled by, Chinese residents or Chinese citizens, to comply with the PRC Overseas Investment and Listing Regulations applicable to them, including requesting each such shareholder to complete any registration and other procedures required under applicable PRC Overseas Investment and Listing Regulations (including any applicable rules and regulations of the SAFE).

 

(5)        Conditions of the Obligations of the Underwriters . The obligations of the Underwriters hereunder are subject to the accuracy, as of the date hereof and as of each Closing Date (as if made at the applicable Closing Date), of and compliance with all representations, warranties and agreements of the Company contained herein, to the performance by the Company of its obligations hereunder and to the following additional conditions:

 

(a)        Filing of Prospectuses . All filings required by Rules 424, 430A and 433 of the Securities Act shall have been timely made (without reliance on Rule 424(b)(8) or Rule 164(b)); no stop order suspending the effectiveness of the Registration Statement or any part thereof or any amendment thereof, nor suspending or preventing the use of the Pricing Disclosure Package, the Prospectus or any issuer free writing prospectus shall have been issued; no proceedings for the issuance of such an order shall have been initiated or threatened; and any request of the Commission for additional information (to be included in the Registration Statement, the Pricing Disclosure Package, the Prospectus, any issuer free writing prospectus or otherwise) shall have been complied with to the Underwriters’ satisfaction.

 

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(b)        Continued Compliance with Securities Laws. The Underwriters shall not have advised the Company that (i) the Registration Statement or any amendment thereof or supplement thereto contains an untrue statement of a material fact which, in the Representative’s reasonable opinion, is material or omits to state a material fact which, in the Representative’s reasonable opinion, is required to be stated therein or necessary to make the statements therein not misleading, or (ii) the Pricing Disclosure Package or the Prospectus, or any amendment thereof or supplement thereto, or any Issuer Free Writing Prospectus contains an untrue statement of fact which, in the Representative’s reasonable opinion, is material, or omits to state a fact which, in the Representative’s reasonable opinion, is material and is required to be stated therein, or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading.

 

(c)        Absence of Certain Events . Except as contemplated in the Pricing Disclosure Package and in the Prospectus, subsequent to the respective dates as of which information is given in the Pricing Disclosure Package and the Prospectus, none of the Company or its Subsidiaries has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, or declared or paid any dividends or made any distribution of any kind with respect to its capital stock; and there shall not have been any change in the capital stock (other than a change in the number of outstanding Common Stock of the Company due to the issuance of shares upon the exercise of outstanding options or warrants or conversion of convertible securities), or any material change in the short-term or long-term debt of any of the Company (other than as a result of the conversion of convertible securities of the Company), or its Subsidiaries, or any issuance of options, warrants, convertible securities or other rights to purchase the capital stock of any of the Company or its Subsidiaries, or any Material Adverse Change or any development involving a prospective Material Adverse Change (whether or not arising in the ordinary course of business), that, in the Representative’s reasonable judgment, makes it impractical or inadvisable to offer or deliver the Securities on the terms and in the manner contemplated in the Pricing Disclosure Package and in the Prospectus.

 

(d)        Officer’s Certificate . The Underwriters shall have received on and as of each Closing Date a certificate, addressed to the Underwriters, signed by the chief executive officer and the chief financial officer of the Company to the effect that:

 

(i) The representations and warranties of the Company in this Agreement are true and correct as if made at and as of the applicable Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the applicable Closing Date; and

 

(ii) No stop order or other order suspending the effectiveness of the Registration Statement or any part thereof or any amendment thereof or the qualification of the Securities for offering or sale, nor suspending or preventing the use of the Pricing Disclosure Package, the Prospectus or any Issuer Free Writing Prospectus, has been issued, and no proceeding for that purpose has been instituted or, to the best of their knowledge, is contemplated by the Commission or any state or regulatory body.

 

(e)        Chief Financial Officer’s Certificate . At each Closing Date, the Underwriters shall have received a certificate of the Company signed by the chief financial officer of the Company, dated the applicable Closing Date, certifying: (i) that each of the Company’s Articles of Incorporation and Bylaws are true and complete, have not been modified and are in full force and effect; (ii) that the resolutions of the Company’s Board of Directors relating to the public offering contemplated by this Agreement are in full force and effect and have not been modified; (iii) as to the accuracy and completeness of all correspondence between the Company or its counsel and the Commission; and (iv) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate

 

(f)        Opinions of Counsel for the Company . At each Closing Date, the Underwriters shall have received a written opinion and negative assurance letter of Ellenoff Grossman & Schole LLP, U.S. counsel for the Company, dated the applicable Closing Date and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representative.

 

(g)        Opinion of PRC Counsel for the Company . At each Closing Date, the Underwriters shall have received a written opinion of Jingtian & Gongcheng, PRC counsel for the Company, dated the applicable Closing Date and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representative.

 

(h)        Opinion of Counsel for the Underwriters . At each Closing Date, the Underwriters shall have received on and as of the applicable Closing Date a written opinion of K&L Gates LLP, counsel for the Underwriters, with respect to such matters as the Underwriters may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.

 

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(i)        No Legal Impediment to Issuance . No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority that would, as of the applicable Closing Date, prevent the issuance or sale of the Securities; and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the applicable Closing Date, prevent the issuance or sale of the Securities.

 

(j)        Good Standing . At each Closing Date, the Underwriters shall have received on and as of the applicable Closing Date satisfactory evidence of the good standing of the Company and its Subsidiaries in their respective jurisdictions of organization and their good standing as foreign entities in such other jurisdictions as the Representative may reasonably request, in each case in writing or any standard form of telecommunication from the appropriate governmental authorities of such jurisdictions or, for any such jurisdiction in which evidence of good standing may not be obtained from appropriate governmental authorities, in the form of an opinion of counsel licensed in the applicable jurisdiction.

 

(k)        Lock-up Agreements . The Representative shall have received all of the Lock-Up Agreements from the Lock-Up Parties, and the Lock-Up Agreements shall be in full force and effect.

 

(l)        Escrow Agreement. The Company shall have entered into the Escrow Agreement with the Representative and the Escrow Agent, and such agreement shall be in full force and effect.

 

(m)        Underwriter Warrants . At the First Closing Date, the Company shall issue the Underwriter Warrants to the Representative in form and substance acceptable to the Representative.

 

(n)        Share Escrow Agreement. The Company shall have entered into the Share Escrow Agreement with the Representative and the Share Escrow Agent, and such agreement shall be in full force and effect.

 

(o)        FINRA Matters. FINRA shall have confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements.

 

(p)        Comfort Letters . The Company shall have requested and caused the Auditor to have furnished to the Underwriters, at the Execution Time and at each Closing Date and any settlement date, letters (which may refer to letters previously delivered to the Underwriters), dated respectively as of the Execution Time and as of the applicable Closing Date and any settlement date, in form and substance satisfactory to the Representative.

 

(q)        Exchange Listing . The Securities to be delivered on the applicable Closing Date shall have been approved for listing on the NASDAQ Capital Market or NYSE American (the “ Exchange ”), subject to official notice of issuance and shall be DTC eligible.

 

(r)        Additional Documents . On or prior to the applicable Closing Date, the Company shall have furnished to the Representative such further certificates and documents as the Representative may reasonably request.

 

All opinions, letters, certificates and evidence mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters. The Company will furnish the Representative with such conformed copies of such opinions, certificates, letters and other documents as it shall reasonably request.

 

(6)        Indemnification and Contribution .

 

(a)       The Company agrees to indemnify, defend and hold harmless the Underwriters, their respective affiliates, directors and officers and employees, and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each, an “ Indemnified Party ”), from and against any losses, claims, damages or liabilities (including in settlement of any litigation if such settlement is effected with the prior written consent of the Company) arising out of (i) an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including the information deemed to be a part of the Registration Statement at the time of effectiveness and at any subsequent time pursuant to Rules 430A and 430B of the Securities Act Regulations, or arise out of or are based upon the omission from the Registration Statement, or alleged omission to state therein, a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) an untrue statement or alleged untrue statement of a material fact contained in the Pricing Disclosure Package, the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus, any Marketing Materials, or any Written Testing-the-Waters Communications or in any other materials used in connection with the offering of the Securities, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and will reimburse such Indemnified Party for any legal or other expenses reasonably incurred by it in connection with evaluating, investigating or defending against such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Pricing Disclosure Package, the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus, any Marketing Materials or any Written Testing-the-Waters Communications or, in reliance upon and in conformity with the Underwriter Information.

 

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(b)       Each Underwriter, severally and not jointly, will indemnify, defend and hold harmless the Company, its affiliates, directors, officers and employees, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each, an “ Underwriter Indemnified Party ”), from and against any losses, claims, damages or liabilities to which such Underwriter Indemnified Party may become subject, under the Securities Act or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Representative), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Pricing Disclosure Package, the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus, any Marketing Materials, or any Written Testing-the-Waters Communications, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, the Pricing Disclosure Package, the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus, any Marketing Materials or any Written Testing-the-Waters Communications in reliance upon and in conformity with the Underwriter Information, and will reimburse such Underwriter Indemnified Party for any legal or other expenses reasonably incurred by it in connection with defending against any such loss, claim, damage, liability or action.

 

(c)       Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the failure to notify the indemnifying party shall not relieve the indemnifying party from any liability that it may have to any indemnified party except to the extent such indemnifying party has been materially prejudiced by such failure. In case any such action shall be brought against any indemnified party, and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of the indemnifying party’s election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof; provided, however, that if (i) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (ii) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party), or (iii) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, the indemnified party shall have the right to employ a single counsel to represent it in any claim in respect of which indemnity may be sought under subsection (a) or (b) of this Section 6, in which event the reasonable fees and expenses of such separate counsel shall be borne by the indemnifying party or parties and reimbursed to the indemnified party as incurred.

 

(d)       The indemnifying party under this Section 6 shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is a party or could be named and indemnity was or would be sought hereunder by such indemnified party, unless such settlement, compromise or consent (i) includes an unconditional release of such indemnified party from all liability for claims that are the subject matter of such action, suit or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. Notwithstanding the foregoing, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel pursuant to Section 6(c), such indemnifying party agrees that it shall be liable for any settlement effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.

 

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(e)       If the indemnification provided for in this Section 6 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then the indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering and sale of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total net proceeds from the Offering (before deducting expenses) received by the Company bear to the total Underwriting Fee received by the Underwriters. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties’ relevant intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (e) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the first sentence of this subsection (e). The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending against any action or claim that is the subject of this subsection (e). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

(f)       Notwithstanding the provisions of this Section 6, no Underwriter shall be required to pay pursuant to this Section 6, either as indemnification or contribution or both, any amount in excess of the amount of the Underwriting Fee actually received by it pursuant to this Agreement.

 

(g)       For purposes of this Agreement, the Underwriters confirm, and the Company acknowledges, that there is no information concerning the Underwriters furnished in writing to the Company by the Representative specifically for preparation of or inclusion in the Registration Statement, the Pricing Disclosure Package, the Prospectus or any Issuer Free Writing Prospectus, other than the Underwriter Information.

 

(7)        Term and Termination of Agreement . The term of this Agreement will commence upon the execution of this Agreement and will terminate upon the consummation of the final Closing; provided the Underwriters shall have the right to terminate this Agreement by giving notice to the Company at any time at or prior to the First or Second Closing Date, and the option referred to in Section 1(b), if exercised, may be cancelled by the Representative at any time prior to the Second Closing Date, if (i) the Company shall have failed, refused or been unable, at or prior to the applicable Closing Date, to perform any agreement on its part to be performed hereunder, (ii) any other condition of the Underwriters’ obligations hereunder is not fulfilled, (iii) trading on the Exchange shall have been wholly suspended, (iv) minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required, on the Exchange, by such Exchange or by order of the Commission or any other governmental authority, (v) a banking moratorium shall have been declared by federal or state authorities, or (vi) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the Representative’s reasonable judgment, is material and adverse and makes it impractical or inadvisable to proceed with the completion of the sale of and payment for the Securities. Any such termination shall be without liability on the part of any party to any other party, except that those portions of this Agreement specified in Section 9 shall at all times be effective and shall survive such termination. Notwithstanding anything to the contrary in this Agreement, in the event that this Agreement shall not be carried out for any reason whatsoever, the Company shall be obligated to pay to the Underwriters their actual and accountable out-of-pocket expenses related to the transactions contemplated herein, less any advances previously paid which as of the date hereof is $[●] (the “ Advances ”), then due and payable and upon demand the Company shall pay the full amount thereof to the Underwriters. To the extent that the Underwriters’ out-of-pocket expenses are less than the Advances, the Underwriters will return to the Company that portion of the Advances not offset by actual expenses. Notwithstanding anything to the contrary contained herein, any provision in this Agreement concerning or relating to confidentiality, indemnification, contribution, advancement, the Company’s representations and warranties and the Company’s obligations to pay fees and reimburse expenses will survive any expiration or termination of this Agreement.

 

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(8)        Underwriter Default.

 

(a)       If any Underwriter or Underwriters shall default in its or their obligation to purchase Shares, and if the Shares with respect to which such default relates (the “ Default Securities ”) do not (after giving effect to arrangements, if any, made by the Representative pursuant to subsection (b) below) exceed in the aggregate 10% of the number of Shares, each non-defaulting Underwriter, acting severally and not jointly, agrees to purchase from the Company that number of Default Securities that bears the same proportion to the total number of Default Securities then being purchased as the number of Shares set forth opposite the name of such Underwriter on Annex A hereto bears to the aggregate number of Shares set forth opposite the names of the non-defaulting Underwriters; subject, however, to such adjustments to eliminate fractional shares as the Representative in its sole discretion shall make.

 

(b)       In the event that the aggregate number of Default Securities exceeds 10% of the number of Shares, the Representative may in its discretion arrange for itself or for another party or parties (including any non-defaulting Underwriter or Underwriters who so agree) to purchase the Default Securities on the terms contained herein. In the event that within five (5) calendar days after such a default the Representative does not arrange for the purchase of the Default Securities as provided in this Section 8, this Agreement shall thereupon terminate, without liability on the part of the Company with respect thereto (except in each case as provided in Sections 4(i), 6, 7, 8 and 9) or the Underwriters, but nothing in this Agreement shall relieve a defaulting Underwriter or Underwriters of its or their liability, if any, to the other Underwriters and the Company for damages occasioned by its or their default hereunder.

 

(c)       In the event that any Default Securities are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, the Representative or the Company shall have the right to postpone the applicable Closing Date for a period, not exceeding five (5) Business Days, in order to effect whatever changes may thereby be necessary in the Registration Statement or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment or supplement to the Registration Statement or the Prospectus which, in the reasonable opinion of Underwriters’ counsel, may be necessary or advisable. The term “Underwriter” as used in this Agreement shall include any party substituted under this Section 8 with like effect as if it had originally been a party to this Agreement with respect to such Securities.

 

(9)        Survival of Indemnities, Representations, Warranties, Etc. The respective indemnities, covenants, agreements, representations, warranties and other statements of the Company and the Underwriters, as set forth in this Agreement or made by them respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation made by or on behalf of the Underwriters or the Company or any person controlling any of them and shall survive delivery of and payment for the Securities. Notwithstanding any termination of this Agreement, including any termination pursuant to Section 7, the payment, reimbursement, indemnity and contribution agreements contained in Sections 4(i), 6, 7, 8 and 9, and the Company’s covenants, representations, and warranties set forth in this Agreement shall not terminate and shall remain in full force and effect at all times. The indemnity and contribution provisions contained in Section 6 and the covenants, warranties and representations of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of the Underwriters, any person who controls the Underwriters within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act or any affiliate of the Underwriters, or by or on behalf of the Company, the Company’s directors or officers or any person who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and (iii) the issuance and delivery of the Securities. The Company and the Underwriters agree to notify each other of the commencement of any proceeding against either of them promptly, and, in the case of the Company, against any of the Company’s officers or directors in connection with the issuance and sale of the Securities, or in connection with the Registration Statement and the Prospectus.

 

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(10)      Notices . All communications hereunder shall be in writing and shall be mailed, hand delivered, faxed or sent by electronic transmission and confirmed to the parties hereto as follows:

 

If to the Company:

 

Datasea Inc. 

1 Xinghuo Rd. Changning Building, 11 th Floor 

Fengtai District, Beijing, People’s Republic of China 100070 

Attention: Chief Executive Officer 

Email: liuzhixin@shuhaixinxi.com

 

with a copy to:

 

Ellenoff Grossman & Schole LLP 

1345 Avenue of Americas, 11th Floor 

New York, NY 10105 

Attention: Richard I. Anslow 

Fax: (212) 370-7889 

Email: ranslow@egsllp.com

 

If to the Underwriters:

 

ViewTrade Securities, Inc. 

7280 W. Palmetto Park Road, Suite 310 

Boca Raton, FL 33433 

Attention: Douglas Aguililla 

Fax: (561) 338-6206 

Email: dougagui@viewtrade.com

 

with a copy to:

 

K&L Gates LLP 

Southeast Financial Center, Suite 3900 

200 South Biscayne Boulevard 

Miami, FL 33131 

Attention: Clayton E. Parker 

Fax: (305) 358-7095 

Email: clayton.parker@klgates.com

 

(11)      Successors . This Agreement will inure to the benefit of and be binding upon parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 6, and no other person will have any right or obligation hereunder.

 

(12)      Headings . The headings of the various sections of this Agreement have been inserted for convenience of reference only and will not be deemed to be part of this Agreement.

 

(13)      Counterparts . This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. In the event that any signature is delivered by facsimile transmission, electronic delivery, or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile, electronic copy, or “.pdf” signature page were an original thereof.

 

(14)      Absence of Fiduciary Relationship . The Company acknowledges and agrees that:

 

(a)        No Other Relationship . The Underwriters have been retained solely as independent contractors to act as underwriters in connection with the sale of Securities and that no fiduciary, advisory or agency relationship between the Company and any Underwriter has been created in respect of any of the transactions contemplated by this Agreement or the Final Prospectus, irrespective of whether any such Underwriter has advised or is advising the Company on other matters;

 

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(b)        Arm’s-Length Negotiations . The price of the Securities set forth in this Agreement was established by the Company following discussions and arm’s-length negotiations with the Underwriters and the Company is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated by this Agreement;

 

(c)        Absence of Obligation to Disclose . The Company has been advised that the Underwriters and their respective affiliates are engaged in a broad range of transactions which may involve interests that differ from those of the Company, and that the Underwriters have no obligation to disclose such interests and transactions to the Company by virtue of any fiduciary, advisory or agency relationship; and

 

(d)        Waiver . The Company waives, to the fullest extent permitted by law, any claims it may have against the Underwriters for breach of fiduciary duty or alleged breach of fiduciary duty and agrees that the Underwriters shall have no liability (whether direct or indirect) to the Company in respect of such a fiduciary duty claim or to any person asserting a fiduciary duty claim on behalf of or in right of the Company, including shareholders, employees or creditors of the Company.

 

(15)      Amendment . In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior and all contemporaneous agreements (whether written or oral), understandings and negotiations with respect to the subject matter hereof. This Agreement may only be amended or modified in writing, signed by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party whom the condition is meant to benefit.

 

(16)      Confidentiality . In the event of the consummation or public announcement of the Offering, the Underwriters shall have the right to disclose their participation in the Offering, including through, at the Underwriters’ cost, the use of “tombstone” advertisements in financial and other newspapers and journals. The Underwriters agrees not to use any confidential information concerning the Company provided to the Underwriters by the Company for any purposes other than those contemplated under this Agreement.

 

(17)      Applicable Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

 

(18)    Submission to Jurisdiction; Appointment of Agent for Service . The Company hereby irrevocably submits to the non-exclusive jurisdiction of the U.S. federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. The Company and each of the Company’s Subsidiaries irrevocably and unconditionally waives any objection to the laying of venue of any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in the New York Courts, and irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such suit or proceeding in any such court has been brought in an inconvenient forum. The Company irrevocably appoints Legal Corporate Services, Inc., at the address set forth on the cover page of the Prospectus, as its respective authorized agent (the “ Authorized Agent ”) in Las Vegas, State of Nevada upon which process may be served in any such suit or proceeding, and agree that service of process in any manner permitted by applicable law upon such agent shall be deemed in every respect effective service of process in any manner permitted by applicable law upon the Company in any such suit or proceeding. The Company further agrees to take any and all action as may be necessary to maintain such designation and appointment of such agent in full force and effect for a period of two years from the date of this Agreement.

 

(19)      Judgment Currency . If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder into any currency other than United States dollars, the parties hereto agree, to the fullest extent permitted by law, that the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Underwriters could purchase United States dollars with such other currency in The City of New York on the Business Day preceding that on which final judgment is given. The obligation of the Company pursuant to this Agreement with respect to any sum due from it to the Underwriters or any person controlling the Underwriters shall, notwithstanding any judgment in a currency other than United States dollars, not be discharged until the first Business Day following receipt by the Underwriters or controlling person of any sum in such other currency, and only to the extent that the Underwriters or controlling person may in accordance with normal banking procedures purchase United States dollars with such other currency. If the United States dollars so purchased are less than the sum originally due to the Underwriters or controlling person hereunder, the Company agrees as a separate obligation and notwithstanding any such judgment, to indemnify the Underwriters or controlling person against such loss. If the United States dollars so purchased are greater than the sum originally due to the Underwriters or controlling person hereunder, the Underwriters or controlling person agrees to pay to the Company an amount equal to the excess of the dollars so purchased over the sum originally due to the Underwriters or controlling person hereunder.

 

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(20)      Time of Essence . Time shall be of the essence of this Agreement.

 

[The remainder of this page is intentionally left blank]

 

26  

 

 

Please sign and return to the Company the enclosed duplicates of this Agreement whereupon this Agreement will become a binding agreement between the Company and the Underwriters in accordance with its terms.

 

  Very truly yours,
   
  Datasea Inc.
     
  By:  
    Name: Zhixin Liu
    Title:   Chief Executive Officer

 

Accepted by the Representative, acting for itself and as 

Representative of the Underwriters named on Annex A hereto, 

as of the date first written above:

 

ViewTrade Securities, Inc.  
     
By:  
Name: Douglas Aguililla  
Title: Director  

 

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Annex A

 

Name of Underwriter Number of Securities Being Purchased (1)
ViewTrade Securities, Inc. [●]
   
   
Total

[●] 

 

(1) The Underwriters may purchase an additional [●] shares of Common Stock to the extent the option described in Section 1(b) of this Agreement is exercised in the manner described in this Agreement.

 

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SCHEDULE I

 

Pricing Information

 

Public offering price per share for the Securities: $[●] 

Number of Firm Shares offered: [●] 

Number of Option Shares offered: [●]

 

29  

 

 

SCHEDULE II

 

Certain Permitted Free Writing Prospectuses

 

30  

 

 

SCHEDULE III

 

Subsidiaries

 

Shuhai Information Skill (HK) Limited, a Hong Kong limited liability company

 

Tianjin Information Sea Information Technology Co., Ltd., a P.R. China wholly foreign owned entity

 

Harbin Information Sea Information Technology Co., Ltd., a P.R. China wholly foreign owned entity

 

Shuhai Information Technology Co., Ltd., a P.R. China entity

 

31  

 

 

SCHEDULE IV

 

Lock-Up Parties

 

32  

 

 

SCHEDULE V

 

Testing the Waters Communications

 

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EXHIBIT A

 

Form of Lock-Up Agreement

 

                 , 2018

 

ViewTrade Securities, Inc. 

7280 W. Palmetto Park Road Suite 310 

Boca Raton, Florida 33433

 

As Representative of the Underwriters  

named on Annex A to the Underwriting Agreement

 

Dear Sirs:

 

As an inducement to the underwriters, for which ViewTrade Securities, Inc. is acting as representative (the “ Representative ”), to execute an underwriting agreement (the “ Underwriting Agreement ”) providing for a public offering (the “ Offering ”) of Common Stock (the “ Common Stock ”), of Datasea Inc. and any successor (by merger or otherwise) thereto (the “ Company ”), the undersigned hereby agrees that without, in each case, the prior written consent of the Representative during the period specified in the second succeeding paragraph (the “ Lock-Up Period ”), the undersigned will not: (1) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, any Common Stock or any securities convertible into, exercisable or exchangeable for or that represent the right to receive Common Stock (including Common Stock which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant) whether now owned or hereafter acquired (the “ Undersigned’s Securities ”); (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Undersigned’s Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to, the registration of any Common Stock or any security convertible into or exercisable or exchangeable for Common Stock; or (4) publicly disclose the intention to do any of the foregoing.

 

The undersigned agrees that the foregoing restrictions preclude the undersigned from engaging in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of the Undersigned’s Securities even if such Securities would be disposed of by someone other than the undersigned. Such prohibited hedging or other transactions would include any short sale or any purchase, sale or grant of any right (including any put or call option) with respect to any of the Undersigned’s Securities or with respect to any security that includes, relates to, or derives any significant part of its value from such Securities.

 

The Lock-Up Period will commence on the date of this Agreement and continue and include the date 180 days after the date of the final prospectus used to sell Common Stock in the Offering pursuant to the Underwriting Agreement.

 

If the undersigned is an officer or director of the Company, (i) the Representative agrees that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, the Representative will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by issuing a press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by the Representative hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if both (a) the release or waiver is effected solely to permit a transfer not for consideration, and (b) the transferee has agreed in writing to be bound by the same terms described in this letter that are applicable to the transferor, to the extent and for the duration that such terms remain in effect at the time of the transfer.

 

34  

 

 

Notwithstanding the foregoing, the undersigned may transfer the Undersigned’s Securities (i) as a bona fide gift or gifts, (ii) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, (iii) if the undersigned is a corporation, partnership, limited liability company, trust or other business entity (1) transfers to another corporation, partnership, limited liability company, trust or other business entity that is a direct or indirect affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of the undersigned or (2) distributions of Common Stock or any security convertible into or exercisable for Common Stock to limited partners, limited liability company members or stockholders of the undersigned, (iv) if the undersigned is a trust, transfers to the beneficiary of such trust, (v) by testate succession or intestate succession or (vi) pursuant to the Underwriting Agreement; provided, in the case of clauses (i)-(v), that (x) such transfer shall not involve a disposition for value, (y) the transferee agrees in writing with the Representative to be bound by the terms of this Lock-Up Agreement, and (z) no filing by any party under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), shall be required or shall be made voluntarily in connection with such transfer. Furthermore, notwithstanding the foregoing, the undersigned may transfer the Undersigned’s Securities in a transaction not involving a public offering or public resale; provided that (x) the transferee agrees in writing with the Representative to be bound by the terms of this Lock-Up Agreement, and (y) no filing by any party under Section 16(a) of the Exchange Act shall be required or shall be made voluntarily in connection with such transfer. For purposes of this Agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, nor more remote than first cousin.

 

In furtherance of the foregoing, the Company and its transfer agent and registrar are hereby authorized to decline to make any transfer of Common Stock if such transfer would constitute a violation or breach of this Agreement.

 

The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Agreement and that upon request, the undersigned will execute and additional documents necessary to ensure the validity or enforcement of this Agreement. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.

 

The undersigned understands that the undersigned shall be released from all obligations under this Agreement if (i) the Company notifies the Representative that it does not intend to proceed with the Offering, (ii) the Underwriting Agreement does not become effective, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Common Stock to be sold thereunder, or (iii) the Offering is not completed by [●].

 

The undersigned understands that the underwriters named in the Underwriting Agreement are entering into the Underwriting Agreement and proceeding with the Offering in reliance upon this Agreement.

 

[signature page follows]

 

35  

 

 

This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

 

  Very truly yours,
   
  Printed Name of Holder
     
  By:  
    Signature
   
  Printed Name of Person Signing (and indicate capacity of person signing if signing as custodian, trustee, or on behalf of an entity)

 

36  

 

 

Exhibit B

 

Form of Company Press Release for Waivers or Releases  

of Officer/Director Lock-Up Agreements

 

Datasea Inc. 

[ADDRESS]

 

[Date]

 

Datasea Inc. (the “Company”) announced today that ViewTrade Securities, Inc., the representative of the several Underwriters, is [waiving] [releasing] [a] lock-up restriction [s] with respect to an aggregate of **[# of Common Stock] held by certain [officers] [directors] of the Company. These [officers] [directors] entered into lock-up agreements with ViewTrade in connection with the Company’s public offering.

 

This [waiver] [release] will take effect on **[date that is at least 2 business days following date of this press release].

 

This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.

 

37  

Exhibit 4.1

 

Form of Representative’s Warrant to Purchase Common Stock

 

THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT OR CAUSE IT TO BE THE SUBJECT OF ANY HEDGING, SHORT SALE, DERIVATIVE, PUT, OR CALL TRANSACTION THAT WOULD RESULT IN THE EFFECTIVE ECONOMIC DISPOSITION OF THIS PURCHASE WARRANT BY ANY PERSON FOR A PERIOD OF ONE HUNDRED EIGHTY (180) DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) VIEWTRADE SECURITIES, INC. OR AN UNDERWRITER OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF VIEWTRADE SECURITIES, INC. OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER AND IN ACCORDANCE WITH FINRA RULE 5110(G)(2).

 

THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO  ______________ VOID AFTER 5:00 P.M., EASTERN TIME, ______________, 2023. 1

 

COMMON STOCK PURCHASE WARRANT

 

For the Purchase of _____________ Shares of Common Stock
of
DATASEA INC.

 

1.             Purchase Warrant . THIS CERTIFIES THAT, pursuant to that certain Underwriting Agreement, dated ______________ , 2018 (the “ Underwriting Agreement ”), by and between Datasea Inc., a Nevada corporation (the “ Company ”), and ViewTrade Securities, Inc., as representative of the underwriters named on Annex A thereto, providing for the public offering (the “ Offering ”) of shares of common stock, par value $0.001 per share, of the Company (the “ Common Stock ”), ViewTrade Securities, Inc. or its assigns (“ Holder ”), as registered owner of this Purchase Warrant, is entitled, at any time or from time to time from ______________ (the “ Commencement Date ”), and at or before 5:00 p.m., Eastern time, ______________ , 2023 2 (the “ Expiration Date ”), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to ______________ 3 shares of Common Stock (the “ Shares ”), subject to adjustment as provided in Section 6 hereof. If the Expiration Date is a day on which banking institutions are authorized by law or executive order to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period commencing on the date hereof and ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Warrant. This Purchase Warrant is initially exercisable at $ ______________ per Share 4 ; provided , however , that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. This Purchase Warrant is being issued pursuant to the Underwriting Agreement providing for the Offering. The term “ Effective Date ” shall mean the effective date of the registration statement in connection with the Offering. The term “ Exercise Price ” shall mean the initial exercise price or the adjusted exercise price, depending on the context.

