UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): August 7, 2020

 

 

 

AS Capital, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   000-55999   83-2187195
(State or other jurisdiction of incorporation)   (Commission File Number)   (I.R.S. Employer Identification No.)

 

Room 1206, 12th Floor, 301, 3-17 F, Building 5
Block 1, Hangfeng Road
Fengtai District, Beijing

+86-10-63622901
(Address of principal executive offices) (Registrant’s telephone number, including area code)

 

3609 Hammerkop Drive

North Las Vegas, Nevada 89084

(Former address of principal executive offices)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

 

Title of each Class Trading Symbol Name of each exchange on which registered
Common Stock, par value US$0.0001 ASIN N/A

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company þ

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

     

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses.  Such forward-looking statements include, among others, those statements including the words "expects," "anticipates," "intends," "believes" and similar language.  Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the sections "Description of Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." You should carefully review the risks described in this Current Report on Form 8-K and in other documents we file from time to time with the Securities and Exchange Commission. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

 

Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

 

All references in this Form 8-K to the "Company," "we," "us" or "our" are to AS Capital, Inc. on a consolidated basis.

 

Item 2.01 Completion of an Acquisition or Disposition of Assets.

 

On August 6, 2020, AS Capital, Inc. (the “Company” or “ASIN”) and HanJiao International Holding Limited, a private limited liability company incorporated under the laws of the British Virgin Islands (“HJ”) and HJ’s shareholders entered into a Share Acquisition Agreement (the “Share Exchange Agreement”) to acquire up to one hundred (100) Ordinary Shares of HJ held by its five shareholders (the “HJ Shares”), representing 100% of the issued and outstanding securities of HJ, for 86,000,000 shares of our common stock at a per share price of US$0.46, (the “Share Exchange”). The share acquisition was consummated on August 6, 2020. As a result, we entered into the business of selling healthcare and other related products to middle-aged and elderly market segments in the People’s Republic of China (“PRC” or China”) through its online to offline platform, and HJ shareholders received 86,000,000 shares of the Company’s common stock (the “Shares”). It is our understanding that HJ shareholders are not U.S. Persons within the meaning of Regulations S. Accordingly, the Shares were issued pursuant to the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, Regulation D and Regulation S promulgated thereunder. The foregoing description of the Share Exchange Agreement is qualified in its entirety by reference to the Share Exchange Agreement which is filed as Exhibit 10.1 to this Current Report and is incorporated herein by reference.

 

HJ is engaged in the sale of healthcare and other related products to the middle-aged and elderly market segments in the PRC through its internet platform and offline service centers.

 

In connection with the acquisition, effective from August 6, 2020, the following individuals were appointed to serve in the capacities set forth next to their names until his or her successor(s) shall be duly elected or appointed, unless he or she resigns, is removed from office or is otherwise disqualified from serving as an executive officer or director of the Company:

 

Name   Positions

Tian Xiangyang

  Chief Executive Officer, Director and Chairperson of the Board of Director
Shan Yonghua   Chief Financial Officer, and Director
Tian Zhihai   Chief Operating Officer and Director
Yin Jianen   Secretary and Director
Wang Jirui   Director

 

 

 

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Prior to the acquisition, the Company was considered as a shell company due to its nominal assets and limited operation. Upon the acquisition, HJ and its subsidiaries and affiliated entities will comprise the ongoing operations of the combined entity and its senior management will serve as the senior management of the combined entity. HJ is deemed to be the accounting acquirer for accounting purposes. The transaction will be treated as a recapitalization of the Company. Accordingly, the consolidated assets, liabilities and results of operations of the Company will be the historical financial statements of HJ, and the Company’s assets, liabilities and results of operations will be consolidated with HJ and subsidiaries, beginning on the acquisition date. HJ was the legal acquiree. The Company was the legal acquirer but HJ is deemed to be the accounting acquirer in the reverse merger. The historical financial statements prior to the acquisition are those of the accounting acquirer (HJ and subsidiaries). Historical stockholders’ equity of the accounting acquirer prior to the merger are retroactively restated (a recapitalization) for the equivalent number of shares received in the merger. Operations prior to the merger are those of the accounting acquirer. After completion of the share exchange transaction, the Company’s consolidated financial statements include the assets and liabilities, the operations and cash flow of the accounting acquirer.

 

CORPORATE HISTORY

 

Overview

 

On August 6, 2020, we consummated the acquisition of One Hundred (100) Shares of HJ, representing 100% of the issued and outstanding stock of HJ. HJ is a holding company that, through its subsidiaries and variable interest entity, is engaged in the business of selling healthcare and other related products to the middle-aged and elderly market segments in the PRC through its internet platform and offline service centers. HJ’s consolidated business is conducted through Beijing Luji Technology Co., Ltd., a variable interest entity formed in Beijing, China on March 27, 2007.

 

Prior to our acquisition of HJ, we were a shell company with nominal assets and limited operations. Our former business objective was to seek long term growth through one or more business combinations with operating companies.

  

History

 

We were incorporated on June 15, 2006 under the laws of the State of Nevada as Jupiter Resources, Inc. 75,000,000 shares of common Stock par value $0.001 and no other classes of stock were authorized. On March 27, 2007, we entered into an agreement with Ms. Helen Louise Robinson of Vernon, British Columbia, whereby she agreed to sell to us one mineral claim located approximately 30 kilometers northwest of Vernon, British Columbia in an area having the potential to contain silver or copper mineralization or deposits. In order to acquire a 100% interest in this claim, we paid $7,500 to Ms. Robinson. However, we were unable to keep the mineral claim in good standing due to lack of funding and our interest in it lapsed.

 

On March 25, 2009, the Company’s articles of incorporation were amended to authorize an addition of 10 million preferred shares making a total of 85,000,000 shares authorized (75M common, 10M preferred).

 

On March 30, 2009, Jupiter Resources, Inc. (the “Company”) entered into a binding letter of intent (the “Letter of Intent”) with NatProv Holdings, Inc., a British Virgin Islands corporation (“Natprov”). Pursuant to the terms of the Letter of Intent, Natprov and the Company were to commence the negotiation and preparation of a definitive share exchange agreement which contained customary representations, warranties and indemnities as agreed upon by Natprov, the Company and the shareholders of Natprov, whereby the Company, Natprov and the shareholders of Natprov were to complete a share exchange transaction (the “Transaction”) on or before May 26, 2009, subject to certain conditions precedent to the closing of the Transaction.

 

On April 30, 2009, the Company filed an amendment to change the name of the corporation to Rineon Group, Inc.

 

 

 

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On May 01, 2009, we filed a Certificate of Designation to designate 36,000 shares of Series A Convertible Preferred Stock, out of the 10 million preferred stock. These shares have no votes for matters brought before the common shareholders, only with matters regarding the Series A shares where they will be the only voters. They can convert into common but cannot at anytime convert to hold more than 4.95% of the issued and outstanding common shares of the Company.

 

On May 14, 2009, we entered into a preferred stock purchase agreement dated as of April 30, 2009 (the “Preferred Stock Purchase Agreement”) under which the Company sold an aggregate of 36,000 shares of its Series A convertible preferred stock (the “Series A Preferred Stock”) to Intigy Absolute Return Ltd., a British Virgin Islands corporation (“Intigy”), for a purchase price of $36,000,000, or $1,000 per share of Series A $0.001 Par Value Preferred Stock. In addition, pursuant to the terms of the stock purchase agreement dated as of May 14, 2009, Rineon agreed to acquire 1,985,834 shares of Amalphis from NatProv Holdings Inc (“NatProv”) for a total consideration of $36,000,000. Of the 2,437,500 shares of Amalphis held by NatProv, 1,985,834 were converted into Class A Preferred non-voting shares, which were then assigned by NatProv to Rineon. As a result, NatProv owned 451,666 Common Shares of Amalphis, representing 100% of the voting shares of Amalphis, and Rineon owned 1,985,834 of Amalphis’ Class A Preferred Shares which have the same rights and privileges as the common shares except that they have a liquidation preference and no voting rights. Amalphis’ Class A Preferred Shares were not convertible into Common Shares.

 

The transactions consummated as set forth above resulted in a change of control of the Company. In connection with such change in control, on May 14, 2009, the board of directors of the Company authorized a change in the fiscal year end of the Company from May 31 to December 31.

 

Amalphis Group, Inc., (“Amalphis”) was formed in July 2008 as a British Virgin Islands (BVI) Business Company. Amalphis, through its wholly owned subsidiary Allied Provident, Inc. (“API”), offers customized reinsurance products in markets where traditional reinsurance alternatives are limited. In addition, Amalphis was formed to directly sell a variety of property and casualty insurance products to businesses around the world. In September 2008, Amalphis acquired API, an entity that issues customized reinsurance to a United States insurance carrier that offers automotive insurance coverage to drivers who are unable to obtain insurance from standard carriers. API was formed in Barbados on November 9, 2007 by NatProv Holdings Inc., (“NatProv”) a British Virgin Islands corporation.

 

There was no business activity between the filing of the Form 15 on November 10, 2010, and prior to August 9, 2018. The Company had Exchange Act disclosure requirements from January 11, 2008 to November 10, 2010. The Company has no knowledge or records related to the assets referenced above and therefor there is some level of uncertainty in the above descriptions.

 

Prior Company management was unresponsive to shareholders and had refused to respond to requests to meet statutory requirements to get current with the secretary of state and with the required filings of the Securities and Exchange Commission (“SEC”).

 

On August 9, 2018, XTC, Inc. was appointed to serve as the custodian of the Company in a shareholder filed action with the Eighth Judicial District Court in Clark County, Nevada and was instructed to revive the Company. XTC, Inc. was a shareholder of record as shown in the court documents (500 shares) attached as Exhibit 99.1 to this Current Report. XTC acquired its 500 common shares on June 14, 2018 in the open market at a price of $0.05 per share.

 

Enclosed as Exhibit 99.1 hereto are the entire court records, from filing to closing documents.

 

On September 25, 2018, the Company filed a Certificate of Designation whereby the following preferred shares were designated by the Company and the rights, privileges and designations of the Series A Convertible Preferred Stock were amended and restated.

 

 

 

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The number of Series A Convertible Preferred Stock was increased from 36,000 to 1,000,000.

 

· 3,000,000 Series B Convertible Preferred Stock were created with no voting rights, and conversion rights of 1000:1, with the restriction that holders cannot convert to hold more the 4.95% of issued and outstanding common stock.
· 1,000,000 Series C Convertible Preferred Stock were created. (each Series C shall have 100,000 vote per share, with 1:1 conversion rights. 

 

On September 25, 2018, the Company issued 964,000 shares of Series A Convertible Preferred shares to XRC, LLC at $0.001 per share and 1,000,000 shares of Series C Convertible Preferred shares at $0.001 per share to XRC, LLC, a company controlled by Chris Lotito, in exchange for paying the costs to revive the company with the State of Nevada, giving it voting control.

 

On September 28, 2018, a shareholders meeting was held wherein the shareholders gave the board authority to reorganize the Company, including making a possible name change, and/or engaging in a reverse stock split. In addition, the Series A shareholders voted to approve a reverse split of 1 preferred share for each 1,000 shares outstanding of the Series A Convertible Preferred and to authorize a new designation.

 

On October 1, 2018, the Company made filings with the Nevada Secretary of State to change our name to “AS Capital, Inc.” and to exercise a 10-to-1 reverse stock split for the Common stock and a 1,000 to 1 reverse of the Series A Convertible Preferred, with conversion rights of 1 common share for every 12,000 shares of Series A Convertible Preferred Stock held. As a result, the number of issued and outstanding Series A Convertible Preferred Stock was reduced to 1,000 shares.

 

On December 6, 2018, the Court granted an Order discharging the custodian and approved all actions taken by the custodian.

 

Change in Control

 

On June 4, 2019, AS Capital, Inc., a Nevada corporation, XRC, LLC, a Colorado limited liability company (“XRC”) and Gao Xue Ran (“Purchaser”) entered into a Stock Purchase Agreement (the “SPA”), pursuant to which Purchaser agreed to purchase from XRC 11,000,000 shares of common stock of the Company, par value $0.0001, and 964 shares of Series A Convertible Preferred Stock Preferred Stock of the Company, par value $0.001 (collectively, the “Shares”), for aggregate consideration of Four Hundred and Ten Thousand Dollars ($410,000) in accordance with the terms and conditions of the SPA. XRC is the controlling shareholder of the Company. On June 13, 2019, and in anticipation of the sales transaction with Ms. Gao, the Company assigned its line of credit and the current balance due thereunder, including all outstanding principal and accrued interest, to XRC in consideration of 10,000,000 shares of common stock of the Company. At the time of the transfer, $48,595 was due under the item of credit. At the same time XRC converted its 1,000,000 shares of Series C Convertible Preferred Stock into 1,000,000 shares of common stock. Chris Lotito was the managing member of XRC.

 

The acquisition of the Shares consummated on July 18, 2019, and the Shares were ultimately purchased by the following three individuals using their own personal funds:

 

Name No. of Shares Percentage of Issued and Outstanding Consideration Paid
Gao Xue Ran

8,581,063 of Common Stock;

964 shares of Series A Preferred Stock

76.61% $319,840
Zhang Yan Hua 1,935,633 of Common Stock 17.28% $72,146
Cheung Kwok Chiu Kris 483,304 of Common Stock 4.31% $18,014
Total

11,000,000 of Common Stock;

964 shares of Series A Preferred Stock

100%  

 

 

 

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Ms. Gao holds a controlling interest in the Company and may unilaterally determine the election of the Board and other substantive matters requiring approval of the Company’s stockholders.

 

Upon the consummation of the sale of the Shares, Chris Lotito, our Chief Executive Officer and sole director, and John Karatzaferis, our President, resigned from all of their positions with the Company, effective July 18, 2019. Their resignations were not due to any dispute or disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

 

Concurrent with such resignations, Gao Xue Ran was appointed to serve as the Chief Executive Officer, Chief Financial Officer, President, Secretary and sole Director of the Company, until the next annual meeting of stockholders of the Company and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. None of the directors or executive officers has a direct family relationship with any of the Company’s directors or executive officers, or any person nominated or chosen by the Company to become a director or executive officer. Ms. Gao will serve in her positions without compensation. The Company hopes to enter into a compensatory arrangement with each officer in the future.

 

Acquisition of HJ

 

On August 6, 2020, we consummated the acquisition of One Hundred (100) Shares of HJ, representing 100% of the issued and outstanding stock of HJ by issuing 86,000,000 shares of the common stock. HJ is a holding company that, through its subsidiaries and variable interest entity, is engaged in the business of selling healthcare and other related products to the middle-aged and elderly market segments in the PRC through its internet platform and offline service centers. HJ’s consolidated business is conducted through Beijing Luji Technology Co., Ltd., a variable interest entity formed in Beijing, China on March 27, 2007.

 

In connection with the acquisition, effective August 6, 2020, the following individuals were appointed to serve in the capacities set forth next to their names until his or her successor(s) shall be duly elected or appointed, unless he or she resigns, is removed from office or is otherwise disqualified from serving as an executive officer or director of the Company:

 

Name   Positions   Number of Shares Held   Percentage of Total Common Equity
Tian Xiangyang   Chief Executive Officer, Director and Chairperson of the Board of Director   68,800,000   70.78%
Shan Yonghua   Chief Financial Officer, and Director   -   -
Tian Zhihai   Chief Operating Officer and Director   4,300,000   4.63%
Yin Jianen   Secretary and Director   -   -
Wang Jirui   Director   -   -

 

Upon the consummation of the sale of the HJ Shares, Gao Xue Ran resigned from all of her positions with the Company, effective August 6, 2020. Her resignation was not due to any dispute or disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

 

Our principal executive offices are located at Room 1206, 12th Floor, 301, 3-17 F, Building 5, Block 1, Hangfeng Road, Fengtai District, Beijing and our telephone number is +86-10-63622901. We maintain an Internet website at www.lujiguoji.com. The information contained in, or accessible from, our website is not a part of this Current Report.

 

 

 

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DESCRIPTION OF BUSINESS OF BEIJING LUJI TECHNOLOGY CO., LTD.

  

Beijing Luji Technology Co., Ltd. (“Beijing Luji”), previously known as Beijing Luji Culture Media Co. Ltd., a variable interest entity that we control through contractual arrangements. Beijing Luji was formed in Beijing, China, on March 27, 2007. Originally, Beijing Luji was focused on the provision of services in paper media, publication of magazines and books, and investment in media businesses. Due to the downturn of the paper media industry and the rise of the elderly healthcare services industry, in 2013 Beijing Luji shifted its business focus to the provision of healthcare related products and services through its E-commerce platform to the middle-aged and elderly populations.

 

In 2016, Beijing Luji expanded its E-commerce operations and introduced its “Fozgo” branded online to offline (O2O) marketplace. The O2O platform integrates its E-commerce platform with physical outlets to connect consumers and merchants in a dynamic marketplace. Its platform not only offers users the convenience of making online purchases, but also provides users the possibility to purchase and receive products at offline service centers. Currently, Beijing Luji’s core product categories include sales of home appliances (such as water purifiers and air purifiers), healthcare products (such as nutrient supplements) and cosmetics products. As of March 31, 2020, Beijing Luji has developed several branch offices with outlets across the PRC with approximately 158,000 users. In 2018, it was granted hi-tech enterprise status in the PRC.  

 

On March 15, 2019, Beijing Luji executed a Share Purchase Agreement with Rongcheng Health Group Co., Ltd. and acquired a 44% equity interest in Rongcheng Tianrun Taxus Co., Ltd. (“Rongcheng Tianrun”) for RMB 79,830,000 (approximately $11.4 million). Rongcheng Tianrun is organized and registered in the PRC, and it is engaged primarily in the cultivation and marketing of Taxus, a type of medicinal plant. The ownership transfer and related registration procedures were completed on June 20, 2019. The foregoing description of the Equity Acquisition Agreement is qualified in its entirety by reference to the Share Purchase Agreement, an English translation of which is filed as Exhibit 10.2 to this Current Report and incorporated herein by reference.

  

Corporate Structure

 

HJ was formed in the British Virgin Islands in July 2018.

 

Beijing Luji Technology Co., Ltd. (“Beijing Luji”), is our PRC variable interest entity and was formed in March 2007 pursuant to the PRC laws. The organizational chart of the Company as a result of the acquisition is as follows:

 

 

 

 

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(1) HanJiao International Holding Limited. (“HJ”) was incorporated on July 5, 2018 in the British Virgin Islands.
(2) LuJi Technology International Holding Limited (“Luji Technology”) was incorporated on July 5, 2018 in the British Virgin Islands and is wholly owned by HJ.
(3) Inooka Holding Ltd. was established on July 18, 2018 in Hong Kong and is wholly owned by Luji Technology.
(4) Beijing Hongtao Management Consulting Co., Ltd. (“Beijing Hongtao”), a Wholly Foreign-Owned Enterprise (“WFOE”), was established in the PRC on October 11, 2018 and is a wholly owned subsidiary of Inooka Holding Ltd. It currently provides consulting and technical services to Beijing Luji Technology Co., Ltd. (“Beijing Luji”).
(5) Beijing Luji was established in the PRC on March 27, 2007. It is engaged in the business of selling goods in China.  Beijing Hongtao controls Beijing Luji via various variable interest contractual arrangements (“VIE agreements”) to realize its economic benefits. Currently, the shareholders of Beijing Luji are Ms. Tian Xiangyang, Mr. Tian Zhihai, Mr. Liu Zexian, Ms. Gao Xuewei and Ms. Li Chunduo, together the “Beijing Luji Shareholders”.
(6) Guoyi Investment Fund Management (Beijing) Co., Ltd. (“Beijing Guoyi”) was formed on February 19, 2016, and is wholly owned by Beijing Luji. Beijing Guoyi has no business activity as of the date of this Current Report.

 

Contractual Agreements between Beijing Hongtao, Beijing Luji and Beijing Luji Shareholders

 

We do not have a direct equity ownership interest in Beijing Luji but rely on a series of contractual arrangements, the variable interest agreements (“VIE Agreements”), to control and receive the economic benefits of Beijing Luji’s business. We rely on contractual arrangements with our variable interest entities to operate our E-commerce business in the PRC and other businesses in which foreign investment is restricted or prohibited.

 

Beijing Hongtao, Beijing Luji, and its shareholders entered into the VIE Agreements on May 15, 2019.  The VIE agreements are designed to provide Beijing Hongtao with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Beijing Luji, including absolute control rights and the rights to the assets, property and revenue of Beijing Luji.  Each of the VIE Agreements is described in detail below.

 

Exclusive Consulting and Services Agreement

 

Pursuant to the Exclusive Consulting and Service Agreement signed on May 15, 2019, between Beijing Hongtao and Beijing Luji, Beijing Hongtao agrees to provide various services exclusively to Beijing Luji including development and research services for business-related software, pre-job and on-the-job training services, technology development and transfer services, public relations services, market research and consulting services, short and medium-term market development and planning services, various technical support services, consulting services related to business compliance, organization and planning services related to marketing and membership activities. For services rendered to Beijing Luji by Beijing Hongtao under this agreement, Beijing Hongtao is entitled to collect 100% of the net income of Beijing Luji.

 

The Exclusive Consulting and Services Agreement shall remain in effect for ten years from the date of signing unless it is terminated by Beijing Hongtao in advance or upon the mutual agreement of both parties. Beijing Luji may terminate the agreement subject to payment of all service fees for completed services and compensation to Beijing Hongtao for losses. Prior to the termination of this agreement, the parties may extend the term of this agreement in accordance with the requirements of Beijing Hongtao.

 

The foregoing description of the Exclusive Consulting and Services Agreement is qualified in its entirety by reference to the Consulting and Services Agreement, an English translation of which is filed as Exhibit 10.3 to this Current Report and incorporated herein by reference.

 

 

 

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Business Operation Agreement

 

Pursuant to the Business Operation Agreement signed on May 15, 2019, by and among the Beijing Luji Shareholders, Beijing Luji and Beijing Hongtao. Beijing Luji agrees not to conduct any transactions that may materially affect its assets, business, personnel, obligations, rights or company operations, without the prior written consent of Beijing Hongtao. Beijing Hongtao agrees to provide advice to Beijing Luji from time to time regarding the appointment and dismissal of employees, daily management and financial management systems. Beijing Luji and Beijing Luji Shareholders also agreed to appoint designees of Beijing Hongtao to serve as Board of directors and on the senior management team of the Beijing Luji. In connection with this agreement, the Beijing Luji Shareholders executed a Power of Attorney at Annex 1 of the Business Operation Agreement in which the Beijing Luji shareholders shall irrevocably authorize the designated personnel of Beijing Hongtao to exercise their shareholders’ rights on their behalf, including voting rights at the shareholders’ meeting in the name of the shareholders. The Beijing Luji Shareholders further agree that they will replace the person authorized in the above Power of Attorney at any time upon Beijing Hongtao’s request. The Business Operation Agreement shall remain in effect for ten years from the date of signing unless earlier terminated by Beijing Hongtao by delivering 30 days prior written notice or upon the mutual agreement of all parties. Beijing Luji and the Beijing Luji Shareholders do not have the right to terminate the agreement unilaterally. Upon the termination of any agreement between Beijing Hongtao and Beijing Luji, Beijing Hongtao shall be entitled to terminate all agreements between such parties.

 

The foregoing description of the Business Operation Agreement is qualified in its entirety by reference to the Business Operation Agreement, an English translation of which is filed as Exhibit 10.4 to this Current Report and incorporated herein by reference.

 

Equity Disposal Agreement

 

Pursuant to the Equity Disposal Agreement signed on May 15, 2019, by and among the Beijing Luji Shareholders, Beijing Luji and Beijing Hongtao, the Beijing Luji Shareholders granted to Beijing Hongtao an exclusive option right to purchase all of their equity interests in Beijing Luji to secure the execution of the Equity Pledge Agreement in which the details are set out below. Under the terms of this agreement, Beijing Hongtao has an exclusive right to purchase, to the extent permitted under the PRC law, at any time, all or any part of the equity interests of the Beijing Luji Shareholders in Beijing Luji or an option to transfer the equity interests in Beijing Luji to any third party designated by Beijing Hongtao. The option price shall be the minimum permitted by the laws and regulations of the PRC. The Equity Disposal Agreement has a term of ten years from the date of signing, and it may be renewed at Beijing Hongtao’s discretion.

 

The foregoing description of the Equity Disposal Agreement is qualified in its entirety by reference to the Equity Disposal Agreement, an English translation of which is filed as Exhibit 10.5 to this Current Report and incorporated herein by reference.

 

Equity Pledge Agreement

 

Pursuant to the Equity Pledge Agreement signed on May 15, 2019, by and among the Beijing Luji Shareholders and Beijing Hongtao, the Beijing Luji Shareholders pledged all of their equity interests in Beijing Luji to Beijing Hongtao to guarantee the performance of Beijing Luji’s obligations under the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operation Agreement.  Under the terms of the agreement, in the event that Beijing Luji or its shareholders breach their respective contractual obligations under the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operation Agreement, or upon occurrence of any event of default as set forth in the Equity Pledge Agreement, Beijing Hongtao shall be entitled to exercise its rights under this agreement, subject to certain cure periods. The Beijing Luji Shareholders further agree not to dispose of the pledged equity interests or take any actions that would prejudice Beijing Hongtao’s interest.

 

The Equity Pledge Agreement shall be effective until Beijing Luji and the Beijing Luji Shareholders have performed all of their obligations under the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operations Agreement and the written approval of Beijing Hongtao has been obtained.

 

The foregoing description of the Equity Pledge Agreement is qualified in its entirety by reference to the Equity Pledge Agreement, an English translation of which is filed as Exhibit 10.6 to this Current Report and incorporated herein by reference.

 

 

 

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Agency Agreement

 

Pursuant to the Agency Agreement signed on May 15, 2019, among the Beijing Luji Shareholders and Beijing Hongtao, the Beijing Luji Shareholders granted Beijing Hongtao an irrevocable license for the longest period permitted under law the right to exercise the voting rights of the Beijing Luji Shareholders in accordance with the laws of the PRC and the Articles of Association of Beijing Luji. During the term of this Agreement, none of the Beijing Luji Shareholders shall be entitled to transfer its interest in Beijing Luji to any third party other than entities or individuals designated by Beijing Hongtao. This Agency Agreement shall be irrevocable and continuously valid from the date of execution of this Agency Agreement, and it can be terminated at Beijing Hongtao’s discretion.

 

The foregoing description of the Agency Agreement is qualified in its entirety by reference to the Agency Agreement, an English translation of which is filed as Exhibit 10.7 to this Current Report and incorporated herein by reference.

 

Market Overview

 

Home Appliances: Water Purifiers and Air Purifiers

 

The standard of living in China has been steadily rising in the past decade. As a result, domestic consumption standards have also risen, with a focus on health and wellness lifestyle products and services. Because air and water quality and foods have a direct impact on health, we believe that the demand for clean drinking water, air quality and health foods will become an increasingly important issue. We believe that this demand will translate into a demand for domestic water and air purification technology. We anticipate that water purifiers, air purifiers and health foods will eventually become widely used, essential household appliances.

 

According to the statistics from AskCI Consulting (“ASKCI”), the annual compound growth rate of water purifier units sold in China reached 8.1% from 2011 to 2017. ASKCI expects that the demand for household water purifiers will continue to grow at a rapid pace in coming years, with the market size reaching over RMB 33 billion (approximately USD 4.7 billion) in 2018.

 

According to the statistics from the Prospective Industry Research Institute, the annual compound growth rate of air purifiers in sales was about 8.4% from 2014 to 2017, with the estimated market size reaching over RMB 11 billion (approximately USD 1.6 billion) in 2018.

 

Health Food Market

 

Total sales of health food in China amounted to about RMB 290 billion (approximately USD 41.3 billion) in 2018, and their share in the global market rose from 4.6% in 2010 to 11.6%. As total sales of health food continue to grow, we believe that the market outlook should remain attractive. The market size of health products in China is about 397 billion yuan in 2019. With the continuous growth of the total sales volume of healthy food, we believe that the market prospect will remain attractive.

 

The health food market in China is dominated by dietary products which make up 55.2% of the market. This is followed in size of market share by health foods with a nourishing function (33.5%), health foods for weight management (6.5%) and health foods for children and athletes (4.8%). It is estimated that the sales revenue of China's health products industry will reach 480.3 billion yuan in 2020. We believe that dietary supplements and health foods with a nourishing function will become increasingly popular among young females and the middle-aged in the future.

 

 

 

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Cosmetics Market

 

According to the National Bureau of Statistics, China's retail sales of cosmetics reached RMB 261.9 billion in 2018, up 9.6 percent year-on-year, 0.6 percentage points higher than the growth rate of total retail sales of consumer goods in the same period. Retail sales of cosmetics in China reached RMB 28 billion by December 2019, up 11.9% year on year. Retail sales of cosmetics in China reached RMB 299.2 billion from January to December 2019, up 12.6 percent from the same period last year.

 

Domestic cosmetics brands are performing very well with a market share of approximately 56%, primarily due to their expansion into second- and third-tier markets. They have also been vigorously developing online sales and boosting advertising on new-media platforms (WeChat and Weibo) to raise brand recognition, propagation speed and propagation scale. It is estimated that the scale of Chinese cosmetics market will reach RMB 485.2 billion in 2021.

 

Smart Home Market

 

According to the "China Smart home Equipment Industry Market Outlook and Investment Strategy Planning Report" released by Foresight Industry Research Institute, the size of China's smart home market has been growing year by year in recent years. In 2015, the size of China's smart home market only reached US $705 million. By 2018, the size of China's smart home market has grown to approximately US 6.5 billion, and in 2019, the size of China's smart home market is about US $8 billion. It is predicted that the size of China's smart home market will grow to about US $10.5 billion in 2020.

 

Online to Offline (“O2O”)

 

In recent years, local lifestyle service O2O has expanded rapidly, with an increasing number of customers purchasing daily goods on the internet, According to China Internet Watch, the gross merchandise volume (“GMV”) of local lifestyle service O2O in China reached over RMB1.5 trillion (approximately US$ 232 billion) in 2018, soaring about 37.5% from a year earlier. According to iResearch Consulting Group, the main reasons of the success of the O2O platforms can be attributed to:

 

Popularity of smart phones and mobile payment which provides convenient conditions for the development of the Internet in local life;

 

  1. O2O’s increasing coverage of life service demands meeting consumers’ demand for diversified consumption;
2. Emergence of a great number of products and de-intermediation that facilitated the use of internet purchasing, which lead to frequent usage.

 

Although local lifestyle service O2O market has an extensive market, its penetration in the Internet service market is only 12.7%, implying that there is still huge potential for its development.

 

Products

 

Beijing Luji is engaged in the business of selling healthcare and other related products to the middle-aged and elderly market segments in China. Beijing Luji sells its own branded “Fozgo” products through its website. It also sells products for other vendors. The Company is focused on creating its national sales network and establishing its marketing channels to capitalize on its brand advantages.

 

A majority of the products being sold since 2019 were its own brand “Fozgo” nutrition supplements. During the three months ended March 31, 2020, the top products categories were health foods, which accounted for 100 percent of its revenues. During the three months ended March 31, 2019, the top products categories were health foods, household appliances and cosmetics products, representing 76.86%, 8.01% and 5.36% of the revenue, respectively. During the year ended December 31, 2019, the top products categories were health foods, household appliances and cosmetics products, representing 70.92%, 11.38% and 7.32% of the revenue, respectively. During the year ended December 31, 2018, the top product categories were home appliances and cosmetics products, representing 78.8% and 14.0% of the revenue respectively.

 

 

 

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Platform Users

 

Beijing Luji had approximately 158,400 and 96,900 users as of March 31, 2020 and 2019, respectively, representing an increase of approximately 61,500 users, or approximately 63%. During the year ended December 31, 2019, the number of new users increased by approximately 71,000 users, or 81%, from approximately 87,300 users for the year ended December 31, 2018. The users spread over 27 provinces and cities across the PRC.

 

The COVID-19 pandemic has adversely affected the operations and projected revenues of Beijing Luji during the first half of 2020. We are actively monitoring its effects on the operations of Beijing Luji and cannot accurately predict our overall financial statements impact of COVID-19 on our full year 2020 results of operations. Beijing Luji intends to focus on reaching more than 300,000 registered users after 18 months of normal operations and hopefully 400,000 registered users by December 31, 2022, through a variety of promotional activities, offline meetings, online community marketing and other network marketing through its Fozgo online mall.

 

Sales and Marketing

 

Beijing Luji creates awareness of its brand and products directly through several channels: conferences and events marketing, social media platforms, and cross collaboration with business partners.

 

· Conference and events marketing: Beijing Luji believes this can effectively enhance brand awareness of its targeted customers.
· Social Media Platforms: Beijing Luji promotes its products on various social media platforms such as WeChat, etc.
· Business Partners: Beijing Luji actively seeks businesses for brand partnerships to cross-promote its brand, products.
· Referral and Resellers: Beijing Luji actively encourages the development of a community of resellers and outlets that will be incentivized to sell its products. Beijing Luji expects to rely on conferences and events to develop new resellers and new outlets in new provinces across the PRC. Beijing Luji also plans to attract more new users by using WeChat QR code and the Internet.

 

Strategy for Growth

  

Beijing Luji is focused on promoting its O2O cloud platform to middle-aged and elderly market segments in the PRC. Its strategies include:

 

1. Increase the number of offline service outlets and stores, enhance the user experience in the O2O business model, and continue to increase branches across China. It is expected that by December 31, 2020, the number of branches will reach 12. There will be 15 branches established in China in the next 18 months. It is estimated that by December 31, 2022, there will be 20 branches established in China;
2. Refining the variety of its product categories to better meet the needs of our users. Beijing Luji plans to develop its products from common products to intelligent health care in the next 18 months;
3. Beijing Luji intends to cooperate with healthcare institutions, provide door-to-door healthcare services for the middle-aged and elderly people at the same time, and deliver customers in need of Beijing Luji’s healthcare services to its base for on-site experience after preliminary screening.

 

 

 

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In coming years, Beijing Luji intends to provide more personalized services to its targeted group to include the following:

 

1. Fozgo online mall: Promote its products and services to its targeted group through its O2O online mall and outlets.
2. Healthcare institutions: carry out strategic cooperation with healthcare institutions to provide healthcare experience services nationwide. Users can enjoy professional and systematic care with a reasonable price.
3. Medical examination institutions: strategically cooperate with different medical examination institutions to promote health checkups with full medical examinations at reasonable prices to its users.
4. In-home elderly care service: introduce community in-home elderly care services so a user can place an order on its platform, and enjoy professional offline door-to-door elderly care services.

 

The impact of COVID-19 on our results of operations has been significant. We cannot predict the future effects of COVID-19 on Beijing Luji’s operations and financial condition. Assuming resumption of normal operations, we believe that Beijing Luji could generate sufficient cashflow over the next 18 months to implement its current business plans in China.

 

Company Development Plan

 

Years   Branches   Service Centers   Total Users
2020   12   200   220,000
2021   15   250   300,000
2022   20   300   400,000

 

Vendors

 

Beijing Luji partners with various merchants and manufacturers across the PRC to identify suitable products for sale to our users in the PRC. During the three months ended March 31, 2020 and 2019, Beijing Luji’s major vendors that contributed more than 10% to its total purchases are as follow:

 

    Three months ended  
    March 31,2020  
    US$     %  
Baoqingmeilai Modern Agriculture Service Co. Ltd.     5,798,000       87.4  
Shandong Kangqi Wood Industry Co. Ltd.     754,000       11.4  

 

    Three months ended  
    March 31,2019  
    US$     %  
Harbin Xinyue Science and Technology Co. Ltd.     522,000       82.1  

 

 

 

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During the year ended December 31, 2019 and 2018, Beijing Luji’s major vendors that accounted more than 10% of its total purchases are as follow:

 

   

Year ended

December 31, 2019

 
    US$     %  
Harbin Xinyue Technology Co., Ltd.     5,772,000       72.4  

 

    Year ended  
    December 31, 2018  
    US$     %  
Guangzhou Olansi Water Treatment Equipment Co., Ltd.     1,233,000       27.8  
Harbin Xinyue Technology Co., Ltd.     698,000       15.7  
Tianjin Meichen Biotechnology Co., Ltd.     466,000       14.5  

 

INTELLECTUAL PROPERTY AND PATENTS

 

We rely on, trade secrets, copyrights, know-how, trademarks, license agreements and contractual provisions to establish our intellectual property rights and protect the “Fozgo” brand of Beijing Luji. These legal means, however, afford only limited protection and may not adequately protect our rights. Litigation may be necessary in the future to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. Litigation could result in substantial costs and diversion of resources and management attention. Any unauthorized disclosure or use of our intellectual property increase our business cost and harm our operating results.

 

The laws of the PRC may not protect our brand and intellectual property to the same extent as U.S. laws, if at all. We may be unable to fully protect our intellectual property rights in our country. Further, companies in the internet, social media technology and other industries may own large numbers of patents, copyrights and trademarks and may frequently request license agreements, threaten litigation or file suit against us based on allegations of infringement or other violations of their intellectual property rights.

 

Beijing Luji intends to seek the widest possible protection for significant product and process developments in our major markets through a combination of trade secrets, trademarks, copyrights and patents, if applicable. We anticipate that the form of protection will vary depending upon the level of protection afforded by the particular jurisdiction. Initially, we expect that our revenue will be derived principally from our operations in the PRC where intellectual property protection may be more limited and difficult to enforce. In such instances, we may seek protection of our intellectual property through measures taken to increase the confidentiality of our findings.

 

Beijing Luji intends to register trademarks as a means of protecting the brand names of our companies and products. We intend to protect our trademarks against infringement and also seek protection of registered design and product patent.

 

Beijing Luji relies on trade secrets and unpatentable know-how that we seek to protect, in part, by confidentiality agreements. We expect that, where applicable, we will require our employees to execute confidentiality agreements upon the commencement of employment with us. We expect these agreements to provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific limited circumstances. The agreements will also provide that all inventions conceived by the individual while rendering services to us shall be assigned to us as the exclusive property of the Company. There can be no assurance, however, that all persons who we desire to sign such agreements will sign, or if they do, that these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets or unpatentable know-how will not otherwise become known or be independently developed by competitors.

 

 

 

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COMPETITION

 

Our VIE, Beijing Luji, operates in a highly competitive, price and service sensitive household appliances and health food industry. It competes with Hefei Xili Electrical Appliance, Zhejiang Qinyuan Water Treatment Technology, Wanlvcheng Group and Guangdong Youxingzhijia Intelligent Elderly Care Service Co., Ltd., which provide the same or similar products and services in O2O and online marketing fields. We believe that main competitive factors in the market include:

 

· Customer loyalty – strong customer loyalty towards the platform with large repeated purchasers and referrals from existing customers
· Product advantages – products that have a higher added value with good customer experience
· Services positioning – services that meet rigid demands of precise customers
· Brand awareness – capability and recognition of propagation speed of the brand

 

Although we believe we compete favorably on the factors described above, many of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, larger product and services offerings, a larger customer base and greater brand recognition. These factors may allow our competitors to benefit from their existing customer or subscriber base with lower acquisition costs or to respond quicker than we can to new or emerging technologies and changes in customer requirements. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build a larger subscriber base or to monetize that subscriber base more effectively than us. Our competitors may develop products or services that are similar to our products and services or that achieve greater market acceptance than our products and services. In addition, although we do not believe that merchant payment terms are a principal competitive factor in our market, they may become such a factor and we may be unable to compete fairly on such terms.

 

EMPLOYEES

 

As of March 31, 2020, Beijing Luji has the following employees:

 

Senior Management   9  
Sales and Marketing   6  
Merchant   11  
Customer Services   5  
Business Development   3  
Information System Technology   18  
Administration / Finance / HR   14  
Others   4  
Total   70  

 

 

 

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All of Beijing Luji’s employees are located in the PRC. None of its employees are members of a trade union. We believe that Beijing Luji maintains good relationships with its employees and has not experienced any strikes or shutdowns and has not been involved in any material labor disputes.

 

According to the Social Insurance Law of the People’s Republic of China, Beijing Luji is required to make contributions to a pension fund, basic medical insurance, work injury insurance, unemployment insurance and maternity insurance for all of our eligible employees in the PRC. Beijing Luji is required to contribute a specified percentage of the participants’ relevant income based on their wage level. The total contributions were approximately $30,491 and $41,913, for the three months ended March 31, 2020, and 2019, respectively. The total contributions were approximately $189,765 and $124,542, for the years ended December 31, 2019, and 2018, respectively.

 

Moreover, according to the Regulations on Management of Housing Provident Fund, Beijing Luji is required to make a contribution to the housing provident fund for all of its eligible employees in the PRC based on a certain percentage of their relevant income.
 

GOVERNMENT AND INDUSTRY REGULATIONS

 

Business License

 

Any company that conducts business in the PRC must have a business license that covers a particular type of work. Beijing Luji’s business license covers its present business of technology development, technical services, technology promotion; organizing cultural and artistic exchange activities (excluding performances); sales of daily necessities, clothing, shoes and hats, electronic products, communication equipment, computer software and auxiliary equipment, automobiles, arts and crafts, household appliances; publishing; engaged in Internet cultural activities; sales of foods. We do not expect to conduct business outside the scope of this business license and will update the scope of such business license in accordance with our business development in the future. In the event that we elect to engage in a business outside the scope of such license, we will be required to apply and receive approval from the PRC government.

 

Value-added Telecommunications Business Permit

 

Operators of value-added telecommunications services in the PRC must obtain a Value-added Telecommunications Business Permit approved by the telecommunications administration authorities. Provision of value-added telecommunications services in China is regulated by various rules and regulations depending on the varieties of value-added telecommunications services. Beijing Luji holds Value-added Telecommunications Business Permits for the operation of its online platform. In this respect, it is subject to requirements and provisions of the Telecommunications Regulations of the PRC, The Catalogue of Telecommunications Businesses, the Administrative Measures on Telecommunications Business Operating Licenses, the Administrative Measures on Internet Information Services and other value-added telecommunications business related rules and regulations, which set out requirements relating to, among others, application for the permit, information content published or circulated online, and network security.

 

Network Culture Business Permit

 

Under the Interim Administrative Provisions on Internet Culture, any commercial entity engaged in Internet culture activities is required to apply to the appropriate local culture authority for an Online Culture Business Permit. Internet culture activities refer to activities carried out for providing Internet culture products and services, which mainly include production, reproduction, import, release or broadcast of Internet culture products, on-line distribution activities of publishing cultural products on internet, or sending cultural products through the internet, mobile communication network and other information networks to customer equipment as well as Internet bar and other Internet online service operating premises available for users to browse, read, appreciate, use or download such contents, as well as the exhibitions and competitions and other similar activities concerning Internet culture products. Internet culture products comprise cultural products produced, spread and distributed through the Internet, including without limitation to online music, online games, online shows (programs), online performance, online arts, and online cartoons. Beijing Luji holds an Online Culture Business Permit for the provision of online culture products on our online platform.

 

 

 

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Employment Laws

 

Beijing Luji is subject to laws and regulations governing our relationship with its employees, including, among others, wage and hour requirements, working and safety conditions, protection for female and juvenile workers, vocational training, social insurance and welfare. These include local labor laws and regulations, which may require substantial resources for compliance. China’s Labor Law, which became effective on January 1, 1995, and amended on August 27, 2009 and December 29, 2018, and China’s Labor Contract Law, which became effective on January 1, 2008, and amended on December 28, 2012, permit workers in both state and private enterprises in China to bargain collectively. The Labor Law and the Labor Contract Law provide for collective contracts to be developed through collaboration between the labor union (or worker representatives in the absence of a union) and management that specify such matters as working conditions, wage scales, and hours of work. The laws also permit workers and employers in all types of enterprises to sign individual contracts, which are to be drawn up in accordance with the collective contract.

 

Intellectual Property Protection in China

 

Patent. The PRC has domestic laws for the protection of copyrights, patents, trademarks and trade secrets. The PRC is also signatory to some of the world’s major intellectual property conventions, including:

 

· Convention establishing the World Intellectual Property Organization (WIPO Convention) (June 4, 1980);
     
· Paris Convention for the Protection of Industrial Property (March 19, 1985);
     
· Patent Cooperation Treaty (January 1, 1994); and
     
· The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) (November 11, 2001).

 

Patents in the PRC are governed by the China Patent Law and its Implementing Regulations, each of which went into effect in 1985. Amended versions of the China Patent Law came into effect in 1993, 2001 and 2009.

 

The PRC is signatory to the Paris Convention for the Protection of Industrial Property, in accordance with which any person who has duly filed an application for a patent in one signatory country shall enjoy, for the purposes of filing in the other countries, a right of priority during the period fixed in the convention (12 months for inventions and utility models, and 6 months for industrial designs).
 

The Patent Law covers three kinds of patents — patents for inventions, utility models and designs. The Chinese patent system adopts the principle of first to file, which means that a patent may be granted only to the person who first files an application. Consistent with international practice, the PRC allows the patenting of inventions or utility models that possess the characteristics of novelty, inventiveness and practical applicability only. For a design to be patentable it cannot be identical with, or similar to, any design which, before the date of filing, has been publicly disclosed in publications in the country or abroad or has been publicly used in the country, and should not be in conflict with any prior right of another.

 

Copyright. Copyright in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC and related rules and regulations. Under the Copyright Law, the term of protection for copyrighted software is 50 years.

 

 

 

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Trademark. Registered trademarks are protected under the Trademark Law of the PRC and related rules and regulations. Trademarks are registered with the Trademark Office of the SAIC. Where registration is sought for a trademark that is identical or similar to another trademark which has already been registered or given preliminary examination and approval for use in the same or similar category of commodities or services, the application for registration of such trademark may be rejected. Trademark registrations are effective for a renewable ten-year period, unless otherwise revoked. The duration of a trademark is 10 years from the date of registration.

 

Domain names. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration.

Regulations on Tax

 

PRC Corporate Income Tax

 

The PRC corporate income tax, or CIT, is calculated based on the taxable income determined under the applicable CIT Law and its implementation rules, which became effective on January 1, 2008 and amended on February 24, 2017 and December 29, 2018 respectively. The CIT Law imposes a uniform corporate income tax rate of 25% on all resident enterprises in China, including foreign-invested enterprises. As Beijing Luji is a national high-tech enterprise, 15% of the enterprise income tax is imposed on national high-tech enterprises in accordance with provisions of the Chinese tax law.

 

Uncertainties exist with respect to how the CIT Law applies to the tax residence status of the Company and our offshore subsidiaries. Under the CIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise,” which means that it is treated in a manner similar to a Chinese enterprise for corporate income tax purposes. Although the implementation rules of the CIT Law define “de facto management body” as a managing body that exercises substantive and overall management and control over the production and business, personnel, accounting books and assets of an enterprise, the only official guidance for this definition currently available is set forth in Circular 82 issued by the State Administration of Taxation, which provides guidance on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although the Company does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese-controlled offshore incorporated enterprise within the meaning of Circular 82, in the absence of guidance specifically applicable to us, we have made reference to the guidance set forth in Circular 82 to evaluate the tax residence status of the Company and our subsidiaries organized outside the PRC.

According to Circular 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC corporate income tax on its worldwide income only if all of the following criteria are met:

 

· the primary location of the day-to-day operational management is in the PRC;
     
· decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC;
     
· the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders meeting minutes are located or maintained in the PRC; and
     
· 50% or more of voting board members or senior executives habitually reside in the PRC.

 

 

 

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We believe that our entities inside China are considered as PRC resident enterprise for PRC tax purposes as defined above. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” As all of our management members are based in China, it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities determine that we or any of our subsidiaries outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, then we or such subsidiary could be subject to PRC tax at a rate of 25% on its world-wide income, as our entity enterprise in China is an state high-tech enterprise, it is possible to be impose 15% enterprise income tax on state high-tech enterprises in accordance with provisions of the Chinese tax law, thus materially reducing our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Furthermore, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, gains realized on the sale or other disposition of our ordinary shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our ordinary shares.

 

Chinese companies operating in the high-technology and software industry that meet relevant requirements may qualify for preferential treatment within the scope of the PRC national plan. For a qualified high and new technology enterprise, the applicable enterprise income tax rate is 15%. The high and new technology enterprise qualification is re-assessed by the relevant authorities every three years.

 

Value-Added Tax and Business Tax

 

The Provisional Regulations of the PRC on Value-added Tax (“VAT”) were promulgated by the State Council on December 13, 1993 and came into effect on January 1, 1994 which were subsequently amended on November 10, 2008, February 6, 2016 and November 19, 2017. The Detailed Rules for the Implementation of the Provisional Regulations of the PRC on Value-added Tax (Revised in 2011) were promulgated by the Ministry of Finance and the State Administration of Taxation (“SAT”) on 28 October 2011 and came into effect on November 1, 2011 (collectively, the “VAT Law”). According to the VAT Law, all enterprises and individuals engaged in the sale of goods, the provision of processing, repair and replacement services, and the importation of goods within the territory of the PRC must pay value-added tax. For general VAT taxpayers selling or importing goods other than those specifically listed in the VAT Law, the VAT rate is 17%. Starting from April 1, 2019, the VAT rate for revenue generated from providing products was changed from 16% into 13%. VAT is reported as a deduction of revenue when incurred. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded in taxes payable.

 

On March 23, 2016, the Ministry of Finance and the SAT jointly issued the Circular on Full Implementation of Business Tax to Value-added Tax Reform which has been partially repealed on July 1, 2017 and January 1, 2018, confirms that business tax would be completely replaced by VAT from May 1, 2016.

 

Regulations Relating to Foreign Exchange and Dividend Distribution

 

Foreign Exchange Regulations

 

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may be made in foreign currencies without prior approval from the State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans or foreign currency is to be remitted into China under the capital account, such as a capital increase or foreign currency loans to our PRC subsidiaries.

 

 

 

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In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expense accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches.

 

Additionally, pursuant to the Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving the Direct Investment related Foreign Exchange Administration Policies (“SAFE Notice No. 13”), which was promulgated on February 13, 2015 and became effective on June 1, 2015, the foreign exchange registration in relation to foreign direct investment shall be directly reviewed and handled by qualified banks in accordance with SAFE Notice No. 13, and SAFE and its branches shall perform indirect regulation over the foreign exchange registration via qualified banks.

 

We typically do not need to use our offshore foreign currency to fund our PRC operations. In the event we need to do so, we will apply to obtain the relevant approvals of, registration or filing with SAFE and other PRC government authorities as necessary.
 

SAFE Circular 37

 

SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents 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 37 as a “special purpose vehicle.” SAFE Circular 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. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. On February 13, 2015, SAFE Notice No. 13 was promulgated, pursuant to which the aforementioned registration shall be conducted with and handled by qualified banks.

 

We have notified substantial beneficial owners of our ordinary shares who we know are PRC residents of their filing obligation, and to the best of our knowledge, those shareholders whom we know are PRC residents have completed the registration or will carry out the registration as required under SAFE Circular 37. However, we may not be aware of the identities of all our beneficial owners who are PRC residents. In addition, we do not have control over our beneficial owners and cannot assure you that all of our PRC resident beneficial owners will comply with SAFE Circular 37. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37 or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Failure to register or amend the registration may also limit our ability to contribute additional capital to our PRC subsidiaries or receive dividends or other distributions from our PRC subsidiaries or other proceeds from disposal of our PRC subsidiaries, or we may be penalized by SAFE.

 

 

 

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Share Option Rules

 

Under the Administration Measures on Individual Foreign Exchange Control issued by the PBOC on December 25, 2006, all foreign exchange matters involved in employee share ownership plans and share option plans in which PRC citizens participate require approval from SAFE or its authorized branch. Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. In addition, under the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Share Incentive Plans of Overseas Publicly-Listed Companies, or the Share Option Rules, issued by SAFE on February 15, 2012, PRC residents who are granted shares or share options by companies listed on overseas stock exchanges under share incentive plans are required to (i) register with SAFE or its local branches, (ii) retain a qualified PRC agent, which may be a PRC subsidiary of the overseas listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the share incentive plans on behalf of the participants, and (iii) retain an overseas institution to handle matters in connection with their exercise of share options, purchase and sale of shares or interests and funds transfers. We will make efforts to comply with these requirements upon completion of our initial public offering.

 

Regulation of Dividend Distributions

 

The principal laws, rules and regulations governing dividend distributions by foreign-invested enterprises in the PRC are the Company Law of the PRC, as amended, the Wholly Foreign-owned Enterprise Law and its implementation regulations, the Chinese-foreign Cooperative Joint Venture Law and its implementation regulations, and the Chinese-foreign Equity Joint Venture Law and its implementation regulations. Under these laws, rules and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set aside a general reserve of at least 10% of their after-tax profit, until the cumulative amount of such reserve reaches 50% of their registered capital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.

  

INSURANCE

 

The Company does not have any general business or product liability insurance.

 

Beijing Luji maintains certain insurance in accordance customary industry practices in the PRC. Under the PRC law it is a requirement that all employers in the city must purchase work injury insurance for all employees to cover their liability in the event that their staff suffers an injury or illness during the normal course of their work.

 

CORPORATE INFORMATION

 

Our principal executive and registered offices are located Room 1206, 12th Floor, 301, 3-17 F, Building 5, Block 1,Hangfeng Road, Fengtai District, Beijing, The PRC, telephone number +86 10 63622901.

 

RISK FACTORS

 

An investment in our securities involves a high degree of risk. You should consider carefully the following information about these risks, together with the other information contained in this Current Report before making an investment decision. Our business, prospects, financial condition, and results of operations may be materially and adversely affected as a result of any of the following risks. The value of our securities could decline as a result of any of these risks. You could lose all or part of your investment in our securities. Some of the statements in “Risk Factors” are forward looking statements.

 

 

 

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Risks Relating to our Business

 

COVID-19 has had an adverse effect that is material on our business and may continue to do so for the next twelve months.

 

During March 2020, the World Health Organization declared the rapidly growing coronavirus outbreak to be a global pandemic. The COVID-19 pandemic has significantly impacted health and economic conditions throughout Hong Kong and China. National, regional and local governments took a variety of actions to contain the spread of COVID-19, including office and store closures, quarantining suspected COVID-19 patients, extending the Chinese New Year holiday, or capacity limitations. These developments have caused a material adverse impact on the Company’s results of operations, financial condition and cash flows.

 

In response to the outbreak, our Company and Beijing Luji have taken a series of measures accordingly, including telecommute working for some employees, reducing pay and benefits for remaining employees, and cutting back capital spending and temporary closure of some service centers (offline experience stores). The above measures may reduce our operating capacity and work efficiency, and temporarily have a significantly and adversely impact on product procurement and sales, which may then have a adversely impact on our business performance. The extent to which COVID-19 affects our business performance will depend on the future development of the epidemic, including information about the global severity and new actions taken by governments and businesses to contain the outbreak, which is highly uncertain and unpredictable. In addition, if the Chinese economy as a whole is damaged by the outbreak, our operating performance will also be adversely affected.

 

For details on the impact of COVID-19 on operating cash flow and business operations, please refer to our operating results for the first quarter of 2020. If COVID-19 continues to adversely affect our business and financial performance, we need not be able to generate sufficient cash flow to meet our daily operating expenses, as well as risks related to our procurement level, late delivery of the logistics system, and merchants' payment settlement level, resulting in increased inventories and difficulties in recruiting technicians. If our suppliers, customers or business partners are affected by the epidemic, our operations may also be seriously affected.

 

We cannot predict how soon we will be able to fully resume operations as our ability to resume will depend in part on the actions of a number of governmental bodies over which we have no control.  Moreover, once restrictions are lifted, it is unclear how quickly customers will commence operations and resume consuming our products and service, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses. In light of the uncertainty as to when we can resume full operations and the uncertain customer demand environment, we have scheduled a series of marketing and promotional events in the third quarter of 2020. Based on our revised business plan and updated forecast, we believe the Company will have sufficient operating cash flows to operate as a going concern over the next 12 months.

 

Continued business closures or restrictions on operations due to COVID-19 may adversely our ability to continue as a going concern.

 

Our consolidated financial statements have been prepared on a going concern basis, which assumes that we will be able to continue to operate in the future in the normal course of business. Recently, our ability to operate in the normal course of business has been significantly impacted by government mandated business closures and or limitations on business operations. This in turn has significantly disrupted our ability to generate revenues and cash flow during the first half of 2020. The uncertainty regarding the length of the disruption may also adversely impact our ability to meet our operating and financial targets for the full year 2020. The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows will depend on our ability to (a) generate sales during the remainder of 2020; and (b) manage our working capital requirements and liquidity prudently during the second half of 2020.

 

 

 

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We are susceptible to economic conditions in the PRC where our principal business, assets, suppliers, merchants and customers are located.

 

Our business and assets are primarily located in the PRC. Our results of operations, financial state of affairs and future growth are, to a significant degree, subject to China’s economic, political and legal development and related uncertainties. Our operations and results could be materially affected by a number of factors, including, but not limited to:

 

· Changes in policies by the PRC government resulting in changes in laws or regulations or the interpretation of laws or regulations; changes in taxation;
· Political and economic disturbance in the PRC;
· Changes in employment restrictions;
· Import duties; and
· Currency revaluation and restrictions.

 

Our business plans for expansion may make it difficult for us to accurately forecast our operating results and control our business expenses which means we face a higher risk of business failure which could result in the loss of your investment.

 

Our planned expense levels are, and will continue to be, based in part on our expectations, which are difficult to forecast accurately in light of our expansion plans and factors outside of our control. We may be unable to adjust spending in a timely manner to compensate for any unexpected developments. Further, business development expenses, like customer acquisition costs, may increase significantly as we expand operations or make acquisitions. To the extent that any unexpected expenses are incurred, or are not rapidly followed by, a corresponding increase in revenue, our business, operating results, and financial condition may be materially and adversely affected which could result in the loss of your investment.

 

Our future performance depends to a significant degree upon the continued service of key members of management as well as marketing, sales and product development personnel.

 

We are dependent upon the continued service of Ms. Tian Xiangyang, CEO, Chairman of the Board, Director and major shareholder, Mr. Shan Yonghua, our CFO and Director, and Mr. Tian Zhihai, our COO and Director. The loss of Ms. Tian, Mr. Shan, Mr. Tian or one or more of our other key personnel would have a material adverse effect on our business, operating results and financial condition. We believe our future success will also depend in a large part upon our ability to attract, retain and further motivate highly skilled management, marketing, sales and product development personnel. We expect to establish an incentive compensation plan for our key personnel to retain their services. We have experienced intense competition for personnel, and we cannot assure you that we will be able to retain our key employees or that we will be successful in attracting, assimilating and retaining talents in the future.

 

Because our Chief Executive Officer, Chairperson of the Board and Director controls a large percentage of our voting securities, she has the ability to influence matters affecting our shareholders.

 

Ms. Tian Xiangyang, our CEO, Chairman of the Board, Director and shareholder beneficially controls over 70.78% of our outstanding voting securities. As a result, she has the ability to influence matters affecting our shareholders, including the election of our directors, the acquisition or disposition of our assets, and the future issuance of our shares. Because she controls such shares, investors may find it difficult to replace our directors and management if they disagree with the way our business is being operated. Because the influence by Ms. Tian could result in management making decisions that are in the best interest of her and not in the best interest of the investors, you may lose some or all of the value of your investment in our common stock. See “Securities of Certain Beneficial Owners and Management”.

 

 

 

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The relative lack of United States public company experience of our management team may put us at a competitive disadvantage.

 

Our management team lacks United States public company experience, which could impair our ability to comply with applicable legal and regulatory requirements. Such responsibilities may include complying with federal securities laws and making required filings and disclosures on a timely basis. Our senior management may be unable to implement programs and policies in an effective and timely manner that adequately responds to the increased legal, regulatory and reporting requirements associated with being a publicly traded company. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties, distract our management from attending to the management and growth of our business, result in a loss of investor confidence in our financial reports and have an adverse effect on our business and stock price.

 

We may grow our business through acquisitions in the near future, which may result in operating difficulties, dilution, and other harmful consequences.

 

We expect to achieve our business plan through a combination of organic growth and acquisitions and investments. We periodically evaluate an array of potential strategic transactions and may make one or more acquisitions in the near future. The process of integrating an acquired company, business, or technology may create unforeseen operating difficulties and expenditures. The areas where we face risks include:

 

· Implementation or remediation of controls, procedures, and policies at the acquired company;
· Diversion of management time and focus from operating our business to acquisition integration challenges;
· Cultural challenges associated with integrating employees from the acquired company into our organization;
· Retention of employees from the businesses we acquire;
· Integration of the acquired company’s accounting, management information, human resources, and other administrative systems;
· Liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities;
· Litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former stockholders, or other third parties;
· In the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries; and
· Failure to successfully further develop the acquired product, service or technology.

 

Our failure to address these risks or other problems encountered in connection with future acquisitions and investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities, and harm our business generally.

 

Future acquisitions may also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, or amortization expenses, or write-offs of goodwill, any of which could harm our financial condition and results. Also, the anticipated benefit of our acquisitions or investments may not materialize.

 

If we are unable to successfully manage and achieve growth, our business and operating results could be adversely affected.

 

We expect the growth of our business and operations to place significant demands on our management, operational and financial infrastructure. If we do not effectively manage and achieve growth, the quality of our products and services could suffer, which could negatively affect our reputation and operating results. Our expansion and growth in international markets heighten these risks as a result of the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute systems, regulatory systems, and commercial infrastructures. To effectively manage this growth, we will need to develop and improve our operational, financial and management controls, and our reporting systems and procedures. These system enhancements and improvements may require significant capital expenditures and management resources. Failure to implement these improvements could hurt our ability to manage our growth and our financial position and results.

 

 

 

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If our relationships with suppliers, especially with single source suppliers of goods, were to terminate or our purchase arrangements were to be disrupted, our business could be interrupted and adversely affected.

 

We purchase our goods from third-party suppliers and vendors. While there are several product suppliers available, we currently choose to partner with one or a limited number of suppliers for several of our goods and products. Our reliance on a single or limited number of vendors involves a number of risks, including:

 

· potential delay in shipments;
· product performance shortfalls
· potential insolvency of these vendors; and 
· reduced control over delivery schedules, manufacturing capabilities, quality and costs.

 

We cannot assure you that there will not be any dispute with our major suppliers or vendors, or that we will be able to maintain business relationships with our existing suppliers or vendors. We have entered into the purchase agreement or distributorship agreement with our suppliers, there is no assurance the relationship will not be unfavorably amended, revoked or terminated, or discontinued in the future. If we cannot locate alternative suppliers for replacement in a timely manner and/or on comparable commercial terms, our business operations may be hindered, which would adversely affect our profitability.

 

We may need to raise additional financing to support our operations and future acquisitions, but we cannot be sure that we will be able to obtain additional financing on terms favorable to us when needed. If we are unable to obtain additional financing to meet our needs, our operations may be adversely affected or terminated.

 

We have limited financial resources. There can be no assurance that we will be able to obtain financing to fund our operations in light of factors beyond our control such as the effect of the COVID-19 pandemic, market demand for our securities, the state of financial markets, generally, and other relevant factors. Any sale of our Common Stock in the future will result in dilution to existing stockholders. Furthermore, there is no assurance that we will not incur debt in the future, that we will have sufficient funds to repay any future indebtedness or that we will not default on our future debts, which would thereby jeopardize our business viability. We may not be able to borrow or raise additional capital in the future to meet our needs, which might result in the loss of some or all of your investment in our Common Stock. Even if we do raise sufficient capital and generate revenues to support our operating expenses, there can be no assurance that the revenues will be sufficient to enable us to develop our business to a level where it will generate profits and cash flows from operations or provide a return on investment. In addition, if we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, the newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders and the trading price of our Common Stock could be adversely affected. Further, if we obtain additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, and the terms of the debt securities issued could impose significant restrictions on our operations. If we are unable to continue as a going concern, you may lose your entire investment.

 

A significant disruption in our computer systems and our inability to adequately maintain and update those systems could adversely affect our operations and our ability to maintain user confidence.

 

We rely extensively on our computer systems to manage and account for inventory, process user transactions, manage and maintain the privacy of user data, communicate with our vendors and other third parties, service accounts, and summarize and analyze results. We also rely on continued and unimpeded access to the Internet to use our computer systems. Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses, malicious attacks, security breaches, and catastrophic events. If our systems are damaged or fail to function properly or reliably, we may incur substantial repair or replacement costs, experience data loss or theft and impediments to our ability to manage inventories or process user transactions, engage in additional promotional activities to retain our users, and encounter lost user confidence, which could adversely affect our results of operations.

 

 

 

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We continually invest to maintain and update our computer systems. Implementing significant system changes increases the risk of computer system disruption. The potential problems and interruptions associated with implementing technology initiatives, as well as providing training and support for those initiatives, could disrupt or reduce our operational efficiency, and could negatively impact user experience and user confidence.

 

If our efforts to protect the security of information about our customers, and other third parties are unsuccessful, we may face additional costly government enforcement actions and private litigation, and our sales and reputation could suffer.

 

We regularly receive and store information about our customers, merchants, vendors and other third parties. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. In addition, hardware, software, or applications we develop or procure from third parties or through open source solutions may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud, trickery, or other forms of deceiving our team members, contractors, and vendors.

 

To date, we have not encountered any data breach that was material to our consolidated financial statements. If we, our vendors, or other third parties with whom we do business experience significant data security breaches or fail to detect and appropriately respond to significant data security breaches, we could be exposed to government enforcement actions and private litigation. In addition, our users could lose confidence in our ability to protect their information, which could cause them to discontinue using our services or stop shopping with us altogether.

 

If we become subject to governmental investigations or compulsory measures, our business operation and reputation could be harmed and our financial condition could be adversely affected.

 

Governmental authorities may carry out investigations on us by reason of routine administration or complaints or reports made. Besides, they may impose compulsory measures on the object of investigation for the purpose of facilitating the investigation, such as seizure of premises, facilities or other properties, Freezing deposits or remittances, detainment of properties and restrictions on personal freedom of citizens. Any governmental investigation and/or compulsory measure could divert our management’s attention as well as other resources away from our business, and negatively affect our reputation and brand image. In the event that any unfavorable conclusion was drawn after the investigation, we may be subject to administrative orders, penalties, or even criminal charges, which could materially adversely affect our business, financial condition and results of operations.

 

If we are unable to continue using the properties we lease, our business could be interrupted and adversely affected

 

We lease properties in the PRC for office and other use. Some of the lessors have refused to provide us with the ownership certificate and/or other authorization supporting documents. Moreover, certain properties have been leased by us for uses that are not in conformity with those registered with or approved by relevant governmental authorities. Therefore, in the event that any of the leases are deemed by a court or administrative authority to be invalid or unenforceable, or we are required to vacate from the leased property, our business could be interrupted and adversely affected, and we may incur additional costs in identifying new premises and relocation.

 

Moreover, if we fail to register our lease agreements with the relevant PRC governmental authorities, we may be subject to a fine not exceeding RMB10,000 (approximately USD 1,400) for each unregistered lease agreement if the relevant PRC government authorities require us to rectify such non-compliance and we fail to do so within the specific time. If we are subject to such fines, our financial condition and results of operations may be adversely affected.

 

 

 

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Other factors can have a material adverse effect on our future profitability and financial condition.

 

Many other factors can affect our profitability and financial condition, including:

 

· changes in, or interpretations of laws and regulations including changes in accounting standards and taxation requirements;
· changes in the rate of inflation, interest rates and the performance of investments held by us;
· changes in the creditworthiness of counterparties that transact business with;
· changes in business, economic, and political conditions, including: war, political instability, terrorist attacks, the threat of future terrorist activity and related military action; natural disasters; the cost and availability of insurance due to any of the foregoing events; labor disputes, strikes, slow-downs, or other forms of labor or union activity; and, pressure from third-party interest groups;
· changes in our business and investments and changes in the relative and absolute contribution of each to earnings and cash flow resulting from evolving business strategies, changing product mix, changes in tax rates and opportunities existing now or in the future;
· difficulties related to our information technology systems, any of which could adversely affect business operations, including any significant breakdown, invasion, hacking, destruction, or interruption of these systems;
· changes in credit markets impacting our ability to obtain financing for our business operations; or
· legal difficulties, any of which could preclude or delay commercialization of products or technology or adversely affect profitability, including claims asserting statutory or regulatory violations, adverse litigation decisions, and issues regarding compliance with any governmental consent decree.

