Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐
NOTICE OF EXTRAORDINARY GENERAL MEETING
OF
WEALTHBRIDGE ACQUISITION LIMITED SHAREHOLDERS
To Be Held on May 5, 2020
To Wealthbridge Acquisition Limited (“Wealthbridge”)
Shareholders:
An extraordinary general meeting of shareholders of Wealthbridge
will be held on May 5, 2020, at 10:00 a.m. Eastern Time, for the following purposes:
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To approve the share exchange agreement dated as of October 28, 2019 (as may be amended or supplemented
from time to time, the “Share Exchange Agreement”) among Wealthbridge, Scienjoy Inc. (“Scienjoy”), Lavacano
Holdings Limited (“Lavacano”), WBY Entertainment Holdings Ltd. (“WBY,” together with Lavacano, the “Sellers”,
and each “Seller”) and the transactions contemplated thereunder, including but not limited to the acquisition of all
of the issued and outstanding shares and any other equity interests of Scienjoy from the Sellers, as provided for in the Share
Exchange Agreement and the consideration paid to the Sellers and the earn-out consideration by way of new issue of ordinary shares
credited as fully paid in accordance with the Share Exchange Agreement, or the “Business Combination.” This proposal
is referred to as the “Business Combination Proposal” or “Proposal No. 1.”
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To approve as a shareholder
resolution to change of Wealthbridge’s name to Scienjoy Holding Corporation and
the adoption of the Third Amended and Restated Memorandum and Articles of Association
of Wealthbridge as further described herein. This proposal is referred to as the “Amendment
Proposal” or “Proposal No. 2.”
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To approve the issuance of more than 20% of the issued and outstanding ordinary shares of Wealthbridge
pursuant to the terms of the Share Exchange Agreement, as required by Nasdaq Listing Rules 5635(a) and (d). This proposal is referred
to as the “Nasdaq Proposal” or “Proposal 3.”
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To approve the adjournment of the extraordinary general meeting in the event Wealthbridge does
not receive the requisite shareholder vote to approve the Business Combination. This proposal is called the “Business Combination
Adjournment Proposal” or “Proposal 4”.
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Proposals 1 through 4
are sometimes collectively referred to herein as the “Proposals.”
Wealthbridge will be holding the Extraordinary
General Meeting as a teleconference using the following dial-in information:
US Toll Free
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1-888-433-2831
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International Toll
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1-719-955-2379
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Participant Passcode
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441090
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As of April 9, 2020, there were 7,457,000 ordinary shares of
Wealthbridge issued and outstanding and entitled to vote. Only Wealthbridge shareholders who hold shares of record as of the close
of business on April 9, 2020 are entitled to vote at the extraordinary general meeting or any adjournment of the extraordinary
general meeting. This proxy statement is first being mailed to shareholders on or about April 13, 2020. Approval of the Business
Combination Proposal, the Amendment Proposal, the Nasdaq Proposal, and the Business Combination Adjournment Proposal will each
require the affirmative vote of the holders of a majority of the outstanding ordinary shares present in person or by proxy and
entitled to vote at the extraordinary general meeting. Attending the extraordinary general meeting either in person or by proxy
and abstaining from voting will have the same effect as voting against all the proposals and, assuming a quorum is present, broker
non-votes will have no effect on the Business Combination Proposal, the Amendment Proposal, the Nasdaq Proposal, and the Adjournment
Proposal.
Wealthbridge currently
has an unlimited number of authorized shares of no par value per share.
Whether or not you plan to attend the extraordinary general
meeting in person, please submit your proxy card without delay to Morrow Sodali LLC not later than the time appointed for the extraordinary
general meeting or adjourned meeting. Voting by proxy will not prevent you from voting your shares in person if you subsequently
choose to attend the extraordinary general meeting. If you fail to return your proxy card and do not attend the meeting in person,
the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the extraordinary
general meeting. You may revoke a proxy at any time before it is voted at the extraordinary general meeting by executing and returning
a proxy card dated later than the previous one, by attending the extraordinary general meeting in person and casting your vote
by ballot or by submitting a written revocation to Wealthbridge at Wealthbridge Acquisition Limited, Unit B, 17/F Success Commercial
Building, 245-251 Hennessy Road, Wanchai, Hong Kong, Attention: Yongsheng Liu, Telephone: (86) 186-0217-2929, that is received
by us before we take the vote at the extraordinary general meeting. If you hold your shares through a bank or brokerage firm, you
should follow the instructions of your bank or brokerage firm regarding revocation of proxies.
Wealthbridge’s
board of directors unanimously recommends that Wealthbridge shareholders vote “FOR” approval of each of the proposals.
By order of the Board of Directors,
/s/ Yongsheng Liu
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Yongsheng Liu
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Chief Executive Officer of
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Wealthbridge Acquisition Limited
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April 10, 2020
TABLE OF CONTENTS
ANNEX A – SHARE EXCHANGE AGREEMENT
ANNEX B – FORM OF THIRD AMENDED
AND RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION OF WEALTHBRIDGE
ANNEX C – ESCROW AGREEMENT
ANNEX D – REGISTRATION RIGHTS AGREEMENT
ANNEX E – VOTING AGREEMENT
QUESTIONS
AND ANSWERS ABOUT THE PROPOSALS FOR Wealthbridge shareholders
Q: What is the
purpose of this document?
A: Wealthbridge Acquisition
Limited, a British Virgin Islands company, or Wealthbridge, and Scienjoy Inc., a Cayman Islands company, have agreed to a business
combination under the terms of a share exchange agreement, dated as of October 28, 2019, which we refer to as the Share Exchange
Agreement, by and among Wealthbridge Acquisition Limited, the Sellers, Scienjoy Inc., and the other related proposals. The consummation
of the transactions contemplated by the Share Exchange Agreement relating to the business combination with Scienjoy are referred
to as the Business Combination and the proposal to approve the Business Combination is referred to as the Business Combination
Proposal. The Share Exchange Agreement is attached to this proxy statement as Annex A, and is incorporated into this proxy
statement by reference. You are encouraged to read this proxy statement, including the section titled “Risk Factors”
and all the annexes hereto.
Wealthbridge shareholders are being asked
to consider and vote upon a proposal to adopt the Share Exchange Agreement pursuant to which, Wealthbridge will acquire all of
the issued and outstanding shares and other equity interests of Scienjoy from the Sellers, and related proposals. The units that
were issued in Wealthbridge’s initial public offering, or the Wealthbridge Units, each consists of one ordinary share of
Wealthbridge, no par value per share, or the Wealthbridge Shares, one redeemable warrant, each redeemable warrant entitling the
holder thereof to purchase one half of one Wealthbridge Share, or the Wealthbridge Warrants, and one right to receive one-tenth
(1/10) of an ordinary share upon the consummation of an initial business combination, or the Wealthbridge Rights. Wealthbridge
shareholders (except for holders of shares issued prior to Wealthbridge’s initial public offering (“initial shareholders”))
will be entitled to redeem their Wealthbridge ordinary shares for a pro rata share of the trust account net of taxes payable (currently
anticipated to be no less than approximately $10.00 per share for shareholders).
The Wealthbridge Units, Wealthbridge Shares,
Wealthbridge Warrants, and Wealthbridge Rights are currently listed on the Nasdaq Stock Market.
This proxy statement contains important
information about the proposed Business Combination and the other matters to be acted upon at the extraordinary general meeting
of Wealthbridge shareholders. You should read it carefully.