 

1 Date that is five years from the closing of the Offering.

2 Date that is five years from the closing of the Offering.

3 7% of the Shares sold in the Offering.

 

 

 

 

2.             Exercise .

 

2.1            Exercise Form . In order to exercise this Purchase Warrant, the exercise form attached hereto must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official bank check to the order of the Company. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.

 

2.2            Cashless Exercise . At any time after the Commencement Date, in lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised) by surrender of this Purchase Warrant to the Company, together with the exercise form attached hereto, in which event the Company shall issue to Holder Shares in accordance with the following formula:

 

Y(A-B)

X =       A

 

Where,

 

X = The number of Shares to be issued to Holder;

Y = The number of Shares that would be issuable upon exercise of this Purchase Warrant if such exercise were by means of a cash exercise pursuant to Section 2.1 rather than a cashless exercise pursuant to this Section 2.2;

A = The fair market value of one Share, as determined in accordance with the provisions of this Section 2; and

B = The Exercise Price in effect under this Purchase Warrant at the time the election to exercise this Purchase Warrant on a cashless basis is made pursuant to this Section 2.

 

For purposes of this Section 2.2, the fair market value of a Share is defined as follows:

 

 

4 150% of the price of the Shares sold in the Offering.

 

 

 

 

(i)        if the Common Stock is traded on a national securities exchange, the fair market value shall be deemed to be the closing sales price on such exchange on the trading day immediately prior to the date the exercise form is submitted to the Company in connection with the exercise of this Purchase Warrant; or

 

(ii)        if the Common Stock is traded over-the-counter (i.e., on the OTCQB or OTCQX Markets operated by OTC Markets Group, Inc., or any similar over-the-counter market), the fair market value shall be deemed to be the closing bid price on the trading day immediately prior to the date the exercise form is submitted to the Company in connection with the exercise of this Purchase Warrant; or

 

(iii)        if there is no active public market for the Common Stock, the value shall be the fair market value thereof, as determined in good faith by the Company’s Board of Directors.

 

For avoidance of doubt, if there is no effective registration statement registering, or no current prospectus available for, the resale of the Shares underlying this Purchase Warrant by the Holder, then this Purchase Warrant may exercised, in whole or in part, at such time by means of a cashless exercise in accordance with the provisions of this Purchase Warrant.

 

3.             Transfer - General Restrictions . The Holder agrees by his, her or its acceptance hereof, that such Holder will not: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant for a period of one hundred eighty (180) days following the Effective Date to anyone other than: (i) ViewTrade Securities, Inc. or another underwriter or a selected dealer participating in the Offering, or (ii) a bona fide officer or partner of ViewTrade Securities, Inc. or of any such underwriter or selected dealer, in each case in accordance with FINRA Conduct Rule 5110(g)(1), or (b) cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(g)(2). One hundred eighty (180) days after the Effective Date, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto duly executed and completed, together with this Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) business days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.

 

4.             Registration . The Company shall be required to keep a registration statement effective on Form S-1 (or Form S-3, if the Company is eligible to use such form) until such date that is the earlier of the date when all of the Shares underlying the Purchase Warrants have been publicly sold by the Holder or such time as Rule 144 or another similar exemption under the Securities Act of 1933, as amended, is available for the sale of all of such Holder’s Shares underlying the Purchase Warrants without limitation during a three-month period without registration.

 

 

 

 

5.             New Purchase Warrants to be Issued .

 

5.1           Partial Exercise or Transfer . Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2 hereto, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.

 

5.2           Replacement on Loss . Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Warrant, the Company, at its own expense, shall execute and deliver a new Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.

 

6.             Adjustments .

 

6.1           Adjustments to Exercise Price and Number of Shares . The Exercise Price and the number of Shares underlying this Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:

 

6.1.1        Share Dividends; Split Ups . If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding Shares, and the Exercise Price shall be proportionately decreased.

 

6.1.2        Aggregation of Shares . If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the effective date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding Shares, and the Exercise Price shall be proportionately increased.

 

6.1.3        Replacement of Shares upon Reorganization, etc . In case of any reclassification or reorganization of the outstanding Shares other than a change covered by Section 6.1.1 or 6.1.2 hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation or other entity (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to Sections 6.1.1, 6.1.2 and this Section 6.1.3. The provisions of this Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.

 

 

 

 

6.1.4        Changes in Form of Purchase Warrant . This form of Purchase Warrant need not be changed because of any change pursuant to this Section 6.1, and any Purchase Warrant issued after such change may state the same Exercise Price and the same number of Shares as are stated in the initial Purchase Warrant. The acceptance by the Holder of the issuance of a new Purchase Warrant reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the Commencement Date or the computation thereof.

 

6.2           Substitute Purchase Warrant . In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with or into, another corporation or other entity (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification or change of the outstanding Shares), the corporation or other entity formed by such consolidation or share reconstruction or amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Shares of the Company for which such Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 6. The above provision of this Section shall similarly apply to successive consolidations or share reconstructions or amalgamations.

 

6.3           Elimination of Fractional Interests . The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of this Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.

 

7.             Reservation and Listing . The Company shall at all times reserve and keep available out of its authorized shares, solely for the purpose of issuance upon exercise of this Purchase Warrant, such number of Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of this Purchase Warrant and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive or similar rights of any stockholder and free and clear of all liens, taxes and charges. As long as this Purchase Warrant shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of this Purchase Warrant to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on the OTCQB or OTCQX Markets operated by OTC Markets Group, Inc., or any similar over-the-counter market) on which the Shares issued to the public in the Offering may then be listed and/or quoted.

 

 

 

 

8.             Certain Notice Requirements .

 

8.1            Holder’s Right to Receive Notice . Nothing herein shall be construed as conferring upon the Holder the right to vote or consent or to receive notice as a stockholder for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of this Purchase Warrant and its exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books (the “ Notice Date ”) for the determination of the stockholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other stockholders of the Company at the same time and in the same manner that such notice is given to the stockholders; provided, however, that the Company shall not be obligated to provide any written notice under this Section 8 if it makes a public announcement of the applicable event via nationally distributed press release or via a publicly available and legally compliant filing with the U.S. Securities and Exchange Commission.

 

8.2            Events Requiring Notice . The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if the Company shall take a record of the holders of its shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company, (ii) the Company shall offer to all the holders of its shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business shall be proposed.

 

8.3            Notice of Change in Exercise Price; Notice of Exercise Price . The Company shall, within five (5) business days after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holder of such event and change (“ Price Notice ”). The Price Notice shall describe the event causing the change and the method of calculating the same and shall be certified as being true and accurate by the Company’s Chief Executive Officer and Chief Financial Officer. The Company shall, within five (5) business days after receipt by the Company of a written request by the Holder, send notice to the Holder of the Exercise Price then in effect and the number of Shares or the amount, if any, of other shares of stock, securities or assets then issuable upon exercise of this Purchase Warrant and shall be certified as being true and accurate by the Company’s Chief Executive Officer and Chief Financial Officer.

 

 

 

 

8.4            Transmittal of Notices . All notices, requests, consents and other communications under this Purchase Warrant shall be in writing and shall be deemed to have been duly made when (1) hand delivered, (2) mailed by express mail or private courier service, (3) when the event requiring notice is disclosed in all material respects and filed in a publicly available and legally compliant filing with the U.S. Securities and Exchange Commission prior to the Notice Date or (4) if sent by electronic mail, on the day the notice was sent if during regular business hours and, if sent outside of regular business hours, on the following business day, to following addresses or to such other addresses as the Company or Holder may designate by notice to the other party:

 


If to the Holder:

 

ViewTrade Securities, Inc.

7280 W. Palmetto Park Road, Suite 310

Boca Raton, FL 33433

Attention: Douglas Aguililla

Email: dougagui@viewtrade.com

 

with a copy (which shall not constitute notice) to:

 

K&L Gates LLP

Southeast Financial Center, Suite 3900

200 South Biscayne Boulevard

Miami, FL 33131

Attention: Clayton E. Parker

Email: clayton.parker@klgates.com

 

If to the Company:

 

Datasea Inc.
1 Xinghuo Rd. Changning Building, 11th Floor

Fengtai District, Beijing, People’s Republic of China 100070

Attention: Chief Executive Officer

Email: liuzhixin@shuhaixinxi.com

with a copy (which shall not constitute notice) to:

 

Ellenoff Grossman & Schole LLP

1345 Avenue of Americas, 11th Floor

New York, NY 10105

Attention: Richard I. Anslow

Email: ranslow@egsllp.com

 

 

 

 

9.             Miscellaneous .

 

9.1            Amendments . The Company and the Holder may from time to time supplement, modify or amend this Purchase Warrant by a written agreement signed by the Company and the Holder. All modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.

 

9.2            Headings . The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.

 

9.3            Entire Agreement . This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

 

9.4            Binding Effect . This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees, respective successors, legal representative and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.

 

9.5            Governing Law; Submission to Jurisdiction; Trial by Jury . This Purchase Warrant shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8.4 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Purchase Warrant or the transactions contemplated hereby.

 

 

 

 

9.6            Waiver, etc . The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.

 

9.7            Execution in Counterparts . This Purchase Warrant may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.

 

[ Signature Page Follows ]

 

 

 

 

IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the ______ day of ________________ , 2018.

 

  DATASEA INC.
     
  By:
    Name:
    Title:

 

Acknowledged and Agreed

 

VIEWTRADE SECURITIES, INC.

 

By:    
  Name:  
  Title:  

 

 

 

 

Form of Exercise

 

The undersigned holder hereby exercises the right to purchase _________________ shares of Common Stock (“ Warrant Shares ”) of Datasea Inc., a Nevada corporation (the “ Company ”), evidenced by the attached Common Stock Purchase Warrant (the “ Purchase Warrant ”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Purchase Warrant. Please issue the Shares as to which the Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which the Purchase Warrant has not been exercised.

 

1. Form of Exercise Price . The Holder intends that payment of the Exercise Price shall be made as:

 

__________     a “ Cash Exercise ” with respect to __________Warrant Shares; and/or

 

__________          a “Cashless Exercise ” with respect to __________Warrant Shares.

 

2. Payment of Exercise Price . In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the aggregate Exercise Price in the sum of $ ________ to the Company in accordance with the terms of the Purchase Warrant.

 

3. Delivery of Warrant Shares . The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Purchase Warrant. Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

_______________________________

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

_______________________________

 

_______________________________

 

_______________________________

 

Date: _______________ __, ______

 

 

Name of Registered Holder

 

By:    
  Name:  
  Title:  

 

 

 

 

INSTRUCTIONS FOR REGISTRATION OF SECURITIES

 

Name: ___________________________________

 

(Print in Block Letters)

 

Address: _________________________________

 

_________________________________

 

_________________________________

 

NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.

 

 

 

 

FORM OF ASSIGNMENT

 

FOR VALUE RECEIVED, the undersigned registered owner of this Purchase Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned to purchase shares of common stock, par value $0.001 per share, of Datasea Inc., a Nevada corporation (the “ Company ”), evidenced by this Purchase Warrant, with respect to the number of shares of Common Stock set forth below.

 

Name of Assignee   Address and Phone Number   No. of Shares
         
         
         

 

The undersigned also represents that, by assignment hereof, the Assignee acknowledges that this Purchase Warrant and the shares of stock to be issued upon exercise hereof or conversion thereof are being acquired for investment and that the Assignee will not offer, sell or otherwise dispose of this Purchase Warrant or any shares of stock to be issued upon exercise hereof or conversion thereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. Further, the Assignee has acknowledged that upon exercise of this Purchase Warrant, the Assignee shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the shares of stock so purchased are being acquired for investment and not with a view toward distribution or resale.

 

   
Signature of Holder  
   
Date  

 

The undersigned assignee agrees to be bound by all of the terms and conditions of this Purchase Warrant.

   
Signature of Assignee  
   
Date  

 

 

 

Exhibit 5.1

 

Ellenoff Grossman & Schole LLP

1345 Avenue of the Americas

New York, New York 10105

 

September 14, 2018

 

Datasea Inc.

1 Xinghuo Rd., Changning Building

11 th  Floor

Fengtai District, Beijing, People’s Republic of China 100070

 

Re: Registration Statement of Datasea Inc.

 

Ladies and Gentlemen:

 

We have acted as counsel to Datasea Inc., a Nevada corporation (the “ Company ”), in connection with the registration by the Company with the United States Securities and Exchange Commission (the “ Commission ”) of up to 1,220,000 shares of common stock, par value $0.0001 per share (the “ Common Stock ”), of the Company, including 150,000 shares under the Underwriter’s over-allotment option and 70,000 shares issuable upon exercise of warrants issuable to the underwriters (the “ Warrants ”), pursuant to a Registration Statement on Form S-1 initially filed by the Company with the Commission on December 5, 2017 (as amended, the “ Registration Statement ”).

 

We have examined such documents and considered such legal matters as we have deemed necessary and relevant as the basis for the opinion set forth below. With respect to such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as reproduced or certified copies, and the authenticity of the originals of those latter documents. As to questions of fact material to this opinion, we have, to the extent deemed appropriate, relied upon certain representations of certain officers and employees of the Company.

 

Based upon the foregoing, we are of the opinion that when the Registration Statement becomes effective under the Securities Act of 1933, as amended (the “ Act ”) and when the offering is completed as contemplated by the Registration Statement, (i) the shares of Common Stock sold in the offering and issuable upon exercise of Underwriter’s warrants will be validly issued, fully paid and non-assessable and (ii) the Warrants have been duly authorized and when such Warrants are duly executed and authenticated in accordance with the underwriting agreement by and between the Company and the underwriter and issued, delivered and paid for, as contemplated by the Registration Statement and the underwriting agreement, such Warrants will be legally binding obligations of the Company enforceable in accordance with their terms except: (a) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally and by general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law); (b) as enforceability of any indemnification or contribution provision may be limited under the Federal and state securities laws, and (c) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

  

We are opining solely on all applicable statutory provisions of Chapter 78 of Nevada Revised Statutes, including the rules and regulations underlying those provisions, and all applicable judicial and regulatory determinations in connection therewith and, as to the Warrants constituting legally binding obligations of the Company, solely with respect to the laws of the State of New York. Our opinion is based on these laws as in effect on the date hereof and as of the effective date of the Registration Statement, and we assume no obligation to revise or supplement this opinion after the effective date of the Registration Statement should the law be changed by legislative action, judicial decision, or otherwise. We express no opinion as to whether the laws of any other jurisdiction are applicable to the subject matter hereof. We are not rendering any opinion as to compliance with any other federal or state law, rule or regulation relating to securities, or to the sale or issuance thereof.

 

 

 

 

We hereby consent to the use of this opinion as an exhibit to the Registration Statement, to the use of our name as your counsel and to all references made to us in the Registration Statement and in the prospectus forming a part thereof.  In giving this consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Act, or the rules and regulations promulgated thereunder. This opinion is given as of the effective date of the Registration Statement, and we are under no duty to update the opinions contained herein.

 

  Very truly yours,
   
  /s/ Ellenoff Grossman & Schole LLP
  Ellenoff Grossman & Schole LLP

 

 

 

 

Exhibit 10.8

 

DATASEA INC.
2018 EQUITY INCENTIVE PLAN

1.           Purpose . The purpose of the Datasea Inc. 2018 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.

 

  2  

 

 

(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 Datasea 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.

 

  3  

 

 

(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.

 

  4  

 

 

(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.

 

(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 Datasea Inc. 2018 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.

 

  5  

 

 

(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.

 

  6  

 

 

(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 4,000,000 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.

 

  8  

 

 

(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.

 

(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.

 

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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.

 

(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.

 

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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.

 

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(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.

 

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(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 conflicts of law 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 August 22, 2018 .

 

As approved by the holders of a majority of the outstanding Common Shares on August 22, 2018 .

 

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Exhibit 10.9

 

INDEMNIFICATION ESCROW AGREEMENT

 

This INDEMNIFICATION ESCROW AGREEMENT (this “ Agreement ”) dated as of [●], 2018 is entered into by and among Datasea Inc. (the “ Company ”), ViewTrade Securities, Inc. (the “ Underwriter ”), and Pearlman Law Group LLP (the “ Escrow Agent ”).

 

WITNESSETH:

 

WHEREAS, the Company is offering (the “ Offering ”), on a firm commitment basis, [●] shares of common stock of the Company, par value $0.001 (the “ Shares ”), at an offering price of $[●] per share;

 

WHEREAS, the Company and Underwriter expect that the Offering will close on or before the close of business on [●], 2018 (the “ Closing Date ”);

 

WHEREAS, upon the closing of the Offering, the Company has agreed to deposit an aggregate amount of Six Hundred Thousand Dollars ($600,000) (the “ Escrowed Funds ”) from the proceeds of the Offering to be received by the Company with the Escrow Agent in an interest bearing escrow account, to be held and disbursed by the Escrow Agent pursuant to the terms and conditions of this Agreement;

 

WHEREAS, the Escrow Agent is willing to hold the Escrowed Funds in escrow pursuant to and subject to the terms and conditions of this Agreement; and

 

NOW, THEREFORE, in consideration of the mutual promises herein contained and intending to be legally bound hereby, the parties hereto hereby agree as follows:

 

1. Appointment of Escrow Agent . The Company and the Underwriter hereby appoint the Escrow Agent as escrow agent in accordance with the terms and subject to the conditions set forth herein and the Escrow Agent hereby accepts such appointment.

 

2. Delivery of the Escrowed Funds . Upon the closing of the Offering, the Escrowed Funds shall be delivered on behalf of the Company to the Escrow Agent, as escrow agent, into an interest bearing escrow account maintained by the Escrow Agent (the “ Escrow Account ”) by wire transfer in accordance with the wire transfer instructions set forth on Schedule A hereto. In no event shall the aggregate amount of Escrowed Funds delivered to the Escrow Account be less than Six Hundred Thousand Dollars ($600,000).

 

3. Escrow Agent to Hold and Disburse the Escrowed Funds . The Escrow Agent will retain the Escrowed Funds in an escrow account and disburse the Escrowed Funds pursuant to the terms of this Agreement, as follows:

 

a. The Escrowed Funds shall be held by the Escrow Agent for the purpose of satisfying the initial $600,000 of the indemnification obligations of the Company pursuant to Section 2 of the Underwriting Agreement dated [●], 2018 by and between the Company and the Underwriter (the “Underwriting Agreement”), for a period of eighteen (18) months from the closing of the Offering, or longer (upon written notice from the Underwriter to the Company and the Escrow Agent) if there is evidence (to be reasonably detailed in such written notice) that may reasonably result in the Company having to indemnify the Underwriter in accordance with the terms of the Underwriting Agreement, but in no event shall the Escrowed Funds be held in escrow for longer than twenty-four (24) months. The initial eighteen (18) month period during which the Escrowed Funds shall be held is referred to herein as the “Initial Claims Period” and the twenty-four (24) month period referred to in this Section 3(a) is referred to herein as the “Extended Claims Period”.

 

b. Disbursement of such Escrowed Funds upon a claim of indemnity pursuant to the terms of the Underwriting Agreement shall be determined by an independent third-party intermediary (who shall have the requisite experience in determining indemnification claims) to be chosen by mutual written consent of the Company and the Underwriter. If the Company and the Underwriter are unable to agree on such intermediary within 30 days upon a written claim for indemnity by the Underwriter, such intermediary shall be a single arbitrator (with the requisite experience in determining indemnification claims) selected by the American Arbitration Association’s New York office.

 

 

 

 

c. Notwithstanding the last sentence of Section 3(a), in the event that any litigation or proceeding arising out of any matter in connection with the Offering in connection to the Underwriter acting in its capacity as underwriter (which matter would be covered by the Company’s indemnification obligations under the Underwriting Agreement) within eighteen (18) months following the Closing Date, or longer if there is evidence that may reasonably result in the Company having to indemnify the Underwriter but in no event shall the Escrowed Funds be held in escrow for longer than twenty-four (24) months, and in which the Company, the Underwriter, the Escrow Agent or the Escrowed Funds becomes the subject of such litigation or proceeding, the Underwriter and the Company hereby authorize the Escrow Agent, at the Underwriter’s sole instruction upon Underwriter’s written notice to the Escrow Agent if not otherwise so required, to release and deposit the Escrowed Funds with the clerk of the court in which the litigation is pending for the purpose of indemnifying and defending the Underwriter in such litigation and proceeding, and thereupon the Escrow Agent shall be relieved and discharged of any further responsibility with regard thereto to the extent determined by any such court. The Company and the Underwriter further hereby authorize the Escrow Agent, if it receives conflicting claims to any of the Escrowed Funds, is threatened with litigation in its capacity as escrow agent under this Agreement, or if the Escrow Agent determines it is necessary to do so for any other reason relating to this Agreement or the Offering, to interplead all interested parties in any court of competent jurisdiction and to deposit the Escrowed Funds with the clerk of that court and thereupon the Escrow Agent shall be relieved and discharged of any further responsibility hereunder to the parties from which they were received to the extent determined by such court.

 

d. In all instances, if either (i) no claim for indemnity is made by the Underwriter during the Initial Claims Period (and there is no Extended Claims Period) or (ii) it is determined that the Underwriter is not entitled to any disbursement (or any further disbursement, as the case may be) of Escrowed Funds by the conclusion of the Extended Claims Period, the Escrow Agent shall, upon joint written instruction from the Company and the Underwriter, disburse to the Company the full balance of the Escrowed Funds then held by wire transfer of immediately available funds to an account designated by the Company.

 

4. Exculpation and Indemnification of Escrow Agent.

 

a. The Escrow Agent shall have no duties or responsibilities other than those expressly set forth herein. The Escrow Agent shall have no duty to enforce any obligation of any person to make any payment or delivery, or to direct or cause any payment or delivery to be made other than as set forth herein, or to enforce any obligation of any person to perform any other act. The Escrow Agent shall be under no liability to the other parties hereto or anyone else, by reason of any failure, on the part of any party hereto or any maker, guarantor, endorser or other signatory of a document or any other person, to perform such person’s obligations under any such document. Except for amendments to this Agreement referenced below, and except for written instructions given to the Escrow Agent by the Company and the Underwriter relating to the Escrowed Funds, the Escrow Agent shall not be obligated to recognize any agreement between or among any of the Company and the Underwriter, notwithstanding that references thereto may be made herein and the Escrow Agent has knowledge thereof.

 

b. The Escrow Agent shall not be liable to the Company, the Underwriter, or to anyone else for any action taken or omitted by it, or any action suffered by it to be taken or omitted, in good faith and acting upon any order, notice, demand, certificate, opinion or advice of counsel (including counsel chosen by the Escrow Agent), statement, instrument, report, or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained), which is reasonably believed by the Escrow Agent to be genuine and to be signed or presented by the proper party or parties hereunder. The Escrow Agent shall not be bound by any of the terms thereof, unless evidenced by written notice delivered to the Escrow Agent signed by the proper party or parties hereunder and, if the duties or rights of the Escrow Agent are affected, unless it shall give its prior written consent thereto.

 

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c. The Escrow Agent shall not be responsible for the sufficiency or accuracy of the form, or of the execution, validity, value or genuineness of, any document or property received, held or delivered to it hereunder, or of any signature or endorsement thereon, or for any lack of endorsement thereon, or for any description therein; nor shall the Escrow Agent be responsible or liable to the Company, the Underwriter, or to anyone else in any respect on account of the identity, authority or rights, of the person executing or delivering or purporting to execute or deliver any document or property or this Agreement. Except as otherwise set forth herein, the Escrow Agent shall have no responsibility with respect to the use or application of the Escrowed Funds pursuant to the provisions hereof.

 

d. The Escrow Agent shall have the right to assume, in the absence of written notice to the contrary from the proper party or parties hereunder, that a fact or an event, by reason of which an action would or might be taken by the Escrow Agent, does not exist or has not occurred, without incurring liability to the Company, the Underwriter, or to anyone else for any action taken or omitted to be taken or omitted, in good faith and in the exercise of its own best judgment, in reliance upon such assumption.

 

e. To the extent that the Escrow Agent becomes liable for the payment of taxes, including withholding taxes, or any payment made hereunder, the Escrow Agent may pay such taxes from the Escrowed Funds; and the Escrow Agent may withhold from any payment of the Escrowed Funds such amount as the Escrow Agent estimates to be sufficient to provide for the payment of such taxes not yet paid, and may use the sum withheld for that purpose. The Escrow Agent shall be indemnified and held harmless against any liability for taxes and for any penalties in respect of taxes, on such investment income or payments in the manner provided in Section 4(f).

 

f. The Escrow Agent will be indemnified and held harmless by the Company and Underwriter from and against all expenses, including all counsel fees and disbursements, or loss suffered by the Escrow Agent in connection with any action, suit or proceeding involving any claim, or in connection with any claim or demand, which in any way, directly or indirectly, arises out of or relates to this Agreement, the services of the Escrow Agent hereunder, except for claims relating to gross negligence or reckless misconduct by the Escrow Agent or breach of this Agreement by the Escrow Agent, or the monies or other property held by it hereunder. Promptly, but no later than ten (10) business days, after the receipt by the Escrow Agent of notice of any demand or claim or the commencement of any action, suit or proceeding, the Escrow Agent shall, if a claim in respect thereof is to be made by the Escrow Agent against the Company, notify the Company in writing, but the failure by the Escrow Agent to give such notice shall not relieve the Company from any liability which the Company may have to the Escrow Agent hereunder, unless the failure of the Escrow Agent to give such notice prejudices or otherwise impairs the Company’s ability to defend any demand, claim, action suit or proceeding. Notwithstanding any obligation to make payments and deliveries hereunder, the Escrow Agent may retain and hold for such time as it deems necessary such amount of monies or property as it shall, from time to time, reasonably deem sufficient to indemnify itself for any such loss or expense.

 

g. For purposes hereof, the term “expense or loss” shall include all amounts paid or payable to satisfy any claim, demand or liability, or in settlement of any claim, demand, action, suit or proceeding settled with the express written consent of the Escrow Agent, and all costs and expenses, including, but not limited to, counsel fees and disbursements, paid or incurred in investigating or defending against any such claim, demand, action, suit or proceeding.

 

5. Indemnification by the Company . The indemnification provisions subject to this Agreement are set forth in Section 6 of the Underwriting Agreement, which Section 6 shall be deemed to be a part of this Agreement.

  

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6.  Termination of Agreement and Resignation of Escrow Agent.

 

a. This Agreement shall terminate upon disbursement of all of the Escrowed Funds provided that the rights of the Escrow Agent and the obligations of the Company and the Underwriter under Section 4 shall survive the termination hereof.

 

b. The Escrow Agent may resign at any time and be discharged from its duties as Escrow Agent hereunder by giving the Company and the Underwriter at least fifteen (15) business days written notice thereof (the “ Notice Period ”). As soon as practicable after its resignation, the Escrow Agent shall, if it receives notice from the Company and the Underwriter within the Notice Period, turn over to a successor escrow agent appointed by the Company and the Underwriter all Escrowed Funds (less such amount as the Escrow Agent is entitled to continue to retain and hold in escrow pursuant to Section 4(f) and to retain pursuant to Section 7) upon presentation of the document appointing the new escrow agent and its acceptance thereof. If no new agent is so appointed within the Notice Period, the Escrow Agent shall return the Escrowed Funds to the Company without interest or deduction.

 

7. Form of Payments by Escrow Agent .

 

a. Any payments of the Escrowed Funds by the Escrow Agent pursuant to the terms of this Agreement shall be made by wire transfer of immediately available funds unless directed to be made by check by the Underwriter and/or Company.

 

b. All amounts referred to herein are expressed in United States Dollars and all payments by the Escrow Agent shall be made in such dollars.

 

8. Compensation . Escrow Agent shall be entitled to $12,500 as compensation for its services rendered under this Agreement, which amount shall be delivered by the Company to an account designated by the Escrow Agent on the same date when the Escrowed Funds are delivered into the Escrow Account.

 

9. Notices . All notices, demands, consents, requests, instructions and other communications to be given or delivered or permitted under or by reason of the provisions of this Agreement or in connection with the transactions contemplated hereby shall be in writing and shall be deemed to be delivered and received by the intended recipient as follows: (i) if personally delivered, on the business day of such delivery (as evidenced by the receipt of the personal delivery service), (ii) if mailed certified or registered mail return receipt requested, on the business day of such delivery (as evidenced by the signed certified mail card), (iii) if delivered by overnight courier (with all charges having been prepaid), on the business day of such delivery (as evidenced by the receipt of the overnight courier service of recognized standing), (iv) if delivered by facsimile transmission, on the business day of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time, on the next succeeding business day (as evidenced by the printed confirmation of delivery generated by the sending party’s telecopier machine), or (v) if delivered by email on the business day of such delivery (as evidenced by delivery confirmation). If any notice, demand, consent, request, instruction or other communication cannot be delivered because of a changed address of which no notice was given (in accordance with this Section 9), or the refusal to accept same, the notice, demand, consent, request, instruction or other communication shall be deemed received on the second business day the notice is sent (as evidenced by a sworn affidavit of the sender). All such notices, demands, consents, requests, instructions and other communications will be sent to addresses or facsimile numbers as applicable set forth hereunder.

 

If to the Company, to:

 

Datasea Inc.

1 Xinghuo Rd. Changning Building, 11 th  Floor

Fengtai District, Beijing, People’s Republic of China 100070

Attention: Chief Executive Officer

Email: liuzhixin@shuhaixinxi.com

 

  4

 

 

with a copy to (which shall not constitute notice):

 

Ellenoff Grossman & Schole LLP

1345 Avenue of Americas, 11th Floor

New York, NY 10105

Attention: Richard I. Anslow

Email: ranslow@egsllp.com

 

If to the Underwriter, to:

 

ViewTrade Securities, Inc.

7280 West Palmetto Park Road, Suite 310

Boca Raton, FL 33433

Attention: Doug K. Aguililla

Email: dougagui@viewtrade.com

 

with a copy to (which shall not constitute notice):

 

K&L Gates LLP

Southeast Financial Center, Suite 3900

200 South Biscayne Boulevard

Miami, FL 33131

Attention: Clayton E. Parker, Esq.