    

Risks Related to Doing Business in the PRC

 

We face the risk that 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 such business.

 

We conduct substantially all of our operations and generate most of our revenue through our VIE in the PRC.  Accordingly, economic, political and legal developments in the PRC will significantly affect our business, financial condition, results of operations and prospects.  The PRC economy is in transition from a planned economy to a market-oriented economy subject to plans adopted by the government that set national economic development goals.  Policies of the PRC government can have significant effects on economic conditions in the PRC. While we believe that the PRC will continue to strengthen its economic and trading relationships with foreign countries and that business development in the PRC will continue to follow market forces, we cannot assure you that this will be the case.  Our interests may be adversely affected by changes in policies by the PRC government, including:

 

· changes in laws, regulations or their interpretation;
· confiscatory taxation;
· restrictions on currency conversion, imports or sources of supplies;
· expropriation or nationalization of private enterprises; and
· the allocation of resources.

 

 

 

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Although the PRC government has been pursuing economic reform policies for more than two decades, the PRC government continues to exercise significant control over economic growth in the PRC through the allocation of resources, controlling payments of foreign currency, setting monetary policy and imposing policies that impact particular industries in different ways.  We cannot assure you that the PRC government will continue to pursue policies favoring a market oriented economy or that existing policies will not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting political, economic and social life in the PRC.

 

A slowdown of the Chinese economy or adverse changes in economic and political policies of the PRC government could negatively impact China’s overall economic growth, which could materially adversely affect our business.

 

We are a holding company and all of the combined company’s operations are entirely conducted in the PRC. Although the PRC economy has grown in recent years, the pace of growth has slowed, and even that rate of growth may not continue. The annual rate of growth in the PRC declined from 6.9% in 2017 to 6.3% in 2019 according to the National Bureau of Statistics of China. According to a recent national information forecast, China’s economic growth rate in 2020 will slow to 2% to 4% because of the effect of epidemic, its lowest since 1990. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in the PRC may materially reduce the demand for the combined company’s products and may have a materially adverse effect on our business.

 

China’s economy differs from the economies of most other countries in many respects, including the amount of government involvement in the economy, the general level of economic development, growth rates and government control of foreign exchange and the allocation of resources. While the PRC economy has grown significantly over the past few decades, this growth has remained uneven across different periods, regions and economic sectors.

 

The PRC government also exercises significant control over China’s economic growth by allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Any actions and policies adopted by the PRC government could negatively impact the Chinese economy or the economy of the region the combined Company serves, which could materially adversely affect the combined Company’s business.

 

Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business that we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition.

 

Our business operations may be adversely affected by the current and future political environment in the PRC. The Chinese government exerts substantial influence and control over the manner in which we must conduct our business activities. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations. Under the current government leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activities and greater economic decentralization. However, the government of the PRC may not continue to pursue these policies, or may significantly alter these policies from time to time without notice.

 

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements with borrowers in the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings. Only after 1979 did the Chinese government begin to promulgate a comprehensive system of laws that regulate economic affairs in general, deal with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, as well as encourage foreign investment in China. Although the influence of the law has been increasing, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. Also, because these laws and regulations are relatively new, and because of the limited volume of published cases and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. In addition, there have been constant changes and amendments of laws and regulations over the past 30 years in order to keep up with the rapidly changing society and economy in China. Because government agencies and courts provide interpretations of laws and regulations and decide contractual disputes and issues, their inexperience in adjudicating new business and new polices or regulations in certain less developed areas causes uncertainty and may affect our business. Consequently, we cannot predict the future direction of Chinese legislative activities with respect to either businesses with foreign investment or the effectiveness on enforcement of laws and regulations in China. The uncertainties, including new laws and regulations and changes of existing laws, as well as judicial interpretation by inexperienced officials in the agencies and courts in certain areas, may cause possible problems to foreign investors.

 

 

 

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We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.

 

We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We will have operations, agreements with third parties and make sales in the PRC, which may experience corruption. Our proposed activities may create the risk of unauthorized payments or offers of payments by one of the employees, consultants, or sales agents of our Company, because these parties are not always subject to our control. It will be our policy to implement safeguards to discourage these practices by our employees. Also, our existing practices and any future improvements may prove to be less than effective, and the employees, consultants, or sales agents 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.

 

Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.

 

We are required under PRC laws and regulations to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. We have made adequate employee benefit payments. We may be required to make up the contributions for these plans as well as to pay late fees where applicable. In the event that we fail to make a supplementary payment for the social insurance within a specified period designated by the competent government authority, we may be subject to fines, the amount payable of which shall be determined usually 1 to 3 times of the underpaid amount according to the Social Insurance Law of the PRC. If we are subject to supplementary payments, late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.

 

 

 

 

 

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Restrictions on currency exchange may limit our ability to utilize our revenue effectively.
  

The Renminbi is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. Currently, our PRC subsidiaries, which are wholly-foreign owned enterprises, may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of SAFE by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Since a significant amount of our future revenue will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE or banks and other relevant PRC governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for all of our PRC subsidiaries.
 

Because our holding company structure creates restrictions on the payment of dividends, our ability to pay dividends is limited.

 

We are a holding company whose primary assets are our ownership of the equity interests in our subsidiaries and our agreements with our variable interest entities. We conduct no other business and, as a result, we depend entirely upon our subsidiaries and variable interest entities’ earnings and cash flow. If we decide in the future to pay dividends, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and variable interest entities. Our subsidiaries, variable interest entities and projects may be restricted in their ability to pay dividends, make distributions or otherwise transfer funds to us prior to the satisfaction of other obligations, including the payment of operating expenses or debt service, appropriation to reserves prescribed by laws and regulations, covering losses in previous years, restrictions on the conversion of local currency into U.S. dollars or other hard currency, completion of relevant procedures with governmental authorities or banks and other regulatory restrictions. Under the applicable PRC laws and regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a foreign-invested enterprise in China is required to set aside a portion of its after-tax profit to fund specific reserve funds prior to payment of dividends. In particular, at least 10% of its after-tax profits based on PRC accounting standards each year is required to be set aside towards its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends. If future dividends are paid in RMB, fluctuations in the exchange rate for the conversion of any of these currencies into U.S. dollars may adversely affect the amount received by U.S. stockholders upon conversion of the dividend payment into U.S. dollars. We do not presently have any intention to declare or pay dividends in the future. You should not purchase shares of our common stock in anticipation of receiving dividends in future periods.

 

 

 

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If any dividend is declared in the future and paid in a foreign currency, you may be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

 

If you are a U.S. holder of our shares of common stock, you will be taxed on the U.S. dollar value of your dividends, if any, at the time you receive them, even if you actually receive a smaller amount of U.S. dollars when the payment is in fact converted into U.S. dollars. Specifically, if a dividend is declared and paid in a foreign currency such as the RMB, the amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the spot rate of the foreign currency to the U.S. dollar on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases before you actually convert the currency into U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

 

Dividends payable to our foreign investors and gains on the sale of our shares of common stock by our foreign investors may become subject to tax by the PRC.

 

Under the Enterprise Income Tax Law and its implementation regulations issued by the State Council of the PRC, unless otherwise provided under relevant tax treaties, a 10% PRC withholding tax is applicable to dividends payable to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC or which have such establishment or place of business but the dividends are not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within the PRC. Similarly, any gain realized on the transfer of shares by such investors is also subject to PRC tax at a current rate of 10%, subject to any reduction or exemption set forth in relevant tax treaties, if such gain is regarded as income derived from sources within the PRC. If we are deemed a PRC resident enterprise, dividends paid on our shares, and any gain realized from the transfer of our shares, would be treated as income derived from sources within the PRC and would as a result be subject to PRC taxation. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to individual investors who are non-PRC residents and any gain realized on the transfer shares by such investors may be subject to PRC tax at a current rate of 20%, subject to any reduction or exemption set forth in applicable tax treaties. It is unclear whether we or any of our subsidiaries established outside of China are considered a PRC resident enterprise or whether holders of shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends payable to our non-PRC investors, or gains from the transfer of our shares by such investors are subject to PRC tax, the value of your investment in our shares may decline significantly.

 

Our global income may be subject to PRC taxes under the PRC Enterprise Income Tax Law, which could have a material adverse effect on our results of operations.

 

Under the PRC Enterprise Income Tax Law, or the New EIT Law, and its amendment and implementation rules, which became effective in January 2008, an enterprise established outside of the PRC with a “de facto management body” located within the PRC is considered a PRC resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term “de facto management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel and human resources, finance and treasury, and business combination and disposition of properties and other assets of an enterprise.” On April 22, 2009, the State Administration of Taxation (the “SAT”), issued a circular, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although the SAT Circular 82 only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the determining criteria set forth in the SAT Circular 82 may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the resident status of all offshore enterprises for the purpose of PRC tax, regardless of whether they are controlled by PRC enterprises or individuals. Although we do not believe that our legal entities organized outside of the PRC constitute PRC resident enterprises, it is possible that the PRC tax authorities could reach a different conclusion. In such case, we may be considered a PRC resident enterprise and may therefore be subject to the 25% enterprise income tax on our global income, which could significantly increase our tax burden and materially and adversely affect our cash flow and profitability. In addition to the uncertainty regarding how the new PRC resident enterprise classification for tax purposes may apply, it is also possible that the rules may change in the future, possibly with retroactive effect.

 

 

 

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Furthermore, our WFOE’s ability to pay dividends may be restricted due to foreign exchange control policies and the availability of its cash balance. Substantially all of the Operating Companies’ operations are conducted in China and all of the revenue we recognize, through our WFOE will be denominated in RMB. RMB is subject to exchange control regulation in China, and, as a result, our WFOE may be unable to distribute any dividends outside of China due to PRC exchange control regulations that restrict our ability to convert RMB into U.S. dollars.

 

The lack of dividends or other payments from our WFOE may limit our ability to make investments or business combinations that could be beneficial to our business, pay dividends or otherwise fund, and conduct our business. Our funds may not be readily available to us to satisfy obligations which have been incurred outside the PRC, which could adversely affect our business and prospects or our ability to meet our cash obligations. Accordingly, if we do not receive dividends from our WFOE, our liquidity and financial condition will be materially and adversely affected.

 

We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

 

On February 3, 2015, the State Administration of Taxation issued an Announcement on Several Issues Concerning Enterprise Income Tax on Income Arising from Indirect Transfers of Property by Non-PRC Resident Enterprises, or Announcement 7, with the same effective date. Under Announcement 7, an “indirect transfer” refers to a transaction where a non-resident enterprise transfers its equity interest and other similar interest in an offshore holding company, which directly or indirectly holds Chinese taxable assets (the assets of an “establishment or place” situated in China; real property situated in China and equity interest in Chinese resident enterprises) and any indirect transfer without reasonable commercial purposes are subject to the PRC taxation. In addition, Announcement 7 specifies the conditions under which an indirect transfer is deemed to lack a reasonable commercial purpose which include: (1) 75% or more of the value of the offshore holding company’s equity is derived from Chinese taxable assets, (2) anytime in the year prior to the occurrence of the indirect transfer of Chinese taxable assets, 90% or more of the total assets (excluding cash) of the offshore holding company are direct or indirect investments in China, or 90% or more of the revenue of the offshore holding company was sourced from China; (3) the functions performed and risks assumed by the offshore holding company(ies), although incorporated in an offshore jurisdiction to conform to the corporate law requirements there, are insufficient to substantiate their corporate existence and (4) the foreign income tax payable in respect of the indirect transfer is lower than the Chinese tax which would otherwise be payable in respect of the direct transfer if such transfer were treated as a direct transfer. As a result, gains derived from such indirect transfer will be subject to PRC enterprise income tax, currently at a tax rate of 10%.

 

Announcement 7 grants a safe harbor under certain qualifying circumstances, including transfers in the public securities market and certain intragroup restricting transactions, however, there is uncertainty as to the implementation of Announcement 7. For example, Announcement 7 requires the buyer to withhold the applicable taxes without specifying how to obtain the information necessary to calculate taxes and when the applicable tax shall be submitted. Announcement 7 may be determined by the tax authorities to be applicable to our offshore restructuring transactions or sale of the shares of our offshore subsidiaries where non-resident enterprises, being the transferors, were involved. Though Announcement 7 does not impose a mandatory obligation of filing the report of taxable events, the transferring party shall be subject to PRC withholding tax if the certain tax filing conditions are met. Non-filing may result in an administrative penalty varying from 50% to 300% of unpaid taxes. As a result, we and our non-resident enterprises in such transactions may become at risk of being subject to taxation under Announcement 7, and may be required to expend valuable resources to comply with Announcement 7 or to establish that we and our non-resident enterprises should not be taxed under Announcement 7, for any restructuring or disposal of shares of our offshore subsidiaries, which may have a material adverse effect on our financial condition and results of operations.

 

 

 

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PRC laws and regulations have established more complex procedures for certain acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

 

Further to the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rules, the Anti-monopoly Law of the PRC, the Rules of Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by MOFCOM or the MOFCOM Security Review Rules, was issued in August 2011, which established additional procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time-consuming and complex, including requirements in some instances that MOFCOM be notified in advance of any change of control transaction in which a foreign investor takes control of a PRC enterprise, or that the approval from MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. PRC laws and regulations also require certain merger and acquisition transactions to be subject to merger control review and or security review.

 

The MOFCOM Security Review Rules, effective from September 1, 2011, which implement the Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, further provide that, when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review by MOFCOM, the principle of substance over form should be applied and foreign investors are prohibited from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through agreements control or offshore transactions.

 

Further, if the business of any target company that the combined company seeks to acquire falls into the scope of security review, the combined company may not be able to successfully acquire such company either by equity or asset acquisition, capital contribution or through any contractual agreements. The combined company may grow its business in part by acquiring other companies operating in its industry. Complying with the requirements of the relevant regulations to complete such transactions could be time consuming, and any required approval processes, including approval from MOFCOM, may delay or inhibit its ability to complete such transactions, which could affect our ability to maintain or expand our market share.

 

In addition, SAFE promulgated the Circular on the Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or Circular 19, on June 1, 2015. Under Circular 19, registered capital of a foreign-invested company settled in RMB converted from foreign currencies may only be used within the business scope approved by the applicable governmental authority and the equity investments in the PRC made by the foreign-invested company shall be subject to the relevant laws and regulations about the foreign-invested company’s reinvestment in the PRC. In addition, foreign-invested companies cannot use such capital to make the investments in securities, and cannot use such capital to issue the entrusted RMB loans (except approved in its business scope), repay the RMB loans between the enterprises and the ones which have been transferred to the third party. Circular 19 may significantly limit our ability to effectively use the proceeds from future financing activities as the Chinese subsidiaries may not convert the funds received from us in foreign currencies into RMB, which may adversely affect their liquidity and our ability to fund and expand our business in the PRC.

 

SAFE issued the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts (“Circular 16”), on June 9, 2016, which became effective simultaneously. Pursuant to Circular 16, enterprises registered in the PRC may also convert their foreign debts from foreign currency to RMB on a self-discretionary basis. Circular 16 provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on a self-discretionary basis which applies to all enterprises registered in the PRC. Circular 16 reiterates the principle that RMB converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purpose beyond its business scope or prohibited by PRC Laws or regulations, while such converted RMB shall not be utilized as loans to its non-affiliated entities. As Circular 16 is newly issued and SAFE has not provided detailed guidelines with respect to its interpretation or implementation, it is uncertain how these rules will be interpreted and implemented.

 

 

 

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If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations and our reputation and could result in a loss of your investment in our shares, especially if such matter cannot be addressed and resolved favorably.

 

U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting and reporting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our company and our business. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we may have to expend significant resources to investigate such allegations and/or defend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our Company and business operations will be severely hampered and your investment in our stock could be rendered worthless.

 

In addition, major issues with other U.S. listed Chinese companies in the future, could have a negative effect on the value of your investment, even though the Company is not involved.

 

It may be difficult for stockholders to enforce any judgment obtained in the United States against us, which may limit the remedies otherwise available to our stockholders.

 

Substantially all of our assets are located in the PRC. Moreover, our current directors and officers are Chinese nationals. All or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for our stockholders to effect service of process within the United States upon our subsidiaries and variable interest entities or any individuals. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts obtained against us or our officers and/or directors predicated upon the civil liability provisions of the securities laws of the United States or any state thereof or be competent to hear original actions brought in the PRC against us or such persons predicated upon the securities laws of the United States or any state thereof. It is unclear if extradition treaties now in effect between the United States and the PRC would permit effective enforcement against us or our officers and directors of criminal penalties under the United States Federal securities laws or otherwise.

 

Risks Relating to Our Corporate Structure

 

We conduct our principal business through Beijing Luji, by means of contractual arrangements. 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 Chinese 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 VIE contractual arrangements. The contractual arrangements were entered into among Beijing Hongtao, Beijing Luji and/or its shareholders. 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 will not result in any violation of PRC laws or regulations currently in effect, and (ii) the contractual arrangements among Beijing Hongtao, Beijing Luji and its shareholders are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. If the PRC courts or regulatory authorities determine that our contractual arrangements are in violation of applicable PRC laws, rules or regulations, our contractual arrangements will become invalid or unenforceable.

 

 

 

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If we or our ownership structure or the contractual arrangements, are determined to be in violation of any existing or future PRC laws, rules or regulations, or we 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 our business and operating licenses;
  · discontinuing or restricting our operations;
  · imposing conditions or requirements with which we may not be able to comply;
  · requiring us to restructure the relevant ownership structure or operations;
  · restricting or prohibiting our use of the proceeds 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 our business and have a material adverse effect on our financial condition, results of operations and prospects.

 

It is uncertain whether any new PRC laws, rules or regulations relating to the variable interest entity structure will be adopted or if adopted, what they would provide.

 

The PRC government may determine that our contractual arrangements do not comply with the applicable laws and regulations

 

There can be no assurance that the VIE contractual arrangements will be deemed by the relevant governmental or judicial authorities to be in compliance with the existing or future applicable PRC laws and regulations, or the relevant governmental or judicial authorities may in the future interpret the existing laws or regulations with the result that the contractual arrangements will be deemed to be in compliance of the PRC laws and regulations.

 

On 15 March 2019, the National People’s Congress promulgated the Foreign Investment Law of the PRC, the (‘‘Foreign Investment Law’’), which will come into effect on 1 January 2020. The Foreign Investment Law will replace the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign Contractual Joint Ventures and the Law on Wholly Foreign-Owned Enterprises to become the legal foundation for foreign investment in the PRC. The Foreign Investment Law stipulates certain forms of foreign investment, which do not include the contractual arrangements as a form of foreign investment. However, the Foreign Investment Law stipulates that foreign investment includes “foreign investors invest through any other methods under laws, administrative regulations or provisions prescribed by the State Council”. Therefore, there are possibilities that future laws, administrative regulations or provisions prescribed by the State Council may regard contractual arrangements as a form of foreign investment, and then whether our contractual arrangements will be recognized as a foreign investment, whether our contractual arrangements will be deemed to be in violation of the foreign investment access requirements and how our contractual arrangements will be handled are uncertain. Therefore, there is no guarantee that our contractual arrangements and the business of our PRC operating subsidiaries will not be materially and adversely affected in the future.

 

The Foreign Investment Law provides that a negative list for foreign investments is adopted by government authorities. Whether or not a foreign investment is prohibited or restricted is determined according to the negative list. Under the current negative list, value-added telecommunication services and online culture operation businesses engaged by our PRC operating entities are foreign investment restricted and prohibited businesses.

 

Considering that a number of existing entities engaged in the value-added telecommunication business and/or online culture operation business, some of which have obtained listing status abroad, are operating under contractual arrangements, our Directors are of the view that it is unlikely, if any interpretation or implementation regulations, rules or measures of the Foreign Investment Law are subsequently promulgated, that the relevant authorities will apply it retrospectively to require relevant enterprises to remove or otherwise unwind their contractual arrangements.

 

The Board is monitoring and will continue to monitor the development of the Foreign Investment Laws in order to assess its possible impact on the contractual arrangements and the business of Beijing Luji. In case there would be material impact on the Company’s business, the Company will timely publish announcements in relation to material developments of and arising from the Foreign Investment Law.

 

 

 

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Our contractual arrangements may not be as effective as direct ownership in providing control over Beijing Luji.

 

We rely on the VIE contractual arrangements with Beijing Luji to operate the O2O business and such other related business activities in the PRC. These contractual arrangements may not be as effective in providing control over Beijing Luji as direct ownership.

 

In the event that any of the Beijing Luji Shareholders or Beijing Luji fails to perform each of their respective obligations under the VIE contractual arrangements, our management may have to take time to ask for rectification and even bring legal proceedings against the relevant defaulting party, which may result in diversion of resources and management’s attention, and therefore materially and adversely affect our business and results of operations.

 

The Beijing Luji Shareholders may potentially have a conflict of interests with us.

 

Our control over Beijing Luji is based on the VIE contractual arrangements. Conflict of interests of the Beijing Luji Shareholders therefore could adversely affect the interests of our Company. Pursuant to the Power of Attorney, the Beijing Luji Shareholders will irrevocably authorize designated persons appointed by us as their representatives to exercise their rights as shareholders of Beijing Luji. However, cooperation from the Beijing Luji Shareholders is needed in exercising and performing relevant shareholder’s rights and obligations sometimes, for example in case of registration for changes with governmental authorities or remitting the dividend payable to us. In the event that conflict of interests between the Company and the Beijing Luji Shareholders arises, there can be no assurance that all or any of the Beijing Luji Shareholders will act in our interest. If the Beijing Luji Shareholders act in a way compromising our interest or fail to act, our business, financial conditions and results of operations may be adversely affected.

 

In addition, the Beijing Luji Shareholders own a significant portion of the Company’s outstanding common stock and are able to vote and direct our operations. The decisions made by these shareholders may not be in your best interest and could negatively affect the value of your investment.

 

The contractual arrangements may be subject to scrutiny of the PRC tax authorities and transfer pricing adjustments and additional tax may be imposed.

 

We could face material adverse tax consequences if the PRC tax authorities determine that the contractual arrangements were not entered into based on arm’s length negotiations. If the PRC tax authorities determine that these agreements were not entered into on an arm’s length basis, they may adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. A transfer pricing adjustment could adversely affect our financial position by increasing the relevant tax liability, and this could further result in late payment fees and other penalties to the Company for unpaid taxes. As a result, any transfer pricing adjustment could have a material adverse effect on our financial position and results of operations.

 

A substantial amount of costs and time may be involved in transferring the ownership of Beijing Luji to us under the Equity Disposal Agreement.

 

The Equity Disposal Agreement grants the WFOE a right to acquire part or all of the equity interest in the registered capital or part or all of the assets of Beijing Luji at the lowest price permitted by PRC law, under which the WFOE or its designated party is entitled to acquire all or part of the equity interest of Beijing Luji from the Beijing Luji Shareholders.

 

Nevertheless, such rights can only be exercised by the WFOE as and when permitted by the relevant PRC laws and regulations, in particular, when there are no limitations on foreign ownership in PRC companies that are engaged in the value-added telecommunication services and related online business.

 

In addition, a substantial amount of costs and time may be involved in transferring the ownership or assets of Beijing Luji to the WFOE if it chooses to exercise the exclusive right to acquire all or part of the equity interest in Beijing Luji under the Equity Disposal Agreement, which may have a material adverse impact on our business, prospects and results of operation.

 

 

 

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The Company does not have any insurance which covers the risks relating to the contractual arrangements and the transactions contemplated thereunder.

 

We do not have insurance that covers the risks relating to the contractual arrangements and the transactions contemplated thereunder and the Company has no intention to purchase any insurance in this regard. If any risk arises from the contractual arrangements in the future, such as those affecting the enforceability of the contractual arrangements and the relevant agreements for the transactions contemplated thereunder and the operation of the Company, our results may be adversely affected. However, we will monitor the relevant legal and operational environment from time to time to comply with the applicable laws and regulations. In addition, we will implement relevant internal control measures to reduce the operational risk.

 

Risks Related to our Common Stock

 

We can provide no assurances as to our future financial performance or the investment results of a purchase of our Common Stock.

 

Any projected results of operations involve significant risks and uncertainties and should be considered speculative, and depend on various assumptions which may not be correct. The future performance of our Company and the return on our common stock depends on a complex series of events that are beyond our control and that may or may not occur. Actual results for any period may or may not approximate any assumptions that are made and may differ significantly from such assumptions. We can provide no assurance or prediction as to our future profitability or to the ultimate success of an investment in our Common Stock.

 

Because there is no established public trading market for our common stock, you may experience difficulties in reselling your stock.

 

We cannot assure you that there will be an established market in the future for our common stock. The trading of securities on the OTC Pinksheets is often sporadic and investors may have difficulty buying and selling our shares or obtaining market quotations for them, which may have a negative effect on the market price of our common stock. You may not be able to sell your shares at your purchase price or at any price. Accordingly, you may have difficulty reselling any shares you purchase.

 

The market price of our common stock may be volatile, and our stock price may fall below your purchase price at the time you desire to sell your shares of our common stock, resulting in a loss on your investment.

 

The market price of our common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including, without limitation:  

 

  · actual or anticipated variations in our quarterly and annual operating results, financial condition or asset quality;
  · changes in general economic or business conditions, both domestically and internationally;
  · the effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve or the PRC Government, or in laws and regulations affecting us;
  · the number of securities analysts covering us;
  · the volatility of the Renminbi and the United States dollar;
  · publication of research reports about us, our competitors, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage;
  · changes in market valuations or earnings of companies that investors deemed comparable to us;
  · the average daily trading volume of our common stock;
  · future issuances of our common stock or other securities;
  · additions or departures of key personnel;
  · perceptions in the marketplace regarding our competitors and/or us;
  · significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving our competitors or us; and
  · other news, announcements or disclosures (whether by us or others) related to us, our competitors or our core market.

 

 

 

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The stock market has experienced significant fluctuations in recent years. In many cases, these changes have been unrelated to the operating performance and prospects of particular companies. In addition, significant fluctuations in the trading volume in our common stock may cause significant price variations to occur. Increased market volatility may materially and adversely affect the market price of our common stock, which may make it difficult for you to resell your shares at the volume, prices and times desired.

 

Future issuances of our common stock will dilute current stockholders or adversely affect the market.

 

Our business plan contemplates expanding our operations through acquisitions which may involve significant issuances of our common stock. Future issuances of our common stock may be at values substantially below the price paid by the current holders of our common stock. In addition, common stock could be issued to fend off unwanted tender offers or hostile takeovers without further stockholder approval. Sales of substantial amounts of our common stock, or even just the prospect of such sales, could depress the prevailing price of our common stock and our ability to raise equity capital in the future. Additionally, large share issuances would generally have a negative impact on our share price. It is possible that, due to additional share issuances, you could lose a substantial amount, or all, of your investment. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders, further dilute common stock book value, and that dilution may be material.

 

We may be subject to the “penny stock” rules which will adversely affect the liquidity of our common stock.

 

In the event that our shares are traded, and our stock trades below $5.00 per share, our stock would be classified as a “penny stock”, which is subject to various regulations involving disclosures to be given to any buyer prior to the purchase of any penny stock. The U.S. SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Depending on market fluctuations, our common stock could be considered to be a “penny stock”. A penny stock is subject to rules that impose additional sales practice requirements on broker/dealers who sell these securities to persons other than established members and accredited investors. For transactions covered by these rules, the broker/dealer must make a special suitability determination for the purchase of these securities. In addition, the broker/dealers must receive the purchaser’s written consent to the transaction prior to the purchase. The broker/dealers must also provide certain written disclosures to the purchaser. Consequently, the “penny stock” rules may restrict the ability of broker/dealers to sell our securities, and may negatively affect the ability of holders of shares of our common stock to resell them. These disclosures require you to acknowledge that you understand the risks associated with buying penny stocks and that you can absorb the loss of your entire investment. Penny stocks are low priced securities that usually do not have a very high trading volume. Consequently, the price of the stock is often volatile and you may not be able to buy or sell the stock when you want to. These rules also limit the ability of broker-dealers to solicit purchases of our Common Stock and therefore reduce the liquidity of the public market for our shares should one develop.

 

The market for penny stocks has experienced numerous frauds and abuses that could adversely impact investors in our stock.

 

Company management believes that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:

 

  · Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
  · Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
  · "Boiler room" practices involving high pressure sales tactics and unrealistic price projections by sales persons;
  · Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
  · Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

 

 

 

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It is not likely that we will pay dividends on the Common Stock or any other class of stock.

 

We intend to retain any future earnings for the operation and expansion of our business. We do not anticipate paying cash dividends on our Common Stock, or any other class of stock, in the foreseeable future. Stockholders should look solely to appreciation in the market price, if any, of our common shares to obtain a return on their investment.

 

Investing in our Company is highly speculative and could result in the entire loss of your investment.

 

An investment in our shares is highly speculative and involves significant risk. Our shares should not be purchased by any person who cannot afford to lose their entire investment. Our business objectives are also speculative, and it is possible that we would be unable to accomplish them. Our shareholders may be unable to realize any return on their purchase of our common shares and may lose their entire investment. For this reason, each prospective purchaser of our common shares should read this Form 8-K and all of its exhibits carefully and consult with their attorney, business and/or investment advisor.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

This discussion summarizes significant factors affecting the operating results, financial conditions, liquidity and cash flows of HJ for the years ended December 31, 2019, and December 31, 2018 and its unaudited interim consolidated financial statements for the three months ended March 31, 2020 and March 31, 2019. The discussion and analysis below should be read together with the section entitled “Forward Looking Statements” and our financial statements and notes to the financial statements included elsewhere in this Current Report on Form 8-K.

 

Except for historical information, the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond the Company’s control. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report.

 

Overview

 

On August 6, 2020, we consummated the acquisition of one hundred (100) Shares of HJ, representing 100% of the issued and outstanding stock of HJ. HJ conducts its business through its variable interest entity, Beijing Luji. As a result, we entered into the business of selling healthcare and other related products to the middle-aged and elderly market segments in the PRC through its online to offline platform.

 

In 2016, Beijing Luji expanded its E-commerce operations and introduced its “Fozgo” branded online to offline (O2O) marketplace. The O2O platform integrates our E-commerce platform with physical outlets to connect consumers and merchants in a dynamic marketplace. Our platform not only offers users the convenience of making online purchases, but also provides the possibility to purchase and receive products and services offline. Currently, our core product categories include sales of home appliances (such as water purifiers and air purifiers), health foods and cosmetics products. As of March 31, 2020, Beijing Luji has developed several branch offices with outlets across the PRC with approximately 158,300 users. In 2018, we were granted with hi-tech enterprise status in the PRC.

 

On March 15, 2019, Beijing Luji signed an Share Purchase Agreement with Rongcheng Health Group Co., Ltd. to purchase 44% of total shares of Rongcheng Tianrun Taxus Co., Ltd. for RMB79,830,000, or approximately US$11.6 million. Rongcheng Tianrun Taxus Co., Ltd. is primarily engaged in the cultivation and marketing of Taxus, a type of small evergreen tree or shrub which is believed to purify the air. As of the report date, the transaction has not been completed and is pending registration procedures with the government. The foregoing description of the Share Purchase Agreement is qualified in its entirety by reference to the Equity Acquisition Agreement, an English translation of which is filed as Exhibit 10.2 to this Current Report and incorporated herein by reference.

 

 

 

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History

 

We were incorporated on June 15, 2006 under the laws of the State of Nevada as Jupiter Resources, Inc. 75,000,000 shares of stock was authorized all as common stock with a par value $0.001 and no other classes of stock were authorized. On March 25, 2009, the articles were amended to authorize an addition of 10 million preferred shares making a total of 85,000,000 shares authorized (75M common, 10M preferred). On April 30, 2009 the Company filed an amendment to change the name of the corporation to Rineon Group, Inc. On May 14, 2009, the board of directors of the Company authorized a change in the fiscal year end of the Company from May 31 to December 31.

 

From inception to November 1, 2018, the date of the filing of the Company’s Form 15, the Company attempted unsuccessfully to enter into business combinations with various target companies. There was no business activity between the filing of the Form 15 and prior to August 9, 2018. The Company had Exchange Act disclosure requirements from January 11, 2008 to November 10, 2010. The Company has no knowledge or records related to the assets referenced above and therefor there is some level of uncertainty in the above descriptions.

 

Prior Company management was unresponsive to shareholders and had refused to respond to requests to meet statutory requirements to get current with the secretary of state and the Securities and Exchange Commission’s filing requirements. Accordingly, on August 9, 2018, XTC, Inc. was appointed to serve as the custodian of the Company in a shareholder filed action with the Eighth Judicial District Court in Clark County, Nevada and was instructed to revive the company. XTC, Inc. was a shareholder of record as shown in the court documents of 500 common shares attached as Exhibit 99.1 to this Current Report. XTC acquired its 500 common shares on 6/14/18 in the open market at a price of $0.05 per share.

 

On September 25, 2018, the Company filed a Certificate of Designation whereby the following preferred shares were designated and the rights, privileges and designations of the Series A and C Convertible Preferred Stock were amended and restated.

 

  · The number of Series A Convertible Preferred was increased from 36,000 to 1,000,000.
  · 3,000,000 shares of Series B Convertible Preferred Stock were created with no voting rights, and conversion rights of 1000:1, with the restriction that holders cannot convert to hold more the 4.95% of issued and outstanding common stock.
  · 1,000,000 shares of Series C Convertible Preferred Stock were created with each Series C having 100,000 votes per share, with 1:1 conversion rights. 

 

On September 25, 2018, the Company issued 964,000 shares of Series A Convertible Preferred shares to XRC, LLC at $0.001 per share and 1,000,000 shares of Series C Convertible Preferred shares at $0.001 per share to XRC, LLC, a company controlled by Chris Lotito, in exchange for paying the costs to revive the Company with the State of Nevada, giving it voting control.

 

On September 28, 2018, a shareholders meeting was held wherein the shareholders gave the board authority to reorganize the Company, including making possible a name change, and/or engaging in a reverse stock split. In addition, the Series A shareholders voted to approve a reverse split of the Series A Convertible Preferred and to authorize a new designation.

 

On October 1, 2018, the Company made filings with the Nevada Secretary of State to change our name to "AS Capital, Inc.” and approve a 1 for 10 reverse stock split for the Common stock and a 1 for 1,000 reverse of the Series A Convertible Preferred, with conversion rights of 1 common share for every 12,000 shares of Series A Convertible Preferred Stock held. As a result, the number of issued and outstanding Series A Convertible Preferred Stock was reduced to 1,000 shares.

 

On December 6, 2018, the Court granted an Order discharging the custodian and approved all actions taken by the custodian.

 

 

 

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Change in Control

 

On June 4, 2019, AS Capital, Inc., a Nevada corporation (“we,” “ASIN” or the “Company”), XRC, LLC, a Colorado limited liability company (“XRC”) and Gao Xue Ran (“Purchaser”) entered into a Stock Purchase Agreement (the “SPA”), pursuant to which the Purchaser agreed to purchase from XRC 11,000,000 shares of common stock of the Company, par value $0.001, and 964 shares of Series A Convertible Preferred Stock of the Company, par value $0.001 (collectively, the “Shares”), for aggregate consideration of Four Hundred and Ten Thousand Dollars ($410,000) in accordance with the terms and conditions of the SPA. XRC was the controlling shareholder of the Company. The acquisition of the Shares was consummated on July 18, 2019, and the Shares were ultimately purchased by the following three individuals using their own personal funds:

 

Name   No. of Shares   Percentage of Issued and Outstanding   Consideration Paid
Gao Xue Ran  

8,581,063 of Common Stock;

964 shares of Series A Preferred Stock

  76.61%   $319,840
Zhang Yan Hua   1,935,633 of Common Stock   17.28%   $72,146
Cheung Kwok Chiu Kris   483,304 of Common Stock   4.31%   $18,014

 

Upon the consummation of the sale of the Shares, Chris Lotito, our Chief Executive Officer and sole director, and John Karatzaferis, our President, resigned from all of their positions with the Company, effective July 18, 2019. Their resignations were not due to any dispute or disagreement with the Company on any matter relating to the Company's operations, policies or practices.

 

Concurrently with such resignations, Gao Xue Ran was appointed to serve as the Chief Executive Officer, Chief Financial Officer, President, Secretary and sole Director of the Company, until the next annual meeting of stockholders of the Company and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. None of the directors or executive officers has a direct family relationship with any of the Company’s directors or executive officers, or any person nominated or chosen by the Company to become a director or executive officer. Ms. Gao will serve in her positions without compensation.

 

Acquisition of HJ

 

On August 6, 2020, we consummated the acquisition of one hundred (100) Shares of HJ, representing 100% of the issued and outstanding stock of HJ for the issuance of 86,000,000 shares of our common stock. HJ is a holding company that, through its subsidiaries and variable interest entity, is engaged in the business of selling healthcare and other related products to the middle-aged and elderly market segments in the PRC through its internet platform and offline service centers. HJ’s consolidated business is conducted through Beijing Luji Technology Co., Ltd., a variable interest entity formed in Beijing, China on March 27, 2007.
 

In connection with the acquisition, effective August 6, 2020, the following individuals were appointed to serve in the capacities set forth next to their names until his or her successor(s) shall be duly elected or appointed, unless he or she resigns, is removed from office or is otherwise disqualified from serving as an executive officer or director of the Company:

 

Name   Positions
Tian Xiangyang   Chief Executive Officer, Director and Chairperson of the Board of Director
Shan Yonghua   Chief Financial Officer, and Director
Tian Zhihai   Chief Operating Officer and Director
Yin Jianen   Secretary and Director
Wang Jirui   Director

 

Upon the consummation of the sale of the HJ Shares, Gao Xue Ran resigned from all of her positions with the Company, effective August 6, 2020. Her resignation was not due to any dispute or disagreement with the Company on any matter relating to the Company's operations, policies or practices.

 

 

 

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Results of Operations for HJ (Acquired Company)

 

Comparison of The Quarter Ended March 31, 2020 And 2019

 

The following table sets forth certain financial data for the three months ended March 31, 2020 and 2019

(in thousands)

  

    Quarters ended March 31,     Percentage  
    2020     2019     Change  
    Dollars     %     Dollars     %     %  
Revenues   $ 34       100.0     $ 6,155       100.0       (99.4 )
Cost of revenues     (39 )     (113.0 )     (4,290 )     (69.7 )     (99.1 )
Gross (loss) profit     (5 )     (13.0 )     1,865       30.3       (100.2 )
                                         
General and administrative expenses     1,132       3,298.7       1,467       23.8       (22.8 )
Selling expenses     1,273       3,707.8       650       10.6       95.9  
Finance income, net     (182 )     (530.5 )     (198 )     (3.2 )     (8.0 )
Total operating expenses     2,223       6,475.9       1,919       31.2       15.8  
                                         
Operating loss     (2,228 )     (6,488.9 )     (54 )     (0.9 )     3,989.5  
                                         
Other expenses     (2,192 )     (6,384.1 )     (456 )     (7.4 )     380.8  
                                         
Total other (expense) income     (2,192 )     (6,384.1 )     (456 )     (7.4 )     380.8  
                                         
Loss before provision for income taxes     (4,420 )     (12,873.0 )     (510 )     (8.3 )     766.0  
Provision for income taxes     -               29       0.5       (100.0 )
                                         
Net loss   $ (4,420 )     (12,873.0 )   $ (539 )     (8.8 )     719.0  
                                         
Foreign currency translation adjustment     (83 )     (244.0 )     346       5.6       (124.2 )
                                         
Comprehensive loss   $ (4,503 )     (13,117.0 )   $ (193 )     (3.1 )     2,232.7  

 

Revenues: Revenues were $34,331 and approximately $6.2 million for the three months ended March 31, 2020, and 2019, respectively. The decrease in revenues of approximately $6.1 million or 99.4% is due primarily to business interruptions arising from COVID-19. We expect COVID-19 related business interruptions and related depressed consumer sentiment to negatively affect our revenues in the next quarter. During the quarters ended March 31, 2020 and 2019, all revenue was generated in the PRC and they were mainly attributable to the sale of health foods, home appliances and cosmetics products. During the quarters ended March 31, 2020 and 2019, no customers accounted for 10% or more of total revenues.

 

 

 

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Cost of revenues: Cost of revenues consists primarily of the cost of merchandise sold, delivery cost, service fees, sales incentives and commissions that are directly attributable to the sale of certain designated products. Cost of revenues of approximately $39,000 for the three months ended March 31, 2020 consisted of provision for slow-moving inventory of approximately $33,000. The decrease in cost of revenues of approximately $4.3 million or 99.1% from the comparable period of 2019 was due mainly to decrease in product sales as a result of COVID-19.

 

During the three months ended March 31, 2020 and 2019, Beijing Luji’s major vendors that contributed more than 10% to its total purchases are as follow:

 

    Three months ended  
    March 31,2020  
    US$     %  
Baoqingmeilai Modern Agriculture Service Co. Ltd.     5,798,000       87.4  
Shandong Kangqi Wood Industry Co. Ltd.     754,000       11.4  

 

    Three months ended  
    March 31,2019  
    US$     %  
Harbin Xinyue Science and Technology Co. Ltd.     522,000       82.1  

 

Gross (Loss) Profit. Gross loss for the three months ended March 31, 2020 of approximately $5,000 was attributed mainly to the provision for slowing-moving inventory of $33,000. Gross profit for the three months ended March 31, 2019 of approximately $1.9 million was attributed mainly to revenues of approximately $6.2 million.

 

General and Administrative Expenses. General and administrative expenses (“G&A expenses”) consist primarily of costs in salary and benefits for our general administrative and management staff, facilities costs, depreciation expenses, professional fees, audit fees, and other miscellaneous expenses incurred in connection with general operations. G&A expenses decreased 22.8% or approximately $0.3 million from approximately $1.5 million for the three months ended March 31, 2019 was due primarily to the decrease in advisory fees, salary and benefits. 

 

Selling Expenses. Selling expenses consist mainly of payroll and benefits for employees involved in the sales and distribution functions, meeting/event fees, advertisement, and marketing and selling expenses that are related to events and activities at the Company’s service centers designed to promote product sales. Selling expenses increased by 95.9% or approximately $0.6 million to approximately $1.3 million in the three months ended March 31, 2020 from approximately $650,000 in the same period of 2019. The increase was due mainly to costs incurred in marketing and other promotional activities (such as product exhibition in various regions) in the first quarter of 2020.

 

Finance Income, net. Finance income represents interest income from bank and related bank products, net of service fees related to the use of third-party online payment platforms. Total net financial income was approximately $182,000 and $198,000 for the three months ended March 31, 2020 and 2019 respectively. The decrease in net financial income was due mainly to lower interest income earned in the three months period ended March 31, 2020.

 

Operating loss. Operating loss was approximately $2.2 million for the three months ended March 31, 2020, compared to approximately $54,000 for the same period of 2019. The increase in operating loss in 2020 was due primary to the significant decline in revenues in 2020 due to the impact of COVID-19.

 

 

 

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Other (expense) income. Other income consists primarily of income from the administration of Beijing Luji’s online marketplace. Other expenses consist mainly of estimated tax penalties and charitable contributions. Other expense of approximately $2.2 million for the three months ended March 31, 2020 consisted mainly of donation to Binzhou Red Cross Society for approximately $1.4 million and estimated tax penalties related to unpaid VAT and income taxes of approximately $0.7 million.

 

Provision for income taxes. Provision for income taxes was $0 for the three months ended March 31, 2020, compared to $29,313 for the same period of 2019.

 

Net loss. As a result of the factors described above, net loss was approximately 4.4 million for the three months ended March 31, 2020, an increase of approximately $3.9 million from approximately $0.5 million for the same period of 2019.

 

Comprehensive Loss.  Comprehensive loss was approximately $4.5 million for the three months ended March 31, 2020, as compared to other comprehensive income of approximately $0.2 million for the three months ended March 31, 2019.

 

 

Results of Operations for the Years Ended December 31, 2019 and 2018

 

Comparison of the years ended December 31, 2019 and 2018

 

The following table sets forth certain operational data for the years ended December 31, 2019, and 2018:

(in thousands)

 

    Years ended December 31,     Percentage  
    2019     2018     Change  
    Dollars     %     Dollars     %     %  
Revenues   $ 58,233       100.0     $ 53,445       100.0       9.0  
Cost of revenues     41,764       71.7       38,762       72.5       7.7  
Gross profit     16,469       28.3       14,683       27.5       12.2  
                                         
General and administrative expenses     8,111       13.9       3,929       7.4       106.5  
Selling expenses     3,596       6.2       1,689       3.2       112.9  
Finance expenses (income), net     83       0.1       (29 )     (0.1 )     391.8  
Total operating expenses     11,790       20.2       5,589       10.5       111.0  
                                         
Operating income     4,679       8.0       9,094       17.0       (48.5 )
                                         
Other expenses, net     (2,378 )     (4.1 )     (1,882 )     (3.5 )     26.4  
Loss from equity investment     (31 )     (0.1 )     0       0.0       0.0  
                                         
Total other expenses, net     (2,409 )     (4.1 )     (1,882 )     (3.5 )     28.0  
                                         
Income before provision for income taxes     2,270       3.9       7,212       13.5       (68.5 )
Provision for income taxes     931       1.6       1,349       2.5       (31.0 )
                                         
Net income   $ 1,339       2.3     $ 5,863       11.0       (77.2 )
                                         
Foreign currency translation adjustment     (164 )     (0.3 )     (721 )     (1.3 )     (77.4 )
                                         
Comprehensive income   $ 1,175       2.0     $ 5,142       9.6       (77.1 )

 

 

 

 

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Revenues. Revenues were approximately $58.2 million and $53.4 million for the year ended December 31, 2019, and 2018, respectively, representing an increase of approximately $4.8 million, or 9.0%. The increase revenues is due mainly to the increase in product sales and increase in the number of platform users. For the years ended December 31, 2019 and 2018, revenues were derived mainly from the sale of home appliances, health foods and cosmetics products in the PRC. During the twelve months ended December 31, 2019, and 2018, no customers accounted for 10% or more of our total net revenues.

 

Cost of revenues. Cost of revenues consists primarily of the cost of merchandise sold, delivery cost, service fees, sales incentives and commissions that are directly attributable to the sale of certain designated products. Cost of revenues increased to approximately $41.8 million for the year ended December 31, 2019 from $38.8 million for the same period in 2018. An increase of approximately $3 million or 7.7% due mainly higher product cost and commission.

 

During the year ended December 31, 2019 and 2018, Beijing Luji’s major vendors that accounted more than 10% of its total purchases are as follow:

 

    Year ended  
    December 31, 2019  
    US$     %  
Harbin Xinyue Technology Co., Ltd.     5,772,000       72.4  

 

    Year ended  
    December 31, 2018  
    US$     %  
Guangzhou Olansi Water Treatment Equipment Co., Ltd.     1,233,000       27.8  
Harbin Xinyue Technology Co., Ltd.     698,000       15.7  
Tianjin Meichen Biotechnology Co., Ltd.     466,000       14.5  

 

Gross Profit. Gross profit increased from approximately $14.7 million for the year ended December 31, 2018 to approximately $16.5 million for the same period in 2019. Gross profit margin increased from 27.5% for the year ended December 31, 2018 to 28.3% for the same period in 2019 due mainly to favorable product mix.

  

Selling Expenses.  Selling expenses consist mainly of payroll and benefits for employees involved in the sales and distribution functions, meeting/event fees, advertisement, and marketing and selling expenses that are related to events and activities at the Company’s service centers designed to promote product sales. Selling expenses increased by approximately $1.9 million to $3.6 million in the year ended December 31, 2019 from $1.7 million in the same period of 2018. The increase was due mainly to the increase of promotion and marketing events in 2019.  

 

General and administrative Expenses.  G&A expenses consist primarily of costs in salary and benefits for our general administrative and management staff, facilities costs, depreciation expenses, professional fees, audit fees, and other miscellaneous expenses incurred in connection with general operations. G&A increased by approximately $4.2 million from $3.9 million for the year ended December 31, 2018 to approximately $8.1 million in the same period of 2019. The increase was due mainly to the increase of advisory fees of approximately $1 million and higher bad debt expense of approximately $1.4 million in 2019.

 

Finance Expenses, net. Finance expenses consist mainly of service fees related to the use of third-party online payment platforms, bank fees and interest expenses related to borrowings; net of interest income from bank and related bank products. The increase in finance expenses was due mainly to increase in the use of third-party online payment platforms in 2019.

 

Operating Income. Operating income was approximately $4.7 million for the year ended December 31, 2019, compared to approximately $9.1 million for the same period of 2018. The decrease in operating income in 2019 was primary due to the increase in operating expenses.

 

 

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Total other expenses, net. Other expenses consist mainly of estimated tax penalties for unpaid VAT and income taxes and charitable contributions. For the year ended December 31, 2019, other expenses consisted mainly of estimated tax penalties. For the year ended December 31, 2018, other expenses consisted mainly of charitable contributions.

 

Provision for Income Taxes. Provision for income taxes was approximately $0.9 million for the year ended December 31, 2019, compared to $1.3 million for the same period of 2018. The decrease was attributable mainly to lower pre-tax income.

 

Net Income. As a result of the factors described above, net income was approximately $1.3 million for the year ended December 31, 2019, a decrease of $4.5 million from net income $5.9 million for the same period of 2018.
 

Comprehensive Income. Comprehensive income was $1.2 million for the year ended December 31, 2019, as compared to comprehensive income of $5.1 million for the year ended December 31, 2018. The decrease was due mainly to higher operating expenses in 2019.

 

 

Liquidity and Capital Resources for HJ (Acquired Company)

 

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

 

As of March 31, 2020 and December 31, 2019, we had cash and cash equivalents of approximately $13.4 million and $28.9 million, respectively.

 

The following table sets forth a summary of our cash flows for the periods as indicated:

 

    For the Three Months ended  
    March 31,  
    2020     2019  
    (Unaudited)     (Unaudited)  
Net cash (used in) provided by operating activities   $ (13,531,812 )   $ 570,415  
Net cash (used in) investing activities   $     $ (3,925 )
Net cash (used in) financing activities   $ (1,722,055 )   $ (111,615 )
Effect of exchange rate changes on cash and cash equivalents   $ (216,145 )   $ 446,313  
Net (decrease) increase in cash and cash equivalents   $ (15,470,012 )   $ 901,188  
Cash and cash equivalents at beginning of period   $ 28,919,817     $ 18,019,617  
Cash and cash equivalents at end of period   $ 13,449,805     $ 18,920,805  

 

The following table sets forth a summary of our working capital:

 

    March 31,     December 31,              
    2020     2019     Variation     %  
    (Unaudited)     (Unaudited)                  
Total Current Assets   $ 22,588,918     $ 31,095,695     $ (8,506,777 )     (27.4 )
Total Current Liabilities   $ 28,868,629     $ 32,354,228     $ (3,485,599 )     (10.8 )
Working Capital   $ (6,279,711 )   $ (1,258,533 )   $ (5,021,178 )     399.0  

 

Working Capital. Total working capital as of March 31, 2020 amounted to approximately negative $6.3 million, as compared to approximately negative $1.3 million as of December 31, 2019. The deterioration in working capital was due mainly to a decline in net assets.

 

 

 

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For the three months ended March 31, 2020, cash provided by operating activities was approximately $13.5 million. For the three months ended March 31, 2019, cash provided by operating activities was approximately $570,000. The change of approximately $14.1 million was due primary to net changes in (1) advances to suppliers of approximately $6.6 million, (2) inventory of approximately $245,000, (3) prepayment and other current assets of approximately $525,000, (4) advances from customers of approximately $568,000, (5) taxes payable of approximately $1.4 million, and (6) accrued expenses of approximately $1.7 million.

 

Net cash used in investing activities was $0 for the three months ended March 31, 2020, as compared to net cash used in investing activities of $3,925 for the three months ended, 2019.

 

Net cash used in financing activities was approximately $1.7 million for the three months ended March 31, 2020, as compared to net cash used in investing activities of approximately $112,000 for the three months ended March 31, 2019. The increase was due mainly to increase of repayment of loans of approximately $1 million and increase in dividends paid of approximately $620,000.

 

 

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

 

The following table sets forth a summary of our cash flows for the periods as indicated:

 

    For the Year ended  
    December 31,  
    2019     2018  
    (Audited)     (Audited)  
Net cash provided by operating activities   $ 24,730,684     $ 12,765,264  
Net cash (used in) investing activities   $ (11,581,326 )   $ (188,250 )
Net cash (used in) financing activities   $ (1,865,742 )   $ (754,761 )
Effect of exchange rate changes on cash and cash equivalents   $ (383,416 )   $ (824,990 )
Net increase in cash and cash equivalents   $ 10,900,200     $ 10,997,263  
Cash and cash equivalents at beginning of year   $ 18,019,617     $ 7,022,354  
Cash and cash equivalents at end of year   $ 28,919,817     $ 18,019,617  

 

The following table sets forth a summary of our working capital:

 

    December 31,     December 31,              
    2019     2018     Variation     %  
    (Audited)     (Audited)                  
Total Current Assets   $ 31,095,695     $ 33,101,338     $ (2,005,643 )     (6.1 )
Total Current Liabilities   $ 32,354,228     $ 19,344,592     $ 13,009,636       67.3  
Working Capital   $ (1,258,533 )   $ 13,756,746     $ (15,015,279 )     (109.1 )

 

Working Capital. Total working capital as of December 31, 2019 amounted to approximately negative $1.3 million, as compared to approximately negative $13.8 million as of December 31, 2018. The deterioration in working capital was due mainly to higher operating expenses in year 2019.

 

Net cash generated from operating activities was $24.7 million for the year ended December 31, 2019, and consisted primarily of a net income of $3.1 million, adjusted for depreciation and amortization of $0.2 million, a decrease in advances from customers of $3.5 million, an increase in accrued expenses and other liabilities of $4.3 million, an increase in taxes payable of $9.0 million, a decrease in prepaid expenses and other assets of $1.5 million, an increase in due from related parties of $10.2 million, a decrease in advances to suppliers of $0.3 million.

 

Net cash generated from operating activities was $12.8 million for the year ended December 31, 2018, and consisted primarily of a net income of $5.1 million, adjusted for depreciation and amortization of $0.1 million, an increase in advances from customers of $3.1 million, an increase in accrued expenses and other liabilities of $5.3 million, an increase in taxes payable of $9.9 million, an increase in prepaid expenses and other assets of $1.5 million, an increase in inventory of $1.1 million, a decrease in due from related parties of $7.7 million, an increase in advances to suppliers of $0.5 million.

 

 

 

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Net cash used in investing activities for the fiscal year ended December 31, 2019, was $11.6 million which was used for purchase of equity investment. Net cash used in investing activities was $0.2 million for the year ended December 31, 2018.

 

Net cash used in financing activities for the fiscal year ended December 31, 2019, was approximately $1.9 million which was used primarily for the distribution of dividends. Net cash used in financing activities for the fiscal year ended December 31, 2018, was approximately $0.8 million which was used for the distribution of dividends.

 

Off-Balance Sheet Arrangements

 

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

 

Critical Accounting Policies and Estimates

 

Basis of Presentation

 

The accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain prior year balances have been reclassified to conform to the current year’s presentation.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the financial statements of HanJiao, its wholly-owned subsidiaries, WOFE, the VIE and its subsidiaries. All inter-company transactions and balances have been eliminated upon consolidation.

 

VIE Agreements with Beijing Hongtao

 

The Company does not have a direct equity ownership interest in Beijing Luji but relies on the VIE Agreements to control and receive the economic benefits of Beijing Luji’s business. The Company relies on contractual arrangements with its variable interest entity to operate its online to office (O2O) business in the PRC in which foreign investment is restricted or prohibited. The O2O platform integrates the Company’s e-commerce platform with physical outlets (service centers) to connect consumers and merchants in a dynamic marketplace. Pursuant to the VIE Agreements, HanJiao, through Beijing Hongtao, is able to exercise effective control over, bears the risks of, enjoys substantially all of the economic benefits its VIE and its subsidiary and has an exclusive option to purchase all or part of the equity interests in the VIE when and to the extent permitted by PRC law. The Company’s management concluded that Beijing Luji and its subsidiary are variable interest entities of the Company and Beijing Hongtao is the primary beneficiary of Beijing Luji and its subsidiary. As such, the financial statements of the VIE and its subsidiary are included in the consolidated financial statements of the Company. Each of the VIE Agreements is described in detail below:

 

 

 

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Exclusive Consulting and Services Agreement

 

Pursuant to the Exclusive Consulting and Services Agreement signed on May 15, 2019, between Beijing Hongtao and Beijing Luji, Beijing Hongtao agrees to provide various services exclusively to Beijing Luji including development and research services for business-related software, pre-job and on-the-job training services, technology development and transfer services, public relations services, market research and consulting services, short and medium-term market development and planning services, various technical support services, consulting services related to business compliance, organization and planning services related to marketing and membership activities. For services rendered to Beijing Luji by Beijing Hongtao under this agreement, Beijing Hongtao is entitled to collect 100% of the net income of Beijing Luji.

 

The Exclusive Consulting and Services Agreement shall remain in effect for ten years from the date of signing unless it is terminated by Beijing Hongtao in advance or upon the mutual agreement of both parties. Beijing Luji may terminate the agreement subject to payment of all service fees for completed services and compensation to Beijing Hongtao for losses. Prior to the termination of this agreement, the parties may extend the term of this agreement in accordance with the requirements of Beijing Hongtao.

 

Business Operations Agreement

 

Pursuant to the Business Operations Agreement signed on May 15, 2019, by and among the Beijing Luji shareholders, Beijing Luji and Beijing Hongtao. Beijing Luji agreed not to conduct any transactions that may materially affect its assets, business, personnel, obligations, rights or company operations, without the prior written consent of Beijing Hongtao. Beijing Hongtao agrees to provide advice to Beijing Luji from time to time regarding the appointment and dismissal of employees, daily management and financial management systems. Beijing Luji and Beijing Luji shareholders also agree to appoint designees of Beijing Hongtao to serve as board of directors and on the senior management team of Beijing Luji. In connection with this agreement, the Beijing Luji shareholders executed a power of attorney of the Business Operations Agreement in which the Beijing Luji shareholders shall irrevocably authorize the designated personnel of Beijing Hongtao to exercise their shareholders’ rights on their behalf, including voting rights at the shareholders' meeting in the name of the shareholders. The Beijing Luji shareholders further agree that they will replace the person authorized in the above power of attorney at any time upon Beijing Hongtao's request. The Business Operations Agreement shall remain in effect for ten years from the date of signing unless earlier terminated by Beijing Hongtao by delivering 30 days prior written notice or upon the mutual agreement of all parties. Beijing Luji and the Beijing Luji shareholders do not have the right to terminate the agreement unilaterally. Upon the termination of any agreement between Beijing Hongtao and Beijing Luji, Beijing Hongtao shall be entitled to terminate all agreements between such parties.

 

Equity Disposal Agreement

 

Pursuant to the Equity Disposal Agreement signed on May 15, 2019, by and among the Beijing Luji shareholders, Beijing Luji and Beijing Hongtao, the Beijing Luji shareholders granted to Beijing Hongtao an exclusive option right to purchase all of their equity interests in Beijing Luji to secure the execution of the Equity Pledge Agreement in which the details are set out below. Under the terms of this agreement, Beijing Hongtao has an exclusive right to purchase, to the extent permitted under the PRC law, at any time, all or any part of the equity interests of the Beijing Luji shareholders in Beijing Luji or an option to transfer the equity interests in Beijing Luji to any third party designated by Beijing Hongtao. The option price shall be the minimum permitted by the laws and regulations of the PRC. The Equity Disposal Agreement has a term of ten years from the date of signing, and it may be renewed at Beijing Hongtao’s discretion.

 

Equity Pledge Agreement

 

Pursuant to the Equity Pledge Agreement signed on May 15, 2019, by and among the Beijing Luji shareholders and Beijing Hongtao, the Beijing Luji shareholders pledged all of their equity interests in Beijing Luji to Beijing Hongtao to guarantee the performance of Beijing Luji’s obligations under the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operations Agreement.  Under the terms of the agreement, in the event that Beijing Luji or its shareholders breach their respective contractual obligations under the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operations Agreement, or upon occurrence of any event of default as set forth in the Equity Pledge Agreement, Beijing Hongtao shall be entitled to exercise its rights under this agreement, subject to certain cure periods. The Beijing Luji shareholders further agree not to dispose of the pledged equity interests or take any actions that would prejudice Beijing Hongtao’s interest.

 

 

 

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The Equity Pledge Agreement shall be effective until Beijing Luji and the Beijing Luji shareholders have performed all of their obligations under the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operations Agreement and the written approval of Beijing Hongtao has been obtained.

 

Agency Agreement

 

Pursuant to the Agency Agreement signed on May 15, 2019, among the Beijing Luji shareholders and Beijing Hongtao, the Beijing Luji shareholders granted Beijing Hongtao an irrevocable license for the longest period permitted under law the right to exercise the voting rights of the Beijing Luji shareholders in accordance with the laws of the PRC and the Articles of Association of Beijing Luji. During the term of this Agreement, none of the Beijing Luji shareholders shall be entitled to transfer their interest in Beijing Luji to any third party other than entities or individuals designated by Beijing Hongtao. This Agency Agreement shall be irrevocable and continuously valid from the date of execution of this Agency Agreement, and it can be terminated at Beijing Hongtao’s discretion.

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

 

Significant accounting estimates reflected in the Company’s consolidated financial statements include the allowance for doubtful accounts and slow-moving inventory, and the useful lives of property and equipment. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) FASB ASC Section 820, “Fair Value Measurements and Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

Level 2 applies to assets or liabilities for which there are inputs, other than quoted prices in level 1, that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the asset or liability.

 

The carrying value of financial instruments included in current assets and liabilities approximate their fair values because of the short-term nature of these instruments.

 

 

 

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Cash and Cash Equivalents

 

Cash and cash equivalents consist of cash on hand, cash on deposit and other highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less when purchased. The Company maintains cash with various financial institutions mainly in the PRC. As of December 31, 2019 and 2018, the Company had cash and cash equivalents of approximately $28.9 million and $18.0 million, respectively. The Company’s cash equivalents included approximately $11.6 million (RMB 80 million) and $9.0 million (RMB 63 million) of the bank’s financial products; and approximately $0 and $2.9 million (RMB 20 million) of PRC treasury notes as of December 31, 2019 and 2018, respectively.

 

Risks and Uncertainties

 

The operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environment in the PRC, as well as by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among other factors, the political, economic and legal environment and foreign currency restrictions. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations, changes in the future could affect the Company’s interest in these entities.

 

Inventories

 

Inventories consist of finished goods and they are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The Company periodically evaluates its inventories and will record an allowance for inventories that are either slow-moving, may not be saleable or whose cost exceeds its net realizable value.

 

Advance to Suppliers

 

Advances to suppliers consist of payments to suppliers for finished goods that have not been received by the Company. The Company periodically evaluates and reviews its advance to suppliers to determine whether its carrying value has been impaired.

 

Long-term Investment

 

Long-term investment consists mainly of the Company’s equity investment for strategic or business development purposes. The Company applies the equity method of accounting to account for an equity investment, according to FASB ASC 323 “Investment—Equity Method and Joint Ventures,” over which it has significant influence but does not own a majority equity interest or otherwise control. Under the equity method, the Company’s share of the profits or losses of the equity investees are recorded in its consolidated statements of income and comprehensive income.

 

 

 

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The Company reviews its investment at least annually to determine whether a decline in fair value to below the carrying value is other-than-temporary. The primary factors the Company considers in its determination are the duration and severity of the decline in fair value; the financial condition, operating performance and the prospects of the equity investee; and other company specific information such as recent financing rounds. If the decline in fair value is deemed to be other-than-temporary, the carrying value of the investment will be written down to its fair value.

 

No events have occurred that indicated an other-than-temporary decline in fair value for the year ended December 31, 2019.

 

Property and Equipment, Net

 

Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the underlying assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation and amortization are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of its property and equipment, when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

 

Estimated useful lives are as follows, taking into account the assets’ estimated residual value:

 

Classification   Estimated useful lives
Vehicles   10 years
Office equipment   3 years
Furniture and fixtures   3 years
Software   3 years

 

Long-lived Assets

 

Finite-lived assets and intangibles are reviewed for impairment testing when circumstances require. For purposes of evaluating the recoverability of long-lived assets, when undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. The long-lived assets of the Company that are subject to evaluation consist primarily of property, plant and equipment, land use rights, and long-term prepaid leases. For the years ended December 31, 2019 and 2018, the Company did not recognize any impairment of its long-lived assets.

 

Revenue Recognition

 

On January 1, 2019, the Company adopted FASB ASC 606, Revenue from Contracts with Customers using the modified retrospective method for all contracts not completed as of the date of adoption. Accordingly, revenue for the year ended December 31, 2019 was presented under ASC 606, while comparative information has not been restated and continues to be reported under the accounting standards in effect for the prior period.

 

The core principle underlying the revenue recognition standard is that the Company will recognize revenue to represent the transfer of products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of the product or the benefit of the services transfers to the customer. Under the guidance of ASC 606, the Company is required to (a) identify the contract with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract and (e) recognize revenue when (or as) the Company satisfies its performance obligations.

 

 

 

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The adoption of ASC 606 did not significantly change (i) the timing and pattern of revenue recognition for the Company’s revenues, and (ii) the presentation of revenues as gross versus net. Therefore, the adoption of ASC 606 did not have a significant impact on the Company’s financial position, results of operations, equity or cash flows as of the adoption date and for the year ended December 31, 2019. Persuasive evidence of an arrangement is demonstrated via sales orders; and the consideration is fixed upon the initiation of the purchase order by the customer.

 

Product Sales: Beijing Luji is primarily engaged in the sale of healthcare and other related products (such as nutrition or dietary supplements; water or air purifiers) to the middle aged and elderly market segments in the PRC. Beijing Luji sells these products under its own “Fozgo” brand and related healthcare products for other vendors through its internet platform and offline service centers. Revenue from product sales is recognized when control passes to the customer, which generally occurs at a point in time when products are delivered. Allowance for sales returns, that reduces revenues, are estimated based on historical experience. Revenues are recorded net of value-added taxes, business taxes, discounts and surcharges and allowance for returns.

 

The Company collects cash from customers before or upon delivery of products mainly through banks and third-party online payment platforms (such as Alipay). Cash collected from customers before product delivery is recognized as advance from customers.

 

Cost of Revenues

 

Cost of revenues consists primarily of the cost of merchandise sold, delivery cost, service fees, sales incentives and commissions that are directly attributable to the sale of certain designated products.

 

General and Administrative Expenses

 

General and administrative expenses consist mainly of payroll and related costs for employees involved in general corporate functions, including accounting, finance, tax, legal and human resources, professional fees and other general corporate expenses as well as costs associated with the use by these functions of facilities and equipment, such as depreciation and rental expenses.

 

Selling Expenses

 

Selling expenses consist mainly of payroll and benefits related costs for employees involved in the sales and distribution functions, meeting/event fees, advertisement and marketing and selling expenses that are related to events and activities at the Company’s service centers designed to promote product sales.

 

Finance Expenses (Income)

 

Finance expenses consist mainly of service fees related to the use of third-party online payment platforms, bank fees and interest expenses related to borrowings; net of interest income from bank and related bank products.

 

Other Income (Expenses)

 

Other income consists primarily of income from the administration of the online marketplace. Other expenses consist mainly of estimated tax penalties and charitable contributions.

 

 

 

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Income Taxes

 

The Company follows FASB ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are also recognized for operating losses that are available to offset the future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

The Company follows FASB ASC 740-10-25, “Accounting for Uncertainty in Income Taxes”, which requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under ASC 740-10-25, tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company believes that it does not have any uncertain tax positions. It is not expected that there will be any uncertain tax position within 12 months of December 31, 2019.

 

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or the deferred tax asset valuation allowance. Due to the lack of temporary differences between the tax bases and their financial reporting amounts, the Company has not recognized any deferred tax assets or liabilities as of December 31, 2019 and 2018, respectively.