Q: What is being
voted on?
A: Below are the proposals
on which Wealthbridge shareholders are being asked to vote:
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To approve the Share Exchange Agreement and the transactions contemplated thereunder, including
but not limited to the acquisition of all of the issued and outstanding shares and any other equity interests of Scienjoy from
the Sellers, as provided for in the Share Exchange Agreement and the consideration paid to the Sellers and the earn-out consideration
by way of new issue of ordinary shares credited as fully paid in accordance with the Share Exchange Agreement, or the “Business
Combination.” This proposal is referred to as the “Business Combination Proposal” or “Proposal No. 1.”
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To approve as a shareholder
resolution the change of Wealthbridge’s name to Scienjoy Holding Corporation and
the adoption of the Third Amended and Restated Memorandum and Articles of Association
of Wealthbridge as further described herein. This proposal is referred to as the “Amendment
Proposal” or “Proposal No. 2.”
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To approve the issuance of more than 20% of the issued and outstanding ordinary shares of Wealthbridge
pursuant to the terms of the Share Exchange Agreement, as required by Nasdaq Listing Rules 5635(a) and (d). This proposal is referred
to as the “Nasdaq Proposal” or “Proposal 3.”
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To approve the adjournment of the extraordinary general meeting in the event Wealthbridge does not receive the requisite shareholder
vote to approve the Business Combination. This proposal is called the “Business Combination Adjournment Proposal” or
“Proposal 4”.
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Q: Do any of
Wealthbridge’s directors or officers have interests that may conflict with my interests with respect to the Business Combination?
A: Wealthbridge’s directors and
officers may have interests in the Business Combination that are different from your interests as a shareholder. You should keep
in mind the following interests of Wealthbridge’s directors and officers:
In May and July, 2018, 1,150,000 shares
were sold to our initial shareholders. On October 15, 2018, Wealthbridge affected a 5 for 4 share split resulting in an aggregate
of 1,437,500 ordinary shares outstanding to our initial shareholders, which we refer to throughout this proxy statement as the
“insider shares,” for an aggregate purchase price of $25,100. Simultaneous with the consummation of the IPO, we consummated
the private placement of 247,500 private Units (“Private Placement Units”) at a price of $10.00 per Private Placement
Unit, generating total proceeds of $2,475,000. The Private Placement Units were purchased by Wealthbridge’s sponsor. The
underwriters exercised the over-allotment and on February 20, 2019, Wealthbridge consummated the private sale of an additional
22,500 private units to its sponsor, generating gross proceeds of $225,000.
If Wealthbridge does not consummate the
Business Combination by November 8, 2020, Wealthbridge will be required to voluntarily liquidate and subsequently dissolve and
the securities held by Wealthbridge’s insiders will be worthless because such holders have agreed to waive their rights to
any liquidation distributions.
Approval of the Business Combination Proposal,
the Amendment Proposal, the Nasdaq Proposal and the Business Combination Adjournment Proposal will require the affirmative vote
of the holders of a majority of the issued and outstanding ordinary shares of Wealthbridge present and entitled to vote at the
extraordinary general meeting. As of the record date of the extraordinary general meeting of Wealthbridge shareholders, 1,707,500
shares held by Wealthbridge’s initial shareholders, or approximately 22.90% of the outstanding Wealthbridge ordinary shares,
would be voted in favor of each of the Proposals.
In addition, the exercise of Wealthbridge’s
directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may
result in a conflict of interest when determining whether such changes or waivers are appropriate and in Wealthbridge shareholders’
best interests.
Q: When and where
is the extraordinary general meeting of Wealthbridge shareholders?
A: The extraordinary general meeting of
Wealthbridge shareholders will take place on May 5, 2020, at 10:00 a.m. Eastern Time. Due to the COVID-19 pandemic, Wealthbridge
will be holding the extraordinary general meeting as a teleconference using the following dial-in information:
US Toll Free
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1-888-433-2831
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International Toll
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1-719-955-2379
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Participant Passcode
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441090
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Q: Who may vote
at the extraordinary general meeting of shareholders?
A: Only holders of record of Wealthbridge ordinary shares as
of the close of business on April 9, 2020 may vote at the extraordinary general meeting of shareholders. As of April 9, 2020, there
were 7,475,000 Wealthbridge ordinary shares outstanding and entitled to vote. Please see “Extraordinary General Meeting of
Wealthbridge Shareholders — Record Date; Who is Entitled to Vote” for further information.
Q: What is the
quorum requirement for the extraordinary general meeting of shareholders?
A: Shareholders representing
a majority of the Wealthbridge ordinary shares issued and outstanding as of the record date and entitled to vote at the extraordinary
general meeting must be present in person or represented by proxy in order to hold the extraordinary general meeting and conduct
business. This is called a quorum. Wealthbridge ordinary shares will be counted for purposes of determining if there is a quorum
if the shareholder (i) is present and entitled to vote at the meeting, or (ii) has properly submitted a proxy card. In the absence
of a quorum, shareholders representing a majority of the votes present in person or represented by proxy at such meeting may adjourn
the meeting until a quorum is present. Broker non-votes will not be considered present for the purposes of establishing a quorum.
Q: What vote
is required to approve the Proposals?
A: Approval of the Business Combination Proposal, the Amendment
Proposal, the Nasdaq Proposal, and the Business Combination Adjournment Proposal will require the affirmative vote of the holders
of a majority of the issued and outstanding ordinary shares of Wealthbridge present and entitled to vote at the extraordinary general
meeting. Attending the extraordinary general meeting either in person or by proxy and abstaining from voting will have the same
effect as voting against all the Proposals and, assuming a quorum is present, broker non-votes will have no effect on the Proposals.
Q: Are the proposals
conditioned on one another?
A: Yes. The
Business Combination Proposal is conditioned upon the approval of the Amendment Proposal and the Nasdaq Proposal. The
Amendment Proposal is conditioned upon the approval of the Business Combination Proposal and the Nasdaq Proposal.
Q:
How will the initial shareholders vote?
A: Wealthbridge’s initial shareholders, who as of April
9, 2020 owned 1,707,500 Wealthbridge ordinary shares, or approximately 22.90% of the issued and outstanding Wealthbridge ordinary
shares, have agreed to vote their respective ordinary shares acquired by them prior to the initial public offering in favor of
the Business Combination Proposal and related proposals. Wealthbridge’s initial shareholders have also agreed that they will
vote any shares they purchase in the open market in or after the IPO in favor of each of the Proposals.
Q:
Am I required to vote in order to have my ordinary shares redeemed?
A: No.
You are not required to vote in order to have the right to demand that Wealthbridge redeem your ordinary shares for cash equal
to your pro rata share of the aggregate amount then on deposit in the trust account (before payment of deferred underwriting commissions
and including interest earned on their pro rata portion of the trust account, net of taxes payable). These rights to demand redemption
of Wealthbridge ordinary shares for cash are sometimes referred to herein as redemption rights. If the Business Combination is
not completed, then holders of Wealthbridge ordinary shares electing to exercise their redemption rights will not be entitled to
receive such payments.
Q:
How do I exercise my redemption rights?