Email: clayton.parker@klgates.com

 

If to the Escrow Agent, to:

 

Pearlman Law Group LLP

200 South Andrews Avenue, Suite 901

Fort Lauderdale, FL 33301

Attention: Charles Pearlman

Email: Charlie@pslawgroup.net 

 

10. Further Assurances . From time to time on and after the date hereof, the Company and the Underwriter shall deliver or cause to be delivered to the Escrow Agent such further documents and instruments and shall do and cause to be done such further acts as the Escrow Agent shall reasonably request (it being understood that the Escrow Agent shall have no obligation to make any such request) to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself that it is protected in acting hereunder.

 

11. Consent to Service of Process . The Company, the Underwriter and the Escrow Agent hereby irrevocably consent to the jurisdiction of the courts of the State of Florida and of any Federal court located in such state in connection with any action, suit or proceedings arising out of or relating to this Agreement or any action taken or omitted hereunder, and waives personal service of any summons, complaint or other process and agrees that the service thereof may be made by certified or registered mail directed to it at the address listed hereto.

 

12. Miscellaneous.

 

a. This Agreement shall be construed without regard to any presumption or other rule requiring construction against the party causing such instrument to be drafted. The terms “hereby,” “hereof,” “hereunder,” and any similar terms, as used in this Agreement, refer to the Escrow Agreement in its entirety and not only to the particular portion of this Agreement where the term is used. The word “person” shall mean any natural person, partnership, corporation, government and any other form of business of legal entity. All words or terms used in this Agreement, regardless of the number or gender in which they were used, shall be deemed to include any other number and any other gender as the context may require. This Agreement shall not be admissible in evidence to construe the provisions of any prior agreement.

 

  5

 

 

b. This Agreement and the rights and obligations hereunder of the Company and the Underwriter may not be assigned without the consent of the Escrow Agent, other than by laws of descent or operation of law. This Agreement and the rights and obligations hereunder of the Escrow Agent may be assigned by the Escrow Agent, with the prior consent of the Company. This Agreement shall be binding upon and inure to the benefit of each party’s respective successors, heirs and permitted assigns. No other person shall acquire or have any rights under or by virtue of this Agreement. This Agreement may not be changed orally or modified, amended or supplemented without an express written agreement executed by the Escrow Agent, the Company and the Underwriter, which consent shall not be unreasonably withheld. This Agreement is intended to be for the sole benefit of the parties hereto and their respective successors, heirs and permitted assigns, and none of the provisions of this Agreement are intended to be, nor shall they be construed to be, for the benefit of any third person.

 

c. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Florida. The representations and warranties contained in this Agreement shall survive the execution and delivery hereof and any investigations made by any party. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect any of the terms thereof.

  

13. Execution of Counterparts . This Agreement may be executed in any number of counterparts, by facsimile or other form of electronic transmission, each of which shall be deemed to be an original as of those whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more of the counterparts hereof, individually or taken together, are signed by all parties hereto.

 

[THE REMAINDER OF THE PAGE IS INTENTIONALLY LEFT BLANK]

 

  6

 

 

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the day and year first above written.

  

ESCROW AGENT:  
     
PEARLMAN LAW GROUP LLP  
     
By:    
Name:    
Title:     

  

COMPANY:

 

DATASEA INC.

  

By:    
Name:  Zhixin Liu  
Title: Chief Executive Officer  

 

UNDERWRITER:

 

VIEWTRADE SECURITIES, INC.

  

By:    
Name: Douglas K. Aguililla  
Title: Director, Investment Banking  

  

Indemnification Escrow Agreement

  

  7

 

   

Schedule A

   

ACCOUNT NAME:        

ACCOUNT NO.:

ABA ROUTING NO.:

SWIFT CODE:

BANK:

 

REFERENCE: ATTN:  

  

TO BE WIRED IN U.S. DOLLARS

 

  8

 

Exhibit 10.14

 

编号:  BJ-201802-002

 

No.  BJ-201802-002

 

劳 动 合 同 书

 

Labor contract

 

(固定期限)

 

(Fixed term)

   

甲 方: 数海信息技术有限公司

 

Party A:  Shuhai Information Technology Co., Ltd

 

乙 方: 刘志欣 .

 

Party B:  Liu Zhixin

 

签订日期: 2018 02 11

 

Signing Date:  February 11 2018

 

 

 

 

甲方:数海信息技术有限公司

 

Party A: Shuhai Information Technology Co., Ltd

 

北京市丰台区星火路1号1幢11层11E1房间

 

Room E1, Floor 11, Building 1, No.1 of Xinghuo Rd, Fengtai District, Beijing

 

法定代表人:刘志欣

 

Legal representative: Liu Zhixin

 

乙方:姓名: Party B

 

Name Zhixin Liu

 

性别: 女

 

Sex: Female

 

住址(按户籍所在地填写):

 

Address: (According to the household registration address): Wuyi Road, Xinxiu District, Xianghe County, Langfang City, Hebei Province

 

邮政编码:

 

Zip code

 

所属街道办事处:

 

Subordinate to the street agency

 

实际住址:

 

Actual address: No.9 Apartment, Fengtai District, Beijing City

 

邮政编码:

 

 

 

 

Zip code

 

联系电话:

 

Contact:18600849987

 

身份证号码/护照号码:

 

ID card/Passport:230230198601020225

 

根据《中华人民共和国劳动合同法》和中国其他有关法律、法规,甲、乙双方(以下简称“双方”)在平等、自愿及相互协商之基础上签订本合同,。

According to the“Labor contract law of the People's Republic of China”and other relevant laws and regulations of China, both parties (hereinafter referred to as "both parties") on the basis of equality, voluntary and mutually agreed to sign this contract, and abide by the terms of this contract.

 

第一条:合同类别、期限及试用期

 

Category I: time limit and the probation period

 

1.1 合同类别及期限

 

1.1 Category and time limit of the contract

 

本合同为有固定期限的劳动合同。双方同意本合同期限为  3  年,自  2018   2   11  日开始至  2021   2   10  日为止。

 

1.1 This contract is a labor contract with a fixed term. The parties agree that the contract term is three years, from February 11, 2018 to February 10, 2021

 

1.2 双方试用期按照以下的第  (1)  条执行。

 

1.2 The probation period of two parties perform according to the following article (1).

 

(1)本合同生效后,即为正式劳动合同,无试用期。

 

After this contract comes into force, it becomes the formal labor contract, and there is no probation period

 

(2)从         日起至          日止,共    个月,为试用期。

 

Total of months from to , is the probation period.

 

第二条:工作内容、工作任务

Content II, task of the work

2.1聘用职位

 

 

 

 

2.1 Position

 

根据国家相关法律、法规和规定,甲方同意按本合同规定的条款,聘用乙方为甲方职员(具体职位见本合同 附件一职位描述和职位考核标准 );。乙方同意甲方可根据生产经营或工作上的需要或乙方的工作能力、业绩,变更乙方的职位和工作内容。

 

According to the relevant laws, regulations and provisions of the nation, party A agrees to the terms of this contract, employ party B as a staff of Party A (see the attachment 1 of the contract for job description and evaluation criteria for the specific position). Party B agreed to accept the position in accordance with the conditions. Party B agrees that party A may change the position and job responsibilities of Party B according to the needs of production and business operation or work or working ability performance of Party B.

 

2.2 工作任务

 

2.2 Work task

 

乙方同意甲方在聘用期限内根据需要安排乙方的工作任务。乙方必须按照甲方关于本职位工作任务和责任的要求,完成规定的数量、质量指标或工作任务。乙方的具体工作内容和工作目标见本合同附件一职位描述和职位考核标准。

 

Party B agrees that Party A will arrange party B's work task within the employment period according to the needs of the company. Party B must in accordance with the requirements of party A's work tasks and responsibilities about this position, complete the regulation number, quality indicators, or working task. The specific work content and work target of Party B to see the attachment of this contract for of a position description and evaluation criteria

 

2.3 乙方同意在本合同期限内,遵守以下条款:

 

2.3 Party B agrees to abide by the following terms and conditions during the term of this contract:

 

2.3.1在规定的工作时间内,将全部精力、能力和技术,仅用于履行本合同规定之义务上,除确保自身的工作达到岗位职责标准外,还应完成甲方为其安排的本岗位工作以外的临时工作,尽最大努力协助甲方达到或超过预期的商业计划;

 

2.3.1 Within the prescribed working time, Party B will use all energy, abilities, and technology, only for performing the obligations under the provisions of this contract except to ensure their work will achieve responsibility standard, still should finish this temporary job arranged by party A outside of their work, try our best to assist party A reach or exceed the expected business plan;

 

2.3.2遵守本合同的条款、有关法律法规和甲方的各项内部规章制度及工作纪律,服从甲方的安排和决定,不从事损害甲方利益的活动,不利用在甲方单位的地位和职权直接或间接地为自己或他人谋取私利;

 

 

 

2.3.2 Party B will comply with the provisions of this contract, the relevant laws and regulations, and the internal rules and regulations and work discipline of Party A, obey the arrangements and decisions of Party A, not engage in activities harmful to the interests of Party A, not use status and authority of Party A, and directly or indirectly gain favors for themselves or others.

 

2.3.3在本合同期限内,乙方不得直接或间接地从事任何与甲方正在从事或将要从事的经营活动类似的商业竞争活动,不得以任何形式损害甲方的权益,包括但不限于受雇于与甲方竞争的公司,从事竞争性的咨询或其他商业活动。乙方同意签署本合同 附件四《知识产权保护及竞业禁止协议》

 

During the term of this contract, Party B shall not directly or indirectly engage in any business activities similar to commercial competition activities of Party A, shall not damage interests of Party A in any form, including but not limited to the company employed in competition with Party A, engaged in competitive consultation or other business activities. Party B agreed to sign Annex 4 of this contract “Intellectual Property Rights Protection and Forbidden Agreement”.

 

第三条:职业培训

III. Vocational Training

 

3.1 甲方可以对乙方进行职业道德、业务技术和国家法律、法规以及甲方的各种规章制度 的教育培训甲方可视具体工作内容而定。乙方应积极参加并接受甲方组织的培训,按时完成培训任务,提高职业技能。

 

3.1 Party A should conduct educational training of Party B for professional ethics, business technology, national laws, regulations and various rules and regulations based on the specific work task. Party B shall actively take part in and accept the training course organized by Party A, finish the training tasks, and improve their vocational skills.

 

3.2 其他职业技能的培训,乙方应提前一个月向甲方提出书面申请,由甲方根据公司工 作需要,决定是否同意其参加培训。对于甲方同意乙方参加培训的,由甲方相应地为乙方安排必须的受训时间。有关培训费用的承担,由甲方根据公司规定来决定是乙方自费受训或由甲方负担。如属甲方负担培训费用,甲乙双方应签订劳动合同变更书确定服务期,并签订《培训协议》,此类培训协议为劳动合同的补充部分,与劳动合同冲突的条款以《培训协议》为准。

 

3.2 With regard to other professional skill training, Party B should submit the written application to Party A one month in advance, Party A decide whether to agree attending training according to the working requirements of the company. Party A approved Party B’s participation in the training, Party A accordingly arrange training time for Party B. Party A should determine whether Party A will bear the cost of training, according to the rules of the company. If training expenses are borne by Party A, both parties should sign labor contract amendment to determine the service period, and sign the “Training Agreement”, the Training Agreement is the supplementary part of labor contract, shall prevail when the terms of the training agreement conflict with the labor contract.

 

 

 

 

第四条:工作条件、地点和劳动保护、职业危害防护

 

IV. Working Conditions, Locations, And Labor Protection, Occupational Hazard Protection

 

4.1 甲方义务

 

4.1 Obligations of Party A

 

4.1.1甲方同意在本合同期间内,依据中国有关法律法规,为乙方提供必要的安全工作环境和工作条件。

 

4.1.1 Party A agrees that the term of this contract, according to relevant laws and regulations of China, it will provide Party B a necessary and safe working environment and working conditions.

 

4.1.2甲方保证乙方在安全、健康的环境中工作;同时积极配合乙方的工作,为其完成本合同规定之义务、遵守本合同和甲方的内部规章制度提供相应的条件。

 

4.1.2 Party A guarantees that Party B will work in a safe and healthy working environment, at the same time actively cooperate with party B's work, and provide corresponding conditions for Party B perform its obligations of this contract, abide by the contract and the internal rules and regulations of Party A.

 

4.1.3甲方根据生产岗位的需要,按照国家有关劳动安全、卫生的规定为乙方配备必要的安全防护措施,发放必要的劳动保护用品。

 

4.1.3 Party A provide party B with necessary safety protection measures and issue the necessary labor protection items according to the needs of production position, according to the regulations of labor safety and health.

 

4.1.4甲方根据国家有关法律、法规,建立安全生产制度;乙方应当严格遵守甲方的劳动安全制度,严禁违章作业,防止劳动过程中的事故,减少职业危害。

 

4.1.4 Party A shall set up the rules of safe production according to relevant laws and regulations of the nation; Party B shall strictly abide the labor security system of Party A, illegal operation is strictly prohibited, and it should prevent accidents at work and reduce occupational hazards.

 

4.1.5甲方人事部门负责健全职业病防治责任制度,加强对职业病防治的管理,提高职业病防治水平。

 

4.1.5 The Human Resource department of Party A shall be responsible for improving the responsibility system for preventing and controlling occupational diseases, strengthening prevention and control of managing occupational disease, and improving the level of occupational disease prevention and control.

 

 

 

 

4.2 乙方权利

 

4.2 Obligations of Party B

 

4.2.1乙方具体的工作地点为 北京市 。但甲方有权临时派遣乙方到外地出差或者连续不超过6个月的短期工作、培训。

 

4.2.1 Specific work location of Party B is Beijing. However, if Party A has the right to temporarily send Party B to travel on business in other places or short-term work and training no more than six consecutive months.

 

4.2.2乙方有权在国家规定的安全和卫生标准条件下从事劳动,有权拒绝从事甲方违反中国法律强迫其执行之危险任务,有权拒绝甲方之违章指挥。

 

4.2.2 Party B has the right to work under the condition of safety and health standards prescribed by the nation, refuse to engage in the dangerous task that Party A forces it to perform in violation of Chinese Law, and refuse to listen to Party A’s instructions in violation of rules of party A.

 

第五条:工作时间

V. Working Hours

 

5.1 工时制

 

5.1 Working Hours System

 

乙方的工作时间按国家规定和甲方规章制度中的具体规定执行。甲方安排乙方执行标准工时制度。乙方每天工作时间不超过8小时,每周工作不超过40小时。每周休息日为周六和周日。

 

5.1 Working time of Party A according to the regulations of the nation and rules and regulations of the specific provisions of Party A. Party A arrange party B to implement standard working hours system. Working hours of Party B shall not be more than eight hours every day, or more than 40 hours a week. Weekly rest day on Saturday and Sunday.

 

5.2 加班

 

5.2 Work Overtime

 

5.2.1甲方由于工作需要,经与乙方协商后可延长工作时间,并按国家规定支付报酬或者安排补休。

 

5.2.1 Based on work needs and after consultation with party B, Party A can extend work hours, and pay remuneration or arrange compassionate leave according to the provisions of the nation.

 

5.2.2乙方如未经甲方书面要求或书面批准而自行加班加点,。

 

5.2.2 If Party B works overtime without any written request or written approval of Party A, Party A has the right not to pay overtime or arrange compassionate leave.

 

 

 

 

5.2.3 到外地出差或短期培训,按公司相关出差制度执行,不属于加班。

 

5.2.3 Business trips or short-term training should be arranged according to related business system of the company and shall not be considered as working overtime.

 

5.3 乙方享有国家规定的法定节假日、婚假、丧假、产假和计划生育等其他法定的有薪假期,并享受符合国家规定的带薪年休假。具体参照国家和公司有关规定。

 

Party B shall be entitled to legal holidays, wedding leave, funeral leave, maternity leave and family planning, and other statutory paid vacation stipulated by the nation, annual paid vacation in accordance with the provisions of the nation. Specific should be set forth by referring to the relevant provisions of countries and company.

 

第六条:劳动报酬和福利

VI: Labor Remuneration And Benefits

 

6.1 劳动报酬

 

Labor Remuneration

 

6.1.1 在本合同期间内,甲方于每月  15  日(如该日为法定节假日,则应相应提前至前一个工作日或者顺延到后一个工作日)以货币、银行转账、支票或甲方认为适当的其他方式向乙方支付上月 1 日到上月 31 日之薪酬。乙方的具体薪酬见本合同 附件二薪酬约定

 

6.1.1 During the term of this contract, on the 15th of every month (that for the statutory holidays, should be corresponding to one working day before in advance or postpone to one working day after) by money, bank transfer, check, or party a think appropriate other methods to party a shall pay party b 1st to 31th of salary last month. Party B's compensation details see the attachment 2 of the contract.

 

6.1.2 乙方同意甲方可根据乙方的工作表现或职位变更,以及甲方的薪酬、职务调整政策及方案等,随时调整和变化乙方的薪酬。乙方对此无异议。

 

6.1.2 Party B agrees that Party A can adjust and change Party B’s salary at any time according to work performance or position change of party B. Party B has no objection to the foregoing.

 

6.1.3 乙方同意甲方从乙方的薪酬中扣减或扣除下列费用或款项:

Party B agrees that party A deduct the following fees or payments   from party B's salary;

 

(a) 乙方从甲方取得的个人收入之个人所得税;

 

Individual income tax of Party B for the personal income of Party A;

 

(b) 甲方根据国家规定为乙方缴纳社会保险、福利之个人应付部分;

 

The portion of social insurance and welfare of individual paid by Party Aon behalf of Party B according to the provisions of the nation.

 

 

 

 

(c) 所有要求甲方代扣的法院判决和仲裁裁决乙方应付的赔偿或罚款;

 

All fines or compensation paid by Party B according to court decisions and arbitration awards.

 

(d) 所有根据本合同条款或有关法庭判决或仲裁裁决应由乙方支付给甲方的罚款或赔偿;

 

All fines or compensation Party B should pay to Party A according to the terms of this contract or the court or the arbitration award;

 

(e) 乙方向甲方预借的款项等。

 

The advance payment Party A to party B, etc .

 

6.1.4 乙方应遵守甲方的薪酬保密制度,任何泄露自己薪酬,或以非正当渠道获知他人薪酬,或以他人薪酬作为个人申诉理由的行为,将导致甲方按公司规定给予其相应的处罚。乙方关于劳动报酬方面的任何不明之处应与公司人事行政部负责人联系。

 

Party B shall abide by the salary secrecy system, Any leak of compensation, learning about other’s salary through improper channels, or use the salary of others for a personal claim, will cause Party A to according to the regulations of the company, give the corresponding punishment. If Party B have any unknown problem on labor remuneration should contact director of the personnel administration department.

 

6.2 福利保险

 

Welfare Insurance

 

6.2.1  甲方应按照国家和 北京市 政府规定为乙方按月缴纳养老保险、失业保险、工伤保险、生育保险、医疗保险和住房公积金。并在乙方薪酬中代扣乙方应缴纳的部分。

 

Party A shall monthly pay endowment insurance, unemployment insurance, injury insurance, birth insurance, medical insurance and housing accumulation fund for party B in accordance with relevant provisions of the nation and the Beijing municipal government. and withhold the Party B should pay.

 

6.2.2 乙方因工受伤的工资和医疗保险待遇按国家及 北京市 政府和甲方的有关规定执行。

 

Work injury and medical insurance treatment of Party B according to the relevant provisions of national, Beijing municipal government and Party A.

 

6.2.3 其他方面的福利待遇,依据国家及甲方的管理制度规定执行。

 

Benefits in other aspects should be given according to the management system provisions of the nation and Party A.

 

第七条:劳动纪律

VII. Labor Discipline

 

 

 

 

7.1 服从纪律

 

7.1 Obeying the discipline

 

乙方应服从甲方的工作安排,严格遵守国家法律、法规和甲方依法制定的规章制度、劳动纪律及工作规范,爱护甲方的财产,遵守职业道德,并自觉服从甲方的领导、管理和教育。

 

Party B shall obey the work arrangement of Party A, strictly abide by state laws, regulations and rules and regulations stipulated by Party A, labor discipline and job specification, take good care of Party A's property, abide by professional ethics, and obey the leadership, management and education of Party A consciously.

 

7.2 纪律处分

 

7.2 Disciplinary Treatment

 

乙方若违反甲方的劳动纪律或甲方制定的规章制度,甲方可给予乙方纪律处分及(或)经济处罚,直至解除本合同。

 

If Party B violates the labor discipline of Party A or the rules and regulations formulated by Party A, Party A may give disciplinary action and/or economic penalties, until terminate this contract.

 

7.3 赔偿损失

 

7.3 Compensation for the losses

 

对于乙方违反法律或甲方的规章制度或其他不当行为而给甲方造成经济损失的,甲方有权要求乙方赔偿其损失。

 

For economic losses Party B violates the law or the rules and regulations of party A or other misconduct caused to Party A, Party A is entitled to require Party B compensate for its losses.

 

7.4 修订规章制度

 

7.4 Revised Rules and Regulations

 

甲方有权根据其经营管理的需要,随时合理地修订其规章制度。对于规章制度的修订,甲方可用其认为适当的任何方式(包括但不限于通知、通告、电子邮件、备忘录和员工手册等)通知乙方。

 

Party A has the right reasonably to amend its rules and regulations at any time according to the needs of its operation and management. For revisions of the rules and regulations, Party A can use appropriate ways (including, but not limited to notice, announcement, emails, memos and employee handbook, etc.) to notify Party B.

 

7.5 意见之表达

 

Expression of Opinion

 

乙方对甲方如有任何不满或有任何意见,应通过投诉程序友好解决,不可通过任何其他影响公司工作、同事团结的方式表达。

 

If there is any dissatisfaction or have any opinions, shall be settled amicably through complaints procedure, cannot through the ways affecting the work of the company, colleagues unity.

 

 

 

 

第八条:劳动合同的变更、终止、解除和续订

 

VIII. The change of Labor Contract, Termination, And Renew

 

8.1 在合同有效期内,出现下列情形之一,双方应就合同有关条款内容进行部分或全部变更。

 

8.1 In the period of validity of the contract, occurs one of the following circumstances, both sides should some or all of the change of the content of relative clauses.

 

8.1.1订立本合同所依据的法律、法规和规章发生变化;

 

8.1.1 Changes to the laws, regulations and rules based on which this contract is executed.

 

8.1.2订立本合同所依据的客观情况发生重大变化,致使本合同无法全面履行,经甲乙双方协商同意变更的;

 

8.1.2 The objective conditions based on which the contract is entered into have changed, as a result of which the contract cannot be fully performed, and accordingly amended through negotiations between both parties;

 

8.1.3甲方发生分立或合并后,根据实际情况需要变更的;

 

8.1.3 Amendments that are necessary according to the actual situation Party A after the division or merger of Party A;

 

8.2 经甲乙双方协商一致,本合同可以解除。

 

8.2 Through consultation between both parties, this contract can be terminated.

 

8.3 乙方有下列情形之一,甲方有权解除本合同:

 

8.3 If Party B has one of the following situations, Party A shall be entitled to terminate this contract.

 

8.3.1在试用期间被证明不符合录用条件的;

 

8.3.1 During the probation period, it was proved that Party B did not meet the employment requirement;

 

8.3.2严重违反劳动纪律或者公司规章制度的;

 

8.3.2 Serious breaches of labor discipline or the regulations of the company;

 

 乙方向甲方提供的有关个人资料(简历、学历证明、职称证明及其他相关资料)及经济信息、技术信息资料,必须保证其有真实性、合法性,并保证不侵犯第三人的合法权益,否则乙方为“严重违反公司规章制度”。

 

Party B must guarantee the authenticity and legality personal information (resume, degree certificate, certificate of title and other related information) and economic information, technical information, if has provided to Party A and guarantee that such information does not infringe the legal rights and interests of any third person. Otherwise Party B will be considered as in “serious violation of rules and regulations of the Company".

 

 

 

 

8.3.3乙方严重失职,营私舞弊,弄虚作假,泄露甲方商业机密,对甲方利益及声誉造成损害的;

 

8.3.3 Party B’s serious dereliction of duty, malpractice, fraud, leaking trade secrets of Party A, and damages to the interests and reputation of Party A;

 

8.3.4乙方同时与其他用人单位建立劳动关系,对完成甲方的工作任务造成严重影响,或者经甲方提出,拒不改正的;

 

8.3.4 Party B at the same time establishes a labor relationship with other entities, causes serious impact on completing the work task of Party A , or refused to correct its behavior when Party A points out;

 

8.3.5以欺诈、胁迫的手段或者乘人之危,使甲方在违背真实意思的情况下订立劳动合同致使劳动合同无效的;

 

8.3.5 With fraudulent, and coercive methods, Party B caused Party A enter into the labor contract in violation of its real intent and makes the labor contract invalid;

 

8.3.6被依法追究刑事责任的。

 

8.3.6 Party B is investigated for criminal responsibility according to law.

 

8.4乙方有下列情形之一,甲方提前三十日以书面形式通知乙方或者额外支付乙方一个月工资后,可以解除本合同:

 

8.4 If Party B has one of the following situations, party A shall inform party B in writing 30 days in advance or extra pay a monthly salary to Party B, can terminate this contract;

 

8.4.1乙方患病或非因工负伤,医疗期满后,不能从事原工作也不能从事由甲方另行安排的工作的;

 

8.4.1 When Party B was illness or injury at work, After the completion of medical treatment, Party B cannot engaged in the original work nor other work assigned by Party A;

 

8.4.2乙方不能胜任工作,经过培训或者调整工作岗位,仍不能胜任工作的;

 

Party B is not competent for the job and is still incompetent, after training or adjustment of positions;

 

8.4.3双方不能依据本合同8.1.2条规定就变更合同达成协议的。

 

8.4.3 The two parties can't agree on changes to the contract according to Article 8.1.2 of this contract.

 

8.5 甲方濒临破产进行法定整顿期间或者生产经营发生严重困难,致使甲方被迫停业、关闭或经营业务调整、管理机构撤销的,经向乙方说明情况,可以解除本合同。

 

8.5 Party A shall provide during the period of statutory consolidation bankruptcy or serious difficulties in production and management, which was forced to close, or revocation of the business adjustment, management institutions, may terminate this contract.

 

8.6 乙方有下列情形之一,甲方不得依据本合同8.4条、8.5条终止、解除本合同:

 

 

 

 

8.6 If Party B has one of the following situations, Party A shall not terminate or cancel this contract in accordance with Article 8.4 and 8.5 of this contract:

 

8.6.1在本单位患职业病或者因工负伤并被确认丧失或者部分丧失劳动能力的;

 

8.6.1 Have occupational diseases or have been injured at work and have been confirmed loss or lose labor ability at the company;

 

8.6.2患病或者非因工负伤,在规定的医疗期内的;

 

8.6.2 Illness or non work related injuries, in the prescribed period of medical treatment;

 

8.6.3女职工在孕期、产期、哺乳期的;

 

8.6.3 Female workers during pregnancy, produce period, and lactation period.

 

8.6.4在本单位连续工作满十五年,且距法定退休年龄不足五年的;

 

8.6.4 Work In this company for full 15 years, and less than five years away from legal retire age

 

8.7 乙方解除本合同,应当提前三十日以书面形式通知甲方。在试用期内提前三日以书面形式通知甲方,可以解除劳动合同。

 

8.7 If Party B wants to terminate this contract, it shall notify Party A in writing 30 days ahead of time. During the probation period, Party B can terminate the labor contract by giving written notice to Party A three days in advance.

 

8.8乙方可以依照我国法律法规的规定解除双方的劳动合同。

 

8.8 Party B can cancel the labor contract in accordance with the provisions of Chinese laws and regulations.

 

8.9有下列情形之一的,劳动合同终止:

 

8.9 If any of the following circumstances occurs, the labor contract shall be terminated;

 

8.9.1劳动合同期满的:合同期满前三十(30)日,双方应就续订劳动合同进行协商。如双方不能达成续订协议,合同到期之日自行终止。乙方应在合同期满时根据甲方规定的期限向甲方办理相关工作移交及在工作期间领用公司物品的移交。

 

8.9.1 Upon the expiry of the Labor contract: thirty (30) days before the expiry of the contract, both parties shall negotiate the renewal of the labor contract. If the two parties fail to reach an agreement, the contract shall terminate on its own ending date. Party B shall on the expiration of the contract according to the time limit prescribed by Party A deal with related work handover and recipients of the company during the work handover time .

 

8.9.2乙方开始依法享受基本养老保险待遇的;

 

8.9.2 Party B began to be entitled to primary endowment insurance in accordance with the law;

 

8.9.3乙方死亡,或者被人民法院宣告死亡或者宣告失踪的;

 

8.9.3 The death of Party B, declared death or missing by the People's Court;

 

8.9.4甲方被依法宣告破产的;

 

 

 

 

8.9.4 Party A is declared bankrupt according to law;

 

8.9.5甲方被吊销营业执照、责令关闭、撤销或者甲方决定提前解散的;

 

8.9.5 Party A’s business license is revoked, or Party A is ordered to close down, revoked or Party A has decided to dissolve before the end of its term;

 

8.9.6法律、行政法规规定的其他情形。

 

8.9.6 Other circumstances stipulated by laws and administrative regulations.

 

8.10 乙方应当按照双方约定,办理工作交接。甲方应当在解除或者终止本合同时,为乙方出具解除或者终止劳动合同的证明,并在十五日内为乙方办理档案和社会保险关系转移手续。

 

Party B shall deal with the work handover in accordance with the agreement of both Parties. When Party A terminates this contract, issue a proof that dissolves or terminates a labor contract, and handle files and social insurance relationship transfer procedures to Party B within 15 days.

 

第九条:经济补偿和赔偿

 

IX. Economic compensation

 

9.1乙方依法并且依照甲方公司的规章制度或者规定等文件履行义务。

 

9.1 Party B should perform its obligations in accordance with the law and company rules and regulations of Party A.

 

9.2甲方依照国家法律规定支付经济补偿和赔偿等。

 

9.2 Party A pay economic compensation, etc in accordance with the legal provisions of the nation .

 

9.3乙方因自身故意或者重大过失致使甲方财产或者生产、经营和工作中造成甲方的直接经济损失需赔偿给甲方。

 

9.3 Party B needs to compensate Party A when its intentional misconduct or gross negligence caused direct property or economic losses production and management and work or caused of party A.