 

Enterprise Income Tax

 

Under the Provisional Regulations of the PRC concerning income tax on enterprises promulgated by the PRC (the “EIT Law”), the Company was qualified as a high and new technology enterprise starting in 2018, and enjoys a preferential tax rate of 15% for 3 years expiring in 2020.An entity can re-apply to be a high and new technology enterprise when the prior certificate expires. Income tax is payable at a rate of 15% of our taxable income for the year ended December 31, 2019 and 2018.

 

Value-Added Tax

 

Prior to May 1, 2018, the Company was subject to value-added tax (“VAT”) at rates of 6% and 17% on revenue generated from providing services and products, respectively. Starting from May 1, 2018, the VAT rate for revenue generated from providing products was changed from 17% to 16%. Starting from April 1, 2019, the VAT rate for revenue generated from providing products changed from 16% to 13%. VAT is reported as a reduction of revenue when incurred. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. The net VAT balance between input VAT and output VAT is recorded in taxes payable.

 

Foreign Currency Translation

 

The functional currency of the Company’s operations in the PRC is the Chinese Yuan or Renminbi (“RMB”). The consolidated financial statements are translated into U.S. dollars (“USD”) using the period end rates of exchange for assets and liabilities, equity is translated at historical exchange rates, and average rates of exchange (for the period) are used for revenues and expenses and cash flows. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into USD are included in determining comprehensive income (loss). Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

 

 

 

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All of the Company’s revenue transactions are transacted in its functional currency. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

 

The exchange rates as of December 31, 2019 and 2018 and for the year ended December 31, 2019 and 2018 are as follows:

 

    December 31,     For the years ended
December 31,
 
    2019     2018     2019     2018  
Foreign currency   Balance Sheet     Balance Sheet     Profit/Loss     Profit/Loss  
RMB to 1 USD     6.9762       6.8764       6.8985       6.6158  

 

Comprehensive Income (Loss)

 

Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income (loss). Other comprehensive income (loss) consists entirely of foreign currency translation adjustments resulting from the Company’s translation of its financial statements from its functional currency into USD.

 

Earnings (loss) Per Share

 

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of ordinary shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of ordinary shares plus dilutive potential ordinary shares outstanding during the period. When the Company has a loss, the potential ordinary shares are not included since their inclusion would be anti-dilutive. For the years ended December 31, 2019 and 2018, there were no potential ordinary shares, such as options, warrants or conversion rights, that would have a dilutive effect on the Company’s earnings per share.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Amendments to the ASC 842 Leases. This update requires a lessee to recognize an asset 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. Leases with 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 expects to adopt of ASU 2016-02 when it completes its proposed transaction with a public entity, and does not expect the adoption of ASU 2016-02 to have a material impact on its financial statements.

 

In June 2016 the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which eliminates the probable initial recognition threshold for credit losses in current U.S. GAAP, and instead requires an organization to record a current estimate of all expected credit losses over the contractual term for financial assets carried at amortized cost. This is commonly referred to as the current expected credit losses (“CECL”) methodology. Expected credit losses for financial assets held at the reporting date will be measured based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 does not change the existing write-off principle in U.S. GAAP or current nonaccrual practices, nor does it change accounting requirements for loans held for sale or certain other financial assets which are measured at the lower of amortized cost or fair value. ASU 2016-13 becomes effective for public companies on January 1, 2020, although early application is permitted for 2019. The Company expects to adopt of ASU 2016-13 in 2020 and does not expect the adoption of ASU 2016-13 to have a material impact on its financial statements.

 

 

 

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In July 2017, the FASB Issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). The amendments in Part I of the Update change the reclassification analysis of certain equity-lined financial instruments (or embedded features) with down round features. The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. The Company does not believe the adoption of this ASU would have a material effect on the Company’s consolidated financial statements.

 

In August 2018, the FASB Accounting Standards Board issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted for any removed or modified disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company does not expect this guidance will have a material impact on its consolidated financial statements.

 

The Company believes that other recent accounting pronouncement will not have a material effect on the Company’s consolidated financial position, results of operations and cash flows.

 

PROPERTIES

 

We maintain our approximately 303 square meter corporate office at Room 1206, 12th Floor, 301, 3-17 F, Building 5, Block 1, Hangfeng Road, Fengtai District, Beijing, The PRC through a sublease with Beijing Hongtao. According to the sublease, we are obligated to pay a monthly rent of approximately RMB 51,713 (approximately US $7,700) during the term of 2 years. The lease expires July 19, 2022. The foregoing description of the lease is qualified in its entirety by reference to the Lease Agreement, an English translation of which is filed as Exhibit 10.8 to this Current Report and incorporated herein by reference.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of August 6, 2020 by: (i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities, (ii) each of our directors and each of our named executive officers (as defined under Item 402(m)(2) of Regulation S-K), and (iii) officers and directors as a group. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown except to the extent voting power may be shared with a spouse. Unless otherwise indicated, the address for each director and executive officer listed is: c/o AS Capital, Inc., Room 1206, 12th Floor, 301, 3-17 F, Building 5, Block 1, Hangfeng Road, Fengtai District, Beijing, China.

 

    Common Stock Beneficially Owned  
Name and Address of Beneficial Owner   Number of Shares
and Nature of
Beneficial
Ownership
    Percentage of
Total Common
Equity (1)
 
TIAN Xiangyang (2)     68,800,000       70.78%  
TIAN Zhihai (3)     4,300,000       4.63%  
                 
All executive officers and directors as a Group     72,300,000       75.41%  
                 
5% or Greater Stockholders:                
GAO Xue Ran     8,581,063       8.83%  

 

 

 

 

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(1) Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of August 6, 2020. Applicable percentage ownership is based on 97,201,030 shares of common stock outstanding as of August 6, 2020, and any shares that such person or persons has the right to acquire within 60 days of August 6, 2020, is deemed to be outstanding for such person, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.
   
(2) Rhone Holding Limited, a limited liability company organized under the laws of the British Virgin Islands, is the record holder of such securities. Ms. Tian is the sole shareholder and director of Rhone Holding Limited. Ms. Tian has served as the Chairman, Chief Executive Officer and Director of the Board of Directors of Beijing Luji since July 2018 and was appointed to serve as the Chief Executive Officer and Director of the Company on August 6, 2020.
   
(3) Donau Holding Limited, a limited liability company organized under the laws of the British Virgin Islands, is the record holder of such securities. Mr. Tian is the sole shareholder and director of Donau Holding Limited. Mr. Tian has served as the Chief Operating Officer of Beijing Luji since January 2017 and was appointed to serve as the Chief Operating Officer and Director of the Company on August 6, 2020.

 

Changes In Control

 

On June 4, 2019, AS Capital, Inc., a Nevada corporation (“we,” “ASIN” or the “Company”), XRC, LLC, a Colorado limited liability company (“XRC”) and Gao Xue Ran (“Purchaser”) entered into a Stock Purchase Agreement (the “SPA”), pursuant to which Purchaser agreed to purchase from XRC 11,000,000 shares of common stock of the Company, par value $0.001, and 964 shares of Series A Convertible Preferred Stock of the Company, par value $0.001 (collectively, the “Shares”), for aggregate consideration of Four Hundred and Ten Thousand Dollars ($410,000) in accordance with the terms and conditions of the SPA. XRC is the controlling shareholder of the Company. The acquisition of the Shares consummated on July 18, 2019, and the Shares were ultimately purchased by the following three individuals using their own personal funds:

 

Name   No. of Shares   Percentage of Issued and Outstanding   Consideration Paid
Gao Xue Ran  

8,581,063 of Common Stock;

964 shares of Series A Preferred Stock

  76.61%   $319,840
Zhang Yan Hua   1,935,633 of Common Stock   17.28%   $72,146
Cheung Kwok Chiu Kris   483,304 of Common Stock   4.30%   $18,014

 

Ms. Gao held a controlling interest in the Company and may unilaterally determine the election of the Board and other substantive matters requiring approval of the Company’s stockholders.

 

Upon the consummation of the sale of the Shares, Chris Lotito, our Chief Executive Officer and sole director, and John Karatzaferis, our President, resigned from all of their positions with the Company, effective July 18, 2019. Their resignations were not due to any dispute or disagreement with the Company on any matter relating to the Company's operations, policies or practices.

 

Concurrently with such resignations, Gao Xue Ran was appointed to serve as the Chief Executive Officer, Chief Financial Officer, President, Secretary and sole Director of the Company, until the next annual meeting of stockholders of the Company and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. None of the directors or executive officers has a direct family relationship with any of the Company’s directors or executive officers, or any person nominated or chosen by the Company to become a director or executive officer. Ms. Gao will serve in her positions without compensation.

 

 

 

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Acquisition of HJ

 

On August 6, 2020, we consummated the acquisition of One Hundred (100) Shares of HJ, representing 100% of the issued and outstanding stock of HJ. HJ is a holding company that, through its subsidiaries and variable interest entity, is engaged in the business of selling healthcare and other related products to the middle-aged and elderly market segments in the PRC through its internet platform and offline service centers. HJ’s consolidated business is conducted through Beijing Luji Technology Co., Ltd., a variable interest entity formed in Beijing, China on March 27, 2007.

 

In connection with the acquisition, effective August 6, 2020, the following individuals were appointed to serve in the capacities set forth next to their names until his or her successor(s) shall be duly elected or appointed, unless he or she resigns, is removed from office or is otherwise disqualified from serving as an executive officer or director of the Company:

 

Tian Xiangyang   Chief Executive Officer, Director and Chairperson of the Board of Director
Shan Yonghua   Chief Financial Officer
Tian Zhihai   Chief Operating Officer and Director
Yin Jianen   Secretary and Director
Wang Jirui   Director

 

Upon the consummation of the sale of the HJ Shares, Gao Xue Ran resigned from all of her positions with the Company, effective August 6, 2020. Her resignation was not due to any dispute or disagreement with the Company on any matter relating to the Company's operations, policies or practices.

 

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

 

Set forth below are the present directors, director nominees and executive officers of the Company. There are no other persons who have been nominated or chosen to become directors nor are there any other persons who have been chosen to become executive officers. There are no arrangements or understandings between any of the directors, officers and other persons pursuant to which such person was selected as a director or an officer. Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and have qualified. Officers are appointed to serve until the meeting of the board of directors following the next annual meeting of stockholders and until their successors have been elected and qualified.

 

Name   Age   Position
Tian Xiangyang   48   Chief Executive Officer, Director and Chairperson of the Board of Director
Shan Yonghua   52   Chief Financial Officer and Director
Tian Zhihai   44   Chief Operating Officer and Director
Yin Jianen   46   Secretary and Director
Wang Jirui   55   Director

 

Set forth below is a brief description of the background and business experience of our sole executive officer and director:

 

Ms. Xiangyang Tian, 48 years old, joined Hanjiao international on July 5, 2018 as HJ Chief Executive Officer, Director and Chairperson of the Board. She is one of the founders of Beijing Luji, and has served as an Executive Director of Beijing Luji since March 2007. She has served as a director of HJ since July 2018, and has served as Chief Executive Officer and Chairman of Hanjiao international the board since April 2019, and is responsible for the overall strategic planning and day-to-day operations of Beijing Luji Technology Co., Ltd at the same time. Ms Tian has introduced a business model by creating a cloud platform called "Fozgo" for the elderly.

 

 

 

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Prior to establishing Beijing Luji, Ms. Tian served as the Chief Secretary at Supply and Marketing Agency of Huailai County, Hebei Province from January 2000 to February 2007. From January 1996 to December 1999, she served as the Political Cadre for the Government Office of Tumu Town in Huailai County, Hebei Province. Ms. Tian was the staff for the Zhangbei County Grain Bureau of Hebei Province from July 1991 to December 1995. Ms. Tian graduated from Hebei Provincial Party Collecge, majoring in Economic Management, and EMBA Business Administration at Peking University. She brings to the Board her experience in financial planning, overview and strategic planning.

 

Mr. Yonghua Shan, 52 years old, has served as Chief Financial Officer of Hanjiao International since March 2020. Mr. Shan has over 31 years working experience in financial management, tax planning, investment and financing management. Prior to joining HJ, Mr. Shan served as the Financial Director of Beijing Luji Technology Co., Ltd. since September 2016. During July 2013 to August 2016, Mr. Shan was the Financial Director of Beijing Beichuang Non-Woven Co. Mr. Shan was the Financial Manager of Beijing Ligao Technology Co., Ltd. from February 2006 to June 2013 and the General Manager Assistant and Investment Manager of Kelon Electric Co., Ltd from August 2000 to January 2006. Mr. Shan obtained his Master degree in Management Engineering from Wuhan University of Technology. Mr. Shan brings to the Board his experience in financial management.

 

Mr. Zhihai Tian, 44 years old, joined Hanjiao International in July 2018 and has served as Chief Operating Officer and Director of Hanjiao International since April 2020. Mr. Tian joined Beijing Luji in 2008 and has served as Chief Operating Officer of Beijing Luji since July 2018. Mr. Tian is mainly responsible for the daily operation and customer relationship management. He had more than 10 years of experience in company operations, customer development and relationship management. Before joining Beijing Luji, Mr. Tian worked at Hongshu Group from July 2000 to December 2007. Mr. Tian obtained EMBA at the School of Economics and Management, Peking University. Mr. Tian brings to the Board his deep industry operational expertise.

 

Mr. Jianen Yin, 46 years old, joined Hanjiao international on June, 2020. He has served as HJ Secretary and Director since April 2020. He serves HJ with his management experience, business and social network with investment and financing knowledge. Before joining us, Mr. Yin was the Vice General Manager of Fixed Income Department of Jiuzhou Securities from May 2016 to June 2019 and of Western Securities during August 2009 to April 2016. From April 2002 to June 2007, he served as the Marketing Director for Sumitomo Forestry Machinery. Mr. Yin has obtained the MBA degree from Guanghua School of Management, Peking University and graduated with Hotel Management degree from Beijing Union University. Mr. Yin brings to the Board his management, finance and investment experience.

 

Mr. Jirui Wang, 55 years old, joined Hanjiao international on June, 2020 and has served as the Director of HJ since April 2020. Mr. Wang has over 23 years working experience in financial industry with extensive knowledge in investment banking and fixed income sectors. Before joining HJ, Mr. Wang worked for Jiuzhou Securities from September 2017 to December 2019 and of Western Securities during April 2016 to September 2017. From June 1995 to December 2016, Mr. Wang served as the Chief Representative of the Southern Representative District of the Beijing Office of South Korea Sincere Chemical Co., Ltd. During October 1987 to May 1995, Mr. Wang was the Purchaser for Hunan Tobacco Company. Mr. Wang graduated from Xiangtan University in Hunan Province in 1987. Mr. Want brings to the Board his expertise in investment banking and finance.

 

Family Relationships

 

Ms. Tian Xiangyang is the aunt of Mr. Tian Zhihai. Except as set forth above, there are no family relationships between any of our directors or executive officers.

 

Involvement in Certain Legal Proceedings

 

No executive officer or director is a party in a legal proceeding adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.

 

 

 

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No executive officer or director has been involved in the last ten years in any of the following:

 

  · Any bankruptcy petition filed by or against any business or property of such person, or 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;
  · Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
  · Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
  · 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;
  · Being the subject of or a party to any 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, or any law or regulation respecting financial institutions or insurance companies, including but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail, fraud, wire fraud or fraud in connection with any business entity; or
  ·

Being the subject of or a party to any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Board Committees

 

We have not formed separate Audit, Corporate Governance, Compensation and Nominating committees. Our entire Board performs the functions of the Audit, Corporate Governance, Compensation and Nominating committees.

 

Delinquent Section 16(a) Reports

 

Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended December 31, 2018, and up to the date of this current report, our officers, directors and greater than 10% percent beneficial owners timely filed all reports required by Section 16(a) of the Securities Exchange Act except as follows: XRC, LLC failed to file Forms 3 and 4 disclosing its ownership of our our securities.

 

Code of Ethics

 

We have not yet adopted a Code of Ethics that applies to our directors, officers, and employees. We expect to adopt such a code in the future once we have integrated our acquisition of HJ.

 

Board Meetings

 

Our board of directors currently consists of Ms Tian Xiangyang, Mr. Yin Jian’en, Mr. Shan Yonghua, Mr. Tian Zhihai and Mr. Wang Jirui. The board did not hold formal meetings during the year ended December 31, 2019, but took actions via unanimous written consent. We expect our current board to act by written consent or through board meetings in accordance with the provisions of the Nevada Revised Statutes and our Bylaws.

 

 

 

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Nomination Process

 

Our board of directors does not have a policy with regards to the consideration of any director candidates recommended by our shareholders. We have not adopted advance notice provisions in our bylaws. Our board of directors has determined that it is in the best position to evaluate our Company’s requirements as well as the qualifications of each candidate when the board considers a nominee for a position on our board of directors.

 

Corporate Governance & Board Independence

 

Our Board of Directors consists of five directors: Ms. Tian Xiangyang, Mr. Yin Jian’en, Mr. Shan Yonghua, Mr. Tian Zhihai and Mr. Wang Jirui. We do not currently have a standing audit, nominating or compensation committee of the board of directors, or any committee performing similar functions. Our board of directors performs the functions of audit, nominating and compensation committees. As of the date of this report, no member of our board of directors qualifies as an “audit committee financial expert” as defined in 17 CFR 229.407(d)(5) promulgated under the Securities Act. We hope to attract a director who qualifies as an “audit committee financial expert” as our business matures.

 

Our board of directors intends to appoint such persons and form such committees as are required to meet the corporate governance requirements imposed by the national securities exchanges as necessary. Our board of directors does not believe that it is necessary to have such committees at the early stage of the Company’s development, and our board of directors believes that the functions of such committees can be adequately performed by the members of our board of directors.

   

Board Leadership Structure and the Board’s Role in Risk Oversight

 

The Board of Directors is chaired by the Chairman who is also the CEO. The Board believes that the most effective leadership structure at this time is not to separate the roles of Chairman and CEO. A combined structure provides the Company with a single leader who represents our stockholders, regulators, business partners and other stakeholders, among reasons set forth below. Should the Board conclude otherwise, the Board will separate the roles and appoint an independent Chairman.

 

  · This structure creates efficiency in the preparation of the meeting agendas and related Board materials as the Company’s Chief Executive Officer works directly with those individuals preparing the necessary Board materials and is more connected to the overall daily operations of the Company. Agendas are also prepared with the permitted input of the full Board of Directors allowing for any concerns or risks of any individual director to be discussed as deemed appropriate. The Board believes that the Company has benefited from this structure, and Ms Tian’s continuation in the combined role of the Chairman and CEO conforms with the best interest of stockholders.
  · The Company believes that the combined structure is necessary and allows for efficient and effective oversight, given the Company’s relatively small size, its corporate strategy and focus.

 

The Board of Directors have played a certain role in risk oversight of the Company. The Chairperson, President and Chief Executive Officer and other executive officers and employees of the Company provide the Board of Directors with information regarding the Company’s risks.

 

Involvement in Certain Legal Proceedings

 

From time to time, we may be involved in various claims, lawsuits, and disputes with third parties, actions involving allegations of discrimination or breach of contract actions incidental to the normal operations of the business. We may be named as a defendant in such lawsuits and thus become subject to the attendant risk of substantial damage awards. There can be no assurance, however, that we will not be sued, that any such lawsuit will not exceed our insurance coverage, if any, or that we will be able to maintain such coverage at acceptable costs and on favorable terms.

 

We are not a party to, nor is any of our property the subject of, any legal proceedings. There are no proceedings pending in which any of our officers, directors or 5% shareholders are adverse to us or any of our subsidiaries or in which they are taking a position or have a material interest that is adverse to us or any of our subsidiaries.

 

 

 

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EXECUTIVE COMPENSATION

 

Compensation Philosophy and Objectives

 

Currently, our executive directors and officers receive cash compensation for services in such capacities. We expect to establish an incentive compensation plan as our Company matures. We expect that our executive compensation philosophy will be to create a long-term direct relationship between pay and our performance. Our executive compensation program will be designed to provide a balanced total compensation package over the executive’s career with us. The compensation program objectives will be to attract, motivate and retain the qualified executives that help ensure our future success, to provide incentives for increasing our profits by awarding executives when corporate goals are achieved and to align the interests of executives and long-term stockholders. We expect the compensation package of our named executive officers to consist of the following main elements:

 

  1. base salary for our executives that is competitive relative to the market, and that reflects individual performance, retention and other relevant considerations;
  2. incentive compensation consisting of stock options, restricted stock and the like; and
  3. discretionary bonus awards payable in cash and or securities of the Company tied to the satisfaction of corporate objectives.

 

Process for Setting Executive Compensation

 

As we do not have Compensation Committee, our Board will be responsible for developing and overseeing the implementation of our philosophy with respect to the compensation of executives and for monitoring the implementation and results of the compensation philosophy to ensure compensation remains competitive, creates proper incentives to enhance stockholder value and rewards superior performance. The Board will annually review and approve for each named executive officer, and particularly with regard to the Chief Executive Officer, all components of the executive’s compensation. The Board may award discretionary bonuses to each of the named executives, and reviews and approves the process and factors (including individual and corporate performance measures and actual performance versus such measures) used by the Chief Executive Officer to recommend such awards. Additionally, the Board will review and approve the base salary, equity-incentive awards (if any) and any other special or supplemental benefits of the named executive officers.

  

We expect our Chief Executive Officer to periodically provide the Board with an evaluation of each named executive officer’s performance, based on the individual performance goals and objectives developed by the Chief Executive Officer at the beginning of the year, as well as other factors. The Board will provide an evaluation for the Chief Executive Officer. These evaluations will serve as the bases for bonus recommendations and changes in the compensation arrangements of our named executives.

 

Our Compensation Peer Group

 

We expect to engage in informal market analysis in evaluating our executive compensation arrangements. As the Company and its businesses mature, we may retain compensation consultants that will assist us in developing a formal benchmark and selecting a compensation peer group of companies similar to us in size or business for the purpose of comparing executive compensation levels.

 

Program Components

 

We expect our executive compensation program to consist of the following elements:

 

Base Salary

 

Our base salary structure will be designed to encourage internal growth, attract and retain new talent, and reward strong leadership that will sustain our growth and profitability. The base salary for each named executive officer will reflect our past and current operating profits, the named executive officer’s individual contribution to our success throughout their career, internal pay equity and informal market data regarding comparable positions within similarly situated companies. In determining and setting base salary, the Board will consider all of these factors, though it will not assign specific weights to any factor. The Board will generally review the base salary for each named executive officer on an annual basis. For each of our named executive officers, we expect to review base salary data internally obtained by the Company for comparable executive positions in similarly situated companies to ensure that the base salary rate for each executive is competitive relative to the market.

 

 

 

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Discretionary Bonus

 

The objectives of our bonus awards will be to encourage and reward our employees, including the named executive officers, who contribute to and participate in our success by their ability, industry, leadership, loyalty or exceptional service and to recruit additional executives who will contribute to that success.

 

Each of our named executive officers will be eligible for consideration for a discretionary cash bonus. The Chief Executive Officer will make recommendations regarding bonus awards for the named executive officers and the Board provides the bonus recommendation for the Chief Executive Officer. However, the Board/Compensation Committee will have sole and final authority and discretion in designating to whom awards are made, the size of the award, if any, and its terms and conditions. The bonus recommendation for each of the named executive officers depends on a number of factors, including (i) the performance of the Company for the year, (ii) the satisfaction of certain individual and corporate performance measures, and (iii) other factors which the Board may deem relevant. The Company did not award any cash bonuses during fiscal year 2019.

 

Stock Holdings

 

The Board recognizes the importance of having a portion of the named executive officers’ compensation be paid in the form of equity, to help align the executives’ interests with the interests of the Company’s stockholders. Initially, we expect the Board to emphasize the cash-based portion of our compensation program over a stock program because it believes the discretionary nature of the cash-based compensation gives it the needed flexibility to factor in and reward the attainment of longer-term goals for the Company and the executives, as the Board deems appropriate.
 

We have not timed nor do we plan to time our release of material non-public information for the purpose of affecting the value of executive compensation.

  

Summary Compensation Table

 

The following tables set forth, for each of the last two completed fiscal years of the Company, the total compensation awarded to, earned by or paid to any person who was a principal executive officer during the preceding fiscal year and every other highest compensated executive officers earning more than $100,000 during the last fiscal year (together, the “Named Executive Officers”). The tables set forth below reflect the compensation of the Named Executive Officers.

 

Name and Principal Position Fiscal Year

Salary

($)

Bonus

($)

Equity

Awards

($)

All Other

Compensation

($)

Total

($)

Tian Xiangyang (1)

(Chief Executive Officer, Director and Chairperson of the Board)

2020Q1 18,810 0 0 46,407 65,217
2019 74,165 0 0 81,446 155,611
2018 41,059 0 0 67,941 109,000

 

(1) Effective since August 6, 2020, Ms. Tian was appointed to serve as our CEO and Chairman of the Board of Director.

 

 

 

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Narrative Disclosure to Summary Compensation Table


 

Each of Ms. Tian Xiangyang, Mr. Shan Yonghua, Mr. Tian Zhihai, Mr. Yin Jianen and Mr. Wang Jirui are parties to an employment agreement with Beijing Luji , our VIE, as of the dates and for the salary set forth below:

 

Name   Position with the Company  

Monthly Salary

(RMB/ USD)

  Effective Date/Expiration Date
Ms Tian Xiangyang  

Chief Executive Officer,

Director and Chairperson of the Board of Director

  100,000 / 14,286   January 1, 2019 / December 31, 2022
Mr. Shan Yonghua   Chief Financial Officer and Director   30,000 / 4,286   January 1, 2017 / December 31, 2021
Mr. Tian Zhihai   Chief Operating Officer and Director   26,000 / 3,714   January 1, 2017 / December 31, 2021
Mr. Yin Jianen   Secretary and Director   0   January 1, 2019 / December 31, 2021
Mr. Wang Jirui    Director   0   January 1, 2019 / December 31, 2021

  

Employment Contracts

 

Each executive may terminate his or her employment agreement by giving three months prior written notice thereof. Otherwise, Beijing Luji has the right to deduct the wage, bonus, on-duty fees, etc. that have not been paid if such action causes serious economic loss to Beijing Luji.

 

Beijing Luji is entitled to reassign duties of Executive in the event that his or her performance does not meet the standards set forth in her performance appraisal for three consecutive months.

 

Beijing Luji is entitled to terminate this employment agreement upon the occurrence of the following events:

 

(1) Executive violates labor discipline or the Company’s rules and systems;

(2) Executive commits serious gross negligence or jobbery, which causes serious damage to the Company’s interests; or

(3) Executive is subjected to the investigation of criminal responsibilities as per laws.

 

Executive is entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with his or her services on our behalf. He or she is also entitled to certain health and welfare benefits, transportation allowances, and relevant professional membership fees and course fees.

 

The foregoing description of the Employment Agreements of each of Ms. Tian Xiangyang, Mr. Shan Yonghua, Mr. Tian Zhihai, Mr. Yin Jianen and Mr. Wang Jirui is qualified in its entirety by reference to such agreements which are filed as Exhibits 10.9 through and including 10.13 to this Current Report and is incorporated herein by reference.

 

 

 

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Other than set out above and below, there are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We expect to establish one or more incentive compensation plans in the future. Our directors and executive officers may receive securities of the Company as incentive compensation at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers.

 

Equity Awards

 

As of the reported date, there are no options, warrants or convertible securities outstanding. At no time during the last fiscal year with respect to any of any of our executive officers was there:

 

  · any outstanding option or other equity-based award repriced or otherwise materially modified (such as by extension of exercise periods, the change of vesting or forfeiture conditions, the change or elimination of applicable performance criteria, or the change of the bases upon which returns are determined);
  · any waiver or modification of any specified performance target, goal or condition to payout with respect to any amount included in non-stock incentive plan compensation or payouts;
  · any option or equity grant;
  · any non-equity incentive plan award made to a named executive officer;
  · any nonqualified deferred compensation plans including nonqualified defined contribution plans; or
  · any payment for any item to be included under All Other Compensation in the Summary Compensation Table.

 

Compensation of Directors

 

During our fiscal year ended December 31, 2019, we did not provide compensation to any of our employee directors for serving as a director. We currently have no formal plan for compensating our directors for their services in their capacity as directors, although we may elect to issue stock options to such persons from time to time. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director. 

 

We intend to enter into Director Retainer Agreements which will set forth the terms and conditions upon which our directors will serve on our board. A form of the Director Retainer Agreement is filed as Exhibit 10.14 to this Current Report and is incorporated herein by reference.

  

Compensation Risk Management

 

Our Board of directors and human resources staff conducted an assessment of potential risks that may arise from our compensation programs. Based on this assessment, we concluded that our policies and practices do not encourage excessive and unnecessary risk taking that would be reasonably likely to have material adverse effect on the Company. The assessment included our cash incentive programs, which awards non-executives with cash bonuses for punctuality. Our compensation programs are substantially identical among business units, corporate functions and global locations (with modifications to comply with local regulations as appropriate). The risk-mitigating factors considered in this assessment included:

 

  · the alignment of pay philosophy, peer group companies and compensation amounts relative to local competitive practices to support our business objectives; and

 

  · effective balance of cash, short- and long-term performance periods, caps on performance-based award schedules and financial metrics with individual factors and Board and management discretion.

   

 

 

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Compensation Committee Interlocks and Insider Participation

 

We have not yet established a Compensation Committee. Our Board of Directors performs the functions that would be performed by a compensation committee.

 

Our Bylaws provide that the number of directors shall be fixed from time to time by resolution of the Board of Directors. Our Bylaws may be amended, altered or repealed by a majority of the directors serving on our Board of Directors.

  

Our Bylaws also provide that our directors may be removed with or without cause by the affirmative vote of the holders of at least a majority of the shares then entitled to vote at an election of directors. An election of our directors by our stockholders will be determined by a plurality of the votes cast by the stockholders entitled to vote on the election.

 

Our current and future executive officers and significant employees serve at the discretion of our board of directors. Our board of directors may also choose to form certain committees, such as a compensation and an audit committee.

 

Compensation Committee Report

 

Our Board has reviewed and discussed the Compensation Discussion and Analysis in this report with management. Based on its review and discussion with management, the Board of Directors recommended that the Compensation Discussion and Analysis be included in this Current Report on Form 8-K. The material in this report is not deemed filed with the SEC and is not incorporated by reference in any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made on, before, or after the date of this Current Report on Form 8-K and irrespective of any general incorporation language in such filing.

 

Submitted by members of the Board of Directors:

Ms. Tian Xiangyang

Mr Yin Jianen

Mr Shan Yonghua

Mr Tian Zhihai

Mr Wang Jirui

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

The balance of due from related parties is approximately $33,500, $34,900 and $11.6 million as of March 31, 2020, December 31, 2019 and December 31, 2018 respectively. As of March 31, 2020, December 31, 2019 and December 31, 2018, due from related parties were due from Ms. Tian Xiangyang, the founder of Beijing Luji, Chairperson of the Board and Chief Executive Officer of the Company. Ms. Tian obtained these advances in connection with running the operations of Beijing Luji. Ms. Tian repaid $10.6 million to Beijing Luji in May 2019. Subsequently, on August 10, 2019, Beijing Luji approved dividend distributions of RMB33.7 million (equal to approximately $4.8 million) to Beijing Luji’s shareholders. Subsequently, Ms. Tian paid off the remaining balance of $1.3 million to Beijing Luji. At the date of this filing, there were no balances due from related parties.

 

As of March 31, 2020, December 31, 2019 and December 31, 2018, the outstanding amounts due from related parties are as follows:

(in thousand)

    March 31,     December 31,     December 31,  
    2020     2019     2018  
Tian Xiangyang   $ 33.5     $ 34.9     $ 11,609  

 

We have not adopted policies or procedures for approval of related person transactions but review them on a case-by-case basis. Except as set forth above, we have not entered into any material transactions with any director, executive officer, and promoter, beneficial owner of five percent or more of our common stock, or family members of such persons.

 

 

 

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Director Independence
 

Our board of directors currently consists of Tian Xianyang, our CEO, Yin Jian’en, our Secretary, Shan Yonghua, our CFO, Tian Zhihai, our COO, and Wang Jirui. None of our directors qualify as an independent director under the published listing requirements of the NASDAQ Stock Market or the NYSE because they are executive officers of the Company. As of the date hereof, we have not adopted a standard of independence nor do we have a policy with respect to independence requirements for our board members or that a majority of our board be comprised of “independent directors.”

 

LEGAL PROCEEDINGS

 

We are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business. There are no pending legal proceedings in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, is a party adverse to the Company or has a material interest adverse to the Company.

 

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

(a) Market Information

 

Shares of our common stock are quoted on the OTC Pink under the symbol “ASIN”. As of August 6, 2020, the last closing price of our securities was $0.22, with little to no quoting activity. Our common stock began quoting on the OTC Pink on January 14, 2019. There is no established public trading market for our securities and a regular trading market may not develop, or if developed, may not be sustained.

 

The following table sets forth, for the fiscal quarters indicated, the high and low bid information for our common stock, as reported on the OTC Pink Sheets. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.

 

Quarterly period   High     Low  
Quarter ended June 30, 2020   $ 0.30     $ 0.25  
Quarter ended March 31, 2020   $ 0.55     $ 0.30  
Fiscal year ended December 31, 2019:                
Fourth Quarter   $ 1.09     $ 0.22  
Third Quarter   $ 1.20     $ 0.22  
Second Quarter   $ 1.55     $ 1.20  
First Quarter   $ 1.82     $ 0.22  

 

(b) Approximate Number of Holders of Common Stock

 

As of August 6, 2020, there were approximately 46 shareholders of record of our common stock. Such number does not include any shareholders holding shares in nominee or “street name”.

 

 

 

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(c) Dividends

 

Holders of our common stock are entitled to receive such dividends as may be declared by our board of directors. We paid no dividends during the periods reported herein, nor do we anticipate paying any dividends in the foreseeable future.

 

(d) Equity Compensation Plan Information

 

None.

 

(e) Recent Sales of Unregistered Securities

 

None.

 

DESCRIPTION OF SECURITIES

 

The following is a description of the material provisions of our capital stock, as well as other material terms of our Articles of Incorporation, as amended, and Amended and Restated Bylaws, or the Restated Bylaws.  We refer you to our Articles of Incorporation, as amended, and Restated Bylaws, copies of which have been filed as exhibits to this report.

 

We are authorized to issue up to 100,000,000 shares of common stock, par value $0.0001 per share. Effective August 20, 2020, our authorized shares of common stock will increase to 500,000. Each outstanding share of common stock entitles the holder thereof to one vote per share on all matters. Our bylaws provide that elections for directors shall be by a plurality of votes. Stockholders do not have pre-emptive rights to purchase shares in any future issuance of our common stock. Upon our liquidation, dissolution or winding up, and after payment of creditors and preferred stockholders, if any, our assets will be divided pro-rata on a share-for-share basis among the holders of the shares of common stock.

 

The holders of shares of our common stock are entitled to dividends out of funds legally available when and as declared by our board of directors. Our board of directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our subsidiaries and other holdings and investments. In addition, our operating subsidiary, from time to time, may be subject to restrictions on its ability to make distributions to us, including as a result of statutory reserve requirements in the PRC, restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to receive, ratably, the net assets available to stockholders after payment of all creditors and preferred shareholders.

 

All of the issued and outstanding shares of our common stock are duly authorized, validly issued, fully paid and non-assessable. To the extent that additional shares of our common stock are issued, the relative interests of existing stockholders will be diluted.

 

Preferred Stock

 

We are authorized to issue up to 10,000,000 shares of preferred stock, par value $0.0001 per share, in one or more classes or series within a class as may be determined by our board of directors, who may establish, from time to time, the number of shares to be included in each class or series, may fix the designation, powers, preferences and rights of the shares of each such class or series and any qualifications, limitations or restrictions thereof. Any preferred stock so issued by the board of directors will rank senior to the common stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up of us, or both. Moreover, under certain circumstances, the issuance of preferred stock or the existence of the unissued preferred stock might tend to discourage or render it more difficult to enter into a merger or other change of control transaction. As of the date of this Current Report, the Board has designated 1,000 Series A Convertible Preferred Stock, 3,000,000 Series B Preferred Stock and 1,000,000 Series C Preferred Stock. As of the date of this Current Report, there are outstanding 1,000 shares of Series A Convertible Preferred Stock and no shares of Series B or Series C Preferred Stock.

 

 

 

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Series A Convertible Preferred Stock

 

A summary of the Certificate of Designation for the Series A Convertible Preferred Stock is set forth below:

  

Voting. Except as provided otherwise under law, holders of the Series A Convertible Preferred Stock are entitled to vote only on matters pertaining to the Series A Convertible Preferred Stock and will have no voting rights on matters presented to holders of our Common Stock.

 

Conversion. Shares of Series A Convertible Preferred Stock is convertible, at any time at the option of the holder, at a ratio of one (1) Common Share for every twelve thousand (12,000) shares of Series A Convertible Preferred Stock. Notwithstanding the foregoing, conversion shall be restricted to prohibit a holder of the Series A Preferred Stock from holding Common Stock in excess of 4.95% of the issued and outstanding shares of our Common Stock.

 

Dividends. Holders of the Series A Convertible Preferred Stock shall not be entitled to receive dividends.

 

Liquidation. Holders of the Series A Convertible Preferred Stock then outstanding shall not be entitled to any liquidation preference.

  

Series B Preferred Stock

 

A summary of the Certificate of Designation for the Series B Preferred Stock is set forth below:

 

Voting. Except as required under law, holders of the Series B Preferred Stock are not entitled to vote.

 

Conversion. Each share of Series B Preferred Stock is convertible, at any time at the option of the holder, into one thousand (1,000) shares of Common Stock. Notwithstanding the foregoing, conversion shall be allowed only if the converting holder of the Series B Preferred Stock does not end up with Common Stock in excess of 4.95% of the issued and outstanding shares of our Common Stock.

 

Dividends. Holders of the Series B Preferred Stock shall not be entitled to receive dividends.

 

Liquidation. Holders of the Series B Preferred Stock then outstanding shall not be entitled to any liquidation preference.

  

Series C Preferred Stock

 

A summary of the Certificate of Designation for the Series C Preferred Stock is set forth below:

  

Voting. Except as provided otherwise under law, holders of the Series C Preferred Stock are entitled to vote on matters presented to holders of our Common Stock as if they held one hundred thousand (100,000) shares of Common Stock for each one (1) share of Series C Preferred Stock.

 

Conversion. Shares of Series C Preferred Stock are convertible, at any time at the option of the holder, at a ratio of one (1) Common Share for every one (1) share of Series C Preferred Stock.

 

Dividends. Holders of the Series C Preferred Stock shall not be entitled to receive dividends.

 

Liquidation. Holders of the Series C Preferred Stock then outstanding shall not be entitled to any liquidation preference.

 

 

 

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Anti-takeover Effects of Our Articles of Incorporation, as Amended, and Restated Bylaws

 

Our Articles of Incorporation, as amended, and Restated Bylaws contain certain provisions that may have anti-takeover effects, making it more difficult for or preventing a third party from acquiring control of the Company or changing our board of directors and management. According to our Restated Bylaws and Articles of Incorporation, as amended, neither the holders of our common stock nor the holders of our preferred stock have cumulative voting rights in the election of our directors.

 

· No Cumulative Voting. The Nevada Revised Statutes provide that stockholders are not entitled to the right to cumulative votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our Amended and Restated Certificate of Incorporation and Bylaws do not provide for cumulative voting. The combination of the present ownership by a few stockholders of a significant portion of our issued and outstanding common stock and lack of cumulative voting makes it more difficult for other stockholders to replace our board of directors or for a third party to obtain control of the Company by replacing its board of directors.
· Issuance of “Blank Check” Preferred Stock. Our board of directors has the authority, without further action by the stockholders, to issue up to additional 9,999,000 shares of “blank check” preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock enables our board of directors to render it more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest, or otherwise;
· Advance Notice Provisions. Our stockholders may not call special meetings of our stockholders unless they hold in excess of 50% of the shares entitled to vote at a meeting of stockholders. Stockholders requesting a special meeting to act on any matter that may properly be considered at a meeting of stockholders must submit a written request to the secretary of the Corporation. Such meeting request must contain all information required pursuant to the Restated Bylaws, be sent to the secretary by registered mail, return receipt requested, and be received by the secretary within 60 days after the record date. The Restated Bylaws include special provisions relating to the mechanics of calling and canceling special meetings of the stockholders; In any annual meeting of our stockholders, stockholders may not act on any matter not properly brought before the meeting. A matter is considered to have been properly brought before a meeting if the stockholder has given timely notice thereof in writing to the secretary of the Corporation and such business is a proper matter for action by the stockholders. To be timely, a stockholder’s notice shall set forth all information required pursuant to the Restated Bylaws and shall be delivered to the secretary at the principal executive office of the Corporation not earlier than the 150th day nor later than 5:00 p.m., Eastern Time, on the 120th day prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of the preceding year’s annual meeting, notice by the stockholder to be timely, such notice must be so delivered not earlier than the 150th day prior to the date of such annual meeting and not later than 5:00 p.m., Eastern Time, on the later of the 120th day prior to the date of such annual meeting, as originally convened, or the tenth day following the day on which public announcement of the date of such meeting is first made. The public announcement of a postponement or adjournment of an annual meeting shall not commence a new time period for the giving of a stockholder’s notice as described above.
· Special Nomination Procedures. Our stockholders may not nominate persons to our Board unless they comply with certain nomination procedures. A stockholder must deliver notice of its intent to nominate persons to be elected to the Board to the secretary of the Company not earlier than the 150th day nor later than 5:00 p.m., Eastern Time, on the 120th day prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of the preceding year’s annual meeting, notice by the stockholder to be timely, such notice must be so delivered not earlier than the 150th day prior to the date of such annual meeting and not later than 5:00 p.m., Eastern Time, on the later of the 120th day prior to the date of such annual meeting, as originally convened, or the tenth day following the day on which public announcement of the date of such meeting is first made. The public announcement of a postponement or adjournment of an annual meeting shall not commence a new time period for the giving of a stockholder’s notice as described above. Such stockholder’s notice must include all information required pursuant to the Restated Bylaws, which shall include information regarding (i) the stockholder, (ii) any person acting in concert with such stockholder, (iii) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder (other than a stockholder that is a depositary) and (iv) any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such stockholder or any of the persons described in sections (ii) and (iii) above.   Such notice shall contain, among other things, a written undertaking certifying that such proposed nominee is not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Company in connection with service or action as a director that has not been disclosed to the Company.

 

 

 

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· Bylaws Amendments Without Stockholder Approval. Our Amended and Restated Bylaws provide that a majority of the authorized number of directors will generally have the power to adopt, amend or repeal our bylaws without stockholder approval;
· Broad Indemnity. We are permitted to indemnify directors and officers against losses that they may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures. This provision may make it more difficult to remove directors and officers and delay a change in control of our management.

 

Anti-takeover Effects of Nevada Law

 

Business Combinations

 

The “business combination” provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes, or NRS, generally prohibit a Nevada corporation with at least 200 stockholders from engaging in various “combination” transactions with any interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the transaction is approved by the board of directors prior to the date the interested stockholder obtained such status; and extends beyond the expiration of the three-year period, unless:

 

· the transaction was approved by the board of directors prior to the person becoming an interested stockholder or is later approved by a majority of the voting power held by disinterested stockholders, or
· if the consideration to be paid by the interested stockholder is at least equal to the highest of: (a) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, (b) the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder acquired the shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred stock, if it is higher.

 

A “combination” is generally defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions, with an "interested stockholder" having: (a) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, (c) 10% or more of the earning power or net income of the corporation, and (d) certain other transactions with an interested stockholder or an affiliate or associate of an interested stockholder.

 

In general, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years, did own) 10% or more of a corporation's voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire our company even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.

 

Because we have less than 45 shareholders of record, these “business combination” provisions do not currently apply to us. We intend to amend our Amended and Restated Articles of Incorporation to elect not to be governed by the “business combination” provisions.

 

Control Share Acquisitions

 

The “control share” provisions of Sections 78.378 to 78.3793, inclusive, of the NRS apply to “issuing corporations,” which are Nevada corporations with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and which conduct business directly or indirectly in Nevada. The control share statute prohibits an acquirer, under certain circumstances, from voting its shares of a target corporation's stock after crossing certain ownership threshold percentages, unless the acquirer obtains approval of the target corporation's disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power. Generally, once an acquirer crosses one of the above thresholds, those shares in an offer or acquisition and acquired within 90 days thereof become “control shares” and such control shares are deprived of the right to vote until disinterested stockholders restore the right.

 

 

 

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These provisions also provide that if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters’ rights.

 

The effect of the Nevada control share statutes is that the acquiring person, and those acting in association with the acquiring person, will obtain only such voting rights in the control shares as are conferred by a resolution of the disinterested stockholders at an annual or special meeting. The Nevada control share law, if applicable, could have the effect of discouraging takeovers of our Company.

 

A corporation may elect to not be governed by, or “opt out” of, the control share provisions by making an election in its articles of incorporation or bylaws, provided that the opt-out election must be in place on the 10th day following the date an acquiring person has acquired a controlling interest, that is, crossing any of the three thresholds described above. Our Amended and Restated Articles of Incorporation state that we have elected not to be governed by the “control share” provisions, therefore such provisions currently do not apply to us.

 

Options
 

As of the date of this Report, we had no outstanding options to purchase shares of our common stock.

 

Transfer Agent and Registrar

 

Our stock transfer agent is Transhare Securities Transfer and Registrar, located at 2849 Executive Drive, Suite 200, Clearwater, Florida 33762, telephone number (303) 662-1112.

 

INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

We are a Nevada corporation and generally governed by the Nevada Private Corporations Code, Title 78 of the Nevada Revised Statutes, or NRS.

 

Section 78.138 of the NRS provides that, unless the corporation’s articles of incorporation provide otherwise, a director or officer will not be individually liable unless it is proven that (i) the director's or officer's acts or omissions constituted a breach of his or her fiduciary duties, and (ii) such breach involved intentional misconduct, fraud or a knowing violation of the law.

 

Section 78.7502 of the NRS permits a company to indemnify its directors and officers against expenses, judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with a threatened, pending, or completed action, suit, or proceeding, except an action by or on behalf of the corporation, if the officer or director (i) is not liable pursuant to NRS 78.138, or (ii) acted in good faith and in a manner the officer or director reasonably believed to be in or not opposed to the best interests of the corporation and, if a criminal action or proceeding, had no reasonable cause to believe the conduct of the officer or director was unlawful. Section 78.7502 of the NRS also requires a corporation to indemnify its officers and directors if they have been successful on the merits or otherwise in defense of any claim, issue, or matter resulting from their service as a director or officer.

 

Section 78.751 of the NRS permits a Nevada company to indemnify its officers and directors against expenses incurred by them in defending a civil or criminal action, suit, or proceeding as they are incurred and in advance of final disposition thereof, upon determination by the stockholders, the disinterested board members, or by independent legal counsel. Section 78.751 of NRS requires a corporation to advance expenses as incurred upon receipt of an undertaking by or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of competent jurisdiction that such officer or director is not entitled to be indemnified by the company if so provided in the corporations articles of incorporation, bylaws, or other agreement. Section 78.751 of the NRS further permits the company to grant its directors and officers additional rights of indemnification under its articles of incorporation, bylaws or other agreement.

 

 

 

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Section 78.752 of the NRS provides that a Nevada company may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising out of his status as such, whether or not the company has the authority to indemnify him against such liability and expenses.

 

Our Articles of Incorporation, as amended, and Restated Bylaws implement the indemnification and insurance provisions permitted by Chapter 78 of the NRS by providing that:

 

  · We may indemnify our directors and officers to the fullest extent permitted by the NRS against expense, liability and loss reasonably incurred or suffered by them in connection with their service as an officer or director of the Corporation or of another corporation or enterprise (if such service was at our request);
  · we are authorized to advance expenses incurred by or on behalf of a director, officer or other persons to which we are permitted to provide indemnification in advance of the final disposition of any action or proceeding.
  · The liability of our directors for monetary damages is limited to the fullest extent permitted by Nevada law; and
  · We may purchase and maintain insurance, or make other financial arrangements, on behalf of any person who holds or who has held a position as s director, officer, or representative against liability, cost, payment, or expense incurred by such person.

 

At the present time, there is no pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding which may result in a claim for such indemnification.

 

We intend to enter into indemnification agreements with each of our directors and executive officers that are broader than the specific indemnification provisions contained in the Nevada Revised Statutes. These indemnification agreements may require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements may also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit, or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.

 

The limitation of liability and indemnification provisions in our Amended and Restated Certificate of Incorporation and Bylaws or in any indemnification agreements may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees, or other agents or is or was serving at our request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

 

We may obtain insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these officers and directors pursuant to our indemnification obligations or otherwise as a matter of law.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

 

 

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Item 5.01 Changes in Control of Registrant.

 

The information regarding change of control of the Company in connection with the Share Exchange set forth in Item 2.01, “Completion of an Acquisition or Disposition of Assets” is incorporated herein by reference.

 

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers; Compensatory Arrangements of Certain Officers.

 

The information regarding departure and election of directors and departure and appointment of principal officers of the Company in connection with the Share Exchange set forth in Item 2.01, “Completion of Acquisition or Disposition of Assets” is incorporated herein by reference.

 

Item 5.06 Change in Shell Company Status.

 

Prior to the Share Exchange, we were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). As a result of the Share Exchange, we have ceased to be a shell company. The information contained in this Current Report constitutes the current “Form 10 information” necessary to satisfy the conditions contained in Rule 144(i)(2) under the Securities Act of 1933, as amended (the “Securities Act”).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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HanJiao International Holding Limited

 

Consolidated Financial Statements (Unaudited)

For the Three Months Ended March 31, 2020 and 2019

 

TABLE OF CONTENTS

 

 

  Page
   
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 F-2
   
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019 F-3
   
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2020 and 2019 F-4
   
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 F-5
   
Notes to Unaudited Condensed Consolidated Financial Statements F-6

 

 

 

 

 

 

 

 

 

 

 

 

  F-1  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

    March 31,     December 31,  
    2020     2019  
    (Unaudited)        
Assets                
Current assets                
Cash and cash equivalents   $ 13,449,805     $ 28,919,817  
Advance to suppliers     6,720,321       266,237  
Inventories, net     1,495,026       1,601,151  
Prepayments and other current assets     891,487       196,272  
Due from related parties, net     32,279       112,218  
Total current assets     22,588,918       31,095,695  
Long-term investment, net     11,237,029       11,412,441  
Property and equipment, net     230,371       263,640  
Deposits     45,129       46,487  
Total assets   $ 34,101,447     $ 42,818,263  
                 
Liabilities and shareholders’ equity                
Current liabilities                
Taxes payable   $ 19,021,322     $ 19,647,502  
Dividends payable           4,300  
Due to related parties     245,201       1,013,396  
Accrued expenses     3,052,886       4,823,543  
Other payables and other current liabilities     6,549,220       6,865,487  
Total current liabilities     28,868,629       32,354,228  
Total liabilities     28,868,629       32,354,228  
                 
Commitments and contingencies            
                 
Shareholders’ equity                
Ordinary shares: par value $1 per share, 50,000 shares authorized; 100 shares issued and outstanding at March 31, 2020 and December 31, 2019 *     100       100  
Additional paid-in capital *     7,249,775       7,249,775  
Statutory reserves     1,687,125       1,687,125  
(Deficit) retained earnings     (3,011,234 )     2,136,211  
Accumulated other comprehensive loss     (692,948 )     (609,176 )
Total shareholders’ equity     5,232,818       10,464,035  
                 
Total liabilities and shareholders’ equity   $ 34,101,447     $ 42,818,263  

 

* Giving retroactive effect to the corporate reorganization effected on September 16, 2019.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 

  F-2  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

 

    For the Three Months Ended
March 31,
 
    2020     2019  
             
Revenues   $ 34,331     $ 6,154,767  
Cost of revenues     (38,781 )     (4,289,840 )
Gross (loss) profit     (4,450 )     1,864,927  
                 
Operating expenses:                
General and administrative expenses     1,132,466       1,467,663  
Selling expenses     1,272,914       649,846  
Finance (income), net     (182,138 )     (198,109 )
Total operating expenses     2,223,242       1,919,400  
                 
Operating loss     (2,227,692 )     (54,473 )
                 
Other income (expenses)                
Other expenses, net     (2,191,729 )     (455,841 )
Total other expenses, net     (2,191,729 )     (455,841 )
                 
Loss before provision for income taxes     (4,419,421 )     (510,314 )
Provision for income taxes           29,313  
                 
Net loss   $ (4,419,421 )   $ (539,627 )
                 
Other comprehensive (loss) income                
Foreign currency translation adjustment     (83,772 )     346,577  
                 
Comprehensive loss   $ (4,503,193 )   $ (193,050 )
                 
Earnings per ordinary share                
Basic and diluted*   $ (44,194 )   $ (5,396 )
                 
Weighted average number of ordinary shares outstanding                
Basic and diluted*     100       100  

 

* Giving retroactive effect to corporate reorganization effected on September 16, 2019.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 

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HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

 

    Ordinary shares*     Additional                 Accumulated other     Total  
    Number of shares     Amount     paid-in
capital
    Statutory reserves     Retained
earnings
    comprehensive loss     shareholders’ equity  
Balance as of December 31, 2018     100     $ 100     $ 7,249,775     $ 1,547,861     $ 5,855,424     $ (445,922 )   $ 14,207,238  
Dividends declared                             (111,616 )           (111,616 )
Net loss                             (539,627 )           (539,627 )
Foreign currency translation                                   346,577       346,577  
Balance as of March 31, 2019 (unaudited)     100     $ 100     $ 7,249,775     $ 1,547,861     $ 5,204,181     $ (99,345 )   $ 13,902,572  

 

 

    Ordinary shares*     Additional           Retained     Accumulated other comprehensive     Total  
    Number of shares     Amount     paid-in
capital
    Statutory reserves     earnings (deficit)    

income

(loss)

    shareholders’ equity  
Balance as of December 31, 2019     100     $ 100     $ 7,249,775     $ 1,687,125     $ 2,136,211     $ (609,176 )   $ 10,464,035  
Dividends declared                             (728,024 )           (728,024 )
Net loss                             (4,419,421 )           (4,419,421 )
Foreign currency translation                                   (83,772 )     (83,772 )
Balance as of March 31, 2020 (unaudited)     100     $ 100     $ 7,249,775     $ 1,687,125     $ (3,011,234 )   $ (692,948 )   $ 5,232,818  

 

* Giving retroactive effect to the corporate reorganization effected on September 16, 2019.

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

  F-4  

 


HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

    For the Three Months Ended
March 31,
 
    2020     2019  
             
Cash flows from operating activities                
Net loss   $ (4,419,421 )   $ (539,627 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:                
Depreciation and amortization     29,661       40,765  
Provision for (reversal of) bad debt expense     17,161       (9,418 )
Provision for slow-moving inventories     33,859        
Changes in operating assets and liabilities:                
Advance to suppliers     (6,573,489 )     73,330  
Inventories     48,895       (196,642 )
Due from related parties, net     79,403       (74,349 )
Prepayments and other current assets     (708,189 )     (182,670 )
Advance from customers           568,248  
Taxes payable     (329,120 )     1,118,560  
Accrued expenses     (1,722,302 )      
Other payables and other current liabilities     11,730       (227,782 )
Net cash (used in) provided by operating activities     (13,531,812 )     570,415  
                 
Cash flows from investing activities                
Purchases of property and equipment           (3,925 )
Net cash (used in) investing activities           (3,925 )
                 
Cash flows from financing activities                
Repayment of loans from related parties     (197,360 )      
Repayment of loans from third parties     (792,373 )      
Dividends paid     (732,322 )     (111,615 )
Net cash (used in) financing activities     (1,722,055 )     (111,615 )
                 
Effect of exchange rate changes on cash and cash equivalents     (216,145 )     446,313  
Net decrease in cash and cash equivalents     (15,470,012 )     901,188  
Cash and cash equivalents at beginning of period     28,919,817       18,019,617  
Cash and cash equivalents at end of period   $ 13,449,805     $ 18,920,805  
                 
Supplemental disclosures of cash flow information:                
Cash paid for income taxes   $ 62,737     $ 24,646  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 

  F-5  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

 

HanJiao International Holding Limited (“HanJiao”) is a holding company incorporated in the British Virgin Islands on July 5, 2018. HanJiao and its wholly owned subsidiaries, variable interest entity (“VIE”) and its subsidiary (collectively, the “Company”) are primarily engaged in the sale of healthcare and other related products to the middle-aged and elderly market segments in the People’s Republic of China (the “PRC”) through its internet platform and offline service centers.

 

LuJi Technology International Holding Limited (“Luji Technology”), a holding company incorporated in the British Virgin Islands on July 5, 2018, is wholly owned by HanJiao.

 

Inooka Holding Ltd. (“Inooka”), a company established in Hong Kong on July 18, 2018, is wholly owned by Luji Technology.

 

Beijing Hongtao Management Consulting Co., Ltd. (“Beijing Hongtao”), a wholly foreign-owned enterprise (“WFOE”) was established in the PRC on October 11, 2018 and it is a wholly owned subsidiary of Inooka. Beijing Hongtao currently provides consulting and technical services to Beijing Luji Technology Co., Ltd. (“Beijing Luji” or “VIE”) was incorporated in the PRC on March 27, 2007. Beijing Luji established Guoyi Investment Fund Management (Beijing) Co., Ltd. (“Beijing Guoyi”) with registered capital of RMB 50 million (approximately US$973,000) on February 19, 2016.

 

The following table shows how the Company is organized:

 

 

Reorganization and Variable Interest Entities

 

On May 15, 2019, Beijing Hongtao, Beijing Luji and their shareholders entered into a series of contractual arrangements (the “VIE Agreements”) to control and receive the economic benefits of Beijing Luji’s business. The VIE Agreements are designed to provide Beijing Hongtao with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Beijing Luji, including absolute control rights and the rights to the assets, property, revenue and income of Beijing Luji. 

 

 

 

  F-6  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

To complete the corporate reorganization, the shareholders of Luji Technology transferred their respective ownership interest in Luji Technology in exchange for their respective ownership interest in HanJiao on September 16, 2019 (the “Share Transfer”).

 

Based on the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (‘ASC’) Topic 805, the VIE Agreements executed between the Beijing Hongtao and Beijing Luji and the Share Transfer constituted a reorganization of entities under common control since all these entities were controlled by the same major shareholders before and after the reorganization. As such, the Company’s consolidated financial statements have been prepared as if the reorganization had occurred retroactively and the existing corporate structure had been in existence throughout all periods presented.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements include the accounts of the Company and include the assets, liabilities, revenues and expenses of the subsidiaries and VIEs. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. Interim results are not necessarily indicative of results to be expected for the full year. The information included in this report should be read in conjunction with the information included in the Company’s annual report for the year ended December 31, 2019.

 

Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements include the financial statements of HanJiao, its wholly-owned subsidiaries, WOFE, the VIE and its subsidiary. All inter-company transactions and balances have been eliminated upon consolidation.

 

VIE Agreements with Beijing Hongtao

 

The Company does not have a direct equity ownership interest in Beijing Luji but relies on the VIE Agreements to control and receive the economic benefits of Beijing Luji’s business. The Company relies on contractual arrangements with its variable interest entity to operate its online to office (O2O) business in the PRC in which foreign investment is restricted or prohibited. The O2O platform integrates the Company’s e-commerce platform with physical outlets (service centers) to connect consumers and merchants in a dynamic marketplace. Pursuant to the VIE Agreements, HanJiao, through Beijing Hongtao, is able to exercise effective control over, bears the risks of, enjoys substantially all of the economic benefits its VIE and its subsidiary and has an exclusive option to purchase all or part of the equity interests in the VIE when and to the extent permitted by PRC law. The Company’s management concluded that Beijing Luji and its subsidiary are variable interest entities of the Company and Beijing Hongtao is the primary beneficiary of Beijing Luji and its subsidiary. As such, the financial statements of the VIE and its subsidiary are included in the unaudited condensed consolidated financial statements of the Company.

 

During three months ended March 31, 2019, HanJiao, Luji Technology and Inooka did not have any business activities.

 

 

 

 

  F-7  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Use of Estimates

 

The preparation of the unaudited condensed consolidated financial statements in conformity with US GAAP 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 unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

 

Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include the allowance for doubtful accounts and slow-moving inventory, and the useful lives of property and equipment. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) FASB ASC Section 820, “Fair Value Measurements and Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

Level 2 applies to assets or liabilities for which there are inputs, other than quoted prices in level 1, that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the asset or liability. 

 

The carrying value of financial instruments included in current assets and liabilities approximate their fair values because of the short-term nature of these instruments.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of cash on hand, cash on deposit and other highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less when purchased. The Company maintains cash with various financial institutions mainly in the PRC. As of March 31, 2020 and December 31, 2019, the Company had cash and cash equivalents of approximately $13.4 million and $28.9 million, respectively. The Company’s cash equivalents included approximately $0 and $11.6 million (RMB 80 million) of the bank’s financial products as of March 31, 2020 and December 31, 2019, respectively.

 

 

 

 

  F-8  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Risks and Uncertainties

 

The operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environment in the PRC, as well as by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among other factors, the political, economic and legal environment and foreign currency restrictions. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations, changes in the future could affect the Company’s interest in these entities.

 

The outbreak of the novel coronavirus (COVID-19) starting from late January 2020 in the PRC has spread rapidly to many parts of the world. In March 2020, the World Health Organization declared the COVID-19 as a pandemic and has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities in China and the U.S. for the past few months. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of the Company’s business operations and its workforce are concentrated in China, the Company’s business, results of operations, and financial condition for the first half of 2020 have been adversely affected.

 

Inventories

 

Inventories consist of finished goods and they are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The Company periodically evaluates its inventories and will record an allowance for inventories that are either slow-moving, may not be saleable or whose cost exceeds its net realizable value.

 

Advance to Suppliers

 

Advances to suppliers consist of payments to suppliers for finished goods that have not been received by the Company. The Company periodically evaluates and reviews its advance to suppliers to determine whether its carrying value has been impaired.

 

Long-term Investment

 

Long-term investment consists mainly of the Company’s equity investment for strategic or business development purposes. The Company applies the equity method of accounting to account for an equity investment, according to FASB ASC 323 “Investment—Equity Method and Joint Ventures,” over which it has significant influence but does not own a majority equity interest or otherwise control. Under the equity method, the Company’s share of the profits or losses of the equity investees are recorded in its consolidated statements of comprehensive income (loss).

 

The Company reviews its investment at least annually to determine whether a decline in fair value to below the carrying value is other-than-temporary. The primary factors the Company considers in its determination are the duration and severity of the decline in fair value; the financial condition, operating performance and the prospects of the equity investee; and other company specific information such as recent financing rounds. If the decline in fair value is deemed to be other-than-temporary, the carrying value of the investment will be written down to its fair value.

 

No events have occurred that indicated an other-than-temporary decline in fair value for the three months ended March 31, 2020.

 

 

 

 

  F-9  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Property and Equipment, Net

 

Property and equipment are carried at cost and are depreciated on the straight-line basis over the estimated useful lives of the underlying assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation and amortization are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of its property and equipment, when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

 

Estimated useful lives are as follows, taking into account the assets’ estimated residual value:

 

Classification Estimated useful lives
Vehicles 10 years
Office equipment 3 years
Furniture and fixtures 3 years
Software 3 years

 

Long-lived Assets

 

Finite-lived assets and intangibles are reviewed for impairment testing when circumstances require. For purposes of evaluating the recoverability of long-lived assets, when undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. The long-lived assets of the Company that are subject to evaluation consist primarily of property, plant and equipment, land use rights, and long-term prepaid leases. For the three months ended March 31, 2020 and 2019, the Company did not recognize any impairment of its long-lived assets.

 

Revenue Recognition

 

On January 1, 2019, the Company adopted FASB ASC 606, Revenue from Contracts with Customers using the modified retrospective method for all contracts not completed as of the date of adoption. Accordingly, revenue for three months ended March 31, 2020 and 2019 was presented under ASC 606.

 

The core principle underlying the revenue recognition standard is that the Company will recognize revenue to represent the transfer of products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of the product or the benefit of the services transfers to the customer. Under the guidance of ASC 606, the Company is required to (a) identify the contract with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract and (e) recognize revenue when (or as) the Company satisfies its performance obligations.  

 

Product Sales: Beijing Luji is primarily engaged in the sale of healthcare and other products (such as nutrition or dietary supplements; water or air purifiers) to the middle aged and elderly market segments in the PRC. Beijing Luji sells these products under its own “Fozgo” brand and related healthcare products for other vendors through its internet platform and offline service centers. Revenue from product sales is recognized when control passes to the customer, which generally occurs at a point in time when products are delivered. Allowance for sales returns, that reduces revenues, are estimated based on historical experience. Revenues are recorded net of value-added taxes, business taxes, discounts and surcharges and allowance for returns.

 

 

 

 

  F-10  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

The Company collects cash from customers before or upon delivery of products mainly through banks and third-party online payment platforms (such as Alipay). Cash collected from customers before product delivery is recognized as advance from customers.

 

Cost of Revenues

 

Cost of revenues consists primarily of the cost of merchandise sold, delivery cost, service fees, sales incentives and commissions that are directly attributable to the sale of certain designated products.

 

General and Administrative Expenses

 

General and administrative expenses consist mainly of payroll and related costs for employees involved in general corporate functions, including accounting, finance, tax, legal and human resources, professional fees and other general corporate expenses as well as costs associated with the use by these functions of facilities and equipment, such as depreciation and rental expenses.

 

Selling Expenses

 

Selling expenses consist mainly of payroll and benefits for employees involved in the sales and distribution functions, meeting/event fees, advertisement, marketing and selling expenses that are related to events and activities at the Company’s service centers designed to promote product sales.

 

Finance Expenses (Income)

 

Finance expenses consist mainly of service fees related to the use of third-party online payment platforms, bank fees and interest expenses related to borrowings; net of interest income from bank and related bank products.

 

Other Income (Expenses)

 

Other income consists primarily of income from the administration of Beijing Luji’s online marketplace. Other expenses consist mainly of estimated tax penalties and charitable contributions.

 

Income Taxes

 

The Company follows FASB ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are also recognized for operating losses that are available to offset the future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

 

 

  F-11  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

The Company follows FASB ASC 740-10-25, “Accounting for Uncertainty in Income Taxes”, which requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under ASC 740-10-25, tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company believes that it does not have any uncertain tax positions. It is not expected that there will be any uncertain tax position within twelve months of March 31, 2020.

 

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or the deferred tax asset valuation allowance. Due to the lack of temporary differences between the tax bases and their financial reporting amounts, the Company has not recognized any deferred tax assets or liabilities as of March 31, 2020 and December 31, 2019.

 

Enterprise Income Tax

 

Under the Provisional Regulations of the PRC concerning income tax on enterprises promulgated by the PRC (the “EIT Law”), the Company was qualified as a high and new technology enterprise starting in 2018, and enjoys a preferential tax rate of 15% for 3 years expiring in 2020. An entity can re-apply to be a high and new technology enterprise when the prior certificate expires. Income tax is payable at a rate of 15% of our taxable income for three months ended March 31, 2020 and 2019.

 

Value-Added Tax 

 

Prior to May 1, 2018, the Company was subject to value-added tax (“VAT”) at rates of 6% and 17% on revenue generated from providing services and products, respectively. Starting from May 1, 2018, the VAT rate for revenue generated from providing products was changed from 17% to 16%. Starting from April 1, 2019, the VAT rate for revenue generated from providing products changed from 16% to 13%. VAT is reported as a reduction of revenue when incurred. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. The net VAT balance between input VAT and output VAT is recorded in taxes payable.

 

Foreign Currency Translation 

 

The functional currency of the Company’s operations in the PRC is the Chinese Yuan or Renminbi (“RMB”). The condensed consolidated financial statements are translated into U.S. dollars (“USD”) using the period end rates of exchange for assets and liabilities, equity is translated at historical exchange rates, and average rates of exchange (for the period) are used for revenues and expenses and cash flows. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into USD are included in determining comprehensive income (loss). Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

 

 

 

 

  F-12  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

All of the Company’s revenue transactions are transacted in its functional currency. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

 

The exchange rates as of March 31, 2020 and December 31, 2019 and for three months ended March 31, 2020 and 2019 are as follows:

 

    March 31,     December 31,     Three months ended
March 31,
 
    2020     2019     2020     2019  
Foreign currency   Balance Sheet     Balance Sheet     Profits/Loss     Profits/Loss  
RMB:1USD     7.0851       6.9762       6.9790       6.7464  

 

Comprehensive Income (Loss)

 

Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income (loss). Other comprehensive income (loss) consists entirely of foreign currency translation adjustments resulting from the Company’s translation of its financial statements from its functional currency into USD.