A: If you are a public shareholder and you seek to have your
shares redeemed, you must (i) demand, no later than 5:00 p.m., Eastern Time on May 1, 2020 (two business days before the extraordinary
general meeting), that Wealthbridge redeem your shares into cash; and (ii) submit your request in writing to Wealthbridge’s
transfer agent, at the address listed at the end of this section and delivering your shares to Wealthbridge’s transfer agent
physically or electronically using the DWAC system the business day prior to the vote at the meeting.
Any corrected or changed
written demand of redemption rights must be received by Wealthbridge’s transfer agent the business day prior to the extraordinary
general meeting. No demand for redemption will be honored unless the holder’s shares have been delivered (either physically
or electronically) to the transfer agent the business day prior to the vote at the meeting.
Public shareholders may seek to have their
shares redeemed regardless of whether they vote for or against the Business Combination and whether or not they are holders of
Wealthbridge shares as of the Record Date. Any public shareholder who hold shares of Wealthbridge shares on or before May 1, 2020
(two business days before the extraordinary general meeting) will have the right to demand that his, her or its shares be redeemed
for a pro rata share of the aggregate amount then on deposit in the Trust Account, less any taxes then due but not yet paid, at
the consummation of the Business Combination). If you have questions regarding the certification of your position or delivery of
your shares, please contact:
Continental Stock Transfer &
Trust Company
One State Street Plaza, 30th
Floor
New York, NY 10004
Attn: Mark Zimkind
E-mail: mzimkind@continentalstock.com
Q: If my shares are held in “street
name” by my bank, brokerage firm or nominee, will they automatically vote my shares for me?
A: No. Under the rules
of various national and regional securities exchanges, your broker, bank or nominee cannot vote your shares with respect to non-discretionary
matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your
broker, bank or nominee. Wealthbridge believes the Proposals are non-discretionary and, therefore, your broker, bank or nominee
cannot vote your shares without your instruction. Broker non-votes will not be considered present for the purposes of establishing
a quorum and will have no effect on the Proposals. If you do not provide instructions with your proxy, your bank, broker or other
nominee may submit a proxy card expressly indicating that it is NOT voting your shares; this indication that a bank, broker or
nominee is not voting your shares is referred to as a “broker non-vote.” Your bank, broker or other nominee can vote
your shares only if you provide instructions on how to vote. You should instruct your broker to vote your Wealthbridge shares in
accordance with directions you provide.
Q: How can I vote?
A: If you were a holder of record Wealthbridge ordinary shares
on April 9, 2020, the record date for the extraordinary general meeting of Wealthbridge shareholders, you may vote with respect
to the applicable proposals in person at the extraordinary general meeting of Wealthbridge shareholders, or by submitting a proxy
by mail so that it is received prior to 10:00 a.m. Eastern Time on May 5, 2020, in accordance with the instructions provided to
you under “Extraordinary General Meetings of Wealthbridge Shareholders.” If you hold your shares in “street name,”
which means your shares are held of record by a broker, bank or other nominee, your broker or bank or other nominee may provide
voting instructions (including any telephone or Internet voting instructions). You should contact your broker, bank or nominee
in advance to ensure that votes related to the shares you beneficially own will be properly counted. In this regard, you must provide
the record holder of your shares with instructions on how to vote your shares or, if you wish to attend the extraordinary general
meeting of Wealthbridge shareholders and vote in person, obtain a proxy from your broker, bank or nominee.
Q: What if I abstain from voting or
fail to instruct my bank, brokerage firm or nominee?
A: Wealthbridge will
count a properly executed proxy marked “ABSTAIN” with respect to a particular Proposal as present for the purposes
of determining whether a quorum is present at the extraordinary general meeting of Wealthbridge shareholders. For purposes of approval,
an abstention on any Proposals will have the same effect as a vote “AGAINST” such Proposal.
Q: Can I change my vote after I have
mailed my proxy card?
A: Yes. You may change
your vote at any time before your proxy is voted at the extraordinary general meeting. You may revoke your proxy by executing and
returning a proxy card dated later than the previous one, or by attending the extraordinary general meeting in person and casting
your vote by ballot or by submitting a written revocation stating that you would like to revoke your proxy that we receive prior
to the extraordinary general meeting. If you hold your shares through a bank, brokerage firm or nominee, you should follow the
instructions of your bank, brokerage firm or nominee regarding the revocation of proxies. If you are a record holder, you should
send any notice of revocation or your completed new proxy card, as the case may be, to:
Wealthbridge Acquisition Limited
Unit B
17/F Success Commercial Building
245-251 Hennessy Road
Wanchai, Hong Kong
Tel: (86) 186-0217-2929
Q: Should I send in my share certificates
now?
A:
Yes. Wealthbridge shareholders who intend to have their ordinary shares redeemed, by electing to have those ordinary shares redeemed
for cash on the proxy card, should send their certificates by two business days before the extraordinary general meeting. Please
see “Extraordinary General Meeting of Wealthbridge Shareholders — Redemption Rights” for the procedures to be
followed if you wish to redeem your ordinary shares for cash.
Q: When is the Business Combination
expected to occur?
A: Assuming the requisite
shareholder approvals are received, Wealthbridge expects that the Business Combination will occur no later than May 8, 2020.
Q: May I seek statutory appraisal rights
or dissenter rights with respect to my shares?
A: No. Appraisal rights
are not available to holders of Wealthbridge ordinary shares in connection with the proposed Business Combination. For additional
information, see the sections entitled “Extraordinary General Meeting of Wealthbridge Shareholders — Appraisal Rights.”
Q: What happens if the Business Combination
is not consummated?
A: If Wealthbridge does not consummate the Business Combination
by the date that is 15 months from the closing of the IPO, or May 8, 2020, or 21 months from the closing of the IPO, or November
8, 2020, if Wealthbridge further extends the period of time to consummate a business combination, Wealthbridge’s officers
must take all actions necessary in accordance with the British Virgin Islands Business Companies Act, 2004 (as the same may be
amended and supplemented from time to time) (referred to herein as the “Companies Law”) to voluntarily liquidate and
subsequently dissolve Wealthbridge as soon as reasonably practicable. Following dissolution, Wealthbridge will no longer exist
as a company. In any liquidation, the funds held in the Trust Account, plus any interest earned thereon (net of taxes payable)
will be distributed pro-rata to holders of Wealthbridge ordinary shares who acquired such ordinary shares in Wealthbridge’s
IPO or in the aftermarket. If the Business Combination is not effected by the date that is 15 months from the closing of the IPO,
or May 8, 2020, or by the date that is 21 months from the closing of the IPO, or November 8, 2020, if we further extend the period
of time to consummate a business combination, the Wealthbridge Warrants and Rights will expire worthless. The estimated consideration
that each Wealthbridge share would be paid at liquidation would be approximately $10.32 per share for shareholders based on amounts
on deposit in the Trust Account as of April 9, 2020. The closing price of Wealthbridge’s ordinary shares on the Nasdaq Stock
Market as of April 9, 2020 was $10.34. Wealthbridge’s initial shareholders waived the right to any liquidation distribution
with respect to any Wealthbridge ordinary shares held by them.
Q: What happens to the funds deposited
in the Trust Account following the Business Combination?
A: Following the closing of the Business Combination, funds
in the Trust Account will be released to Wealthbridge. Holders of Wealthbridge ordinary shares exercising redemption rights will
receive their per share redemption price. The balance of the funds will be utilized to pay the expenses incurred during and the
working capital after the Business Combination. As of April 9, 2020, there was approximately $59,345,609 in Wealthbridge’s
Trust Account. Approximately $10.32 per outstanding share issued in Wealthbridge’s initial public offering will be paid to
the public investors. Any funds remaining in the Trust Account after such uses will be used for future working capital and
other corporate purposes of the combined entity.