 

9.4 乙方如未经甲方同意擅自离职或与第三人建立劳动合同关系,甲方有权要求乙方返回工作岗位;乙方行为造成甲方损失的,甲方有权要求赔偿。同时,甲方保留依据有关法律法规的规定,追究招聘录用乙方的第三方相关责任的权利。:

 

If Party B leaves without any authorization or establishes labor contract relationship with a third Party without the consent of Party A, Party A shall be entitled to require Party B return to work position; when behavior of Party B caused loss of Party A, Party A shall have the right to claim compensation. At the same time, according to the provisions of relevant laws and regulations, Party A reserves the rights to hold the third Party hiring Party B liable. The compensation to Party A by Party B should include:

 

9.4.1对甲方生产、经营和工作造成的直接经济损失;

 

9.4.1 Direct economic losses to the production, management and work of Party A;

 

 

 

 

9.4.2甲方因招聘、录用、培训乙方而发生的费用;

 

9.4.2 Expenses for recruiting, hiring and training of Party A;

 

9.4.3 因第三方获取商业秘密给甲方造成的经济损失(本项规定的损失按国家有关规定执行)。

 

9.4.3 Economic losses caused by the third party obtain commercial secrets caused to Party A (this provision loss according to the relevant regulations of the nation .

 

9.5 乙方违反本合同约定的保守商业秘密事项,给甲方造成损失的,应按损失的程度依法承担赔偿责任)。

 

When Party B violates business secrets confidentiality of this contract and causes losses to Party A, it should bear the liability for compensation according to law and the extent of the damage.

 

9.6应当支付经济补偿的,在办结工作交接时支付。

 

9.6 If Party B should pay, Party B shall pay economic compensation during the work handover.

 

第十条:保守商业秘密条款

 

X. Obligation to Keep Commercial Secrets Confidential

 

10.1定义

 

10.1 Definition

 

“商业秘密”指属于公司专有或公司保密的,不为公众所知悉,并经公司采取保密措施加以限制、能为公司带来经济利益、具有实用性的信息和经营信息。包括但不限于雇员通过其与公司的雇佣关系或者因为其与公司的雇佣关系而知悉的任何有形或无形信息或材料,如:投资及融资信息、技术机密、营销策略、客户名单、合作伙伴及合作关系细节、财务与市场信息、未来商业计划以及知识产权信息等。

 

10.1 "Trade secret" refers to the proprietary or confidential information that belongs to the company, not known by public, the company takes security measures to limit its disclosure, and can bring economic benefits to the Company, have practical information and business information. Trade secret includes but not limited to any tangible or intangible information or materials employees learned through employment relationships with the company to such as investment and financing information, technical secrets, marketing strategies, customer lists, partnership and cooperation details, financial and market information, future business plans and intellectual property information, etc.

 

10.2保密义务

 

10.2 Confidentiality obligations

 

 

 

 

10.2.1乙方应遵守甲方的保密制度,保守甲方的商业秘密。不得以任何形式向任何第三方直接或间接地泄露任何甲方之商业秘密,乙方亦不得擅自利用或者许可任何第三方利用甲方的商业秘密(凡属在甲方工作期间所开展的项目和客户均属于商业秘密范畴)。乙方是否在职,不影响保密义务的承担。

 

10.2.1 Party B shall abide by the confidentiality rules of Party A, and commercial secrets of Party A confidential. Party B shall not disclose any trade secrets in any form to any third party directly or indirectly, Party B shall not use or permit any third party to use Party A’s commercial secrets without Party A’s authorization (all projects carried out and clients during Party B’s employment belong to the category of commercial secrets). Party B shall have the confidentiality obligations no matter whether Party B is employed by Party A.

 

  10.2.2 乙方违反本合同或另行签订的保密协议中约定的保密义务而给甲方造成损失的,应按国家的有关法律法规规定或双方当事人的有关约定,向甲方支付赔偿费用。

 

10.2.2 If Party B violates the contract or otherwise signs confidentiality agreement and its confidentiality obligations under such agreement causes losses to Party A, Party B shall pay compensation to party A as stipulated in relevant laws and regulations of the nation or the relevant agreement of Parties.

 

10.2.3 乙方不得对第三方披露本合同及其附件的任何内容,包括但不限于具体职位要求和薪酬等细节规定,否则本合同自动终止。并且甲方有权要求乙方赔偿因此造成的全部损失。

 

10.2.3 Party B shall not disclose any content of this contract and its attachments to a third party, including but not limited to detail such as the specific job requirements and salary. Otherwise the contract will automatically terminate. And Party A shall have the right to require Party B to compensate all loss.

 

10.3 请示义务

 

10.3 Obligations to Request Instructions.

 

乙方对商业秘密的性质、保密程度不明确的,应主动向其上一级领导确认。

 

If the nature of the commercial secret, the degree of secrecy is not clear, Party B should confirm with higher authorities.

   

第十一条:知识产权

 

XI. Intellectual Property Rights

 

11.1乙方在甲方任职期间所产生的作品(指文字作品、口述作品、音乐作品、美术作品、摄影作品、电影作品和以类似摄制电影的方法创作的作品、计算机软件等法律、行政法规规定的其他作品)有下列情形之一的,均属于职务作品,其著作权由甲方享有:

 

 

 

 

11.1 Works produced by Party B (refers to written works, oral works, music, art, photography, film, film creation works, computer software, and other works by laws and administrative rules and regulations) are all works for hire and the copyright of such words belongs to Party A if have any of the following circumstances occurs:

 

11.1.1为完成本职工作所指定的职责和任务而创作的作品;

 

11.1.1 Works created in performing the assigned job responsibilities and tasks.

 

11.1.2创作的作品是乙方从事本职工作可以预见的或者自然的工作成果;

 

11.1.2 Work is Party B engaged in the work foreseeable or work achievement;

 

11.1.3主要利用甲方的资金、设备、专用技术及未公开的专门信息等物质技术条件所创作的作品。

 

11.1.3 Main use of capital, equipment, specialized technology and undisclosed special materials such as information technology conditions of Party A created the work.

 

对上述职务作品,乙方享有署名权,著作权的其它权利归甲方所有,甲方可给予乙方奖励。

 

The above works, Party B enjoys the right of authorship, other rights of the copyright owned by Party A, Party A may give Party B the reward.

 

11.2 部分未明确的作品,甲方享有著作权。但按照我国强制性规定单位不能享有并且必须属于创作人或者员工自己享有著作权的,由创作人等享有,但甲方可以免费使用,并可以免费使用业务与任何法律允许的范围。

 

11.2 Party A shall have copyright for works whose nature is unclear. However, But for works whose copyright must belong to the creator or the employee according to the compulsory regulations of our country and company can't own copyright, Party A shall have the right to use for free, and can use within the scope permitted by law.

 

第十二条:劳动争议的解决

 

XII. Labor Dispute Resolution

 

双方就本合同发生任何争议,首先应协商解决。如不能协商解决,可向有管辖权的劳动争议仲裁委员会申请仲裁。任何一方对裁决不服,可向人民法院提起诉讼。

 

Any dispute of both parties in this contract, shall be solved through negotiation firstly. If such dispute can't be solved through negotiation, both Parties can apply to the labor dispute arbitration committee that has jurisdiction over the dispute. If any party is unsatisfied with the decision, can bring a lawsuit to people’s court.

 

 

 

 

第十三条:其他

 

XIII. Others

 

13.1 在本合同有效期内,如因甲方工作需要,将乙方短期派到其他单位工作时,其工资待遇由甲方负责保障;乙方到其他单位工作后,必须严格遵守该工作单位的规章制度,服从该工作单位的管理,并有义务按时完成甲方及该工作单位所分配的工作任务。

 

13.1 During the term of this contract, if Party A sends Party B to other unit to work for a short period because of its work needs, Party B is responsible for the salary of Party A; After party B went to the other unit to work, must strictly abide by the rules and regulations of the new work unit, obey the management of the work unit, and also have the obligation to finish work tasks assigned by Party A and the new work units.

 

13.2 本合同有效期内,如因甲方工作需要,将乙方长期派到或推荐到其他单位工作时,应对合同作相应的主体变更;乙方劳动合同剩余的有效期应直接与所在的工作单位订立;自乙方与其他工作单位订立劳动合同之日起,本合同自然终止。

 

13.2 During the term of this contract, if due to its work requirements, Party A needs to transfer Party B in long-term or recommend to other units to work, the contract should be changed accordingly; in the remaining term of the labor contract Party B shall be directly enter into a labor contract with new work unit; this contract will terminate naturally when Party B enters into a labor contract with other units.

 

第十四条: 适用法律

 

Applicable Law

 

“本合同”之效力、解释、履行及争议之解决适用“中国法律”。

 

The validity, interpretation, performance and dispute solution of "this contract" shall be governed by "the law of P.R. China".

 

14.1 签约能力

 

14.1 Signing ability

 

乙方应保证在签署本合同时没有与其他用人单位存在劳动关系或已解除劳动关系并提供相关证明,保证与甲方签订本合同不会违反向任何第三方承担的竞业限制、保密及其他任何义务,否则由此而引发的任何法律后果均由乙方自行承担。

 

Party B shall ensure that when sign the contract and no other unit of choose and employ labor relationship or terminate the labor relationship and provide relevant certificates, guarantee this contract signed with party A will not violate any third party to assume the non-compete, confidentiality and any other obligation, or any legal consequences arising from this shall be borne by party B .

 

 

 

 

14.2整体协议

 

Overall agreement

 

本合同具有三份附件,为:附件一《职位描述和职位考核标准》;附件二《薪酬约定》;附件三《保密协议》;附件四《知识产权保护及禁业竞止协议》。本合同及其附件经双方同意后,构成完整之协议,并取代双方先前之所有讨论、协商及协议。本合同之附件系本合同不可分割之部分,且与本合同具有同等法律效力。

 

This contract has three copies of attachments, which are: Annex I “Position Description And Position Evaluation Criteria”; Annex II "Compensation Agreement"; Annex III "Confidentiality Agreement"; Annex IV “Protection Of Intellectual Property Rights and Agreement”. After agreed upon by the two sides, this contract and its annexes, constitute the whole agreement and shall replace all prior discussions, negotiations and agreements. The annexes of this contract are an inseparable part of this contract, and have the same legal force as this contract.

 

公司《员工手册》等各项管理规章制度作为本合同的组成部分。同时,乙方声明:乙方在签署本合同时,业已获得公司各项管理规章制度,愿意遵守各项规定。

 

“Employee Handbook” of the company and various management rules and regulations are part of this contract. At the same time, Party B Statement: when party B has obtained management rules and regulations of the company when signing this contract, and is willing to comply with the provisions.

 

14.3条款之独立性

 

14.3 Independence of Provisions

 

本合同任何条款之无效均不影响其它条款的有效性。

 

Any provision of this contract is invalid does not affect the validity of other provisions.

 

 14.4权利之保留

 

14.4 Rights reserved

 

任何一方对本合同规定的任何权利的放弃均不意味着或被解释为在其后的时间里对相同权利或“本合同”其他权利的放弃。

 

Any waiver of any rights of any party shall not mean or be interpreted as the next time the same rights or other rights of "the contract" to give up .

 

14.5日数

 

14.5 Number of days

 

本合同内所指之日数除第6.1.1条款中所指之工作日外,其余均为日历日。

 

Number of days referred to in this contract apart from the working day of the clause 6.1.1, the rest are calendar days.

 

14.6语言文字

 

14.6 Language

 

本合同一式两(2)份,每“一方”各执一(1)份;应交乙方的不得由甲方代为保管。

 

This contract has two (2) copies and each "Party" holds one (1) copy; the copy that shall be given to Party A should not safekeeping by Party A.

 

14.7未尽事宜

 

14.7 Unaccomplished Matters

 

本合同如有未尽事宜,应按中国法律之规定执行。

 

 

 

 

14.7 Matters not mentioned, under this contract shall be enforced in accordance with the laws.

 

14.8生效

 

14.8 Effective Date

 

本合同自双方签字或盖章之日起生效。

 

This contract shall take effect on the date of both sides sign or place stamp on it.

 

14.9 合同修订

 

14.9 Amendment o the Contract

 

本合同一经签订,甲乙双方必须严格遵守,任何一方不得单方面修改合同内容。 

 

Once the contract is signed, both Parties must strictly abide it, and either Party shall not unilaterally modify the content of the contract.

 

(本行以下无正文,为签署部分)

 

(The following is without text but for signing)

  

甲方(盖章): 数海信息技术有限公司/seal here/

 

Party A(Seal): Shuhai Information Technology Co., Ltd

 

乙方(签字):/刘志欣/

 

Party B(Signature)   /s/ Zhixin Liu  

 

签订日期:同首页

 

Signing date: same as Page 1

 

 

 

 

劳 动 合 同 续 订 书

 

Renewal of the Labor Contract

 

 

本次续订劳动合同期限类型为  期限合同,续订后本合同期限为  年  月 日至   年 月 日。

 

The renewed contract is labor contract and for the term of the renewed contract is from (year/month/date), to (year/month/date)

 

     甲方  (公 章)           

 

Party A(Seal)

 

乙方  (签字或盖章)

 

   Party B(Signature or seal)

 

法定代表人(主要负责人)

 

Legal representative (principal)

 

或委托代理人(签字或盖章)   

 

Or authorized agent (signature or stamp)

 

        年    月    日

 

Year Month Day

 

 

 

 

 

本次续订劳动合同期限类型为      期限合同 , 续订后本合同期限为       月 日至     年 月 日。

 

The renewed contract is   labor contract and the term of the renewed contract is from (year/month/date), to (year/month/date)

 

      甲方   ( 公 章 )           

 

Party A(Seal)

 

乙方   ( 签字或盖章 )

 

Party B(Signature or seal)

 

法定代表人 ( 主要负责人 )

 

Legal representative (principal)

 

或委托代理人 ( 签字或盖章 )   

 

Or authorized agent (signature or stamp)

 

                  

Year Month Day

 

 

 

 

劳动合同书附件一 职位描述和职位考核标准

 

Attachment one to the Labor contract-position description and evaluation standards

 

乙方在甲方公司担任  CEO  (职位)。该职位的具体内容和考核目标见下。

 

Party B as CEO (position) in the company. The specific content of the position and objective see below .

 

I. Job description

 

1.Organizing company's operation and management activities, and host and implement the Board resolution;

 

2.Organizing and implementing company's annual operation and investment plan;

 

3.Drawing up plan for company's inside management and exact code of behave;

 

4.Making company's daily management institution and rules;

 

 

 

 

5.Hosting office meeting, checking, supervising and coordinating business process among departments; hosting regular administration meeting, special meeting and etc;

 

6.Suggest to the Board of directors for the hire or dismiss executive offices;

 

7.Suggest to assistant of CEO and middle executive officer, Company's office deliver the appointment;

 

8.Drafting basic management institution and wage, bonus, award, punishment and distribution plan.

 

9.Deciding the hire, relieve and dismiss for bellow middle-level leader;

 

10.Choosing and appointing professionals or consultants;

 

11.Other duties granted by the Board of Directors.

 

II. Detail standards of the job

 

  1.CEO's behave must follow the policies of the Party, rules and regulations of the company as well. CEO shall implement the board solutions;

 

2.CEO shall assert the property right of Company's legal person, making sure the maintenance and appreciation of Company's property, and deal with the benefits among the owner, company and employee or all in a proper way;

 

 

 

 

3.CEO shall handle with the relationship among shareholders and other related enterprises in a better way.

 

4.CEO shall report the sign, performance, cash flow, gain and loss of significant contract to the Board based on their requirements;

 

5.CEO shall fully reply on and positive employee's activity so as to meet the operation goal for a sustaining development;

 

6.CEO shall make sure company's business activities under the state law, rules and financial polices;

 

7.CEO shall review company's business and financial reports carefully to better understand the operation condition;

 

8.CEO must be loyalty to the Company and shall not cash in on its power;

 

9.CEO must be diligent and honesty and shall not take a part in activities damaging company's benefits;

 

10.CEO is not allowed to breach the secrets except for the permission of rules and regulations and the Board;

 

 

 

 

11.CEO shall not either embezzle, lean to others, set up accounts in its own name or others by company's funds, or provide guarantee for shareholders or others by company's funds;

 

12.CEO shall be in accordance with the policies of the Party, rules and regulations of the company as well. CEO shall implement the board solutions

 

13.CEO must be audited when leave office.

 

III. Performance testing standards for CEO and incentive mechanism

 

1.Performance testing to CEO from the Board is the basement to make wage and other incentives for CEO;

 

2.CEO'S wage and performance are decided by the Board, like annual salary system;

 

3.Testing date:annual

 

4.Consequence for disqualification: if fails the annual performance testing, Party A shall adjust Party B's job duties and salary. If Party B still fails to meet the standards, Party A shall terminate the employment contract without any permission.

 

 

 

 

5.The board may award CEO's material performance for making contributions to company's development and economic benefits;

 

6.Any violation to the rules and regulations of the Party by CEO shall be giving criminal sanctions.

 

甲方: 数海信息技术有限公司

 

Party A: Shuhai Information Technology Co., Ltd /Seal here/

 

乙方:刘志欣

 

Party B: /s/ Zhixin Liu  

 

日期:同主合同签署日

 

Date: The same as the signing date of the contract

 

劳动合同书附件二 薪酬约定

 

Attachment 2 of Labor contract: compensation agreement

 

一.合同期内薪资为(税前,人民币):年薪60万。

 

I. Salary within the contract period(before tax. RMB):600K

 

1.       每月固定基本工资:20000元每月

 

fixed salary monthly:20000/month

 

 

 

 

2.       除每月固定工资外,其余部分按年终进行考核。根据考核结果公司以年终奖金、绩效奖、车补、房补以及公司股票激励形式发放,最终发放形式根据公司及个人需求确定。注:房补、车补可以每月或季度以走报销的形式发放。

 

The rest shall be paid on the basis of the year-end assessment.The payment forms include year-end bonus, merit pay, car allowance, house allowance and stock, the final form shall depend on the company and personal needs.

 

Note: Car allowance and house allowance shall be paid in the form of reimbursement.

 

3.       绩效考核工资的级别标准、发放和考核办法由公司绩效考核制度加以规定。

 

The standards, distribution and assessment method of performance appraisal shall be stipulated by the company's performance appraisal system.

 

Unless adjustment, during the employment of Party B, amount of compensation should be paid according to the following

 

二、奖金

 

II. Bonus

 

奖金由甲方公司根据公司业绩每年制订具体的分配方案。奖金的支付与否和具体数额的决定权归甲方。

 

Bonus plan shall be set annual based on the Party A's performance. Party A shall have the right to decided the payment of the bonus and the specific amount.

 

劳动合同书附件三 保密协议

 

Annex 3 of Labor contract: Confidentiality Agreement

 

保密协议

 

Confidentiality Agreement

 

根据《中华人民共和国劳动法》及其他有关保护企业商业秘密的法律、法规,甲乙双方经平等协商同意,自愿签订本协议,共同遵守本协议所列条款。

 

 

 

 

According to "Labor Law of the People's Republic of China" and other relevant laws and regulations on trade secrets to protect enterprises, through equal consultation between both parties agreed to, voluntary sign and abide by the terms of this agreement.

 

本协议中的“公司”指甲方及甲方关联公司。

 

The "company" in this agreement, refers to Party A and affiliate companies of Party A.

 

由于乙方在甲方任职期间,已经或(将要)知悉或接触公司的业务和技术信息,而这些业务和技术信息为保密性质,属于公司的财产,且将会在其履行职务的过程中不断接触更多保密信息;

 

During its employment at Party A, Party B is already or will be aware of or have access to the business and technical information of the Company, and such business and technical information is confidential by its nature, the property of the company, Party B will continue to have access to more confidential information in the process of performing its job duties;

 

为了明确乙方的保密义务,甲、乙双方本着平等、自愿、公平和诚实信用的原则,订立本保密协议。双方确认在签署本协议前已经详细审阅过协议的内容,并完全了解协议各条款的法律含义。

 

In order to specify the confidentiality obligations of Party B, both Parties should be based on the principle of equality, voluntariness, fairness, honesty and credit, and conclude the following confidentiality agreement. Both sides confirm that, before signing this agreement, they have examined the contents of the agreement in detail, and fully understand the legal meaning of the terms.

 

  一、 保密的内容和范围

 

  I. The content and scope of the confidentiality

 

甲乙双方确认,乙方应承担保密义务的甲方商业秘密范围包括但不限于以下内容:

 

Both parties confirmed that business secrets with regard to which Party B shall bear the confidentiality obligations include but not limited to the following:

 

1、技术信息:包括但不限于有关公司产品和其特性以及操作模式的信息技术方案、工程设计、电路设计、制造方法、制造工艺、配方、工艺流程、技术指标、技术和质量标准及规范与规程、技术研究的阶段和最终结果、设计图纸及设计计算等设计文件、操作技术与方法、施工技术文件与方法、专利获专有技术、计算机软件、数据库、实验笔记、测试程序、软件设计和结构、软件文件、内部文件或其他报告分析性能信息、试验结果、图纸、样品、样机、模型、模具、操作手册、技术文档、涉及商业秘密的业务函电等。

 

 

 

 

1. Technical information, including but not limited to the products of the company and its characteristics and operation mode of information technology solutions, engineering design, circuit design, manufacture method, manufacturing technology, formulation, technological process, technical index, technical and quality standards and rules and regulations, technology research stage and the final result, design drawings and design documents, operation technology and methods, construction technology documents and method, patent proprietary technology, computer software, database, lab notes, test procedure, software design and structure, software files, internal documents or other report analysis performance information, the test results, drawings, samples, prototypes, models, molds, operation manual and technical documents, involving the business secret of business correspondence, etc

 

2、经营信息:包括但不限于公司的客户名单、营销计划、采购资料、定价政策、不公开的财务资料、进货渠道、产销策略、招投标中的标底及标书内容、投资及融资信息、合作伙伴及合作关系细节、未来商业计划。

 

    Management information: including but not limited to the customer lists, marketing plans, purchasing information, pricing policies, financial information unknown to the public, purchase channels, production and marketing strategy, pre-tender estimate in the bidding content, investment and financing information, partnership and cooperation relations details and future business plans of the company.

 

 

3、公司依照法律规定或者有关协议的约定,对外承担保密义务的事项:

 

    Company in accordance with the law or the provisions of the related agreement,

 

undertake the obligation to keep confidential matters:

 

  l 如在缔约过程中知悉的对方当事人的秘密;

 

Such as in the contracting process know the secrets of the other party;

 

  l 和有关协议的约定(如技术合同等)对外承担保密义务的事项。

 

And the provisions of the related agreement (e.g., technology contract, etc.) undertake the obligation to keep confidential matters

 

4、其他甲方未向公众公布的公司内部经济、技术、管理等信息。

 

Other information, such as economy, technology, management inside the company party A is not released to the public.

 

二、乙方的保密义务

 

II. Confidentiality obligations of Party B

 

对本协议第一条所称的商业秘密,除有甲方书面授权,无论乙方以何种方式从甲方获得甲方的技术资源和市场资源,以任何方式、任何目的完整或部分地向非甲方企业或非甲方人员提供上述的技术资源和市场资源,或者向甲方企业中与工作需要无关的人员提供上述的技术资源和市场资源,均视为泄密。乙方承担以下保密义务:

 

Trade secrets referred to in article 1 of this agreement, in addition to party A's written authorization, no matter party B obtain technical resources and market resources from party A, full or in part to the enterprise party A or provide the technical resources and market resources to not the party A's personnel, has nothing to do with the job needs in the enterprise to provide the technical resources and market resources, are considered to be leaked. Party B undertake the following confidentiality obligations:  

 

 

 

 

1、不得刺探与本职工作或本身业务无关的商业秘密;

 

1. Not spying on commercial secrets has nothing to do with the job or the business itself;

 

 2、不得向不承担保密义务的任何第三人披露甲方的商业秘密;

 

  2. Shall not disclose the commercial secrets of party A to any third Party that has no confidential obligation;

 

3、不得允许(出借、赠与、出租、转让等处分甲方商业秘密的行为皆属于“允许”)或协助不承担保密义务的任何第三人使用甲方的商业秘密;

 

  3. Shall not allow (loan, gift, lease, transfer and disposition of Party A's commercial secrets all belong to "allowing") or assist any third Party who does not undertake the confidential obligation use the commercial secrets of Party A;

 

4、如发现商业秘密被泄露或者自己过失泄露商业秘密,应当采取有效措施防止泄密进一步扩大,并及时向甲方报告。

 

  4. If Party B discovers commercial secrets leaked or your negligence leak trade secrets, shall take effective measures to prevent leaks further expand, and timely report to Party A.

 

三、保密期限

 

III. Confidentiality Term

 

甲、乙双方确认,乙方的保密义务自本协议签订之日起开始,到该商业秘密公开(即已不属于商业秘密)时止。乙方是否在职,不影响保密义务的承担。

 

Both party A and party B confirm that, confidentiality obligations of Party B start from the signing date of this agreement, ends until the commercial secret becomes public (i.e., in other words, the information is not the trade secrets anymore). Whether Party B is employed, shall not affect its confidentiality obligations

 

四、违约责任

 

IV. Liability for Breach of Contract

 

甲乙双方约定:

 

Both Parties agreed:

 

  (1) 如果乙方不履行本协议第二条所规定的保密义务,应当承担违约责任;

 

If Party B fails to perform the obligations stipulated in Article 2 of this agreement, it shall liable for breach of contract

 

 

 

 

  (2) 如果因为乙方前款所称的违约行为造成甲方的损失,乙方应当承担损失赔偿责任;

 

If party B's breach as referred to in the preceding paragraph caused the loss of Party A, Party B shall bear the liability for damages;

 

 

 

(a) 乙方需承担的损失赔偿责任包括但不限于因其违约的行为给甲方造成的直接的或/及间接的,有形的或/及无形的财产或/及非财产方面的损失;

 

Party B must bear the liability for damages including but not limited to, directly or indirect losses of Party A including tangible or intangible property damages resulting from Party B’s default behavior;

 

  (b) 甲方因调查乙方的违约行为而支付的合理费用,应当包含在损失赔偿额之内;

 

Reasonable costs occurred in connection with Party A's investigation of Party B's breach should be included in the loss compensation .

 

(3)因乙方的违约行为侵犯了甲方的商业秘密权利的,甲方可以选择根据本协议要求乙方承担违约责任,或者根据国家有关法律、法规要求乙方承担侵权责任。

 

When default of Party B violated the rights of Party A to the commercial secrets, Party A can choose to require Party B to bear its responsibilities upon breach according to this agreement or require Party B to bear tort liability in accordance with relevant state laws and regulations.

 

五、协议的效力和变更

 

V. The Validity and Amendment of the agreement

 

本协议构成甲方和乙方签署的劳动合同的附件三,是劳动合同不可分割的一部分,对本协议的违反也是对劳动合同的违反。本协议未规定的部分以劳动合同为准。

 

This agreement constitutes Annex 3 of Labor Contract signed by Party A and Party B, is an integral part of the labor contract; breach of this agreement is in violation of labor contract. Parts not covered in this agreement will be subject to the labor contract .

 

本协议自双方签字及盖章后生效。本协议的任何修改必须经过双方的书面同意。

 

This agreement shall take effect after signed and stamped by both parties. Any modification of this agreement must be made upon written consent of both parties

 

(本行以下无正文,为签署部分)

 

(The following is without text but for the signing)

 

甲方: 数海信息技术有限公司(盖章)

 

Party A: Shuhai Information Technology Co., Ltd (Seal)

 

乙方:刘志欣

 

Party B: /s/ Zhixin Liu  

 

日期:同主合同签署日期

 

Date: Same as the signing date of the main contract

 

 

 

 

劳动合同书附件四 知识产权保护和竞业禁止协议

 

Annex 4 of this Labor Contract: Protection of Intellectual Property and Non-Compete Agreement

 

知识产权保护和竞业禁止协议

 

Intellectual Property and Non-Compete Agreement

 

鉴于:乙方是甲方聘用的从事劳动合同书附件一中所述岗位的专业人员;乙方所从事的工作将涉及甲方拥有的专利权、专有技术、著作权、计算机软件、数据库、商标权和其它形式的知识产权;为保护甲方的知识产权,明确双方的权利义务,特订立协议下:

 

Party B is hired by Party A as a professional for the position listed in the labor contract described in Annex 1 the work Party B is engaged in will involve the patent right of Party A, proprietary technology, copyright, computer software, database, trademark right and other forms of intellectual property rights; to protect the intellectual property rights of Party A, this agreement hereby specifies the rights and obligations of both parties as follows:

 

一、为本协议之目的,“知识产权”是指已注册和未注册的,包括著作权及相关的权利、进行了注册申请的专利、专利申请权、商标、服务标志、标识、形象、产品外观、商号、互联网域名、设计权、版权(包括计算机软件的版权)、数据库权利、半导体设计图权利、实用新型、专有技术、商业秘密、发明创造(无论是否受专利法保护)和其他受专利、著作权、商标、商业机密或其它法律保护的知识产权,不论其表现为何种形式,记载于何种载体。

 

I. For the purpose of this agreement, "intellectual property" refers to the registered and unregistered copyright and related rights, patents subject to pending registration, patent application right, trademark, service mark, logo, image, product appearance, trade name, Internet domain names, design rights, copyright (including the copyright of computer software), database rights and proprietary technology, semiconductor design right, utility

 

model, trade secrets, inventions (whether or not protected by patent law) and other patent, copyright, trademark, trade secret or other intellectual property rights protected by the laws, regardless of the form and carrier.

 

  二. 有下列条件情况之一的,乙方(单独或与他人共同)完成的知识产权以及与之有关的所有资料全部属于甲方在全球范围内独家所有。乙方同意将与职务发明相关的任何权利和利益无偿且完全地转让于甲方,包括但不限于职务发明的申请专利的权利、署名权、许可使用权和获得奖金报酬权:

 

 

 

 

II. If one of the following conditions occurs, works protected by intellectual property rights and completed by Party B (alone or jointly with others) and all related information all belong to Party A worldwide. Party B agrees to transfer invention related rights and interests free and completely to Party A, including but not limited to the right to apply for the invention patent, the right of authorship, right to use and the right to bonuses;

 

  1. 受聘期间在本职工作中完成的知识产权;

 

1. Intellectual Property completed during Party B’s employment ;

 

2. 履行甲方交付的本职工作之外的任务所研发的知识产权;

 

2. Intellectual Property Rights developed in Performing tasks given outside of work assigned by Party A;

 

  3. 离职、退休或者调动工作后一年内研发的同甲方业务相关的(而无论同乙方履行其本身的工作职责是否相关)知识产权,无论是否可以申请专利、商标或其它权利;

 

3. Intellectual Property Rights developed within a year after the resignation, retirement or relocation and related to Party A’s (whether or not related to the performance of its duties) whether or not Party B can apply for patent, trademark or other rights ;

 

4. 主要利用甲方的资金、设备、零部件、原材料或者不对外公开的技术情报、技术材料、资源信息及商业秘密等所研发的知识产权。

 

4. Intellectual Property rights that are researched and developed mainly by using Party A's fund, equipment, spare parts, raw materials or closed technical information not disclosed to the public, technical materials, resource information and trade secrets.