 

Earnings (loss) Per Share

 

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of ordinary shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of ordinary shares plus dilutive potential ordinary shares outstanding during the period. When the Company has a loss, the potential ordinary shares are not included since their inclusion would be anti-dilutive. For three months ended March 31, 2020 and 2019, there were no potential ordinary shares, such as options, warrants or conversion rights, that would have a dilutive effect on the Company’s earnings per share.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Amendments to the ASC 842 Leases. This update requires a lessee to recognize an asset 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. Leases with 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 expects to adopt of ASU 2016-02 when it completes its proposed transaction with a public entity, and does not expect the adoption of ASU 2016-02 to have a material impact on its unaudited condensed consolidated financial statements. 

 

 

 

 

  F-13  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

In July 2017, the FASB Issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). The amendments in Part I of the Update change the reclassification analysis of certain equity-lined financial instruments (or embedded features) with down round features. The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. The Company does not believe the adoption of this ASU would have a material effect on the Company’s unaudited condensed consolidated financial statements.

 

In August 2018, the FASB Accounting Standards Board issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted for any removed or modified disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company does not expect this guidance will have a material impact on its unaudited condensed consolidated financial statements.

 

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.

 

NOTE 3 – INVENTORIES, NET

 

    March 31,     December 31,  
    2020     2019  
      (Unaudited)          
Finished goods   $ 1,803,093     $ 1,880,155  
Less: allowance for slow-moving inventories     (308,067 )     (279,004 )
Inventories, net   $ 1,495,026     $ 1,601,151  

 

The Company reviews its inventories periodically to determine if any reserves are necessary for slow-moving inventory or if a write-down is necessary when the carrying value exceeds net realizable value. For three months ended March 31, 2020 and 2019, provision for slow-moving inventory amounted to $33,859 and $0, respectively.

 

NOTE 4 – ADVANCE TO SUPPLIERS

 

As of March 31, 2020 and December 31, 2019, advances to suppliers were $6,720,321 and $266,237, respectively. The increase was due mainly to advances to two major suppliers during the first quarter of 2020:

 

· Approximately $5,650,000 to Baoqing Meilai Modern Agricultural Service Co., Ltd for the purchase of specialty rice with selenium; and

 

· Approximately $734,000 to Shandong Kangqi Wood Industry Co., Ltd. for the purchase of specialty phonograph machines.

 

Both products are intended to be sold to the Company’s target consumers.

 

 

 

  F-14  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

NOTE 5 – PREPAYMENTS AND OTHER CURRENT ASSETS

    March 31,     December 31,  
    2020     2019  
      (Unaudited)          
Business advance to employees   $ 115,735     $ 94,034  
Prepaid service fees     87,901       91,146  
Other receivable     687,851       11,092  
Total Prepaid Expenses and Other Current Assets   $ 891,487     $ 196,272  

 

As of March 31, 2020, other receivable consists mainly of a refund due from a supplier for approximately $677,000 (RMB 4.8 million). The Company believes that the receivable is fully collectible.

 

NOTE 6 – LONG-TERM INVESTMENT

 

On March 15, 2019, Beijing Luji executed an Equity Acquisition Agreement with Rongcheng Health Group Co., Ltd. and acquired a 44% equity interest in Rongcheng Tianrun Taxus Co., Ltd. (“Rongcheng Tianrun”) for RMB 79,830,000 (approximately $11.4 million). Rongcheng Tianrun is organized and registered in the PRC, and it is engaged primarily in the cultivation and marketing of Taxus, a type of medicinal plant. The ownership transfer and related registration procedures were completed on June 20, 2019.

 

NOTE 7 – PROPERTY AND EQUIPMENT, NET

 

At March 31, 2020 and December 31, 2019, property and equipment is as follows:

 

    March 31,     December 31,  
    2020     2019  
    (Unaudited)        
Office furniture   $ 89,599     $ 90,998  
Computer equipment     81,600       82,874  
Vehicles     214,588       217,938  
Software     302,607       307,331  
      688,394       699,141  
Less: accumulated depreciation and amortization     (458,023 )     (435,501 )
Property and equipment, net   $ 230,371     $ 263,640  

 

For three months ended March 31, 2020 and 2019, depreciation and amortization expense amounted to $29,661 and $40,765, respectively.

 

 

 

  F-15  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

NOTE 8 – RELATED PARTY BALANCES AND TRANSACTIONS

 

As of March 31, 2020 and December 31, 2019, due from related parties is as follows:

 

    March 31,     December 31,  
    2020     2019  
    (Unaudited)        
Zhuang Richun   (1)     32,279       112,218  
Total   $ 32,279     $ 112,218  

 

(1) This represents a loan receivable from Mr. Zhuang Richun, marketing director of the Company. The loan agreement was executed on February 28, 2019; the loan was non-interest bearing and due on February 28, 2020. The loan was extended on February 28, 2020 with an understanding that Mr. Zhuang will repay the loan before December 31, 2020.

 

As of March 31, 2020 and December 31, 2019, due to related parties is as follows:

 

    March 31,     December 31,  
    2020     2019  
    (Unaudited)        
Niu Jianxin (3)   $     $ 566,928  
Zhuang Rihong (4)     211,712       215,017  
Tian Xiangdong (5)           137,611  
Beijing Chunduo Technology Co., Ltd. (6)           43,002  
Tian Xiangyang (2)     33,489       34,904  
Gao Xue wei (7)           15,934  
Total   $ 245,201     $ 1,013,396  

 

(2) This represents a loan from Ms. Tian Xiangyang, the Company’s founder and chairwoman, to the Company for working capital purposes. The loan is due on demand with no interest.

 

(3) This represents a non-interest bearing loan from Mr. Niu Jianxin to the Company which was paid directly to Ms. Tian Xiangyang to settle the Company’s dividends payable to Ms. Tian in 2019. Mr Niu was a former member of senior management of the Company who resigned in February 2020. On March 15, 2020, Mr. Niu executed an agreement with Mr. Zhang Hongbin, an unrelated third-party, to transfer this loan receivable of RMB 3,955,000 to Mr. Zhang. The payable to Mr. Niu is classified as an other payable as of March 31, 2020 (see Note 11). On April 9, 2020, Mr. Zhang filed a lawsuit against the Company (see Note 16).

 

(4) Ms. Zhuang Rihong is the sister of Mr. Zhuang Richun. The loan was for working capital purposes and it is due on demand with no interest.

 

 

 

 

  F-16  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

(5) Mr. Tian Xiangdong is the brother of Ms. Tian Xiangyang. The loan was for working capital purposes and it is due on demand with no interest. The loan was repaid in full in January 2020.

 

(6) Beijing Chunduo Technology Co., Ltd. (“Beijing Chunduo”) is controlled by Ms. Li Chunduo, a shareholder of the Company. The loan was for working capital purposes and is due on demand. The loan is due on demand with no interest. It was repaid in full in January 2020.

 

(7) Mr. Gao Xuewei is a shareholder of the Company. The loan was for working capital purposes and is due on demand with no interest. The loan was repaid in full in January 2020.

 

NOTE 9 – TAXES PAYABLE

 

At March 31, 2020 and December 31, 2019, taxes payable is as follows:

 

    March 31,     December 31,  
    2020     2019  
    (Unaudited)        
VAT payable   $ 16,011,948     $ 16,431,683  
Income tax payable     1,073,331       1,153,677  
Other taxes payable     1,936,043       2,062,142  
Total   $ 19,021,322     $ 19,647,502  

 

Under PRC tax rules that are in effect, Beijing Luji, the Company’ VIE, is subject to penalties for any unpaid VAT and income taxes. The Company has accrued and recorded the related estimated penalties for unpaid VAT and income taxes as of March 31, 2020 and December 31, 2019, respectively in other current liabilities (see Note 11).

 

Other taxes payable consisted mainly of tax obligations related to the city construction tax, education fund and withholding taxes related to dividends distributed to the Company’s shareholders.

 

NOTE 10 – ACCRUED EXPENSES

 

At March 31, 2020 and December 31, 2019, accrued expenses consisted of the following:

 

    March 31,     December 31,  
    2020     2019  
    (Unaudited)        
Incentive awards   $ 3,052,886     $ 4,823,543  

 

Incentive awards represents performance-based incentives to be paid to qualified service centers.

 

 

 

 

  F-17  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

NOTE 11 – OTHER PAYABLES AND OTHER CURRENT LIABILITIES

 

At March 31, 2020 and December 31, 2019, other payables and other current liabilities are as follows:

 

    March 31,     December 31,  
    2020     2019  
    (Unaudited)        
Payroll and benefits   $ 1,118,391     $ 1,389,090  
Payable to suppliers     562,608       1,846,105  
Payable to Niu Jianxin     558,214        
Commissions payable     271,504       275,748  
Other current liabilities     4,038,503       3,354,544  
Total   $ 6,549,220     $ 6,865,487  

 

Other current liabilities consist mainly of estimated penalties related to unpaid VAT and income taxes related to Beijing Luji, which is calculated at 0.05% per day from the day tax payment is due under applicable PRC laws and regulations. For three months ended March 31, 2020, the Company recorded an estimated penalty of approximately $731,000 and $0 for unpaid VAT and income taxes, respectively.

 

NOTE 12 – DIVIDENDS PAYABLE

 

In the first quarter of 2020, in accordance with a board resolution dated January 21, 2020, the Company recorded dividends payable of $728,024 (RMB 5,080,900), The dividends were paid in the first quarter of 2020.

 

In the first quarter of 2019, in accordance with a board resolution dated March 19, 2019, the Company recorded dividends payable of $111,000 (RMB 753,000). The dividends were paid in the first quarter of 2019.

 

NOTE 13– STATUTORY RESERVES

 

Pursuant to the laws in the PRC, entities must make appropriations from after-tax profit to a non-distributable “statutory surplus reserve fund.” Subject to certain cumulative limits, the statutory surplus reserve fund requires annual appropriations of 10% of after-tax profit (as determined under accounting principles generally accepted in the PRC) until the aggregated appropriations reach 50% of the registered capital.

 

As of March 31, 2020 and December 31, 2019, the balance of the statutory reserves was $1,687,125.

 

NOTE 14 – INCOME TAXES

 

The entities within the Company file separate tax returns in the respective tax jurisdictions in which they operate.

 

 

 

 

  F-18  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

British Virgin Islands

 

HanJiao is a tax-exempt entity incorporated in the British Virgin Islands.

 

Hong Kong

 

Inooka was incorporated in Hong Kong and does not conduct any substantial operations of its own. No provision for Hong Kong profits tax has been made in the unaudited condensed consolidated financial statements as Inooka Holding Ltd has no assessable profits for the three months ended March 31, 2020 and 2019.

 

PRC

The entities incorporated in the PRC are governed by the income tax law of the PRC and are subjected to the PRC enterprise income tax (“EIT”). The EIT rate of the PRC is 25%, which applies to both domestic and foreign invested enterprises. Under the Provisional Regulations of the PRC Concerning Income Tax on Enterprises promulgated by the PRC (the “EIT Law”), Beijing Luji qualified as a high and new technology enterprise starting in 2018, and enjoys a preferential tax rate of 15% for 3 years expiring in 2020. Beijing Luji can re-apply as a high and new technology enterprise when the prior certificate expires. Income tax is payable at a rate of 15% of our taxable income for the three months ended March 31, 2020 and 2019.

 

    For the three months ended
March 31
 
    2020     2019  
    (Unaudited)     (Unaudited)  
Non-PRC operations   $     $  
PRC operations     (4,419,421 )     (510,314 )
Net loss before provision for income taxes   $ (4,419,421 )   $ (510,314 )

 

Provision for income taxes comprised of the followings:

    For the three months ended
March 31
 
    2020     2019  
    (Unaudited)     (Unaudited)  
Current tax expense                
PRC   $     $ 29,313  
Deferred tax expense                
PRC            
Total provision for income taxes   $     $ 29,313  

 

 

 

 

  F-19  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

NOTE 15 – VARIABLE INTEREST ENTITY

 

On May 15, 2019, Beijing Hongtao entered into VIE Agreements with Beijing Luji and its shareholders. The accounts of Beijing Luji and its subsidiary are consolidated in the accompanying financial statements pursuant to ASC 810-10, Consolidation.

 

The carrying amounts of the VIEs’ consolidated assets and liabilities are as follows:

 

    March 31,     December 31,  
    2020     2019  
    (Unaudited)        
Current assets   $ 22,588,818     $ 31,095,595  
Property and equipment, net     230,371       263,640  
Other noncurrent assets     11,282,158       11,458,928  
Total assets     34,101,347       42,818,163  
Total liabilities     (28,868,629 )     (32,354,228 )
Net assets   $ 5,232,718     $ 10,463,935  

 

    March 31,     December 31,  
    2020     2019  
    (Unaudited)        
Current liabilities:                
Other payables and accrued liabilities   $ 9,602,106     $ 11,693,330  
Other payables – related parties     245,201       1,013,396  
Taxes payable     19,021,322       19,647,502  
Total liabilities   $ 28,868,629     $ 32,354,228  

 

The summarized operating results of the VIEs are as follows: 

 

    For the three Months Ended March 31,  
    2020     2019  
    (Unaudited)     (Unaudited)  
Operating revenues   $ 34,331     $ 6,154,767  
Loss from operations   $ (2,227,692 )   $ (54,473 )
Net loss   $ (4,419,421 )   $ (539,627 )

 

 

 

 

  F-20  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

NOTE 16 – COMMITMENTS AND CONTINGENCIES

 

Contingencies

 

From time to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Amounts accrued, as well as the total amount of possible losses with respect to such matters, individually and in the aggregate, are not deemed to be material to the unaudited condensed consolidated financial statements.

 

Variable interest entity structure

 

In the opinion of management, (i) the corporate structure of the Company is in compliance with existing PRC laws and regulations; (ii) the VIE Arrangements are valid and binding, and do not result in any violation of PRC laws or regulations currently in effect; and (iii) the business operations of the WFOE and the VIEs are in compliance with existing PRC laws and regulations in all material respects. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, the Company cannot assure that the PRC regulatory authorities will not ultimately take a contrary view to the foregoing opinion. If the current corporate structure of the Company or the VIE Arrangements is found to be in violation of any existing or future PRC laws and regulations, the Company may be required to restructure its corporate structure and operations in the PRC to comply with changing and new PRC laws and regulations. In the opinion of management, the likelihood of loss in respect of the Company’s current corporate structure or the VIE Arrangements is remote based on current facts and circumstances.

 

Lease Obligations

 

The Company leases certain office premises and apartments for employees under operating lease agreements with various terms. Future minimum lease payments under the operating lease agreements is as follows:

 

    Amount  
Twelve months ending March 31,        
2021   $ 270,857  
2022     34,364  
Total   $ 305,221  

 

Rental expense for three months ended March 31, 2020 and 2019 was $155,171 and $66,648, respectively.

 

 

 

 

  F-21  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Legal Matters

 

Beijing Luji, the Company’s VIE, is involved in the following legal matter:

 

· As of March 31, 2020, the Company has a payable to Mr. Niu Jianxin for RMB 3,955,000 (approximately $558,000). Upon Mr. Niu’s departure from Beijing Luji in February 2020, Mr. Niu had allegedly transferred his rights to Mr. Zhang Hongbin. On April 9, 2020, Mr. Zhang Hongbin filed a lawsuit with the people's Court of Fengtai District, Beijing, on the basis of that Beijing Luji did not repay the amount that is due to him. This legal matter is still pending.

 

The Company evaluates all pending legal matters periodically and establishes reserves when it is probable that they will result in a negative outcome, and that the amount of the loss could be reasonably estimated. The Company does not have any legal reserves as of March 31, 2020 and December 31, 2019, respectively.

 

NOTE 17 - CONCENTRATION OF RISK

 

Concentration of credit risk

 

The Company places its cash with a financial institution with high-credit ratings and quality. Cash and cash equivalents for three months ended March 31, 2020 was approximately $13,450,000. A depositor has up to RMB 500,000 insured by the People’s Bank of China Financial Stability Bureau (“FSD”) if the bank with which an individual/a company hold its eligible deposit fails. As of March 31, 2020 approximately $12,391,000 was deposited with a third party platform fund account located in the PRC. This balance is not covered by insurance. While management believes that these financial institutions and third party fund holder are of high credit quality, it also continually monitors their credit worthiness.

 

Foreign currency risk

 

The RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into foreign currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market.

 

Concentration of supplier risk

 

The Company’s utilizes various suppliers. There were two suppliers that accounted for more than 10% of total purchases, for the three months ended March 31, 2020 and 2019. Two suppliers of 84% and 11%, accounted for 95%, and two suppliers of 68%, 11% accounted for 79% for the three months ended March 31, 2020 and 2019, respectively. There was no accounts payable balances owed to these suppliers as of March 31, 2020 and December 31, 2019.

 

Major customers

 

There was no customer whose revenue accounts for more than 10% of total revenue for three months ended March 31, 2020 and 2019.

 

NOTE 18 – SUBSEQUENT EVENTS  

 

The Company is negotiating a reverse merger with AS Capital Inc., a public company listed on the OTC.

 

 

 

 

  F-22  

 

 

HanJiao International Holding Limited

 

Consolidated Financial Statements

For the Year Ended December 31, 2019 and 2018

 

TABLE OF CONTENTS

 

 

  Page
   
Report of Independent Registered Public Accounting Firm F-24
   
Consolidated Balance Sheets as of December 31, 2019 and 2018 F-25
   
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019 and 2018 F-26
   
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2019 and 2018 F-27
   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018 F-28
   
Notes to the Consolidated Financial Statements F-29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  F-23  

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of

HanJiao International Holding Limited

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of HanJiao International Holding Limited and Subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Change in Accounting Principle

 

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenues on January 1, 2019 due to the adoption of Accounting Standards Codification Topic 606, using the modified retrospective method.

 

Basis for Opinion

 

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

 

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

 

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

 

 

/s/ Wei, Wei & Co., LLP

 

Flushing, New York

August 5, 2020

We have served as the Company’s auditor since 2018.

 

 

 

 

  F-24  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

    As of December 31,  
    2019     2018  
Assets                
Current assets                
Cash and cash equivalents   $ 28,919,817     $ 18,019,617  
Advance to suppliers     266,237       608,708  
Inventories, net     1,601,151       1,107,492  
Prepayments and other current assets     196,272       1,756,321  
Due from related parties, net     112,218       11,609,200  
Total current assets     31,095,695       33,101,338  
Long-term investment, net     11,412,441        
Property and equipment, net     263,640       419,785  
Deposits     46,487       30,707  
Total assets   $ 42,818,263     $ 33,551,830  
                 
Liabilities and shareholders’ equity                
Current liabilities                
Advance from customers   $     $ 3,534,967  
Taxes payable     19,647,502       10,874,177  
Dividends payable     4,300        
Due to related parties     1,013,396        
Accrued expenses     4,823,543       1,883,241  
Other payables and other current liabilities     6,865,487       3,052,207  
Total current liabilities     32,354,228       19,344,592  
Total liabilities     32,354,228       19,344,592  
                 
Commitments and contingencies            
                 
Shareholders’ equity                
Ordinary shares: par value $1 per share, 50,000 shares authorized; 100 shares issued and outstanding at December 31, 2019 and 2018 *     100       100  
Additional paid-in capital *     7,249,775       7,249,775  
Statutory reserves     1,687,125       1,547,861  
Retained earnings     2,136,211       5,855,424  
Accumulated other comprehensive loss     (609,176 )     (445,922 )
Total shareholders’ equity     10,464,035       14,207,238  
                 
Total liabilities and shareholders’ equity   $ 42,818,263     $ 33,551,830  

 

* Giving retroactive effect to the corporate reorganization effected on September 16, 2019.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

  F-25  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

    For the Years Ended
December 31,
 
    2019     2018  
             
Revenues   $ 58,233,055     $ 53,444,905  
Cost of revenues     (41,763,786 )     (38,762,238 )
Gross profit     16,469,269       14,682,667  
                 
Operating expenses:                
General and administrative expenses     8,110,916       3,928,505  
Selling expenses     3,595,934       1,689,186  
Finance expenses (income), net     83,409       (28,588 )
Total operating expenses     11,790,259       5,589,103  
                 
Operating income     4,679,010       9,093,564  
                 
Other income (expenses)                
Other expenses, net     (2,378,313 )     (1,881,534 )
Loss from equity investment     (31,098 )      
Total other expenses, net     (2,409,411 )     (1,881,534 )
                 
Income before provision for income taxes     2,269,599       7,212,030  
Provision for income taxes     931,201       1,349,274  
                 
Net income   $ 1,338,398     $ 5,862,756  
                 
Other comprehensive income (loss)                
Foreign currency translation adjustment     (163,254 )     (720,631 )
                 
Comprehensive income   $ 1,175,144     $ 5,142,125  
                 
Earnings per ordinary share                
Basic and diluted*   $ 13,384     $ 58,628  
                 
Weighted average number of ordinary shares outstanding                
Basic and diluted*     100       100  

 

* Giving retroactive effect to corporate reorganization effected on September 16, 2019.

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

  F-26  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

 

    Ordinary shares*     Additional                 Accumulated other comprehensive     Total  
    Number of shares     Amount     paid-in
capital
    Statutory reserves     Retained
earnings
   

income

(loss)

    shareholders’ equity  
Balance as of December 31, 2017     100     $ 100     $ 7,249,775     $ 938,665     $ 1,356,627     $ 274,709     $ 9,819,876  
Dividends declared                             (754,763 )           (754,763 )
Net income                             5,862,756             5,862,756  
Foreign currency translation                                   (720,631 )     (720,631 )
Appropriation to statutory reserves                       609,196       (609,196 )            
Balance as of December 31, 2018     100       100       7,249,775       1,547,861       5,855,424       (445,922 )     14,207,238  
Dividends declared                             (4,918,347 )             (4,918,347 )
Net income                             1,338,398             1,338,398  
Foreign currency translation                                   (163,254 )     (163,254 )
Appropriation to statutory reserves                       139,264       (139,264 )            
Balance as of December 31, 2019     100     $ 100     $ 7,249,775     $ 1,687,125     $ 2,136,211     $ (609,176 )   $ 10,464,035  

 

* Giving retroactive effect to the corporate reorganization effected on September 16, 2019.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

  F-27  

 


HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

    For the Years Ended
December 31,
 
    2019     2018  
             
Cash flows from operating activities                
Net income   $ 1,338,398     $ 5,862,756  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     161,007       131,139  
Equity investment loss     31,098        
(Reversal of) provision for bad debt expense     (7,383       2,457  
Provision for slow-moving inventories     282,148        
Changes in operating assets and liabilities:                
Advance to suppliers     337,529       (533,961 )
Inventories     (797,386       (1,063,840 )
Due from related parties, net     10,236,862       (7,656,973 )
Prepayments and other current assets     1,543,217       (1,491,538 )
Advance from customers     (3,523,686       3,074,945  
Taxes payable     9,029,446       9,925,350  
Accrued expenses     3,000,671       1,957,435  
Other payables and other current liabilities     3,098,763       2,557,494  
Net cash provided by operating activities     24,730,684       12,765,264  
                 
Cash flows from investing activities                
Purchases of property and equipment     (9,172       (188,250 )
Purchase of equity investment     (11,572,154        
Net cash (used in) investing activities     (11,581,326       (188,250 )
                 
Cash flows from financing activities                
Loans from related parties     442,803        
Loans from third parties     801,629        
Dividends paid     (3,110,174       (754,761 )
Net cash (used in) financing activities     (1,865,742       (754,761 )
                 
Effect of exchange rate changes on cash and cash equivalents     (383,416       (824,990 )
Net increase in cash and cash equivalents     10,900,200       10,997,263  
Cash and cash equivalents at beginning of year     18,019,617       7,022,354  
Cash and cash equivalents at end of year   $ 28,919,817     $ 18,019,617  
                 
Supplemental disclosures of cash flow information:                
Cash paid for income taxes   $ 31,071     $ 938,779  
Supplemental non-cash financing information:                
Offset receivable from related party against dividends due to such party   $ 1,221,810     $  
Loan from a related party to pay dividends   $ 582,014     $  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

  F-28  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

 

HanJiao International Holding Limited (“HanJiao”) is a holding company incorporated in the British Virgin Islands on July 5, 2018. HanJiao and its wholly owned subsidiaries, variable interest entity (“VIE”) and its subsidiary (collectively, the “Company”) are primarily engaged in the sale of healthcare and other related products to the middle-aged and elderly market segments in the People’s Republic of China (the “PRC”) through its internet platform and offline service centers.

 

LuJi Technology International Holding Limited (“Luji Technology”), a holding company incorporated in the British Virgin Islands on July 5, 2018, is wholly owned by HanJiao.

 

Inooka Holding Ltd. (“Inooka”) a company established in Hong Kong on July 18, 2018, is wholly owned by Luji Technology.

 

Beijing Hongtao Management Consulting Co., Ltd. (“Beijing Hongtao”), a wholly foreign-owned enterprise (“WFOE”) was established in the PRC on October 11, 2018 and it is a wholly owned subsidiary of Inooka. Beijing Hongtao currently provides consulting and technical services to Beijing Luji Technology Co., Ltd. (“Beijing Luji” or “VIE”) was incorporated in the PRC on March 27, 2007. Beijing Luji established Guoyi Investment Fund Management (Beijing) Co., Ltd. (“Beijing Guoyi”) with registered capital of RMB 50 million (approximately US$973,000) on February 19, 2016.

 

The following table shows how the Company is organized:

 

 

 

 

  F-29  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Reorganization and Variable Interest Entities

 

On May 15, 2019, Beijing Hongtao, Beijing Luji and their shareholders entered into a series of contractual arrangements (the “VIE Agreements”) to control and receive the economic benefits of Beijing Luji’s business. The VIE Agreements are designed to provide Beijing Hongtao with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Beijing Luji, including absolute control rights and the rights to the assets, property, revenue and income of Beijing Luji. 

 

To complete the corporate reorganization, the shareholders of Luji Technology transferred their respective ownership interest in Luji Technology in exchange for their respective ownership interest in HanJiao on September 16, 2019 (the “Share Transfer”).

 

Based on the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (‘ASC’) Topic 805, the VIE Agreements executed between the Beijing Hongtao and Beijing Luji and the Share Transfer constituted a reorganization of entities under common control since all these entities were controlled by the same major shareholders before and after the reorganization. As such, the Company’s consolidated financial statements have been prepared as if the reorganization had occurred retroactively and the existing corporate structure had been in existence throughout all periods presented.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain prior year balances have been reclassified to conform to the current year’s presentation.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the financial statements of HanJiao, its wholly-owned subsidiaries, WOFE, the VIE and its subsidiary. All inter-company transactions and balances have been eliminated upon consolidation.

 

VIE Agreements with Beijing Hongtao

 

The Company does not have a direct equity ownership interest in Beijing Luji but relies on the VIE Agreements to control and receive the economic benefits of Beijing Luji’s business. The Company relies on contractual arrangements with its variable interest entity to operate its online to office (O2O) business in the PRC in which foreign investment is restricted or prohibited. The O2O platform integrates the Company’s e-commerce platform with physical outlets (service centers) to connect consumers and merchants in a dynamic marketplace. Pursuant to the VIE Agreements, HanJiao, through Beijing Hongtao, is able to exercise effective control over, bears the risks of, enjoys substantially all of the economic benefits its VIE and its subsidiary and has an exclusive option to purchase all or part of the equity interests in the VIE when and to the extent permitted by PRC law. The Company’s management concluded that Beijing Luji and its subsidiary are variable interest entities of the Company and Beijing Hongtao is the primary beneficiary of Beijing Luji and its subsidiary. As such, the financial statements of the VIE and its subsidiary are included in the consolidated financial statements of the Company. Each of the VIE Agreements is described in detail below:

 

 

 

  F-30  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Exclusive Consulting and Services Agreement

 

Pursuant to the Exclusive Consulting and Services Agreement signed on May 15, 2019, between Beijing Hongtao and Beijing Luji, Beijing Hongtao agrees to provide various services exclusively to Beijing Luji including development and research services for business-related software, pre-job and on-the-job training services, technology development and transfer services, public relations services, market research and consulting services, short and medium-term market development and planning services, various technical support services, consulting services related to business compliance, organization and planning services related to marketing and membership activities. For services rendered to Beijing Luji by Beijing Hongtao under this agreement, Beijing Hongtao is entitled to collect 100% of the net income of Beijing Luji.

 

The Exclusive Consulting and Services Agreement shall remain in effect for ten years from the date of signing unless it is terminated by Beijing Hongtao in advance or upon the mutual agreement of both parties. Beijing Luji may terminate the agreement subject to payment of all service fees for completed services and compensation to Beijing Hongtao for losses. Prior to the termination of this agreement, the parties may extend the term of this agreement in accordance with the requirements of Beijing Hongtao.

 

Business Operations Agreement

 

Pursuant to the Business Operations Agreement signed on May 15, 2019, by and among the Beijing Luji shareholders, Beijing Luji and Beijing Hongtao. Beijing Luji agreed not to conduct any transactions that may materially affect its assets, business, personnel, obligations, rights or company operations, without the prior written consent of Beijing Hongtao. Beijing Hongtao agrees to provide advice to Beijing Luji from time to time regarding the appointment and dismissal of employees, daily management and financial management systems. Beijing Luji and Beijing Luji shareholders also agree to appoint designees of Beijing Hongtao to serve as board of directors and on the senior management team of Beijing Luji. In connection with this agreement, the Beijing Luji shareholders executed a power of attorney of the Business Operations Agreement in which the Beijing Luji shareholders shall irrevocably authorize the designated personnel of Beijing Hongtao to exercise their shareholders’ rights on their behalf, including voting rights at the shareholders' meeting in the name of the shareholders. The Beijing Luji shareholders further agree that they will replace the person authorized in the above power of attorney at any time upon Beijing Hongtao's request. The Business Operations Agreement shall remain in effect for ten years from the date of signing unless earlier terminated by Beijing Hongtao by delivering 30 days prior written notice or upon the mutual agreement of all parties. Beijing Luji and the Beijing Luji shareholders do not have the right to terminate the agreement unilaterally. Upon the termination of any agreement between Beijing Hongtao and Beijing Luji, Beijing Hongtao shall be entitled to terminate all agreements between such parties.

 

Equity Disposal Agreement

 

Pursuant to the Equity Disposal Agreement signed on May 15, 2019, by and among the Beijing Luji shareholders, Beijing Luji and Beijing Hongtao, the Beijing Luji shareholders granted to Beijing Hongtao an exclusive option right to purchase all of their equity interests in Beijing Luji to secure the execution of the Equity Pledge Agreement in which the details are set out below. Under the terms of this agreement, Beijing Hongtao has an exclusive right to purchase, to the extent permitted under the PRC law, at any time, all or any part of the equity interests of the Beijing Luji shareholders in Beijing Luji or an option to transfer the equity interests in Beijing Luji to any third party designated by Beijing Hongtao. The option price shall be the minimum permitted by the laws and regulations of the PRC. The Equity Disposal Agreement has a term of ten years from the date of signing, and it may be renewed at Beijing Hongtao’s discretion.

 

 

 

 

  F-31  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Equity Pledge Agreement

 

Pursuant to the Equity Pledge Agreement signed on May 15, 2019, by and among the Beijing Luji shareholders and Beijing Hongtao, the Beijing Luji shareholders pledged all of their equity interests in Beijing Luji to Beijing Hongtao to guarantee the performance of Beijing Luji’s obligations under the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operations Agreement.  Under the terms of the agreement, in the event that Beijing Luji or its shareholders breach their respective contractual obligations under the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operations Agreement, or upon occurrence of any event of default as set forth in the Equity Pledge Agreement, Beijing Hongtao shall be entitled to exercise its rights under this agreement, subject to certain cure periods. The Beijing Luji shareholders further agree not to dispose of the pledged equity interests or take any actions that would prejudice Beijing Hongtao’s interest.

 

The Equity Pledge Agreement shall be effective until Beijing Luji and the Beijing Luji shareholders have performed all of their obligations under the Exclusive Consulting and Services Agreement, the Equity Disposal Agreement and the Business Operations Agreement and the written approval of Beijing Hongtao has been obtained.

 

Agency Agreement

 

Pursuant to the Agency Agreement signed on May 15, 2019, among the Beijing Luji shareholders and Beijing Hongtao, the Beijing Luji shareholders granted Beijing Hongtao an irrevocable license for the longest period permitted under law the right to exercise the voting rights of the Beijing Luji shareholders in accordance with the laws of the PRC and the Articles of Association of Beijing Luji. During the term of this Agreement, none of the Beijing Luji shareholders shall be entitled to transfer their interest in Beijing Luji to any third party other than entities or individuals designated by Beijing Hongtao. This Agency Agreement shall be irrevocable and continuously valid from the date of execution of this Agency Agreement, and it can be terminated at Beijing Hongtao’s discretion.

During the year ended December 31, 2019, HanJiao, Luji Technology and Inooka did not have any business activities. 

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

 

Significant accounting estimates reflected in the Company’s consolidated financial statements include the allowance for doubtful accounts and slow-moving inventory, and the useful lives of property and equipment. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) FASB ASC Section 820, “Fair Value Measurements and Disclosures.” ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

 

 

 

  F-32  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Level 2 applies to assets or liabilities for which there are inputs, other than quoted prices in level 1, that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the asset or liability. 

 

The carrying value of financial instruments included in current assets and liabilities approximate their fair values because of the short-term nature of these instruments.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of cash on hand, cash on deposit and other highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less when purchased. The Company maintains cash with various financial institutions mainly in the PRC. As of December 31, 2019 and 2018, the Company had cash and cash equivalents of approximately $28.9 million and $18.0 million, respectively. The Company’s cash equivalents included approximately $11.6 million (RMB 80 million) and $9.0 million (RMB 63 million) of the bank’s financial products; and approximately $0 and $2.9 million (RMB 20 million) of PRC treasury notes as of December 31, 2019 and 2018, respectively.

 

Risks and Uncertainties

 

The operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environment in the PRC, as well as by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among other factors, the political, economic and legal environment and foreign currency restrictions. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations, changes in the future could affect the Company’s interest in these entities.

 

Inventories

 

Inventories consist of finished goods and they are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The Company periodically evaluates its inventories and will record an allowance for inventories that are either slow-moving, may not be saleable or whose cost exceeds its net realizable value.

 

 

 

 

  F-33  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Advance to Suppliers

 

Advances to suppliers consist of payments to suppliers for finished goods that have not been received by the Company. The Company periodically evaluates and reviews its advance to suppliers to determine whether its carrying value has been impaired.

 

Long-term Investment

 

Long-term investment consists mainly of the Company’s equity investment for strategic or business development purposes. The Company applies the equity method of accounting to account for an equity investment, according to FASB ASC 323 “Investment—Equity Method and Joint Ventures,” over which it has significant influence but does not own a majority equity interest or otherwise control. Under the equity method, the Company’s share of the profits or losses of the equity investees are recorded in its consolidated statements of comprehensive income.

 

The Company reviews its investment at least annually to determine whether a decline in fair value to below the carrying value is other-than-temporary. The primary factors the Company considers in its determination are the duration and severity of the decline in fair value; the financial condition, operating performance and the prospects of the equity investee; and other company specific information such as recent financing rounds. If the decline in fair value is deemed to be other-than-temporary, the carrying value of the investment will be written down to its fair value.

 

No events have occurred that indicated an other-than-temporary decline in fair value for the year ended December 31, 2019.

 

Property and Equipment, Net

 

Property and equipment are carried at cost and are depreciated on the straight-line basis over the estimated useful lives of the underlying assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation and amortization are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of its property and equipment, when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

 

Estimated useful lives are as follows, taking into account the assets’ estimated residual value:

 

Classification Estimated useful lives
Vehicles 10 years
Office equipment 3 years
Furniture and fixtures 3 years
Software 3 years

 

Long-lived Assets

 

Finite-lived assets and intangibles are reviewed for impairment testing when circumstances require. For purposes of evaluating the recoverability of long-lived assets, when undiscounted future cash flows will not be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. The long-lived assets of the Company that are subject to evaluation consist primarily of property, plant and equipment, land use rights, and long-term prepaid leases. For the years ended December 31, 2019 and 2018, the Company did not recognize any impairment of its long-lived assets.

 

 

 

 

  F-34  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Revenue Recognition

 

On January 1, 2019, the Company adopted FASB ASC 606, Revenue from Contracts with Customers using the modified retrospective method for all contracts not completed as of the date of adoption. Accordingly, revenue for the year ended December 31, 2019 was presented under ASC 606, while comparative information has not been restated and continues to be reported under the accounting standards in effect for the prior period.  

 

The core principle underlying the revenue recognition standard is that the Company will recognize revenue to represent the transfer of products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of the product or the benefit of the services transfers to the customer. Under the guidance of ASC 606, the Company is required to (a) identify the contract with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract and (e) recognize revenue when (or as) the Company satisfies its performance obligations.  

 

The adoption of ASC 606 did not significantly change (i) the timing and pattern of revenue recognition for the Company’s revenues, and (ii) the presentation of revenues as gross versus net. Therefore, the adoption of ASC 606 did not have a significant impact on the Company’s financial position, results of operations, equity or cash flows as of the adoption date and for the year ended December 31, 2019. Persuasive evidence of an arrangement is demonstrated via sales orders; and the consideration is fixed upon the initiation of the purchase order by the customer.

 

Product Sales: Beijing Luji is primarily engaged in the sale of healthcare products (such as nutrition or dietary supplements; water or air purifiers) to the middle aged and elderly market segments in the PRC. Beijing Luji sells these products under its own “Fozgo” brand and related healthcare products for other vendors through its internet platform and offline service centers. Revenue from product sales is recognized when control passes to the customer, which generally occurs at a point in time when products are delivered. Allowance for sales returns, that reduces revenues, are estimated based on historical experience. Revenues are recorded net of value-added taxes, business taxes, discounts and surcharges and allowance for returns.

 

The Company collects cash from customers before or upon delivery of products mainly through banks and third-party online payment platforms (such as Alipay). Cash collected from customers before product delivery is recognized as advance from customers.

 

Cost of Revenues

 

Cost of revenues consists primarily of the cost of merchandise sold, delivery cost, service fees, sales incentives and commissions that are directly attributable to the sale of certain designated products.

 

General and Administrative Expenses

 

General and administrative expenses consist mainly of payroll and related costs for employees involved in general corporate functions, including accounting, finance, tax, legal and human resources, professional fees and other general corporate expenses as well as costs associated with the use by these functions of facilities and equipment, such as depreciation and rental expenses.

 

 

 

 

  F-35  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Selling Expenses

 

Selling expenses consist mainly of payroll and benefits for employees involved in the sales and distribution functions, meeting/event fees, advertisement, and marketing and selling expenses that are related to events and activities at the Company’s service centers designed to promote product sales.

 

Finance Expenses (Income)

 

Finance expenses consist mainly of service fees related to the use of third-party online payment platforms, bank fees and interest expenses related to borrowings; net of interest income from bank and related bank products.

 

Other Income (Expenses)

 

Other income consists primarily of income from the administration of Beijing Luji’s online marketplace. Other expenses consist mainly of estimated tax penalties and charitable contributions.

 

Income Taxes

 

The Company follows FASB ASC Topic 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are also recognized for operating losses that are available to offset the future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

The Company follows FASB ASC 740-10-25, “Accounting for Uncertainty in Income Taxes”, which requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under ASC 740-10-25, tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company believes that it does not have any uncertain tax positions. It is not expected that there will be any uncertain tax position within 12 months of December 31, 2019.

 

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or the deferred tax asset valuation allowance. Due to the lack of temporary differences between the tax bases and their financial reporting amounts, the Company has not recognized any deferred tax assets or liabilities as of December 31, 2019 and 2018.

 

 

 

 

  F-36  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Enterprise Income Tax

 

Under the Provisional Regulations of the PRC concerning income tax on enterprises promulgated by the PRC (the “EIT Law”), the Company was qualified as a high and new technology enterprise starting in 2018, and enjoys a preferential tax rate of 15% for 3 years expiring in 2020. An entity can re-apply to be a high and new technology enterprise when the prior certificate expires. Income tax is payable at a rate of 15% of our taxable income for the year ended December 31, 2019 and 2018.

 

Value-Added Tax

 

Prior to May 1, 2018, the Company was subject to value-added tax (“VAT”) at rates of 6% and 17% on revenue generated from providing services and products, respectively. Starting from May 1, 2018, the VAT rate for revenue generated from providing products was changed from 17% to 16%. Starting from April 1, 2019, the VAT rate for revenue generated from providing products changed from 16% to 13%. VAT is reported as a reduction of revenue when incurred. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. The net VAT balance between input VAT and output VAT is recorded in taxes payable.

 

Foreign Currency Translation

 

The functional currency of the Company’s operations in the PRC is the Chinese Yuan or Renminbi (“RMB”). The consolidated financial statements are translated into U.S. dollars (“USD”) using the period end rates of exchange for assets and liabilities, equity is translated at historical exchange rates, and average rates of exchange (for the period) are used for revenues and expenses and cash flows. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into USD are included in determining comprehensive income (loss). Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

 

All of the Company’s revenue transactions are transacted in its functional currency. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

 

The exchange rates as of December 31, 2019 and 2018 and for the year ended December 31, 2019 and 2018 are as follows:

 

    December 31,     For the years ended
December 31,
 
    2019     2018     2019     2018  
Foreign currency   Balance Sheet     Balance Sheet     Profit/Loss     Profit/Loss  
RMB to 1 USD     6.9762       6.8764       6.8985       6.6158  

 

 

 

 

  F-37  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Comprehensive Income (Loss)

 

Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income (loss). Other comprehensive income (loss) consists entirely of foreign currency translation adjustments resulting from the Company’s translation of its financial statements from its functional currency into USD.

 

Earnings (loss) Per Share

 

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of ordinary shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of ordinary shares plus dilutive potential ordinary shares outstanding during the period. When the Company has a loss, the potential ordinary shares are not included since their inclusion would be anti-dilutive. For the years ended December 31, 2019 and 2018, there were no potential ordinary shares, such as options, warrants or conversion rights, that would have a dilutive effect on the Company’s earnings per share.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Amendments to the ASC 842 Leases. This update requires a lessee to recognize an asset 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. Leases with 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 expects to adopt of ASU 2016-02 when it completes its proposed transcation with a public company, and does not expect the adoption of ASU 2016-02 to have a material impact on its financial statements. 

 

In June 2016 the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which eliminates the probable initial recognition threshold for credit losses in current U.S. GAAP, and instead requires an organization to record a current estimate of all expected credit losses over the contractual term for financial assets carried at amortized cost. This is commonly referred to as the current expected credit losses (“CECL”) methodology. Expected credit losses for financial assets held at the reporting date will be measured based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 does not change the existing write-off principle in U.S. GAAP or current nonaccrual practices, nor does it change accounting requirements for loans held for sale or certain other financial assets which are measured at the lower of amortized cost or fair value. ASU 2016-13 becomes effective for public companies on January 1, 2020, although early application is permitted for 2019. The Company expects to adopt of ASU 2016-13 in 2020 and does not expect the adoption of ASU 2016-13 to have a material impact on its financial statements. 

 

 

 

 

  F-38  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

In July 2017, the FASB Issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815). The amendments in Part I of the Update change the reclassification analysis of certain equity-lined financial instruments (or embedded features) with down round features. The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. The Company does not believe the adoption of this ASU would have a material effect on the Company’s consolidated financial statements.

 

In August 2018, the FASB Accounting Standards Board issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted for any removed or modified disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company does not expect this guidance will have a material impact on its consolidated financial statements.

 

The Company believes that other recent accounting pronouncement will not have a material effect on the Company’s consolidated financial position, results of operations and cash flows

 

NOTE 3 – INVENTORIES, NET

 

    As of December 31,  
    2019     2018  
Finished goods   $ 1,880,155     $ 1,107,492  
Less: allowance for slow-moving inventories     (279,004 )      
Inventories, net   $ 1,601,151     $ 1,107,492  

 

The Company reviews its inventories periodically to determine if any reserves are necessary for slow-moving inventory or if a write-down is necessary when the carrying value exceeds net realizable value. For the years ended December 31, 2019 and 2018, provision for slow-moving inventory amounted to $279,004 and $0, respectively.

 

NOTE 4 – PREPAYMENTS AND OTHER CURRENT ASSETS

 

    As of December 31,  
    2019     2018  
Business advance to employees   $ 94,034     $ 47,350  
Prepaid service fees     91,146       54,012  
Prepaid commissions           1,531,707  
Prepaid rent           61,487  
Others     11,092       61,765  
Total Prepaid Expenses and Other Current Assets   $ 196,272     $ 1,756,321  

 

During 2018, commissions were determined and paid based on receipt of cash payments from customer orders. This payment practice was revised in early 2019 as commission was determined and paid based on revenue earned.

 

 

 

  F-39  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

NOTE 5 – LONG-TERM INVESTMENT

 

On March 15, 2019, Beijing Luji executed an Equity Acquisition Agreement with Rongcheng Health Group Co., Ltd. and acquired a 44% equity interest in Rongcheng Tianrun Taxus Co., Ltd. (“Rongcheng Tianrun”) for RMB 79,830,000 (approximately $11.4 million). Rongcheng Tianrun is organized and registered in the PRC, and it is engaged primarily in the cultivation and marketing of Taxus, a type of medicinal plant. The ownership transfer and related registration procedures were completed on June 20, 2019.

 

During the year ended December 31, 2019, the Company’s recorded a loss from equity investment of $31,098, representing its share of the equity loss in Rongcheng Tianrun’s net loss.

 

NOTE 6 – PROPERTY AND EQUIPMENT, NET 

 

At December 31, 2019 and 2018, property and equipment is as follows:

 

    As of December 31,  
    2019     2018  
Office furniture   $ 90,998     $ 92,318  
Computer equipment     82,874       74,875  
Vehicles     217,938       221,100  
Software     307,331       311,789  
      699,141       700,082  
Less: accumulated depreciation and amortization     (435,501 )     (280,297 )
Property and equipment, net   $ 263,640     $ 419,785  

 

For the year ended December 31, 2019 and 2018, depreciation and amortization expense amounted to $161,007 and $131,139, respectively.

 

NOTE 7 – RELATED PARTY BALANCES AND TRANSACTIONS

 

As of December 31, 2019 and 2018, due from related parties is as follows:

 

    As of December 31,  
    2019     2018  
Tian Xiangyang  (1)   $     $ 11,609,200  
Zhuang Richun   (2)     112,218        
Total   $ 112,218     $ 11,609,200  

 

(1) This represents a specific business advance to Ms. Tian Xiangyang, the Company’s founder and chairwoman of the board, designated for strategic investment purposes. The advance amounted to approximately $11.6 million and it was intended to facilitate Ms. Tian’s negotiation with Rongcheng Tianrun for a strategic investment in Rongcheng Tianrun (see Note 5). The investment in Rongcheng Tianrun was ultimately made by the Company and Ms. Tian repaid approximately $10.4 million to the Company in May 2019. The remaining balance of approximately $1.2 million was offset against a dividend payable due to her (see Note 11) in 2019.

 

(2) This represents a loan receivable from Mr. Zhuang Richun, marketing director of the Company. The loan agreement was executed on February 28, 2019; the loan was non-interest bearing and due on February 28, 2020. The loan was extended on February 28, 2020 with an understanding that Mr. Zhuang will repay the loan before December 31, 2020.

 

 

 

  F-40  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

As of December 31, 2019 and 2018, due to related parties is as follows:

 

    As of December 31,  
    2019     2018  
Niu Jianxin (4)   $ 566,928     $  
Zhuang Rihong (5)     215,017        
Tian Xiangdong (6)     137,611        
Beijing Chunduo Technology Co., Ltd. (7)     43,002        
Tian Xiangyang (3)     34,904        
Gao Xue wei (8)     15,934        
Total   $ 1,013,396     $  

 

(3) This represents a loan from Ms. Tian Xiangyang, the Company’s founder and chairwoman, to the Company for working capital purposes. The loan is due on demand with no interest. The loan was fully repaid in January 2020.

 

(4) This represents a non-interest bearing loan from Mr. Niu Jianxin to the Company which was paid directly to Ms. Tian Xiangyang to settle the Company’s dividends payable to Ms. Tian in 2019. Mr Niu was a former member of senior management of the Company who resigned in February 2020. On March 15, 2020, Mr. Niu executed an agreement with Mr. Zhang Hongbin, an unrelated third-party, to transfer this loan receivable of RMB 3,955,000 to Mr. Zhang. On April 9, 2020, Mr. Zhang filed a lawsuit against the Company (see Note 15).

 

(5) Ms. Zhuang Rihong is the sister of Mr. Zhuang Richun. The loan was for working capital purposes and it is due on demand with no interest.

 

(6) Mr. Tian Xiangdong is the brother of Ms. Tian Xiangyang. The loan was for working capital purposes and it is due on demand with no interest. The loan was repaid in full in January 2020.

 

(7) Beijing Chunduo Technology Co., Ltd. (“Beijing Chunduo”) is controlled by Ms. Li Chunduo, a shareholder of the Company. The loan was for working capital purposes and is due on demand with no interest. It was repaid in full in January 2020.

 

(8) Mr. Gao Xuewei is a shareholder of the Company. The loan was for working capital purposes and is due on demand with no interest. The loan was repaid in full in January 2020.

 

NOTE 8 – TAXES PAYABLE

 

At December 31, 2019 and 2018, taxes payable is as follows:

 

    As of December 31,  
    2019     2018  
VAT payable   $ 16,431,683     $ 9,443,967  
Income tax payable     1,153,677       336,682  
Other taxes payable     2,062,142       1,093,528  
Total   $ 19,647,502     $ 10,874,177  

 

 

 

 

  F-41  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Under PRC tax rules that are in effect, Beijing Luji, the Company’ VIE, is subject to penalties for any unpaid VAT and income taxes. The Company has accrued and recorded the related estimated penalties for unpaid VAT and income taxes as of December 31, 2019 and 2018, respectively in other current liabilities (see Note 10).

 

Other taxes payable consisted mainly of tax obligations related to the city construction tax, education fund and withholding taxes related to dividends distributed to the Company’s shareholders.

 

NOTE 9 – ACCRUED EXPENSES

 

At December 31, 2019 and 2018, accrued expenses consisted of the following:

 

    As of December 31,  
    2019     2018  
Incentive awards   $ 4,823,543     $ 1,883,241  

 

Incentive awards represents performance-based incentives to be paid to qualified service centers. The incentive awards for the years ended December 31, 2019 and 2018 were RMB 33.65 million (approximately $4.82 million) and RMB 12,950,000 (approximately $1.88 million), respectively.

 

NOTE 10 – OTHER PAYABLES AND OTHER CURRENT LIABILITIES

 

At December 31, 2019 and 2018, other payables and other current liabilities are as follows:

 

    As of December 31,  
    2019     2018  
Payroll and benefits   $ 1,389,090     $ 142,720  
Payable to suppliers     1,846,105       1,502,247  
Commissions payable     275,748       426,241  
Other current liabilities     3,354,544       980,999  
Total   $ 6,865,487     $ 3,052,207  

 

Other current liabilities consist mainly of estimated penalties related to unpaid VAT and income taxes related to Beijing Luji, which is calculated at 0.05% per day from the day tax payment is due under applicable PRC laws and regulations. For the year ended December 31, 2019, the Company recorded an estimated penalty of approximately $3,318,000 and $36,000 for unpaid VAT and income taxes, respectively. For the year ended December 31, 2018, the Company recorded an estimated penalty of approximately $980,000 and $0 for unpaid VAT and income taxes, respectively.

 

 

 

 

  F-42  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

NOTE 11 – DIVIDENDS PAYABLE

 

In 2018, in accordance with a board resolution dated December 30, 2018, the Company recorded dividends payable of $754,763; and the dividends were distributed in the same year.

 

In 2019, the board declared to distribute dividends for RMB 33,929,000 (approximately $4,918,000) in total.

 

During 2019, total dividends for RMB 33,899,000 (approximately $4,914,000) were distributed, consisted mainly of the following:

 

· RMB 20,100,000 (approximately $2,914,000) was distributed to Ms. Tian Xiangyang through an accounting offset;

 

· RMB 8,278,000 (approximately $1,200,000) of dividends payable to Ms. Tian Xiangyang was offset against the balance due from her;

 

· RMB 3,955,000 (approximately $567,000) was paid by Mr. Niu Jianxin to Ms. Tian Xiangyang via a related party loan to the Company;

 

· RMB 1,250,000 (approximately $181,000) was distributed to Ms. Tian Xiangyang.

 

As a result, the Company has a dividends payable of $4,300 (RMB 30,000) as of December 31, 2019, which amount was distributed in the first quarter of 2020.

 

NOTE 12– STATUTORY RESERVES

 

Pursuant to the laws in the PRC, entities must make appropriations from after-tax profit to a non-distributable “statutory surplus reserve fund.” Subject to certain cumulative limits, the statutory surplus reserve fund requires annual appropriations of 10% of after-tax profit (as determined under accounting principles generally accepted in the PRC) until the aggregated appropriations reach 50% of the registered capital.

 

As of December 31, 2019 and 2018, the balance of the statutory reserves was $1,687,125 and $1,547,861, respectively.

 

NOTE 13 – INCOME TAXES

 

The entities within the Company file separate tax returns in the respective tax jurisdictions in which they operate.

 

British Virgin Islands

 

HanJiao is a tax-exempt entity incorporated in the British Virgin Islands.

 

Hong Kong

 

Inooka was incorporated in Hong Kong and does not conduct any substantial operations of its own. No provision for Hong Kong profits tax has been made in the consolidated financial statements as Inooka Holding Ltd has no assessable profits for the years ended December 31, 2019 and 2018.

 

 

 

 

  F-43  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

PRC

 

The entities incorporated in the PRC are governed by the income tax law of the PRC and are subjected to the PRC enterprise income tax (“EIT”). The EIT rate of the PRC is 25%, which applies to both domestic and foreign invested enterprises. Under the Provisional Regulations of the PRC Concerning Income Tax on Enterprises promulgated by the PRC (the “EIT Law”), Beijing Luji qualified as a high and new technology enterprise starting in 2018, and enjoys a preferential tax rate of 15% for 3 years expiring in 2020. Beijing Luji can re-apply as a high and new technology enterprise when the prior certificate expires. Income tax is payable at a rate of 15% of our taxable income for the year ended December 31, 2019 and 2018.

 

The following is a reconciliation of provision for income taxes at the effective rate to provision for income taxes at the calculated statutory rates:

 

    For the years ended
December 31
 
    2019     2018  
Non-PRC operations   $     $  
PRC operations     2,269,599       7,212,030  
Net income before provision for income taxes   $ 2,269,599     $ 7,212,030  

 

Provision for income taxes comprised of the followings:

    For the years ended
December 31
 
    2019     2018  
Current tax expense                
PRC   $ 931,201     $ 1,349,274  
Deferred tax expense                
PRC            
Total provision for income taxes   $ 931,201     $ 1,349,274  

 

    For the years ended
December 31,
 
    2019     2018  
PRC statutory tax rate     25.0 %     25.0 %
Permanent differences     26.0 %     3.7 %
Tax holiday effect     (10.0 %)     (10.0 %)
Effective tax rate     41.0 %     18.7 %

 

 

 

 

  F-44  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Below is a breakdown of key components that make up the permanent differences.

 

    For the years ended
December 31,
 
    2019     2018  
Penalties related to unpaid VAT and income taxes     15.7 %     2.0 %
Non-deductible expenses/donation     9.5 %     1.8 %
Others     0.8 %     (0.1 %)
Total     26.0 %     3.7 %

 

NOTE 14 – VARIABLE INTEREST ENTITY

 

On May 15, 2019, Beijing Hongtao entered into VIE Agreements with Beijing Luji and its shareholders. The significant terms of these VIE Agreements are summarized in Note 1 above. As a result, the Company classifies Beijing Luji and its subsidiary as VIEs.

 

A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Beijing Hongtao is deemed to have a controlling financial interest and is the primary beneficiary of Beijing Luji because it has both of the following characteristics:

 

1) The power to direct activities at Beijing Luji that most significantly impact such entity’s economic performance; and

 

2) The obligation to absorb losses of, and the right to receive benefits from Beijing Luji that could potentially be significant to such entity.

 

Accordingly, the accounts of Beijing Luji and its subsidiary are consolidated in the accompanying financial statements pursuant to ASC 810-10, Consolidation.

 

The carrying amounts of the VIEs’ consolidated assets and liabilities are as follows:

 

    As of December 31,  
    2019     2018  
Current assets   $ 31,095,595     $ 33,101,238  
Property and equipment, net     263,640       419,785  
Other noncurrent assets     11,458,928       30,707  
Total assets     42,818,163       33,551,730  
Total liabilities     (32,354,228 )     (19.344.592 )
Net assets   $ 10,463,935     $ 14,207,138  

 

 

 

 

  F-45  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

    As of December 31,  
    2019     2018  
Current liabilities:                
Other payables and accrued liabilities   $ 11,693,330     $ 8,470,415  
Other payables – related parties     1,013,396        
Taxes payable     19,647,502       10,874,177  
Total liabilities   $ 32,354,228     $ 19.344.592  

 

The summarized operating results of the VIEs are as follows:

 

    For the Years Ended December 31,  
    2019     2018  
Operating revenues   $ 58,233,055     $ 53,444,905  
Income from operations   $ 4,536,817     $ 9,018,029  
Net income   $ 1,338,398     $ 5,862,756  

 

NOTE 15 – COMMITMENTS AND CONTINGENCIES

 

Contingencies

 

From time to time, the Company may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Amounts accrued, as well as the total amount of possible losses with respect to such matters, individually and in the aggregate, are not deemed to be material to the consolidated financial statements.

 

Variable interest entity structure

 

In the opinion of management, (i) the corporate structure of the Company is in compliance with existing PRC laws and regulations; (ii) the VIE Arrangements are valid and binding, and do not result in any violation of PRC laws or regulations currently in effect; and (iii) the business operations of the WFOE and the VIEs are in compliance with existing PRC laws and regulations in all material respects. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, the Company cannot assure that the PRC regulatory authorities will not ultimately take a contrary view to the foregoing opinion. If the current corporate structure of the Company or the VIE Arrangements is found to be in violation of any existing or future PRC laws and regulations, the Company may be required to restructure its corporate structure and operations in the PRC to comply with changing and new PRC laws and regulations. In the opinion of management, the likelihood of loss in respect of the Company’s current corporate structure or the VIE Arrangements is remote based on current facts and circumstances.

 

 

 

 

  F-46  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

Lease Obligations

 

The Company leases certain office premises and apartments for employees under operating lease agreements with various terms. Future minimum lease payments under the operating lease agreements is as follows:

 

    Amount  
Twelve months ending December 31,        
2020   $ 352,548  
2021     78,364  
Total   $ 430,912  

 

Rental expense for the year ended December 31, 2019 and 2018 was $251,565 and $143,516, respectively.

 

Legal Matters

 

Beijing Luji, the Company’s VIE, is involved in the following legal matters:

 

· According to an administrative ruling issued by The People's Court of Yinan County in Shandong Province, Beijing Luji was investigated by the Yinan County Administration for Market Regulation (the “Yinan Administration”) in July 2019 for organizing and planning pyramid selling. As a result of the investigation, Beijing Luji’s bank deposit of RMB 90 million at the Agricultural Bank of China was frozen until the investigation was completed. The Yinan Administration found that Mr. Liu Yuangui, regional partner of Beijing Luji, had used the network platform of Beijing Luji from April 2017 to November 2018 to develop members and his behavior was determined to be pyramid selling. Based on its investigation, the Yinan Administration imposed an administrative fine of approximately RMB 20 million to Mr. Liu. According to the administrative ruling, Mr. Liu negotiated with Beijing Luji, and Beijing Luji (on behalf of Ms. Tian Xiangyang) agreed to pay the fine in the case on Mr. Liu’s behalf. Ms. Tian subsequently settled this payable to Beijing Luji via an accounting offset of a dividend payable that was due to her in 2019 (see Note 11). On November 17, 2019, the Yinan Administration concluded that Beijing Luji's business did not constitute organization and planning pyramid selling. The related bank account of Beijing Luji at the Agriculture Bank of China was unfrozen.

 

· As of December 31, 2019, the Company has a due to related party, Mr. Niu Jianxin, for RMB 3,955,000 (approximately $567,000). Upon Mr. Niu departure from Beijing Luji in February 2020, Mr. Niu had allegedly transferred this rights to Mr. Zhang Hongbin. On April 9, 2020, Mr. Zhang Hongbin filed a lawsuit with the people's Court of Fengtai District, Beijing, on the basis of that Beijing Luji did not repay the amount that is due to him. This legal matter is still pending.

 

The Company evaluates all pending legal matters periodically and establishes reserves when it is probable that they will result in a negative outcome, and that the amount of the loss could be reasonably estimated. The Company does not have any legal reserves as of December 31, 2019 and 2018, respectively.

 

 

 

 

  F-47  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

NOTE 16 - CONCENTRATION OF RISK

 

Concentration of credit risk

 

The Company places its cash with a financial institution with high-credit ratings and quality. Cash and cash equivalents for the year ended December 31, 2019 and 2018 was $28,919,817and $18,019,617 respectively. A depositor has up to RMB 500,000 insured by the People’s Bank of China Financial Stability Bureau (“FSD”) if the bank with which an individual/a company hold its eligible deposit fails. As of December 31, 2019 and 2018, $27,844,733 and $17,583,345 was deposited with a third party platform fund account located in the PRC. These balances are not covered by insurance. While management believes that these financial institutions and third party fund holder are of high credit quality, it also continually monitors their credit worthiness.

 

Foreign currency risk

 

The RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into foreign currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market.

 

Concentration of supplier risk

 

The Company’s utilizes various suppliers. There were two and four suppliers that accounted for more than 10% of total purchases, for the year ended December 31, 2019 and 2018, respectively. Two suppliers accounted for 68% and 11% in 2019, and four suppliers accounted for 22%, 21%, 20% and 35% total purchases for 2018. There was $4,644 and $nil accounts payable balances owed to these suppliers as of December 31, 2019 and 2018.

 

Major customers

 

There was no customer whose revenue accounts for more than 10% of total revenue for the year ended December 31, 2019 and 2018.

 

NOTE 17 – SUBSEQUENT EVENTS  

 

In January 2020, the World Health Organization declared a global health emergency as the coronavirus outbreak (“COVID-19”) continues to spread beyond the PRC. On March 11, 2020, the World Health Organization declared the COVID-19 a global pandemic. The Company’s business has been significantly impacted by COVID-19; its revenue and its gross profit for the three months ended March 31, 2020 has declined by more than $6.1 million and $1.8 million, respectively, as compared to the same period of last year.

 

The Company is negotiating a reverse merger with AS Capital Inc., a public company listed on the OTC.

 

NOTE 18 – FINANCIAL INFORMATION OF THE PARENT COMPANY (UNAUDITED)

 

The Company performed a test on the restricted net assets of its consolidated subsidiaries in accordance with the Securities and Exchange Commission Regulation S-X Rule 5-04 and concluded that it was applicable for the Company to disclose the financial statements for the parent company.

 

 

 

 

  F-48  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

The subsidiary did not pay any dividends to the Company for the periods presented. For the purpose of presenting parent only financial information, the Company records its investment in its subsidiaries under the equity method of accounting. Such investment is presented on the separate condensed balance sheets of the Company as “Investment in subsidiaries” and the income of the subsidiaries is presented as “share of income of subsidiaries”. Certain information and footnote disclosures generally included in financial statements prepared in accordance with US GAAP are not required.

 

The Company did not have any significant capital and other commitments, long-term obligations, or guarantees as of December 31, 2019 and 2018.

 

PARENT COMPANY BALANCE SHEETS

 

    As of December 31,  
    2019     2018  
Assets                
Current assets                
Investment in subsidiaries   $ 10,464,035     $ 14,207,238  
Total Current Assets     10,464,035       14,207,238  
Total Assets   $ 10,464,035     $ 14,207,238  
                 
Liabilities and Shareholders’ Equity                
Shareholders’ Equity                
Ordinary shares (par value $1 per share, 50,000 shares authorized; 100 shares issued and outstanding at December 31, 2019 and 2018)   $ 100     $ 100  
Additional paid-in capital     7,249,775       7,249,775  
Statutory reserves     1,687,125       1,547,861  
Retained earnings     2,136,211       5,855,424  
Accumulated other comprehensive loss     (609,176 )     (445,922 )
Total Shareholders’ Equity     10,464,035       14,207,238  
                 
Total Liabilities and Shareholders’ Equity   $ 10,464,035     $ 14,207,238  

 

 

PARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME

 

    For the year ended
December 31,
 
    2019     2018  
Equity income of subsidiaries and VIEs   $ 1,338,398     $ 5,862,756  
                 
Net income     1,338,398       5,862,756  
Foreign currency translation adjustments     (163,254 )     (720,631 )
Comprehensive income   $ 1,175,144     $ 5,142,125  

 

 

 

 

  F-49  

 

 

HANJIAO INTERNATIONAL HOLDING LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in U.S. dollars unless otherwise stated)

 

 

PARENT COMPANY STATEMENTS OF CASH FLOWS

 

    For the year ended
December 31,
 
    2019     2018  
Cash flows from operating activities                
Net income   $ 1,338,398     $ 5,862,756  
Adjustments to reconcile net income to cash used in operating activities:                
Equity income of subsidiaries and VIEs     (1,338,398 )     (5,862,756 )
Net cash provided by (used in) operating activities            
                 
Changes in cash and cash equivalents            
Cash and cash equivalents at beginning of year            
Cash and cash equivalents at end of year   $     $  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  F-50  

 

 

 

4/8/2020 11:36 AM

<DRAFT>

 

 

 

AS CAPITAL, INC.