DELIVERY
OF DOCUMENTS TO WEALTHBRIDGE shareholders
Pursuant to the rules
of the SEC, Wealthbridge and services that it employs to deliver communications to its shareholders are permitted to deliver to
two or more shareholders sharing the same address a single copy of the proxy statement, unless Wealthbridge has received contrary
instructions from one or more of such shareholders. Upon written or oral request, Wealthbridge will deliver a separate copy of
the proxy statement to any shareholder at a shared address to which a single copy of the proxy statement was delivered and who
wishes to receive separate copies in the future. Shareholders receiving multiple copies of the proxy statement may likewise request
that Wealthbridge deliver single copies of the proxy statement in the future. Shareholders may notify Wealthbridge of their requests
by contacting Wealthbridge as follows:
Wealthbridge Acquisition Limited
Unit B
17/F Success Commercial Building
245-251 Hennessy Road
Wanchai, Hong Kong
Attn: Yongsheng Liu
Tel: (86) 186-0217-2929
SUMMARY
OF THE PROXY STATEMENT
This summary highlights selected information
from this proxy statement but may not contain all of the information that may be important to you. Accordingly, we encourage you
to read carefully this entire proxy statement, including the Share Exchange Agreement attached as Annex A. Please read these
documents carefully as they are the legal documents that govern the Business Combination and your rights in the Business Combination.
The Parties
Wealthbridge Acquisition Limited
Unit B
17/F Success Commercial Building
245-251 Hennessy Road
Wanchai, Hong Kong
Attn: Yongsheng Liu
Telephone: (86) 186-0217-2929
Wealthbridge Acquisition Limited, or Wealthbridge,
was incorporated as a blank check company on May 2, 2018, under the laws of the British Virgin Islands, for the purpose of entering
into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination
with one or more businesses or entities, which we refer to as a “target business.” Wealthbridge’s efforts to
identify a prospective target business were not be limited to any particular industry or geographic location.
Wealthbridge completed its IPO on February
8, 2019 of 5,000,000 units, with each unit consisting of one Ordinary Share, no par value, one redeemable Warrant and one Right
to receive one-tenth of an ordinary share upon consummation of an initial business combination. Simultaneous with the consummation
of the IPO, we consummated the private placement of 247,500 Private Placement Units at a price of $10.00 per Private Placement
Unit, generating total proceeds of $2,475,000. The Private Placement Units were purchased by Wealthbridge’s sponsor. The
underwriters in the IPO exercised the over-allotment option and on February 20, 2019, the underwriters purchased 750,000 over-allotment
option Units, which were sold at an offering price of $10.00 per Unit, generating gross proceeds of $7,500,000. Simultaneously
with the sale of the over-allotment Units, Wealthbridge consummated the private sale of an additional 22,500 Private Units to its
sponsor, generating gross proceeds of $225,000.
After deducting the
underwriting discounts and commissions and the offering expenses, a total of $57,500,000 was deposited into a trust account established
for the benefit of Wealthbridge’s public shareholders, and the remaining proceeds became available to be used to provide
for business, legal and accounting due diligence on prospective business combinations and continuing general and administrative
expenses. As of December 31, 2019, we have approximately $11,600 of unused net proceeds that were not deposited into the trust
fund to pay future general and administrative expenses. The net proceeds deposited into the trust fund remain on deposit in the
trust fund earning interest. As of December 31, 2019, there was $58,588,138 held in the trust fund (including approximately $1,088,000
of interest income and unrealized gains, which we can withdraw to pay taxes, and $2,012,500 of deferred underwriting compensation). On
April 10, 2020, Wealthbridge and Chardan entered into a deferred underwriting fee agreement pursuant to which Chardan will receive
shares equal to the total amount of deferred underwriting fee divided by the effective conversion price. The effective conversion
price is defined as the volume weighted average price (VWAP) of Wealthbridge’s rights from the date of the mailing of this
proxy statement to the date of the Extraordinary General Meeting, multiplied by 10. For purpose of preparing the pro forma adjustment,
the effective conversion price was assumed to be $4.30, which is based on the VWAP of the rights for the 30 days ended April 7,
2020, which would result in the issuance of 468,023 ordinary shares.
Wealthbridge’s units, shares, warrants
and rights are each quoted on the Nasdaq Stock Market, under the symbols “HHHHU,” “HHHH,” “HHHHW”
and “HHHHR,” respectively. Each of Wealthbridge’s units consist of one ordinary share, one redeemable warrant
to purchase one-half of one share, and one right to receive one-tenth (1/10) of an ordinary share upon the consummation of an initial
business combination. Wealthbridge’s units commenced trading on February 5, 2019. Wealthbridge’s shares, warrants and
rights commenced trading on March 7, 2019.
Scienjoy Inc.
Scienjoy Inc.
3rd Floor, JIA No. 34, Shenggu Nanli
Chaoyang District
Beijing, P.R. China 100029
Attn: Xiaowu He
Telephone: (86) 186-1093-2235
Scienjoy is a leading
provider of mobile live streaming platforms in China and focuses on interactive show live streaming from broadcasters to users.
It has approximately 33.8 million active users and 34,651 active show broadcasters for the year ended December 31, 2019. As of
December 31, 2019, Scienjoy had approximately 200.4 million registered users. Scienjoy operates primarily on three primary platforms
(Showself Live Streaming, Lehai Live Streaming. and Haixiu Live Streaming), each using Scienjoy’s own mobile applications,
and has created a vibrant, interactive, and close community in which users can interact directly with broadcasters and other users.
While users have free
access to all real time video rooms, revenue is primarily generated through sales of Scienjoy’s virtual currency. Users can
purchase virtual currency on Scienjoy’s platforms and can use such virtual currency to buy virtual items for broadcasters
to show their support. Scienjoy shares revenues generated on the platforms with talents agencies, which in turn share revenues with
broadcasters.
Among other competitive
strength, Scienjoy adopts a multi-platform live streaming strategy, uses big data analysis to understand market trend and users’
preferences, and offers innovative product features designed to improve the user experience, such as a range of online games for
users while watching live streaming. Scienjoy’s business objective is to further strengthen its position in the mobile show
live streaming industry and to leverage its existing position to expand its business into other related industries in China and
overseas markets.
The following diagram
illustrates Scienjoy’s corporate structure as of the date of this proxy statement. Unless otherwise indicated,
equity interests depicted in this diagram are held 100%. The relationship between WFOE and Zhihui Qiyuan as illustrated in this
diagram are governed by contractual arrangements and do not constitute equity ownership.
The Business Combination and Share Exchange Agreement
Post -Business Combination Share Ownership
After the Business Combination, assuming no redemptions of ordinary
shares for cash, Wealthbridge’s current public shareholders will own approximately 22.2% of Wealthbridge, Wealthbridge’s
current directors, officers and affiliates will own approximately 6.1% of Wealthbridge, and the Sellers, i.e., Lavacano and WBY,
will collectively own approximately 68.2% of Wealthbridge. We will be a “controlled company’’ as defined under
the Nasdaq Stock Market Rules because Lavacano, one of the two Sellers, will control more than 50% of our voting rights. Assuming
redemption by holders of 4,778,111 of Wealthbridge’s ordinary shares, Wealthbridge public shareholders will own approximately
6.5% of Wealthbridge, Wealthbridge’s current directors, officers and affiliates will own approximately 7.3% of Wealthbridge,
and the Sellers will own approximately 82.0% of Wealthbridge. Upon consummation of the Business Combination, Scienjoy will be a
wholly-owned subsidiary of Wealthbridge. Lavacano may distribute its shares of Wealthbridge to its two shareholders in the future.