 

 乙方进一步同意,如上述规定的知识产权或与其有关的任何权利和利益依法不能由乙方转让给甲方时,乙方在此授予甲方一项排他性的、无偿的、可转让的、不可撤销的、全球性的实施该等不可转让的权利、所有权和利益的许可(并有向多层次的分许可人进行分许可的权利)。如上述发明中或与其有关的任何权利、所有权和利益既不能由乙方转让给甲方或亦不能许可甲方实施时,乙方应不可撤销地放弃并同意永不向甲方或甲方受让人就该等不可转让、不可许可权利中的权利、所有权和利益提出主张。

 

Party B further agrees that, if the Intellectual Property Rights and any related rights and interests set forth above cannot be transferred by Party B to Party A in accordance with the law, Party B hereby grants Party A exclusive, free, transferable, irrevocable, and global enforceable non-transferable rights, ownership and interests (and also licensing of rights to sublicenses of multiple layers). If any invention, right, title and interests discussed above cannot be transferred or licensed by Party B to Party A, Party B shall irrevocably waive and agree never assert any claim against Party A or assignees of Party A permission with regard to such non-transferrable, non-licensable rights, ownerships, and interests.

 

 

 

 

  相关权利的完善

 

III. Perfection of related rights

 

  3.1 乙方同意,在受聘于甲方期间及其离职后的两年内,如为甲方合法取得或维持上述知识产权的所有权所需要,乙方将按照甲方的要求签署有关文件或提供必要的协助。

 

Party B agrees that when employed by Party A and two years after leaving office, Party B will sign the relevant documents according to the requirements of Party A or provide assistance   if it is necessary for Party A to legally acquire or maintain the ownership of the intellectual property rights.

 

  3.2 如果甲方无论出于何种理由未能取得上述所必须的任何文件或任何该等文件未获得乙方本人签名,乙方在此确认不可撤销地指定并委任甲方和甲方适当授权的高级管理人员和代理作为乙方的代理和实际代理人,代表乙方并代替乙方:

 

3.2 If for or reason, Party A fails to obtain the necessary file or any such documents are not signed by Party B, Party B hereby confirm that will

 

irrevocable appointed senior management personnel of Party A acting as agent and the actual agent of Party B and acts, on behalf of Party B.

 

  (a) 签署、提交、申请、登记和转让记录任何该等申请;

 

Sign, submit, apply for, register and transfer record any such application ;

 

  (b) 签署并提交任何该等执行所需的文件;

 

Sign and submit documents for the enforcing rights;

 

  (c) 采取所有其他合法行为,推动职务发明中的专利、著作权、商业机密或其它权利的提交、申请、登记、转让记录、签发和执行,如同乙方亲自签署一般具有同等法律效力。

 

Take all other legal acts, promote the submissions, application, registration, transfer of records, issuing and execution of service invention patent, copyright, trade secret or other rights, personally signed by Party B have the same legal effect .

 

  3.3 在未经甲方书面同意前,乙方无权利且不得直接或间接:

 

3.3 Without written consent of Party A, Party B has no rights and shall not directly or indirectly:

 

  (a) 复制、改编、修改、翻译、生产、营销、出版(发布)、发行、销售、许可或部分许可、转让、租赁、传送、传播、展示或使用上述知识产权、其任何部分或任何形式的复制品;

 

 

 

 

Reproduction, adaptation, modification, translation, production, marketing, publishing (releasing), distribution, sales, licensing or partial licensing, transfer, lease, delivery, transmission, display or use of above Intellectual Property or any part, and reproduction in any form;

 

  (b) 将上述知识产权、其任何部分或任何形式的复制品用于创作派生作品、提供电子方式的访问或阅读或存入计算机存储器;

 

The above referenced intellectual property or any part thereof or copies in any form used for creating derivative works, providing visits or access electronically or being saved in the computer memory;

 

  (c) 引起其他人的任何上述行为。

 

Causing any of the above behavior of others .

 

  四. 乙方承诺,在任何时间,仅为甲方利益、并按甲方所要求的方式使用本协议第一条规定的知识产权;非经甲方的书面授权,不对其作任何形式的处分/处置。在与甲方的劳动关系解除或者终止后,。

 

IV. Party B promises to use intellectual property rights stipulated in Article 1 of this agreement just for the interests of party A and in the way required by party A; , at any time, Party B promises not to make any form of disposal of such rights without Party A's written authorization, Party B will immediately cease all use of the intellectual property rights after terminating the employment relationship with Party A.

 

  五. 甲方与乙方的劳动关系解除或者终止后,乙方承诺,不再声称是甲方的雇员、或声称其具有代表甲方的权利,且不得以任何形式(有偿或无偿、直接或间接)侵占、使用或者擅自复制、带走甲方拥有知识产权的任何文件、资料,除非事先得到甲方的书面许可。

 

After the termination of employment relationship with Party B, Party B promises that it no longer claims to be an employee of Party A, or claims that it has right to act on behalf of Party A, and shall not in any form (paid or unpaid, directly or indirectly) occupy, use, or copy, take any documents, data of which Party A has intellectual property rights unless it has obtained prior written approval from Party A.

 

  六. 如乙方未遵守上述各项协议内容,盗取、泄密、侵犯本协议所述的“知识产权”,构成违反职业道德或侵犯甲方知识产权的行为,将承担由此而引发的法律责任并全额赔偿给甲方造成的所有损失。

 

VI. If Party B does not comply with the above agreement and steals, leaks or infringes "intellectual property" discussed in this agreement, such behavior violation of professional ethics or infringement intellectual property rights of Party A, and will bear the legal liability arising from the full compensation for all losses caused by Party B.

 

  七. 乙方承诺,在受聘期间,不侵犯甲方拥有的本协议第一条所列知识产权,不侵犯第三方知识产权,否则将承担由此而引发的相应的法律责任和经济赔偿责任。

 

     

 

 

Party B promises, during the period of its employment, not to infringe intellectual property of party A listed in Article 1 of this agreement intellectual property rights of third party and otherwise will bear the corresponding legal responsibility and economic compensation   arising from such infringement.

 

  八. 乙方声明,此前未曾与第三方签署过任何包含“竞业禁止”条款的合同; 或者其已与曾经与其签署“竞业禁止”条款的第三方以适当方式解除了该等“竞业禁止”义务。

  

Party B states it has not previously signed any agreement with "non-compete" terms and conditions with a third party; or it has negotiated with any third party it has ever signed "non-compete" terms and conditions in an appropriate way to terminate the "non-compete obligations.

 

    前款所谓“竞业禁止”条款,是指任何第三方限制乙方从事甲方现有工作的条款。

 

The so-called "non-compete," terms mentioned in the preceding paragraph means any term concerning any third party’s right to limit the Party B’s performance of its job at Party A.

 

    如因乙方违反上述声明导致甲方被第三方指控连带侵权,乙方应承担与此有关的全部法律责任和经济赔偿责任。

 

If Party B violates the above statement and accused Party A to be sued for joint infringement by a third Party, Party B shall bear all the legal responsibility and related economic losses.

 

  九. 竞业禁止义务

 

IX. Non-compete obligation

 

在乙方的聘用期限内及其与甲方劳动关系解除或终止后的两年内,乙方不得直接或间接地、以个人名义或是作为其他个人或组织的代表参与 ,或 为他人提供任何咨询服务或其他协助,以协助他人从事任何竞争性活动(事先得到甲方书面许可的除外)。

 

During the employment of Party B and within two years after the termination of its employment relationship with Party A, Party B shall not directly or indirectly in its name or as representative of the other individuals or organizations participate, or provide any services for others or other assistance, to help others to engage in any competitive activity (except obtaining Party A's written approval in advance)

 

为本协议目的,“竞争性活动”包括但不限于具有如下特征的行为:(1)从事与甲方已从事的或现从事的或将从事的业务相同或、相似、或相竞争性质的业务活动;(2)通过直接销售或利用网络分销、交易或以其他方式销售与甲方分销、交易或出售的产品相竞争或相似的他方生产的产品;(3)

 

,上述产品或服务包括甲方正在开发的任何产品或服务或在本协议期间正在策划、开发之中的产品或服务;(4)在与甲方从事同类或与之有竞争关系及其他利害关系的任何单位任职。

 

 

 

 

For the purpose of this agreement, "competitive activities” includes but not limited to behavior with the following characteristics: (1) engaged in or will be engaged in the business of the same or similar, or the nature of the competitive business activities; (2) through direct sales or using network distribution, trading or sales distribution in other ways (3) provide similar service including the product or service or during the period of this agreement in planning, development of product or service; (4) Party B engaged in the same or with the relationship of any other unit in competition with Party A. .

 

  十. 在乙方离职后,作为乙方在离职后承担第九条竞业禁止义务的补偿,双方可以协商由甲方向乙方在承担竞业禁止义务的时间里按月支付竞业限制补偿费,补偿费最低不应低于乙方在甲方离职前上一年度税前月工资总额的【50%】。为免生歧义,除非甲方在乙方离职时,要求乙方遵守本竞业禁止条款,否则竞业限制补偿费并不构成甲方的义务。如甲方不支付或停止支付竞业限制补偿费,则乙方自甲方不支付或停止支付竞业限制补偿费之日起不再承担离职后的竞业禁止义务。如果乙方违反竞业禁止义务,应当向甲方支付违约金(数额为甲方向其支付的竞业限制补偿费的3倍)并承担因该违约行为对甲方造成的损失。

 

After Party B's departure, both parties can negotiate and require Party A to pay monthly non-competition compensation during the period when Party B bears the non-compete obligation as compensation for Party B’s non-compete obligation after leaving Party A. Such compensation should not below [50%] of the total amount of monthly salary of the year before Party B left Party A. For the avoidance of ambiguity, unless Party A requires Party B's to comply with the non-compete term at the time of Party B’s departure, the non-competition compensation does not constitute the obligations of Party A. If Party A does not pay or stop paying the non-competition compensation, Party B shall no longer bear the non-compete obligations since the date when Party A does not pay or stop paying non-competition compensation after Party B’s departure. If Party B violates non-compete obligation, it shall pay liquidated damages to Party A (the amount is 3 times payment of the non-competition compensation for Party B) and bear the losses caused by the breach of Party A.

 

十一.在乙方的聘用期限内及其与甲方劳动关系解除或终止后的两年内,乙方不得直接、间接、或通过其关联人士:

 

During the employment of Party B or within two years after the termination of the termination of the employment relationship removes, Party B shall not directly, indirectly, or through its associated persons:

 

  1、 指使、引诱、鼓励或以其他方式促成甲方的任何雇员终止与甲方的劳动关系,但乙方经甲方书面同意为履行其职责而采取的行动除外;

 

1. Instigate, seduce, encourage or otherwise assist any employees of Party A to terminate their labor relationship with Party A, except actions taken for fulfilling its responsibility and with party A's written consent;

 

 

 

 

2、 指使、引诱、鼓励或以其他其他方式促成甲方的任何供货商、承包商或客户终止与甲方的合作关系,或从事任何可能对甲方与上述供货商、承包商或客户的合作关系造成不利影响的行为。

 

2. Instigate, seduce, encourage or in other ways assist any suppliers, contractors, or customers of Party A to terminate cooperation with Party A, or engage in any activity adversely affecting the cooperation of Party A with its suppliers, contractors, or customers.

 

十二.乙方同意违反本协议的任何条款将导致甲方受到不可避免的损失和损害。因此,乙方同意如果其违反了本协议项下任何义务,除非另有规定,甲方有权终止与乙方的劳动关系,而不必向乙方支付任何补偿费,而乙方应当赔偿甲方所有因乙方违约、为阻止乙方违约而作的强制性救济措施或任何部分措施和保证有强制执行力的措施而引起的全部损失和损害。本条规定不妨碍甲方寻求根据中华人民共和国法律可采取的其他任何救济措施。

 

XI. Party B agrees that violating any provision of this agreement will lead to inevitable loss and damage of Party A, Therefore, Party B agrees that, if it violates any obligation in this agreement, unless specified otherwise, Party A has the right to terminate the labor relationship with Party B, without having to pay any compensation to party B and Party B shall compensate Party A for all losses and damages resulting from its defaults, mandatory relief measures to prevent the default or any part of the measures and measures to guarantee compulsory enforcement of the agreement. The provisions of this article shall not interfere with Party A’s right to take any other remedial measures according to the laws of the People's Republic of China.

 

十三.本协议可由甲方转让给甲方的子公司、分支机构或办事机构,当乙方在上述机构之间被调任时,本协议自动被转让至新的聘用单位而无需由乙方另行签署。或者如新的聘用单位提出要求,则双方协商重新签署新的协议。

 

XII. This agreement can be transferred to Party A's subsidiaries, branches or offices, when Party B is transferred between branches, this agreement shall be automatically be transferred to a new employing unit without having to be signed by Party B; if requested by the new work units, both sides shall negotiate to sign a new agreement.

 

十四、本协议作为乙方受聘于甲方的必备文件,经双方签章后在双方签订的《劳动合同》生效日生效。本协议用中文书写,正式文本两份,双方各执一份。

 

As an necessary documents for Party B’s employment by Party A, this agreement becomes effective after both sides sign or seal it. This agreement is written in Chinese. There are two copies of the official text was, and each party holds one .

 

 

 

 

十五、本协议中的所有条款的标题只是为了方便阅读,不能以任何形式作为对本协议的解释或影响本协议的含意。

 

The title of all terms in this agreement is only for the convenience of reading, and shall not be an interpretation of this agreement or in any way affect the meaning of this agreement.

 

十六、所有与本协议有关的通知、要求、请求、承认或其它通信均必须以书面形式作出,并由通知方亲自,通过快递或附有回执的挂号信,递交至以下列出的双方的地址(或该方向另一方以书面形式通知的其它地址)。所有有关本协议的通知、要求、请求、承认或其它通信的送达时间为:(1)亲自递送的情况下为实际递交时;(2)通过快递递交时为交给快递后的三(3)日后视为送达,如三(3)日内送达则以实际送达日为准;(3)如以挂号信(或寄往海外的航空信)的形式投递,则在寄出后的五(5)日后视为送达,如五(5)日内送达则以实际送达日为准。

 

All related notification, request, or other communication of this agreement must be made in written form, by notifying Party through delivery or receipt of the registered letter attached to the following listed of address of both sides (or Party A give written notice to the other party of the other address). The delivery time of all notices, demand, request, or other communications under this agreement, is: (1) the actual delivery date when delivered personally; (2) three days after delivery when delivered by Courier, or the actual delivery date if delivered within three days ; (3) five (5) days after mailing if delivered by registered mail or air mail sent to overseas) and the actual delivery date if delivered within five (5) days.

 

递交 甲方

 

Submit to Party A

 

地址:数海信息技术有限公司

Address: Shuhai Information Technology Co., Ltd收件人:

The recipient:

电话:

Tel:

传真:

Fax:

 

递交 乙方

Submit to Party B

 

地址: 北京市丰台区9号公馆

Address:   No.9 Apartment, Fengtai District, Beijing City

电话:18600849987

Tel:18600849987

传真:

Fax:

 

 

 

  

  十七. 本协议为劳动合同的附件,受中华人民共和国法律的管辖和保护并依其解释。若协议双方发生争议且协商不成,则任一方均可依法向当地劳动争议仲裁委员会申请仲裁;对仲裁裁决不服的,可以向具有管辖权的人民法院要求裁决。对于有关知识产权保护的规定发生争议的,也可直接向具有管辖权的人民法院起诉。

 

This agreement is an Annex of Labor contract, protected by the laws of the People's Republic of China, under the jurisdiction and shall be interpreted in accordance with the law of P.R. China. If there is a dispute between the parties and no settlement is reached, either party may apply to the local labor dispute arbitration committee for arbitration in accordance with the law; if either party is not satisfied with the arbitral award, it may require the people's court that has jurisdiction to decide. Disputes regarding the protection of intellectual property rights disputes can be directly filed to a people's court with jurisdiction.

 

甲方: 数海信息技术有限公司(盖章)

 

Party A: Shuhai Information Technology Co., Ltd (Seal)

 

代表: 刘志欣

 

Representative: Liu Zhixin

 

乙方(签字) 刘志欣

 

Party B(Signature) /s/ Zhixin Liu

 

日期:同主合同签署日期

 

Date: same as the signing date of the main contract

  

 

 

 

Exhibit 10.15

 

Banking Service Direct Sales Cooperation Agreement

 

Between

 

China Minsheng Bank Corp

 

and

 

Shuhai Information Technology Co.,Ltd

 

Party A: China Minsheng Bank Co., Ltd Tianjin Branch

 

Address: No.43, Jianshe Rd, Heping District, Tianjin City

 

Legal person: Wenze Kang

 

Zip code: 300040

 

Contact phone number: 022-59982253

 

Party B: Shuhai Information Technology Co.,Ltd

 

Address: Changning Building, No.1 of Xinghuo Rd, Fengtai District, Beijing City, China

 

Legal person: Zhixin Liu

 

Zip code: 100071

 

Contact phone number: 18600849987

 

 

 

 

To give full play to their respective advantages and further cooperate in the area of Internet finance, both Parties agree to, based on principles of mutual benefit and common development and foundations of Voluntary equality and integrity, enter into the Banking Service Direct Sales Cooperation Agreement (hereinafter refereed to as the “Agreement” ) and strictly obey the provisions of this Agreement.

 

I. Cooperation content

 

1. Party A shall provide Party B's clients( the natural person who take part in Party A's financial activities via Party B's platform, the same below) electronic account opening service and financial products.

 

2. Party B shall set up special entrance on its self-owned on-line platform or customer terminal and use page-bumping technology to bump to Party A's H5 page where Party B's clients are allowed to open electronic account and purchase financial products. Note: Exact financial products are depended on Party A.

 

 

 

 

3. The displaying contents on Party B's special online page shall be decided by Party A and approved by Party B.

 

4. Party B's clients who link their account to Party A and finish wiring to their electronic account voluntarily shall have the right to enjoy Party A's financial services.

 

II. Fees and Payment

 

1. Party B shall charge Party A certain service fee based on the keeping volume (means the purchasing volume of Party A's financial products from Party B's clients), and daily charge is calculated on the basis of the former day's keeping volume.

 

2. Charging mode

 

i. “Ruyibao” series products: T days service fee =fee rate (annual rate: ) * (T-1) days' keeping volume * (T-1) days' product net value / full days in a year (Note: based on calender) .

 

ii. “Dinghuobao” series products: T days service fee =fee rate (annual rate: ) * (T-1) days' keeping volume * (T-1) days' product net value / full days in a year (Note: based on calender) .

 

iii: For non-trading day, the daily service fee shall be calculated based on the latest keeping volume multiplying the latest product net value.

 

iv. Keeping volume shall be subject to the data of Party A's system and shall be settled by both Parties.

 

 

 

 

III. Settlement

 

i. Service fee is calculated on a daily basis, and charged on a monthly basis. It is prevailed on Party A's data system. Party B shall provide value-added invoice to Party A while Party A shall wire to Party B's assigned account within 30 business days after receiving the invoice.

 

Deposit Bank: China Merchants Bank Co., Ltd Beijing Fengtai Brabch

 

Account Name: Shuhai Information Technology Co., Ltd

 

Account Number: 110915142610601

 

Any change of the forgoing account information shall be informed by written form to Party A in advance. Any damages or loss caused by

 

untimely informing shall be bared by Party B, and it shall not be deemed as a default by Party A.

 

ii. Invoice information

 

Accompany name on the invoice:

 

Taxpayer ID:

 

Address on the invoice:

 

Tel:

 

Deposit bank:

 

Account number:

 

 

 

 

iii. The right invoice shall be delivered to Party A's assigned address by Party B, and shall be deemed as received after Party A's sign-off.

 

Receiver:

 

Deliver add:

 

Tel:

 

Party B shall communicate with Party A's related person before delivering the invoice. Party B shall provide Party A its taxpayer certificates if Party A required.

 

iv. Party A shall have the right to delay the payment and ask Party B to reprovide the invoice if the invoice fails to meet the requirements.

 

III. Duties and obligations

 

1. Party A shall open electronic accounts for Party B's clients who apply for opening and authenticate successfully by Party A.

 

2. Party A shall assume that the financial products they provide shall obey the related regulations and laws.The sale date, scale, period, expected rate of return shall all depend on Party A.

 

3. Party B shall promise to set up a special entrance for Party A to insert their page.

 

 

 

 

4. Both parties shall deal with their own consultants or complaints arising from related channels, business, Internet and system, and have the obligation to cope with these problems coordinately to some extent.

 

5. Party B shall strictly meet Party A's promotion requirements. Any fake promotion or misleading activities shall not be allowed to conduct. Party B shall not propagandize products that are beyond the Agreement in the name of Party A. Any loss shall be beard by Party B caused by its violation of the Agreement.

 

6. Party B shall promise not to conduct Pornography activities or law-against business, if do, Party B shall bear all damages and losses.

 

7. Party B shall claim that they are qualified to fulfil this Agreement, including but not limited to the current effective approval or license.

 

IV. Liability for breach of contract

 

After this Agreement takes effect, both parties shall give a full play to their own obligations. For any default or improper default, the breaching party shall continue to perform or take fixing measures and bear all real losses.

 

 

 

 

V. Confidentiality clause

 

1. Any closed technological information or commercial secrets received from any of the party shall be kept, without permission, any of the party shall not in any form disclose these to the third party, otherwise, it shall bear all losses. If needed, any forgoing information provided to the other party shall be informed in advance.

 

2. After the termination of the Agreement, obligations hereunder shall not be terminated. Both parties shall still to keep the commercial secrets for each other.

 

VI. Settlement of disputes

 

1. Any disagreements or disputes raised from the process of cooperation shall be dealt with through friendly coordination on principles of good faith, equality and mutual benefit. If don't , either part is allowed to file suit in the court of domicile of Party A.

 

2. This Agreement is subject to the Laws, regulations or rules of the People's Republic of China.

 

 

 

 

VII. Effective and others

 

1. Neither party shall assign its rights and obligations hereunder without the prior written consent of the other party to others.

 

2. This Agreement shall come into force on the date of the principal/authorized person of both parties making their signature or seal on it, and shall be valid for two years. If neither party makes any written notice of modification or termination of the contract within one month prior to the expiration of the Agreement, the validity of this contract shall be automatically extended for one year. The maximum duration of this Agreement is three years.

 

3. This contract has four counterparts, each party owns two with same legal power.

 

4. If the Agreement needs to be revised or rescinded due to changes in national laws, regulations and related policies, both parties shall make changes or supplements in accordance with the laws and regulations after consultation.

 

(The remainder of this page is intentionally left blank.)

 

Party A: / official seal here/

 

Authorized person: /seal of Wenze Kang/

 

Date: /03-15-2018/

 

Party B: /official seal here/

  

Authorized person: /Zhixin Liu/

 

Date: /03-15-2018/

 

 

 

 

Exhibit 10.16

 

SHARE ESCROW AGREEMENT

 

This Share Escrow Agreement (this “ Agreement ”), dated as of _______, 2018, is entered into by and among Datasea Inc., a Nevada corporation (the “ Company ”), Zhixin Liu, an individual and Chairman of the Board of Directors, Chief Executive Officer, President, Interim-CFO, Secretary and Treasurer of the Company, Fu Liu, an individual and member of the Board of Directors of the Company and the father of Zhixin Liu (together with Zhixin Liu, the “ Stockholders ”, and each, a “ Stockholder ”), ViewTrade Securities, Inc., a Delaware corporation (“ ViewTrade ”), and West Coast Stock Transfer, Inc., a California corporation, as escrow agent (the “ Escrow Agent ”).

 

WHEREAS , the Company is conducting an underwritten public offering (the “ Offering ”) of its common stock, par value $0.001 per share (“ Common Stock ”), with ViewTrade serving as representative of the underwriters;

 

WHEREAS , as a condition to ViewTrade serving as representative of the underwriters in the Offering, the Stockholders have agreed to place, in the aggregate, a total of 14,250,000 shares of Common Stock (the “ Escrow Shares ”) held by the Stockholders, in the exact amounts for each Stockholder as set forth on Exhibit A attached hereto, into escrow with the Escrow Agent, on the terms and conditions set forth herein; and

 

WHEREAS , the Escrow Agent, which also serves as the Company’s transfer agent (in such capacity, the “ Transfer Agent ”) has agreed to act as escrow agent pursuant to the terms and conditions set forth herein.

 

NOW, THEREFORE , in consideration of the mutual promises of the parties and the terms and conditions hereof, the parties hereby agree as follows:

 

Section 1. Appointment of Escrow Agent. The Stockholders and the Company hereby appoint the Escrow Agent to act in accordance with the terms and conditions set forth in this Agreement, and the Escrow Agent hereby accepts such appointment and agrees to act in accordance with such terms and conditions.

 

Section 2. Establishment of Escrow; Restrictions on Transfer; No Short Sales. On the date hereof, as a condition to the closing of the Offering, the Stockholders shall deliver, or cause to be delivered, to the Escrow Agent, certificates representing the Escrow Shares, along with stock powers executed in blank (or such other signed instrument of transfer acceptable to the Transfer Agent). Each Stockholder hereby irrevocably agrees that other than in accordance with this Agreement, such Stockholder will not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or announce the offering of any of the Escrow Shares (including any securities convertible into, or exchangeable for, or representing the rights to receive Escrow Shares) or engage in any Short Sales (as defined herein) with respect to any security of the Company. In furtherance thereof, the Company will (a) place a stop order on all Escrow Shares, which shall expire as to the applicable Escrow Shares on the date such Escrow Shares are disbursed in accordance with the terms of this Agreement, and (b) notify the Transfer Agent in writing of the stop order and the restrictions on such Escrow Shares under this Agreement and direct the Transfer Agent not to process any attempts by either Stockholder to resell or transfer any Escrow Shares before the date the Escrow Shares are disbursed in accordance with the terms of this Agreement, or otherwise in violation of this Agreement. For purposes hereof, “Short Sales” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Securities Exchange Act of 1934, as amended, and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on a total return basis), and sales and other transactions through non-U.S. broker dealers or foreign regulated brokers.

 

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Section 3.   Representations of each Stockholder and the Company. Each of the Stockholders and the Company hereby represent and warrant, severally and not jointly, as to itself only, to each of ViewTrade and the Escrow Agent as follows:

 

(a) Performance of this Agreement and compliance with the provisions hereof will not violate any provision of any applicable law and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon, any of the properties or assets of such Stockholder or the Company (as the case may be) pursuant to the terms of any indenture, mortgage, deed of trust or other agreement or instrument binding upon such Stockholder or the Company (as the case may be).

 

(b) Each of the Stockholders and the Company has carefully considered and understands his, her or its obligations and rights under this Agreement, and in furtherance thereof (x) has consulted with his, her or its legal and other advisors with respect thereto and (y) hereby forever waives and agrees that he, she or it may not assert any equitable defenses in any proceeding involving the Escrow Shares.

 

Section 4. Disbursement of the Escrow Shares. Each party hereto hereby agrees as follows:

 

(a) In the event that the Valuation of the Company for the fiscal year ending June 30, 2019 is greater than the Valuation of the Company for the fiscal year ending June 30, 2018, then the Escrow Agent shall disburse, within five (5) business days after receipt of joint written instructions of the Company and ViewTrade, that number of Escrow Shares to the Stockholders (in accordance with their respective ownership percentages) as determined by subtracting the Valuation of the Company for the fiscal year ending June 30, 2018 from the Valuation of the Company for the fiscal year ending June 30, 2019, divided by the Offering Price (rounded up or down to the nearest whole share), not to exceed the Escrow Shares.

 

(b) In the event that the Valuation of the Company for the fiscal year ending June 30, 2020 is greater than the Valuation of the Company for the fiscal year ending June 30, 2019, then the Escrow Agent shall disburse, within five (5) business days after receipt of joint written instructions of the Company and ViewTrade, that number of Escrow Shares to the Stockholders (in accordance with their respective ownership percentages) as determined by subtracting the Valuation of the Company for the fiscal year ending June 30, 2019 from the Valuation of the Company for the fiscal year ending June 30, 2020, divided by the Offering Price (rounded up or down to the nearest whole share), not to exceed the Escrow Shares.

 

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(c) In the event that the Valuation of the Company for the fiscal year ending June 30, 2021is greater than the Valuation of the Company for the fiscal year ending June 30, 2020, then the Escrow Agent shall disburse, within five (5) business days after receipt of joint written instructions of the Company and ViewTrade, that number of Escrow Shares to the Stockholders (in accordance with their respective ownership percentages) as determined by subtracting the Valuation of the Company for the fiscal year ending June 30, 2020 from the Valuation of the Company for the fiscal year ending June 30, 2021, divided by the Offering Price (rounded up or down to the nearest whole share), not to exceed the Escrow Shares.

 

(d) In the event that the Valuation of the Company for the fiscal year ending June 30, 2022 is greater than the Valuation of the Company for the fiscal year ending June 30, 2021, then the Escrow Agent shall disburse, within five (5) business days after receipt of joint written instructions of the Company and ViewTrade, that number of Escrow Shares to the Stockholders (in accordance with their respective ownership percentages) as determined by subtracting the Valuation of the Company for the fiscal year ending June 30, 2021 from the Valuation of the Company for the fiscal year ending June 30, 2022, divided by the Offering Price (rounded up or down to the nearest whole share), not to exceed the Escrow Shares.