 

Unaudited Pro forma Financial Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  F-51  

 

 

AS CAPITAL, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF MARCH 31, 2020

 

 

    Historical     Historical              
    ASIN     HanJiao     Pro Forma Adjustments     Note   Pro Forma Combined  
                             
ASSETS                                    
Current assets:                                    
Cash and cash equivalents   $     $ 13,449,805                 $ 13,449,805  
Advances to suppliers           6,720,321                   6,720,321  
Inventories, net           1,495,026                   1,495,026  
Prepayments and other current assets           891,487                   891,487  
Due from related parties, net           32,279                   32,279  
                                     
Total current assets           22,588,918                   22,588,918  
                                     
Non-current assets:                                    
Long-term investment, net           11,237,029                   11,237,029  
Property and equipment, net           230,371                   230,371  
Deposits           45,129                   45,129  
                                     
Total non-current assets           11,512,529                   11,512,529  
                                     
TOTAL ASSETS   $     $ 34,101,447                 $ 34,101,447  
                                     
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY                                    
Current liabilities:                                    
Tax payable   $     $ 19,021,322                 $ 19,021,322  
Due to related parties     138,533       245,201                   383,734  
Accrued expenses     31,159       3,052,886                   3,084,045  
Other payable and other current liabilities           6,549,220                   6,549,220  
                                     
Total current liabilities     169,692       28,868,629                   29,038,321  
                                     
Total liabilities     169,692       28,868,629                   29,038,321  
                                     

Commitments and contingencies

                             
                                     
Shareholders’ (deficit) equity:                                    
Common stock     1,120             8,600     (a)     9,720  
Additional paid-in capital     36,110,927       7,249,875       (36,290,339 )   (a),(b)     7,070,463  
Statutory reserves           1,687,125                   1,687,125  
Accumulated other comprehensive loss           (692,948 )                 (692,948 )
Accumulated deficit     (36,281,739 )     (3,011,234 )     36,281,739     (b)     (3,011,234 )
                                     
Total shareholders’ (deficit) equity     (169,692 )     5,232,818                   5,063,126  
                                     
TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY   $     $ 34,101,447                 $ 34,101,447  

 

 

 

 

 

 

  F-52  

 

 

AS CAPITAL, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2020

 

 

    Historical     Historical            
    ASIN     HanJiao     Pro Forma Adjustment   Pro Forma Combined  
                       
Revenues   $     $ 34,331         $ 34,331  
                             
Cost of revenues           (38,781 )         (38,781 )
                             
Gross loss           (4,450 )         (4,450 )
                             
Operating expenses:                            
Selling expenses           (1,272,914 )         (1,272,914 )
General and administrative expenses     (27,033 )     (1,132,466 )         (1,193,357 )
Financial income, net           182,138           182,138  
                             
Total operating expenses     (27,033 )     (2,223,242 )         (2,250,275 )
                             
Operating loss     (27,033 )     (2,227,692 )         (2,254,725 )
                             
Other income (expenses)                            
Other expenses, net           (2,191,729 )         (2,191,729 )
                             
Total other expenses, net           (2,191,729 )         (2,191,729 )
                             
Loss before provision for income taxes     (27,033 )     (4,419,721 )         (4,446,454 )
                             
Provision for income taxes                      
                             
Net loss   $ (27,033 )   $ (4,419,721 )       $ (4,446,454 )
                             
Net loss per share – basic and diluted   $ (0.00 )               $ (0.05 )
                             
Weighted average number of shares outstanding     11,201,030                   97,201,030  

 

 

 

 

 

  F-53  

 

 

AS CAPITAL, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2019

 

 

    Historical     Historical            
    ASIN     HanJiao   Pro Forma Adjustment   Pro Forma
Condensed Combined
 
                       
Revenues   $     $ 58,233,055         $ 58,233,055  
                             
Cost of revenues           (41,763,786 )         (41,481,638 )
                             
Gross profit           16,469,269           16,751,417  
                             
Operating expenses:                            
Selling expenses           (3,595,934 )         (3,595,934 )
General and administrative expenses     (153,516 )     (8,110,916 )         (8,546,580 )
Financial expenses, net           (83,409 )         (83,409 )
                             
Total operating expenses     (153,516 )     (11,790,259 ))         (12,225,923 ))
                             
Operation (loss) profit     (153,516 )     4,679,010           4,525,494  
                             
Other income (expenses)                            
Other expenses, net           (2,378,313 )         (2,378,313 )
Loss from equity investment           (31,098 )         (31,098 )
                             
Total other expenses, net           (2,409,411 )         (2,409,411 )
                             
Loss before provision for income taxes     (153,516 )     2,269,599           2,116,083  
                             
Provision for income taxes           (931,201 )         (931,201 )
                             
Net (loss) income   $ (153,516 )   $ 1,338,398         $ 1,184,882  
                             
Net (loss) income per share – basic and diluted   $ (0.00 )               $ 0.01  
                             
Weighted average number of shares outstanding     11,201,030                   97,201,030  

 

 

 

 

  F-54  

 

 

AS CAPITAL, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL INFORMATION AS OF MARCH 31, 2020

 

 

NOTE 1 – BACKGROUND OF ORGANISATION

 

On August 6, 2020, AS Capital, Inc. (the “Company” or “ASIN”) and HanJiao International Holding Limited (“HanJiao” or“HJ”) consummated a Share Exchange Agreement (the “Share Exchange Transaction”). In connection with the Share Exchange Transaction, the Company issued 86,000,000 shares of its Common Stock in acquiring 100% in the equity shares of HJ. Upon the completion of the Share Exchange Transaction, the shareholders of HJ now own approximately 88.5% of the common stock of ASIN.

 

 

NOTE 2 – BASIS OF PRESENTATION

 

Because ASIN is a shell company, the ongoing operations of the combined entity will consist mainly of the business operations of HJ. The senior management of HJ will serve as the senior management of the combined entity. HJ is deemed to be the accounting acquirer for accounting purposes and the Share Exchange Transaction will be treated as a recapitalization of ASIN. Accordingly, the consolidated assets, liabilities and results of operations of HJ will become the historical financial statements of the Company, and ASIN’s assets, liabilities and results of operations will be consolidated with HJ. The accompanying pro forma financial statements are presented as a continuation of HJ.

 

The pro forma balance sheet as of March 31, 2020 is based on the historical financial statements of ASIN after giving effect to HJ’s acquisition of ASIN as a reverse merger using the acquisition method of accounting and applying the assumptions and adjustments described in the notes to the pro forma financial statements as if such acquisition had occurred as of March 31, 2020 for the balance sheet for pro forma financial statements purposes.

 

The pro forma financial statements have been prepared by management for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods. The pro forma adjustments are based on the preliminary information available at the time of the preparation of this document and assumptions that management believes are reasonable. The pro forma financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with HJ’s consolidated financial statements for the years ended December 31, 2019 and 2018, and for the three-months period ended March 31, 2020 and 2019 included as Exhibits included in this Current Report on Form 8-K filed with SEC.

 

The accompanying pro forma financial statements do not purport to represent what the results of operations or financial position of the combined entity would actually have been if the merger had in fact occurred on March 31, 2020, nor do they purport to project the results of operations or financial position of the combined entity for any future period or as of any date.

 

These pro forma financial statements do not give effect to any restructuring costs or to any potential cost savings or other operating efficiencies that could result from the merger between HJ and ASIN since such amounts, if any, are not presently determinable.

 

 

NOTE 3 – PRO FORMA ADJUSTMENTS

 

The accompanying pro forma financial statements have been prepared as if the acquisition was completed on March 31, 2020 for combined balance sheet purpose and reflects the following pro forma adjustment(s):

 

(a) To eliminate the accumulated deficits of ASIN incurred before the merger transaction to reflect the recapitalization of ASIN

 

  Dr. Additional paid-in capital 36,281,739
  Cr. Accumulated deficits 36,281,739  

 

 

 

 

  F-55  

 

 

AS CAPITAL, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL INFORMATION AS OF MARCH 31, 2020

 

 

(b) To reflect the issuance of 86,000,000 shares of common stock of ASIN for the acquisition of 100% of HIHL outstanding capital stock

 

  Dr. Additional paid-in capital 8,600  
  Cr. Common stock 8,600  

 

 

NOTE 4 – PRO FORMA EARNINGS (LOSS) PER SHARE

 

The pro forma earnings (loss) per share, giving effect to the merger transaction has been computed as follows:

 

Net loss   $ (4,446,454 )
         
Net loss per share – Basic and diluted   $ (0.05 )
         
Weighted average number of shares deemed issued and outstanding     97,201,030  

 

 

 

 

 

 

 

 

 

 

 

 

  F-56  

 

 

(d) Exhibits

 

Exhibit

Number


Description
3.1 Amended and Restated Articles of Incorporation of AS Capital, Inc. (1)
3.1.1 Certificate of Amendment to the Articles of Incorporation for Rineon Group, Inc. (2)
3.1.2 Certificate of Amendment to the Articles of Incorporation for AS Capital, Inc. (3)
3.2 Amended and Restated By-Laws (3)
4.2 Description of Securities**
5 Opinion of Jingtian & Gongcheng Law Offices Regarding PRC Legal Matters
10.1 Share Exchange Agreement, dated August 6, 2020, by and among AS Capital, Inc., HanJiao International Holding Limited and certain investors*
10.2 Equity Acquisition Agreement, dated March 15, 2019, by and between Rongcheng Health Group Co. Ltd. and Beijing Luji Technology Co. Ltd.*
10.3 Exclusive Consulting and Services Agreement, dated May 15, 2019, by and among Beijing Hongtao Management Consulting Co. Ltd. and Beijing Luji Technology Co. Ltd. *
10.4 Business Operations Agreement, dated May 19, 2019, by and among Beijing Hongtao Management Consulting Co. Ltd., Beijing Luji Technology Co. Ltd. and Tian Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei, and Li Chunduo *
10.5 Equity Disposal Agreement, dated May 15, 2019, by and among Beijing Hongtao Management Consulting Co. Ltd., Beijing Luji Technology Co. Ltd., Tian Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei, and Li Chunduo *
10.6 Equity Pledge Agreement, dated May 15, 2019, by and among Beijing Hongtao Management Consulting Co. Ltd., Tian Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei, and Li Chunduo *
10.7 Agency Agreement, dated May 15, 2019, by and among Beijing Hongtao Management Consulting Co. Ltd., Tian Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei, and Li Chunduo *
10.8 House Lease Contract, dated June 12, 2020, by and among Beijing Hongtao Management Consulting Co. Ltd. And Beijing Luji Technology Co. Ltd.*
10.9 Labor Contract, dated January 1, 2019, by and between Beijing Luji and Tian Xiangyang*
10.10 Labor Contract, dated January 1, 2017, by and between Beijing Luji and Shan Yonghua*
10.11 Labor Contract, dated January 1, 2017, by and between Beijing Luji and Tian Zhihai*
10.12 Labor Contract, dated January 1, 2019, by and between Beijing Luji and Yin Jian’en*
10.13 Labor Contract, dated January 1, 2019, by and between Beijing Luji and Wang Jirui*
10.14 Form of Director Retainer Agreement *
21 List of Subsidiaries*
99.1 Court Custodian Documents (4)
* Filed Herewith.
** Incorporated by reference to the section entitled “Description of Securities” of this Current Report.
   
(1) Incorporated by reference to the Exhibits to Registration Statement on Form 10 filed with the Securities and Exchange Commission on November 1, 2018.
(2) Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on May 8, 2009.
(3) Incorporated by reference to the Exhibits to Information Statement on Definitive Schedule 14C filed with the Securities and Exchange Commission on July 29, 2020.
(4) Incorporated by reference to the Exhibits to Amendment No. 5 to Registration Statement on Form 10 filed with the Securities and Exchange Commission on July 17, 2019.

 

 

  75  

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

AS CAPITAL, INC.

 

Dated: August 7, 2020    
     
  By: /s/ Tian Xiangyang
    Tian Xiangyang
    Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  76  

 

Exhibit 5

 

 

 

34/F, Tower 3, China Central Place, 77 Jianguo Road, Beijing 100025, China

Telephone: (86-10) 5809-1000   Facsimile: (86-10) 5809-1100

 

August 7, 2020

 

To: HanJiao International Holding Limited

 

We are lawyers qualified in the People's Republic of China (“PRC” or “China”, for the purpose of this legal opinion (this “Opinion”) only, PRC shall not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan) and are qualified to issue legal opinions on the PRC laws, regulations or rules effective on the date hereof (the “PRC Laws”). For the purpose of the transactions contemplated by the Share Exchange Agreement (as hereinafter defined), we have been requested to render this Opinion as to PRC Group Companies (as hereinafter defined) and as to certain matters relating to the PRC Laws.

 

As used herein, “Share Exchange Agreement” is made and entered into as of August 6, 2020 by and among (i) AS Capital, Inc; (ii) HanJiao International Holding Limited (the “Company”); and (iii) the Investors; “Governmental Agencies” means any court, governmental agency or body of the PRC; “WFOE” means Beijing Hongtao Management Consulting Co., Ltd.(Chinese characters): “PRC Group Companies” means WFOE and Variable Interest Entities (as defined below) organized under the PRC Laws which take the legal form of company (each a “PRC Group Company”, collectively “PRC Group Companies”); “Material Adverse Effect” means a material adverse effect on the condition (financial or other), business, properties, management, shareholders equity, results of operations or prospects of the Company taken as a whole; “Beijing Luji” means Beijing Luji Technology Co., Ltd. (Chinese characters); “Beijing Guoyi” means Guoyi Investment Fund Management (Beijing) Co., Ltd. (Chinese characters); “Variable Interest Entities” mean Beijing Luji and Beijing Guoyi; and “VIE Agreements” mean all the current contractual arrangements and agreements which constitute all of the contractual arrangements enabling the Company to exercise effective control over and consolidate the financial statements of each of the Variable Interest Entities.

 

This opinion is rendered on the basis of the PRC Laws effective as of the date hereof. There is no assurance that any of such laws will not be changed, amended or replaced in the immediate future or in the longer term with or without retrospective effect and any such changes, amendments or replacements may be made by the central or local legislative, administrative and judicial authorities of the PRC and may become effective immediately on promulgation. We do not purport to be expert on and do not purport to be generally familiar with or qualified to express opinions based on any laws other than the PRC Laws and accordingly express or imply no opinion herein based upon any laws other than the PRC Laws.

 

We do not purport to be expert on and do not purport to express opinions on any other qualification aspects including but not limited to accounting, auditing and assets evolution issues.

 

In rendering this opinion we have relied on documents or information provided for us by PRC Group Companies. In giving this opinion, we have made the following assumptions:

 

(i) that all documents and materials as we have considered necessary or advisable for the purpose of rendering this opinion have been submitted to us and all relevant facts have been fully disclosed to us without any inaccuracy, omission or misleading statement;

 

(ii) that all documents and information submitted to us either in written form or by oral statement are authentic, accurate and complete;

 

(iii) that the signatures, seals and chops on the documents submitted to us are genuine, and that all documents submitted to us as copies conform to their originals;

 

 

  1  
 

 

(iv) that each original of any document submitted to us still exist and has not been revoked or invalidated by relevant governmental authorities, and that all documents submitted to us have not been varied, cancelled or superseded by some other document or agreement or action of which we are not aware after due inquiry as of the date hereof; and

 

(v) Where some import ant facts were not independently established by us, we have relied on certificates or confirmations issued by Governmental Agencies or the Company.

 

Our opinion is subject to the effects of (i) certain legal or statutory principles affecting the enforceability of contractual rights generally under the concepts of public interest, social ethics, national security, good faith, fair dealing, and applicable statutes of limitation; (ii) any circumstance in connection with formulation, execution or performance of any legal documents that would be deemed materially mistaken, clearly unconscionable, fraudulent, coercionary or concealing illegal intentions with a lawful form; (iii) judicial discretion with respect to the availability of specific performance, injunctive relief, remedies or defenses, or calculation of damages; and (iv) the discretion of any competent PRC legislative, administrative or judicial bodies in exercising their authority in the PRC.

 

This opinion is issued based on our understanding of the current PRC Laws. For matters not explicitly provided under the current PRC Laws, the interpretation, implementation and application of the specific requirements under the PRC Laws are subject to the final discretion of competent PRC legislative, administrative and judicial authorities, and there can be no assurance that PRC government authorities will ultimately take a view that is not contrary to our opinion stated hereinafter.

 

We may rely, as to matters of fact (but not as to legal conclusions), to the extent we deem proper, on certificates and confirmations of responsible officers of the PRC Companies and PRC government officials.

 

As used in this opinion, the expression "to our best knowledge after due inquiry" or similar language with reference to matters of fact refers to the current actual knowledge of the attorneys of this firm who have worked on matters for the Company and the PRC Group Company in connection with the transactions contemplated by the Share Exchange Agreement. We have not undertaken any independent investigation to ascertain the existence or absence of any fact, and no inference as to our knowledge of the existence or absence of any fact should be drawn from our representation of the Company and the PRC Group Company or the rendering of this opinion.

 

This opinion may not, except with our prior written permission, be relied upon by anyone or used for any other purpose other than that stated hereof.

 

Based on the forgoing, and the assumptions that the information provided to us by the Company and PRC Group Companies are correct, complete and accurate and that the Company and PRC Group Companies have not withheld material information which is relevant for the purposes of providing the opinion herein from us, we are of the opinion that:

 

1. Each of the PRC Group Companies has been duly organized and is validly existing with limited liability and is in good standing under the PRC Laws. Each of the PRC Group Companies is a separate and independent legal entity capable of suing and being sued. The WFOE is a legal person with limited liability, and the liability of the relevant subsidiary of the Company in respect of equity interests in the WFOE is limited to its capital contribution commitments therein.

 

2. The business license of each of the PRC Group Companies is in full force and effect. Each of the PRC Group Companies has full right, power and authority (corporate and other) to own, use or lease, as the case may be, and to conduct its business and operations in accordance with the PRC Laws. And as of the opinion date, no such right, power and authority has been revoked or suspended by any PRC Governmental Agency.

 

3 Each of the PRC Group Companies is fully qualified, and has been treated, as a foreign invested enterprise with limited liability or a limited liability company to transact business in each jurisdiction within the PRC in which the conduct of its business requires such qualification. To the best of our knowledge after due inquiry, save for the pledge of equities of Beijing Luji in favor of the WFOE contemplated by the VIE Agreements, the equity interests in each PRC Subsidiary owned indirectly by the Company through its overseas subsidiaries are free and clear of all liens, encumbrances, equities or claims.

 

 

  2  
 

 

4. The articles of association and other constituent documents of the PRC Group Companies comply with the applicable requirements of the PRC Laws and have been filed with the relevant PRC authorities where applicable and are in full force and effect.

 

5. The registered capital of each of the PRC Group Companies has been duly and validly authorized and subscribed, and is fully owned indirectly by the Company or beneficially owned indirectly by the Company through VIE Agreements. All registered capital due of each of the PRC Group Companies are timely paid in accordance with their respective articles of association. save for the pledge of equities of Beijing Luji in favor of the WFOE contemplated by the VIE Agreements, the registered capital of each of the PRC Group Companies are (A) free and clear of all security interest, liens, mortgages, pledges, encumbrances, (B) are freely transferable subject to the approvals, registration or filings that are required by the PRC Governmental Agencies and (C) free of and clear of all equities, claims or equities or any third-party rights.

 

6. According to the administrative ruling issued by The People's Court of Yinan County in Shandong Province on October 28, 2019 and the written confirmation of the Company, Beijing Luji was investigated by the Yinan County Market Supervision Administration in July 2019 on suspicion of pyramid selling and its bank account of Agricultural Bank of China, Beijing Rural Commercial Bank and China Guangfa Bank was frozen until October 2019; The Yinan County Market Supervision Administration found that Liu Yuangui, regional partner of Beijing Luji, used the network platform of Beijing Luji named Weikegu (the “Platform”) from April 2017 to November 2018 for developing members, and registered members may obtain the qualification of recommending others to become salesmen after purchasing certain amount of goods; Such behavior of Liu Yuangui constituted pyramid selling; The Yinan County Market Supervision Administration imposed an administrative punishment of confiscating 18.01 million RMB of Liu's illegal income and a fine of 2 million RMB (the “Fine”).

 

  According to a written certificate issued by the Yinan County Administration for Market Regulation on November 17, 2019, following the investigation on Beijing Luji in July 2019, it was found that Beijing Luji's business did not constitute organization and planning of pyramid selling. Further, we conducted an interview with the officer from the Yinan County Administration for Market Regulation who is in charge of the case. The officer refused to reveal details of the investigation and argumentation of the case due to the bureau's interior requirements, but informed us that Yinan County Administration for Market Regulation had carried out relevant investigation on Beijing Luji, and that the administration agreed that Liu Yuangui's use of the Platform to engage in pyramid selling had nothing to do with Beijing Luji, and Beijing Luji did not constitute organizing or planning of pyramid selling.

 

  According to the written confirmation of the Company and an on-site interview on June 10, 2020 with Liu Yuangui and Tian Xiangyang, the legal representative of Beijing Luji, after negotiation with Liu Yuangui and Tian Xiangyang, Tian Xiangyang agreed to pay the Fine on behalf of Liu Yuangui in return for the approximately 38,000 members developed and managed by the sales team led by Liu Yuangui to be taken over by Beijing Luji. According to relevant shareholders' resolution and as confirmed by the Company, in order to pay the 20.01 million fine on behalf of Liu Yuangui, Tian Xiangyang received dividends from Beijing Luji. However, Beijing Luji failed to withhold and pay the relevant individual income tax on behalf of Tian Xiangyang, and Tian Xiangyang has not paid the tax for the dividends either. According to the Measures for the Administration of Individual Income Tax Withholding Declaration (Trial), the Law on the Administration of Tax Collection and other applicable PRC Laws, the withholding agent shall withhold and pay individual income tax each time or monthly in accordance with the law when paying dividends. In cases where a withholding agent fails to withhold or collect tax, the tax authorities shall recover the tax payable from the taxpayer and impose a fine of not less than 50 percent but not more than three times the amount of tax withheld or receivable on the withholding agent. According to the confirmation of Tian Xiangyang, she will pay the individual income tax on time according to the requirements of the tax authority if the tax authority gives the notice of recovery payment according to law.

 

 

  3  
 

 

  In view of the foregoing, we are of the opinion that the case of Beijing Luji on suspicion of pyramid selling initiated by the Yinan County Market Supervision Administration has been concluded. As the investigation department of the case, the Yinan County Administration for Market Regulation is a competent authority to issue the above-mentioned certificate and make the confirmation during the interview. As confirmed by Beijing Luji, its bank account of Agricultural Bank of China, Beijing Rural Commercial Bank and China Guangfa Bank has been unfrozen as of the date hereof.

 

7. All PRC government authorizations and filings with the PRC Governmental Agencies required in the PRC for the indirect ownership by the Company of the interest in relevant PRC Group Companies have been obtained and are in full force and effect.

 

8. The PRC Group Companies have obtained all necessary licenses, permits or fillings with the PRC Governmental Agencies having jurisdiction over the PRC Group Companies to conduct their current businesses of providing healthcare related products and services to middle-aged and elderly populations or shareholding in all material respects to the extent that the conduct of such businesses are governed by the PRC Laws, including but not limited to the business licenses, food operation license, network culture operation license, the value-added telecommunications operating license and such licenses, permits or fillings are in full force and effect and contain no materially burdensome restrictions.

 

9. As confirmed by the Company, Beijing Luji has not made full contribution to social insurance fund and housing provident fund for its employees. Pursuant to the Social Insurance Law of the PRC, the competent PRC government authority can order Beijing Luji to pay the outstanding social insurance fund to the relevant PRC local authorities within a prescribed time period and a late fee of 0.05% of the total outstanding balance per day. If Beijing Luji fails to do so within the prescribed period, it may be subject to a fine ranging between one to three times of the total outstanding balance. Under the Administrative Regulations on Housing Provident Fund, the relevant housing provident fund management center can order Beijing Luji to pay the outstanding housing provident fund within a prescribed time limit, and make application to a court for compulsory enforcement in the event that Beijing Luji fails to make the payment within the given time limit. To the best of our knowledge after due inquiry and as confirmed by the Company, the PRC Group Companies are subject to no material labor disputes, work stoppage, slow down or other conflict with their employees.

 

10. To the best of our knowledge after due inquiry and as confirmed by the Company, there are no ongoing or pending legal, arbitral or governmental proceedings (including labor disputes) in the PRC to which any of the Company or the PRC Group Companies is a party, or the Company or the PRC Group Companies is the subject.

 

11. None of the PRC Group Companies has taken any action nor have any steps taken or legal or administrative proceedings been commenced or threatened for the winding up, dissolution or liquidation of any of the PRC Group Companies (as the case may be) or for the suspension, withdrawal, revocation or cancellation of any of their respective business licenses. No judgment has been rendered declaring any of the PRC Group Companies bankrupt or in any insolvency proceeding.

 

12. On April 9, 2020, Zhang Hongbin submitted a civil statement of claim to the Beijing Fengtai District People's Court, in which Zhang Hongbin claimed the infringement by Beijing Luji of his creditor's rights in relation to a loan of RMB 3,955,000. When the loan came due, Beijing Luji failed to repay the loan, therefore Zhang Hongbin requested the court to order Beijing Luji to repay the principal of RMB 3,955,000 and the overdue interest (based on RMB 3,955,000, calculated at an annual rate of 24%, from November 29, 2019 to the date of actual repayment). The Beijing Fengtai District People's Court issued a civil ruling on May 18, 2020, ordering the property preservation of Beijing Luji's bank deposits of RMB 3,955,000 in Beijing Rural Commercia l Bank. As confirmed by the Company, up to now, the court has heard the case and no judgment has been handed down.

 

 

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  To the best of our knowledge after due inquiry and as confirmed by the Company, except the above mentioned litigation dispute between Beijing Luji and Zhang Hongbin, none of the PRC Group Companies has received any oral or written notice of proceedings relating to the suspension, revocation or modification of any of its permits, licenses or certificates, and we are not aware of any material legal impediment that will cause us to reasonably believe that such permits, licenses or certificates (including any that are subject to periodic renewal) will not be renewed by the relevant PRC Governmental Agencies.

 

13. None of the PRC Group Companies is (i) in violation of its articles of association or other constituent or organizational documents or its business licenses, (ii) is in violation of any orders or decisions of any court having jurisdiction over it, that would individually or in the aggregate, have a material adverse effect on the business of the PRC Group Companies.

 

14. According to the documents and confirmation provided by Company, Beijing Luji is currently using the property leased by WFOE. According to the lease agreement signed by WFOE and the lessor, WFOE is not allowed to sublease or transfer the leased property, therefore, there is a risk that Beijing Luji cannot continue to use the property currently in use. As confirmed by the Company, if the lessor does not allow Beijing Luji to continue to use the property currently in use, Beijing Luji will immediately look for other property instead.

 

  The property lease agreements signed by all branches of Beijing Luji except Beijing Branch, Zhejiang Branch, Ningxia Branch and Tianjin Branch have expired and Beijing Luji failed to renew the lease agreements with the lessors. However, the Company confirmed that these branches continue to use the leased properties after the expiration, and the lessors did not raise any objection. In accordance with the provisions of the Contract Law of the People's Republic of China, the original lease agreements shall remain valid, but the lease term shall be indefinite and each party may terminate the agreements at any time.

 

  Save for the foregoing, the lease agreements entered into by Beijing Branch, Zhejiang Branch, Ningxia Branch and Tianjin Branch of Beijing Luji are duly executed and legally binding, the rights and interests of these branches under lease agreements are protected by the terms of the lease agreements, which are valid, binding and enforceable in accordance with their respective terms under the PRC Laws. As confirmed by the Company, the PRC Group Companies have failed to register the leases with the competent PRC Governmental Agencies. Under the PRC Laws, the PRC Group Companies as leasee could be liable to a fine ranging from RMB 1,000 to RMB 10,000 in respect of each leased property that is not registered.

 

15. Under PRC Laws, none of the PRC Group Companies nor any of their respective properties, assets or revenues are entitled to any right of immunity on the grounds of sovereignty or otherwise from any legal action, suit or proceeding, from set-off or counterclaim, from the jurisdiction of any PRC court, from services of process, from attachment prior to or in aid of execution of judgment, or from other legal process or proceeding for giving of any relief or for the enforcement of any judgment.

  

16. To the best of our knowledge after due inquiry, none of the PRC Group Companies has received any notice of infringement of or conflict with any intellectual property rights of others (registered or otherwise) which, in either case, individually or in the aggregate, if the subject of an unfavourable decision, ruling or finding, would result in any Material Adverse Effect on the Company.

 

17. Each of the VIE Agreements are valid and legally binding under the PRC Laws. Save for the registration of equity pledge of Beijing Luji with the relevant administration for market regulation, no governmental authorization or approval is required to be obtained for the performance by any of the parties there to of their respective obligations or for the consummation of the transactions contemplated under the VIE Agreements.

 

 

 

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18. Each of the VIE Agreements does not, and the execution thereof by the PRC Group Companies and the shareholders of the Variable Interest Entities, the performance of its obligations thereunder by each of the PRC Group Companies and the shareholders of the Variable Interest Entities, and the consummation of the transactions contemplated thereunder by each of the PRC Group Companies and the shareholders of the Variable Interest Entities, so far as performed in accordance with the terms and conditions provided in the VIE Agreements, (A) to the best of our knowledge after due inquiry, will not conflict with or result in a breach or violation of any terms or provisions of, or constitute a default under, any agreement or instrument governed by the PRC Laws to which any of the PRC Group Companies or the shareholders of the Variable Interest Entities is a party or by which or to which any of such entities or individuals, or their respective properties or assets, is bound or subject; (B) will not result in any violation of (i) the provisions of the articles of association or business license of each of the PRC Group Companies, or (ii) any court orders or decisions, as applicable; and (C) will not result in any violation of any PRC Laws; except for, in case of (C), such violation that would not be reasonably expected to have a Material Adverse Effect.

 

19. The Company and the PRC Group Companies are not required to obtain approval from any PRC Governmental Agencies in respect of or by reason of the matters contemplated by the Share Exchange Agreement in order to comply with all requirements of applicable PRC laws, rules and regulations.

 

20. Except Liu Zexian and Tian Zhihai, the legal and beneficial owners with direct or indirect interests in the Company, if applicable, have complied with the Circular of the State Administration of Foreign Exchange on Issues concerning Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles (Chinese characters) (“Circular No. 37”), and completed necessary foreign exchange registration as required with the relevant bank in the PRC. Liu Zexian and Tian Zhihai obtained the interests in the Company through equity transaction, and have not handled the foreign exchange registration yet. According to the company's confirmation, Liu Zexian and Tian Zhihai will complete foreign exchange registration as soon as possible after the share exchange.

 

21. The execution and delivery by the Company of and the due performance by the Company of its obligations under the Share Exchange Agreement will not contravene any provision of applicable PRC Laws or the articles of association, other constitutive documents or the business licenses of the PRC Group Companies or, to the best of our knowledge after due inquiry, contravene the terms or provisions of, or constitute a default under any mortgage, loan agreement binding upon the Company and the PRC Group Companies that is governed by the PRC Laws, or any judgment, order or decree of any PRC government body, agency or court having jurisdiction over the Company and the PRC Group Companies.

 

 

This legal opinion is intended to be used in the context, which is specifically referred to herein, and each paragraph should be looked at as a whole and no part should be extracted and referred to independently.

 

 

 

 

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(Signature Page)

 

 

 

 

 

 

 

 

 

Yours faithfully

 

 

 

 

 

 

 

 

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Exhibit 10.1

 

SHARE EXCHANGE AGREEMENT

 

This SHARE EXCHANGE AGREEMENT (hereinafter referred to as “this Agreement”) dated as of August 6, 2020, by and among AS Capital, Inc., a Nevada corporation (“ASIN” or the “Company”), HanJiao International Holding Limited, a private limited corporation incorporated under the laws of British Virgin Islands (“HIHL”), and each of the undersigned parties (each, an “Investor,” and collectively, the “Investors”).

 

W I T N E S S E T H:

 

WHEREAS, HIHL provides healthcare products and services targeted to the elderly and middle-aged populations through its online to offline platforms;

 

WHEREAS, ASIN desires to acquire from the Investors, one hundred (100) shares of the issued and outstanding ordinary shares of HIHL (“HIHL Ordinary Stock”), in consideration of up to EIGHTY SIX MILLION (86,000,000) shares of ASIN’s common stock, par value $0.0001 (“Common Stock”), at a value of $0.46 per share of Common Stock (the “Exchange”), on the terms and conditions set forth below;

 

WHEREAS, the parties herein desire the Exchange to be a tax-free exchange under the Internal Revenue Code.

 

NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties and agreements set forth herein, the parties hereto agree as follows:

 

 

ARTICLE I

Definitions

 

In addition to terms defined elsewhere in this Agreement, the following terms when used in this Agreement shall have the meanings indicated below:

 

Affiliate” shall mean with respect to a specified Person, any other Person which, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such Person, and without limiting the generality of the foregoing, includes, with respect to a Person (a) any other Person which beneficially owns or holds ten percent (10%) or more of any class of voting securities or other securities convertible into voting securities of such Person or beneficially owns or holds ten percent (10%) or more of any other equity interests in such Person, (b) any other Person with respect to which such Person beneficially owns or holds ten percent (10%) or more of any class of voting securities or other securities convertible into voting securities of such Person, or owns or holds ten percent (10%) or more of the equity interests of the other Person, and (c) any director or senior officer of such Person. For purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

 

Agreement” shall mean this Share Exchange Agreement together with all exhibits and schedules referred to herein, which exhibits and schedules are incorporated herein and made a part hereof.

 

Closing” shall have the meaning set forth in Section 2.2.

 

Closing Date” shall mean the date that the Closing takes place.

 

 

 

 

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Code” shall mean the Internal Revenue Code of 1986, as amended.

 

Commission or SEC” shall mean the United States Securities and Exchange Commission.

 

Commission Reports” shall mean the Forms 10-K, 10-Q, 8-K, and other Commission filings required by the Securities Exchange Act of 1934, as amended, and Securities Act of 1933, as amended, which have been filed by the Company with the Commission as at the date of this Agreement.

 

Company” shall have the meaning set forth in the recitals.

 

Company Common Stock” shall mean the common stock of the Company at par value of USD $0.0001 per share.

 

Confidential Information” means any information concerning the businesses and affairs of HIHL or the Company that is not already generally available to the public.

 

Consideration” shall mean the consideration of Number of Shares (86,000,000) shares of the Company’s Common Stock, par value $0.0001 to be issued by the Company to the Investors for the acquisition by the Company of one hundred (100) shares of the HIHL Ordinary Stock (representing approximately 100% of the total issued and outstanding shares of the HIHL Ordinary Stock).

 

Effective Time” shall have the meaning set forth in Section 2.3.

 

Environmental Laws” shall mean (i) the common law, and (ii) any and all federal, state and local statutes, regulations, rules, orders, ordinances or permits of any governmental authority which pertain to health, the environment, wildlife and natural resources in effect in any and all jurisdictions in which the applicable company conducts business.

 

Exchange” shall have the meaning set forth in the recitals.

 

Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

Exchange Documents” shall have the meaning set forth in Section 3.2.

 

Financial Statements” shall mean HIHL’s balance sheets, statement of operations, changes in stockholders’ equity and cash flow as of and for the fiscal years ended December 31, 2019 and 2018, and the six months ended June 30, 2020. Financial statements for the years ended December 31, 2019 and 2018, shall be audited by an auditor acceptable to ASIN in its discretion.

 

GAAP” shall mean United States generally accepted accounting principles.

 

“HIHL” shall mean Hanjiao International Holding Limited (Company No.:1985147), a private limited company incorporated under the laws of British Virgin Island having its registered office at Vistra Corporate Services Centre, Wickhams Cay II,Road Town, Tortola, VG1110, British Virgin Islands

 

HIHL Certificates” shall have the meaning set forth in Section 2.4.

 

 

 

 

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HIHL Ordinary Stock” shall mean the ordinary stock of HIHL.

 

Guaranty” shall mean, as to any Person, all liabilities or obligations of such Person, with respect to any indebtedness or other obligations of any other Person, which have been guaranteed, directly or indirectly, in any manner by such Person, through an agreement, contingent or otherwise, to purchase such indebtedness or obligation, or to purchase or sell property or services, primarily for the purpose of enabling the debtor to make payment of such indebtedness or obligation or to guarantee the payment to the owner of such indebtedness or obligation against loss, or to supply funds to or in any manner invest in the debtor.

 

Investor Representative” shall have the meaning set forth in Section 2.6.

 

Investors” shall have the meaning set forth in the recitals.

 

Investments” shall mean, with respect to any Person, all advances, loans or extensions of credit to any other Person (except for extensions of credit to customers in the ordinary course of business), all purchases or commitments to purchase any stock, bonds, notes, debentures or other securities of any other Person, and any other investment in any other Person, including partnerships or joint ventures (whether by capital contribution or otherwise) or other similar arrangement (whether written or oral) with any Person, including, but not limited to, arrangements in which (i) the first Person shares profits and losses of the other Person, (ii) any such other Person has the right to obligate or bind the first Person to any third party, or (iii) the first Person may be wholly or partially liable for the debts or obligations of such partnership, joint venture or other entity.

 

Knowledge” shall mean, in the case of any Person who is an individual, knowledge that a reasonable individual under similar circumstances would have after such reasonable investigation and inquiry as such reasonable individual would under such similar circumstances make, and in the case of a Person other than an individual, the knowledge that a senior officer, director or manager of such Person, or any other Person having responsibility for the particular subject matter at issue of such Person, would have after such reasonable investigation and inquiry as such senior officer, director, manager or responsible Person would under such similar circumstances make.

 

Law” and “Laws” shall mean any federal, state, local or foreign statute, law, ordinance, regulation, rule, code, order or other requirement or rule of law.

 

Liabilities” shall mean any direct or indirect indebtedness, liability, claim, loss, damage, deficiency, obligation or responsibility, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise, including, without limitation, liabilities on account of taxes, other governmental charges or Litigation, whether or not of a kind required by GAAP or International Financial Reporting Standards, as applicable, to be set forth on a financial statement.

 

Litigation” shall mean any actions, suits, investigations, claims or proceedings.

 

Material Adverse Effect” shall mean any event or condition of any character which has had or could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), results of operations, assets, liabilities, properties, or business of the Company or HIHL, as applicable.

 

Person” shall mean any natural person, corporation, unincorporated organization, partnership, association, limited liability company, joint stock company, joint venture, trust or government, or any agency or political subdivision of any government or any other entity.

 

 

 

 

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Securities Act” shall mean the Securities Act of 1933, as amended.

 

Sold HIHL Stock” shall have the meaning set forth in Section 2.4.

 

Subsidiary” of any Person shall mean any Person, whether or not capitalized, in which such Person owns, directly or indirectly, an equity interest of more than fifty percent (50%), or which may effectively be controlled, directly or indirectly, by such Person.

 

Tax” and “Taxes” shall mean (i) all income, excise, gross receipts, ad valorem, sales, use, employment, franchise, profits, gains, property, transfer, payroll, withholding, severance, occupation, social security, unemployment compensation, alternative minimum, value added, intangibles or other taxes, fees, stamp taxes, duties, charges, levies or assessments of any kind whatsoever (whether payable directly or by withholding), together with any interest and any penalties, fines, additions to tax or additional amounts imposed by any governmental or regulatory authority with respect thereto, (ii) any liability for the payment of any amounts of the type described in (i) as a result of being a member of a consolidated, combined, unitary or aggregate group for any Taxable period, and (iii) any liability for the payment of any amounts of the type described in (i) or (ii) as a result of being a transferee or successor to any person or as a result of any express or implied obligation to indemnify any other Person.

 

Tax Returns” shall mean returns, declarations, reports, claims for refund, information returns or other documents (including any related or supporting schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of any Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes.

 

Termination Date” shall have the meaning set forth in Section 6.6.

 

The words “hereof”, “herein” and “hereunder” and the words of similar import shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The terms defined in the singular shall have a comparable meaning when used in the plural and vice versa.

 

 

ARTICLE II

Transactions; Terms of Share Exchange; Manner of Exchange

 

2.1       Exchange of Shares. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined below):

 

(a)                 At the direction of the Investor Representative, the Company shall issue to the Investors up to an aggregate of 86,000,000 shares of Company Common Stock in accordance with Section 2.4 hereof;

 

(b)                Each Investor shall deliver to the Company the original HIHL Certificates evidencing the Sold HIHL Stock and all appropriately executed transfer documents in favor of the Company, in order to effectively transfer to the Company the right, title and interest in and to the Sold HIHL Stock;

 

(c)                 the Exchange shall be consummated pursuant to the terms of this Agreement, which has been approved and adopted by the Boards of Directors of the Company; and

 

(d)                the Securities issued by the Company in connection with this Share Exchange Agreement are issued pursuant to the exemption from registration contained in Regulation S of the Securities Act of 1933.

 

 

 

 

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2.2       Time and Place of Closing. The closing of the transactions contemplated hereby (the “Closing”) will take place at 10:00 A.M. on the date following the satisfaction or waiver of all conditions to the obligations of the parties to consummate the transactions contemplated hereby as set forth in Article VI (other than conditions with respect to actions the respective parties will take at the Closing itself) (the “Closing Date”). The Closing shall be held at the principal office of the Company, or at such other location or time as may be mutually agreed upon by the parties. The parties agree to take all necessary and prompt actions so as to complete the Closing on or before December 31, 2020, or at such other date as may be agreed to by the parties in writing.

 

2.3       Effective Time. The Exchange and other transactions contemplated by this Agreement shall become effective on the Closing Date (the “Effective Time”).

 

2.4      Exchange of Shares. At the Closing, the Investors shall surrender all the share certificates or records which represent in the aggregate of one hundred (100) shares of the HIHL Ordinary Stock (representing up to 100% of the total issued and outstanding shares of HIHL Ordinary Stock) (collectively, the “Sold HIHL Stock”) immediately prior to the Closing Date (the “HIHL Certificates”), and the respective Investors shall, subject to the provisions of Section 5.2 hereof, at the Effective Time receive in exchange therefor that number of shares of the Company Common Stock at an exchange ratio of One HIHL Ordinary Stock for 8,600 shares of the Company Common Stock, all as more fully set forth on Exhibit A, attached hereto and incorporated herein..

 

2.5       Legend On Securities. Each certificate for the shares of the Company Common Stock to be issued to any of the Investors as part of the Consideration shall bear substantially the following legend:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “US SECURITIES ACT”), OR THE SECURITY LAWS OF ANY STATE OF THE UNITED STATES. THEY MAY NOT BE SOLD, OFFERRED FOR SALE, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION OR EXCLUSION FROM STATE SECURITIES LAWS. HEDGING TRANSACTION INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLAINCE WITH THE U.S. SECURITIES ACT”.

 

2.6       Investor Representative. The Investors hereby designate Ms. Tian Xiangyang to serve as the investor representative (the “Investor Representative”). The Investors agree that: (i) the instructions of the Investor Representative to the Company and the acts or omissions of the Investor Representative shall be conclusively deemed to be the instructions, acts or omissions of all of the Investors, and that the Company shall be entitled to rely on such instructions, acts or omissions as if such instructions, actions or omissions were received from or performed or omitted to be performed by all of the Investors; and (ii) all notice and items delivered to the Investor Representative shall be conclusively deemed delivered to all of the Investors.

 

 

ARTICLE III
Representations and Warranties of the Company

 

In order to induce the Investors to enter into this Agreement and to consummate the transactions contemplated hereby, the Company makes the representations and warranties set forth below to HIHL and the Investors.

 

3.1       Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. The Company has all requisite corporate power and authority to carry on its business as presently conducted. The Company is duly qualified to transact business and is in good standing as a foreign corporation in all jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification except where the failure to so qualify would not have a Material Adverse Effect on the Company.

 

 

 

 

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3.2       Authorization; Enforceability. The execution, delivery and performance of this Agreement by the Company and all other agreements to be executed, delivered and performed by the Company pursuant to this Agreement (collectively, the “Exchange Documents”) and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate or individual action on the part of the Company. This Agreement and the Exchange Documents have been duly executed and delivered by the Company, and constitute the legal, valid and binding obligation of the Company, assuming the due authorization, execution and delivery of this Agreement by the Investors, enforceable in accordance with their respective terms, except to the extent that their enforcement is limited by bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors’ rights generally and by general principles of equity.

 

3.3       No Violation or Conflict. To the Knowledge of the Company, the execution, delivery and performance of this Agreement and the Exchange Documents by the Company, and the consummation by the Company of the transactions contemplated hereby and thereby: (a) do not violate or conflict with any provision of law or regulation (whether federal, state or local) of the United States of America, or any writ, order or decree of any court or governmental or regulatory authority, or any provision of the Company’s Articles of Incorporation or Bylaws; and (b) do not and will not, with or without the passage of time or the giving of notice, result in the breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default), cause the acceleration of performance, give to others any right of termination, amendment, acceleration or cancellation of or require any consent under, or result in the creation of any lien, charge or encumbrance upon any property or assets of the Company pursuant to any instrument or agreement to which the Company is a party or by which the Company or its properties may be bound or affected, other than instruments or agreements as to which consent shall have been obtained at or prior to the Closing.

 

3.4       Consents of Governmental Authorities and Others. To the Knowledge of the Company, other than in connection with the provisions of the Exchange Act, and the Securities Act, no consent, approval, order or authorization of, or registration, declaration, qualification or filing with any federal, state or local governmental or regulatory authority, or any other Person, is required to be made by the Company in connection with the execution, delivery or performance of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, excluding the execution, delivery and performance of this Agreement by the Investors.

 

3.5       Conduct of Business. Since December 31, 2018, the Company has conducted its business in the ordinary and usual course consistent with past practices and there has not occurred any Material Adverse Effect on the Company. Except as disclosed in the Commission Reports, the Company has not (a) amended its Articles of Incorporation or Bylaws; (b) issued, sold or authorized for issuance or sale, shares of any class of its securities (including, but not limited to, by way of stock split or dividend) or any subscriptions, options, warrants, rights or convertible securities or entered into any agreements or commitments of any character obligating it to issue or sell any such securities; (c) redeemed, purchased or otherwise acquired, directly or indirectly, any shares of its capital stock or any option, warrant or other right to purchase or acquire any such capital stock; (d) suffered any damage, destruction or loss, whether or not covered by insurance, which has had or could reasonably be expected to have a Material Adverse Effect; granted or made any mortgage or pledge or subjected itself or any of its properties or assets to any lien, charge or encumbrance of any kind; (f) made or committed to make any capital expenditures in excess of USD100,000; (g) become subject to any guaranty; (h) granted any increase in the compensation payable or to become payable to directors, officers or employees (including, without limitation, any such increase pursuant to any severance package, bonus, pension, profit-sharing or other plan or commitment); (i) entered into any agreement which would be a material agreement, or amended or terminated any existing material agreement; (j) to the Knowledge of the Company, been named as a party in any Litigation, or become the focus of any investigation by any government or regulatory agency or authority; (k) declared or paid any dividend or other distribution with respect to its capital stock; or (l) to the Knowledge of the Company, experienced any other event or condition of any character which has had, or could reasonably be expected to have, a Material Adverse Effect on the Company.

 

 

 

 

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3.6       Litigation. There is no Litigation pending or, to the Knowledge of the Company, threatened before any court or by or before any governmental or regulatory authority or arbitrator, (a) affecting the Company (as plaintiff or defendant) or (b) against the Company relating to the Company Common Stock or the transactions contemplated by this Agreement.

 

3.7       Brokers. The Company has not employed any broker or finder, nor has it nor will it incur, directly or indirectly, any broker’s, finder’s, investment banking or similar fees, commissions or expenses in connection with the transactions contemplated by this Agreement or the Exchange Documents.

 

3.8       Compliance. To the Knowledge of the Company, the Company is in compliance with all federal, state, local and foreign laws, ordinances, regulations, judgments, rulings, orders and other requirements applicable to the Company and its assets and properties. To the Knowledge of the Company, the Company is not subject to any judicial, governmental or administrative inquiry, investigation, order, judgment or decree.

 

3.9       Charter, Bylaws and Corporate Records. The Commission Reports contain true, correct and complete copies of (a) the Amended and Restated Articles of Incorporation of the Company, as amended and in effect on the date hereof, (b) the Bylaws of the Company, as amended and in effect on the date hereof.

 

3.10      Subsidiaries. The Company has no Subsidiaries.

 

3.11      Capitalization. As of the date of this Agreement, the authorized capital stock of the Company consists of 100,000,000 shares of common stock, USD $0.0001 par value per share, and 10,000,000 shares of preferred stock, par value $0.0001 of the date of this Agreement, the following securities are authorized and outstanding:

 

Class Authorized Issued and Outstanding
Common 100,000,000 11,201,030
Blank Check Preferred 10,000,000 -
Series A Preferred 1,000 1,000
Series B Preferred 3,000,000 0
Series C Preferred Stock 1,000,000 0

 

All shares of outstanding Company Common Stock have been duly authorized, are validly issued and outstanding, and are fully paid and non-assessable.

 

3.12      Rights, Warrants, Options. Except as set forth in the Commission Reports, there are no outstanding (a) securities or instruments convertible into or exercisable for any of the capital stock or other equity interests of the Company; (b) options, warrants, subscriptions, puts, calls, or other rights to acquire capital stock or other equity interests of the Company; or (c) commitments, agreements or understandings of any kind, including employee benefit arrangements, relating to the issuance or repurchase by the Company of any capital stock or other equity interests of the Company, or any instruments convertible or exercisable for any such securities or any options, warrants or rights to acquire such securities.

 

 

 

 

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3.13       Commission Filings and Financial Statements. To the Company’s Knowledge, all of the Commission Reports required to be filed by the Company have been filed with the Commission for the periods indicated in the definition of Commission Reports, and as of the date filed, each of the Commission Reports were true, accurate and complete in all material respects and did not omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. The financial statements included in the Commission Reports of the Company: (a) have been prepared in accordance with the books of account and records of the Company; (b) fairly present, and are true, correct and complete statements in all material respects of the Company’s financial condition and the results of its operations at the dates and for the periods specified in those statements; and (c) have been prepared in accordance with US GAAP consistently applied with prior periods.

 

3.14       Absence of Undisclosed Liabilities. Other than as disclosed by the Commission Reports and the financial statements of the Company included in the Commission Reports, the Company does not have any Liabilities. The Company has no Knowledge of any circumstances, conditions, events or arrangements which may hereafter give rise to any Liabilities of the Company.

 

3.15       Real Property. The Company does not own any fee simple interest in real property. The Company does not lease, sublease, or have any other contractual interest in any real property.

 

3.16       Benefit Plans and Agreements. Except as disclosed in the Commission Reports, the Company is not a party to any Benefit Plan (as defined in Section 4.17) or employment agreement under which the Company currently has an obligation to provide benefits to any current or former employee, officer, director, consultant or advisor of the Company.

 

3.17       Material Agreements. Except as disclosed in the Commission Reports, the Company has no other material written and oral contracts or agreements including without limitation any: (i) contract resulting in a commitment or potential commitment for expenditure or other obligation or potential obligation, or which provides for the receipt or potential receipt, involving in excess of One Hundred Thousand Dollars (USD100,000.00) in any instance, or series of related contracts that in the aggregate give rise to rights or obligations exceeding such amount; (ii) indenture, mortgage, promissory note, loan agreement, guarantee or other agreement or commitment for the borrowing or lending of money or encumbrance of assets involving more than One Hundred Thousand Dollars (USD100,000.00) in each instance; (iii) agreement which restricts the Company from engaging in any line of business or from competing with any other Person; or (iv) any other contract, agreement, instrument, arrangement or commitment that is material to the condition (financial or otherwise), results of operation, assets, properties, liabilities, or business of the Company (collectively, and together with the employment agreements, Employee Benefit Plans and all other agreements required to be disclosed on any schedule to this Agreement, the “Material Company Agreements”).

 

3.18       Disclosure. No representation or warranty of the Company contained in this Agreement, and no statement, report, or certificate furnished by or on behalf of the Company to Investor pursuant hereto or in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading or omits to state a material fact necessary in order to provide Investor with full and proper information as to the business, financial condition, assets, liabilities, and results of operation of the Company and the value of the properties or the ownership of the Company.

 

 

ARTICLE IV

Representations and Warranties of the Investors

 

In order to induce the Company to enter into this Agreement and to consummate the transactions contemplated hereby, HIHL and each Investor hereby severally and not jointly makes the representations and warranties set forth below to the Company. The parties agree that except for the representations and warranties set forth in Sections 4.2, 4.6, 4.9 and 4.20, each representation made by the Investors in this Article IV is made to the best Knowledge of such Investor.

 

 

 

 

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4.1       Organization. HIHL is a private limited company duly organized, validly existing and in good standing under the laws of British Virgin Island. HIHL has all requisite corporate power and authority to carry on its business as presently conducted. HIHL is duly qualified to transact business in British Virgin Island and is in good standing as a foreign corporation in all jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification except where the failure to so qualify would not have a Material Adverse Effect on HIHL.

 

4.2       Authorization; Enforceability. HIHL and each Investor have the capacity to execute, deliver and perform this Agreement. This Agreement and all other documents executed and delivered by HIHL and Investor pursuant to this Agreement have been duly executed and delivered and constitute the legal, valid and binding obligations of HIHL and Investor, as applicable, assuming the due authorization, execution and delivery of this Agreement by the Company, enforceable in accordance with their respective terms, except to the extent that their enforcement is limited by bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors’ rights generally and by general principals of equity.

 

4.3       No Violation or Conflict. The execution, delivery and performance of this Agreement and the other documents contemplated hereby by HIHL and Investor, and the consummation by Investor of the transactions contemplated hereby: (a) do not violate or conflict with any provision of law or regulation of Malaysia, or any writ, order or decree of any court or governmental or regulatory authority, or any provision of HIHL’s memorandum and articles of association; and (b) do not and will not, with or without the passage of time or the giving of notice, result in the breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default), cause the acceleration of performance, give to others any right of termination, amendment, acceleration or cancellation of or require any consent under, or result in the creation of any lien, charge or encumbrance upon any property or assets of HIHL pursuant to any instrument or agreement to which HIHL is a party or by which HIHL or its properties may be bound or affected, other than instruments or agreements as to which consent shall have been obtained at or prior to the Closing.

 

4.4        Consents of Governmental Authorities and Others. No consent, approval or authorization of, or registration, qualification or filing with governmental or regulatory authority, or any other Person, is required to be made by HIHL or Investor in connection with the execution, delivery or performance of this Agreement by HIHL or Investor, as applicable, or the consummation by HIHL or Investor of the transactions contemplated hereby, excluding the execution, delivery and performance of this Agreement by the Company.

 

4.5        Litigation. There is no Litigation pending or threatened before any court or by or before any governmental or regulatory authority or arbitrator (a) affecting HIHL (as plaintiff or defendant) or (b) against HIHL relating to HIHL Ordinary Stock or the transactions contemplated by this Agreement.

 

4.6       Brokers. None of HIHL nor Investor has employed any broker or finder, and has not incurred and will not incur, directly or indirectly, any broker’s, finder’s, investment banking or similar fees, commissions or expenses in connection with the transactions contemplated by this Agreement or the Exchange Documents.

 

4.7       Compliance. HIHL is in compliance with all ordinances, regulations, judgments, rulings, orders and other requirements imposed by the government of the Malaysia applicable to HIHL and its assets and properties, except where such noncompliance would not have a Material Adverse Effect on HIHL. To the Knowledge of HIHL and Investor, it is not subject to any judicial, governmental or administrative inquiry, investigation, order, judgment or decree.

 

4.8       Charter, Bylaws and Corporate Records. The Company has been provided with true, correct and complete copies of (a) the memorandum and articles of association of HIHL, as amended and in effect on the date hereof and (b) the minute book of HIHL (containing all corporate proceedings from the date of incorporation). Such minute book contains accurate records of all meetings and other corporate actions of the board of directors, committees of the board of directors, incorporators and shareholders of HIHL from the date of its incorporation to the date hereof which were memorialized in writing.

 

 

 

 

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4.9       Capitalization. HIHL has authorized 50,000 shares of HIHL Ordinary Stock, of which one hundred (100) shares are issued and outstanding. The issued and outstanding shares of HIHL Ordinary Stock constitute one hundred percent (100%) of the issued and outstanding capital stock of HIHL. All of the outstanding shares of HIHL Ordinary Stock have been duly authorized, are validly issued and outstanding, and are fully paid and non-assessable. There are no dividends which have accrued or been declared but are unpaid on the capital stock of HIHL.

 

4.10       Subsidiaries. HIHL has the following Subsidiaries and Variable Interest Entity:

 

LuJi Technology International Holding Limited

Inooka Holding Limited

Beijing Hongtao Management Consulting Company Limited

Beijing Luji Technology Company Limited

Guoyi Investment Fund Management (Beijing) Company Limited

 

4.11       Rights, Warrants, Options. There are no outstanding: (a) securities or instruments convertible into or exercisable for any of the capital stock or other equity interests of HIHL; (b) options, warrants, subscriptions or other rights to acquire capital stock or other equity interests of HIHL; or (c) commitments, agreements or understandings of any kind, including employee benefit arrangements, relating to the issuance or repurchase by HIHL of any capital stock or other equity interests of HIHL, or any instruments convertible or exercisable for any such securities or any options, warrants or rights to acquire such securities.

 

4.12       Conduct of Business. Except as set forth below, since December 31, 2018, HIHL has conducted its business in the ordinary and usual course consistent with past practices and there has not occurred any Material Adverse Effect in the condition (financial or otherwise), results of operations, properties, assets, liabilities, or business of HIHL. Since December 31, 2018, HIHL has not (a) amended its memorandum and articles of association; (b) issued, sold or authorized for issuance or sale, shares of any class of its securities (including, but not limited to, by way of stock split or dividend) or any subscriptions, options, warrants, rights or convertible securities or entered into any agreements or commitments of any character obligating it to issue or sell any such securities; (c) redeemed, purchased or otherwise acquired, directly or indirectly, any shares of its capital stock or any option, warrant or other right to purchase or acquire any such capital stock; (d) suffered any damage, destruction or loss, whether or not covered by insurance, which has had or could reasonably be expected to have a Material Adverse Effect on any of its properties, assets, or business; granted or made any mortgage or pledge or subjected itself or any of its properties or assets to any lien, charge or encumbrance of any kind; (f) made or committed to make any capital expenditures in excess of USD100,000; (g) become subject to any guaranty; (h) granted any increase in the compensation payable or to become payable to directors, officers or employees (including, without limitation, any such increase pursuant to any severance package, bonus, pension, profit-sharing or other plan or commitment); (i) entered into any agreement which would be a material agreement, or amended or terminated any existing material agreement; (j) been named as a party in any Litigation, or become the focus of any investigation by any government or regulatory agency or authority; (k) declared or paid any dividend or other distribution with respect to its capital stock; or (l) experienced any other event or condition of any character which has had, or could reasonably be expected to have, a Material Adverse Effect on HIHL.

 

4.13       Taxes.

 

(a)                 all Taxes payable by HIHL (if any) have been fully and timely paid or are fully provided for;

 

(b)                neither HIHL nor any Person on behalf of or with respect to HIHL has executed or filed any agreements or waivers extending any statute of limitations on or extending the period for the assessment or collection of any Tax. No power of attorney on behalf of HIHL with respect to any Tax matter is currently in force;

 

 

 

 

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(c)                 HIHL is not a party to any Tax-sharing agreement or similar arrangement with any other party (whether or not written), and HIHL has not assumed any Tax obligations of, or with respect to any transaction relating to, any other Person, or agreed to indemnify any other Person with respect to any Tax;

 

(d)                no Tax Return concerning or relating to HIHL or its operations has ever been audited by a government or taxing authority, nor is any such audit in process or pending, and HIHL has not been notified of any request for such an audit or other examination. To the Knowledge of Investor, no claim has been made by a taxing authority in a jurisdiction where Tax Returns concerning or relating to HIHL or its operations have not been filed, that it is or may be subject to taxation by that jurisdiction;

 

(e)                 HIHL has never been included in any consolidated, combined, or unitary Tax Return; and

 

(f)                 HIHL has complied in all material respects with all applicable Laws relating to the payment and withholding of Taxes, and has duly and timely withheld from employee salaries, wages and other compensation, and has paid over to the appropriate taxing authorities, all amounts required to be so withheld and paid over for all periods under all applicable laws.

 

4.14       Environmental Matters. (a) No real property used by HIHL presently or in the past has been used to manufacture, treat, store, or dispose of any hazardous substance and such property is free of all such substances such that the condition of the property is in compliance with applicable Environmental Laws; (b) HIHL is in compliance with all Environmental Laws applicable to HIHL or its business as a result of any hazardous substance utilized by HIHL in its business or otherwise placed at any of the facilities owned, leased or operated by HIHL, or in which HIHL has a contractual interest; (c) HIHL has not received any complaint, notice, order, or citation of any actual, threatened or alleged noncompliance by HIHL with any Environmental Laws; and (d) there is no Litigation pending or threatened against HIHL with respect to any violation or alleged violation of the Environmental Laws, and there is no reasonable basis for the institution of any such Litigation.

 

4.15       Financial Statements. The Financial Statements shall: (a) have been prepared in accordance with the books of account and records of HIHL; (b) fairly present, and are true, correct and complete statements in all material respects of HIHL’s financial condition and the results of its operations at the dates and for the periods specified in those statements; and (c) have been prepared in accordance with International Financial Reporting Standards consistently applied with prior periods.

 

4.16       Absence of Undisclosed Liabilities. Other than as disclosed in the Financial Statements, HIHL does not have any Liabilities. None of HIHL nor Investor has any Knowledge of any circumstances, conditions, events or arrangements which may hereafter give rise to any Liabilities of HIHL.

 

4.17       Employment Agreements; Employee Benefit Plans and Employee Payments. HIHL is not a party to any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement or understanding (whether or not legally binding) under which HIHL currently has an obligation to provide benefits to any current or former employee, officer, director, consultant or advisor of HIHL (collectively, “Benefit Plans”).

 

4.18       Assets & Liabilities. HIHL has good, clear and marketable title to all the tangible properties and tangible assets reflected in the Financial Statements as being owned by HIHL or acquired after the date thereof which are, individually or in the aggregate, material to HIHL’s business (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business), free and clear of all material liens.

 

 

 

 

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4.19       Disclosure. No representation or warranty of HIHL or Investor contained in this Agreement, and no statement, report, or certificate furnished by or on behalf of Investor to the Company pursuant hereto or in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading or omits to state a material fact necessary in order to provide the Company with full and proper information as to the business, financial condition, assets, liabilities, or results of operation of HIHL and the value of the properties or the ownership of HIHL.

 

4.20       Further Representations and Warranties. The Investors (by their respective signatures) further hereby represent and warrant to the Company that:

 

a.                  They understand that the shares of the Company Common Stock (collectively, the “Securities”) to be issued to them pursuant to this Agreement HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES AGENCIES AND NO REGISTRATION STATEMENT HAS BEEN FILED WITH ANY REGULATORY AGENCY;

 

b.                  They are not an underwriter and would be acquiring the Securities solely for investment for his or her own account and not with a view to, or for, resale in connection with any distribution within the meaning of the federal securities act, the state securities acts or any other applicable state securities acts;

 

c.                  They are not a person in the United States of America and at the time the buy order was originated, were outside the United States of America and are not a citizen of the United States (a “U.S. person”) as that term is defined in Regulation S of the Securities Act and was not formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act;

 

d.                  They understand the speculative nature and risks of investments associated with the Company, and confirm that the acquisition of the Securities would be suitable and consistent with their investment program and that their financial position enables him or her to bear the risks of this investment;

 

e.                  To the extent that any federal, and/or state securities laws shall require, they hereby agree that any securities acquired pursuant to this Agreement shall be without preference as to assets;

 

f.                  The certificate for shares of the Securities will contain a legend that transfer is prohibited except in accordance with the provisions of Regulation S;

 

g.                  They have had the opportunity to ask questions of the Company and have received all information from the Company to the extent that the Company possessed such information, necessary to evaluate the merits and risks of any investment in the Company. Further, they acknowledge receipt of: (1) all material books, records and financial statements of the Company; (2) all material contracts and documents relating to the proposed transaction; (3) all documents and reports filed with the Commission; and, (4) an opportunity to question the appropriate executive officers or partners;

 

h.                  They have satisfied the suitability standards and securities laws imposed by the government of the respective country he or she resides;

 

i.                   They have adequate means of providing for their current needs and personal contingencies and have no need to sell the Securities acquired in the foreseeable future (that is at the time of the investment, they can afford to hold the investment for an indefinite period of time);

 

 

 

 

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j.                  They have sufficient knowledge and experience in financial matters to evaluate the merits and risks of this investment and further, are capable of reading and interpreting financial statements. Further, they are “sophisticated investors” as that term is defined in applicable court cases and the rules, regulations and decisions of the United States Securities and Exchange Commission;

 

k.                  The offer and sale of the Securities referred to herein is being made outside the United States within the meaning of and in full compliance with Regulation S;

 

l.                   They are not a U. S. person within the meaning of Regulation S and are not acquiring the Shares for the account or benefit of any U. S. person;

 

m.                 They hereby agree not to engage in any hedging transactions involving the securities described herein unless in compliance with the Securities Act and Regulation S promulgated thereunder; and

 

n.                  They agree to resell such Securities only in accordance with the provisions of Regulation S, pursuant to registration under the Securities Act, or pursuant to an available exemption from registration.

 

 

ARTICLE V

Additional Agreements

 

5.1       Survival of the Representations and Warranties. The representations and warranties and covenants set forth in Article III and Article IV of this Agreement shall survive the Closing until the expiration of twelve (12) months from the Closing Date. No claim for indemnity with respect to breaches of representations and warranties may be brought by any party hereto, other than a claim for fraud or intentional misrepresentation, after expiration of the applicable survival period therefore as set forth in this Section 5.1.

 

5.2       Investigation. The representations, warranties, covenants and agreements set forth in this Agreement shall not be affected or diminished in any way by any investigation (or failure to investigate) at any time by or on behalf of the party for whose benefit such representations, warranties, covenants and agreements were made. All statements contained herein or in any schedule, certificate, exhibit, list or other document required to be delivered pursuant hereto, shall be deemed to be representations and warranties for purposes of this Agreement; provided, that any knowledge or materiality qualifications contained herein shall be applicable to such other documents.

 

5.3       General Confidentiality. Each of the parties hereto will treat and hold as such all of the Confidential Information of the other party, refrain from using any of the Confidential Information except in connection with this Agreement, and unless there is a closing on the Exchange, deliver promptly to the owner of such Confidential Information or destroy, at the request and option of the owner of the Confidential Information, all tangible embodiments (and all copies) of the Confidential Information which are in its possession. In the event that any of the parties is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, that party will notify the affected party promptly of the request or requirement so that the affected party may seek an appropriate protective order or waive compliance with the provisions of this Section 5.3. If, in the absence of a protective order or the receipt of a waiver hereunder, any of the parties is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, that Party may disclose the Confidential Information to the tribunal; provided, however, that the disclosing party shall use its commercially reasonable efforts to obtain, at the request of the affected party, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the affected party shall designate. The foregoing provisions shall not apply to any Confidential Information which is generally available to the public immediately prior to the time of disclosure.

 

 

 

 

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5.4       Tax Treatment. Neither the Company nor Investors will knowingly take any action, written or otherwise, which would result in the transactions contemplated by this Agreement not being accounted for as tax-free exchange under the Code.

 

5.5       General. In case at any time after the Closing Date any further action is necessary to carry out the purposes of this Agreement, each of the parties will take such further action (including the execution and delivery of such further instruments and documents) as the other party reasonably may request, all at the sole cost and expense of the requesting party.

 

 

ARTICLE VI

Closing; Deliveries; Conditions Precedent

 

6.1       Closing; Effective Date. All proceedings taken and all documents executed at the Closing shall be deemed to have been taken, delivered and executed simultaneously, and no proceeding shall be deemed taken nor documents deemed executed or delivered until all have been taken, delivered and executed.

 

6.2       Deliveries

 

(a)                At Closing, the Company shall deliver the following documents to the Investor Representative:

 

(i)                  a certificate, dated the Closing Date, signed by the Secretary of the Company setting forth that: (i) authorizing resolutions were adopted by all the directors of the Company approving the acquisition of the Sold HIHL Stock by the Company from the Investors in consideration of 86,000,000 shares of the Company Common Stock in aggregate to the Investors and the Exchange under the terms and conditions of this Agreement; and (ii) the Company’s transfer agent has been authorized to issue the shares of the Company Common Stock to the Investors in accordance with Section 2.4 hereof (the aggregate of which represents the Consideration) and the other documents contemplated hereby and the transactions contemplated hereby and thereby.

 

(ii)                the certificate referred to in Section 6.3(d).

 

(b)                At Closing, the Investor Representative and HIHL shall deliver the following documents to the Company:

 

(i)                  A power of attorney executed by the Investors appointing the Investor Representative as attorney-in-fact to negotiate and execute this Agreement and any amendments thereto on behalf of the Investors;

 

(ii)                the HIHL Certificates or Records representing all of the Sold HIHL Stock (i.e. 100% of the issued and outstanding shares of HIHL Ordinary Stock);

 

(iii)               a certificate from a director or the company secretary of HIHL, as of a recent date, as to the good standing of HIHL and certifying its Memorandum and Articles of Association;

 

(iv)               certificates, dated the Closing Date, signed by the Chief Executive Officer of HIHL setting forth that authorizing resolutions were adopted by HIHL’s Board of Directors approving the transfer of all the Sold HIHL Stock to the Company, this Agreement and the other documents contemplated hereby and the transactions contemplated hereby and thereby;

 

(v)                the Financial Statements; and

 

(vi)               the certificates referred to in Section 6.4(d).

 

 

 

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6.3       Conditions Precedent to the Obligations of HIHL and the Investors. Each and every obligation to consummate the transactions described in this Agreement and any and all liability of HIHL and the Investors to the Company shall be subject to the following conditions precedent:

 

(a)                 Representations and Warranties True. Each of the representations and warranties of the Company contained herein or in any certificate or other document delivered pursuant to this Agreement or in connection with the transactions contemplated hereby shall be true and correct in all material respects as of the Closing Date with the same force and effect as though made on and as of such date.