The following diagram illustrates the Company’s shareholding structure after the Business Combination.
In
addition, after the Business Combination and following the determination that the combined company qualifies as a Foreign
Private Issuer, we expect to adopt a dual-class share structure which will result in further
concentration of Lavacano’s control over Wealthbridge. See “Other Agreements Relating to the Business Combination—Voting
Agreement,” “Risk Factors—Relating to the Business Combination,” and “Directors, Executive Officers,
Executive Compensation and Corporate Governance—Controlled Company” below for more detailed information.
Management
Effective as of the closing date, the
board of directors of Wealthbridge will consist of seven members. The members designated by Oriental Holdings Limited (“Oriental”),
Wealthbridge’s designee, will include Yongsheng Liu and Jining Li, and the members designated by the Sellers will include
Xiaowu He, Bo Wan, Huifeng Chang, Jian Sun, and Yibing Liu. Xiaowu He will be the Chief Executive Officer of Wealthbridge after
the consummation of the Business Combination. See “Directors and Executive Officers after the Business Combination”
elsewhere in this proxy statement for additional information.
The Share Exchange Agreement
On October 28, 2019, Wealthbridge, the
Sellers, and Scienjoy Inc. entered into the Share Exchange Agreement, pursuant to which Wealthbridge will purchase from the Sellers
all of the issued and outstanding shares and other equity interests in and of Scienjoy. See “The Share Exchange Agreement
— Business Combination with Scienjoy; Business Combination Consideration” for more detailed information.
Upon the closing of the transactions contemplated
in the Share Exchange Agreement, Wealthbridge will acquire 100% of the issued and outstanding securities of Scienjoy, in exchange
for approximately 16.4 million ordinary shares of Wealthbridge, among which 1.64 million ordinary shares of Wealthbridge are to
be issued and held in escrow to satisfy any indemnification obligations of the Sellers. The Sellers are also entitled to receive
an additional 3,000,000 ordinary shares of Wealthbridge at the closing because Scienjoy’s net income before tax for the year
ended December 31, 2019 is RMB 156,540,470, greater than the Earnout 1 Target (as defined in the Share Exchange Agreement). Additionally,
the Sellers may be entitled to receive additional earnout shares as follows: (1) if Scienjoy’s net income before tax for
the year ended December 31, 2020 is greater than or equal to either US$28,300,000 or RMB 190,000,000, the Sellers will be entitled
to receive 3,000,000 ordinary shares of Wealthbridge (subject to the reclassification of the ordinary shares of Wealthbridge as
described in more details under Section “Voting Agreement” below); and (2) if Scienjoy’s net income before tax
for the year ended December 31, 2021 is greater than or equal to either US$35,000,000 or RMB 235,000,000, the Sellers will be entitled
to receive 3,000,000 ordinary shares of Wealthbridge (subject to the reclassification of the ordinary shares of Wealthbridge as
described in more details under Section “Voting Agreement” below).
Notwithstanding the net income before tax
achieved by the post-transaction company for any period, the Sellers will receive (i) 3,000,000 earnout shares if the share price
of Wealthbridge is higher than $20.00 for any sixty days in any period of ninety consecutive trading days between the 13th month
and 24th month following the Closing, and (ii) 3,000,000 earnout shares if the share price of Wealthbridge is higher than $25.00
for any sixty days in any period of ninety consecutive trading between the 25th month and 36th month following the Closing.
In addition, Scienjoy, the Sellers
and Wealthbridge agree to ensure that the minimum remaining amount in our trust account is no less than $10,000,000, after giving
effect to the payments to redeeming shareholders, provided, however, that the reasonable expenses and costs incurred by Wealthbridge,
if any, in connection with such financing shall be borne or reimbursed by Scienjoy. Therefore, this proxy statement assumes that
Wealthbridge shareholders exercise their redemption rights with respect to a maximum of 4,778,111 ordinary shares upon consummation
of the Business Combination at a redemption price of approximately 10.29 per share so that the minimum remaining amount in our
trust account is $10,000,000 after giving effect to the payments to redeeming shareholders. In the event that shareholder redemptions
exceed such amount, we will either be unable to complete our initial business combination, in which case we will be forced to
cease operations and liquidate the trust account, or Scienjoy will have to waive the requirement in order to allow the business
combination to close. In the event that Scienjoy waives such requirement, such waiver will be publicly disclosed in a Current
Report on Form 8-K promptly after the waiver is signed. Wealthbridge will consummate its initial business combination only if
the post business combination net tangible assets of the combined company will be at least $5,000,001.
The obligations of the Sellers and Scienjoy
to consummate the transactions contemplated by the Share Exchange Agreement, in addition to the conditions described above, are
conditioned upon each of the following, among other things:
|
●
|
Wealthbridge complying
with all of its obligations under the Share Exchange Agreement;
|
|
●
|
the representations and
warranties of Wealthbridge being true on and as of the closing date;
|
|
●
|
Wealthbridge filing
with the BVI Registrar of Corporate Affairs the Third Amended and Restated Memorandum
and Articles of Association of Wealthbridge in the form included in the Proxy Statement
and approved at the Extraordinary General Meeting; and
|
|
●
|
there having been no material
adverse effect to Wealthbridge;
|
The obligations of Wealthbridge
to consummate the transactions contemplated by the Share Exchange Agreement, in addition to the conditions described above in the
first paragraph of this section, are conditioned upon each of the following, among other things:
|
●
|
Scienjoy complying with all of its obligations under the Share Exchange Agreement;
|
|
●
|
the representations and warranties of Scienjoy being true on and as of the closing date of the
acquisition and Scienjoy complying with all required covenants in the Share Exchange Agreement;
|
|
●
|
there having been no material adverse effect to Scienjoy’s business; and
|
|
●
|
Wealthbridge receiving a legal opinion from Scienjoy’s counsel in the PRC and Cayman Islands.
|
See “The Share Exchange Agreement
— Conditions to Closing” for more details.
Other Agreements Relating to the Business Combination
Escrow Agreement
In connection with the Business Combination,
Wealthbridge, the Sellers and an escrow agent will enter into an Escrow Agreement pursuant to which Wealthbridge will deposit 1.64
million of its ordinary shares, representing 10% of the aggregate amount of shares to be issued to the Sellers pursuant to the
Business Combination, to secure the indemnification obligations of the Sellers as contemplated by the Share Exchange Agreement.
The form of Escrow Agreement that was attached as an exhibit to the Share Exchange Agreement is attached to this proxy statement
as Annex C.
Registration Rights Agreement
In connection with the Business
Combination, Wealthbridge and the Sellers will enter into a Registration Rights Agreement to provide for the registration of
the ordinary shares being issued to the Sellers in connection with the Business Combination. The Sellers will be entitled to
(i) make a written demand for registration under the Securities Act of all or part of the closing payment shares (up to a
maximum of two demands in total), and (ii) “piggy-back” registration rights with respect to registration
statements filed following the consummation of the Business Combination. Wealthbridge will bear the expenses incurred in
connection with the filing of any such registration statements. The form of Registration Rights Agreement that was attached
as an exhibit to the Share Exchange Agreement is attached to this proxy statement as Annex D.