 

(e) In the event that the Valuation of the Company for the fiscal year ending June 30, 2023 is greater than the Valuation of the Company for the fiscal year ending June 30, 2022, then the Escrow Agent shall disburse, within five (5) business days after receipt of joint written instructions of the Company and ViewTrade, that number of Escrow Shares to the Stockholders (in accordance with their respective ownership percentages) as determined by subtracting the Valuation of the Company for the fiscal year ending June 30, 2022 from the Valuation of the Company for the fiscal year ending June 30, 2023, divided by the Offering Price (rounded up or down to the nearest whole share), not to exceed the Escrow Shares.

 

(f) In the event that the Valuation of the Company for the fiscal year ending June 30, 2024 is greater than the Valuation of the Company for the fiscal year ending June 30, 2023, then the Escrow Agent shall disburse, within five (5) business days after receipt of joint written instructions of the Company and ViewTrade, that number of Escrow Shares to the Stockholders (in accordance with their respective ownership percentages) as determined by subtracting the Valuation of the Company for the fiscal year ending June 30, 2023 from the Valuation of the Company for the fiscal year ending June 30, 2024, divided by the Offering Price (rounded up or down to the nearest whole share), not to exceed the Escrow Shares.

 

(g) In the event that the Company failed to fully and timely satisfy any of the milestones set forth in subsections (a)–(e) above: (i) but satisfies the milestone set forth in subsection (f), then the Escrow Agent shall disburse, within five (5) business days after receipt of joint written instructions of the Company and ViewTrade, all remaining Escrow Shares, not to exceed the total number of Escrow Shares, that would have previously been disbursed as if all previous milestones had been fully and timely achieved; or (ii) and failed to satisfy the milestone set forth in subsection (f), then the Escrow Agent shall disburse all remaining Escrow Shares, not to exceed the total number of Escrow Shares, to the Company within ten (10) business days after the Company files its Annual Report on Form 10-K with the Securities and Exchange Commission (the “ Commission ”) for the fiscal year ending June 30, 2024, and upon written instruction of ViewTrade, after which the Company shall immediately, and no later than two (2) business days after receipt of such Escrow Shares, cancel such Escrow Shares. The Company shall provide evidence of such cancellation to ViewTrade, in a form reasonably satisfactory to ViewTrade, within five (5) business days after such cancellation.

 

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(h) In the event that the Company failed to satisfy all of the milestones set forth in subsections (e) and (f), then the Escrow Agent shall disburse all remaining Escrow Shares to the Company within ten (10) business days after the Company files its Annual Report on Form 10-K with the Commission for the fiscal year ending June 30, 2024, and upon written instruction of ViewTrade, after which the Company shall immediately, and no later than two (2) business days after receipt of such Escrow Shares, cancel such Escrow Shares. The Company shall provide evidence of such cancellation to ViewTrade, in a form reasonably satisfactory to ViewTrade, within five (5) business days after such cancellation.

 

(i) In the event that the Company fails to timely file any Annual Report on Form 10-K for any fiscal year referenced in subsections (a)–(f) above (after taking into account permitted extensions, or without approval of ViewTrade), then the Escrow Agent shall disburse all remaining Escrow Shares to the Company within ten (10) business days from the date that such Annual Report on Form 10-K was due, and upon written instruction of ViewTrade, after which the Company shall immediately, and no later than two (2) business days after receipt of such Escrow Shares, cancel such Escrow Shares. The Company shall provide evidence of such cancellation to ViewTrade, in a form reasonably satisfactory to ViewTrade, within five (5) business days after such cancellation.

 

(j) In the event that the Company amends, restates, and/or otherwise revises any of its financial statements for any fiscal year identified in subsections (a)–(f) above whereby the effect would be to cause the Company to not satisfy a previously satisfied milestone, then the Stockholders shall immediately return such previously disbursed Escrow Shares to the Escrow Agent to be held and disbursed in accordance with the terms of this Agreement.

 

(k) For the avoidance of doubt, each milestone, and any corresponding release of Escrow Shares, requires that the Common Stock be then listed on a national securities exchange as of the last date of each such fiscal year, and in no event shall the number of shares of Common Stock released to the Stockholders be greater than the total number of Escrow Shares.

 

(l) The following terms have the following definitions:

 

Revenue ” shall be identical to the Revenue set forth in the Company’s statement of income (loss) set forth in each applicable Annual Report on Form 10-K for each fiscal year identified above.

 

EBITDA ” shall mean earnings before interest, taxes, depreciation and amortization, as determined by generally accepted accounting principles, consistently applied, including without limitation, an accrual for bonuses (if any) payable to the Stockholders for the year for which EBITDA is determined using figures identical to those in each applicable Annual Report on Form 10-K for each fiscal year identified above, and excluding charges (if any) for the release of the Escrow Shares from escrow hereunder.

 

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Valuation ” means, for a fiscal year, the greater of (a) such fiscal year’s Revenue, as reported in the Company’s applicable Annual Report on Form 10-K as filed with the Commission for such fiscal year, multiplied by 1.65 and (b) such fiscal year’s EBITDA, as calculated from the Company’s applicable Annual Report on Form 10-K as filed with the Commission for such fiscal year, multiplied by 18.

 

Offering Price ” means $              .

 

(m) Within five (5) business days after the timely filing (after taking into account permitted extensions) of each Annual Report on Form 10-K for each fiscal year referenced in each of the subsections (a) (f) above, the Company shall provide to ViewTrade its calculations of Revenue and EBITDA with respect to the fiscal year then ended. In the event that the Company fails to deliver such calculations to ViewTrade within such five (5) business day period, then it shall be final, conclusive and binding on the parties that the Company failed to achieve such milestones. Within five (5) business days after receipt of such calculations, ViewTrade shall either (i) deliver written notice to the Company of any dispute it has with respect to such calculations or (ii) execute joint written instructions with the Company and provide such joint written instructions to the Company approving the disbursement of the Escrow Shares. If ViewTrade does not notify the Company of a dispute with respect to the calculations within such five (5) business day period, such calculations will be final, conclusive and binding on the parties. In the event that ViewTrade timely delivers written notice of a dispute with respect to either calculation, then ViewTrade and the Company shall negotiate in good faith to resolve such dispute. If ViewTrade and the Company, notwithstanding such good faith efforts, fail to resolve such dispute within ten (10) business days after ViewTrade advises the Company of its objections, then ViewTrade and the Company shall jointly enter arbitration in accordance with the rules and procedures of the AAA (as defined below) for final determination of the calculations. As promptly as practicable thereafter, ViewTrade and the Company shall each prepare and submit a presentation to the Arbitrator (as defined in Section 16(b)). ViewTrade and the Company shall use reasonable efforts to cause the Arbitrator to deliver its determination, based solely upon the presentations by ViewTrade and the Company, within thirty (30) days of the matters being referred to the Arbitrator. The Arbitrator shall act as an arbitrator to determine, based upon the provisions of this Section 4(m), only the disputed calculations, and the determination of each amount of the disputed calculations shall be made in accordance with the procedures set forth in this Section 4(m). All determinations made by the Arbitrator will be final, conclusive and binding on all parties to this Agreement and upon which a judgment may be entered by a court having jurisdiction thereover.

 

Section 5. Duration. This Agreement shall terminate upon the disbursement of all of the Escrow Shares in accordance with the terms of this Agreement.

 

Section 6. Escrow Shares. For so long as the Escrow Shares remain in escrow with the Escrow Agent in accordance with the terms of this Agreement, (a) any dividends payable in cash with respect to the Escrow Shares and all voting and other shareholder rights (under law or pursuant to any documentation to which the Company is a party or otherwise bound) applicable to the Escrow Shares shall be paid to and retained by, as applicable, each Stockholder, but any dividends payable in shares or other non-cash property shall be delivered to the Escrow Agent to be held in accordance with the terms of this Agreement, and (b) should the Escrow Agent receive cash dividends or voting materials, such items shall not be held by the Escrow Agent, but shall be passed immediately on to each Stockholder and shall not be invested or held for any time longer than is needed to effectively re-route such items to each Stockholder. In the event that the Escrow Agent receives a communication from the Company requiring the conversion of the Escrow Shares to cash or the exchange of the Escrow Shares for that of an acquiring company, then such cash or exchanged shares shall be redeposited with the Escrow Agent. Each Stockholder shall be responsible for all of his or her respective taxes resulting from any such conversion or exchange.

 

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Section 7. Interpleader.   Should any controversy arise among the parties hereto with respect to this Agreement or with respect to the right to receive the Escrow Shares, the Escrow Agent shall have the right to consult and hire counsel and/or to institute an appropriate interpleader action to determine the rights of the parties. The Escrow Agent is also hereby authorized to institute an appropriate interpleader action upon receipt of a written letter of direction executed by the parties so directing the Escrow Agent. If the Escrow Agent is directed to institute an appropriate interpleader action, it shall institute such action not prior to thirty (30) days after receipt of such letter of direction and not later than sixty (60) days after such date. Any interpleader action instituted in accordance with this Section 7 shall be filed in any court of competent jurisdiction in New York, New York, and the Escrow Shares in dispute shall be deposited with the court and in such event the Escrow Agent shall be relieved of and discharged from any and all obligations and liabilities under and pursuant to this Agreement with respect to the Escrow Shares and any other obligations hereunder.

 

Section 8.   Exculpation and Indemnification of Escrow Agent.

 

(a) The Escrow Agent acts under this Agreement as a depositary only and is not responsible or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of the subject matter of the escrow, or any part thereof, or for the form or execution of any notice given by any other party hereunder, or for the identity or authority of any person executing any such notice. The Escrow Agent will have no duties or responsibilities other than those expressly set forth herein. The Escrow Agent will be under no liability to anyone by reason of any failure on the part of any party hereto (other than the Escrow Agent) or any maker, endorser or other signatory of any document to perform such person’s or entity’s obligations hereunder or under any such document. Except for this Agreement and instructions to the Escrow Agent pursuant to the terms of this Agreement, the Escrow Agent will not be obligated to recognize any agreement between or among any or all of the persons or entities referred to herein, notwithstanding its knowledge thereof.

 

(b) The Escrow Agent will not be liable for any action taken or omitted by it, or any action suffered by it to be taken or omitted, absent gross negligence or willful misconduct. The Escrow Agent may rely conclusively on, and will be protected in acting upon, any order, notice, demand, certificate, or opinion or advice of counsel (including counsel chosen by the Escrow Agent), statement, instrument, report or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained) which is reasonably believed by the Escrow Agent to be genuine and to be signed or presented by the proper person or persons. The duties and responsibilities of the Escrow Agent hereunder shall be determined solely by the express provisions of this Agreement and no other or further duties or responsibilities shall be implied, including, but not limited to, any obligation under or imposed by any laws upon fiduciaries. The Escrow Agent shall not be liable, directly or indirectly, for any (i) damages, losses or expenses arising out of the services provided hereunder, other than damages, losses or expenses which have been finally adjudicated to have directly resulted from the Escrow Agent’s gross negligence or willful misconduct, or (ii) special, indirect or consequential damages or losses of any kind whatsoever (including, without limitation, lost profits), even if the Escrow Agent has been advised of the possibility of such losses or damages and regardless of the form of action.

 

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(c) The Company and each Stockholder each hereby, jointly and severally, indemnify and hold harmless the Escrow Agent and any of their principals, partners, agents, employees and affiliates   from and against any expenses, including reasonable attorneys’ fees and disbursements, damages or losses suffered by the Escrow Agent in connection with any claim or demand, which, in any way, directly or indirectly, arises out of or relates to this Agreement or the services of the Escrow Agent   hereunder; except, that if the Escrow Agent is guilty of willful misconduct or gross negligence under this Agreement, then the Escrow Agent, will bear all losses, damages and expenses arising as a result of its own willful misconduct or gross negligence. Promptly after the receipt by the Escrow Agent of notice of any such demand or claim or the commencement of any action, suit or proceeding relating to such demand or claim, the Escrow Agent, will notify the other parties hereto in writing. For the purposes hereof, the terms “expense” and “loss” will include all amounts paid or payable to satisfy any such claim or demand, or in settlement of any such claim, demand, action, suit or proceeding settled with the express written consent of the parties hereto, and all costs and expenses, including, but not limited to, reasonable attorneys’ fees and disbursements, paid or incurred in investigating or defending against any such claim, demand, action, suit or proceeding. The provisions of this Section 8 shall survive the termination of this Agreement, and the resignation or removal of the Escrow Agent.

 

Section 9. Compensation of Escrow Agent. The Escrow Agent shall be entitled to compensation for its services as stated in the fee schedule attached hereto as Exhibit B , which compensation shall be paid by the Company. The fee agreed upon for the services rendered hereunder is intended as full compensation for the Escrow Agent’s services as contemplated by this Agreement; provided , however , that in the event that the Escrow Agent renders any material service not contemplated in this Agreement, or there is any assignment of interest in the subject matter of this Agreement, or any material modification hereof, or if any material controversy arises hereunder, or the Escrow Agent is made a party to any litigation pertaining to this Agreement, or the subject matter hereof, then the Escrow Agent shall be reasonably compensated by the Company for such extraordinary services and reimbursed for all costs and expenses, including reasonable attorneys’ fees, occasioned by any delay, controversy, litigation or event, and the same shall be recoverable from the Company. Prior to incurring any costs and/or expenses in connection with the foregoing sentence and unless required to prevent irreparable harm to the Escrow Agent, the Escrow Agent shall be required to provide written notice to the Company of such costs and/or expenses and the relevancy thereof and the Escrow Agent shall not be permitted to incur any such costs and/or expenses which are not related to litigation prior to receiving written approval from the Company, which approval shall not be unreasonably withheld.

 

Section 10. Resignation of the Escrow Agent. At any time, upon ten (10) business days’ written notice to each of the other parties hereto, the Escrow Agent may resign and be discharged from its duties as the Escrow Agent hereunder. As soon as practicable after its resignation, the Escrow Agent will promptly turn over to a successor escrow agent appointed by the Company, and reasonably acceptable to ViewTrade, the Escrow Shares held hereunder upon presentation of a document appointing the new escrow agent and evidencing its acceptance thereof. If, by the end of the ten (10) business day period following the giving of notice of resignation by the Escrow Agent, the Company shall have failed to appoint a successor escrow agent, the Escrow Agent shall deposit the Escrow Shares as directed by ViewTrade with the understanding that such Escrow Shares will continue to be subject to the provisions of this Agreement.

 

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Section 11. Records. The Escrow Agent shall maintain accurate records of all transactions hereunder. Promptly after the termination of this Agreement or as may reasonably be requested by the parties hereto from time to time before such termination, the Escrow Agent shall provide the parties hereto, as the case may be, with a complete copy of such records, certified by the Escrow Agent to be a complete and accurate account of all such transactions. The authorized representatives of each of the parties hereto shall have access to such books and records at all reasonable times during normal business hours upon reasonable notice to the Escrow Agent and at the requesting party’s expense.

 

Section 12. Notice. All notices, demands, consents, requests, instructions and other communications to be given or delivered or permitted under or by reason of the provisions of this Agreement or in connection with the transactions contemplated hereby shall be in writing and shall be deemed to be delivered and received by the intended recipient as follows: (i) if personally delivered, on the business day of such delivery (as evidenced by the receipt of the personal delivery service), (ii) if mailed certified or registered mail return receipt requested, on the business day of such delivery (as evidenced by the signed certified mail card), (iii) if delivered by overnight courier (with all charges having been prepaid), on the business day of such delivery (as evidenced by the receipt of the overnight courier service of recognized standing), (iv) if delivered by facsimile transmission, on the business day of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time, on the next succeeding business day (as evidenced by the printed confirmation of delivery generated by the sending party’s telecopier machine), or (v) if delivered by email on the business day of such delivery (as evidenced by delivery confirmation). If any notice, demand, consent, request, instruction or other communication cannot be delivered because of a changed address of which no notice was given (in accordance with this Section 9), or the refusal to accept same, the notice, demand, consent, request, instruction or other communication shall be deemed received on the second business day the notice is sent (as evidenced by a sworn affidavit of the sender). All such notices, demands, consents, requests, instructions and other communications will be sent to addresses or facsimile numbers as applicable set forth on the signature page hereto.

 

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Section 13. Execution in Counterparts. This Agreement may be executed and delivered in counterparts in any manner (paper, facsimile, electronic or other means), each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

Section 14. Assignment and Modification. This Agreement and the rights and obligations hereunder of the Company may be assigned by the Company only following the prior written consent of ViewTrade. This Agreement and the rights and obligations hereunder of the Escrow Agent may be assigned by the Escrow Agent only with the prior consent of the Company and ViewTrade. This Agreement and the rights and obligations hereunder of each Stockholder may not be assigned. This Agreement may not be changed orally or modified, amended or supplemented without an express written agreement executed by all of the parties hereto. This Agreement is binding upon and intended to be for the sole benefit of the parties hereto and their respective successors, heirs and permitted assigns, and none of the provisions of this Agreement are intended to be, nor shall they be construed to be, for the benefit of any third person. No portion of the Escrow Shares shall be subject to interference or control by any creditor of any party hereto, or be subject to being taken or reached by any legal or equitable process in satisfaction of any debt or other liability of any such party hereto prior to the disbursement thereof to such party hereto in accordance with the provisions of this Agreement.

 

Section 15. Applicable Law. This Agreement shall be governed by and construed in accordance with the internal substantive laws of the State of New York, excluding, to the greatest extent a New York court would permit, the application of the laws of any jurisdiction other than the State of New York. Subject to Section 16, each party hereto irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the state or federal courts in New York city in the State of New York (the “ New York Courts ”) for any action, suit, or proceeding arising out of or relating to this Agreement and the transactions contemplated by this Agreement (and agrees not to commence any action, suit, or proceeding relating thereto except in the New York Courts). Each party hereto irrevocably and unconditionally waives any objection to the laying of venue of any action, suit, or proceeding arising out of this Agreement in the New York Courts, and further irrevocably and unconditionally waives and agrees not to plead or claim in any court that any such action, suit, or proceeding brought in any New York Court has been brought in an inconvenient forum. The parties hereto each hereby knowingly, voluntarily, irrevocably and intentionally waive the right each may have to a trial by jury with respect to any litigation based hereon or arising out of, under or in connection with this Agreement or the subject matter thereof. This provision is a material inducement for the parties to enter into this Agreement.

 

Section 16. Dispute Resolution.

 

(a) Except with respect to disputes regarding the calculations of Revenue and Market Capitalization as contemplated by Section 4, which shall be resolved solely in accordance with Section 4(m), the parties agree to negotiate in good faith to resolve any controversy or claim arising out of or related to this Agreement, including the validity, interpretation or performance hereof.

 

(b) In the event the parties are unable to settle a dispute between them in accordance with subsection (a) above, such dispute shall be referred to and finally settled by arbitration in accordance with the Commercial Arbitration Rules and Mediation Procedures of the American Arbitration Association (the “ AAA ”). The arbitration shall be conducted by the AAA before a single arbitrator (the “ Arbitrator ”). The place of the arbitration shall be in New York, New York. The arbitration shall be conducted in English. Accordingly, the parties hereby waive a judicial proceeding, except for enforcing the arbitration awards or in cases in which the arbitral tribunal requires judicial assistance, including through precautionary measures. Each party hereto shall bear its own costs, including arbitration costs, and attorneys’ fees. Any award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

 

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(c) Each party hereto agrees that monetary damages may not be an adequate remedy for any breach of the provisions of this Agreement. Accordingly, each party hereto agrees that in the event of any threatened or actual breach of this Agreement, the non-breaching party, in addition to any other remedies at law that it may have, shall be entitled to seek equitable relief (including, among other things, the remedies of injunction, specific performance or a combination of these remedies) in any court of competent jurisdiction.

 

Section 17. Headings. The headings contained in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement.

 

Section 18. Recitals. The recitals herein above are hereby incorporated into this Agreement as if fully stated herein.

 

Section 19. Merger or Consolidation. Any corporation or association into which the Escrow Agent may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer all or substantially all of its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which the Escrow Agent is a party, shall be and become the successor escrow agent under this Agreement and shall have and succeed to the rights, powers, duties, immunities and privileges as its predecessor, without the execution or filing of any instrument or paper or the performance of any further act.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

  10  

 

 

IN WITNESS WHEREOF , the parties hereto have duly executed this Agreement as of the date first set forth above.

 

  Datasea Inc.
     
  By:  
    Name: Zhixin Liu
    Title:  Chief Executive Officer
     
  Address:
  1 Xinghuo Rd. Changning Building, 11 th  Floor
  Fengtai District, Beijing, People’s Republic of China 100070
  Attention: Chief Executive Officer
  Email: liuzhixin@shuhaixinxi.com
     
  ViewTrade Securities, Inc.
     
  By:  
    Name: Douglas Aguililla
    Title:   Director
     
  Address:
  7280 W. Palmetto Park Road, Suite 310
  Boca Raton, FL 33433
  Attention: Douglas Aguililla
  Email: dougagui@viewtrade.com

 

  West Coast Stock Transfer, Inc.
     
  By:  
    Name:  
    Title:    

 

  Address:
  721 N. Vulcan Ave. Ste. 205
  Encinitas, CA 92024
  Attention: Frank Brickell
  Email: fbrickell@wcsti.com

 

[Signature Page Continues]

 

[Signature Page to Escrow Agreement]

 

 

 

   
  Zhixin Liu
   
  Address:
   
   
   
   
  Fu Liu
   
  Address:
   
   

 

[End of Signature Page to Share Escrow Agreement]

 

[Signature Page to Escrow Agreement]

 

 

 

EXHIBIT A

ESCROW SHARES

 

Name   Total Escrow Shares  
Zhixin Liu     9,104,167  
Fu Liu     5,145,833  
Total     14,250,000  

 

 

 

EXHIBIT B

FEE SCHEDULE

[SEE ATTACHED]

 

 

 

Exhibit 10.17

 

No.  BJ-2018-

 

Labor contract

 

Party A:  Shuhai Information Technology Co., Ltd

 

Party B: Zhang Jijin

 

Signing Date:  Aug 21, 2018

 

  1  

 

 

According to the“Labor law of the People's Republic of China”and the“Labor contract law of the People's Republic of China”and other relevant laws and regulations of China, both parties (hereinafter referred to as "both parties") on the basis of equality, voluntary and mutually agreed to sign this contract, and abide by the terms of this contract.

 

I.Basic information of Party A and Party B

 

1. Party A: Shuhai Information Technology Co., Ltd

 

Legal representative(major representative) or consignor: Liu Zhixin

 

Registered address:Suite 11E1, Floor 11, Building 1, 1 Xinghuo Rd, Fengtai District, Beijing City

 

Business address Beijing __________

 

Email : ________________

 

2. Party B___ Zhang Jijin ________ Used name ______N/A_____

 

Sexual Male ________

 

household registration (non-agriculture agriculture) non-agriculture

 

ID Card Number 370725196909084610 _____________________

 

Or other valid certificate type and number______ N/A _____

 

start working time: 8 month 21 day 2018 year

 

Residential address and postal code in Beijing 22-4-302, Bajiaonan Rd, Shijingshan District,                       

 

Address and zip code No.120, Zhangzhuang Village, Atuo Town, Changle County, Shandong Province_                       

 

  2  

 

 

The unique delivery address and zip code for receiving various documents :

 

22-4-302, Bajiaonan Rd, Shijingshan District,                      

 

Unique email address for receiving all types of documents:__________

 

Party B's acknowledgement: if Party A sends all kinds of information to Party B according to the unique service address and unique E-mail address provided by Party B, Party A shall keep Party B fully informed .If Party A sends the information to Party B by post (including various express forms) and the email is received or stored in various forms, Party B also acknowledges that Party A has made full disclosure to itself.When Party A sends the information to Party B by post (including all kinds of express forms), if the E-mail is returned due to reasons of Party B and Party a has fulfilled the obligation of full disclosure to Party B, Party b shall bear the adverse consequences.

 

Party B undertakes to ensure the above information is accurate and effective.Party B acknowledges that Party A has fulfilled its obligation to inform Party B when serving various documents to Party B according to the above information provided by Party B. In case of any change of the above information, Party B shall submit a written explanation to Party A within 3 working days from the date of such change.

 

Party B shall check the aforesaid E-mail box every day and ensure that the aforesaid E-mail box shall remain valid after leaving office to ensure the performance of the contractual obligations of both parties, otherwise, it shall be at its own risk.

 

  3  

 

 

II. Term of labor contract

 

3.      The type of this labor contract shall be the fixed term labor contract (fill in "fixed term", "no fixed term" and "deadline for completion of certain tasks").This contract is the 1 (times) labor contract signed by both parties.

 

This contract is a labor contract with a fixed term, which starts from 08.21.2018 to 08.20.2021 .

 

This labor contract is a non-fixed term labor contract, which can be terminated from month day year.

 

This labor contract is the one based on the completion of a certain task. The term of the labor contract shall start from the date of month day year to the completion date,or month day year, of the task. The date of completion shall be approximately month day year, or the completion conditions are as fellows: .If both parties agree to sign the labor contract to complete a certain task for a period of time, the probation period shall be flexible.

 

Starting from 08.21.2018 to 02.20.2018 is the probation period. Party A may extend the probation period according to Party B's performance, but the maximum period shall not exceed three years. If Party A requests to extend the probation period, the term of this labor contract shall be extended according to the variation of the probation period, but the maximum term shall not exceed three years.The written notice required by Party A to extend the probation period and reconfirm the term of labor contract shall be sent to Party B three days before the expiration of the probation period.During the probation period, Party B shall not be entitled to enjoy the benefits of the company's regular employees (except social insurance and other benefits stipulated by the state).

 

  4  

 

 

Party B acknowledges that the following situations do not meet Party A's employment conditions, and Party A has the right to immediately terminate the labor contract within the probation period without any compensation

 

i.Not having the employment procedures and identification documents stipulated by the state;

 

ii.Fail to provide the required proof materials for employment, social insurance and other social security requirements within 15 days after entry, fail to submit the dimission certificate issued by the original employer or other materials required by the company within 15 days after entry;

 

iii.All kinds of information and documents, including but not limited to, resume, application for entry, certificate, education certificate, etc, submitted to Party A are fake and counterfeit (note: All kinds of information and documents, including but not limited to, resume, application for entry, certificate, education certificate, etc, are the decisional basis for Party A to decide whether to hire Party B.; and this article also belongs to the case that Party B has committed a serious violation of discipline after becoming a regular worker.

 

iv.Concealing the existence of labor relations with other units and the obligation of confidentiality and competition restrictions;

 

v.Failing to complete the assigned tasks with quality and quantity;

 

  5  

 

 

vi.Failing to be competent in the assigned work and the job duties stipulated by the company;

 

vii.If Party B is absent from work for more than 10 days (excluding) during the probation period for reasons other than work-related injury, or he/she takes sick leave for more than 10 days (excluding the tenth day) during the probation period, or he/she takes normal leave for more than 5 days during the probation period, or is late for more than 3 times, or is absent from work.

 

viii.Those suffering from mental illness or infectious diseases which are prohibited by law from working or whose physical and health conditions do not meet the requirements of the post

 

ix.Any violation of the employee handbook and rules and regulations during the probation period.

 

x.Under 60 points being made by his/her department and leaders during the probation period;(note: based on the new employee probation appraisal form (i), (ii) and (iii));

 

xi.If Party A fails to terminate the labor contract or labor relationship with the original employer according to law (in case of any loss caused to the company due to such situation, Party A shall have the right to claim compensation from Party B, and this clause shall apply to Party B after becoming a regular worker).

 

xii.Party B has a competition restriction agreement with the original employer and within the limitation scope;

 

xiii.Party B is a wanted person on record or being held on bail pending trial or under residential surveillance;

 

  6  

 

 

xiv.Failing to work at the designated post at the specified time without written permission of the company;

 

xv.Not agreeing to purchase social insurance or signing labor contract with the company according to the requirements of the company after joining the company;

 

xvi.Concealing facts that have been subject to various legal or disciplinary sanctions;

 

xvii.Not having skills required for the position;

 

xviii.Fail to complete the work tasks regarding this post during the probation period;

 

xix.Failure to cooperate with Party A or failure to allow Party A to handle the transfer, registration and payment procedures of social insurance, provident fund, archives etc. for Party B within 10 working days after Party A's notification;

 

xx.Other circumstances that do not meet the requirements stipulated in the recruitment notice, the tripartite employment agreement, etc.

 

Party B acknowledges that the contents in the appraisal form for new employees' probation period shall be the appraisal standard of the probation period and has received it.

 

III. work content and address

 

4. Party B agrees to work in the department Financial department CFO as required by Party A (see annex iii hereto for details).Party A may adjust Party B's post responsibilities and work contents according to its operation and performance.Party A shall adjust Party B's post according to the following provisions:

 

  7  

 

 

i.Party B shall have the obligation to receive training provided by Party A regarding the following condition arises: Party B's work content has been adjusted due to the operation changes of Party A, or Party B is capable of new jobs without any adverse changes in payment.

 

ii.Party B applies for a new position according to his/her ability and Party a agrees

 

iii.Party B is not qualified for the post standard agreed in this contract after being assessed by the department or the human resources department of Party A;

 

iv.Other situations occur when Party A adjusts Party B's post.

 

If Party a adjusts the position of Party b, the salary standard of Party b shall be adjusted according to the salary standard of the new post corresponding to the company standard, but equal pay shall be paid.

 

5. Based on the job characteristics of Party a, Party B's work area or location is Beijing.

 

i.Party A shall have the right to reasonably change Party B's work place (except for business trip) according to the operation and business development. Party B has no objection to this, but Party A shall consider the impact of the change of work place on Party B's life and take reasonable remedial measures.

 

ii If the change of work place of Party B leads to the change of Party B's post and work content, the labor conditions such as salary and treatment shall be adjusted accordingly according to the new post, but the labor conditions such as equal pay and salary shall not be adversely changed.

 

  8  

 

 

If Party B does not agree to change its work place according to the reasonably operation and business development, Party A shall have the right to terminate this contract.

 

6. The work of Party b shall meet the requirements of its post .(see annex iii to this contract)

 

IV. Working Hours and vacation

 

7. Party A shall arrange Party B to implement the fixed working hours system.

Party A arrange Party B to implement standard working hours system. Working hours of Party B shall not be more than eight hours every day, or more than 40 hours a week. Weekly rest day on Saturday and Sunday.

 

If Party A arranges Party B to carry out the comprehensive working hour system or the irregular working hour system, it shall obtain the administrative permission decision of the labor administrative department's special working hour system in advance.

 

If Party A do not plan to arrange Party B to work overtime but Party B needs to work overtime, Party B shall submit an application to Party A and gets Party A's approval to do so.