 

(b)                Performance. The Company shall have performed and complied in all material respects with all of the agreements, covenants and obligations required under this Agreement to be performed or complied with by it on or prior to the Closing Date.

 

(c)                 No Material Adverse Change. Except as expressly permitted or contemplated by this Agreement, no event or condition shall have occurred which has adversely affected or may adversely affect in any respect the condition (financial or otherwise) of the Company between the date of execution of this Agreement and the Closing Date.

 

(d)                The Company’s Certificate. The Company shall have delivered to Investor a certificate dated the Closing Date and signed by a director of the Company, certifying that the conditions specified in Sections 6.3(a), (b) and (c) above have been fulfilled.

 

(e)                 Consents. The Company shall have obtained all authorizations, consents, waivers and approvals as may be required to consummate the transactions contemplated by this Agreement.

 

6.4       Conditions Precedent to the Obligations of the Company. Each and every obligation of the Company to consummate the transactions described in this Agreement and any and all liability of the Company to HIHL and the Investors shall be subject to the fulfilment of the following conditions precedent:

 

(a)                 Representations and Warranties True. Each of the representations and warranties of HIHL and the Investors contained herein or in any certificate or other document delivered pursuant to this Agreement or in connection with the transactions contemplated hereby shall be true and correct in all material respects as of the Closing Date with the same force and effect as though made on and as of such date.

 

(b)                Performance. HIHL and the Investors shall have performed and complied in all material respects with all of the agreements, covenants and obligations required under this Agreement to be performed or complied with by it on or prior to the Closing Date.

 

(c)                 No Material Adverse Change. Except as expressly permitted or contemplated by this Agreement, no event or condition shall have occurred which has adversely affected or may adversely affect in any respect the condition (financial or otherwise) of HIHL between the date of execution of this Agreement and the Closing Date.

 

(d)                Investor’s Certificates. HIHL and the Investor Representative shall have delivered a certificate or Records addressed to the Company, dated the Closing Date, certifying that the conditions specified in Sections 6.4(a), (b) and (c) above have been fulfilled.

 

(e)                 Consents. HIHL and the Investors shall have obtained all authorizations, consents, waivers and approvals as may be required to consummate the transactions contemplated by this Agreement, including but not limited to those with respect to any material agreement of HIHL.

 

 

 

 

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(f)                 Due Diligence Review. The Company shall have completed within thirty (30) days from the date of this Agreement of its due diligence investigation of HIHL to its satisfaction.

 

(g)                Financial Statements. HIHL shall have delivered to the Company the Financial Statements. The Financial Statements shall: (a) have been prepared in accordance with the books of account and records of HIHL; (b) fairly present, and are true, correct and complete statements in all material respects of HIHL’s financial condition and the results of its operations at the dates and for the periods specified in those statements; and (c) have been prepared in accordance with US GAAP consistently applied with prior periods.

 

6.5       Best Efforts. Subject to the terms and conditions provided in this Agreement, each of the parties shall use their respective best efforts in good faith to take or cause to be taken as promptly as practicable all reasonable actions that are within its power to cause to be fulfilled those of the conditions precedent to its obligations or the obligations of the other parties to consummate the transactions contemplated by this Agreement that are dependent upon its actions, including obtaining all necessary consents, authorizations, orders, approvals and waivers.

 

6.6       Termination. This Agreement and the transactions contemplated hereby may be terminated at any time prior to the occurrence of the Closing by the mutual consent of the parties hereto; (b) by the Company, if the Closing has not occurred on or prior to September 30, 2020, or such other date as may be agreed to by the parties hereto (such date of termination being referred to herein as the “Termination Date”), provided the failure of the Closing to occur by such date is not the result of the failure of the party seeking to terminate this Agreement to perform or fulfil any of its obligations hereunder; (c) by HIHL or any Investor solely with respect to such Investor and HIHL Ordinary Stock held by such Investor at any time at or prior to Closing in such Investor’s sole discretion if (i) any of the representations or warranties of the Company in this Agreement are not in all material respects true, accurate and complete or if the Company breaches in any material respect any covenant contained in this Agreement, provided that such misrepresentation or breach is not cured within fourteen (14) days after notice thereof, but in any event prior to the Termination Date or (ii) any of the conditions precedent to the Company’s obligations to conduct the Closing have not been satisfied by the date required thereof; or (d) by the Company at any time at or prior to Closing in its sole discretion if (i) any of the representations or warranties of Investor in this Agreement are not in all material respects true, accurate and complete or if Investor breaches in any material respect any covenant contained in this Agreement, provided that such misrepresentation or breach is not cured within fourteen (14) days after notice thereof, but in any event prior to the Termination Date or (ii) any of the conditions precedent to the obligation of HIHL and or the Investor to conduct the Closing have not been satisfied by the date required thereof. If this Agreement is terminated pursuant to this Section 6.6, written notice thereof shall promptly be given by the party electing such termination to the other party and, subject to the expiration of the cure periods provided in clauses (c) and (d) above, if any, this Agreement shall terminate without further actions by the parties and no party shall have any further obligations under this Agreement.

 

6.7       Shares Issuance. Within Thirty (30) days after the Closing, the Company shall take all necessary steps to issue and deliver to the Investor Representative the share certificates evidencing the Company Common Stock issuable in the names of the respective Investors for the respective number of shares to which such Investors are entitled pursuant to Section 2.4 hereof.

 

 

ARTICLE VII

Miscellaneous

 

7.1       Notices. Any notice, demand, claim or other communication under this Agreement shall be in writing and delivered personally or sent by certified mail, return receipt requested, postage prepaid, or sent by facsimile or prepaid overnight courier to the parties at the addresses as follows (or at such other addresses as shall be specified by the parties by like notice):

 

If to the Company: AS CAPITAL, INC.
  Room 1206, 11th Floor, 301, 3-17 F, Building 5
  Block 1 Hangfeng Road
  Fengtai District, Beijing, China
  Attn: Secretary
   
If to HIHL or Investor: To the address set forth below HIHL or such Investor’s signature, as applicable

 

 

 

 

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Such notice shall be deemed delivered upon receipt against acknowledgment thereof if delivered personally, on the third business day following mailing if sent by certified mail, upon transmission against confirmation if sent by facsimile and on the next business day if sent by overnight courier.

 

7.2       Entire Agreement; Incorporation. This Agreement and the documents and instruments and other agreements among the parties hereto as contemplated by or referred to herein contain every obligation and understanding between the parties relating to the subject matter hereof and merges all prior discussions, negotiations, agreements and understandings, both written and oral, if any, between them, and none of the parties shall be bound by any conditions, definitions, understandings, warranties or representations other than as expressly provided or referred to herein. All schedules, exhibits and other documents and agreements executed and delivered pursuant hereto are incorporated herein as if set forth in their entirety herein.

 

7.3       Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, personal representatives, legal representatives, and permitted assigns.

 

7.4       Assignment. This Agreement may not be assigned by any party without the written prior consent of the other party. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.

 

7.5       Waiver and Amendment. Any representation, warranty, covenant, term or condition of this Agreement which may legally be waived, may be waived, or the time of performance thereof extended, at any time by the party hereto entitled to the benefit thereof, and any term, condition or covenant hereof (including, without limitation, the period during which any condition is to be satisfied or any obligation performed) may be amended by the parties thereto at any time. Any such waiver, extension or amendment shall be evidenced by an instrument in writing executed on behalf of the party against whom such waiver, extension or amendment is sought to be charged. No waiver by any party hereto, whether express or implied, of its rights under any provision of this Agreement shall constitute a waiver of such party’s rights under such provisions at any other time or a waiver of such party’s rights under any other provision of this Agreement. No failure by any party thereof to take any action against any breach of this Agreement or default by another party shall constitute a waiver of the former party’s right to enforce any provision of this Agreement or to take action against such breach or default or any subsequent breach or default by such other party.

 

7.6       No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any Person other than the parties hereto and their respective heirs, personal representatives, legal representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement, except as otherwise provided herein.

 

7.7       Severability. In the event that any one or more of the provisions contained in this Agreement, or the application thereof, shall be declared invalid, void or unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall remain in full force and effect and the application of such provision to other Persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such invalid, void or unenforceable provision with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid, void or unenforceable provision.

 

7.8       Expenses. Except as otherwise provided herein, each party agrees to pay, without right of reimbursement from the other party, the costs incurred by it incident to the performance of its obligations under this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, costs incident to the preparation of this Agreement, and the fees and disbursements of counsel, accountants and consultants employed by such party in connection herewith.

 

7.9       Headings. The table of contents and the section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of any provisions of this Agreement.

 

 

 

 

  17  

 

 

7.10       Other Remedies; Injunctive Relief. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that subject to Section 7.13 hereof, the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court in the state of Nevada, this being in addition to any other remedy to which they are entitled at law or in equity. In any action at law or suit in equity to enforce this Agreement or the rights of the parties hereunder, the prevailing party in any such action or suit shall be entitled to receive a reasonable sum for its attorneys’ fees and all other reasonable costs and expenses incurred in such action or suit.

 

7.11       Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Facsimile signatures shall be deemed valid and binding.

 

7.12       Governing Law. This Agreement has been entered into and shall be construed and enforced in accordance with the laws of the State of Nevada, without reference to the choice of law principles thereof.

 

7.13       Jurisdiction and Venue. This Agreement shall be subject to the jurisdiction of the courts of the State of Nevada. The parties to this Agreement agree that any breach of any term or condition of this Agreement shall be deemed to be a breach occurring in the State of Nevada by virtue of a failure to perform an act required to be performed in the State of Nevada and irrevocably and expressly agree to submit to the jurisdiction of the courts of the State of Nevada for the purpose of resolving any disputes among the parties relating to this Agreement or the transactions contemplated hereby. The parties irrevocably waive, to the fullest extent permitted by law, any objection which they may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement, or any judgment entered by any court in respect hereof brought in the State of Nevada, and further irrevocably waive any claim that any suit, action or proceeding brought in the State of Nevada has been brought in an inconvenient forum.

 

7.14       Participation of Parties. The parties hereby agree that they have consulted their respective counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding, or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.

 

7.15       Further Assurances. The parties hereto shall deliver any and all other instruments or documents reasonably required to be delivered pursuant to, or necessary or proper in order to give effect to, all of the terms and provisions of this Agreement including, without limitation, all necessary stock powers and such other instruments of transfer as may be necessary or desirable to transfer full and complete ownership of the Sold HIHL Stock to the Company or the issuance of the applicable Securities to the Investors for the Consideration, as the case may be, free and clear of any liens or encumbrances.

 

7.16       Publicity. No public announcement or other publicity concerning this Agreement or the transactions contemplated hereby shall be made without the prior written consent of both the Company and HIHL as to form, content, timing and manner of distribution. Nothing contained herein shall prevent any party from making any filing required by federal or state securities laws or stock exchange rules of the United States of America.

 

7.17       No Solicitation. None of HIHL, Investor nor the Company shall authorize or permit any of its officers, directors, agents, representatives, managers, members, agents, or advisors to solicit, initiate or encourage or take any action to facilitate the submission of inquiries, proposals or offers from any person relating to any matter concerning any merger, consolidation, business combination, recapitalization or similar transaction involving HIHL or the Company, respectively, other than the transaction contemplated by this Agreement or any other transaction the consummation of which would or could reasonably be expected to impede, interfere with, prevent or delay the Exchange or which would or could be expected to dilute the benefits to each of the parties of the transactions contemplated hereby. Investor and the Company will immediately cease and cause to be terminated any existing activities, discussions and negotiations with any parties conducted heretofore with respect to any of the foregoing.

 

 

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IN WITNESS WHEREOF, the parties hereto have each executed and delivered this Agreement as of the day and year first above written.

 

AS CAPITAL, INC.

 

 

 

By: /s/ Xue Ran Gao                                                            

       Xue Ran Gao, Chief Executive Officer and Director

 

 

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INVESTOR

 

 

 

/s/ Tian Xiangyang                                                              

Signature

 

Tian Xiangyang                                                                   

Print Name

 

                              

No. of HanJiao International Holding Limited’s Ordinary Shares

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  20  

 

 

INVESTOR

 

 

 

/s/ Liu Zexian                                                                        

Signature

 

Liu Zexian                                                                              

Print Name

 

                              

No. of HanJiao International Holding Limited’s Ordinary Shares

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  21  

 

 

INVESTOR

 

 

 

/s/ Gao Xuewei                                                                     

Signature

 

Gao Xuewei                                                                           

Print Name

 

                              

No. of HanJiao International Holding Limited’s Ordinary Shares

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  22  

 

 

INVESTOR

 

 

 

/s/ Li Chunduo                                                                     

Signature

 

Li Chunduo                                                                           

Print Name

 

                              

No. of HanJiao International Holding Limited’s Ordinary Shares

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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EXHIBIT A

 

INVESTORS

 

Name No. of HIHL Ordinary Stock No. of Company Common Stock
Tian Xiangyang, on behalf of Rhone Holding Limited 80 68,800,000
Tian Zhihai, on behalf of Donau Holding Limited 5 4,300,000
Liu Zexian, on behalf of Rhein Holding Limited 5 4,300,000
Li Chunduo, on behalf of Mississippi Holding Limited 5 4,300,000
Gao XueWei, on behalf of Missouri Holding Limited 5 4,300,000
TOTAL   86,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  24  

 

Exhibit 10.2

 

Share Purchase Agreement

 

Transferee: Beijing Luji Science and Technology Co., Ltd. (hereinafter referred to as Party A)
Legal Representative: Tian Xiangyang
Unified social credit code: 91110107660543246W

 

Transferor: Rongcheng Health Group Co., Ltd.  (hereinafter referred to as Party B)
Legal Representative: Wang Jiankang
Unified social credit code: 91371082326214375N

 

Target Company: Rongcheng Tianrun Taxus Chinensis Co., Ltd.  (hereinafter referred to as “Party C”)
Legal Representative: Liang Yingjun
Unified social credit code: 9137108232621421X5

 

The above-mentioned Party A, Party B and Party C are individually referred to as “One Party” and collectively referred to as “Parties”.

 

Subject to the provisions of relevant laws and regulations of the People’s Republic of China, all parties have reached the Agreement on Party A’s acquisition of part of Party C’s shares held by Party B through friendly negotiations and in line with the wishes of “equality and mutual benefit, complementary advantages, resource sharing and win-win cooperation”, and solemnly declare to abide by it.

 

Article 1 Investment Methods

 

1. Party A acquires 44% of Party C’s shares held by Party B in currency, and the transfer price of the shares is RMB 79.83 million (in words: RMB seventy-nine million eight hundred and thirty thousand only).

 

Payment method: Party A shall pay all the money within 1 month from the date of signing this Agreement.

 

2. All debts incurred by Party C before Party A becomes a shareholder of Party C (i.e. Before the completion of the industrial and commercial change registration for this share transfer) shall be paid off by Party B and have nothing to do with Party A; In case of advances paid by Party A, Party A shall be entitled to recover from Party B, and Party B shall immediately repay Party A.

 

3. Party B shall make a detailed written explanation to Party A on all creditor’s rights and debts of Party C before this acquisition. The written explanation, as an annex to this Contract, shall have the same legal effect as the Contract. If Party B fails to truthfully inform Party A about the debts incurred by Party C before the equity transfer, thus causing Party A to suffer losses after becoming a shareholder of Party C, Party A has the right to recover from Party B.

 

4. After the completion of this acquisition, Party A will not participate in the daily specific business activities of Party C and will exercise the corresponding shareholder rights according to its shares.

 

 

 

  1  

 

 

Article 2 Procedures for Change of Registration

 

Parties agree that within 10 working days from the date when Party A pays the share transfer money to Party B’s account, Party C shall issue a share certificate and a register of shareholders recording that Party A holds 44% of Party C’s shares to Party A, and Party B and Party C shall cooperate with Party A to handle the industrial and commercial change registration formalities for this share transfer.

 

Article 3 Rights and Obligations of Party A

 

1. When Party C carries out equity financing in any form in the future after this share transfer, Party A has the right to give priority to subscription according to its shareholding ratio, and the subscription price, conditions and other terms are the same as those of other new investors.

 

2. If the final investment price or cost of the new investor is lower than the purchasing price or cost of Party A under this Agreement according to some agreement or arrangement, Party B shall return the price difference between them to Party A, or Party B shall transfer part of the shares of Party C to Party A free of charge until the purchasing price per share of Party A under this Agreement is the same as that of new investors.

 

3. After the acquisition is completed, if the rights granted by Party B and Party C to any shareholder (including the introduced new investors) are superior to those enjoyed by Party A under this Agreement, Party A under this Agreement will automatically enjoy such rights.

 

4. If Party B intends to transfer Party C’s shares to a third party with the consent in writing of Party A, Party A may have priority in purchasing the shares to be sold by Party B according to the same terms and conditions given by the third party; or according to the same terms and conditions given by the third party, Party B and Party A may jointly sell the shares according to the current shareholding ratio. If Party A chooses the same terms and conditions to jointly sell shares with Party B to the same transferee according to the shareholding ratio, Party B shall ensure that the transferee has the priority to purchase Party A’s shares.

 

5. After the completion of the acquisition, during the period when Party A holds the equity of Party C, Party A shall enjoy the right to know and supervise the operation and management of Party C, and Party A shall not participate in the daily operation and management activities of Party C.

 

Article 4 Rights and Obligations of Party B and Party C

 

1. Party B and Party C shall cooperate with Party A in handling the industrial and commercial change registration procedures related to this share transfer in accordance with this Agreement.

 

2. Party B shall guarantee that Party A’s acquisition of 44% of Party C’s equity held by Party B has no defects in rights such as mortgage or pledge.

 

3. The products produced by Party C shall have priority in using resources on Party A’s Fozgo Mall e-commerce platform and selling in terminal sales channels. The product quality shall be agreed upon separately.

 

4. Party B and Party C guarantee that Party C’s business operations comply with the provisions of relevant national laws, regulations and other normative documents, and there are no other adverse matters that affect or may affect Party A’s rights except the major debts disclosed to Party A.

 

 

 

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Article 5 Warranties and Undertakings

 

1. Each party warrants that all documents and materials provided by it for the signing of this Agreement are true, valid and complete.

 

2. Party A guarantees that the equity acquisition funds are its own funds with authentic and legal sources. Party A undertakes that it will be responsible for the authenticity of the sources of funds. In case of false sources, Party A is willing to bear corresponding legal responsibilities.

 

Article 6 Breach of Contract and Liability

 

1. After this Agreement comes into effect, all parties shall fully, properly and timely perform their obligations and agreements as per the provisions of this Agreement. If any party to this Agreement violates the terms agreed herein, it shall constitute a breach of contract.

 

2. After this Agreement comes into effect, all parties must conscientiously perform. In case of any breach of contract by either party, the breaching party shall pay liquidated damages to the observant party and compensate for the direct and indirect losses caused to the observant party due to its breach of contract.

 

P3

 

Article 7 Alteration, Dissolution and Termination of the Agreement

 

1. Any modification or change of this Agreement shall come into effect only after the parties to the Agreement have separately negotiated and jointly signed a written agreement on the modification or change.

 

2. This Agreement is dissolved under the following circumstances:

 

(1) Dissolved by consensus of all parties;

 

(2) This Agreement cannot be performed due to force majeure.

 

3. The party proposing dissolution of the agreement unilaterally shall notify the other parties in writing, and the notice shall take effect when it reaches the other parties.

 

Article 8 Withdrawal and Liquidation

 

After the acquisition is completed, Party A shall not request to return the acquisition funds, except in any of the following circumstances:

 

1. With consensus of all parties;

 

2. Bankruptcy or liquidation of Party C occurs due to legal acts of administrative organs, judicial organs or other state organs;

 

3. Other circumstances stipulated in the Agreement and other circumstances stipulated by relevant laws and regulations that it can or should withdraw, liquidate occur.

 

 

 

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Article 9 Dispute Resolution

 

1. The validity, interpretation and performance of this Agreement shall be applicable to the laws of the People’s Republic of China.

 

2. All disputes arising from the implementation of this Agreement by all parties shall be settled through friendly negotiation. If no negotiation can be reached, either party may submit it to the Beijing Arbitration Commission for arbitration.

 

Article 10 Entry into force of the Agreement and Miscellaneous

 

1. Matters not covered in the Agreement may be settled through negotiation by all parties and supplementary documents may be signed separately when necessary. The Supplementary Agreement is an integral part of this Agreement and has the same legal effect as this Agreement.

 

2. This Agreement shall be established and come into force after being signed and sealed by all parties.

 

 

3. This Agreement is written in Chinese in quadruplicate, with Party A holding two copies and Party B and Party C each holding one copy which shall have the same legal effect. In case of any inconsistency between other agreements separately signed by the parties due to industrial and commercial change registration and this Agreement, this Agreement shall prevail.

 

4. The place of signing this Agreement is Beijing.

 

Article 11 Annex

 

1. Copies of ID cards of legal representatives of all parties

 

2. Copies of business licenses of all parties

 

3. Articles of Association of Party C issued by the Administration for Industry and Commerce

 

4. Detailed List of Creditor’s Rights and Debts of Party C before this Acquisition

 

5. Appraisal Report of Party C

 

(The remainder below is intentionally left blank.)

 

 

 

 

 

 

 

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(There is no text on this page, but the signature page of the Investment Agreement.)

Party A: (official seal)
 
Legal Representative (signature): Tian Xiangyang
 
Date of signing: March 15, 2019

Beijing Luji Science and Technology Co., Ltd.

Special Seal for Contract (sealed)

 

Party B: (official seal)
 
Legal Representative (signature): Wang Jiankang
 
Date of signing: March 15, 2019

Rongcheng Health Group Co., Ltd.

Special Seal for Contract (sealed)

 

Party C: (official seal)
 
Legal Representative (signature): Liang Yingjun
 
Date of signing: March 15, 2019

Rongcheng Tianrun Taxus Chinensis Co., Ltd.

Special Seal for Contract (sealed)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  5  

 

Exhibit 10.3

 

Exclusive Consulting and Service Agreement

 

This Exclusive Consulting and Service Agreement (hereinafter referred to as "this Agreement") is signed by the following parties (hereinafter referred to as "both parties to the Agreement") on May 15, 2019 in Beijing, China:

 

Party A: Beijing Hongtao Management Consulting Co., Ltd.

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

 

Party B: Beijing Luji Technology Co., Ltd.

Address: Room 1206, 11th Floor, 301, 3-17 F, Building 5, Block 1, Hangfeng Road, Fengtai District, Beijing

 

In view of:

 

1. Party A is a wholly foreign-owned enterprise legally established and validly existing in the territory of the People's Republic of China with consulting and services resources;

 

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

 

3. Party A agrees to provide consultation and related services to Party B, and Party B agrees to accept the consultation and services provided by Party A.

 

Through friendly consultations and on the principle of equality and mutual benefit, both parties reached the following agreements:

 

1.      Consulting and services: exclusive rights

 

1.1      During the term of this Agreement, Party A agrees to provide Party B with relevant consulting and service as the exclusive consulting and service provider of Party B in accordance with the terms of this Agreement (see Annex 1 for details).

 

1.2      Party B agrees to accept the consulting and services provided by Party A during the term of this Agreement. In consideration of the value of the consulting and services provided by Party A and the good cooperation relationship between both parties, Party B further agrees not to accept any third party's consulting and services for the business scope covered by this Agreement during the term of this Agreement, unless obtaining Party A's prior written consent.

 

1.3      Any rights, titles, interests and intellectual property rights (including but not limited to copyrights, patents, technical secrets, trade secrets and others) arising from the performance of this Agreement, whether developed by Party A or Party B based on Party A's intellectual property rights or Party A based on Party B's intellectual property rights, Party A shall have exclusive rights and interests, and Party B shall not claim any rights, ownership, rights and intellectual property rights to Party A.

 

However, Party B should ensure that there is no flaw in the intellectual property rights if the development is carried out by Party A based on Party B’s intellectual property rights. Otherwise, Party B shall bear all losses of Party A. If Party A assumes the liability for compensation to any third party, Party A shall have the right to claim all losses to Party B.

 

1.4      Considering the good cooperation relationship between both parties, Party B promises to obtain consent of Party A if it intends to conduct any business cooperation with other enterprises. Under the same conditions, Party A or its affiliates have the right of priority.

 

 

 

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2.      Calculation and payment of consulting and service fees (hereinafter referred to as “service fees”)

 

2.1      Both parties agree that Party B shall confirm and pay service fees listed in Annex 2 for each profitable financial quarter.

 

2.2      If Party B fails to pay the service fee and other fees in accordance with provisions of this Agreement, Party B shall pay Party A an additional penalty of 0.05% for the amount arrears.

 

2.3      Party A has the right to, at its own expense, assign its employees or certified public accountants in China or other countries (referred to as “Authorized Representatives of Party A”) to verify Party B’s accounts in order to review the calculation method and amount of service fee. To this end, Party B shall provide the authorized representative of Party A with the documents, accounts, records, data required by Party A's authorized representative to audit Party B's accounts and confirm the amount of the service fee. Unless there is a significant error, the service fee shall be the amount confirmed by the authorized representative of Party A.

 

2.4      Unless otherwise agreed by both parties, the service fee paid by Party B to Party A under this Agreement shall not be deducted or offset (such as bank charges etc.).

 

2.5      In addition, Party B shall pay Party A the actual expenses incurred in providing consulting and services under this Agreement, including but not limited to various travel expenses, transportation expenses, printing fees and postage.

 

2.6      Both parties agree that all economic losses caused by the performance of this Agreement shall be jointly borne by both Party A and Party B.

 

3.      Statement and warranty

 

3.1      Both parties hereby state and warrant as follows:

 

3.1.1      Party A is a company legally registered and validly existing in accordance with Chinese law;

 

3.1.2      Party A fulfills this Agreement within the business scope of the Company; it has acquired necessary company authorizations, consents and approvals from third parties and government departments, and does not violate legal or contractual restrictions that are binding or influential;

 

3.1.3      Upon signing this Agreement, it is legal, valid, binding and enforceable to Party A.

 

3.2      Party B hereby states and warrants as follows:

 

3.2.1      Party B is a company legally registered and validly existing in accordance with Chinese law;

 

3.2.2      Party B has signed and executed this Agreement within its business scope; it has acquired necessary company authorizations, consents and approvals from third parties and government departments, and does not violate legal or contractual restrictions that are binding or influential;

 

3.2.3      Upon signing this Agreement, it is legal, valid, binding and enforceable to Party B.

 

 

 

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4.      Confidential clause

 

4.1      Party A and Party B agree to take all reasonable confidentiality measures to keep confidential of the confidential documents and information (hereinafter referred to as “confidential information”. The provider of the documents and information shall clearly indicate in writing when providing the confidential documents and information.); they may not disclose, give or transfer such confidential information (including the merger of the confidential information recipient with a third party, and directly or indirectly controlled by a third party) to any third party without prior written consents of the confidential information provider. Upon termination of this Agreement, Party A and Party B shall return documents, materials or software containing confidential information to the original owner or provider, or destroy after obtaining consents from the original owner or the provider, including removal of confidential information from relevant memory devices, and shall not continue to use the confidential information. Party A and Party B shall take necessary measures to disclose confidential information only to Party B's staff, agents or professional consultants, and ensure such staff, agents or professional consultants to abide by the confidentiality obligations under this Agreement. Party A and Party B, Party B's staff, agents or professional consultants shall sign a specific confidentiality agreement.

 

4 .2.      The above restrictions do not apply to:

 

4.2.1      Information that is available to the public at the time of disclosure;

 

4.2.2      Information available to the public after disclosure that is not Party A or Party B’s fault;

 

4.2.3      Party A or Party B may prove that it has obtained information directly or indirectly before disclosure and not from other parties;

 

4.2.4      Party A or Party B are obliged to disclose to relevant government departments and stock exchanges in accordance with the laws, or Party A or Party B shall disclose the above-mentioned confidential information to its direct legal counsel and financial adviser for its normal business operations.

 

4.3      Both parties agree that this clause will continue to be effective whether it is modified or terminated.

 

5.      Compensation

 

5.1      Except as otherwise provided in this Agreement, if Party B fails to fully perform or suspend its obligations under this Agreement and fails to correct within 30 days after receiving notice from the other party, or its statements and guarantees are untrue, it constitutes a breach of contract.

 

5.2      If any party to this Agreement violates this Agreement or any representations or warranties, the observant party may notify the defaulting party in writing to correct within ten days after receiving the notice, and take appropriate measures in a timely manner to avoid damage and continue to perform this Agreement. In the event of a damage, the defaulting party shall compensate the observant party to ensure the observant party obtains all interests to be obtained in the performance of the contract.

 

5.3      In the event of a breach of this Agreement by either party, the defaulting party shall compensate any costs, liabilities or any loss (including but not limited to interest paid or lost due to a breach of contract and attorney fees) to the other party (including but not limited to the loss of profits of the company). The total amount of compensation paid by the observant party shall be the same as the loss arising from the breach of contract. The above compensation shall include benefits that the observant party shall obtain due to performance, but shall not exceed reasonable expectation of both parties.

 

5.4      Party B shall bear full responsibility if it causes claims due to failure to comply with Party A's instructions, or improperly uses Party A's intellectual property rights or technical operations. If Party B discovers anyone using Party A's intellectual property rights without legal authorization, Party B shall immediately notify Party A and cooperate with any measures taken by Party A.

 

5.5      If both parties violate this Agreement, the compensation amount shall be determined according to the degree of default.

 

 

 

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6.      Effectiveness, performance and validity

 

6.1      This Agreement is signed and effective at the same time as indicated in the text.

 

6.2      Unless Party A terminates this Agreement in advance, this Agreement shall be valid for ten years from the date of signing. Before the expiration of this Agreement, both parties shall extend the term of this Agreement according to requirements of Party A. The validity period of extension shall be determined by Party A, and a separate exclusive consulting and service agreement shall be signed or continue to perform this Agreement according to the requirements of Party A.

 

7.      Termination

 

7.1      During the term of this Agreement, if Party B terminates this Agreement in advance without any reason, it shall compensate for all losses caused to Party A and pay service fees for the completed services.

 

7.2      Both parties may terminate this Agreement by consensus.

 

7.3      After the termination of this Agreement, rights and obligations of both parties under Articles 4 and 5 will continue to be valid.

 

8.      Dispute resolution

 

8.1      In the event of a dispute between both parties to the interpretation and performance of the terms of this Agreement, both parties shall resolve in good faith. If negotiation fails, either party may submit to the China International Economic and Trade Arbitration Commission for arbitration in accordance with arbitration rules in effect. The place of arbitration is Beijing, and the language used for arbitration is Chinese. The arbitral award shall be final and binding on both parties to this Agreement. The provisions of this article are not affected by the termination or dissolution of this Agreement.

 

8.2      Except disputes between both parties to this Agreement, both parties shall continue to perform their respective obligations in accordance with the provisions of this Agreement in good faith.

 

9.      Force majeure

 

9.1      “Force majeure” means any event beyond the scope of reasonable control and is inevitable under reasonable care of the affected party, including but not limited to government actions, natural forces, fires, explosions, storms, floods, earthquakes, tides, lightning or war. However, insufficient credit, funds or financing may not be considered as events beyond the reasonable control of one party. The affected party seeking to waive performance of its obligations under this Agreement shall notify exemption liability to the other party as soon as possible and shall inform procedures to complete performance.

 

9.2      When performance of this Agreement is delayed or hindered by “force majeure”, the affected party shall not be liable for any liability under this Agreement within the scope of delay or hindrance. The affected party shall take appropriate measures to reduce or eliminate effects of “force majeure” and shall endeavor to restore performance of obligations that are delayed or hindered by “force majeure”. Once force majeure event is eliminated, both parties agree to exert best efforts to restore performance under the Agreement.

 

 

 

  4  

 

 

10.      Notice

 

Notices issued by both parties to perform rights and obligations under this Agreement shall be made in writing and sent to the relevant party or the addresses below by means of personal delivery, registered mail, postage prepaid mail, approved courier service, or fax.

 

Party A: Beijing Hongtao Management Consulting Co., Ltd.

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Phone: 010-57551198

Recipient: Tian Xiangyang

 

Party B: Beijing Luji Technology Co., Ltd.

Address: Room 1206, 11th Floor, 301, 3-17 F, Building 5, Block 1, Hangfeng Road, Fengtai District, Beijing

Phone: 13031121536

Recipient: Tian Xiangyang

 

11.      Assignment of the Agreement

 

Party B shall not assign its rights and obligations under this Agreement to any third party unless obtaining Party A's prior written consent. Party A may assign its rights and obligations under this Agreement to its affiliated enterprises without the consent of Party B, but shall notify Party B.

 

12.      Segmentation of the Agreement

 

Both parties hereby confirm that this Agreement is fair and reasonable on the basis of equality and mutual benefit. If any term of this Agreement is not valid or enforceable, the term is invalid or unenforceable only within the jurisdiction of relevant law, and shall not affect the legal effect of other provisions of this Agreement.

 

13.      Amendment and supplement of the Agreement

 

Both parties shall modify and supplement this Agreement in writing. Modifications and supplements to this Agreement signed by both parties are an integral part of this Agreement and have the same legal effect as this Agreement.

 

14.      Jurisdictional law

 

The signing, validity, performance and interpretation of this Agreement, as well as resolution of disputes, are governed and interpreted by Chinese laws.

 

In view of this, authorized representatives of both parties signed this Agreement on the date indicated at the beginning.

 

 

 

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[There is no text on this page, the following are signature pages of Exclusive Consulting and Service Agreement]

 

 

Party A: Beijing Hongtao Management Consulting Co., Ltd.  
(Seal)  
Authorized representative: /s/ Tian Xiangyang  
Tian Xiangyang  

 

 

Party B: Beijing Luji Technology Co., Ltd.  
(Seal)  
Authorized representative: /s/ Tian Xiangyang  
Tian Xiangyang  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  6  

 

 

Annex 1:

 

Consulting and Service List

 

1. To provide development and research services for business-related software.

 

2. To provide pre-job and on-the-job training services for staff.

 

3. To provide technology development and technology transfer services.

 

4. To provide public relations services.

 

5. To provide market research, study, and consulting services.

 

6. To provide short and medium-term market development and market planning services.

 

7. To provide various technical services.

 

8. To provide consulting services related to business compliance.

 

9. To provide organization and planning services related to marketing and membership activities.

 

 

 

 

 

 

 

 

  7  

 

 

Annex 2:

 

Calculation and Payment Method of Service Fee

 

1. The service fee under this Agreement shall be calculated according to 100% net income of Party B every quarter, and shall be paid by Party B to Party A. Party B shall issue the management report and operating data of the previous quarter to Party A within 30 days from the beginning of each quarter, indicating the net income of Party B in the quarter.

 

2. Party A shall summarize the service fee on a quarterly basis and send Party B a service fee bill for the previous quarter within 30 days from the beginning of any quarter. Party B shall pay the service fee to the bank account designated by Party A within ten working days after receiving such notice. Party B shall fax or mail a copy of the remittance voucher to Party A within ten working days after remittance.

 

3. If Party A considers the agreed determination mechanism of service price in this Article is not applicable and needs to be adjusted, Party B shall actively cooperate and consult with Party A within 10 working days after the written request of Party A for adjustment of fees to determine new charging standard or mechanism. If Party B does not reply within ten working days after receiving the above adjustment notice, it shall be considered as default adjustment of service fees. At the request of Party B, Party A shall also negotiate with Party B to adjust the service fee.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  8  

 

Exhibit 10.4

 

Business operation Agreement

 

This Business Operation Agreement (hereinafter referred to as “the Agreement”) is signed by the following parties (hereinafter referred to as “all parties to the Agreement”) on May 15, 2019 in Beijing, China:

 

Party A: Beijing Hongtao Management Consulting Co., Ltd. ("Hongtao Consulting")

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

 

Party B: Beijing Luji Technology Co., Ltd.

Address: Room 1206, 11th Floor, 301, 3-17 F, Building 5, Block 1, Hangfeng Road, Fengtai District, Beijing

 

Party C:

Tian Xiangyang, ID number: 132521197207010022

Address: West Liangku Yard No.22, West Shuncheng Street, Shacheng Town, Huailai County, Zhangjiakou City, Hebei Province

Tian Zhihai, ID number: 1325211076030014

Address: No.90, Nanguan Village, Ansu Town, Xushui District, Baoding City, Hebei Province

Liu Zexian, ID number: 130730199312150419

Address: No. 158, East 11 Row, Olympics Street, Xiaozhuangzi Village, North Xinbao Town, Huailai County, Zhangjiakou city, Hebei Province

Gao Xuewei, ID number: 132423197707022086

Address: No.90, Nanguan Village, Ansu Town, Xushui District, Baoding City, Hebei Province

Li Chunduo, ID number: 1101096202220622

Address: No.5, Yard 49, JIanguo Road, Mentougou District, Beijing

 

In view of:

 

1.      Party A is a wholly foreign-owned enterprise legally established and validly existing in the territory of the People's Republic of China;

 

2.      Party B is a limited liability company (hereinafter referred to as “the Company”) incorporated in China;

 

3.      Party A and Party B have established business relationship through Exclusive Consulting and Service Agreement and other agreements; Party B shall pay various amounts to Party A under such agreements. Therefore, Party B’s daily business activities have a substantial impact on paying corresponding amount to Party A;

 

4.      Party Cs are shareholders of Luji Technology (referred to as “Shareholders”), of which Tian Xiangyang holds 80% of the equity, TIan Zhihai holds 5%, Liu Zexian holds 5%, Gao Xuewei holds 5%, and Li Chunduo holds 5%.

 

 

 

  1  

 

 

Accordingly, through friendly consultations, all parties have reached the following agreements in accordance with the principle of equality and mutual benefit:

 

1.      Duty of omission

 

In order to ensure that Party B performs various agreements signed with Party A and obligations assumed by Party A, the shareholders hereby acknowledge and agree that Party B will not conduct any transactions that may materially affect its assets, business, personnel, obligations, rights or company operations, except with the prior written consent of Party A or other parties designated by Party A, including but not limited to:

 

1.1      Conduct any activity beyond the normal business scope of the Company or operate in a manner inconsistent with the past and usual operation;

 

1.2      Borrow or take on any debts from any third party;

 

1.3      Alter or remove any director or senior management personnel of the Company;

 

1.4      Sell, acquire or dispose any assets or rights exceeding RMB 200,000 to any third party, including but not limited to any intellectual property rights;

 

1.5      Provide security in its assets or intellectual property rights or provide any other forms of security or set any other encumbrances to any third party;

 

1.6      Amend the Articles of Association or change the business scope of the Company;

 

1.7      Change the normal business procedures or modify any major internal rules and regulations of the Company;

 

1.8      Transfer rights and obligations under this Agreement to any third party;

 

1.9      Make major adjustments to its business model, marketing strategy, business policy or customer relationship;

 

1.10      Distribute dividends in any form.

 

2.      Management and personnel arrangements

 

2.1      Party B and the shareholders hereby agree to accept the advice provided by Party A from time to time regarding the appointment and dismissal of employees, daily management and financial management system of the Company.

 

2.2      Party B and the shareholders hereby agree that the shareholders will elect the designated person of Party A as the director of Party B (including the executive director) in accordance with laws and regulations and procedures stipulated in the Articles of Association of the Company, and urge the elected directors to elect chairman of the Company (if applicable) according to the candidate recommended by Party A, and appoint the person designated by Party A as the general manager, finance director and other senior management personnel of Party B.

 

 

 

  2  

 

 

2.3.      If the above-mentioned director/executive director or senior management appointed by Party A leaves, either voluntarily resigns or dismissed by Party A, he or she will lose the qualification to hold any position in Party B. In this case, the shareholders shall immediately dismiss any of the above-mentioned positions in Party B, and immediately elect and hire other personnel designated by Party A for such positions.

 

2.4      For the purposes of Article 2.3, the shareholders will take all necessary internal and external procedures to complete the above dismissal and appointment procedures in accordance with law, the Articles of Association and this Agreement.

 

2.5      The Shareholder hereby agrees to sign Annex 1 Power of Attorney at the same time signing this Agreement. According to the Power of Attorney, the shareholders shall irrevocably authorize the designated personnel of Party A to exercise their shareholder rights on behalf of Party B, and exercise all voting rights at the shareholders' meeting in the name of the shareholders. The shareholders further agree that they will replace the person authorized in the above Power of Attorney at any time upon Party A's request.

 

3.      Other conventions

 

3.1      If any agreement between Party A and Party B is terminated or expired, Party A shall have the right to determine whether to terminate all agreements between Party A and Party B, including but not limited to Exclusive Consulting and Service Agreement.

 

3.2      Since Party A and Party B have established business relationships through agreements such as Exclusive Consulting and Service Agreement, Party B's daily business activities will have a substantial impact on its ability to pay corresponding amounts to Party A. The Shareholders agree that any dividends, dividend distributions or any other gains or benefits (whether in specific forms) obtained as shareholders of Party B shall be paid or voluntarily transferred to Party A immediately, and provide all the documents or take all measures required to achieve such payment or transfer as requested by Party A.

 

4.      Entire agreement and modifications

 

4.1      This Agreement and all agreements and/or documents referred to or expressly contained therein constitute the entire agreement between all parties with respect to the subject of this Agreement and supersede all oral and written agreements, contracts, understandings and communications related to the subject of this Agreement.

 

4.2      Modifications to this Agreement shall be effective only after signing by all parties. Amendments and supplemental agreements duly signed by all parties are an integral part of this Agreement and have the same legal effect.

 

 

5.      Governing law

 

The signing, validity, performance and interpretation of this Agreement and the resolution of disputes shall be governed by the laws of the People's Republic of China and shall be construed in accordance with the laws of the People's Republic of China.

 

6.      Dispute resolution

 

6.1      In the event of a dispute between all parties regarding the interpretation and performance of the terms of this Agreement, all parties shall settle in good faith through negotiation. If negotiation fails, either party may submit to the China International Economic and Trade Arbitration Commission for arbitration in accordance with its arbitration rules in effect. The place of arbitration is Beijing, and the language used for arbitration is Chinese. The arbitral award shall be final and binding on all parties.

 

6.2      In addition to the disputes, all parties shall continue to perform their respective obligations in accordance with provisions of this Agreement in good faith.

 

 

 

  3  

 

 

7.      Notice

 

Notices issued by all parties for the performance of their rights and obligations under this Agreement shall be made in writing and delivered by assigned personnel, registered post, postage prepaid mail, express courier service, or fax to the following address:

 

Party A: Beijing Hongtao Management Consulting Co., Ltd. ("Hongtao Consulting")

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel: 010-57551198

Recipient: Tian Xiangyang

 

Party B: Beijing Luji Technology Co., Ltd.

Address: 3 Room 1206, 11th Floor, 301, 3-17 F, Building 5, Block 1, Hangfeng Road, Fengtai District, Beijing

Fax: 010-57551198

Tel: 010-57551198

Recipient: Tian Xiangyang

 

Party C:

Tian Xiangyang

Address: 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel: 13031121536

Recipient: Tian Xiangyang

 

Tian Zhihai

Address: 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel: 18710121183

Recipient: Tian Zhihai

 

Liu Zexian

Address: 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel: 18831332105

Recipient: Liu Zexian

 

Gao Xuewei

Address: 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel: 15832272634

Recipient: Gao Xuewei

 

Li Chunduo

Address: 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel: 13241593921

Recipient: Li Chunduo

 

 

 

  4  

 

 

8.      Agreement validity, term and others

 

8.1      Party A's written consent, recommendation, designation and other decisions that have a material impact on Party B's daily operations and shall be made by Party A's Board of Directors.

 

8.2      This Agreement is signed by all parties and effective on the date indicated in the text. Unless Party A terminates this Agreement in advance, this Agreement shall be valid for ten years from the date of entry into force. Before expiration, all parties shall extend the term of this agreement according to requirements of Party A, and sign a separate business operation agreement or continue to perform this Agreement according to Party A's request.

 

8.3      During the term of this Agreement, Party B and the shareholders shall not terminate this Agreement in advance. Party A reserves the right to terminate this Agreement at any time by issuing a written notice to Party B and the shareholders 30 days in advance.

 

8.4      All parties hereby confirm that this Agreement is fair and reasonable on the basis of equality and mutual benefit. If any terms and conditions of this Agreement are illegal or unenforceable by applicable law, then such terms shall be removed from this Agreement, but the other terms of this Agreement shall remain in force and this clause shall be deemed not included from the beginning. All parties shall negotiate to replace the deleted terms with mutually acceptable, legal and valid terms.

 

8.5      Failure by any party to exercise any of its rights, capacities or privileges under this Agreement shall not be deemed as a waiver. The exercise or partial exercise of any rights, capacities or privileges shall not preclude the exercise of any other rights, capacities or privileges.

 

8.6      In view of this, authorized representatives of all parties signed this Agreement on the date indicated in the text.

 

[There is no text below]

 

 

 

 

 

 

 

 

 

  5  

 

 

[There is no text on this page, the following are signature pages of Business Operation Agreement]

 

 

Party A: Beijing Hongtao Management Consulting Co., Ltd.  
 
Authorized representative: /s/ Tian Xiangyang  
Tian Xiangyang  

 

 

 

Party B: Beijing Luji Technology Co., Ltd.  
 
Authorized representative: /s/ Tian Xiangyang  
Tian Xiangyang  

 

 

Party C:

/s/ Tian Xiangyang /s/ Tian Zhihai
Tian Xiangyang Tian Zhihai
   
   
/s/ Liu Zexian /s/ Gao Xuewei
Liu Zexian Gao Xuewei
   
   
/s/ Li Chunduo  
Li Chunduo  

 

 

 

  6  

 

 

Annex 1: Power of Attorney

 

Power of attorney

 

Shareholders TIan Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei and Li Chunduo of Beijing Luji Technology Co., Ltd. ("Luji Technology") holds 100% of the equity of Luji Technology, and I agree to authorize 80% of Luji Technology shareholder’s rights to Beijing Hongtao Management Consulting Co., Ltd. (“Hongtao Consulting”), and hereby irrevocably authorize the authorized person to exercise the following rights during the term of this Power of Attorney:

 

The authorized person is the sole representative, and exercise all the shareholders' rights in accordance with laws and the company's Articles of Association as []% equity of Luji Technology, including but not limited to: rights of proposal to convene a shareholders’ meeting, receiving any notice of the shareholders' meeting and proceedings, participation in the Luji Technology Shareholders' Meeting and exercise the full voting rights of []% of the equity (including designation and appointment of directors, general managers, finance directors and other senor management personnel at the Luji Technology Shareholders' Meeting as the authorized representative, and made decisions on dividends and other matters), sale or transfer []% of shares.

 

The authorized person has the right to designate an individual appointed by the board of directors (or executive director) to exercise the rights granted by the authorizer under this Power of Attorney.

 

Unless Luji Technology, Hongtao Consulting, Tian Zhihai, Liu Zexian, Gao Xuewei, Li Chunduo and the Business Operation Agreement signed by me are terminated for any reason, the Power of Attorney shall be valid for ten years from the date of signature. Upon expiration of the Power of Attorney, I shall extend term of this Power of Attorney upon request of Hongtao Consulting.

 

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  7  

 

 

Annex 1: Power of Attorney

 

Power of attorney

 

Shareholders TIan Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei and Li Chunduo of Beijing Luji Technology Co., Ltd. ("Luji Technology") holds 100% of the equity of Luji Technology, and I agree to authorize 5% of Luji Technology shareholder’s rights to Beijing Hongtao Management Consulting Co., Ltd. (“Hongtao Consulting”), and hereby irrevocably authorize the authorized person to exercise the following rights during the term of this Power of Attorney:

 

The authorized person is the sole representative, and exercise all the shareholders' rights in accordance with laws and the company's Articles of Association as 5% equity of Luji Technology, including but not limited to: rights of proposal to convene a shareholders’ meeting, receiving any notice of the shareholders' meeting and proceedings, participation in the Luji Technology Shareholders' Meeting and exercise the full voting rights of 5% of the equity (including designation and appointment of directors, general managers, finance directors and other senor management personnel at the Luji Technology Shareholders' Meeting as the authorized representative, and made decisions on dividends and other matters), sale or transfer 5% of shares.

 

The authorized person has the right to designate an individual appointed by the board of directors (or executive director) to exercise the rights granted by the authorizer under this Power of Attorney.

 

Unless Luji Technology, Hongtao Consulting, Tian Zhihai, Liu Zexian, Gao Xuewei, Li Chunduo and the Business Operation Agreement signed by me are terminated for any reason, the Power of Attorney shall be valid for ten years from the date of signature. Upon expiration of the Power of Attorney, I shall extend term of this Power of Attorney upon request of Hongtao Consulting.

 

[There is no text below]

 

 

 

 

 

 

 

 

 

 

 

  8  

 

 

Annex 1: Power of Attorney

 

Power of attorney

 

Shareholders TIan Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei and Li Chunduo of Beijing Luji Technology Co., Ltd. ("Luji Technology") holds 100% of the equity of Luji Technology, and I agree to authorize 5% of Luji Technology shareholder’s rights to Beijing Hongtao Management Consulting Co., Ltd. (“Hongtao Consulting”), and hereby irrevocably authorize the authorized person to exercise the following rights during the term of this Power of Attorney:

 

The authorized person is the sole representative, and exercise all the shareholders' rights in accordance with laws and the company's Articles of Association as 5% equity of Luji Technology, including but not limited to: rights of proposal to convene a shareholders’ meeting, receiving any notice of the shareholders' meeting and proceedings, participation in the Luji Technology Shareholders' Meeting and exercise the full voting rights of 5% of the equity (including designation and appointment of directors, general managers, finance directors and other senor management personnel at the Luji Technology Shareholders' Meeting as the authorized representative, and made decisions on dividends and other matters), sale or transfer 5% of shares.

 

The authorized person has the right to designate an individual appointed by the board of directors (or executive director) to exercise the rights granted by the authorizer under this Power of Attorney.

 

Unless Luji Technology, Hongtao Consulting, Tian Zhihai, Liu Zexian, Gao Xuewei, Li Chunduo and the Business Operation Agreement signed by me are terminated for any reason, the Power of Attorney shall be valid for ten years from the date of signature. Upon expiration of the Power of Attorney, I shall extend term of this Power of Attorney upon request of Hongtao Consulting.

 

[There is no text below]

 

 

 

 

 

 

 

 

 

 

 

 

  9  

 

 

Annex 1: Power of Attorney

 

Power of attorney

 

Shareholders TIan Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei and Li Chunduo of Beijing Luji Technology Co., Ltd. ("Luji Technology") holds 100% of the equity of Luji Technology, and I agree to authorize 5% of Luji Technology shareholder’s rights to Beijing Hongtao Management Consulting Co., Ltd. (“Hongtao Consulting”), and hereby irrevocably authorize the authorized person to exercise the following rights during the term of this Power of Attorney:

 

The authorized person is the sole representative, and exercise all the shareholders' rights in accordance with laws and the company's Articles of Association as 5% equity of Luji Technology, including but not limited to: rights of proposal to convene a shareholders’ meeting, receiving any notice of the shareholders' meeting and proceedings, participation in the Luji Technology Shareholders' Meeting and exercise the full voting rights of 5% of the equity (including designation and appointment of directors, general managers, finance directors and other senor management personnel at the Luji Technology Shareholders' Meeting as the authorized representative, and made decisions on dividends and other matters), sale or transfer 5% of shares.

 

The authorized person has the right to designate an individual appointed by the board of directors (or executive director) to exercise the rights granted by the authorizer under this Power of Attorney.

 

Unless Luji Technology, Hongtao Consulting, Tian Zhihai, Liu Zexian, Gao Xuewei, Li Chunduo and the Business Operation Agreement signed by me are terminated for any reason, the Power of Attorney shall be valid for ten years from the date of signature. Upon expiration of the Power of Attorney, I shall extend term of this Power of Attorney upon request of Hongtao Consulting.

 

[There is no text below]

 

 

 

 

 

 

 

 

 

 

 

 

 

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Annex 1: Power of Attorney

 

Power of attorney

 

Shareholders TIan Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei and Li Chunduo of Beijing Luji Technology Co., Ltd. ("Luji Technology") holds 100% of the equity of Luji Technology, and I agree to authorize 5% of Luji Technology shareholder’s rights to Beijing Hongtao Management Consulting Co., Ltd. (“Hongtao Consulting”), and hereby irrevocably authorize the authorized person to exercise the following rights during the term of this Power of Attorney:

 

The authorized person is the sole representative, and exercise all the shareholders' rights in accordance with laws and the company's Articles of Association as 5% equity of Luji Technology, including but not limited to: rights of proposal to convene a shareholders’ meeting, receiving any notice of the shareholders' meeting and proceedings, participation in the Luji Technology Shareholders' Meeting and exercise the full voting rights of 5% of the equity (including designation and appointment of directors, general managers, finance directors and other senor management personnel at the Luji Technology Shareholders' Meeting as the authorized representative, and made decisions on dividends and other matters), sale or transfer 5% of shares.

 

The authorized person has the right to designate an individual appointed by the board of directors (or executive director) to exercise the rights granted by the authorizer under this Power of Attorney.

 

Unless Luji Technology, Hongtao Consulting, Tian Zhihai, Liu Zexian, Gao Xuewei, Li Chunduo and the Business Operation Agreement signed by me are terminated for any reason, the Power of Attorney shall be valid for ten years from the date of signature. Upon expiration of the Power of Attorney, I shall extend term of this Power of Attorney upon request of Hongtao Consulting.

 

[There is no text below]

 

 

 

 

 

 

 

 

 

 

 

 

 

  11  

 

 

Annex 1: Power of Attorney

 

Power of attorney

 

Shareholders TIan Xiangyang, Tian Zhihai, Liu Zexian, Gao Xuewei and Li Chunduo of Beijing Luji Technology Co., Ltd. ("Luji Technology") holds 100% of the equity of Luji Technology, and I agree to authorize 5% of Luji Technology shareholder’s rights to Beijing Hongtao Management Consulting Co., Ltd. (“Hongtao Consulting”), and hereby irrevocably authorize the authorized person to exercise the following rights during the term of this Power of Attorney:

 

The authorized person is the sole representative, and exercise all the shareholders' rights in accordance with laws and the company's Articles of Association as 5% equity of Luji Technology, including but not limited to: rights of proposal to convene a shareholders’ meeting, receiving any notice of the shareholders' meeting and proceedings, participation in the Luji Technology Shareholders' Meeting and exercise the full voting rights of 5% of the equity (including designation and appointment of directors, general managers, finance directors and other senor management personnel at the Luji Technology Shareholders' Meeting as the authorized representative, and made decisions on dividends and other matters), sale or transfer 5% of shares.

 

The authorized person has the right to designate an individual appointed by the board of directors (or executive director) to exercise the rights granted by the authorizer under this Power of Attorney.

 

Unless Luji Technology, Hongtao Consulting, Tian Zhihai, Liu Zexian, Gao Xuewei, Li Chunduo and the Business Operation Agreement signed by me are terminated for any reason, the Power of Attorney shall be valid for ten years from the date of signature. Upon expiration of the Power of Attorney, I shall extend term of this Power of Attorney upon request of Hongtao Consulting.

 

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[There is no text on this page, the following are signature pages of Equity Disposal Agreement]

 

 

Authorizer:

 

Tian Xiangyang

__________________

YYYY MMMM DDDD

 

Authorized person:

Beijing Hongtao Management Consulting Co., Ltd.

 

 

 

Authorized representative:

Tian Xiangyang

__________________

YYYY MMMM DDDD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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[There is no text on this page, the following are signature pages of Equity Disposal Agreement]

 

 

Authorizer:

Tian Zhihai

__________________

YYYY MMMM DDDD

 

 

 

Authorized person:

Beijing Hongtao Management Consulting Co., Ltd.

 

 

 

Authorized representative:

Tian Xiangyang

__________________

YYYY MMMM DDDD

 

 

 

 

 

 

 

 

 

 

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[There is no text on this page, the following are signature pages of Equity Disposal Agreement]

 

 

Authorizer:

Liu Zexian

__________________

YYYY MMMM DDDD

 

 

 

Authorized person:

Beijing Hongtao Management Consulting Co., Ltd.

 

 

 

Authorized representative:

Tian Xiangyang

__________________

YYYY MMMM DDDD

 

 

 

 

 

 

 

 

 

 

 

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[There is no text on this page, the following are signature pages of Equity Disposal Agreement]

 

 

Authorizer:

Gao Xuewei

__________________

YYYY MMMM DDDD

 

 

 

Authorized person:

Beijing Hongtao Management Consulting Co., Ltd.

 

 

 

Authorized representative:

Tian Xiangyang

__________________

YYYY MMMM DDDD

 

 

 

 

 

 

 

 

 

 

 

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[There is no text on this page, the following are signature pages of Equity Disposal Agreement]

 

 

Authorizer:

Li Chunduo

__________________

YYYY MMMM DDDD

 

 

 

Authorized person:

Beijing Hongtao Management Consulting Co., Ltd.

 

 

 

Authorized representative:

Tian Xiangyang

__________________

YYYY MMMM DDDD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Exhibit 10.5

 

Equity Disposal Agreement

 

This Equity Disposal Agreement (hereinafter referred to as “the Agreement”) was signed by the following parties (hereinafter referred to as “the parties to the Agreement”) on May 15, 2019 in Beijing, China:

 

Party A: Beijing Hongtao Management Consulting Co., Ltd. ("Hongtao Consulting")

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

 

Party B:

Tian Xiangyang, ID number: 132521197207010022

Address: West Liangku Yard No.22, West Shuncheng Street, Shacheng Town, Huailai County, Zhangjiakou City, Hebei Province

 

Tian Zhihai, ID number: 1325211076030014

Address: No.90, Nanguan Village, Ansu Town, Xushui District, Baoding City, Hebei Province

 

Liu Zexian, ID number: 130730199312150419

Address: No. 158, East 11 Row, Olympics Street, Xiaozhuangzi Village, North Xinbao Town, Huailai County, Zhangjiakou city, Hebei Province

 

Gao Xuewei, ID number: 132423197707022086

Address: No.90, Nanguan Village, Ansu Town, Xushui District, Baoding City, Hebei Province

 

Li Chunduo, ID number: 1101096202220622

Address: No.5, Yard 49, JIanguo Road, Mentougou District, Beijing

 

Party C: Beijing Luji Technology Co., Ltd. (hereinafter referred to as "Luji Technology")

Address: Room 1206, 11th Floor, 301, 3-17 F, Building 5, Block 1, Hangfeng Road, Fengtai District, Beijing

 

In view of:

 

1.      Party A is a wholly foreign-owned enterprise legally registered and validly existing in the territory of the People's Republic of China;

 

2.      Party C is a limited liability company incorporated in China;

 

3.      Party Bs are shareholders of Luji Technology (collectively referred to as the “Authorized Parties”), of which Tian Xiangyang holds 80% of the equity, Tian Zhihai holds 5%, Liu Zexian holds 5%, Gao Xuewei holds 5%, and Li Chunduo holds 1%.

 

4.      Party A and Party B signed a Shareholding Pledge Agreement, under which Party B provides guarantee for Luji Technology to fulfill its obligations under the Exclusive Consultating and Service Agreement with Party A. In order to ensure security of the mortgage, and take into account the technical support provided by Party A to Luji Technology and the good cooperation relationship, all parties reached the following agreement.

 

 

 

  1  

 

 

1.      Granting options

 

1.1      Grant

 

All parties to this Agreement agree that, from the effective date of this Agreement, Party A has an exclusive option right unless disclosed to Party A and obtaining prior written consent of Party A. Party A or its designated third party may purchase the entire shareholding rights of the authorized party in Luji Technology at any time with the minimum price permitted by Chinese laws and regulations subject to conditions of this Agreement. Party A is granted with option rights upon signing of this Agreement, and such authorization shall be irrevocable or changeable upon the expiration of this Agreement (including extension according to Article 1.2 below).

 

1.2      Term

 

This Agreement shall be signed and come into effect by all parties on the date indicated in the text. This Agreement shall be valid for ten years from the date of signing. Before the expiration of this Agreement, all parties shall extend the term of this Agreement according to requirements of Party A, and sign a separate equity disposal agreement or continue to perform this Agreement according to Party A's request.

 

2.      Exercise of option rights and delivery

 

2.1      Exercise time

 

2.1.1      The authorized parties agree that Party A may exercise part or all options rights under this Agreement at any time after the signing subject to laws and regulations of the People's Republic of China.

 

2.1.2      The authorized parties agree that Party A's times of exercise are not limited unless it has acquired and held the entire share capital of Luji Technology.

 

2.1.3      The authorized parties agree that Party A may designate a third party to exercise its right on its behalf, but Party A shall notify Authorized Parties in writing when exercising.

 

2.2      Disposition of exercise price

 

The authorized parties agree that when Party A exercises its rights, all exercise fund obtained by the Authorized Parties will be given away to Luji Technology for free, or transfer exercise fund from the authorized parties to Luji Technology in other ways agreed by Party A in writing.

 

2.3      Transfer

 

The authorized parties agree that option rights under this Agreement may be transferred in part or in whole by Party A to a third party without obtaining prior consent of the Authorized Parties. The third party shall be deemed as a party to this Agreement to exercise option rights under the terms of this Agreement and to assume Party A's rights and obligations under this Agreement.

 

2.4      Exercise notice

 

If Party A exercises rights, it shall notify the authorized parties in writing ten working days before the delivery date (as defined below). The notice shall specify the following terms:

 

 

 

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2.4.1      The effective delivery date of equity after exercising option rights (hereinafter referred to as “delivery date”);

 

2.4.2      The name of holder to be registered in the equity after exercising option rights;

 

2.4.3      The number of shares and proportions purchased from the authorized person;

 

2.4.4      Exercise price and its payment method;

 

2.4.5      Power of Attorney (if a third party designated by Party A acts on its behalf).

 

All parties agree that Party A may appoint a third party at any time and exercise options rights and register equity in the name of the third party.

 

2.5      Transfer equity

 

When Party A exercises its option rights each time, within 10 working days from the date of receiving exercise notice issued by Party A in accordance with Article 2.4 of this Agreement:

 

(1)      The authorized parties shall urge Luji Technology to convene a shareholders’ meeting in time, at which the resolution of the shareholders’ meeting that authorizes the transfer of equity to Party A and/or its designated third party shall be approved;

 

(2)      The authorized parties shall sign a transfer agreement that is substantially consistent with the equity transfer agreement set out in Annex 1 to this Agreement with Party A (or, where applicable, the designated third party);

 

(3)      Party B shall sign all other required contracts, agreements or documents, obtain all necessary government approvals and consents, without attaching any warranty interest, take all necessary actions to transfer effective ownership of purchased equity to Party A and/or its designated third party, and ensure Party A and/or its designated third party become the registered business owner of the purchased equity, and submit to Party A or its designated third party the latest business license, articles of association, approval certificate (if applicable) and other relevant documents issued or registered by relevant Chinese authorities, which shall reflect changes in the shareholding of Luji Technology, changes in directors and legal representatives etc.

 

3.      Statement and warranty

 

3.1      The authorized parties state and warrant as below:

 

3.1.1      They have full rights and authorization to sign and perform this Agreement;

 

3.1.2      The performance of this Agreement and obligations does not violate laws, regulations and other agreements, and does not require approval or authorization of the government department;

 

3.1.3      There are no litigation, arbitration or other judicial or administrative proceedings that are pending or may materially affect the performance of this Agreement;

 

3.1.4      All circumstances that may have adverse impacts on the performance of this Agreement have been disclosed to Party A;

 

 

 

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3.1.5      They are not bankrupt, and financial condition is sound and sound;

 

3.1.6      There is no pledge, guarantee, liability and other debs from third-parties in the shareholding of Luji Technology, and it is not subject to third parties' recourse, except the equity pledge agreement signed by Party A and Party B;

 

3.1.7      No pledge, liability and other debs from third-parties will be placed on their shares of Luji Technology, and will not dispose their shares to Party A or designated third parties by means of transfer, donation, pledge or others;

 

3.1.8      The option rights granted to Party A shall be exclusive and the authorized parties shall not grant option rights or similar rights to other persons other than Party A or the designated third party in any other way;

 

3.1.9      During the term of this Agreement, the operating business of Luji Technology complies with laws, regulations, rules and other administrative regulations and guidelines promulgated by competent government authorities, and there is no violation of above provisions that constitutes a significant adverse impact on the business or assets of the company;

 

3.1.10      Maintain the existence of Luji Technology in accordance with good financial and commercial standards and practices. Prudently and effectively operate its business and transactions, and do its utmost to obtain licenses, certificates and approvals required for its operations, and ensure that such licenses, certificates and approvals are not cancelled, withdrawn or declared as invalid;

 

3.1.11      Provide all operational and financial information about Luji Technology to Party A at its request;

 

3.1.12      Before Party A (or its designated third party) exercising option rights and acquiring the entire equity or interest in Luji Technology, except obtaining the written consent of Party A (or its designated third party), Luji Technology shall not:

 

(a)      sell, transfer, mortgage or dispose any asset, business or revenue, or permit to set other security interest (except generated in normal or daily business process or disclosed to Party A and obtaining prior written content of Party A);

 

(b)      transactions that are materially and adversely affecting its assets, liabilities, operations, equity and other legal rights (except arising in normal or daily business process or disclosed to Party A and obtaining prior written content of Party A);

 

(c)      distribute dividends and bonuses to shareholders in any forms;

 

(d)      occurrence, inheritance, guarantee or permission of any debt, but (i) debt arising from normal or daily business process rather than borrowing; (ii) except debt disclosed to Party A and obtaining prior written content of Party A;

 

(e)      sign any major contract, except contracts signed in daily business process (for this paragraph, it is considered a major contract if contract value exceeds [1 million] yuan):

 

(f)      increase or decrease registered capital of Luji Technology through a resolution of the shareholders’ meeting, or change structure of the registered capital separately;

 

 

 

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(g)      supplement, change or modify Articles of Association of Luji Technology in any form;

 

(h)      merge or unite with any individual, or acquire or invest in any individual.

 

3.1.13      Before Party A (or its designated third party) exercising option rights and acquiring the entire equity or interest in Luji Technology, except obtaining the written consent of Party A (or its designated third party), Party B shall not jointly or separately:

 

(a)      supplement, change or modify Articles of Association of Luji Technology of Luji Technology in any form, and such supplements, changes or modifications will materially adversely affect Luji Technology's assets, liabilities, operations, equity and other legal rights (except increase capital in the same proportion to meet requirements of laws), or may affect the effective implementation of this Agreement and other agreements signed by Party A, Party B and Luji Technology;

 

(b)      assist Luji Technology to reach a transaction that have material adverse impact on its assets, liabilities, operations, equity and other legal rights (except arising in normal or daily business process or disclosed to Party A and obtaining prior written content of Party A);

 

(c)      promote the resolution of dividends and bonuses by shareholders of Luji Technology;

 

(d)      sell, transfer, mortgage or dispose legal or beneficial interest in any share of Luji Technology at any time from the effective date of this contract, or permit any other security interest;

 

(e)      promote shareholders’ meeting of Luji Technology to approve the sale, transfer, mortgage or dispose legal or beneficial interest in any equity, or permit any other security interest;

 

(f)      promote shareholders’ meeting of Luji Technology to approve the merger or association with any individual, or acquire or invest in any individual, or any other forms of reorganization;

 

(g)      Perform self-financing, liquidation or dissolution of Luji Technology.

 

3.1.14      Before Party A (or its designated third party) exercising option rights or acquiring equity or assets of Luji Technology, Party B promises:

 

(a)      immediately notify Party A in writing of any litigation, arbitration or administrative proceedings that have occurred or may occur in relation to equity, or any adverse impacts on such equity;

 

(b)      convene shareholders’ meeting of Luji Technology to review and approve the transfer of purchased equity as stipulated in this Agreement, urge Luji Technology to revise its Articles of Association to indicate the transfer of equity from Party B to Party A and/or its designated third party and other changes set forth in this Agreement, and immediately apply for approval to competent authorities in China (if such approval is required by law), go through change registration, and urge Luji Technology to approve the assigned person of Party A and/or its designated third party as a new director and new legal representative through the resolution of the shareholders' meeting;

 

(c)      in order to maintain legal and valid ownership of the equity, sign all necessary or appropriate documents, take all necessary or appropriate measures and complaints or make necessary and appropriate defenses against all claims;

 

 

 

  5  

 

 

(d)      Upon request by Party A, transfer equity to a designated third party unconditionally and immediately at any time and waive its priority purchase rights to transfer to another existing shareholder;

 

(e)      Strictly abide by the provisions of this contract and other contracts signed by Party B and Party A jointly or separately, and earnestly perform obligations under the contracts without any acts/omissions effecting validity and enforceability of such contracts.