Voting Agreement
In connection with the Business Combination,
Wealthbridge, Oriental, and the Sellers will enter into a six year Voting Agreement, which will provide that, (i) after the closing
of the Business Combination and as promptly as practicable following the determination that the combined company qualifies as a
Foreign Private Issuer, each voting party agrees to vote to reclassify the Wealthbridge ordinary shares into class A and class
B ordinary shares and convert a certain amount of class A ordinary shares to class B ordinary shares, as described in Section 9.8
of the Share Exchange Agreement; and (ii) the Sellers will have the right to designate five (5) persons that the parties to the
Voting Agreement must vote in favor of in connection with an election of directors and Oriental will have the right to designate
two (2) directors that the parties to the Voting Agreement must vote in favor of in connection with an election of directors. The
form of Voting Agreement that was attached as an exhibit to the Share Exchange Agreement is attached to this proxy statement as
Annex E.
Lock-Up Agreements
In connection with the Business Combination,
Wealthbridge will enter into a Lock-Up Agreement with each Seller, which will provide that each Seller will not, within 365 calendar
days from the Closing of the Business Combination, offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly,
any of the shares issued in connection with the Business Combination, enter into a transaction that would have the same effect,
or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership
of such shares, whether any of these transactions are to be settled by delivery of any such shares, in cash, or otherwise. However,
the Sellers will be allowed to transfer any of the lock-up shares (other than the escrow shares while they are held in the escrow
account) under the situations specified in the respective Lock-up Agreement.
Recommendations of the Boards of Directors and Reasons for
the Business Combination
After careful consideration of the
terms and conditions of the Share Exchange Agreement, the board of directors of Wealthbridge has determined that Business Combination
and the transactions contemplated thereby are fair to and in the best interests of Wealthbridge and its shareholders. In reaching
its decision with respect to the Business Combination and the transactions contemplated thereby, the board of directors of Wealthbridge
reviewed various industry and financial data and the due diligence and evaluation materials provided by Scienjoy. The board of
directors of Wealthbridge did not obtain a formal fairness opinion regarding the amount of consideration to be paid from an unaffiliated
third party financial advisor, on which to base its assessment, although it did receive advice about the consideration to be paid
to Scienjoy from Chardan Capital Markets LLC. According to Chardan, the valuation offered by Scienjoy, compared to the valuation
of the two most direct comparable companies, is favorable to Wealthbridge. Wealthbridge’s board of directors recommends
that Wealthbridge shareholders vote:
|
●
|
FOR the Business Combination Proposal;
|
|
●
|
FOR the Amendment Proposal;
|
|
●
|
FOR the Nasdaq Proposal; and
|
|
●
|
FOR the Business Combination Adjournment Proposal.
|
Interests of Certain Persons in the Business Combination
When you consider the recommendation of
Wealthbridge’s board of directors in favor of adoption of the Business Combination Proposal and other Proposals, you should
keep in mind that Wealthbridge’s directors and officers have interests in the Business Combination that are different from,
or in addition to, your interests as a shareholder, including:
|
●
|
If the proposed Business Combination is not completed by the date that is 15 months from the closing of the IPO, or May 8, 2020, or 21 months from the closing of the IPO, or November 8, 2020, if we further extend the period of time to consummate a business combination, we will be required to voluntarily liquidate and subsequently dissolve. In such event, the 1,437,500 ordinary shares held by Wealthbridge’s initial shareholders, which were acquired prior to the IPO for an aggregate purchase price of $25,100, and the ordinary shares, warrants, and the rights included as part of the 247,500 private units issued to our sponsor simultaneously with the consummation of the IPO, as well as the 22,500 private units issued to our sponsor in connection with the sale of the over-allotment units, will be worthless. Such ordinary shares had an aggregate market value of approximately $14,863,750 based on the closing price of Wealthbridge’s ordinary shares of $10.34 on the Nasdaq Stock Market as of April 9, 2020, such rights had an aggregate market value of approximately $113,400 based on the closing price of Wealthbridge’s rights of $0.42 on the Nasdaq Stock Market as of April 9, 2020, such warrants had an aggregate market value of approximately $16,200 based on the closing price of Wealthbridge’s warrants of $0.06 on the Nasdaq Stock Market as of April 9, 2020. and such units had an aggregate market value of approximately $2,948,400 based on the closing price of Wealthbridge’s units of $10.92 on the Nasdaq Stock Market as of April 9, 2020.
|
|
●
|
Unless Wealthbridge consummates the Business Combination, its officers, directors and initial shareholders
will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceeded the amount
of its working capital. As a result, the financial interest of Wealthbridge’s officers, directors and initial shareholders
or their affiliates could influence its officers’ and directors’ motivation in selecting Scienjoy as a target and therefore
there may be a conflict of interest when it determined that the Business Combination is in the shareholders’ best interest.
|
|
●
|
In addition, the exercise of Wealthbridge’s directors’ and officers’ discretion
in agreeing to changes or waivers in the terms of the transaction may result in a conflict of interest when determining whether
such changes or waivers are appropriate and in our shareholders’ best interest.
|
Certain Developments
Voting Securities
As of April 9, 2020, there were 7,475,000
ordinary shares of Wealthbridge issued and outstanding. Only Wealthbridge shareholders who hold ordinary shares of record as of
the close of business on April 9, 2020 are entitled to vote at the extraordinary general meeting of shareholders or any adjournment
of the extraordinary general meeting. Approval of the Business Combination Proposal, the Amendment Proposal, the Nasdaq Proposal,
and the Business Combination Adjournment Proposal will require the affirmative vote of the holders of a majority of the issued
and outstanding ordinary shares of Wealthbridge present and entitled to vote at the extraordinary general meeting. Attending the
extraordinary general meeting either in person or by proxy and abstaining from voting will have the same effect as voting against
all the proposals and, assuming a quorum is present, broker non-votes will have no effect on the Proposals.
As of April 9, 2020, Wealthbridge’s initial shareholders,
either directly or beneficially, owned and were entitled to vote 1,707,500 ordinary shares, or approximately 22.90% of Wealthbridge’s
outstanding ordinary shares. With respect to the Business Combination, Wealthbridge’s initial shareholders have agreed to
vote their respective Wealthbridge ordinary shares acquired by them in favor of the Business Combination Proposal and related Proposals.
They have indicated that they intend to vote their shares, as applicable, “FOR” each of the other Proposals although
there is no agreement in place with respect to these Proposals.
Appraisal Rights
Holders of Wealthbridge ordinary shares
are not entitled to appraisal rights under the British Virgin Islands Law.
Emerging Growth Company
Wealthbridge is an “emerging growth
company,” as defined in the Jumpstart Our Business Startups Act (or JOBS Act). It is anticipated that after the consummation
of the transactions, Wealthbridge will continue to be an “emerging growth company.” As an emerging growth company,
Wealthbridge will be eligible to take advantage of certain exemptions from various reporting requirements that are applicable to
other public companies that are not emerging growth companies. These include, but are not limited to, not being required to comply
with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding
executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and the requirement to obtain shareholder approval of any golden parachute payments not
previously approved.