 

8 . the vacation system implemented by Party A for Party B is based on national laws and regulations and the relevant management system of the company .

 

V. Labor Remuneration

 

9. Party A shall wire Party B's salary before the 16th of each month. In case of any delay in receipt of the payment by a third Party, Party B acknowledges that it is not a case where Party A is in arrears of wages.

 

The bank account of Party b to pay the salary is : 6226220125888486

 

  9  

 

 

Party B undertakes that the bank account shall remain in valid status for the duration of his/her employment and after his/her resignation.

 

For Party B , The total amount of wages during the probation period shall be: 12800 RMB, Full Member Salary shall be : basic salary 3100 RMB ; Merit pay 12900 RMB 。( Merit pay adopts the floating system of evaluation ) .

 

Party B's salary during the probation period shall be 80% of the total amount of the contract. In case of any early conversion, Party A's written notice shall prevail.During the probation period, Party B shall not enjoy the welfare treatment of the company's regular employees (except the social insurance and welfare treatment stipulated by the state).

 

If Party A agrees Party B to work overtime, it shall arrange Party b to take time off or pay Party b overtime fee according to law.The overtime fee of Party b shall be calculated based on its basic salary .

 

Other salary agreements between Party A and Party B: Party A shall adjust the salary standard of Party B according to the changes of Party A's salary system or job adjustments of Party B and Party A's actual business conditions, rules and regulations, referring to Party B's assessment, as well as Party B's working years, reward and punishment records and job changes, but not below the minimum wage standard set by the state.

 

Party B's personal income tax shall be withheld and paid by Party A.

 

10. Party A shall pay Party B a monthly living expense of yuan or execute according to national laws and regulations if Party A's production tasks are insufficient and Party B is waiting for work.

 

  10  

 

 

VI. Social insurance and other insurance benefits

 

11. Both parties shall take social insurance in accordance with the regulations of the state and Beijing.Party a shall handle the relevant social insurance procedures for Party b and undertake the corresponding social insurance obligations.

 

12. The medical treatment of Party B's illness or non-work-related injury shall be subject to relevant regulations of the state and Beijing.Party A shall pay Party B sick leave salary according to national laws and regulations.

 

13. Party B's treatment for occupational diseases or work-related injuries shall be subject to relevant regulations of the state and Beijing.

 

14. Party A shall provide Party B with the following benefits according to the company system .

 

VII. Labor protection, labor conditions and occupational hazard protection

 

15.Party A shall provide Party B with necessary safety protection measures and distribute necessary labor protection articles according to the state regulations on labor safety and health as required by the position

 

16. Party A shall establish a safe production system in accordance with relevant national laws and regulations;Party B shall strictly abide by Party A's labor safety system, strictly prohibit illegal operations, prevent accidents in the work process and reduce occupational hazards.

 

  11  

 

 

17. Party A shall establish and improve the responsibility system for occupational disease prevention, strengthen the management of occupational disease prevention and improve the level of occupational disease prevention.

 

VIII. Termination of labor contract and economic compensation

 

18. If the laws, administrative regulations and rules on which the contract is based are changed, the relevant contents of the contract shall also be changed accordingly.

 

19. If the contract cannot be performed due to major changes in the objective circumstances on which the contract is based, the relevant contents of the contract may be changed with the agreement of both parties through negotiation.

 

20. This contract may be terminated upon mutual agreement of both parties.

 

21. Party A may terminate this contract under any of the following circumstances:

 

1 、  Be proved to be unqualified for employment during the probation period.

 

2 、  Serious violating Party A's labor discipline or Party A's rules and regulations.

 

3 、  Serious dereliction of duty and malpractice for selfish ends cause significant damage to Party A, including economic loss of more than 1,000 yuan, punishment or negative evaluation from the administrative authority or negative evaluation from the society which resulting Party A's business activities can not be carried out normally.

 

  12  

 

 

4 、  Establishing labor relations with other employers at the same time.

 

5 、  Party A shall enter into or change the labor contract against its true intention by means of fraud, coercion or taking advantage of others' danger

 

6 、  Party b has been absent from work for two consecutive days or has been absent from work for three days in a month or has been absent from work for more than five days in a year.

 

7 、  Be giving criminal sanctions according to law

 

8 、  Violation of basic principles of business ethics, serious negligence, serious violation of discipline, major violation, special violation and serious violation of rules and regulations in the employee handbook.

 

22. If Party B has one of the following circumstances, Party A may terminate this contract, but it shall notify Party B in writing 30 days in advance.

 

1  Party B is unable to do his/her original work or other work arranged by Party A after his/her illness or non-work-related injury medical treatment has expired.

 

2  Party B is not competent for the work (referring to the job duties and requirements), and is still not competent after training or adjustment.

 

3  The labor contract cannot be performed due to major changes in the objective conditions on which the labor contract is concluded. Party A and Party B fail to reach an agreement on changing the content of the labor contract through consultation.

 

  13  

 

 

Party B shall not leave his/her post within 30 days from the date of informing Party A of the termination of the labor contract, and Party A shall have the right to ask Party B to leave his/her post within 30 days.

 

If Party B notifies Party A to terminate the employment contract based on the above circumstances, Party A may deal with it as absenteeism, and may require Party B to be liable for all losses caused thereby

 

23. If it is necessary to reduce more than 20 employees or less than 20 employees but accounts for more than 10 percent of the total number of employees under any of the following circumstances, Party a may terminate this contract after explaining the situation to the trade union or all employees 30 days in advance, listening to the opinions of the trade union or all employees and reporting to the labor administrative department:

 

1  Reorganization in accordance with the company bankruptcy law;

 

2  Having serious difficulties in production and operation

 

3  Through transferring production, major technical innovation or adjustment of business mode, the company still needs to reduce its personnel after it changes its labor contract.

 

4  Other major changes in the objective economic conditions on which the labor contract is based have made it impossible to perform the labor contract

 

24. Under any of the following circumstances, Party B may at any time notify Party A to terminate this contract.

 

1 、  Failing to provide labor protection or working conditions as agreed in the labor contract;

 

2 、  Failing to pay labor remuneration in full in time

 

3 、  Failing to pay social insurance for labourers according to law

 

  14  

 

 

4 、  Party a's rules and regulations violate laws and regulations and damage the rights and interests of workers;

 

5 、  Party A changes the labor contract against Party B's true intention by means of fraud, coercion or taking advantage of others' danger;

 

6  Other circumstances under which the laborer may terminate the labor contract as provided in the laws and administrative regulations

 

25. If Party a forces Party b to work by means of violence, threat or non-restriction of personal freedom, or if Party a's illegal command or forced operation endangers Party b's personal safety, Party b may immediately terminate the labor contract without prior notice to Party a.

 

26. The labor contract shall be terminated under any of the following circumstances.

 

1 、  The labor contract expires;

 

2  Party b begins to enjoy the basic endowment insurance treatment according to law;

 

3  Party b dies or is declared dead or missing by the people's court;

 

4  Party a is declared bankrupt according to law;

 

5  Party A's business license is revoked, Party A is ordered to close down, Party A is revoked or Party A decides to dissolve in advance;

 

6  Other circumstances stipulated by laws and administrative regulations.

 

27. Party A and Party B shall conscientiously fulfill the contract, and shall not unreasonably dismiss or resign midway through the contract without justified reasons, otherwise, they shall bear all economic losses caused thereby.Party B shall notify Party a three days in advance during the probation period

 

  15  

 

 

28. Upon expiration of this contract, both parties may renew the labor contract upon mutual agreement.If the labor contract expires, the service term agreed in the training agreement signed by both parties do not expire, the original labor contract shall be extended to the expiration of the service term agreed in the training agreement.

 

29. If both parties still have labor relations after the expiration of this contract, Party A shall renew the labor contract with Party B in a timely manner.If the labor relationship still exists after the expiration of the contract, This contract shall be deemed to be automatically renewed for a same fixed term.

 

30. The termination of the labor contract by both parties involves the situation that Party A needs to pay economic compensation in accordance with the provisions of the labor contract law. The amount and duration of such compensation shall be subject to the provisions of laws and regulations.

 

31. When the contract is terminated, Party B shall handle the work handover as agreed by both parties.If economic compensation shall be given, it shall be paid at the time of work handover.

 

If Party B fails to complete the work handover as required by Party A, Party A shall not pay Party B economic compensation, nor reimburse Party B for all kinds of payments, and Party B shall be liable for any losses caused to Party A.

 

IX. Other contents agreed by the parties

 

32. Party A and Party B agree to add the following contents to this contract:

 

If Party a decides to terminate the labor contract of Party B, Party A shall only authorize the legal representative or the head of personnel department to carry out the decision, other personnel have no such authority.

 

  16  

 

 

Because of Party A's Internet + management way, the relevant data are stored in the independent third Party server which means the authenticity and objectivity of the related management information, and Party B acknowledges this. If Party B objects this, the objection to Party A should be submitted in written form within 2 working days from it generates , otherwise it shall be deemed to recognized the related information by Party B.

 

In case of any labor dispute between Party B and Party A, Party A and Party B hereby agree to adopt the method of non-public hearing.

 

X. Labor dispute settlement and others

 

33. In case of any dispute arising from the performance of this contract, the parties may apply to Party A's labor dispute mediation committee for mediation.If mediation fails, the Party B may apply to the labor dispute arbitration committee for arbitration

 

Either Party may also directly apply to the labor dispute arbitration committee for arbitration.

 

34. The appendix of this contract is as follows :

 

1 appendix I:The confidentiality agreement

 

2 appendix II:Intellectual property protection and non-competition agreement

 

3 appendix III:Job requirements

 

4 appendix IV:The employee handbook

 

35. The matters not covered herein or in conflict with the relevant regulations of China and Beijing in the future shall be subject to the relevant regulations.

 

36. This contract is made in duplicate, with each Party holding one copy.

 

  17  

 

 

(The following is without text but for signing)

 

 

Party A(Seal): Shuhai Information Technology Co., Ltd   Party B (signature ) /Zhang Jijin/
     
Signing date: 8 month 21 day 2018 year   8 month 21 day 2018 year

 

  18  

 

 

劳 动 合 同 续 订 书

 

The renewed contract is labor contract and for the term of the renewed contract is from (year/month/date), to (year/month/date)  

 

Party A(Seal)       Party B(Signature or seal)

 

 

Legal representative (principal)Or authorized agent (signature or stamp)    

 

 

        Month         Day         Year

 

 

  19  

 

 

 

The renewed contract is labor contract and for the term of the renewed contract is from (year/month/date), to (year/month/date)  

 

Party A(Seal)          Party B(Signature or seal)

 

 

Legal representative (principal)Or authorized agent (signature or stamp)   

 

 

        Month         Day         Year

 

 

labor contract amendment

 

  20  

 

 

 

Party A and Party B agree to make the following changes to this contract:

 

 

Party A(Seal)          Party B(Signature or seal)

 

 

Legal representative (principal)Or authorized agent (signature or stamp)    

 

 

        Month         Day         Year

 

 

  21  

 

 

Instruction

 

I.This contract can be used when the employer signs the labor contract with the employee

 

II.When the employer and the employee use this contract to sign the labor contract, the contents agreed upon by both parties shall be filled in the corresponding space after negotiation.

 

When signing the labor contract, Party a shall affix its official seal;The legal representative or principal person in charge shall sign or seal himself.

 

III.The terms to be added upon negotiation of both parties shall be indicated in the labor contract amendment hereof.

 

IV. Other contents agreed by the parties, such as changes to the labor contract, etc., which cannot be filled in this contract, may be attached with additional paper.

 

V. This contract shall be filled in with pen or signature pen, clear in writing, concise and accurate in writing, and shall not be altered.

 

VI. This contract is made in duplicate with each Party holding one. Party a shall not keep the one that should be kept by Party B.

 

  22  

 

 

Annex 1 of Labor contract: Confidentiality Agreement

 

Confidentiality Agreement

 

根据《中华人民共和国劳动法》及其他有关保护企业商业秘密的法律、法规 , 甲乙双方经平等协商同意 , 自愿签订本协议 , 共同遵守本协议所列条款。

 

According to "Labor Law of the People's Republic of China" and other relevant laws and regulations on trade secrets to protect enterprises, through equal consultation between both parties agreed to, voluntary sign and abide by the terms of this agreement.

 

本协议中的 公司 指甲方及甲方关联公司。

 

The "company" in this agreement, refers to Party A and affiliate companies of Party A.

 

由于乙方在甲方任职期间 , 已经或 ( 将要 ) 知悉或接触公司的业务和技术信息 , 而这些业务和技术信息为保密性质 , 属于公司的财产 , 且将会在其履行职务的过程中不断接触更多保密信息 ;

 

During its employment at Party A, Party B is already or will be aware of or have access to the business and technical information of the Company, and such business and technical information is confidential by its nature, the property of the company, Party B will continue to have access to more confidential information in the process of performing its job duties;

 

为了明确乙方的保密义务 , 甲、乙双方本着平等、自愿、公平和诚实信用的原则 , 订立本保密协议。双方确认在签署本协议前已经详细审阅过协议的内容 , 并完全了解协议各条款的法律含义。

 

In order to specify the confidentiality obligations of Party B, both Parties should be based on the principle of equality, voluntariness, fairness, honesty and credit, and conclude the following confidentiality agreement. Both sides confirm that, before signing this agreement, they have examined the contents of the agreement in detail, and fully understand the legal meaning of the terms.

 

  一、 保密的内容和范围
  I. The content and scope of the confidentiality

甲乙双方确认 , 乙方应承担保密义务的甲方商业秘密范围包括但不限于以下内容 :

 

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Both parties confirmed that business secrets with regard to which Party B shall bear the confidentiality obligations include but not limited to the following:

 

1 、技术信息 : 包括但不限于有关公司产品和其特性以及操作模式的信息技术方案、工程设计、电路设计、制造方法、制造工艺、配方、工艺流程、技术指标、技术和质量标准及规范与规程、技术研究的阶段和最终结果、设计图纸及设计计算等设计文件、操作技术与方法、施工技术文件与方法、专利获专有技术、计算机软件、数据库、实验笔记、测试程序、软件设计和结构、软件文件、内部文件或其他报告分析性能信息、试验结果、图纸、样品、样机、模型、模具、操作手册、技术文档、涉及商业秘密的业务函电等。

 

1. Technical information, including but not limited to the products of the company and its characteristics and operation mode of information technology solutions, engineering design, circuit design, manufacture method, manufacturing technology, formulation, technological process, technical index, technical and quality standards and rules and regulations, technology research stage and the final result, design drawings and design documents, operation technology and methods, construction technology documents and method, patent proprietary technology, computer software, database, lab notes, test procedure, software design and structure, software files, internal documents or other report analysis performance information, the test results, drawings, samples, prototypes, models, molds, operation manual and technical documents, involving the business secret of business correspondence, etc

 

2 、经营信息 : 包括但不限于公司的客户名单、营销计划、采购资料、定价政策、不公开的财务资料、进货渠道、产销策略、招投标中的标底及标书内容、投资及融资信息、合作伙伴及合作关系细节、未来商业计划。

 

    Management information: including but not limited to the customer lists, marketing plans, purchasing information, pricing policies, financial information unknown to the public, purchase channels, production and marketing strategy, pre-tender estimate in the bidding content, investment and financing information, partnership and cooperation relations details and future business plans of the company.

 

3 、公司依照法律规定或者有关协议的约定 , 对外承担保密义务的事项 :

 

    Company in accordance with the law or the provisions of the related agreement,

 

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undertake the obligation to keep confidential matters:

 

  l 如在缔约过程中知悉的对方当事人的秘密 ;

 

Such as in the contracting process know the secrets of the other Party;

 

  l 和有关协议的约定 ( 如技术合同等 ) 对外承担保密义务的事项。

 

And the provisions of the related agreement (e.g., technology contract, etc.) undertake the obligation to keep confidential matters

 

4 、其他甲方未向公众公布的公司内部经济、技术、管理等信息。

 

Other information, such as economy, technology, management inside the company Party A is not released to the public.

 

二、乙方的保密义务

 

II. Confidentiality obligations of Party B

 

对本协议第一条所称的商业秘密 , 除有甲方书面授权 , 无论乙方以何种方式从甲方获得甲方的技术资源和市场资源 , 以任何方式、任何目的完整或部分地向非甲方企业或非甲方人员提供上述的技术资源和市场资源 , 或者向甲方企业中与工作需要无关的人员提供上述的技术资源和市场资源 , 均视为泄密。乙方承担以下保密义务 :

 

Trade secrets referred to in article 1 of this agreement, in addition to Party A's written authorization, no matter Party B obtain technical resources and market resources from Party A, full or in part to the enterprise Party A or provide the technical resources and market resources to not the Party A's personnel, has nothing to do with the job needs in the enterprise to provide the technical resources and market resources, are considered to be leaked. Party B undertake the following confidentiality obligations:  

 

1 、不得刺探与本职工作或本身业务无关的商业秘密 ;

 

1. Not spying on commercial secrets has nothing to do with the job or the business itself;

 

2 、不得向不承担保密义务的任何第三人披露甲方的商业秘密 ;

 

2. Shall not disclose the commercial secrets of Party A to any third Party that has no confidential obligation;

 

3 、不得允许 ( 出借、赠与、出租、转让等处分甲方商业秘密的行为皆属于 允许 ”) 或协助不承担保密义务的任何第三人使用甲方的商业秘密 ;

 

  3. Shall not allow (loan, gift, lease, transfer and disposition of Party A's commercial secrets all belong to "allowing") or assist any third Party who does not undertake the confidential obligation use the commercial secrets of Party A;

 

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4 、如发现商业秘密被泄露或者自己过失泄露商业秘密 , 应当采取有效措施防止泄密进一步扩大 , 并及时向甲方报告。

 

  4. If Party B discovers commercial secrets leaked or your negligence leak trade secrets, shall take effective measures to prevent leaks further expand, and timely report to Party A.

 

三、保密期限

 

III. Confidentiality Term

 

甲、乙双方确认 , 乙方的保密义务自本协议签订之日起开始 , 到该商业秘密公开 ( 即已不属于商业秘密 ) 时止。乙方是否在职 , 不影响保密义务的承担。

 

Both Party A and Party B confirm that, confidentiality obligations of Party B start from the signing date of this agreement, ends until the commercial secret becomes public (i.e., in other words, the information is not the trade secrets anymore). Whether Party B is employed, shall not affect its confidentiality obligations

 

四、违约责任

 

IV. Liability for Breach of Contract

 

甲乙双方约定 :

 

Both Parties agreed:

 

  (1) 如果乙方不履行本协议第二条所规定的保密义务 , 应当承担违约责任 ;

 

If Party B fails to perform the obligations stipulated in Article 2 of this agreement, it shall liable for breach of contract

 

  (2) 如果因为乙方前款所称的违约行为造成甲方的损失 , 乙方应当承担损失赔偿责任 ;

 

If Party B's breach as referred to in the preceding paragraph caused the loss of Party A, Party B shall bear the liability for damages;

 

  (a) 乙方需承担的损失赔偿责任包括但不限于因其违约的行为给甲方造成的直接的或 / 及间接的 , 有形的或 / 及无形的财产或 / 及非财产方面的损失 ;

 

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Party B must bear the liability for damages including but not limited to, directly or indirect losses of Party A including tangible or intangible property damages resulting from Party B’s default behavior;

 

  (b) 甲方因调查乙方的违约行为而支付的合理费用 , 应当包含在损失赔偿额之内 ;

 

Reasonable costs occurred in connection with Party A's investigation of Party B's breach should be included in the loss compensation .

 

(3) 因乙方的违约行为侵犯了甲方的商业秘密权利的 , 甲方可以选择根据本协议要求乙方承担违约责任 , 或者根据国家有关法律、法规要求乙方承担侵权责任。

 

When default of Party B violated the rights of Party A to the commercial secrets, Party A can choose to require Party B to bear its responsibilities upon breach according to this agreement or require Party B to bear tort liability in accordance with relevant state laws and regulations.

 

五、协议的效力和变更

 

V. The Validity and Amendment of the agreement

 

本协议构成甲方和乙方签署的劳动合同的附件三 , 是劳动合同不可分割的一部分 , 对本协议的违反也是对劳动合同的违反。本协议未规定的部分以劳动合同为准。

 

This agreement constitutes Annex 3 of Labor Contract signed by Party A and Party B, is an integral part of the labor contract; breach of this agreement is in violation of labor contract. Parts not covered in this agreement will be subject to the labor contract .

 

本协议自双方签字及盖章后生效。本协议的任何修改必须经过双方的书面同意。

 

This agreement shall take effect after signed and stamped by both parties. Any modification of this agreement must be made upon written consent of both parties

 

( 本行以下无正文 , 为签署部分 )

 

(The following is without text but for the signing)

 

甲方 : 数海信息技术有限公司 ( 盖章 )

 

Party A: Shuhai Information Technology Co., Ltd (Seal)

 

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乙方 : 刘志欣

Party B:  /s/ Zhang Jijin  

日期 : 同主合同签署日期

Date: Same as the signing date of the main contract

 

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劳动合同书附件二 知识产权保护和竞业禁止协议

Annex 2 of this Labor Contract: Protection of Intellectual Property and Non-Compete Agreement

 

知识产权保护和竞业禁止协议

 

Intellectual Property and Non-Compete Agreement

 

鉴于 : 乙方是甲方聘用的从事劳动合同书附件一中所述岗位的专业人员 ; 乙方所从事的工作将涉及甲方拥有的专利权、专有技术、著作权、计算机软件、数据库、商标权和其它形式的知识产权 ; 为保护甲方的知识产权 , 明确双方的权利义务 , 特订立协议下 :

 

Party B is hired by Party A as a professional for the position listed in the labor contract described in Annex 1 the work Party B is engaged in will involve the patent right of Party A, proprietary technology, copyright, computer software, database, trademark right and other forms of intellectual property rights; to protect the intellectual property rights of Party A, this agreement hereby specifies the rights and obligations of both parties as follows:

 

一、为本协议之目的 ,“ 知识产权 是指已注册和未注册的 , 包括著作权及相关的权利、进行了注册申请的专利、专利申请权、商标、服务标志、标识、形象、产品外观、商号、互联网域名、设计权、版权 ( 包括计算机软件的版权 ) 、数据库权利、半导体设计图权利、实用新型、专有技术、商业秘密、发明创造 ( 无论是否受专利法保护 ) 和其他受专利、著作权、商标、商业机密或其它法律保护的知识产权 , 不论其表现为何种形式 , 记载于何种载体。

 

  I. For the purpose of this agreement, "intellectual property" refers to the registered and unregistered copyright and related rights, patents subject to pending registration, patent application right, trademark, service mark, logo, image, product appearance, trade name, Internet domain names, design rights, copyright (including the copyright of computer software), database rights and proprietary technology, semiconductor design right, utility

 

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model, trade secrets, inventions (whether or not protected by patent law) and other patent, copyright, trademark, trade secret or other intellectual property rights protected by the laws, regardless of the form and carrier.

 

  二. 有下列条件情况之一的 , 乙方 ( 单独或与他人共同 ) 完成的知识产权以及与之有关的所有资料全部属于甲方在全球范围内独家所有。乙方同意将与职务发明相关的任何权利和利益无偿且完全地转让于甲方 , 包括但不限于职务发明的申请专利的权利、署名权、许可使用权和获得奖金报酬权 :

 

II. If one of the following conditions occurs, works protected by intellectual property rights and completed by Party B (alone or jointly with others) and all related information all belong to Party A worldwide. Party B agrees to transfer invention related rights and interests free and completely to Party A, including but not limited to the right to apply for the invention patent, the right of authorship, right to use and the right to bonuses;

 

  1. 受聘期间在本职工作中完成的知识产权 ;

 

1. Intellectual Property completed during Party B’s employment ;

 

  2. 履行甲方交付的本职工作之外的任务所研发的知识产权 ;

 

2. Intellectual Property Rights developed in Performing tasks given outside of work assigned by Party A;

 

  3. 离职、退休或者调动工作后一年内研发的同甲方业务相关的 ( 而无论同乙方履行其本身的工作职责是否相关 ) 知识产权 , 无论是否可以申请专利、商标或其它权利 ;

 

3. Intellectual Property Rights developed within a year after the resignation, retirement or relocation and related to Party A’s (whether or not related to the performance of its duties) whether or not Party B can apply for patent, trademark or other rights ;

 

  4. 主要利用甲方的资金、设备、零部件、原材料或者不对外公开的技术情报、技术材料、资源信息及商业秘密等所研发的知识产权。

 

4. Intellectual Property rights that are researched and developed mainly by using Party A's fund, equipment, spare parts, raw materials or closed technical information not disclosed to the public, technical materials, resource information and trade secrets.

 

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  乙方进一步同意 , 如上述规定的知识产权或与其有关的任何权利和利益依法不能由乙方转让给甲方时 , 乙方在此授予甲方一项排他性的、无偿的、可转让的、不可撤销的、全球性的实施该等不可转让的权利、所有权和利益的许可 ( 并有向多层次的分许可人进行分许可的权利 ) 。如上述发明中或与其有关的任何权利、所有权和利益既不能由乙方转让给甲方或亦不能许可甲方实施时 , 乙方应不可撤销地放弃并同意永不向甲方或甲方受让人就该等不可转让、不可许可权利中的权利、所有权和利益提出主张。

 

Party B further agrees that, if the Intellectual Property Rights and any related rights and interests set forth above cannot be transferred by Party B to Party A in accordance with the law, Party B hereby grants Party A exclusive, free, transferable, irrevocable, and global enforceable non-transferable rights, ownership and interests (and also licensing of rights to sublicenses of multiple layers). If any invention, right, title and interests discussed above cannot be transferred or licensed by Party B to Party A, Party B shall irrevocably waive and agree never assert any claim against Party A or assignees of Party A permission with regard to such non-transferrable, non-licensable rights, ownerships, and interests.

 

  相关权利的完善

 

III. Perfection of related rights

 

  3.1 乙方同意 , 在受聘于甲方期间及其离职后的两年内 , 如为甲方合法取得或维持上述知识产权的所有权所需要 , 乙方将按照甲方的要求签署有关文件或提供必要的协助。

 

Party B agrees that when employed by Party A and two years after leaving office, Party B will sign the relevant documents according to the requirements of Party A or provide assistance   if it is necessary for Party A to legally acquire or maintain the ownership of the intellectual property rights.

 

  3.2 如果甲方无论出于何种理由未能取得上述所必须的任何文件或任何该等文件未获得乙方本人签名 , 乙方在此确认不可撤销地指定并委任甲方和甲方适当授权的高级管理人员和代理作为乙方的代理和实际代理人 , 代表乙方并代替乙方 :

 

3.2 If for or reason, Party A fails to obtain the necessary file or any such documents are not signed by Party B, Party B hereby confirm that will

 

irrevocable appointed senior management personnel of Party A acting as agent and the actual agent of Party B and acts, on behalf of Party B.

 

  (a) 签署、提交、申请、登记和转让记录任何该等申请 ;

 

Sign, submit, apply for, register and transfer record any such application ;

 

  (b) 签署并提交任何该等执行所需的文件 ;

 

Sign and submit documents for the enforcing rights;

 

  (c) 采取所有其他合法行为 , 推动职务发明中的专利、著作权、商业机密或其它权利的提交、申请、登记、转让记录、签发和执行 , 如同乙方亲自签署一般具有同等法律效力。

 

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Take all other legal acts, promote the submissions, application, registration, transfer of records, issuing and execution of service invention patent, copyright, trade secret or other rights, personally signed by Party B have the same legal effect .

 

  3.3 在未经甲方书面同意前 , 乙方无权利且不得直接或间接 :

 

3.3 Without written consent of Party A, Party B has no rights and shall not directly or indirectly:

 

  (a) 复制、改编、修改、翻译、生产、营销、出版 ( 发布 ) 、发行、销售、许可或部分许可、转让、租赁、传送、传播、展示或使用上述知识产权、其任何部分或任何形式的复制品 ;

 

Reproduction, adaptation, modification, translation, production, marketing, publishing (releasing), distribution, sales, licensing or partial licensing, transfer, lease, delivery, transmission, display or use of above Intellectual Property or any part, and reproduction in any form;

 

  (b) 将上述知识产权、其任何部分或任何形式的复制品用于创作派生作品、提供电子方式的访问或阅读或存入计算机存储器 ;

 

The above referenced intellectual property or any part thereof or copies in any form used for creating derivative works, providing visits or access electronically or being saved in the computer memory;

 

  (c) 引起其他人的任何上述行为。

 

Causing any of the above behavior of others .

 

  四. 乙方承诺 , 在任何时间 , 仅为甲方利益、并按甲方所要求的方式使用本协议第一条规定的知识产权 ; 非经甲方的书面授权 , 不对其作任何形式的处分 / 处置。在与甲方的劳动关系解除或者终止后 ,

 

IV. Party B promises to use intellectual property rights stipulated in Article 1 of this agreement just for the interests of Party A and in the way required by Party A; , at any time, Party B promises not to make any form of disposal of such rights without Party A's written authorization, Party B will immediately cease all use of the intellectual property rights after terminating the employment relationship with Party A.

 

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  五. 甲方与乙方的劳动关系解除或者终止后 , 乙方承诺 , 不再声称是甲方的雇员、或声称其具有代表甲方的权利 , 且不得以任何形式 ( 有偿或无偿、直接或间接 ) 侵占、使用或者擅自复制、带走甲方拥有知识产权的任何文件、资料 , 除非事先得到甲方的书面许可。

 

After the termination of employment relationship with Party B, Party B promises that it no longer claims to be an employee of Party A, or claims that it has right to act on behalf of Party A, and shall not in any form (paid or unpaid, directly or indirectly) occupy, use, or copy, take any documents, data of which Party A has intellectual property rights unless it has obtained prior written approval from Party A.

 

  六. 如乙方未遵守上述各项协议内容 , 盗取、泄密、侵犯本协议所述的 知识产权 ”, 构成违反职业道德或侵犯甲方知识产权的行为 , 将承担由此而引发的法律责任并全额赔偿给甲方造成的所有损失。

 

VI. If Party B does not comply with the above agreement and steals, leaks or infringes "intellectual property" discussed in this agreement, such behavior violation of professional ethics or infringement intellectual property rights of Party A, and will bear the legal liability arising from the full compensation for all losses caused by Party B.