 

3.2      Commitment

 

The authorized parties promises to Party A that they bear all expenses incurred from equity transfer, and go through all necessary procedures for Party A and/or its designated third party to become shareholders of Luji Technology. The procedures include but not limited to assisting Party A in obtaining necessary approvals of equity transfer from government departments, submitting equity transfer agreement, the shareholders' meeting resolution and other documents to relevant business administration department, and amending the company's articles of association, the register of shareholders, and other files.

 

3.3      Party B hereby state and warrant jointly and individually to Party A on the date of signing this contract and on each delivery date:

 

(1)      It has any equity transfer agreement (each referred to as the “transfer agreement”) signed and delivered by this contract, signed for purchased equity for each transfer as one party, and rights and capabilities to fulfill obligations under the contract and any assignment agreement. Once signing this contract and each of its transfer agreements, they will constitute legal, valid and binding obligations and may be enforced in accordance with their terms;

 

(2)      Neither signing or delivery of this contract or any transfer agreement nor the performance of its obligations will: (i) violate any relevant laws and regulations in China; (ii)violate Articles of Association or other organizational files; (iii)breach any binding contracts or instruments; (iv) violate any license or approval and/or conditions for continues validity; or (v) any suspension or revoked or attached condition in any license or approval;

 

(3)      Party B has good and saleable ownership of all shares of Luji Technology. Party B has not set any security interest in the above equity;

 

(4)      Luji Technology does not have any outstanding debts, except (i) debts incurred in its normal course of business, and (ii) debts that have been disclosed to Party A and have obtained prior written consent of Party A;

 

(5)      Luji Technology complies with all laws and regulations applicable to the acquisition of equity and assets;

 

(6)      There is no undergoing, pending or possible litigation, arbitration or administrative procedure related to Luji Technology's equity, assets or related to Luji Technology.

 

4.      Tax

 

Taxes generated by all parties in the performance of this Agreement shall be borne independently.

 

5.      Default

 

5.1      If Party B or Party C violates this Agreement or any representations or warranties in this Agreement, Party A may notify the defaulting party in writing to correct within 10 days of receiving the notice, take corresponding measures in a timely and effective manner to avoid damage, and continue to perform this Agreement. In the event of damage, the defaulting party shall compensate Party A to enable Party A to obtain all rights and interests in the performance of the contract.

 

 

 

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5.2      If Party B or Party C fail to correct within 10 days after receiving the notice in accordance with provisions of Article 5.1, Party A has the right to request the defaulting party to pay any costs, liabilities or losses suffered by Party A due to breach of contract (including but not limited to interest and attorney's fee due to breach of contract). At the same time, Party A has the right to execute the Equity Transfer Agreement attached to this Agreement to transfer the equity held by Party B to Party A and/or its designated third party.

 

6.      Jurisdiction law and dispute resolution

 

6.1      Governing law

 

The laws of the People's Republic of China are applicable to this Agreement, including but not limited to the completion, performance, validity and interpretation of this Agreement.

 

6.2      Friendly negotiation

 

In the event of a dispute arising out of the interpretation or performance of this Agreement, all parties to the Agreement shall settle through friendly negotiation or mediation of a third party. If cannot be resolved through the above methods, the dispute shall be submitted to the arbitration agency within 30 days from the start of dispute.

 

6.3      rbitration

 

Any dispute arising from this Agreement shall be submitted to the China International Economic and Trade Arbitration Commission (Beijing) for arbitration in accordance with its arbitration rules. The place of arbitration is Beijing. The arbitral award is final and binding on all parties to this Agreement.

 

7.      Confidentiality

 

7.1      Confidentiality

 

The contents of this Agreement and its attachments shall be kept confidential. All parties shall not disclose any information of this Agreement to any third party (except prior written consent of All parties). The terms and shall remain valid after the termination of this Agreement.

 

7.2      Exception

 

If confidential information should be disclosed in accordance with laws, court decisions, arbitral awards, and decisions of government regulatory agencies, the disclosure of such information should not be considered a violation of Article 7.1.

 

8.      Others

 

8.1      Entire agreement

 

All parties hereby confirm that this Agreement is fair and reasonable on the basis of equality and mutual benefit. This Agreement comprises the entire subject of all parties. If all previous discussions, negotiations and agreements are inconsistent with this Agreement, this Agreement shall prevail. This Agreement shall be amended by all parties in writing. The attachment is an integral part of this Agreement and has the same effect as this Agreement.

 

 

 

  7  

 

 

8.2      Notice

 

8.2.1      Notices issued by all parties for the performance of their rights and obligations under this Agreement shall be made in writing and delivered by assigned personnel, registered post, postage prepaid mail, express courier service, or fax to the following address:

 

Party A: Beijing Hongtao Management Consulting Co., Ltd. ("Hongtao Consulting")

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel: 010-57551198

Recipient: Tian Xiangyang

 

Party B:

 

Tian Xiangyang

Address: 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel: 13031121536

Recipient: Tian Xiangyang

 

Tian Zhihai

Address: 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel: 18710121183

Recipient: Tian Zhihai

 

Liu Zexian

Address: 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel: 18831332105

Recipient: Liu Zexian

 

Gao Xuewei

Address: 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel: 15832272634

Recipient: Gao Xuewei

 

Li Chunduo

Address: 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Fax:

Tel: 13241593921

Recipient: Li Chunduo

 

Party C: Beijing Luji Technology Co., Ltd.

Address: 3 Room 1206, 11th Floor, 301, 3-17 F, Building 5, Block 1, Hangfeng Road, Fengtai District, Beijing

Fax:010-57551198

Tel: 010-57551198

Recipient: Tian Xiangyang

 

 

 

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8.2.2      Notices and correspondences shall be deemed as delivered if:

 

8.2.2.1      If delivered by fax, the date record shown on the fax shall be the delivery date, but when the fax is delivered later than 5 pm or on non-working days of the place of delivery, the next working day of the record shall be the delivery date;

 

8.2.2.2      If delivered by assigned personnel (including express delivery), the date of receipt shall be the delivery date;

 

8.2.2.3      If delivered by registered mail, the 15th day after the date on the receipt shall be the delivery date.

 

8.2.3      Binding

 

This Agreement is binding on all parties.

 

8.3      Language

 

This Agreement is in eight copies written in Chinese, and each party shall hold one.

 

8.4      Day and working day

 

The “day” in this Agreement refers to the date on the calendar; the “working day” refers to Monday to Friday.

 

8.5      Headings

 

The headings of this Agreement are for convenience only and are not used for interpretation of this Agreement.

 

8.6      Supplementary provisions

 

The obligations, commitments and responsibilities of the authorized parties to Party A under this Agreement are separate and common, and the authorized parties shall bear joint and several liability. The default of either authorized parties automatically constitutes the default of the authorized parties for Party A.

 

8.7      Outstanding matters

 

For matters not covered by this Agreement, all parties shall resolve in accordance with laws of the People’s Republic of China through negotiation.

 

 

 

  9  

 

 

[There is no text on this page, the following are signature pages of Equity Disposal Agreement]

 

Party A: Beijing Hongtao Management Consulting Co., Ltd.  
(Seal)  
Authorized representative: /s/ Tian Xiangyang  
Tian Xiangyang  

 

 

Party B:

/s/ Tian Xiangyang /s/ Tian Zhihai
Tian Xiangyang Tian Zhihai
   
   
/s/ Liu Zexian /s/ Gao Xuewei
Liu Zexian Gao Xuewei
   
   
/s/ Li Chunduo  
Li Chunduo  

 

 

 

 

Party C: Beijing Luji Technology Co., Ltd.  
Authorized representative: /s/ Tian Xiangyang  
Tian Xiangyang  

 

 

 

 

 

 

 

 

  10  

 

 

Annex 1: Equity Transfer Agreement

 

Equity Transfer Agreement

 

This Equity Transfer Agreement (hereinafter referred to as “the Agreement”) was signed by the following parties (hereinafter referred to as “the parties to the Agreement”) on May 15, 2019 in Beijing, China:

 

Party A: Beijing Hongtao Management Consulting Co., Ltd. ("Hongtao Consulting")

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

 

Party B:

 

ian Xiangyang, ID number: 132521197207010022

Address: West Liangku Yard No.22, West Shuncheng Street, Shacheng Town, Huailai County, Zhangjiakou City, Hebei Province

 

Tian Zhihai, ID number: 1325211076030014

Address: No.90, Nanguan Village, Ansu Town, Xushui District, Baoding City, Hebei Province

 

Liu Zexian, ID number: 130730199312150419

Address: No. 158, East 11 Row, Olympics Street, Xiaozhuangzi Village, North Xinbao Town, Huailai County, Zhangjiakou city, Hebei Province

 

Gao Xuewei, ID number: 132423197707022086

Address: No.90, Nanguan Village, Ansu Town, Xushui District, Baoding City, Hebei Province

 

Li Chunduo, ID number: 1101096202220622

Address: No.5, Yard 49, JIanguo Road, Mentougou District, Beijing

 

Party C: Beijing Luji Technology Co., Ltd. (hereinafter referred to as "Luji Technology")

Address: Room 1206, 11th Floor, 301, 3-17 F, Building 5, Block 1, Hangfeng Road, Fengtai District, Beijing

 

In this contract, Party A, Party B and Party C are separately called “party” and collectively called “all parties”.

 

In view of:

 

1.      Party A is a wholly foreign-owned enterprise legally registered and validly existing in the territory of the People's Republic of China (hereafter referred to as “China”);

 

2.      Party C is a limited liability company incorporated in China, and Party B holds 100% shares of Party C currently;

 

3.      Party B is willing to comply with relevant provisions of Equity Disposal Agreement signed with Party A on May 15, 2019, and when Party A and/or its designated third party exercise their option rights, Party A shall transfer part or all equity of Party C to Party A and/or its designated third party, and Party A and/or its designated third party agree to accept the equity (hereinafter referred to as “equity transfer”).

 

 

 

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Accordingly, both parties reached the following agreement:

 

1.      Equity transfer

 

1.1      Party B agrees to transfer relevant equity to Party A, of which Tian Xiangyang transfers 80%, Tian Zhihai transfers 5%, Liu Zexian transfers 5%, and Gao Xuewei transfers 5%, Li Chunduo transfers 5%, and Party A agrees to accept transfer. After transfer, Party A holds 100% of equity .

 

1.2      As the consideration for the equity transfer, Party A shall pay _____ yuan to Tian Xiangyang in accordance with the provisions of Article 2, _____ yuan to Tian Zhihai, _____ yuan to Liu Zexian, _____ yuan to Gao Xuewei, and _____ yuan to Li Chunduo.

 

1.3      Party B agrees the equity transfer under this Article and is willing and will promote other shareholders of Party C (except Party B) to sign necessary documents including the resolution of the shareholders' meeting and waiver of the priority to purchase relevant shares, and other necessary procedures of equity transfer.

 

1.4      Party B and Party C shall jointly and separately take all necessary actions, including but not limited to signing this Agreement, passing resolutions of the shareholders' meeting, amendments to the Articles of Association etc., in order to transfer equity from Party B to Party A, and Party A shall complete all government approvals or industrial and commercial registration procedures within ten working days from the date of issuing exercise notice in accordance with provisions of the Equity Disposal Agreement to ensure Party A to become the registered owner of the equity.

 

2.      Payment of equity transfer money

 

2.1      Within five working days after signing of this Agreement, Party A shall pay _____ yuan to Tian Xiangyang, ______ yuan to Tian Zhihai, _____ yuan to Liu Zexian, _____ yuan to Gao Xuewei, and _____ yuan to Li Chunduo; within five working days after completing all government approvals and registration procedures related to equity transfer, pay _____ yuan to Tian Xiangyang, _____ yuan to Tian Zhihai, _____ yuan to Liu Zexian, _____ yuan to Gao Xuewei, and _____ yuan to Li Chunduo.

 

2.2      Party B shall issue a receipt to Party A within five working days of each payment mentioned in Article 2.1.

 

3.      Declaration and guarantee

 

3.1      All parties hereby declare and warrant:

 

(a)      they are legally established and existing companies or individuals with full capacity of civil conduct, having full authority and ability to sign and perform this Agreement and other required documents;

 

(b)      they have taken or will take all necessary actions to properly and effectively authorize the signing, delivery and performance of this Agreement and all other documents relating to the transactions under this Agreement, and such signature, delivery and fulfillment does not violate any relevant laws, regulations or government regulations, and does not infringe legal rights and interests of any third party.

 

 

 

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3.2      Party B and Party C jointly and separately declare and guarantee to Party A:

 

(a)      Party B currently holds 100% Party C’s equity legally and effectively. Party B's acquisition and holding of the equity does not violate any laws, regulations or government provisions, nor infringe interests and rights of any third party;

 

(b)      Party C is a limited liability company properly established and validly existing under the laws of the People's Republic of China. It has full rights and capabilities to own, dispose of and operate its assets and business, and conducts ongoing or planned business. Party C has obtained all licenses, qualification certificates or other government approval, filing or registration procedures on conducting all business set forth in the business license;

 

(c)      Party C has not violated any relevant laws and regulations or government regulations since its establishment;

 

(d)      There is no security interest or any other third party rights in Party C's equity held by Party B, unless otherwise agreed by Party A and Party B;

 

(e)      There is no omission in providing Party A any documents or information about Party C or its business that may affect its decision to enter into this Agreement;

 

(f)      Prior to the completion of the equity transfer, they will not authorize or promise to issue new shares in addition to existing shares on the date of signing this Agreement, and will not change the form of registered capital or shareholder structure of Party C.

 

4.      Effective date and term

 

This Agreement is signed and taken into effect at the same time as indicated in the text.

 

5.      Dispute resolution

 

In the event of a dispute among all parties regarding the interpretation and performance of the terms of this Agreement, all parties shall settle in good faith. If all parties fail to resolve within 30 days, either party may submit to the China International Economic and Trade Arbitration Commission for arbitration in accordance with its current arbitration rules. The place of arbitration is in Beijing; the language used for arbitration is Chinese. The arbitral award shall be final and binding on both parties.

 

6.       Applicable law

 

The validity, interpretation and enforcement of this Agreement shall be governed by the laws of the People's Republic of China.

 

7.      Amendment and supplement of this Agreement

 

All parties shall modify and supplement this Agreement in writing. Amendments and supplemental agreements duly signed by all parties are integral parts of this Agreement and have the same legal effect as this Agreement.

 

 

 

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8.      Segmentation of this Agreement

 

If any provision of this Agreement is invalid or unenforceable due to inconsistency with relevant laws, the term is only invalid or incapable within the jurisdiction of relevant laws and shall not affect the legal effect of other provisions of this Agreement.

 

9.      Annex to this Agreement

 

Annex is an integral part of this Agreement and has the same legal effect as this Agreement.

 

10.      Others

 

10.1      This Agreement in in seven copies written in Chinese, and each party shall hold one copy.

 

10.2      If Party A designates any third party to exercise option rights, then Party A in the Equity Transfer Agreement refers to Party A and/or its designated third party.

 

 

[There is no text below]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  14  

 

 

[There is no text on this page, the following are signature pages of Equity Disposal Agreement]

 

Party A: Beijing Hongtao Management Consulting Co., Ltd.  
(Seal)  
Authorized representative: /s/ Tian Xiangyang  
Tian Xiangyang  

 

 

Party B:

/s/ Tian Xiangyang /s/ Tian Zhihai
Tian Xiangyang Tian Zhihai
   
   
/s/ Liu Zexian /s/ Gao Xuewei
Liu Zexian Gao Xuewei
   
   
/s/ Li Chunduo  
Li Chunduo  

 

 

 

 

Party C: Beijing Luji Technology Co., Ltd.  
Authorized representative: /s/ Tian Xiangyang  
Tian Xiangyang  

 

 

 

 

 

 

 

 

  15  

Exhibit 10.6

 

Equity Pledge Agreement

 

This Equity Pledge Agreement (hereinafter referred to as “this Agreement”) was signed by the following parties (hereinafter referred to as “all parties to this Agreement”) on May 15, 2019 in Beijing, China:

 

 

Party A: Beijing Hongtao Management Consulting Co., Ltd. (“Hongtao Consulting”)

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

 

 

Party B:

 

Tian Xiangyang, ID number: 132521197207010022

Address: No.22, Family Member Courtyard of West Grain Depot, West Shuncheng Street, Shacheng Town, Huailai County, Zhangjiakou City, Hebei Province

 

Tian Zhihai, ID number: 132521197607030014

Address: No.90, Nanguan Village, Ansu Town, Xushui District, Baoding City, Hebei Province

 

Liu Zexian, ID number: 130730199312150419

Address: No.158 East Row 11, Aoyun Street, Xiaozhuangzi Village, Beixinbao Town, Huailai County, Zhangjiakou City, Hebei Province

Gao Xuewei, ID number: 132423197707022086

Address: No.90, Nanguan Village, Ansu Town, Xushui County, Baoding City, Hebei Province

 

Li Chunduo, ID number: 110109196202220622

Address: No.5 Compound 49, Jianguo Road, Mentougou District, Beijing

 

 

In view of:

 

1. Party A is a wholly foreign-owned enterprise legally registered and validly existing in the territory of the People's Republic of China;

 

2. Beijing Luji Technology Co., Ltd. (hereinafter referred to as “Luji Technology”) is a limited liability company incorporated in China;

 

3. Party Bs are shareholders of Luji Technology (collectively referred to as the “Pledgors”), of which, Tian Xiangyang holds 80% of the equity, Tian Zhihai holds 5%, Liu Zexian holds 5%, Gao Xuewei holds 5%, and Li Chunduo holds 5%;

 

4. Party A and Party Bs signed Exclusive Consulting and Service Agreement, Equity Disposal Agreement and Business Operation Agreement with Luji Technology on May 15, 2019;

 

5. To guarantee that Party A can collect normally the service fees under Exclusive Consulting and Service Agreement from Luji Technology owned by Party B and ensure the performance of Equity Disposal Agreement and Business Operation Agreement, the Pledgors make respectively and collectively all the equity of Luji Technology owned by them serve as the pledge guarantee of the above agreements and the Pledgee is Party A.

 

 

 

  1  

 

 

Accordingly, through friendly consultations, all parties to this Agreement have reached the following agreements for the compliance in accordance with the principle of equality and mutual benefit:

 

1. Definition

 

Unless otherwise specified herein, the following terms shall be interpreted according to the following definitions:

 

1.1 Pledge Right: Refer to all the contents listed in Article 2 hereof.

 

1.2 Equity: Refer to the 100% equity of Luji Technology held legally by the Pledgors collectively and all the current and future rights and interests enjoyed basing on such equity.

 

1.3 Agreements: Refer to Exclusive Consulting and Service Agreement, Equity Disposal Agreement and Business Operation Agreement signed by Party A, Luji Technology and other parties concerned on May 15, 2019.

 

1.4 Default Event: Refer to any conditions listed in Article 7 hereof.

 

1.5 Default Notice: Refer to the notice that is sent by Party A according to this Agreement and announces the default event.

 

2. Pledge

 

2.1 The Pledgors pledge all the equity of Luji Technology owned by them to Party A, serving as the guarantee for the rights and interests of Party A under the agreements.

 

2.2 The scope guaranteed by the equity pledge hereunder covers all the fees (including legal fees) and expenditures to be paid to Party A as well as the losses, interests, liquidated damages and fees for realization of creditor’s rights need to be borne by Luji Technology and (or) the Pledgors under the agreements as well as the liabilities to be assumed by Luji Technology and the Pledgors when the agreements are invalid in whole or part due to any reason.

 

2.3 The pledge right hereunder refers to the right enjoyed by Party A to be paid in priority with the money acquired by selling the equity pledged by the Pledgors to Party A with the reduced price or auctioning or selling off such equity.

 

2.4 Unless Party A agrees separately and expressly in writing after this Agreement takes effect, the pledge hereunder can be dissolved only when Luji Technology and the Pledgors have performed properly and completely all of their obligations and liabilities under the agreements and the written approval of Party A has been obtained. If Luji Technology or the Pledgors haven’t performed yet all or any parts of their obligations or liabilities under such agreements completely when the terms specified by the agreements expire, Party A shall still enjoy the pledge right specified by this Agreement until the above relevant obligations and liabilities are performed completely by the way reasonably satisfactory to Party A.

 

 

 

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3. Validity

 

3.1 This Agreement shall be established on the date when it is signed and sealed by all parties and take effect on the date when the equity pledge is recorded in the shareholder register.

 

3.2 During the pledge, if Luji Technology fails to pay service fees according to Exclusive Consulting and Service Agreement or perform other terms under such agreement or any terms under Business Operation Agreement or Equity Disposal Agreement, Party A shall be entitled to exercise the pledge right according to the provisions hereof after giving the reasonable notice.

 

4. Possession and Safeguarding of Pledge Right Certificate

 

4.1 The Pledgors shall deliver their equity capital contribution certificates (original) of Luji Technology to Party A for the safeguarding within ten working days since the signing date hereof or at the earlier time agreed unanimously by all parties, submit the certificate proving that the pledge hereunder has been registered properly in the shareholder register to Party A, transact various formalities regarding the examination, approval, registration and filing required by laws & regulations of the People’s Republic of China and submit the equity pledge registration certificate obtained from the industrial and commercial registration authority.

 

4.2 Where there is the change to the recorded pledge matter and it needs to record the change pursuant to the laws, Party A and Party B shall conduct corresponding change recording within five workings days since the date when the recorded matter changes and submit relevant change registration documents.

 

4.3 During the equity pledge, the Pledgors shall instruct Luji Technology not to distribute any dividends and bonuses or adopt any profit distribution schemes; if the Pledgors shall obtain the economic benefits of any other nature other than the dividends, bonuses or other profit distribution schemes with regard to the pledged equity, the Pledgors shall instruct, upon Party A's request, Luji Technology to remit directly relevant (realized) payments to the bank account designated by Party A. Without the advance written consent of Party A, the Pledgors shall not draw on such payments.

 

4.4 During the equity pledge, if the Pledgor subscribes new registered capital of Luji Technology or accepts transferred equity of Luji Technology held by other Pledgors (“new equity”), such new equity shall become automatically the pledged equity hereunder and the Pledgor shall complete various formalities needed for the pledging of such new equity within 10 working days after obtaining the new equity. If the Pledgor fails to complete relevant formalities according to the above provision, Party A shall be entitled to realize the pledge right according to the provisions of Article 8 hereof.

 

5. Representations and Warranties of the Pledgors

 

The Pledgors make the following representations and warranties to Party A during the signing of this Agreement and confirm that Party A relies on such representations and warranties to sign and perform this Agreement:

 

5.1 The Pledgors hold legally the equity hereunder and are entitled to provide Party A with the pledge guarantee with such equity.

 

5.2 At any time within the period starting from the signing date hereof to the time when Party A enjoys the pledge right according the provision of Article 2.4 hereof, once Party A exercises its rights or realizes the pledge right according to this Agreement, there shall not have legal claims or proper intervention from any other parties.

 

5.3 Party A is entitled to exercise the pledge right by the ways specified by laws & regulations and this Agreement.

 

 

 

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5.4 For their signing of this Agreement and performance of their obligations hereunder, all necessary company authorizations have been obtained and the provisions of no applicable laws and regulations are violated; in addition, authorized representative signatories hereof have been authorized legally and validly.

 

5.5 The equity held by the Pledgors does not have any other encumbrances or third-party security interests of any form (including but not limited to the pledge).

 

5.6 There are not any ongoing equity-related civil, administrative or criminal proceedings, administrative penalties or arbitration; in addition, there are not civil, administrative or criminal proceedings, administrative penalties or arbitration which will occur.

 

5.7 There are not any equity-related unpaid due taxes and fees or uncompleted legal procedures and formalities which shall be completed.

 

5.8 All the terms hereof are the expressions of their true intentions and legally binding upon them.

 

6. Commitments of the Pledgors

 

6.1 During the existence hereof, the Pledgors make the following commitments to Party A:

 

6.1.1 Except for transferring the equity to Party A or the person designated by Party A upon Party A's request, without the advance written consent of Party A, the Pledgors will not transfer the equity and establish any other encumbrances or third-party security interests of any form such as any pledge that may influence Party A’s rights and interests, etc. or allow the existence of such encumbrances or security interests;

 

6.1.2 The Pledgors will obey and execute the provisions of all relevant applicable laws and regulations. When receiving the notices, commands or suggestions sent or formulated by relevant competent authorities concerning the pledge right, the Pledgors will present the above notices, commands or suggestions to Party A within five working days and take the actions according to reasonable instructions of Party A;

 

6.1.3 The Pledgors will inform timely Party A of any events which may influence the rights of the equity or any of its parts of the Pledgors or received relevant notices as well as any events which may change any obligations hereunder of the Pledgors or influence the performance of the obligations hereunder by the Pledgors or received relevant notices and take the actions according to reasonable instructions of Party A.

 

6.2 The Pledgors agree that the exercising of Party A’s rights by Party A according to the terms hereof shall not be interrupted or encumbered by the Pledgors or the Pledgors’ successors or the transferees or any other persons.

 

6.3 The Pledgors make the warranty to Party A that, to protect or perfect the guaranteeing of the obligations of the Pledgors and (or) Luji Technology under the agreements by this Agreement, the Pledgors will make all necessary modifications (if applicable) to the Articles of Association of Luji Technology, sign honestly and urge other interested parties concerning the pledge right to sign all the right certificates and contracts required by Party A and/or perform and urge other interested parties to perform the behaviors required by Party A, provide the convenience for the exercising of the pledge right by Party A, sign all the change documents related to the equity certificates with Party A or any third parties designated by Party A and provide Party A with all the equity-related documents which are deemed by Party A as necessary within the reasonable period.

 

6.4 The Pledgors make the warranty to Party A that, for the sake of Party A’s interests, the Pledgors will obey and perform all the warranties, commitments, agreements and representations. If the Pledgors do not perform or perform incompletely their warranties, commitments, agreements and representations, the Pledgors shall compensate Party A for all the consequent losses suffered by Party A.

 

 

 

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7. Default Event

 

7.1 All the following matters shall be deemed as default event:

 

7.1.1 Luji Technology or its successor or transferee fails to pay any due payments under the agreements in full amount on schedule or the Pledgors or their successors or transferees fail to perform their obligations under Business Operation Agreement, Equity Disposal Agreement and Exclusive Consulting and Service Agreement;

 

7.1.2 Any representations, warranties or commitments made by the Pledgors in Articles 5 & 6 hereof have the material misguidance or errors and/or the Pledgors violate the representations, warranties or commitments in Articles 5 & 6 hereof;

 

7.1.3 The Pledgors violate severely any terms hereof;

 

7.1.4 Except for the matter agreed in Article 6.1.1 hereof, the Pledgors abandon the pledged equity or transfer arbitrarily the pledged equity without the written consent of Party A;

 

7.1.5 Any of the Pledgors’ own external borrowings, guarantees, compensations, commitments or other debt repayment liabilities are required to be repaid or performed in advance or can not be repaid or performed on schedule when due, which makes Party A believe reasonably that the capabilities of the Pledgors to perform the obligations hereunder have been influenced and its interests are influenced consequently;

 

7.1.6 The Pledgors can not repay general liabilities and other debts and the interests of Party A are influenced thereby;

 

7.1.7 The promulgation of relevant laws makes this Agreement become invalid or the Pledgors unable to continue the performance of their obligations hereunder;

 

7.1.8 Any consent, permission, approval or authorization of the government department that enables the performance of this Agreement or makes this Agreement become valid or effective is revoked or suspended or becomes ineffective or has the material modification;

 

7.1.9 There is the adverse change to the properties owned by the Pledgors, which makes Party A believe that the capabilities of the Pledgors to perform their obligations hereunder have been influenced;

 

7.1.10 Other conditions under which Party A can not exercise the pledge right according to the provisions of relevant laws.

 

7.2 If knowing or discovering that any matter stated in the above Article 7.1 or the event that may cause the above matters has occurred, the Pledgors shall inform Party A in writing immediately.

 

7.3 Unless default matters listed in Article 7.1 have been resolved successfully to the satisfaction of Party A, Party A can send the default notice to the Pledgors in writing at any time during or after the occurrence of the default matter conducted by the Pledgors to require the Pledgors to pay immediately the arrearages and other payable payments under the agreements or perform timely Equity Disposal Agreement and Business Operation Agreement. If the Pledgors or Luji Technology fails to timely correct its default behaviors or adopt necessary remedy behaviors, Party A shall be entitled to exercise the pledge right according to the provisions of Article 8 hereof.

 

 

 

  5  

 

 

8. Exercise of Pledge Right

 

8.1 Before all the fees and obligations under the agreements are performed, without the written consent of Party A, the Pledgors shall not transfer the equity.

 

8.2 During the exercising of the pledge right, Party A shall send the default notice to the Pledgors according to the provisions of Article 7.3 hereof.

 

8.3 Subject to the provisions of Article 7.3, Party A can exercise the pledge right at any time after sending the default notice according to Article 7.3.

 

8.4 Party A shall be entitled to be paid in priority with the money acquired by selling all or part of the equity hereunder with the reduced price or by auctioning or selling off such equity according to legal procedures until all unpaid service fees and all other payable payments under the agreements are offset and Equity Disposal Agreement and Business Operation Agreement are performed completely.

 

8.5 When Party A exercises the pledge right according to this Agreement, the Pledgors shall not set up the obstacles but provide necessary assistance to make Party A realize its pledge right.

 

9. Transfer

 

9.1 Unless Party A agrees expressly in writing in advance, the Pledgors shall not be entitled to transfer any of their rights and/or obligations hereunder to the third party.

 

9.2 This Agreement shall be binding on the Pledgors and their successors and valid for Party A and its successor or transferee.

 

9.3 Party A can transfer all or any of its rights and obligations under the agreements to any third party designated by it at any time. In this case, the transferee shall enjoy and assume the rights and obligations enjoyed and assumed by Party A hereunder. When Party A transfers the rights and obligations under the agreements, the Pledgors shall sign relevant agreements and/or documents for such transfer upon request by Party A.

 

9.4 After the Pledgee change caused due to the transfer, both new pledge parties shall sign the pledge agreement again and the Pledgors shall be responsible for transacting all relevant registration formalities.

 

10. Commission Fees and Other Fees

 

10.1 For all the fees and actual expenditures related to this Agreement, including but not limited to legal fees, material fees, stamp taxes, any other taxes & fees and so on, Party A and Party B shall bear a half respectively.

 

11. Force Majeure

 

11.1 Where the performance hereof is delayed or hindered due to any “Force Majeure Event”, the party affected by the force majeure does not need to assume any liabilities hereunder only for such delayed or hindered performance. “Force majeure” means any event beyond the scope of reasonable control of one party and inevitable under reasonable care of the affected party, including but not limited to government actions, natural forces, fires, explosions, geographical changes, storms, floods, earthquakes, tides, lightning or wars. However, insufficient credit standing, fund or financing may not be considered as the event beyond the reasonable control of one party. The affected party seeking for the exemption of the performance of its responsibilities hereunder or under any terms hereof shall notify the other party of such responsibility exemption and inform it of the steps to be taken for the performance completing.

 

 

 

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11.2 The affected party shall not be liable for any liability under this Agreement. However, the party seeking for liability exemption can obtain the exemption of such liability performance only when the affected party makes all reasonable efforts to perform the agreement and such exemption shall be limited to only such delayed or hindered performance. Once force majeure event is eliminated, all parties agree to exert best efforts to restore performance under this Agreement.

 

12. Law Application and Dispute Resolution

 

12.1 The signing, validity, performance and interpretation of this Agreement and the resolution of disputes shall be governed by the laws of the People’s Republic of China and shall be construed in accordance with the laws of the People's Republic of China.

 

12.2 In the event of a dispute among all parties to this Agreement regarding the interpretation and performance of the terms hereunder, all parties shall settle in good faith through negotiations. If negotiation fails, either party may submit to the China International Economic and Trade Arbitration Commission for arbitration in accordance with its arbitration rules in effect. The arbitration place shall be Beijing and the language adopted for arbitration shall be Chinese. The arbitral award shall be final and binding on all parties.

 

12.3 Except for disputes among all parties, all parties shall continue to perform respective obligations in accordance with provisions of this Agreement in good faith.

 

13. Notice

 

Notices issued by all parties to this Agreement for the performance of their rights and obligations hereunder shall be made in writing and delivered to the address of one relevant party or the addresses of the parties to the Agreement below by means of personal delivery, registered mail, postage prepaid mail, approved courier service, or fax.

 

Party A: Beijing Hongtao Management Consulting Co., Ltd. (“Hongtao Consulting”)

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel.: 010-57551198

Recipient: Tian Xiangyang

 

Party B:

 

Tian Xiangyang

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel.: 13031121536

Recipient: Tian Xiangyang

 

Tian Zhihai

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel.: 18710121183

Recipient: Tian Zhihai

 

 

 

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Liu Zexian

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel.: 18831332105

Recipient: Liu Zexian

 

Gao Xuewei

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Tel.: 15832272634

Recipient: Gao Xuewei

 

Li Chunduo

Address: Room 1106, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

 

Tel.: 13241593921

Recipient: Li Chunduo

 

14. Annex

 

Annexes listed herein shall be the integral part hereof.

 

15. Waiver

 

The failure or delay of the exercising of any rights, remedy measures, powers or privileges hereunder by Party A shall not be deemed as the waiver of such rights, remedy measures, powers or privileges. Any exercising of any rights, remedy measures, powers or privileges by Party A individually or in part shall not preclude the exercising of any other rights, remedy measures, powers or privileges by Party A. Rights, remedy measures, powers or privileges specified by this Agreement shall be accumulated and not preclude the application of any rights, remedy measures, powers or privileges specified by any laws.

 

16. Miscellaneous

 

16.1 Any modifications, supplements or changes to this Agreement must be made in writing and take effect after being signed and sealed by all parties.

 

16.2 All parties confirm hereby that this Agreement is the fair and reasonable agreement reached by all parties basing on equality and mutual benefit. If any term hereunder is invalid or unenforceable due to its nonconformance with relevant laws, such term shall be invalid or unenforceable only within the jurisdictional limits of relevant laws and not influence the legal effect of other terms hereof.

 

16.3 This Agreement shall be made in Chinese and septuplicate with all parties holding one respectively.

 

 

 

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[There is no text on this page, the following are signature pages of Equity Pledge Agreement]

 

Party A: Beijing Hongtao Management Consulting Co., Ltd.  
 
Authorized representative: /s/ Tian Xiangyang  
Tian Xiangyang  

 

 

Party B:

 

/s/ Tian Xiangyang /s/ Tian Zhihai
Tian Xiangyang Tian Zhihai
   
   
/s/ Liu Zexian /s/ Gao Xuewei
Liu Zexian Gao Xuewei
   
   
/s/ Li Chunduo  
Li Chunduo  

 

 

 

 

 

 

 

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Annexes:

 

1. Shareholder Register of Luji Technology

 

2. Capital Contribution Certificates of Shareholders of Luji Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  10  

 

Exhibit 10.7

 

Agency Agreement

 

This Voting Rights Agency Agreement ("this Agreement") was entered into by the following parties on May 15, 2019:

 

Party A: Beijing Hongtao Management Consulting Co., Ltd.

Registered address: Room 3006, 3rd Floor, Building 16, No. 30, Shixing Street, Shijingshan District, Beijing

Executive Director: Tian Xiangyang

 

Party B: Shareholders/owners of Beijing Luji Technology Co., Ltd. (a limited liability company established under the Chinese law, “Luji Technology”)

 

Statement

A.      Party A is a wholly foreign-owned company established in accordance with the laws of the People's Republic of China and engaged in technical and business consulting services.

 

B.      On the date of the establishment of this Agreement, Party B is the shareholder/owner of Luji Technology and legally holds the equity of Luji Technology. Party B holds a total of 100% shares of Luji Technology.

 

C.      Party B intends to grant Party A's Board of Directors (Executive Director) as Party B's agent to vote at the Luji Technology Shareholders’/Owners’ Meeting during the longest statutory period.

 

In view of this, both parties reached the following agreement:

 

1.      Party B hereby agrees to authorize Party A's irrevocable license and, in the longest period permitted by law, to exercise the voting rights of the shareholders/owners of Luji Technology. Party A shall exercise the voting right in accordance with the Chinese Law and the Articles of Association of Luji Technology.

 

2.      Party A may establish or amend relevant rules on how to exercise powers conferred by Party B, including but not limited to the number or proportion of directors required by Party A when authorizing, taking action, and signing documents. Party A shall act in accordance with the above rules.

 

3.      Both parties hereby recognize that regardless of any changes in the Company's equity, Party B shall authorize the person appointed by Party A to exercise all voting rights of Party B's shareholders/owners; Party B shall not transfer its shareholder’s/owner's interest in Luji Technology to any individual or company (unless Party A or other individual or party designated by Party A). Party B understands that even if either party or one of them no longer holds the equity interest in Luji Technology, it will continue to perform the contract.

 

4.      This Agreement shall come into effect after signing by both parties. If one of the parties is a non-natural person, the party should obtain all necessary formal authorizations.

 

5.      Party B states and guarantees to Party A: Party B legally owns the equity of Luji Technology and does not have any mortgage or mortgage guarantee. Except Party A, Party B has not granted any shareholding to any person and the same power of attorney as the shareholder/owner of Luji Technology. Party B further states and warrants that Party B's signature or delivery of this Agreement does not violate the laws, regulations, judicial decisions, administrative orders, arbitral awards, contracts or agreements applicable to Party B. It is hereby recognized that if the agent withdraws the appointment of relevant person, the agent will appoint another person to exercise voting rights and other rights at the Company’s Shareholders’/Owners’ Meeting.

 

 

 

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6.      Unless Party A informs Party B thirty days in advance, this Agreement shall not be terminated without unanimous consent of both parties.

 

7.      Any modification and/or dissolution of this Agreement must be in writing.

 

8.      The signing, validity, establishment and performance of this Agreement shall be governed by the laws of the People's Republic of China.

 

9.      This Agreement is in seven copies and each party holds one copy, which is equally authentic.

 

10.      If there is a dispute arising from this Agreement, both parties agree to resolve through negotiation. If both parties fail to reach an agreement after 45 days, they shall submit to the China International Economic and Trade Arbitration Commission for arbitration in accordance with arbitration rules in effect. The arbitration place shall be in Beijing and the language in use shall be Chinese. The arbitration is final and can be enforced in any court of competent jurisdiction.

 

[There is no text on this page, the following are signature pages]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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[There is no text on this page, the following are signature pages of Agent Agreement]

 

Both parties of this Agreement or authoritative representatives sign this Agreement

 

Party A: Beijing Hongtao Management Consulting Co., Ltd.

Legal representative/authorized representative (signature):

Name: Tian Xiangyang

Title: Executive Director

 

Party B

 

/s/ Tian Xiangyang

Tian Xiangyang

ID number of the People’s Republic of China:

 

 

/s/ Tian Zhihai

Tian Zhihai

ID number of the People’s Republic of China:

 

 

 

 

 

 

 

 

 

 

 

 

 

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[There is no text on this page, the following are signature pages of Agent Agreement]

 

 

/s/ Liu Zexian

Liu Zexian

ID number of the People’s Republic of China:

 

 

 

 

/s/ Gao Xuewei

Gao Xuewei

ID number of the People’s Republic of China:

 

 

 

 

/s/ Li Chunduo

Li Chunduo

ID number of the People’s Republic of China:

 

 

 

 

 

 

 

 

 

 

 

 

  4  

 

Exhibit 10.8

 

Institution

 

 

 

 

 

 

 

 

 

 

 

House Lease Contract

 

 

 

 

 

 

 

 

 

 

 

Fengtai Office Area

 

 

 

 

 

 

 

 

 

  1  

 

 

House Lease Contract

 

The Lessee (Party A): Beijing Luji Technology Co., Ltd.

Mailing address: (certificate address) Room 1206, 12th Floor, 301, 3-17 F, Building 5, Block 1, Hangfeng Road, Fengtai District, Beijing , The PRC

Mailing address: (current address of Party A or legal person)

Unified social credit code or ID card No.: (unified credit code)

Tel.: E-mail:

 

The Lessee (Party B): Beijing Hontao Management Consulting Co., Ltd..

Mailing address: Room 3006, Building 16, 30 Shixing Street, Shijingshan District, Beijing PRC

Unified social credit code or ID card No.: 91110106MA01AQAM7Y

Tel.: Fax:

 

Pursuant to Contract Law of the People’s Republic of China, Measures on the Management of Commodity House Lease and Measures of House Lease Management of Beijing, the following contract regarding the lease of Room 1206, 12/F, Building 5, No. 1 yard, Hangfeng Road, Fengtai District, Beijing (hereinafter referred to as “this Contract”) is made and entered into by and between Party A and Party B after reaching consensus via negotiation.

 

Article 1 Property Leased

 

1.1 Party B has the rights and agrees to rent out the premise located at Room 1206, 12/F, Building 5, No. 1 yard, Hangfeng Road, Fengtai District, Beijing (hereinafter referred to as “this Premise”) to Party A for office only. Party A shall use this Premise as per relevant national and municipal regulations on house use and property management. The building area of this Premise is 303.6 m2.

 

1.2 Prior to opening its business, Party A shall apply to the relevant government organs for relevant licenses, approval certificates or permits; Party A shall, within three days upon acquiring the certificates, provide the copy of these certificates for Party B for filing.

 

1.3 Where Party A applies to relevant government organs for changing the enterprise name, legal representative, enterprise nature or investor in term of lease, Party A shall deal with these matters without affecting the validity of this Contract and report to Party B for filing within three days after the announcement of the information change. If necessary, both parties shall sign a new House Lease Contract.

 

Article 2 Term of Lease, Rent-free Period and Commencement Date

 

2.1 Term of lease: 2 years, since July 20, 2020 to July 19, 2022;

 

2.2 Rent-free period: 3 days, from July 20, 2020 to July 22, 2020.

 

(The management fees are still charged within the rent-free period).

 

2.3 Commencement date: July 23, 2020.

 

 

 

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Article 3 Rent and Mode of Payment

 

3.1 Rent: RMB 5.6/m2/day (including taxes/furniture/property). The total monthly rent is RMB 51,713.20 (say: RMB FIFTY ONE THOUSAND SEVEN HUNDRED THIRTEEN POINT TWO Only).

 

3.2 The rent shall be increased by / % on the basis of the rent in the previous year from DD MM YY to the expiration of this Contract, which means the rent in the second year is / /m2/day and the rent in the third year is / /m2/day.

 

3.3 Party A shall, within two days upon the conclusion of this Agreement, pay 6-month rent and management fees, all of which amount to RMB 310,279.20 (say: RMB THREE HUNDRED TEN THOUSAND TWO HUNDRED SEVENTY NINE POINT TWO Only). Party A shall, prior to the 25th day of the last month when the payment of each period expires, pay 6-month rent and management fees. The rent of less than one calendar month shall be calculated based on the actual rent days of the month.

 

3.4 Party A can pay Party B the rent via transfer cheque, bank remittance or other ways designated by Party B. Should Party A effect payment via bank transfer, the date of payment is the day when the payment reaches the bank account designated by Party B. Party B shall issue relevant invoices to Party A upon receiving Party A’s payment.

 

Party A’s recipient bank and account No.:

 

Opening bank: China Minsheng Banking Corp. Ltd. Beijing Headquarters Base Branch

Payee: Beijing Bojin Commercial Operation Management Co., Ltd.

Account No.: 611082609

 

Article 4 Property Management Fees and Other Expenses

 

4.1 The property owner entrusts Beijing Tuomei Property Management Co., Ltd. (hereinafter referred to as “the property company”) to provide property management services for Shidai Caifu Tiandi.

 

4.2 Party A agrees Party B to withhold and deduct the management fees and water and electricity fees that shall be borne by Party A within the term of lease. The overtime air conditioning fees and other expenses generated by Party A’s special demand shall be paid by Party A to the property company directly as per the provisions on the property management services.

 

4.3 The property company can, for the purpose of maintaining the property management quality, adjust the said management fees and other expenses, without going against the relevant government regulations, within the term of lease. In such case, Party B shall send a written notice to Party A one month in advance.

 

4.4 All the commission service fees/intermediary fees charged by the real estate brokerage agency for assisting in the conclusion of this Contract by and between Party A and Party B shall be borne by Party B for Party A in advance. Party B will charge no the said commission service fees/intermediary fees from Party A if both parties finish performing this Contract in good faith until this Contract expires.

 

 

 

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Article 5 Margin

 

5.1 To ensure Party A will perform the following obligations specified in this Contract in good faith, Party A shall, within two days upon the conclusion of this Contract, pay Party B the following fees: (1) Rent margin which is equivalent to 2-month rent (i.e., RMB 103,426.4); 2. Margin of water and electricity fees RMB 9,108.00 (calculated based on the standard of RMB 30/m2 (leased area)); the margins above amount to RMB 112,534.40 (say: RMB ONE HUNDRED TWELVE THOUSAND FIVE HUNDRED THIRTY FOUR POINT FOUR Only). Where this Contract is rescinded, Party B shall, within thirty working days after Party A sends back this Premise to Party B, both parties finish their respective rights and obligations for this Premise, and Party A pays off all the expenses, return the margins above to Party A with no interests.

 

5.2 The said margin serves as performance bond and cannot be used as the exceptions of Party A’s nonperformance or for offsetting Party A’s rent, management fees and other relevant expenses.

 

Article 6 Delivery and Acceptance

 

6.1 Party B shall deliver this Premise to Party A after Party A pays off the rent of the first period, management fees and margins.

 

6.2 Both Party A and Party B shall hand over and accept this Premise jointly on the date of delivery and go through delivery formalities, unless the main structure of this Premise is nonconforming or there are major quality defects which seriously influence Party A’s decoration or use exist. If this Premise contains no defects which affect Party A’s normal decoration and use, both parties shall go through the delivery formalities and Party A signs the statement of defects. Party B is responsible for repairing at its own expenses.

 

Article 7 Decoration of this Premise

 

7.1 Party B is responsible for decorating this Premise for the first time at its own expenses, including firefighting reporting and acceptance expenses, air conditioner refitting fees, and decoration management fees charged by the property company. See appendix to the contract for decoration standard. The part exceeding the decoration standard means the part extra required by Party A which shall bear the decoration fees.

 

7.2 Party B and the property company have the rights to specify and manage Party A’s decoration, division, building, equipment installation or reconstruction of this Premise, including managing the access of Party A’s construction staffs, materials transportation, construction time and safety, etc. reasonably.

 

7.3 If Party A decides to redecorate this Premise within term of lease, it must acquire Party B’s written consent in advance. Party A shall also ensure the decoration unit it entrusts has the decoration qualification specified by the state and acquire all the approvals and permits of the government organs prior to decoration. Party A shall also ensure the workers follow disciplines and laws, work in a civilized and safe manner, abide by Decoration Guide of the property company and accept the supervision and management of Party B and the property company in the whole decoration process.

 

7.4 Should Party A’s decoration unit cause any personal injury and death or property loss in the decoration process, Party A shall be responsible for making compensation at its sole discretion; if this Premise is damaged, Party A shall make compensation fully, including but not limited to the damage of this Premise and Party B’s relevant losses.

 

7.6 Should decoration be finished, Party A shall apply to the relevant competent government organs and Party B for acceptance before using this Premise.

 

 

 

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Article 8 Maintenance and Repairing

 

8.1 Party A must keep this Premise under normal and clean status and use it properly within the term of lease. Where this Premise and auxiliary facilities are damaged or become faulty (except for the quality problems of main structure of this Premise) due to the cause attributable to Party A and relevant third party, Party A shall be responsible for repairing and compensation at its own expenses. If Party A refuses to make repairing, Party B can make repairing instead and all the fees arising therefrom can be deducted from Party A’s lease margin. In such case, Party A shall make up the lease margin within five days; otherwise, it is seen as a serious breach of this Contract and Party B has the rights to terminate this Contract in advance. If the above causes any personal injury or property loss, all the responsibilities shall be borne by Party A.

 

8.2 Party A shall use this Premise and auxiliary facilities reasonably within the scope of lease in term of lease and make sure the floor, gypsum plaster, other decorations, wall, ceiling, articles provided by Party B separately, assembly and all the other objects provided separately (no matter whether they belong to Party B or Party A) within this Premise, including all doors, windows, electric devices, wires, water pipes, telephone lines, etc. are under leasable status (except for reasonable wear). If Party A applies to the property company for repairing, it shall pay relevant repairing fees as per the company’s standard on equipment and facility repairing fees.

 

8.3 Party A shall abide by Party B’s and property company’s rules and systems regarding equipment installation and maintenance.

 

8.4 If the relevant fire system, sprinkling system, electric device, cool and heating water pipeline, telephone wire, building self-control system, air conditioning coiler fan and water supply & drainage system of this Premise become dangerous or unsafe, or need changing or repairing as per the reasonable requirements of relevant public facility institutions, Party A must employ the contractor designated by Party B and effect payment accordingly.

 

8.5 In case that the external wall glass of this Premise is damaged in term of lease (including any crack or bruise) due to the intentional purpose or negligence of Party A or any third party, Party B must bear all the expenses for replacing the glass.

 

Article 9 Insurance and Fire Prevention

 

9.1 If Party A plans to decorate this Premise, it shall place insurance for this Premise in course of decoration, including but not limited to installation all risks insurance (including third party liability insurance). The limit of liability per accident of third party insurance contained in installation all risks insurance shall be no lower than RMB 500,000.

 

9.2 Party A shall purchase property all risks insurance and public liability insurance for this Premise in term of lease at least. The limit of liability per accident of Party A’s public liability insurance shall be no less than RMB 500,000 and Party A shall take Party B as the joint beneficiary. Party A shall ensure it will place the aforementioned insurance within the whole term of lease.

 

9.3 Should Party B ask Party A for insurance purchase voucher, Party A shall provide the copy of the said policies for Party B for audit and filing.

 

9.4 In case of any insurance accident ascribed to Party A, causing any loss or losses to Party B, Party A shall use the compensation from the insurance company to compensate Party B’s loss; if the said compensation cannot be enough to pay off Party B’s loss, Party A shall still pay the difference for Party B.

 

9.5 Party A must abide by Party B’s and firefighting organ’s all suggestions, ensure the firefighting equipment of this Premise satisfy the firefighting organ’s requirements and shall not destroy the equipment or influence the running status of them or prevent any firefighting equipment from running normally or block fire exit door. If the firefighting equipment is damaged or becomes faulty, Party A shall inform Party B with no delay. If the above is ascribed to Party A, Party A shall make compensation.

 

 

 

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Article 10 Prohibitions and Restrictions

 

10.1 The personnel allocation standard of this Premise is 1:10 (number of office personnel: building area). If the personnel exceed the property management and cause adverse influence to other lessees, Party B has the rights to stop providing relevant services to eradicate the adverse factors but all the losses arising therefrom shall be borne by Party A.

 

10.2 In no case shall Party A make noises (including but not limited to playing music or shouting slogan loudly) to interfere with other lessees and third party offensively within the whole term of lease. Party B and the property company can decide finally if the noise constitutes offensive interference. Where Party A is complained and is defined involving the offensive interference, it shall make corrections within two days. If, however, it refuses to make corrections and eradicate the influence, Party B will suspend providing service and all the compensations and relevant legal responsibilities arising therefrom shall be borne by Party A.

 

10.3 When using this Premise and the public region, Party A shall abide by the electricity use standard of the building and avoid using the electronic and power facilities and equipment with overload. In case of trip or any other relevant loss due to improper use, Party A shall bear the consequences arising therefrom.

 

10.4 Smoking or any hazardous object such as inflammable and explosive articles is forbidden in this Premise and public region (except for smoking area). Once Party A is found involving the above by Party B and the property company, Party A must stop and eradicate the dangers immediately. If Party A refuses to stop or eradicate the danger once urged in writing for twice, it is seen as a breach of this Contract. In such case, Party A shall pay Party B liquidated damages of RMB 5,000 within two days after receiving a written notice from Party B. Party A is seen as a serious breach of this Contract if paying liquidated damages for over three times and Party B is entitled to terminate this Contract and investigate Party A’s violation liabilities.

 

10.5 Party A must acquire Party B’s written consent if planning to put, hang or post any ads at the external wall of this Premise, surrounding it or within the public region. Otherwise, Party B can dismantle the said objects, either in person or by entrusting a third party and all the dismantling fees caused thereby shall be borne by Party A. Party A is seen as a breach of this Contract if involving the above for over three times. In such case, Party B is entitled to terminate this Contract and investigate Party A’s violation liabilities.

 

Article 11 Sublet and Renewal

 

11.1 Party A shall not sublet, lend, sublease or exchange this Premise with others at will by any means within the whole term of this Contract.

 

11.2 If Party A decides to lease this Premise continuously after the expiration of this Contract, it shall apply to Party B for renewal in writing three months prior to expiration at least, on the basis that it pays rent, management fees and other expenses in time and abides by and performs all the terms contained herein. Party A has the priority of lease under equivalent conditions. Where both parties reach a consensus on renewal of this Contract, they shall sign a new house lease contract; otherwise, Party A is seen to waive the right of renewal. Party B can rent out this Premise to others.

 

11.3 If Party A does not renew this Contract with Party B but refuses to move out of this Premise in due time after the term of lease expires, Party B can ask for rent which is three times of the original rent in the overdue period and Party A shall pay it off within three days.

 

11.4 Party B can view this Premise within two months prior to the expiration of term of lease together with any third party. In such case, Party B shall inform Party A in advance and Party A shall provide necessary assistance.

 

 

 

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Article 12 Surrender of Tenancy

 

If this Contract expires or is terminated in advance (no matter whether it is terminated unilaterally or via negotiation of both parties), Party A shall move out of this Premise within the second day upon expiration. Where Party A refuses to move or send back this Premise in due time, Party B has the rights to take back this Premise as per laws or the provisions of this Contract and ask Party A for compensation for the overdue period according to the standard which is three times of the original rent as per 11.3. Both parties shall accept and hand over this Premise together. If this Premise sent back by Party A has any fixed attachment, device or additional equipment that Party B agrees to accept, Party A is seen to waive the ownership of the above and shall not ask Party B for compensation in any form. If Party B refuses to accept them, Party A shall send back this Premise after recovering it to the original status, including but not limited to recovering the open ceiling fire sprinkling system and smoke detector, dismantling and returning fan coiler, thermostat, lamp panel, air supply outlet, air outlet, ceiling and auxiliary materials (check the quantity on site based on the list of standard electromechanical facilities for the leased region. Party A shall make up the missing ones or compensate material or loss).

 

Article 13 Termination of This Contract

 

13.1 If Party A involves any of the following cases within the whole term of lease:

 

(1) Party A’s business deteriorates seriously or Party A transfers properties, withdraws funds secretly or loses business reputation, which influences the performance of this Contract;

 

(2) Party A is subjected to clearing, bankruptcy or property seal-up or sharp reduction of debt paying capacity, which may affect it from performing the obligations contained herein;

 

Party B can ask Party A to provide performance bond. Should Party A refuse to provide, Party B can terminate this Contract, confiscate the margin and investigate Party A’s violation liabilities.

 

13.2 If Party A’s any property inside this Premise is subjected to any compulsory measures and/or sealed up by the people’s court or other administrative law-enforcing department within the term of lease, making this Contract unable to be performed continuously, Party B can terminate this Contract, confiscate the margin and investigate Party A’s violation liabilities.

 

Article 14 Violation Liabilities

 

14.1 If Party B terminates this Contract in advance within the term, it shall inform Party A two months in advance and return the margin in double times and the rent for the rest term of this Contract (the rent of a term longer than four months is calculated based on four months) to Party A. Should Party A terminate this Contract in advance within the term, it shall inform Party B two months in advance and Party B will not refund the margin that Party A pays. In such case, Party A shall also be responsible for the rent of the rest terms within the validity of this Contract (the rent of a term longer than four months is calculated based on four months).

 

14.2 Party A shall pay Party B margin as per 5.1 and 5.2 of this Contract. Otherwise, Party A is seen as a breach of this Contract. In such case, Party B can terminate this Contract and rent it out to a third party without informing Party A in advance; refuse to refund Party A’s down payment and ask Party A for liquidated damages according to the total margin specified in 5.1 and 5.2 hereof.

 

 

 

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14.3 Party A shall not refuse to pay or default in paying rent, management fees and other expenses with any cause. If Party A fails to pay the fees above within the time specified, it shall pay Party B liquidated damages which are 0.5% of total fees for each day overdue. Should Party A fail to pay the rent and other expenses for five days overdue as per this Contract, Party B will suspend providing services for it (including but not limited to water and electricity supply, door access, business service, article release, etc.) and all the consequences arising therefrom shall be borne by Party A.

 

14.4 If Party A involves any of the following cases within the term of lease:

 

(1) Party A fails to pay rent and other expenses based on the time specified herein for seven days overdue;

 

(2) Party A defaults in paying rent and other expenses for three times.

 

Party A is seen as a serious breach of this Contract. Party B will terminate this Contract with Party A, confiscate Party A’s margin and may collect and rent out this Premise. Party A shall also be responsible for the rent of the rest terms within the validity of this Contract (the rent of a term longer than four months is calculated based on four months). If Party A does not dispose its office facilities and supplies left inside this Premise, it is seen as having waived the disposal and agreed Party B to dispose them.

 

14.5 In case that Party A terminates this Contract in advance or breaches this Contract within the term, it shall bear the rent for rent-free period.

 

14.6 Where Party A proposes to terminate this Contract or breaches this Contract within term, it shall pay the commission service fees/brokerage fees paid by Party B in advance as per 4.4.

 

14.7 If Party A breaches this Contract due to its failure in paying rent and management fees or this Contract cannot be performed any longer by Party A’s other behaviors, Party B can ask Party A to provide performance bond or detain Party A’s properties inside this Premise after Party A fails to effect payment in time or involves the behaviors above. If it is determined that this Contract cannot be performed any longer within five working days, Party B can terminate this Contract, confiscate the margin, exercise lien and investigate Party A’s violation behaviors.

 

14.8 If Party A involves any of the following cases within the term of lease:

 

(1) Party A deals with illegal activities inside this Premise, impairing the public interests or others’ interests;

 

(2) Party A changes the purpose of lease specified in this Contract at will;

 

(3) Party A refuses to bear maintenance responsibilities or pay maintenance fees as per this Contract, leading to the damage of this Premise or facilities;

 

(4) Party A decorates this Premise without Party A’s prior consent or changes its structure or involves other behaviors of destroying this Premise;

 

(5) Party A subleases, lends, sublets or exchanges this Premise with others at will;

 

(6) Party A saves hazardous objects such as inflammable and explosive articles or other prohibited substances in this Premise;

 

(7) Other behaviors in violation of laws and this Contract.

 

 

 

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If Party A involves any of the behaviors above, Party B can terminate this Contract, confiscate the margin and ask Party A for compensating its loss arising therefrom.

 

14.9 Any fees paid by Party B for urging Party A’s payment of the rent and management fees or exercising any right under this Contract (including but not limited to attorney fees and legal fare, etc.) shall be borne by Party A.

 

Article 15 Non-competition

 

Party A hereby commits that it will not employ any employee from Party B’s (Beijing Bojin Commercial Operation Management Co., Ltd.) any department, either directly or indirectly, from the conclusion of this Contract to the expiration of term specified herein, including the in-service employees or employees resigning from Party B for less than three months.

 

Article 16 Notice and Delivery

 

16.1 All the notices sent based on the demand of this Contract must be made in writing. Both parties shall send written notices or other files based on the address stated herein.

 

Party A:

Address:

 

Party B: Beijing Bojin Commercial Operation Management Co., Ltd.

Address: Room 908, Inner 8/F, 3-17/F, Building 5, No. 1 yard, Fenghang Road, Fengtai District, Beijing

 

16.2 The mailing address, email and contact phone specified in this Contract are both parties’ valid addresses for service when both parties perform this Contract and resolve any dispute arising out of the performance of this Contract. Both parties confirm the addresses have legal effect. In case of changing the address, the due party shall inform the counterparty in writing. Any file, notice or other correspondence is seen to have delivered on the 3rd working day after sending; the registered delivery bill from the postal office serves as the valid certificate of delivery. If they are sent via email, they are seen to reach the recipients upon the delivery and the sending party’s delivery record serves as the valid certificate; if the files, notices or correspondences are sent face to face, they are seen to reach the recipient once signed by the counterparty and the receipt serves as the valid certificate of delivery. If the counterparty refuses, they are seen to have been delivered as long as they are delivered to the counterparty and the corresponding photos or video can serve as the receipt or via other ways as stipulated in this Contract.

 

Article 17 Applicable Laws and Dispute Resolution

 

17.1 The signature, performance, interpretation and dispute resolution of this Contract are governed by the laws of the People’s Republic of China.

 

17.2 Any dispute arising out of the performance of this Contract shall be resolved by both parties via negotiation. If, however, negotiation fails, either party can file a lawsuit to the people’s court at the site of this Premise.

 

Article 18 Miscellaneous

 

18.1 The titles of this Contract are used for facilitate searching and neither interpret nor restrain the terms contained herein.

 

 

 

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18.2 Any matters unmentioned herein shall be resolved by both parties by concluding a supplementary agreement which serves as an indispensable part of this Contract. In case of any discrepancy between the supplementary agreement and this Contract, the former shall prevail.

 

18.3 Both Party A and Party B hereby acknowledge that in case of any discrepancy between this Contract and house lease contract of Beijing they sign, the former shall prevail and they will perform this Contract in good faith. Upon the signature of this Contract, Party B shall go through contract registration formalities at the local competent house lease formalities of this Premise as per laws and when necessary, Party A shall provide relevant certificates to help Party B deal with the registration formalities. Party A and Party B shall bear the stamp taxes respectively.

 

18.4 Party A shall coordinate all disputes it has with a third party in term of lease. All the consequences arising therefrom and government punishment shall be borne by Party A its sole discretion. Party A shall maintain the business reputation of the building and Party B consciously and ensure Party B will not be subjected to any complaint or claim by any third party or government punish by the services it provides or its other behaviors within the term of lease. Otherwise, Party A shall, besides bearing all the legal liabilities, compensate Party B’s loss arising therefrom (including but not limited to all the expenditures and costs paid by Party B).

 

18.5 The appendix serves as an indispensable part of this Contract with the same legal effect. If both parties include other contents of appendix in this Contract, they shall make confirmation in writing.

 

18.6 If “including furniture” is selected for Party A’s rent in 3.1, this term will become null and void.

 

According to the specific lease area of lease contract concluded by both parties, we will provide furniture according to the standard configuration (Appendix 2);

 

The quantity and color of furniture are subject to the list. Party A’s any extra demand will be charged separately. The list of furniture added separately shall be attached behind this Agreement. Where Party A entrusts Party B to purchase furniture, it shall pay Party B service fees which are 20% of the furniture fees; both parties make the consensus below:

 

1. Mode of compensation after loss or damage of the objects leased

 

Party B will accept the products returned by Party A. If any object is found lost or damaged artificially (furniture cracking, fracture, etc.), Party A shall make compensation based on the price or agree Party B to deduct the price from margin directly.

 

2. Requirements for placing and using the articles leased

 

Party B shall dispatch service staffs to install and debug the furniture until they can be used normally. Party B shall place furniture in the corresponding place in one time according to Party A’s requirements instead of placing them again. Party A shall avoid them from getting wet in rain, being soaked in water or high temperature; otherwise, all the losses thus caused shall be borne by Party A.

 

3. Party A shall shoulder the safety responsibilities of the articles leased such as fire, disaster and theft resistance and normal use.

 

18.7 Any contract term not made in the typical contract format herein is concluded by Party A and Party B after reaching consensus on and accepting the meanings.

 

18.8 This Contract is made in duplicate with each party holding one.

 

18.9 This Contract becomes valid once signed and sealed by both parties until the term of lease expires.

 

 

 

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Party A:

Seal: Beijing Luji Technology Co., Ltd.

Legal representative:

Entrusted agent:

Tian Zhihai (signature)

Jul 18, 2020

Party B:

Seal: Beijing Hontao Management Consulting Co., Ltd

Legal representative:

Entrusted agent:

Jul 18, 2020

 

 

Appendix 1:

Building Structure, Decoration and Equipment Delivery Standard

 

  Ground Wall Surface Ceiling
Elevator hall of standard layer Natural stone Natural stone (wall surface at the side of core cylinder) Gypsum board
Public corridor of standard layer Natural stone Wall paper + Tempered laminated glass Metal ceiling
Toilet Natural stone Ceramic Gypsum board
Office area Natural stone Wall surface emulsion varnish of gypsum board partition + finished product high partition Gypsum board ceiling

 

Air conditioning system: Central air conditioning and fan coil

 

Window: Glass curtain wall (including curtain)

 

Lamp panel: Standard lamp panel connected with fluorescent tube

 

Power: Lighting power and socket power wiring has been reserved below the workstation according to standard point arrangement. The wiring of furniture shall be paid by Party A.

 

Firefighting: Spray head (installed by Party B)
  Smoke detector (installed by Party B)
  Loudspeaker (installed by Party B)

 

Telephone/Communication: party B provides communication cable which shall be connected to all units via the machine room at each layer. The wiring shall be paid by Party A who shall also bear the fees for relevant communication and network use.

 

Partition: High participation, aluminum alloy plus glass.

Unit door: Tempered glass

Interior door: High-grade ecological wooden door

 

 

 

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Exhibit 10.9

 

No.:___________________

 

Labor Contract

 

As per Labor Law of the People’s Republic of China, Labor Contract Law of the People’s Republic of China and other relevant laws and regulations, the following contract (hereinafter referred to as “this Contract”) is made and entered into by and between Party A and Party B voluntarily on the basis of equal negotiation, whereby both parties hereto agree to abide by all terms and conditions set forth below.

 

I. Basic Information of Both Parties

 

Article 1 Party A: Beijing Luji Technology Co., Ltd.

 

Article 2 Party B: Tian Xiangyang

Type of household: Non-agriculture

ID card No.: 132521197207010022

Name of other valid certificate: ID card

Certificate No.: /

Residential address in Beijing: No. 30 yard, Shixing Street, Shijingshan District, Beijing

Post Code: 100041

Registered permanent residence: West Shuncheng Street, Shacheng Town, Huailai County, Hebei Province

Name of immediate family: Tian Quhai; contact phone: 187 1012 1183

Relationship with the party concerned: Nephew and uncle

 

II. Term of This Contract

 

Article 3 This Contract becomes valid formally on January 1, 2019, including a probationary period which expires on DD MM YY. This contract will expire on December 31, 2022.

 

III. Working Contents and Workplace

 

Article 4 Party A agrees Party B to serve as the president (type of work) based on the working demand.

 

Article 5 According to the operation characteristics of Party A’s post (type of work), Party B shall work at the Company’s operating site and other external organizations designated by Party A.

 

Article 6 Party B ensures it works for Party A as per the job responsibilities and performance appraisal requirements.

 

IV. Working Hours and Holidays

 

Article 7 Party B shall work for 8 hours per day. Party A shall ensure Party B can rest for 2 days at least per week based on the working demand, and may also ask Party B to work on duty on weekend or during legal holiday based on the working demand.

 

Article 8 Party A’s holiday system applicable to Party B: Party B’s duty during legal holidays is subject to the national regulations while the rest is subject to Party A’s attendance system.

 

 

 

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V. Labor Remuneration

 

Article 9 Party A shall pay Party B salary of last month in the form of currency prior to the 15th day of each month. Party B’s basic salary after the expiration of probationary period is RMB 43,263.00. Party B’s other treatment is subject to Party A’s wage distribution standard and regulations on the management of performance appraisal of the post. Party B’s salary in the probationary period: 80% of the salary paid after becoming a formal employee.

 

Other provisions:

 

Article 10 If Party A has no sufficient working assignments, so that Party B has to wait for assignments, Party A shall pay Party B monthly living expenses which are no lower than the minimum wage standard of Beijing.