Further, Section 102(b)(1) of the JOBS
Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private
companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of
securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The
JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply
to non-emerging growth companies but any such an election to opt out is irrevocable. Wealthbridge has elected not to opt out of
such extended transition period, which means that when a standard is issued or revised and it has different application dates for
public or private companies, Wealthbridge, as an emerging growth company, will not adopt the new or revised standard until the
time private companies are required to adopt the new or revised standard. This may make comparison of Wealthbridge’s financial
statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted
out of using the extended transition period difficult or impossible because of the potential differences in accountant standards
used.
Wealthbridge could remain an emerging growth
company until the last day of its fiscal year following February 8, 2024 (the fifth anniversary of the consummation of its initial
public offering). However, if Wealthbridge’s non-convertible debt issued within a three-year period or its total revenues
exceed $1.07 billion or the market value of its shares of ordinary shares that are held by non-affiliates exceeds $700 million
on the last day of the second fiscal quarter of any given fiscal year, Wealthbridge would cease to be an emerging growth company
as of the following fiscal year.
Anticipated Accounting Treatment
The Business Combination will be accounted for as a reverse
merger in accordance with U.S. GAAP. Under this method of accounting, Wealthbridge will be treated as the “acquired”
company for financial reporting purposes. This determination was primarily based on the holders of Scienjoy expecting to have a
majority of the voting power of the post-combination company, Scienjoy senior management comprising substantially all of the senior
management of the post-combination company, the relative size of Scienjoy compared to Wealthbridge, and Scienjoy operations comprising
the ongoing operations of the post-combination company. Accordingly, for accounting purposes, the Business Combination will be
treated as the equivalent of Scienjoy issuing stock for the net assets of Wealthbridge, accompanied by a recapitalization. The
net assets of Wealthbridge will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations
prior to the Business Combination will be those of Scienjoy.
Regulatory Approvals
The Business Combination and the other
transactions contemplated by the Share Exchange Agreement are not subject to any additional federal or state regulatory requirements
or approvals, including the Hart-Scott Rodino Antitrust Improvements Act of 1976, except for filings with the Registrar of the
British Virgin Islands necessary to effectuate the transactions contemplated by the Share Exchange Agreement.
SCIENJOY INC. SUMMARY FINANCIAL INFORMATION
The data below for the years ended
December 31, 2017, 2018 and 2019 has been derived from Scienjoy’s audited consolidated financial statements for such years,
which are included in this proxy statement. Scienjoy’s consolidated financial statements are prepared and presented in accordance
with U.S. GAAP.
Scienjoy’s historical results are not necessarily indicative
of results to be expected for any future period. The information is only a summary and should be read in conjunction with Scienjoy’s
consolidated financial statements and related notes, and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations of Scienjoy Inc.” contained elsewhere herein. The historical results included below and elsewhere
in this proxy statement are not indicative of the future performance of Scienjoy or Wealthbridge.
Summary Combined and Consolidated Statements
of Income
(Amounts in thousands of Renminbi
(“RMB”) and US dollars (“US$”)
|
|
For the years ended December
31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Live streaming - consumable virtual items revenue
|
|
¥
|
803,190
|
|
|
¥
|
716,561
|
|
|
¥
|
884,385
|
|
|
$
|
127,034
|
|
Live streaming - time based virtual item revenue
|
|
|
33,331
|
|
|
|
26,432
|
|
|
|
26,812
|
|
|
|
3,851
|
|
Technical services
|
|
|
83
|
|
|
|
25
|
|
|
|
3,429
|
|
|
|
493
|
|
Total revenue
|
|
|
836,604
|
|
|
|
743,018
|
|
|
|
914,626
|
|
|
|
131,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
(654,332
|
)
|
|
|
(594,084
|
)
|
|
|
(720,637
|
)
|
|
|
(103,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
182,272
|
|
|
|
148,934
|
|
|
|
193,989
|
|
|
|
27,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
(3,240
|
)
|
|
|
(5,005
|
)
|
|
|
(3,804
|
)
|
|
|
(546
|
)
|
General and administrative expenses
|
|
|
(10,869
|
)
|
|
|
(16,265
|
)
|
|
|
(11,957
|
)
|
|
|
(1,717
|
)
|
Research and development expenses
|
|
|
(10,610
|
)
|
|
|
(10,957
|
)
|
|
|
(21,523
|
)
|
|
|
(3,092
|
)
|
Provision (recovery) for doubtful accounts
|
|
|
508
|
|
|
|
(6,826
|
)
|
|
|
(854
|
)
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
158,061
|
|
|
|
109,881
|
|
|
|
155,851
|
|
|
|
22,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,686
|
|
|
|
1,444
|
|
|
|
1,005
|
|
|
|
144
|
|
Other income (loss), net
|
|
|
3,235
|
|
|
|
31
|
|
|
|
(310
|
)
|
|
|
(45
|
)
|
Foreign exchange gain (loss), net
|
|
|
(21
|
)
|
|
|
11
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
162,961
|
|
|
|
111,367
|
|
|
|
156,541
|
|
|
|
22,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
(6,217
|
)
|
|
|
(4,627
|
)
|
|
|
(6,623
|
)
|
|
|
(951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥
|
156,744
|
|
|
¥
|
106,740
|
|
|
¥
|
149,918
|
|
|
$
|
21,534
|
|
Summary Combined and Consolidated Balance
Sheet
(Amounts in thousands of Renminbi
(“RMB”) and US dollars (“US$”)
|
|
As of December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Cash and cash equivalents
|
|
¥
|
129,447
|
|
|
¥
|
65,294
|
|
|
¥
|
137,351
|
|
|
$
|
19,729
|
|
Accounts receivable, net
|
|
|
243,500
|
|
|
|
221,377
|
|
|
|
120,110
|
|
|
|
17,253
|
|
Total current assets
|
|
¥
|
437,298
|
|
|
¥
|
348,301
|
|
|
¥
|
269,525
|
|
|
$
|
38,715
|
|
Long term investment
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
|
|
718
|
|
Long term deposits and other assets
|
|
|
2,570
|
|
|
|
2,504
|
|
|
|
2,761
|
|
|
|
397
|
|
Total non-current assets
|
|
|
4,734
|
|
|
|
3,944
|
|
|
|
10,473
|
|
|
|
1,505
|
|
TOTAL ASSETS
|
|
¥
|
442,032
|
|
|
¥
|
352,245
|
|
|
¥
|
279,998
|
|
|
$
|
40,220
|
|
Accounts payable
|
|
|
63,455
|
|
|
|
81,699
|
|
|
|
27,163
|
|
|
$
|
3,903
|
|
Amounts due to related parties
|
|
|
26,097
|
|
|
|
130,687
|
|
|
|
8,482
|
|
|
|
1,218
|
|
Deferred revenue
|
|
|
56,315
|
|
|
|
38,402
|
|
|
|
40,288
|
|
|
|
5,787
|
|
Total current liabilities
|
|
¥
|
157,145
|
|
|
¥
|
295,309
|
|
|
¥
|
105,472
|
|
|
$
|
15,151
|
|
Total shareholder’s equity
|
|
¥
|
284,887
|
|
|
¥
|
56,936
|
|
|
¥
|
174,526
|
|
|
$
|
25,069
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
¥
|
442,032
|
|
|
¥
|
352,245
|
|
|
¥
|
279,998
|
|
|
$
|
40,220
|
|
Summary Combined and Consolidated Cash
Flow Data
(Amounts in thousands of Renminbi
(“RMB”) and US dollars (“US$”)
|
|
For the years ended December
31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Net cash provided by operating activities
|
|
¥
|
169,788
|
|
|
¥
|
107,286
|
|
|
¥
|
228,886
|
|
|
$
|
32,877
|
|
Net cash used in investing activities
|
|
|
(691
|
)
|
|
|
(553
|
)
|
|
|
(5,457
|
)
|
|
|
(784
|
)
|
Net cash used in financing activities
|
|
|
(66,157
|
)
|
|
|
(170,886
|
)
|
|
|
(151,372
|
)
|
|
|
(21,743
|
)
|
Net (decrease) increase in cash and cash equivalents
|
|
|
102,940
|
|
|
|
(64,153
|
)
|
|
|
72,057
|
|
|
|
10,350
|
|
Cash and cash equivalents at beginning of the year
|
|
|
26,507
|
|
|
|
129,447
|
|
|
|
65,294
|
|
|
|
9,379
|
|
Cash and cash equivalents at end of the year
|
|
¥
|
129,447
|
|
|
¥
|
65,294
|
|
|
¥
|
137,351
|
|
|
$
|
19,729
|
|
TRADING
MARKET AND DIVIDENDS
Wealthbridge’s
units, shares, warrants and rights are each quoted on the Nasdaq Stock Market, under the symbols “HHHHU,” “HHHH,”
“HHHHW,” and “HHHHR,” respectively. Each of Wealthbridge’s units consist of one ordinary share, one
redeemable warrant, and one right to acquire 1/10 of an ordinary share of Wealthbridge. Wealthbridge’s units commenced trading
on February 5, 2019. Wealthbridge’s shares, warrants and rights commenced trading on March 7, 2019.