 

  七. 乙方承诺 , 在受聘期间 , 不侵犯甲方拥有的本协议第一条所列知识产权 , 不侵犯第三方知识产权 , 否则将承担由此而引发的相应的法律责任和经济赔偿责任。

 

Party B promises, during the period of its employment, not to infringe intellectual property of Party A listed in Article 1 of this agreement intellectual property rights of third Party and otherwise will bear the corresponding legal responsibility and economic compensation   arising from such infringement.

 

  八. 乙方声明 , 此前未曾与第三方签署过任何包含 竞业禁止 条款的合同 ; 或者其已与曾经与其签署 竞业禁止 条款的第三方以适当方式解除了该等 竞业禁止 义务。

 

Party B states it has not previously signed any agreement with "non-compete" terms and conditions with a third Party; or it has negotiated with any third Party it has ever signed "non-compete" terms and conditions in an appropriate way to terminate the "non-compete obligations.

 

    前款所谓 竞业禁止 条款 , 是指任何第三方限制乙方从事甲方现有工作的条款。

 

The so-called "non-compete," terms mentioned in the preceding paragraph means any term concerning any third Party’s right to limit the Party B’s performance of its job at Party A.

 

    如因乙方违反上述声明导致甲方被第三方指控连带侵权 , 乙方应承担与此有关的全部法律责任和经济赔偿责任。

 

If Party B violates the above statement and accused Party A to be sued for joint infringement by a third Party, Party B shall bear all the legal responsibility and related economic losses.

 

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  九. 竞业禁止义务

 

IX. Non-compete obligation

 

在乙方的聘用期限内及其与甲方劳动关系解除或终止后的两年内 , 乙方不得直接或间接地、以个人名义或是作为其他个人或组织的代表参与 , 为他人提供任何咨询服务或其他协助 , 以协助他人从事任何竞争性活动 ( 事先得到甲方书面许可的除外 )

 

During the employment of Party B and within two years after the termination of its employment relationship with Party A, Party B shall not directly or indirectly in its name or as representative of the other individuals or organizations participate, or provide any services for others or other assistance, to help others to engage in any competitive activity (except obtaining Party A's written approval in advance)

 

为本协议目的 ,“ 竞争性活动 包括但不限于具有如下特征的行为 :(1) 从事与甲方已从事的或现从事的或将从事的业务相同或、相似、或相竞争性质的业务活动 ;(2) 通过直接销售或利用网络分销、交易或以其他方式销售与甲方分销、交易或出售的产品相竞争或相似的他方生产的产品 ;(3)

 

, 上述产品或服务包括甲方正在开发的任何产品或服务或在本协议期间正在策划、开发之中的产品或服务 ;(4) 在与甲方从事同类或与之有竞争关系及其他利害关系的任何单位任职。

 

For the purpose of this agreement, "competitive activities” includes but not limited to behavior with the following characteristics: (1) engaged in or will be engaged in the business of the same or similar, or the nature of the competitive business activities; (2) through direct sales or using network distribution, trading or sales distribution in other ways (3) provide similar service including the product or service or during the period of this agreement in planning, development of product or service; (4) Party B engaged in the same or with the relationship of any other unit in competition with Party A. .

 

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  十. 在乙方离职后 , 作为乙方在离职后承担第九条竞业禁止义务的补偿 , 双方可以协商由甲方向乙方在承担竞业禁止义务的时间里按月支付竞业限制补偿费 , 补偿费最低不应低于乙方在甲方离职前上一年度税前月工资总额的【 50% 】。为免生歧义 , 除非甲方在乙方离职时 , 要求乙方遵守本竞业禁止条款 , 否则竞业限制补偿费并不构成甲方的义务。如甲方不支付或停止支付竞业限制补偿费 , 则乙方自甲方不支付或停止支付竞业限制补偿费之日起不再承担离职后的竞业禁止义务。如果乙方违反竞业禁止义务 , 应当向甲方支付违约金 ( 数额为甲方向其支付的竞业限制补偿费的 3 ) 并承担因该违约行为对甲方造成的损失。

 

After Party B's departure, both parties can negotiate and require Party A to pay monthly non-competition compensation during the period when Party B bears the non-compete obligation as compensation for Party B’s non-compete obligation after leaving Party A. Such compensation should not below [50%] of the total amount of monthly salary of the year before Party B left Party A. For the avoidance of ambiguity, unless Party A requires Party B's to comply with the non-compete term at the time of Party B’s departure, the non-competition compensation does not constitute the obligations of Party A. If Party A does not pay or stop paying the non-competition compensation, Party B shall no longer bear the non-compete obligations since the date when Party A does not pay or stop paying non-competition compensation after Party B’s departure. If Party B violates non-compete obligation, it shall pay liquidated damages to Party A (the amount is 3 times payment of the non-competition compensation for Party B) and bear the losses caused by the breach of Party A.

十一. 在乙方的聘用期限内及其与甲方劳动关系解除或终止后的两年内 , 乙方不得直接、间接、或通过其关联人士 :

 

During the employment of Party B or within two years after the termination of the termination of the employment relationship removes, Party B shall not directly, indirectly, or through its associated persons:

 

  1 、  指使、引诱、鼓励或以其他方式促成甲方的任何雇员终止与甲方的劳动关系 , 但乙方经甲方书面同意为履行其职责而采取的行动除外 ;

 

1. Instigate, seduce, encourage or otherwise assist any employees of Party A to terminate their labor relationship with Party A, except actions taken for fulfilling its responsibility and with Party A's written consent;

 

2 、 指使、引诱、鼓励或以其他其他方式促成甲方的任何供货商、承包商或客户终止与甲方的合作关系 , 或从事任何可能对甲方与上述供货商、承包商或客户的合作关系造成不利影响的行为。

 

2. Instigate, seduce, encourage or in other ways assist any suppliers, contractors, or customers of Party A to terminate cooperation with Party A, or engage in any activity adversely affecting the cooperation of Party A with its suppliers, contractors, or customers.

 

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十二. 乙方同意违反本协议的任何条款将导致甲方受到不可避免的损失和损害。因此 , 乙方同意如果其违反了本协议项下任何义务 , 除非另有规定 , 甲方有权终止与乙方的劳动关系 , 而不必向乙方支付任何补偿费 , 而乙方应当赔偿甲方所有因乙方违约、为阻止乙方违约而作的强制性救济措施或任何部分措施和保证有强制执行力的措施而引起的全部损失和损害。本条规定不妨碍甲方寻求根据中华人民共和国法律可采取的其他任何救济措施。

 

XI. Party B agrees that violating any provision of this agreement will lead to inevitable loss and damage of Party A, Therefore, Party B agrees that, if it violates any obligation in this agreement, unless specified otherwise, Party A has the right to terminate the labor relationship with Party B, without having to pay any compensation to Party B and Party B shall compensate Party A for all losses and damages resulting from its defaults, mandatory relief measures to prevent the default or any part of the measures and measures to guarantee compulsory enforcement of the agreement. The provisions of this article shall not interfere with Party A’s right to take any other remedial measures according to the laws of the People's Republic of China.

 

十三. 本协议可由甲方转让给甲方的子公司、分支机构或办事机构 , 当乙方在上述机构之间被调任时 , 本协议自动被转让至新的聘用单位而无需由乙方另行签署。或者如新的聘用单位提出要求 , 则双方协商重新签署新的协议。

 

XII. This agreement can be transferred to Party A's subsidiaries, branches or offices, when Party B is transferred between branches, this agreement shall be automatically be transferred to a new employing unit without having to be signed by Party B; if requested by the new work units, both sides shall negotiate to sign a new agreement.

 

十四、本协议作为乙方受聘于甲方的必备文件 , 经双方签章后在双方签订的《劳动合同》生效日生效。本协议用中文书写 , 正式文本两份 , 双方各执一份。

 

As an necessary documents for Party B’s employment by Party A, this agreement becomes effective after both sides sign or seal it. This agreement is written in Chinese. There are two copies of the official text was, and each Party holds one .

 

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十五、本协议中的所有条款的标题只是为了方便阅读 , 不能以任何形式作为对本协议的解释或影响本协议的含意。

 

The title of all terms in this agreement is only for the convenience of reading, and shall not be an interpretation of this agreement or in any way affect the meaning of this agreement.

 

十六、所有与本协议有关的通知、要求、请求、承认或其它通信均必须以书面形式作出 , 并由通知方亲自 , 通过快递或附有回执的挂号信 , 递交至以下列出的双方的地址 ( 或该方向另一方以书面形式通知的其它地址 ) 。所有有关本协议的通知、要求、请求、承认或其它通信的送达时间为 :(1) 亲自递送的情况下为实际递交时 ;(2) 通过快递递交时为交给快递后的三 (3) 日后视为送达 , 如三 (3) 日内送达则以实际送达日为准 ;(3) 如以挂号信 ( 或寄往海外的航空信 ) 的形式投递 , 则在寄出后的五 (5) 日后视为送达 , 如五 (5) 日内送达则以实际送达日为准。

 

All related notification, request, or other communication of this agreement must be made in written form, by notifying Party through delivery or receipt of the registered letter attached to the following listed of address of both sides (or Party A give written notice to the other Party of the other address). The delivery time of all notices, demand, request, or other communications under this agreement, is: (1) the actual delivery date when delivered personally; (2) three days after delivery when delivered by Courier, or the actual delivery date if delivered within three days ; (3) five (5) days after mailing if delivered by registered mail or air mail sent to overseas) and the actual delivery date if delivered within five (5) days.

 

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递交 甲方

Submit to Party A

 

地址 : 数海信息技术有限公司

Address: Shuhai Information Technology Co., Ltd 收件人 :

The recipient:

电话 :

Tel:

传真 :

Fax:

 

递交 乙方

Submit to Party B

地址 :

Address: 

电话 :

Tel:

传真 :

Fax:

 

  十七. 本协议为劳动合同的附件 , 受中华人民共和国法律的管辖和保护并依其解释。若协议双方发生争议且协商不成 , 则任一方均可依法向当地劳动争议仲裁委员会申请仲裁 ; 对仲裁裁决不服的 , 可以向具有管辖权的人民法院要求裁决。对于有关知识产权保护的规定发生争议的 , 也可直接向具有管辖权的人民法院起诉。

 

This agreement is an Annex of Labor contract, protected by the laws of the People's Republic of China, under the jurisdiction and shall be interpreted in accordance with the law of P.R. China. If there is a dispute between the parties and no settlement is reached, either Party may apply to the local labor dispute arbitration committee for arbitration in accordance with the law; if either Party is not satisfied with the arbitral award, it may require the people's court that has jurisdiction to decide. Disputes regarding the protection of intellectual property rights disputes can be directly filed to a people's court with jurisdiction.

 

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甲方 : 数海信息技术有限公司 ( 盖章 )

 

Party A: Shuhai Information Technology Co., Ltd (Seal)

 

代表 : 刘志欣

 

Representative: Liu Zhixin

 

乙方 ( 签字 ) /Zhang Jijin/

 

Party B(Signature) /s/ Zhixin Liu

 

日期 : 同主合同签署日期

 

Date: same as the signing date of the main contract

 

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Exhibit 10.18

 

DATASEA INC.

1 Xinghuo Rd. Changning Building, 11th Floor

Fengtai District, Beijing, People’s Republic of China 100070

 

[               ], 2018

 

[Director Name]

[Address]

 

Re: Director Offer Letter

 

Dear __________:

 

Datasea Inc., a Nevada corporation (the “ Company ”), is pleased to offer you a position as a member of its Board of Directors (the “ Board ”).  We believe your background and experience will be a significant asset to the Company and we look forward to your participation on the Board. Should you choose to accept this position as a member of the Board, this letter agreement (the “ Agreement ”) shall constitute an agreement between you and the Company and contains all the terms and conditions relating to the services you agree to provide the Company.

 

1.             Term .   This Agreement is effective as of the date hereof (the “ Effective Date ”). Your term as director shall continue subject to the provisions in Section 8 below or until your successor is duly elected and qualified.  Your term of office as a member of the Board shall be up for re-election each year at the Company’s annual shareholder’s meeting and upon re-election, the terms and provisions of this Agreement shall remain in full force and effect. Notwithstanding the foregoing, this Agreement may be terminated at any time in accordance with Section 8 hereto.

 

2.             Services .   You shall render services as a member of the Board and such committees of the Board as the Board may designate, subject to your agreement to serve on such committees (hereinafter, your “ Duties ”). During the term of this Agreement, you shall attend and participate in such number of meetings of the Board and of the committees of which you may become a member (if any) as regularly or specially called. You may attend and participate at each such meeting, via teleconference or in person. You shall consult with the other members of the Board and committee (if any) regularly and as necessary via telephone, electronic mail or other forms of correspondence.

 

3.             Services for Others .   You shall be free to represent or perform services for other persons during the term of this Agreement.  However, you agree that you do not presently perform and do not intend to perform, during the term of this Agreement, similar duties, consulting or other services for companies whose businesses are or would be, in any way, competitive with the Company (except for companies previously disclosed by you to the Company in writing).  Should you propose to perform similar duties, consulting or other services for any such company, you agree to notify the Company in writing in advance (specifying the name of the organization for whom you propose to perform such services) and to provide information to the Company sufficient to allow it to determine if the performance of such services would conflict with areas of interest to the Company.

 

4.             Compensation.   

 

4.1.         Cash . Commencing on the Effective Date, and upon each anniversary thereof that you remain a director, you shall receive cash compensation of $[      ] for each calendar year of service under this Agreement on a pro-rated basis which shall be paid on a quarterly basis in arrears.  Notwithstanding the foregoing to the contrary, all fees are subject to approval and/or change as deemed appropriate by the Board. 

 

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4.2          Reimbursement of Reasonable Expenses . You shall also be reimbursed for reasonable, pre-approved expenses incurred by you in connection with the performance of your Duties (including travel expenses for in-person meetings).

 

5.             No Assignment .   Because of the personal nature of the services to be rendered by you, this Agreement may not be assigned by you without the prior written consent of the Company.

 

6.             Confidential Information; Non-Disclosure .   In consideration of your access to certain Confidential Information (as defined below) of the Company, in connection with your business relationship with the Company, you hereby represent and agree as follows:

 

a.             Definition .   For purposes of this Agreement the term “Confidential Information” means: (i) any information which the Company possesses that has been created, discovered or developed by or for the Company, and which has or could have commercial value or utility in the business in which the Company is engaged; and (ii) any information which is related to the business of the Company and is generally not known by non-Company personnel. Confidential Information includes, without limitation, trade secrets and any information concerning products, processes, formulas, designs, inventions (whether or not patentable or registrable under copyright or similar laws, and whether or not reduced to practice), discoveries, concepts, ideas, improvements, techniques, methods, research, development and test results, specifications, data, know-how, software, formats, marketing plans, and analyses, business plans and analyses, strategies, forecasts, customer and supplier identities, characteristics and agreements.

 

b.             Exclusions .   Notwithstanding the foregoing, the term Confidential Information shall not include: (i) any information which becomes generally available to the public other than as a result of a breach of the confidentiality portions of this Agreement, or any other agreement requiring confidentiality between the Company and you; (ii) information received from a third party in rightful possession of such information who is not restricted from disclosing such information; (iii) information known by you prior to receipt of such information from the Company, which prior knowledge can be documented; and (iv) information you are required to disclose pursuant to any applicable law, regulation, judicial or administrative order or decree, or request by other regulatory organization having authority pursuant to the law; provided, however, that you shall first have given prior written notice to the Company and made a reasonable effort to obtain a protective order requiring that the Confidential Information not be disclosed.

 

c.             Documents . You agree that, without the express written consent of the Company, you will not remove from the Company's premises or retain following the termination of this Agreement or your service to the Company any notes, formulas, programs, data, records, machines or any other documents or items which in any manner contain or constitute Confidential Information, nor will you make reproductions or copies of same.   You shall promptly return any such documents or items, along with any reproductions or copies to the Company upon the Company's demand, upon termination of this Agreement, or upon your termination or Resignation (as defined in Section 9 herein).

 

d.             Confidentiality .   You agree that you will at all times hold in trust and confidence all Confidential Information and will not disclose to others, directly or indirectly, any Confidential Information or anything relating to such information without the prior written consent of the Company, except as may be necessary to perform your duties to the Company as a member of the Board.  You further agree that you will not use any Confidential Information without the prior written consent of the Company, except as may be necessary to perform your duties to the Company as a member of the Board. Notwithstanding the foregoing, you may disclose Confidential Information to your legal counsel and accounting advisors who have a need to know such information for accounting or tax purposes and who agree to be bound by the provisions of this paragraph (d).

 

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e.             Ownership .   You agree that Company shall own all right, title and interest (including patent rights, copyrights, trade secret rights, mask work rights, trademark rights, and all other intellectual and industrial property rights of any sort throughout the world) relating to any and all inventions (whether or not patentable), works of authorship, mask works, designations, designs, know-how, ideas and information made or conceived or reduced to practice, in whole or in part, by you during the term of this Agreement and that arise out of your Duties (collectively, “ Inventions” ) and you will promptly disclose and provide all Inventions to the Company. You agree to assist the Company, at its expense, to further evidence, record and perfect such assignments, and to perfect, obtain, maintain, enforce, and defend any rights assigned.

 

f.             Survival . You agree that the provisions of this Section 7 shall survive and remain in full force and effect upon and following any termination or purported termination of this Agreement or from and after the time you cease performing services to the Company.

 

7.             Non-Solicitation .    During the term of your service to the Company and for a period of one (1) year thereafter, you shall not directly solicit for employment any employee of the Company with whom you have had contact due to your service. You agree that the provisions of this Section 8 shall survive and remain in full force and effect upon and following any termination or purported termination of this Agreement or from and after the time you cease performing services to the Company.

 

8.             Termination and Resignation .   Your membership on the Board (which for purposes of this Agreement shall automatically mean any committee of the Board) may be terminated and you may be removed from the Board for any or no reason by a vote of the stockholders holding at least sixty-six and two-thirds percent (66 2/3%) of the shares of the Company’s issued and outstanding shares entitled to vote. You may also terminate your membership on the Board for any or no reason by delivering your written notice of resignation to the Company (“ Resignation ”), and such Resignation shall be effective upon the time specified therein or, if no time is specified, upon receipt of the notice of resignation by the Company. Upon the effective date of any of the termination of your Board service or your Resignation, your right to compensation hereunder will terminate subject to the Company's obligations to pay you any compensation that you have already earned and to reimburse you for approved expenses already incurred in connection with your performance of your Duties as of the effective date of such termination or Resignation.

 

9.             Governing Law; Venue; Waiver of Jury Trial .   All questions with respect to the construction and/or enforcement of this Agreement, and the rights and obligations of the parties hereunder, shall be determined in accordance with the law of the State of Nevada applicable to agreements made and to be performed entirely in the State of Nevada. The parties hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts sitting in the New York County, New York, for the adjudication of any dispute hereunder or in connection herewith, and hereby irrevocably waive, and agree not to assert in any suit, action or proceeding, any claim that they are is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. THE PARTIES HEREBY IRREVOCABLY WAIVE ANY RIGHT EITHER MAY HAVE TO, AND AGREE 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 TRANSACTION CONTEMPLATED HEREBY.

 

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10.           Entire Agreement; Amendment; Waiver; Counterparts .   This Agreement expresses the entire understanding with respect to the subject matter hereof and supersedes and terminates any prior oral or written agreements with respect to the subject matter hereof.  Any term of this Agreement may be amended and observance of any term of this Agreement may be waived only with the written consent of the parties hereto.  Waiver of any term or condition of this Agreement by any party shall not be construed as a waiver of any subsequent breach or failure of the same term or condition or waiver of any other term or condition of this Agreement.  The failure of any party at any time to require performance by any other party of any provision of this Agreement shall not affect the right of any such party to require future performance of such provision or any other provision of this Agreement.  This Agreement may be executed in separate counterparts each of which will be an original and all of which taken together will constitute one and the same agreement, and may be executed using facsimiles of signatures, and a facsimile of a signature shall be deemed to be the same, and equally enforceable, as an original of such signature. Delivery of such counterparts by facsimile or email/.pdf transmission shall constitute validity delivery thereof.

 

11.          Indemnification .  The Company shall, to the maximum extent provided under applicable law, indemnify and hold you harmless from and against any expenses, including reasonable attorney’s fees, judgments, fines, settlements and other legally permissible amounts (“ Losses ”), incurred in connection with any proceeding arising out of, or related to, your performance of your Duties, other than any such Losses incurred as a result of your gross negligence, fraud or willful misconduct.  The Company shall advance to you any expenses, including reasonable attorneys’ fees and costs of settlement, incurred in defending any such proceeding to the maximum extent permitted by applicable law.  Such costs and expenses incurred by you in defense of any such proceeding shall be paid by the Company in advance of the final disposition of such proceeding promptly upon receipt by the Company of (a) written request for payment; (b) appropriate documentation evidencing the incurrence, amount and nature of the costs and expenses for which payment is being sought; and (c) an undertaking adequate under applicable law made by or on your behalf to repay the amounts so advanced if it shall ultimately be determined pursuant to any non-appealable judgment or settlement that you are not entitled to be indemnified by the Company.

 

12.           Not an Employment Agreement This Agreement is not an employment agreement, and shall not be construed or interpreted to create any right for you to be employed by the Company or have any rights of an employee of the Company. You shall at all times act as an independent contract of the Company under this Agreement.

 

13.           Acknowledgement .    You accept this Agreement subject to all the terms and provisions of this Agreement. You agree to accept as binding, conclusive, and final all decisions or interpretations of the Board of any questions arising under this Agreement.

 

Thank you for your agreement to serve on our Board, and we look forward to working with you. If you are in agreement with the foregoing, please sign by your name below and return a copy to me, which signature shall signify your agreement.

 

  Sincerely,
   
  DATASEA INC.
     
  By:  
    Name: Zhixin Liu
    Title: Chief Executive Officer

 

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AGREED AND ACCEPTED:  
   
   
[Director Name]  

 

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Exhibit 14.1

 

CODE OF ETHICS

 

1. Introduction

 

The Board of Directors of Datasea Inc. has adopted this code of ethics (the “Code”), which is applicable to all directors, officers and employees, to:

 

  promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

  promote the full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission (the “SEC”), as well as in other public communications made by or on behalf of the Company;

 

  promote compliance with applicable governmental laws, rules and regulations;

 

  deter wrongdoing; and

 

  require prompt internal reporting of breaches of, and accountability for adherence to, this Code.

 

This Code may be amended only by resolution of the Company’s Board of Directors. In this Code, references to the “Company” mean Datasea Inc., and, in each appropriate context, its subsidiaries.

 

2. Honest, Ethical and Fair Conduct

 

Each person owes a duty to the Company to act with integrity. Integrity requires, among other things, being honest, fair and candid. Deceit, dishonesty and subordinating one’s principles are inconsistent with integrity. Service to the Company never should be subordinated to personal gain and advantage.

 

Each person must:

 

  act with integrity, including being honest and candid while still maintaining the confidentiality of the Company’s information where required or in the Company’s interests.

 

  observe all applicable governmental laws, rules and regulations.

 

  comply with the requirements of applicable accounting and auditing standards, as well as Company policies, in order to maintain a high standard of accuracy and completeness in the Company’s financial records and other business-related information and data.
     
  adhere to a high standard of business ethics and not seek a competitive advantage through unlawful or unethical business practices. 

 

  deal fairly with the Company’s customers, suppliers, business partners, competitors and employees.

 

  refrain from taking advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice.

 

  protect the assets of the Company and ensure their proper use.

 

  refrain from taking for themselves personally opportunities that are discovered through the use of corporate assets or by using corporate assets, information or position for general personal gain outside the scope of employment with the Company.

 

 

 

 

  disclose conflicts of interest and only enter into “related-party transactions” under guidelines or resolutions approved by the Board of Directors (or the appropriate committee of the Board). For purposes of this Code, “related-party transactions” are defined as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) the Company or any of its subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of the Company’s shares of common stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position. Anything that would be a conflict for a person subject to this Code also will be a conflict if it is related to a member of his or her family or a close relative. Examples of conflict of interest situations include, but are not limited to, the following:

 

  any significant ownership interest in any supplier, customer or business partner;

 

  any consulting or employment relationship with any customer, supplier, business partner or competitor;

 

  any outside business activity that detracts from an individual’s ability to devote appropriate time and attention to his or her responsibilities with the Company;

 

  the receipt of any money, non-nominal gifts or excessive entertainment from any company with which the Company has current or prospective business dealings;
     
  being in the position of supervising, reviewing or having any influence on the job evaluation, pay or benefit of any close relative;

 

  selling anything to the Company or buying anything from the Company, except on the same terms and conditions as comparable officers or directors are permitted to so purchase or sell; and

 

  any other circumstance, event, relationship or situation in which the personal interest of a person subject to this Code interferes – or even appears to interfere – with the interests of the Company as a whole.

 

3. Disclosure

 

The Company strives to ensure that the contents of and the disclosures in the reports and documents that the Company files with the SEC and other public communications shall be full, fair, accurate, timely and understandable in accordance with applicable disclosure standards, including standards of materiality, where appropriate. Each person must:

 

  not knowingly misrepresent, or cause others to misrepresent, facts about the Company to others, whether within or outside the Company, including to the Company’s independent auditors, governmental regulators, self-regulating organizations and other governmental officials, as appropriate; and

 

  in relation to his or her area of responsibility, properly review and critically analyze proposed disclosure for accuracy and completeness.

 

 

 

 

In addition to the foregoing, the Chief Executive Officer and Chief Financial Officer of the Company and each subsidiary or variable interest entity of the Company (or persons performing similar functions), and each other person that typically is involved in the financial reporting of the Company must familiarize himself or herself with the disclosure requirements applicable to the Company as well as the business and financial operations of the Company.

 

Each person must promptly bring to the attention of the Chairman of the Audit Committee of the Company’s Board of Directors any information he or she may have concerning (a) significant deficiencies in the design or operation of internal and/or disclosure controls which could adversely affect the Company’s ability to record, process, summarize and report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s financial reporting, disclosures or internal controls.

  

4. Compliance

 

It is the Company’s obligation and policy to comply with all applicable governmental laws, rules and regulations. It is the personal responsibility of each person to adhere to the standards and restrictions imposed by those laws, rules and regulations, including those relating to accounting and auditing matters.

 

5. Reporting and Accountability

 

The Audit Committee of the Company is responsible for applying this Code to specific situations in which questions are presented to it and has the authority to interpret this Code in any particular situation. Any person who becomes aware of any existing or potential breach of this Code is required to notify the Chairman of the Audit Committee promptly. Failure to do so is itself a breach of this Code.

 

Specifically, each person must:

 

  notify the Chairman promptly of any existing or potential violation of this Code; and

 

  not retaliate against any other person for reports of potential violations that are made in good faith.

 

The Company will follow the following procedures in investigating and enforcing this Code and in reporting on the Code:

 

  The Audit Committee will take all appropriate action to investigate any breaches reported to it.

 

  If the Audit Committee determines (by majority decision) that a breach has occurred, it will inform the Board of Directors.

 

  Upon being notified that a breach has occurred, the Board (by majority decision) will take or authorize such disciplinary or preventive action as it deems appropriate, after consultation with the Audit Committee and/or General Counsel, up to and including dismissal or, in the event of criminal or other serious violations of law, notification of the SEC or other appropriate law enforcement authorities.

 

No person following the above procedure shall, as a result of following such procedure, be subject by the Company or any officer or employee thereof to discharge, demotion suspension, threat, harassment or, in any manner, discrimination against such person in terms and conditions of employment.

  

6. Waivers and Amendments

 

Any waiver (as defined below) or an implicit waiver (as defined below) from a provision of this Code for the principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions or any amendment (as defined below) to this Code is required to be disclosed in the Company’s Annual Report on Form 10-K or in a Current Report on Form 8-K filed with the SEC. A “waiver” means the approval by the Company’s Board of Directors of a material departure from a provision of the Code. An “implicit waiver” means the Company’s failure to take action within a reasonable period of time regarding a material departure from a provision of the Code that has been made known to an executive officer of the Company. An “amendment” means any amendment to this Code other than minor technical, administrative or other non-substantive amendments hereto.

 

 

 

 

All persons should note that it is  not  the Company’s intention to grant or to permit waivers from the requirements of this Code. The Company expects full compliance with this Code.

 

7. Other Policies and Procedures

 

Any other policy or procedure set out by the Company in writing or made generally known to employees, officers or directors of the Company prior to the date hereof or hereafter are separate requirements and remain in full force and effect.

 

8. Inquiries

 

All inquiries and questions in relation to this Code or its applicability to particular people or situations should be addressed to the Company’s Secretary.

 

 

 

 

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the inclusion in this registration statement on Form S-1/A No. 3 of our report dated September 13, 2018 relating to the consolidated financial statements of Datasea, Inc. and Subsidiaries as of June 30, 2017 and 2018 and for the years then ended.

 

We also consent to the reference to our firm under the caption “Experts” in such registration statement.

 

/s/ Wei, Wei & Co., LLP

 

Flushing, New York

October 15, 2018

 

 

 

 

Exhibit 99.1

 

CONSENT OF STEPHEN (CHUN KWOK) WONG

 

Datasea Inc. intends to file a Registration Statement on Form S-1 (together with any amendments or supplements thereto the "Registration Statement"), registering securities for issuance in a public offering. As required by Rule 438 under the Securities Act of 1933, as amended, the undersigned hereby consents to being named in the Registration Statement as a Director Nominee.

  

August 28, 2018 /s/ Stephen (Chun Kwok) Wong
  Stephen (Chun Kwok) Wong

 

 

 

Exhibit 99.2

 

CONSENT OF TONGJUN SI

 

Datasea Inc. intends to file a Registration Statement on Form S-1 (together with any amendments or supplements thereto the "Registration Statement"), registering securities for issuance in a public offering. As required by Rule 438 under the Securities Act of 1933, as amended, the undersigned hereby consents to being named in the Registration Statement as a Director Nominee.

  

August 28, 2018 /s/ Tongjun Si
  Tongjun Si

  

 

 

Exhibit 99.3

 

CONSENT OF LING WANG

 

Datasea Inc. intends to file a Registration Statement on Form S-1 (together with any amendments or supplements thereto the "Registration Statement"), registering securities for issuance in a public offering. As required by Rule 438 under the Securities Act of 1933, as amended, the undersigned hereby consents to being named in the Registration Statement as a Director Nominee.

  

August 28, 2018 /s/ Ling Wang
  Ling Wang