 

Article 11 Party A shall place and pay relevant social insurance for the employee that becomes a formal employee through preliminary appraisal as per relevant national regulations.

 

Article 12 Party A shall deal with work injury of its employees by referring to relevant national regulations.

 

VI. Labor Discipline

 

Article 13 Party B must abide by all the management systems that Party A prepares lawfully.

 

Article 14 Party B shall abide by professional ethnics, and shall not impair the interests of Party A or the owner, divulge Party A’s commercial secrets or extort the company and company leaders with any cause.

 

Article 15 Party B shall keep Party A’s secrets in strict confidence when working for Party A and even after leaving office and shall not defame the company and company leaders after leaving office.

 

VII. Education and Training

 

Article 16 Party A shall provide vocational education and skill training for the workers as per the relevant national regulations on vocational education and employment admission and its realities.

 

VIII. Rescission, Change, Termination and Renewal of This Contract and Relevant Provisions

 

Article 17 Before both parties rescind or terminate this Contract, Party B shall assist Party A in work handover as per Party A’s regulations. Party A shall issue the certificate of labor contract rescission or termination and deal with labor relationship transfer formalities for Party B when rescinding or terminating this Contract. Both parties shall decide on the renewal of this Contract prior to December 31 each year.

 

 

 

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Article 18 Party A is entitled to rescind this Contract in any of the following cases:

 

(1) Party B proves to dissatisfy the enrollment conditions in the probationary period;

 

(2) Party B violates labor discipline or Party A’s rules and systems;

 

(3) Party B involves serious gross negligence or jobbery, which causes serious damage to Party A’s interests; or

 

(4) Party B is subjected to the investigation of criminal responsibilities as per laws.

 

Article 19 In case of rescinding this Contract with Party B as per Article 26 and 27 of Labor Law, Party A shall deal with relevant matters as per laws.

 

Article 20 Both parties can change this Contract after reaching consensus via negotiation.

 

Article 21 If Party B proves to be incompetent for the job in the probationary period, Party A can adjust its post, degrade or dismiss Party B at all times. Where Party B’s performance appraisal fails to satisfy the standard for 3 consecutive months, Party B is seen unable to be competent for the job. In such case, Party A can arrange Party B for other work or try to persuade him to quit by sending a notice to Party B 30 days in advance.

 

If any regular employee asks for resignation during the validity of this Contract, he/she shall provide a resignation application or report to Party A in written form 30 days in advance and assist Party A in dealing with work handover. If the middle-level leaders and above ask for resignation during the validity of this Contract, he/she shall bring forth a written resignation application 2 months in advance. For the deputy general managers and above offering to resign within the term of this Contract, he/she shall bring forth a resignation application in writing three months in advance. Otherwise, the Company has the rights to deduct the wage, bonus, on-duty fees, etc. that have not been paid. If they cause serious economic loss to Party A, Party A reserves the rights to investigate their violation liabilities.

 

IX. Violation Liabilities

 

Article 22 Both parties must perform this Contract in good faith upon the conclusion.

 

Article 23 Where Party B receives the vocational technical training during the validity of this Contract (including post transfer) at Party A’s expenses, if Party B violates this Contract, Party B shall pay Party A liquidated damages for Party A unconditionally.

 

Article 24 If either party cannot perform this Contract or causes any economic loss or losses due to force majeure, the due party does not need to bear violation liabilities.

 

X. Dispute Resolution

 

Article 25 In case of any dispute arising out of the performance of this Contract, either party can apply to the labor dispute mediation committee at Party A’s site for mediation; if mediation fails, they can apply to the labor dispute arbitration commission with jurisdiction in writing for arbitration within sixty days upon the occurrence of dispute or may directly apply to the said commission directly. In case of having an objection to the arbitration award, they can file a lawsuit to the people’s court at Party A’s site.

 

 

 

  3  

 

 

Supplementary Provisions

 

Article 26 Any matters unmentioned herein shall be resolved by both parties via negotiation. This Contract is executed in duplicate with each party holding one respectively.

 

Article 27 Appendices to this Contract: Copy of Party B’s ID card, diploma and household register certificate (or temporary residential permit), resume, health certificate, certificate (or warranty) of no criminal record. Party B shall ensure the authenticity of the certificates; otherwise, it shall bear all the consequences arising therefrom.

 

Party A: Beijing Luji Technology Co., Ltd.

Seal: Special Seal for Contract of Beijing Luji Technology Co., Ltd.

Responsible person: Tian Xiangyang (signature)

(Signature or seal)

Contact phone:

Party B: (signature)

Tian Xiangyang (signature)

Date of signature: January 1, 2019 Date of signature: January 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  4  

 

Exhibit 10.10

 

No.:___________________

 

Labor Contract

 

As per Labor Law of the People’s Republic of China, Labor Contract Law of the People’s Republic of China and other relevant laws and regulations, the following contract (hereinafter referred to as “this Contract”) is made and entered into by and between Party A and Party B voluntarily on the basis of equal negotiation, whereby both parties hereto agree to abide by all terms and conditions set forth below.

 

I. Basic Information of Both Parties

 

Article 1 Party A: Beijing Luji Technology Co., Ltd.

 

Article 2 Party B: Shan Yonghua

Type of household: Non-agriculture

ID card No.: 130921196810052214

Name of other valid certificate: ID card

Certificate No.: /

Residential address in Beijing: Room 502, Unit 3, No.12 Bajiao South Road Shijingshan District, Beijing

Post Code: 100041

Registered permanent residence: Bajiao Street, Shijingshan District, Beijing

Name of immediate family: Guo Mingying; contact phone: 136 6104 8705

Relationship with the party concerned: conjugal

 

II. Term of This Contract

 

Article 3 This Contract becomes valid formally on January 1, 2017, including a probationary period which expires on DD MM YY. This contract will expire on December 31, 2021.

 

III. Working Contents and Workplace

 

Article 4 Party A agrees Party B to serve as the Chief Financial Officer (type of work) based on the working demand.

 

Article 5 According to the operation characteristics of Party A’s post (type of work), Party B shall work at the Company’s operating site and other external organizations designated by Party A.

 

Article 6 Party B ensures it works for Party A as per the job responsibilities and performance appraisal requirements.

 

IV. Working Hours and Holidays

 

Article 7 Party B shall work for 8 hours per day. Party A shall ensure Party B can rest for 2 days at least per week based on the working demand, and may also ask Party B to work on duty on weekend or during legal holiday based on the working demand.

 

Article 8 Party A’s holiday system applicable to Party B: Party B’s duty during legal holidays is subject to the national regulations while the rest is subject to Party A’s attendance system.

 

 

 

  1  

 

 

V. Labor Remuneration

 

Article 9 Party A shall pay Party B salary of last month in the form of currency prior to the 15th day of each month. Party B’s basic salary after the expiration of probationary period is RMB 30,000.00. Party B’s other treatment is subject to Party A’s wage distribution standard and regulations on the management of performance appraisal of the post. Party B’s salary in the probationary period: 80% of the salary paid after becoming a formal employee.

 

Other provisions:

 

Article 10 If Party A has no sufficient working assignments, so that Party B has to wait for assignments, Party A shall pay Party B monthly living expenses which are no lower than the minimum wage standard of Beijing.

 

Article 11 Party A shall place and pay relevant social insurance for the employee that becomes a formal employee through preliminary appraisal as per relevant national regulations.

 

Article 12 Party A shall deal with work injury of its employees by referring to relevant national regulations.

 

VI. Labor Discipline

 

Article 13 Party B must abide by all the management systems that Party A prepares lawfully.

 

Article 14 Party B shall abide by professional ethnics, and shall not impair the interests of Party A or the owner, divulge Party A’s commercial secrets or extort the company and company leaders with any cause.

 

Article 15 Party B shall keep Party A’s secrets in strict confidence when working for Party A and even after leaving office and shall not defame the company and company leaders after leaving office.

 

VII. Education and Training

 

Article 16 Party A shall provide vocational education and skill training for the workers as per the relevant national regulations on vocational education and employment admission and its realities.

 

VIII. Rescission, Change, Termination and Renewal of This Contract and Relevant Provisions

 

Article 17 Before both parties rescind or terminate this Contract, Party B shall assist Party A in work handover as per Party A’s regulations. Party A shall issue the certificate of labor contract rescission or termination and deal with labor relationship transfer formalities for Party B when rescinding or terminating this Contract. Both parties shall decide on the renewal of this Contract prior to December 31 each year.

 

 

 

  2  

 

 

Article 18 Party A is entitled to rescind this Contract in any of the following cases:

 

(1) Party B proves to dissatisfy the enrollment conditions in the probationary period;

 

(2) Party B violates labor discipline or Party A’s rules and systems;

 

(3) Party B involves serious gross negligence or jobbery, which causes serious damage to Party A’s interests; or

 

(4) Party B is subjected to the investigation of criminal responsibilities as per laws.

 

Article 19 In case of rescinding this Contract with Party B as per Article 26 and 27 of Labor Law, Party A shall deal with relevant matters as per laws.

 

Article 20 Both parties can change this Contract after reaching consensus via negotiation.

 

Article 21 If Party B proves to be incompetent for the job in the probationary period, Party A can adjust its post, degrade or dismiss Party B at all times. Where Party B’s performance appraisal fails to satisfy the standard for 3 consecutive months, Party B is seen unable to be competent for the job. In such case, Party A can arrange Party B for other work or try to persuade him to quit by sending a notice to Party B 30 days in advance.

 

If any regular employee asks for resignation during the validity of this Contract, he/she shall provide a resignation application or report to Party A in written form 30 days in advance and assist Party A in dealing with work handover. If the middle-level leaders and above ask for resignation during the validity of this Contract, he/she shall bring forth a written resignation application 2 months in advance. For the deputy general managers and above offering to resign within the term of this Contract, he/she shall bring forth a resignation application in writing three months in advance. Otherwise, the Company has the rights to deduct the wage, bonus, on-duty fees, etc. that have not been paid. If they cause serious economic loss to Party A, Party A reserves the rights to investigate their violation liabilities.

 

IX. Violation Liabilities

 

Article 22 Both parties must perform this Contract in good faith upon the conclusion.

 

Article 23 Where Party B receives the vocational technical training during the validity of this Contract (including post transfer) at Party A’s expenses, if Party B violates this Contract, Party B shall pay Party A liquidated damages for Party A unconditionally.

 

Article 24 If either party cannot perform this Contract or causes any economic loss or losses due to force majeure, the due party does not need to bear violation liabilities.

 

X. Dispute Resolution

 

Article 25 In case of any dispute arising out of the performance of this Contract, either party can apply to the labor dispute mediation committee at Party A’s site for mediation; if mediation fails, they can apply to the labor dispute arbitration commission with jurisdiction in writing for arbitration within sixty days upon the occurrence of dispute or may directly apply to the said commission directly. In case of having an objection to the arbitration award, they can file a lawsuit to the people’s court at Party A’s site.

 

 

 

  3  

 

 

Supplementary Provisions

 

Article 26 Any matters unmentioned herein shall be resolved by both parties via negotiation. This Contract is executed in duplicate with each party holding one respectively.

 

Article 27 Appendices to this Contract: Copy of Party B’s ID card, diploma and household register certificate (or temporary residential permit), resume, health certificate, certificate (or warranty) of no criminal record. Party B shall ensure the authenticity of the certificates; otherwise, it shall bear all the consequences arising therefrom.

 

Party A: Beijing Luji Technology Co., Ltd.

Seal: Special Seal for Contract of Beijing Luji Technology Co., Ltd.

Responsible person: Tian Xiangyang (signature)

(Signature or seal)

Contact phone:

Party B: (signature)

Shan Yonghua (signature)

Date of signature: January 1, 2017 Date of signature: January 1, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  4  

Exhibit 10.11

 

No.:___________________

 

Labor Contract

 

As per Labor Law of the People’s Republic of China, Labor Contract Law of the People’s Republic of China and other relevant laws and regulations, the following contract (hereinafter referred to as “this Contract”) is made and entered into by and between Party A and Party B voluntarily on the basis of equal negotiation, whereby both parties hereto agree to abide by all terms and conditions set forth below.

 

I. Basic Information of Both Parties

 

Article 1 Party A: Beijing Luji Technology Co., Ltd.

 

Article 2 Party B:Tian Zhihai

Type of household: Non-agriculture

ID card No.: 132521197607030014

Name of other valid certificate: ID card

Certificate No.: /

Residential address in Beijing: Room 102, Unit 7, Nangongjingyuan Fengtai District, Beijing

Post Code:

Registered permanent residence: No.90 Nanguancun Ansu Town, Xushui District, Baoding, Hebei province

Name of immediate family: Tian zhiyong; contact phone: 158 3227 2634

Relationship with the party concerned: brother

 

II. Term of This Contract

 

Article 3 This Contract becomes valid formally on January 1, 2017, including a probationary period which expires on DD MM YY. This contract will expire on December 31, 2021.

 

III. Working Contents and Workplace

 

Article 4 Party A agrees Party B to serve as the Chief Operating Officer (type of work) based on the working demand.

 

Article 5 According to the operation characteristics of Party A’s post (type of work), Party B shall work at the Company’s operating site and other external organizations designated by Party A.

 

Article 6 Party B ensures it works for Party A as per the job responsibilities and performance appraisal requirements.

 

IV. Working Hours and Holidays

 

Article 7 Party B shall work for 8 hours per day. Party A shall ensure Party B can rest for 2 days at least per week based on the working demand, and may also ask Party B to work on duty on weekend or during legal holiday based on the working demand.

 

Article 8 Party A’s holiday system applicable to Party B: Party B’s duty during legal holidays is subject to the national regulations while the rest is subject to Party A’s attendance system.

 

 

 

  1  

 

 

V. Labor Remuneration

 

Article 9 Party A shall pay Party B salary of last month in the form of currency prior to the 15th day of each month. Party B’s basic salary after the expiration of probationary period is RMB 26,000.00. Party B’s other treatment is subject to Party A’s wage distribution standard and regulations on the management of performance appraisal of the post. Party B’s salary in the probationary period: 80% of the salary paid after becoming a formal employee.

 

Other provisions:

 

 

Article 10 If Party A has no sufficient working assignments, so that Party B has to wait for assignments, Party A shall pay Party B monthly living expenses which are no lower than the minimum wage standard of Beijing.

 

Article 11 Party A shall place and pay relevant social insurance for the employee that becomes a formal employee through preliminary appraisal as per relevant national regulations.

 

Article 12 Party A shall deal with work injury of its employees by referring to relevant national regulations.

 

VI. Labor Discipline

 

Article 13 Party B must abide by all the management systems that Party A prepares lawfully.

 

Article 14 Party B shall abide by professional ethnics, and shall not impair the interests of Party A or the owner, divulge Party A’s commercial secrets or extort the company and company leaders with any cause.

 

Article 15 Party B shall keep Party A’s secrets in strict confidence when working for Party A and even after leaving office and shall not defame the company and company leaders after leaving office.

 

VII. Education and Training

 

Article 16 Party A shall provide vocational education and skill training for the workers as per the relevant national regulations on vocational education and employment admission and its realities.

 

VIII. Rescission, Change, Termination and Renewal of This Contract and Relevant Provisions

 

Article 17 Before both parties rescind or terminate this Contract, Party B shall assist Party A in work handover as per Party A’s regulations. Party A shall issue the certificate of labor contract rescission or termination and deal with labor relationship transfer formalities for Party B when rescinding or terminating this Contract. Both parties shall decide on the renewal of this Contract prior to December 31 each year.

 

 

 

  2  

 

 

Article 18 Party A is entitled to rescind this Contract in any of the following cases:

 

(1) Party B proves to dissatisfy the enrollment conditions in the probationary period;

 

(2) Party B violates labor discipline or Party A’s rules and systems;

 

(3) Party B involves serious gross negligence or jobbery, which causes serious damage to Party A’s interests; or

 

(4) Party B is subjected to the investigation of criminal responsibilities as per laws.

 

Article 19 In case of rescinding this Contract with Party B as per Article 26 and 27 of Labor Law, Party A shall deal with relevant matters as per laws.

 

Article 20 Both parties can change this Contract after reaching consensus via negotiation.

 

Article 21 If Party B proves to be incompetent for the job in the probationary period, Party A can adjust its post, degrade or dismiss Party B at all times. Where Party B’s performance appraisal fails to satisfy the standard for 3 consecutive months, Party B is seen unable to be competent for the job. In such case, Party A can arrange Party B for other work or try to persuade him to quit by sending a notice to Party B 30 days in advance.

 

If any regular employee asks for resignation during the validity of this Contract, he/she shall provide a resignation application or report to Party A in written form 30 days in advance and assist Party A in dealing with work handover. If the middle-level leaders and above ask for resignation during the validity of this Contract, he/she shall bring forth a written resignation application 2 months in advance. For the deputy general managers and above offering to resign within the term of this Contract, he/she shall bring forth a resignation application in writing three months in advance. Otherwise, the Company has the rights to deduct the wage, bonus, on-duty fees, etc. that have not been paid. If they cause serious economic loss to Party A, Party A reserves the rights to investigate their violation liabilities.

 

IX. Violation Liabilities

 

Article 22 Both parties must perform this Contract in good faith upon the conclusion.

 

Article 23 Where Party B receives the vocational technical training during the validity of this Contract (including post transfer) at Party A’s expenses, if Party B violates this Contract, Party B shall pay Party A liquidated damages for Party A unconditionally.

 

Article 24 If either party cannot perform this Contract or causes any economic loss or losses due to force majeure, the due party does not need to bear violation liabilities.

 

X. Dispute Resolution

 

Article 25 In case of any dispute arising out of the performance of this Contract, either party can apply to the labor dispute mediation committee at Party A’s site for mediation; if mediation fails, they can apply to the labor dispute arbitration commission with jurisdiction in writing for arbitration within sixty days upon the occurrence of dispute or may directly apply to the said commission directly. In case of having an objection to the arbitration award, they can file a lawsuit to the people’s court at Party A’s site.

 

 

 

  3  

 

 

Supplementary Provisions

 

Article 26 Any matters unmentioned herein shall be resolved by both parties via negotiation. This Contract is executed in duplicate with each party holding one respectively.

 

Article 27 Appendices to this Contract: Copy of Party B’s ID card, diploma and household register certificate (or temporary residential permit), resume, health certificate, certificate (or warranty) of no criminal record. Party B shall ensure the authenticity of the certificates; otherwise, it shall bear all the consequences arising therefrom.

 

Party A: Beijing Luji Technology Co., Ltd.

Seal: Special Seal for Contract of Beijing Luji Technology Co., Ltd.

Responsible person: Tian Xiangyang (signature)

(Signature or seal)

Contact phone:

Party B: (signature)

Tian Zhihai (signature)

Date of signature: January 1, 2017 Date of signature: January 1, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  4  

Exhibit 10.12

 

No.:___________________

 

Labor Contract

 

As per Labor Law of the People’s Republic of China, Labor Contract Law of the People’s Republic of China and other relevant laws and regulations, the following contract (hereinafter referred to as “this Contract”) is made and entered into by and between Party A and Party B voluntarily on the basis of equal negotiation, whereby both parties hereto agree to abide by all terms and conditions set forth below.

 

I. Basic Information of Both Parties

 

Article 1 Party A: Beijing Luji Technology Co., Ltd.

 

Article 2 Party B: Yin Jian en

Type of household: Non-agriculture

ID card No.: 132224197403290415

Name of other valid certificate: ID card

Certificate No.: /

Residential address : No.22 Wuguodiancun,xingtai, Neiqiu District,Heibei Province

Post Code:

Registered permanent residence:

Name of immediate family: ; contact phone:

Relationship with the party concerned:

 

II. Term of This Contract

 

Article 3 This Contract becomes valid formally on January 1, 2019, including a probationary period which expires on DD MM YY. This contract will expire on December 31, 2021.

 

III. Working Contents and Workplace

 

Article 4 Party A agrees Party B to serve as the Secretary&Director of Board (type of work) based on the working demand.

 

Article 5 According to the operation characteristics of Party A’s post (type of work), Party B shall work at the Company’s operating site and other external organizations designated by Party A.

 

Article 6 Party B ensures it works for Party A as per the job responsibilities and performance appraisal requirements.

 

IV. Working Hours and Holidays

 

Article 7 Party B shall work for 8 hours per day. Party A shall ensure Party B can rest for 2 days at least per week based on the working demand, and may also ask Party B to work on duty on weekend or during legal holiday based on the working demand.

 

Article 8 Party A’s holiday system applicable to Party B: Party B’s duty during legal holidays is subject to the national regulations while the rest is subject to Party A’s attendance system.

 

 

 

  1  

 

 

V. Labor Remuneration

 

Article 9 Party A shall pay Party B salary of last month in the form of currency prior to the 15th day of each month. Party B’s basic salary after the expiration of probationary period is RMB 0.00. Party B’s other treatment is subject to Party A’s wage distribution standard and regulations on the management of performance appraisal of the post. Party B’s salary in the probationary period: 80% of the salary paid after becoming a formal employee.

 

Other provisions:

 

Article 10 If Party A has no sufficient working assignments, so that Party B has to wait for assignments, Party A shall pay Party B monthly living expenses which are no lower than the minimum wage standard of Beijing.

 

Article 11 Party A shall place and pay relevant social insurance for the employee that becomes a formal employee through preliminary appraisal as per relevant national regulations.

 

Article 12 Party A shall deal with work injury of its employees by referring to relevant national regulations.

 

VI. Labor Discipline

 

Article 13 Party B must abide by all the management systems that Party A prepares lawfully.

 

Article 14 Party B shall abide by professional ethnics, and shall not impair the interests of Party A or the owner, divulge Party A’s commercial secrets or extort the company and company leaders with any cause.

 

Article 15 Party B shall keep Party A’s secrets in strict confidence when working for Party A and even after leaving office and shall not defame the company and company leaders after leaving office.

 

VII. Education and Training

 

Article 16 Party A shall provide vocational education and skill training for the workers as per the relevant national regulations on vocational education and employment admission and its realities.

 

VIII. Rescission, Change, Termination and Renewal of This Contract and Relevant Provisions

 

Article 17 Before both parties rescind or terminate this Contract, Party B shall assist Party A in work handover as per Party A’s regulations. Party A shall issue the certificate of labor contract rescission or termination and deal with labor relationship transfer formalities for Party B when rescinding or terminating this Contract. Both parties shall decide on the renewal of this Contract prior to December 31 each year.

 

 

 

  2  

 

 

Article 18 Party A is entitled to rescind this Contract in any of the following cases:

 

(1) Party B proves to dissatisfy the enrollment conditions in the probationary period;

 

(2) Party B violates labor discipline or Party A’s rules and systems;

 

(3) Party B involves serious gross negligence or jobbery, which causes serious damage to Party A’s interests; or

 

(4) Party B is subjected to the investigation of criminal responsibilities as per laws.

 

Article 19 In case of rescinding this Contract with Party B as per Article 26 and 27 of Labor Law, Party A shall deal with relevant matters as per laws.

 

Article 20 Both parties can change this Contract after reaching consensus via negotiation.

 

Article 21 If Party B proves to be incompetent for the job in the probationary period, Party A can adjust its post, degrade or dismiss Party B at all times. Where Party B’s performance appraisal fails to satisfy the standard for 3 consecutive months, Party B is seen unable to be competent for the job. In such case, Party A can arrange Party B for other work or try to persuade him to quit by sending a notice to Party B 30 days in advance.

 

If any regular employee asks for resignation during the validity of this Contract, he/she shall provide a resignation application or report to Party A in written form 30 days in advance and assist Party A in dealing with work handover. If the middle-level leaders and above ask for resignation during the validity of this Contract, he/she shall bring forth a written resignation application 2 months in advance. For the deputy general managers and above offering to resign within the term of this Contract, he/she shall bring forth a resignation application in writing three months in advance. Otherwise, the Company has the rights to deduct the wage, bonus, on-duty fees, etc. that have not been paid. If they cause serious economic loss to Party A, Party A reserves the rights to investigate their violation liabilities.

 

IX. Violation Liabilities

 

Article 22 Both parties must perform this Contract in good faith upon the conclusion.

 

Article 23 Where Party B receives the vocational technical training during the validity of this Contract (including post transfer) at Party A’s expenses, if Party B violates this Contract, Party B shall pay Party A liquidated damages for Party A unconditionally.

 

Article 24 If either party cannot perform this Contract or causes any economic loss or losses due to force majeure, the due party does not need to bear violation liabilities.

 

X. Dispute Resolution

 

Article 25 In case of any dispute arising out of the performance of this Contract, either party can apply to the labor dispute mediation committee at Party A’s site for mediation; if mediation fails, they can apply to the labor dispute arbitration commission with jurisdiction in writing for arbitration within sixty days upon the occurrence of dispute or may directly apply to the said commission directly. In case of having an objection to the arbitration award, they can file a lawsuit to the people’s court at Party A’s site.

 

 

 

  3  

 

 

Supplementary Provisions

 

Article 26 Any matters unmentioned herein shall be resolved by both parties via negotiation. This Contract is executed in duplicate with each party holding one respectively.

 

Article 27 Appendices to this Contract: Copy of Party B’s ID card, diploma and household register certificate (or temporary residential permit), resume, health certificate, certificate (or warranty) of no criminal record. Party B shall ensure the authenticity of the certificates; otherwise, it shall bear all the consequences arising therefrom.

 

Party A: Beijing Luji Technology Co., Ltd.

Seal: Special Seal for Contract of Beijing Luji Technology Co., Ltd.

Responsible person: Tian Xiangyang (signature)

(Signature or seal)

Contact phone:

Party B: (signature)

Yin Jian en (signature)

Date of signature: January 1, 2019 Date of signature: January 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  4  

Exhibit 10.13

 

No.:___________________

 

Labor Contract

 

As per Labor Law of the People’s Republic of China, Labor Contract Law of the People’s Republic of China and other relevant laws and regulations, the following contract (hereinafter referred to as “this Contract”) is made and entered into by and between Party A and Party B voluntarily on the basis of equal negotiation, whereby both parties hereto agree to abide by all terms and conditions set forth below.

 

I. Basic Information of Both Parties

 

Article 1 Party A: Beijing Luji Technology Co., Ltd.

 

Article 2 Party B: Wang Ji rui

Type of household: Non-agriculture

ID card No.: 422403196512125957

Name of other valid certificate: ID card

Certificate No.: /

Residential address: No.78 Jiankang Road, Dashahunongchang, Honghu, Hubei Province

Post Code:

Registered permanent residence: District, Beijing

Name of immediate family: ; contact phone:

Relationship with the party concerned: conjugal

 

II. Term of This Contract

 

Article 3 This Contract becomes valid formally on January 1, 2019, including a probationary period which expires on DD MM YY. This contract will expire on December 31, 2021.

 

III. Working Contents and Workplace

 

Article 4 Party A agrees Party B to serve as the Director of Board (type of work) based on the working demand.

 

Article 5 According to the operation characteristics of Party A’s post (type of work), Party B shall work at the Company’s operating site and other external organizations designated by Party A.

 

Article 6 Party B ensures it works for Party A as per the job responsibilities and performance appraisal requirements.

 

IV. Working Hours and Holidays

 

Article 7 Party B shall work for 8 hours per day. Party A shall ensure Party B can rest for 2 days at least per week based on the working demand, and may also ask Party B to work on duty on weekend or during legal holiday based on the working demand.

 

Article 8 Party A’s holiday system applicable to Party B: Party B’s duty during legal holidays is subject to the national regulations while the rest is subject to Party A’s attendance system.

 

 

 

  1  

 

 

V. Labor Remuneration

 

Article 9 Party A shall pay Party B salary of last month in the form of currency prior to the 15th day of each month. Party B’s basic salary after the expiration of probationary period is RMB 0.00. Party B’s other treatment is subject to Party A’s wage distribution standard and regulations on the management of performance appraisal of the post. Party B’s salary in the probationary period: 80% of the salary paid after becoming a formal employee.

Other provisions:

 

 

Article 10 If Party A has no sufficient working assignments, so that Party B has to wait for assignments, Party A shall pay Party B monthly living expenses which are no lower than the minimum wage standard of Beijing.

 

Article 11 Party A shall place and pay relevant social insurance for the employee that becomes a formal employee through preliminary appraisal as per relevant national regulations.

 

Article 12 Party A shall deal with work injury of its employees by referring to relevant national regulations.

 

VI. Labor Discipline

 

Article 13 Party B must abide by all the management systems that Party A prepares lawfully.

 

Article 14 Party B shall abide by professional ethnics, and shall not impair the interests of Party A or the owner, divulge Party A’s commercial secrets or extort the company and company leaders with any cause.

 

Article 15 Party B shall keep Party A’s secrets in strict confidence when working for Party A and even after leaving office and shall not defame the company and company leaders after leaving office.

 

VII. Education and Training

 

Article 16 Party A shall provide vocational education and skill training for the workers as per the relevant national regulations on vocational education and employment admission and its realities.

 

VIII. Rescission, Change, Termination and Renewal of This Contract and Relevant Provisions

 

Article 17 Before both parties rescind or terminate this Contract, Party B shall assist Party A in work handover as per Party A’s regulations. Party A shall issue the certificate of labor contract rescission or termination and deal with labor relationship transfer formalities for Party B when rescinding or terminating this Contract. Both parties shall decide on the renewal of this Contract prior to December 31 each year.

 

 

 

  2  

 

 

Article 18 Party A is entitled to rescind this Contract in any of the following cases:

 

(1) Party B proves to dissatisfy the enrollment conditions in the probationary period;

 

(2) Party B violates labor discipline or Party A’s rules and systems;

 

(3) Party B involves serious gross negligence or jobbery, which causes serious damage to Party A’s interests; or

 

(4) Party B is subjected to the investigation of criminal responsibilities as per laws.

 

Article 19 In case of rescinding this Contract with Party B as per Article 26 and 27 of Labor Law, Party A shall deal with relevant matters as per laws.

 

Article 20 Both parties can change this Contract after reaching consensus via negotiation.

 

Article 21 If Party B proves to be incompetent for the job in the probationary period, Party A can adjust its post, degrade or dismiss Party B at all times. Where Party B’s performance appraisal fails to satisfy the standard for 3 consecutive months, Party B is seen unable to be competent for the job. In such case, Party A can arrange Party B for other work or try to persuade him to quit by sending a notice to Party B 30 days in advance.

 

If any regular employee asks for resignation during the validity of this Contract, he/she shall provide a resignation application or report to Party A in written form 30 days in advance and assist Party A in dealing with work handover. If the middle-level leaders and above ask for resignation during the validity of this Contract, he/she shall bring forth a written resignation application 2 months in advance. For the deputy general managers and above offering to resign within the term of this Contract, he/she shall bring forth a resignation application in writing three months in advance. Otherwise, the Company has the rights to deduct the wage, bonus, on-duty fees, etc. that have not been paid. If they cause serious economic loss to Party A, Party A reserves the rights to investigate their violation liabilities.

 

IX. Violation Liabilities

 

Article 22 Both parties must perform this Contract in good faith upon the conclusion.

 

Article 23 Where Party B receives the vocational technical training during the validity of this Contract (including post transfer) at Party A’s expenses, if Party B violates this Contract, Party B shall pay Party A liquidated damages for Party A unconditionally.

 

Article 24 If either party cannot perform this Contract or causes any economic loss or losses due to force majeure, the due party does not need to bear violation liabilities.

 

X. Dispute Resolution

 

Article 25 In case of any dispute arising out of the performance of this Contract, either party can apply to the labor dispute mediation committee at Party A’s site for mediation; if mediation fails, they can apply to the labor dispute arbitration commission with jurisdiction in writing for arbitration within sixty days upon the occurrence of dispute or may directly apply to the said commission directly. In case of having an objection to the arbitration award, they can file a lawsuit to the people’s court at Party A’s site.

 

 

 

  3  

 

 

Supplementary Provisions

 

Article 26 Any matters unmentioned herein shall be resolved by both parties via negotiation. This Contract is executed in duplicate with each party holding one respectively.

 

Article 27 Appendices to this Contract: Copy of Party B’s ID card, diploma and household register certificate (or temporary residential permit), resume, health certificate, certificate (or warranty) of no criminal record. Party B shall ensure the authenticity of the certificates; otherwise, it shall bear all the consequences arising therefrom.

 

Party A: Beijing Luji Technology Co., Ltd.

Seal: Special Seal for Contract of Beijing Luji Technology Co., Ltd.

Responsible person: Tian Xiangyang (signature)

(Signature or seal)

Contact phone:

Party B: (signature)

Wang Ji rui (signature)

Date of signature: January 1, 2019 Date of signature: January 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Exhibit 10.14

 

AS CAPITAL, INC.

 

DIRECTOR RETAINER AGREEMENT

 

THIS DIRECTOR RETAINER AGREEMENT (“Agreement”) is entered into by and between AS Capital, Inc., a Nevada corporation (“Corporation”) and ______________ (“Director”) as of August ___, 2020.

 

WHEREAS, Director is a duly elected as a director of the Corporation in accordance with the Corporation’s bylaws; and

 

WHEREAS, the Corporation wishes to set forth the terms and conditions pursuant to which Director shall serve as a director;

 

NOW THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, the parties agree as follows:

 

1. Services Provided.

 

Director agrees, subject to Director’s continued status as a director as determined by the Board of Directors of the Corporation (“Board”) and its stockholders (if applicable), to serve as a member of the Board and, subject to Director’s appointment thereto, the (1) Audit Committee, (2) Compensation Committee and (3) Nominating/Governance Committee of the Board (each a “Committee”) and to provide those services (“Services”) required of a director and Committee member under the Corporation’s certificate of incorporation and bylaws (“Charter and Bylaws”), as both may be amended from time to time, and under the corporate law of the State of Nevada, the federal securities laws and other state and federal laws and regulations, as applicable.

 

Director agrees to cooperate with the Corporation and its attorneys, both during and after the termination of this Agreement, in connection with any litigation or other proceeding arising out of or relating to matters of which Director was involved prior to the termination of this Agreement. Director's cooperation shall include, without limitation, providing assistance to Corporation’s counsel, experts and consultants, and providing truthful testimony in pretrial and trial or hearing proceedings. In the event that Director’s cooperation is requested after the termination of this Agreement, Corporation will (x) seek to minimize interruptions to Director’s schedule to the extent consistent with its interests in the matter; and (y) reimburse executive for all reasonable and appropriate out-of-pocket expenses actually incurred by Director in connection with such cooperation upon reasonable substantiation of such expenses.

 

Director agrees that Director will not testify voluntarily in any lawsuit or other proceeding which directly or indirectly involves Corporation, or any affiliated companies, or which may create the impression that such testimony is endorsed or approved by Corporation or its affiliated companies, without advance notice (including the general nature of the testimony) to and, as such testimony is without subpoena or other compulsory legal process the approval of, the Corporation’s general counsel.

 

2. Nature of Relationship.

 

Director is an independent contractor and will not be deemed an employee of the Corporation for purposes of employee benefits, income tax withholding, F.I.C.A. taxes, unemployment benefits or otherwise. Except as authorized by the Board of Directors or the Corporation’s Charter and Bylaws, or as allowed by law, Director shall not hold himself out as an agent of the Corporation or enter into any agreement or incur any obligations on the Corporation’s behalf. This Agreement shall not be deemed an employment contract between the Corporation (or any of its subsidiaries or related companies) and Director. Director specifically acknowledges that the term of service provided by this Agreement is set forth in Section 7 below.

 

 

 

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3. Corporation Information.

 

The Corporation will supply to Director, at the Corporation’s expense:

 

  a. periodic briefings on the business and operations of the Corporation;

 

  b. “director packages” (which will include but will not be limited to, for example, meeting agendas and Corporation reports) for each Board and Committee meeting, at a reasonable time before each meeting;

 

  c. Copies of minutes of all requested stockholders’, directors’ and Committee meetings;

 

  d. Any other materials that are required under the Charter and Bylaws or the charter of any Committee on which the Director serves; and

 

  e. Any other materials which may, in the reasonable judgment of Corporation, be necessary for performing the Services.  

 

4. Representations, Warranties and Covenants of Director.

 

  4.1 Director agrees to provide complete and accurate information and to permit Corporation to perform a full background investigation. Accordingly, Director represents and warrants that the information provided to the Corporation regarding Director’s experience, background and expertise is truthful, accurate and complete.

 

  4.2 Director represents and warrants that the performance of the Services will not violate any agreement to which Director is a party, compromise any rights or trust between any other party and Director, or create a conflict of interest.

 

  4.3 Director agrees not to enter into any agreement during the term of this Agreement that will create a conflict of interest with this Agreement.

 

  4.4 Director agrees to comply with all applicable state and federal laws and regulations, including Section 10 and Section 16 of the Securities and Exchange Act of 1934 and the rules promulgated thereunder.

 

5. Compensation.

 

  5.1 Retainer.   The Corporation shall pay Director a cash retainer of __________________  (HKD______) per calendar month during Director’s period of Service (“Retainer”), payable in accordance with the Corporation’s normal and customary practices.

 

  5.2 Expenses.   The Corporation will reimburse Director for reasonable expenses incurred in the performance of the Services promptly upon submission of invoices and receipts for such expenses in a form reasonably acceptable to the Corporation, provided that such expenses are approved in writing in advance. Such approval by the Corporation shall not be unreasonably withheld or delayed. Director’s expenses shall not be reimbursable hereunder if those expenses do not qualify for reimbursement under the Charter and Bylaws.

 

 

 

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6. Indemnification.

 

  6.1 The Corporation has previously executed, or shall execute concurrently with the execution of this Agreement, an Indemnity Agreement with Director substantially in the form attached hereto as Exhibit A.

 

7. Term and Termination.  

 

  7.1 This Agreement shall be effective beginning on the date hereof and continuing until the last day of Director’s current term as a director of the Corporation, unless earlier terminated as provided in this Section.   This Agreement shall automatically renew upon the date of Director’s reelection as a director of the Corporation.

 

  7.2 The term of service as a Director under this Agreement is as specified in the bylaws of the Corporation, unless earlier terminated as provided in this Section.

 

  7.3 Director may at any time, and for any reason, resign from such position subject to any other contractual obligation or any obligation imposed by operation of law.

 

  7.4 Director may be removed from the Board or any Committee, with or without cause.

 

  7.5 This Agreement shall automatically terminate upon the death or disability of Director or upon his resignation or removal from the Board. For purposes of this Section, “disability” shall mean the inability of Director to perform the Services for a period of at least fifteen (15) consecutive days.

 

  7.6 In the event of any termination of this Agreement, Director agrees to return any materials received from the Corporation pursuant to Section 3 of this Agreement except as may be necessary to fulfill any outstanding obligations hereunder. Director agrees that the Corporation has the right of injunctive relief to enforce this provision.

 

  7.7 Upon termination of this Agreement, the Corporation shall promptly pay Director all unpaid compensation due, pursuant to Section 5 above, and expense reimbursements incurred, if any, as of the date of termination, upon receipt of reasonable documentation.

 

8. Proprietary Information, Inventions and Non-Competition.

 

Director shall, concurrently with the execution of this Agreement, enter into a Proprietary Information, Inventions and Non-Competition Agreement with the Corporation substantially in the form attached hereto as Exhibit B.

 

9. Assignment.

 

This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns and, except as otherwise expressly provided herein, neither this Agreement, nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the prior written consent of the other party.

 

 

 

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10. General.

 

  10.1 Governing Law and Venue.   This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Nevada, without regard to its conflict of laws rules. The Corporation and Director hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the State of Nevada (the “Nevada Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Nevada Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Nevada Court and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Nevada Court has been brought in an improper or inconvenient forum.

 

  10.2 Notices.   All notices and other communications required or permitted hereunder will be in writing and will be delivered by hand or sent by overnight courier or e-mail to:

 

 

Corporation:

AS Capital, Inc

3-11 Building 3, Beihuan East Road, Pinggu Town,

Pinggu District, Beijing

People's Republic of China

Attn: Chief Executive Officer

Fax: ________________________

e-mail: ________________________

Director:

[Insert info]

Fax: _________________________________

email: ________________________________

 

  10.3 Severability.   In the event that any provision of this Agreement is held to be unenforceable under applicable law, this Agreement will continue in full force and effect without such provision and will be enforceable in accordance with its terms.

 

  10.4 Survival of Obligations.   Notwithstanding the expiration or termination of this Agreement, neither party hereto shall be released hereunder from any liability or obligation to the other which has already accrued as of the time of such expiration or termination (including, without limitation, Corporation’s obligation to make any fees and expense payments) or which thereafter might accrue in respect of any act or omission of such party prior to such expiration or termination.

 

  10.5 Entire Agreement.   This Agreement, along with the Exhibits referenced herein that may be previously or contemporaneously executed, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter of this Agreement and supersedes all prior or contemporaneous agreements and understanding other than this Agreement relating to the subject matter hereof.

 

  10.6 Amendment and Waiver.   This Agreement may be amended only by a written agreement executed by the parties hereto. No provision of this Agreement may be waived except by a written document executed by the party entitled to the benefits of the provision.   No waiver of a provision will be deemed to be or will constitute a waiver of any other provision of this Agreement. A waiver will be effective only in the specific instance and for the purpose for which it was given, and will not constitute a continuing waiver.

 

  10.7 Counterparts.   This Agreement may be signed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one instrument. The parties hereto agree to accept a facsimile transmission copy of their respective actual signatures as evidence of their actual signatures to this Agreement and any modification or amendment of this Agreement; provided, however, that each party who produces a facsimile signature agrees, by the express terms hereof, to place, promptly after transmission of his or her signature by fax, a true and correct original copy of his or her signature in overnight mail to the address of the other party.

 

[The remainder of this page has been intentionally left blank. Signature page(s) to follow]

 

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IN WITNESS WHEREOF, the undersigned have executed this Director Retainer Agreement as of the date first written above.

 

 

  AS CAPITAL, INC.
   
  By: 
  Printed Name:
  Title: Chief Executive Officer
     
     
     
  DIRECTOR  
     
  By:  
     
     
     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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EXHIBIT A

 

INDEMNITY AGREEMENT

 

This Indemnity Agreement (“Agreement”) is effective as of August ___, 2020, by and between AS Capital, Inc., a Nevada corporation (the “Company”), and __________ (“Indemnitee”).

 

RECITALS

 

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities.

 

WHEREAS, the Articles of Incorporation and Bylaws of the Company require indemnification of the officers and Board of Directors of the Company (the “Board”). Indemnitee may also be entitled to indemnification pursuant to the Nevada Revised Statutes (“NRS”). The Articles of Incorporation and Bylaws of the Company and the NRS expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification;

 

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified.

 

WHEREAS, this Agreement is a supplement to and in furtherance of the Articles of Incorporation and Bylaws of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and

 

WHEREAS, Indemnitee does not regard the protection available under the Company’s Articles of Incorporation and Bylaws and insurance as adequate in the present circumstances, and may not be willing to serve as a director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified;

 

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

 

Section 1. Services to the Company. Indemnitee agrees to serve as a director of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue to allow Indemnitee to serve as a director. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges that Indemnitee may be removed as a director at any time for any reason, with or without cause, in accordance with the Company’s Articles of Incorporation, its Bylaws, the NRS and any agreement between Company and Indemnitee. The foregoing notwithstanding, this Agreement shall continue in force after Indemnitee has ceased to serve as a director of the Company.

 

 

 

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Section 2. Definitions. As used in this Agreement:

 

(a) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

 

(i) Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company’s then outstanding securities;

 

(ii) Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(a)(i), 2(a)(iii) or 2(a)(iv)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a least a majority of the members of the Board;

 

(iii) Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;

 

(iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; and

 

(v) Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.

 

For purposes of this Section 2(a), the following terms shall have the following meanings:

 

(A) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

(B) “Person” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

(C) “Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.

 

(b) “Corporate Status” describes the status of a person who is or was a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership or joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company.

 

(c) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

 

 

 

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(d) “Enterprise” shall mean the Company and any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary.

 

(e) “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

 

(f) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements) or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

(g) “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, including any appeal therefrom, in which Indemnitee was, is or will be involved as a party, a potential party, a non-party witness or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action taken by him or of any action or inaction on his part while acting as director or officer of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, trustee, general partner, managing member, officer, employee or agent of another corporation, partnership, joint venture, trust or fiduciary of the Company or any other enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement of expenses can be provided under this Agreement.

 

(h) Reference to “other enterprise” shall include employee benefit plans; references to “fines” shall include any excise tax assessed with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

 

Section 3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding had no reasonable cause to believe that his conduct was unlawful.

 

 

 

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Section 4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Nevada Court of Chancery or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.

 

Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. If the Indemnitee is not wholly successful in such Proceeding, the Company also shall indemnify Indemnitee against all Expenses actually and reasonably incurred in connection with a claim, issue or matter related to any claim, issue, or matter on which the Indemnitee was successful. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

Section 6. Indemnification For Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

 

Section 7. Additional Indemnification.

 

(a) Notwithstanding any limitation in Sections 3, 4, or 5, the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened to be made a party to or a participant in any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with the Proceeding.

 

(b) For purposes of Section 7(a), the meaning of the phrase “to the fullest extent permitted by law” shall include, but not be limited to:

 

(i) to the fullest extent permitted by the provision of the NRS that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the NRS; and

 

(ii) to the fullest extent authorized or permitted by any amendments to or replacements of the NRS adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.

 

Section 8. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

 

(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision, except (i) to the extent that amounts are thereafter “clawed back” or otherwise under dispute and (ii) as may be otherwise agreed upon by the Company in writing;

 

(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law; or

 

 

 

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(c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of the Proceeding) prior to its initiation (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law or (iii) such Proceeding is initiated by Indemnitee to enforce his rights under this Agreement.

 

Section 9. Advances of Expenses. Notwithstanding any provision of this Agreement to the contrary, the Company shall advance the expenses incurred by Indemnitee in connection with any Proceeding within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances from time to time (which shall include invoices received by Indemnitee in connection with such Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be so included), whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay the expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. The Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking providing that the Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. This Section 9 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 8.

 

Section 10. Procedure for Notification and Defense of Claim.

 

(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification, not later than thirty (30) days after receipt by Indemnitee of notice of the commencement of any Proceeding. The failure by Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee hereunder or under any other agreement (including, without limitation, the Company’s Certificate of Incorporation and Bylaws), and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights hereunder, except to the extent (solely with respect to the indemnity hereunder) that such failure or delay materially prejudices the Company. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification.

 

(b) The Company will be entitled to participate in the Proceeding at its own expense.

 

Section 11. Procedure Upon Application for Indemnification.

 

(a) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 10(a), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Board, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

 

 

 

  10  

 

 

(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 11(a) hereof, the Independent Counsel shall be selected as provided in this Section 11(b). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 10(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 11(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 13(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

 

Section 12. Presumptions and Effect of Certain Proceedings.

 

(a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 10(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has or has not met the applicable standard of conduct.

 

(b) If the person, persons or entity empowered or selected under Section 11 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 12(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 11(a) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 11(a) of this Agreement.

 

 

 

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(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

 

(d) Reliance as Safe Harbor. For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. The provisions of this Section 12(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.

 

(e) Actions of Others. The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

 

Section 13. Remedies of Indemnitee.

 

(a) In the event that (i) a determination is made pursuant to Section 11 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 9 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 11(a) of this Agreement within forty-five (45) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5 or 6 or the last sentence of Section 11(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor, (v) payment of indemnification pursuant to Section 3, 4 or 7 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or (vi) the Company or any other person or entity takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by a court, selected pursuant to Section 22, to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator through the Judicial Arbitration and Mediation Service (“JAMS”). Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 13(a); provided, however, that the foregoing clause shall not apply in respect of a proceeding brought by Indemnitee to enforce his rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

 

(b) In the event that a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 13 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 13 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.

 

(c) If a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 13, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification or (ii) a prohibition of such indemnification under applicable law.

 

 

 

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(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefore) advance such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.

 

Section 14. Non-exclusivity; Survival of Rights; Insurance; Subrogation.

 

(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Company’s Certificate of Incorporation, the Company’s Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Nevada law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company’s Certificate of Incorporation, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

 

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

 

(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

 

(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is provided hereunder) hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise except (i) to the extent that amounts are thereafter “clawed back” or otherwise under dispute and (ii) as may be otherwise agreed upon by the Company in writing.

 

(e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.

 

 

 

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Section 15. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or (b) one (1) year after the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding (including any appeal) commenced by Indemnitee pursuant to Section 13 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his heirs, executors and administrators. The Company shall require and shall cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to, by written agreement, expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

 

Section 16. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

 

Section 17. Enforcement.

 

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director of the Company.

 

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

 

Section 18. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.

 

Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise.

 

Section 20. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

 

(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide to the Company.

 

 

 

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(b) If to the Company to:

 

3-11 Building 3, Beihuan East Road, Pinggu Town,

Pinggu District, Beijing

People's Republic of China

Attn: Chief Financial Officer

 

or to any other address as may have been furnished to Indemnitee by the Company.

 

Section 21. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

 

Section 22. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Nevada, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 13(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Superior Court of the State of Nevada (the “Nevada Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Nevada Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Nevada Court and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Nevada Court has been brought in an improper or inconvenient forum.

 

Section 23. Coverage. This Agreement shall apply with respect to Indemnitee’s service as a director of the Company prior to the date of this Agreement.

 

Section 24. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. The parties hereto agree to accept a facsimile transmission copy of their respective actual signatures as evidence of their actual signatures to this Agreement and any modification or amendment of this Agreement; provided, however, that each party who produces a facsimile signature agrees, by the express terms hereof, to place, promptly after transmission of his or her signature by fax, a true and correct original copy of his or her signature in overnight mail to the address of the other party.

 

Section 25. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

 

 

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

 

AS CAPITAL, INC.

 

By: ______________________________

 

Name: ___________________________

 

Its: Chief Executive Officer

INDEMNITEE

_________________________________
_________________________________

Address: _________________________

_________________________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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EXHIBIT B

 

PROPRIETARY INFORMATION, INVENTIONS AND NON-COMPETITION AGREEMENT

 

This PROPRIETARY INFORMATION, INVENTIONS and NON-COMPETITION AGREEMENT (the “Agreement”) is made and entered into as of August ____, 2020 (the “Effective Date”), by and between AS Capital, Inc., a Nevada corporation (“Corporation”) and ______________ (“Director”).

 

RECITALS

 

WHEREAS, the parties desire to assure the confidential status and proprietary nature of the information which may be disclosed by Corporation to the Director; and

 

AGREEMENT

 

NOW THEREFORE, in reliance upon and in consideration of the following undertaking, the parties agree as follows:

 

  1. Nondisclosure.

 

1.1 Recognition of Corporation’s Rights; Nondisclosure. At all times during the period of time Director serves as a member of the board of directors of the Corporation (“Service Period”) and provides the necessary and requested services in such capacity (“Services”), Director will hold in strictest confidence and will not disclose, use, lecture upon or publish any of the Corporation’s Proprietary Information (defined below), except as such disclosure, use or publication may be required in connection with Service to the Corporation, or unless the Corporation expressly authorizes such disclosure in writing. Director will obtain Corporation’s written approval before publishing or submitting for publication any material (written, verbal, or otherwise) that relates to Services and/or incorporates any Proprietary Information. Director hereby assigns to the Corporation any rights Director may have or acquire in such Proprietary Information and recognizes that all Proprietary Information shall be the sole property of the Corporation and its assigns.

 

1.2 Proprietary Information. The term “Proprietary Information” shall mean any and all confidential and/or proprietary knowledge, data or information of the Corporation, including that which Director may produce in service to the Corporation. By way of illustration but not limitation, “Proprietary Information” includes (a) trade secrets, inventions, mask works, ideas, processes, formulas, source and object codes, data, programs, other works of authorship, know-how, improvements, discoveries, developments, designs and techniques (hereinafter collectively referred to as “Inventions”); and (b) information regarding plans for research, development, new products, marketing and selling, business plans, budgets and unpublished financial statements, pricing strategies, licenses, prices and costs, suppliers and customers; and (c) information regarding the skills and compensation of other service providers of the Corporation.

 

1.3 Third Party Information. Director understands, in addition, that the Corporation has received and in the future will receive from third parties, including clients, customers, consultants, licensees or affiliates, confidential or proprietary information (“Third Party Information”). Director understands that the Corporation has a duty to maintain the confidentiality of such Third Party Information and to use it only for certain limited purposes. During the Service Period and thereafter, Director will hold Third Party Information in the strictest confidence and will not disclose Third Party Information to anyone (other than Corporation personnel who need to know such information in connection with their work for the Corporation) or use Third Party Information (except in connection with the performance of Director’s Services for the Corporation), unless expressly authorized by the Corporation in writing.

 

 

 

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1.4 No Improper Use of Information of Prior Employers and Others. During the Service Period, Director will not improperly use or disclose any confidential information or trade secrets, if any, of any former or current employer or any other person to whom Director has an obligation of confidentiality, and Director will not bring onto the Corporation premises any unpublished documents or any property belonging to any former or current employer or any other person to whom Director has an obligation of confidentiality unless consented to in writing by that former or current employer or person. In the performance of his duties, Director will only use information which is generally known and used by persons with training and experience comparable to his own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Corporation.

 

  2. Assignment of Inventions.

 

2.1 Proprietary Rights. The term “Proprietary Rights” shall mean all trade secrets, patent, copyright, mask work and other intellectual property rights throughout the world.

 

2.2 Prior Inventions. Inventions, if any, patented or unpatented, which Director made prior to the commencement of the Service Period are excluded from the scope of this Agreement. To preclude any possible uncertainty, Director has set forth on Attachment B (Previous Inventions) attached hereto a complete list of all Inventions that Director has or caused to be (alone or jointly with others) conceived, developed or reduced to practice prior to the commencement of the Service Period, that Director considers to be his property or the property of third parties and that Director wishes to have excluded from the scope of this Agreement (collectively referred to as “Prior Inventions”). If such disclosure would cause Director to violate any prior confidentiality agreement, Director shall not list such Prior Inventions in Attachment B but only disclose a cursory name for each such Invention, a listing of the party(ies) to whom it belongs and the fact that full disclosure as to such inventions has not been made for that reason. A space is provided on Attachment B for such purpose. If no such disclosure is attached, Director represents that there are no Prior Inventions. If, during the Service Period, Director incorporates a Prior Invention into a Corporation product, process or machine, the Corporation is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, use and sell such Prior Invention. Notwithstanding the foregoing, Director agrees that he will not incorporate, or permit to be incorporated, Prior Inventions in any Corporation Inventions without the Corporation’s prior written consent.

 

2.3 Assignment of Inventions. Subject to Sections 2.4 and 2.6, Director hereby assigns, and agrees to assign in the future when any such Inventions or Proprietary Rights are first reduced to practice or first fixed in a tangible medium, as applicable, to the Corporation all right, title and interest in and to any and all Inventions (and all Proprietary Rights with respect thereto) whether or not patentable or registrable under copyright or similar statutes, made or conceived or reduced to practice or learned by Director, either alone or jointly with others, during the Service Period. Inventions assigned to the Corporation, or to a third party as directed by the Corporation pursuant to this Section 2, are hereinafter referred to as “Corporation Inventions.”

 

2.4 Non-assignable Inventions. This Agreement does not apply to an Invention which the Director developed entirely on his or her own time without using the Company’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

 

    Relate at the time of conception or reduction to practice of the invention to the Company’s business, or actual or demonstrably anticipated research or development of the Company; or

 

    Result from any Services performed by the Director for the Company.  

 

 

 

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2.5. Limited Exclusion Notification. Director has reviewed the notification on Attachment A (Limited Exclusion Notification) and agrees that his signature acknowledges receipt of the notification.

 

2.6 Obligation to Keep Corporation Informed. During the Service Period, and for twelve (12) months after termination of the Service Period, Director will fully disclose in writing to the Corporation all Inventions authored, conceived or reduced to practice by Director, either alone or jointly with others, within no more than thirty (30) days after creation. In addition, Director will disclose to the Corporation all patent applications filed within a year after termination of the Service Period by Director, or on his behalf, within no more than thirty (30) days after filing. At the time of each such disclosure, Director will advise the Corporation in writing of any Inventions that he believes fully qualify for exemption under Section 2.4 of this Agreement, and Director will, at that time, provide all written evidence necessary to substantiate that belief. The Corporation will keep in confidence and will not use for any purpose or disclose to third parties without Director’s consent any confidential information disclosed in writing to the Corporation pursuant to this Agreement relating to Inventions that qualify fully for exemption under the provisions of Section 2.4 of this Agreement. Director will preserve the confidentiality of any Invention that does not fully qualify for exemption under Section 2.4 of this Agreement.

 

2.7 Works for Hire. Director acknowledges that all original works of authorship which are made by Director (solely or jointly with others) within the scope of Service and which are protectable by copyright are “works made for hire,” pursuant to United States Copyright Act (17 U.S.C., Section 101) and shall be the sole property of the Corporation.

 

2.8 Enforcement of Proprietary Rights. Director will assist the Corporation, or its nominee, to obtain and enforce United States and foreign Proprietary Rights relating to Corporation Inventions in any and all countries, and such Proprietary Rights and Corporation Inventions shall be and remain the sole and exclusive property of the Corporation, or its nominee, whether or not patented or copyrighted. Accordingly, Director will promptly execute, verify and deliver such documents and perform such other acts (including appearances as a witness and assistance or cooperation in legal proceedings) as the Corporation may reasonably request in applying for, obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the assignment thereof. This obligation shall survive and continue beyond the termination of the Service Period, but the Corporation shall compensate Director at a reasonable rate after his termination for the time actually spent providing such assistance.

 

2.9 Appointment of Corporation as Agent. If, after reasonable effort, the Corporation is unable to secure Director’s signature on any document needed in connection with the actions specified herein, Director hereby irrevocably designates and appoints the Corporation and its duly authorized officers and agents as Director’s agents and attorneys-in-fact, which appointment is coupled with an interest, to act for and in Director’s behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of this Agreement with the same legal force and effect as if executed by Director. Director hereby waives and quitclaims to the Corporation any and all claims, of any nature whatsoever, which Director now or may hereafter have for infringement of any Proprietary Rights assigned hereunder to the Corporation.

 

  3. Records.  

 

Director agrees to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that may be required by the Corporation) of all Proprietary Information developed by Director and all Inventions made by Director during the Service Period, which records shall be available to and remain the sole property of the Corporation at all times.

 

 

 

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  4. Non-Competition Obligation.  

 

Director agrees that during the Service Period, Director will not provide any services or engage in any employment or business activity which is competitive with, or would otherwise conflict with, Director’s Service to the Corporation, without the Corporation’s express written consent. Director agrees further that during the Service Period and for two (2) years after the termination of the Service Period, Director will not, either directly or through others, use trade secret information of the Company to solicit or attempt to solicit any customer, vendor, employee, independent contractor or consultant of the Corporation to terminate his or her relationship with the Corporation in order to become a customer, vendor, employee, consultant or independent contractor to or for any other person or entity including, without limitation, Director.

 

  5. Non-Solicitation With the Corporation.  

 

Director covenants and agrees that, for a period of two (2) years following termination of the Service Period, Director will not use trade secret information of the Corporation to solicit or engage in competitive business with Corporation’s existing or potential vendors or customers at the time of his separation from the Corporation and Director will not encourage or solicit any customer, vendor, employee or consultant to leave the Corporation for any reason.

 

  6. No Conflicting Obligation.  

 

Director represents that his performance of all the terms of this Agreement and as a Director to the Corporation does not and will not breach any agreement to keep information acquired by Director prior to the Service Period in confidence or trust. Director has not entered into, and agrees he will not enter into, any agreement either written or oral in conflict herewith.

 

  7. Return of Corporation Documents.  

 

Upon termination of the Service Period, Director will deliver to the Corporation any and all drawings, notes, memoranda, specifications, devices, formulas, and documents, together with all copies thereof, and any other material containing, comprising or disclosing any Corporation Inventions, Proprietary Information and Third Party Information. Director further agrees that any property situated on the Corporation’s premises and owned by the Corporation, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by the Corporation at any time with or without notice. Prior to leaving, Director will cooperate with the Corporation in completing and signing the Corporation’s termination statement, which will include, at a minimum, the certifications set forth in Attachment C.

 

  8. Legal and Equitable Remedies.  

 

Because Director’s services are personal and unique and because Director may have access to and become acquainted with the Proprietary Information of the Corporation, the Corporation shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that the Corporation may have for a breach of this Agreement.

 

  9. Notices.  

 

Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or, if sent by certified or registered mail, three (3) days after the date of mailing.

 

 

 

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  10. General Provisions.  

 

10.1 Governing Law; Consent to Personal Jurisdiction; Attorney’s Fees. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Nevada, without regard to its conflict of laws rules. The Corporation and Director hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the State of Nevada (the “Nevada Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Nevada Court for purposes of any action or proceeding arising out of or in connection with this Agreement, and (iii) waive any objection to the laying of venue of any such action or proceeding in the Nevada Court and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Nevada Court has been brought in an improper or inconvenient forum.

 

10.2 Severability. If one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If, moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.

 

10.3 Successors and Assigns. This Agreement will be binding upon Director’s heirs, executors, administrators and other legal representatives and will be for the benefits of the Corporation, its successors, and its assigns.

 

10.4 Survival. Director agrees that the provisions of this Agreement shall survive the termination of the Service Period and the assignment of this Agreement by the Corporation to any successor-in-interest or other assignee, regardless of the reason or reasons for termination and whether such termination is voluntary or involuntary.

 

10.5 Nature of Relationship. This Agreement shall not be deemed nor does it create an employment contract between the Corporation (or any of its subsidiaries or related companies) and Director. Director is an independent contractor and shall not be deemed an employee of the Corporation for purposes of employee benefits, income tax withholding, F.I.C.A. taxes, unemployment benefits or any other purpose. Director’s term of service is defined in Section 7 of the Director Retainer Agreement between Director and the Company signed concurrently herewith.

 

10.6 Waiver. No waiver by the Corporation of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by the Corporation of any right under this Agreement shall be construed as a waiver of any other right. The Corporation shall not be required to give notice to enforce strict adherence to all terms of this Agreement.

 

10.7 Advice of Counsel. Director acknowledges that, in executing this Agreement, Director has had the opportunity to seek the advice of independent legal counsel, and Director has read and understood all of the terms and provisions of this Agreement. This Agreement shall not be construed against any party by reason of the drafting or preparation hereof.

 

10.8 Modification. This Agreement may not be changed, modified, released, discharged, abandoned or otherwise amended, in whole or in part, except by an instrument in writing, signed by Director and the Corporation. Director agrees that any subsequent change or changes in Director’s duties, salary, or compensation shall not affect the validity or scope of this Agreement.

 

 

 

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10.9 Entire Agreement. The obligations of this Agreement shall apply to any time during which Director previously provided service, or will in the future provide service, to the Corporation as a consultant or agent if no other agreement governs nondisclosure and assignment of inventions during such period. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. The headings in this Agreement are used for convenience only and are not to be considered a part of this Agreement or be used to interpret the meaning of any part of this Agreement.

 

10.10 Counterparts. This Agreement may be signed in two counterparts, each shall be deemed an original and both of which shall together constitute one agreement. The parties hereto agree to accept a facsimile transmission copy of their respective actual signatures as evidence of their actual signatures to this Agreement and any modification or amendment of this Agreement; provided, however, that each party who produces a facsimile signature agrees, by the express terms hereof, to place, promptly after transmission of his or her signature by fax, a true and correct original copy of his or her signature in overnight mail to the address of the other party.

 

 

[The remainder of this page has been intentionally left blank. Signature page(s) to follow]

 

 

 

 

 

 

 

 

 

 

  22  

 

 

I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE COMPLETELY FILLED OUT ATTACHMENT B TO THIS AGREEMENT. NO PROMISES OR REPRESENTATIONS HAVE BEEN MADE TO ME TO INDUCE ME TO SIGN THIS AGREEMENT. I SIGN THIS AGREEMENT VOLUNTARILY AND FREELY.

 

Dated: _________________________________

 

By: _________________________________

 

Printed Name: ___________________________

ACCEPTED AND AGREED TO:

 

AS CAPITAL, INC.

 

By: _________________________________

 

Its: Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

  23  

 

 

ATTACHMENT A

 

LIMITED EXCLUSION NOTIFICATION

 

THIS IS TO NOTIFY you that the foregoing Agreement between you and the Corporation does not require you to assign or offer to assign to the Corporation any invention that you developed entirely on your own time without using the Corporation’s equipment, supplies, facilities or trade secret information except for those inventions that either:

 

1. Relate at the time of conception or reduction to practice of the invention to the Corporation’s business or actual or demonstrably anticipated research or development of the Corporation;

 

2. Result from any Services performed by you for the Corporation.

 

To the extent a provision in the foregoing Agreement purports to require you to assign an invention otherwise excluded from the preceding paragraph, the provision is unenforceable.

 

This limited exclusion does not apply to any patent or invention covered by a contract between the Corporation and the United States or any of its agencies requiring full title to such patent or invention to be in the United States.

 

I ACKNOWLEDGE RECEIPT of a copy of this notification.

 

By: __________________________

 

Date: ________________________

WITNESSED BY:

 

______________________________________

(Printed Name Of Corporation Representative)

 

 

 

 

 

 

 

 

 

 

 

  24  

 

 

ATTACHMENT B

 

             
TO:   [                                         ]        
       
FROM:  
 
       
       
DATE:  
 
       
       
SUBJECT:   Previous Inventions        

1. Except as listed in Section 2 below, the following is a complete list of all inventions or improvements relevant to the subject matter of my provision of service to AS Capital, Inc., a Nevada corporation (the “Corporation”), that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Corporation:

 

  ¨ No inventions or improvements.  

 

  ¨ See below:

 

 
 
 
 
 
 

 

  ¨ Additional sheets attached.  

2. Due to a prior confidentiality agreement, I cannot complete the disclosure under Section 1 above with respect to inventions or improvements generally listed below, the proprietary rights and duty of confidentiality with respect to which I owe to the following party(ies):

 

    Invention or Improvement Party(ies)       Relationship
       
1.  
 
     
 
       
2.  
 
     
 
       
3.  
 
     
 

 

¨ Additional sheets attached.  

 

 

 

  25  

 

 

ATTACHMENT C

 

CERTIFICATIONS

 

[Fill Out ONLY Upon Termination of Relationship]

 

I certify that I do not have in my possession, nor have I failed to return, any records, documents, computer disks, tapes or printouts, sound recordings, customer lists, photographs, data, specifications, drawings, blueprints, reproductions, sketches, notes, reports, proposals, or copies of them, or other documents or materials, equipment, samples, prototypes, models or material containing, comprising or disclosing any Corporation Inventions, Third Party Information or Proprietary Information of the Corporation, its successors and assigns.

 

I further certify that I have complied with and will continue to comply with all the terms of the Proprietary Information and Inventions Agreement signed by me with the Corporation, including the reporting of any Inventions conceived or made by me covered by such agreement.

 

I further agree that in compliance with the Proprietary Information and Inventions Agreement, I will preserve as confidential all trade secrets, confidential information, Proprietary Information, Inventions, Third Party Information, Proprietary Rights and Corporation Inventions, as well as any other subject matter pertaining to any business of the Corporation or any of its clients, customers, consultants, licensees, or affiliates.

 

   
 
 
   
 
 
  Date

 

 

 

 

 

 

 

 

 

 

 

  26  

 

Exhibit 21

 

LIST OF SUBSIDIARIES

 

Company Name Place/Date of Incorporation Issued Capital Principal Activities
HanJiao International Holding Limited British Virgin Islands, July 5, 2018 USD 50,000

Investment holding

 

Luji Technology International Holding Limited

British Virgin Islands,

July 5, 2018

USD 50,000

Investment holding

 

Inooka Holding Limited

Hong Kong,

July 18, 2018

HKD 100 (approximately USD12.8)

Investment holding

 

Beijing Hongtao Management Consulting Co., Limited

People Republic of China,

October 11, 2018

RMB 1 million (approximately USD 147,000) Provision of consulting and technical services
Beijing Luji Technology Co., Limited

People Republic of China,

March 27, 2007

RMB 80 million (approximately USD 11.9 million) Sale of designated goods
Guoyi Investment Fund Management (Beijing) Co., Limited

People Republic of China,

February 19, 2016

RMB 5 million (approximately USD 0.74 million) No business activity