Wealthbridge has not
paid any cash dividends on its ordinary shares to date and does not intend to pay cash dividends prior to the completion of a business
combination. The payment of cash dividends in the future will be dependent upon Wealthbridge’s revenues and earnings, if
any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any
dividends subsequent to a business combination will be within the discretion of its then board of directors. It is the present
intention of Wealthbridge’s board of directors to retain all earnings, if any, for use in its business operations and, accordingly,
Wealthbridge’s board does not anticipate declaring any dividends in the foreseeable future.
Scienjoy’s securities
are not publicly traded.
RISK FACTORS
You should consider
carefully the following risk factors, as well as the other information set forth in this proxy statement, before making a decision
on the Business Combination.
Risks
Factors Relating to Scienjoy’s Business and Industry
Scienjoy may fail to retain its existing users, keep them
engaged or further grow its user base.
Scienjoy’s revenue primarily derives
from live streaming services, and therefore Scienjoy’s ability to maintain and increase the size of its user base and user
engagement level is critical to its success. If Scienjoy’s user base becomes smaller or its users become less active, it
is probable that there would be less spending on the virtual gifts on Scienjoy’s platforms. Smaller user base or lower user engagement would make it difficult to retain top broadcasters.
Consequently, the financial condition of Scienjoy would suffer a decline in revenue and Scienjoy’s business and results of
operations will be materially and adversely impacted.
To continue to maintain and improve
its existing user base and user engagement, Scienjoy must ensure that Scienjoy adequately and timely identifies and responds to
changes in user preferences, attract and retain enough popular broadcasters, and offer new and attractive features and content.
There is no guarantee that Scienjoy could meet all of these goals. A number of factors could negatively affect user growth, and
engagement, including if:
|
●
|
Scienjoy fails to deliver its services or address users’ requests in a rapid and reliable
manner and therefore the user experience is adversely affected;
|
|
●
|
Scienjoy fails to innovate the content on its platforms that keeps users interested and engaged;
|
|
●
|
Scienjoy fails to retain popular broadcasters who are able to keep users engaged;
|
|
●
|
Scienjoy is unable to combat spam on, or inappropriate or abusive use of, its platforms, which may lead to negative public perception
of Scienjoy and its brand;
|
|
●
|
Scienjoy fails to address users’ concerns related to privacy and communication, safety, security or other factors;
|
|
●
|
there are adverse changes in Scienjoy’s services; and
|
|
●
|
the growth of the number of mobile users in China does not continue to increase.
|
Scienjoy’s revenue growth is
primarily dependent on paying users and revenue per paying user. If Scienjoy fails to continue to grow or maintain its paying user
base or fails to continue to increase revenue per paying user, its live streaming revenue may not increase, which may materially
and adversely affect its results of operations and financial condition.
Whether Scienjoy can continue to increase
its paying ratio amongst its users or revenue per paying user depends on many factors, and many of them are out of its control. Scienjoy expects that its business will continue to be heavily dependent on revenue collected from paying users in the
near future. Any decline in the number of paying users or revenue per paying user may materially and adversely affect Scienjoy’s
results of operations and financial condition.
Scienjoy relies on a single monetization
model.
Mobile live streaming platforms use
three basic categories of revenue sharing models to monetize their live streaming operations: gift model, advertise model,
and shopping model. Scienjoy currently mainly uses the gift model, generating its revenue from virtual gifts purchased by its
users. Although Scienjoy intends to diversify its revenue sharing models, such as by generating revenue from advertisement,
there is no guarantee Scienjoy will succeed. Therefore, decreases in revenues generated from the gift model will materially
and adversely affect Scienjoy’s business, results of operations and financial condition.
Scienjoy may fail to offer attractive
content on its platforms.
High quality live streaming content is
important for Scienjoy to attract, maintain and increase its user base and user engagement. Scienjoy’s content library is
constantly evolving and growing. However, if Scienjoy fails to expand and diversify its content offerings, identify trending and
popular genres, or maintain the quality of its content, Scienjoy may experience decreasing viewership and user engagement, which
may materially and adversely affect its financial conditions and results of operations.
In addition, Scienjoy largely relies on
its broadcasters to create high-quality and fun live streaming content. Scienjoy has in place a comprehensive incentive
mechanism to encourage broadcasters and talent agencies to supply content that is attractive to viewers. Also, talent agencies
cooperating with Scienjoy may guide or influence broadcasters to develop content that is well received by viewers. However,
if Scienjoy fails to identify the latest trends and timely guide broadcasters and talent agencies accordingly, its viewer number
may decline and its results of operations and financial condition may be materially and adversely affected.
Failure to attract, cultivate, and
retain top broadcasters may materially and negatively affect Scienjoy’s user engagement and thus its business and operations.
The majority of Scienjoy’s
revenue is from sale of virtual gifts to users. The charisma and the high-quality content of top broadcasters are primary
contributors to user stickiness, and is difficult to be replicated by other less popular broadcasters.
Although Scienjoy has made efforts
to support top broadcasters in order to retain them, there is no guarantee that they will choose to stay with Scienjoy.
Top broadcasters tend to receive more offers with attractive terms than the other broadcasters and some of them may choose to
move to other platforms. Their departure may cause a corresponding decline in Scienjoy’s user base.
Periodically, Scienjoy may face legal disputes
with competing platforms from which Scienjoy attracts some top broadcasters. Although Scienjoy is not the primary target of these
legal disputes, broadcasters involved may be subject to fines or even injunctions, which may render Scienjoy’s investment
in recruiting them meaningless. Conversely, some of Scienjoy’s top broadcasters have left Scienjoy platforms for competing
platforms despite still being in a contractual relationship with Scienjoy, which have raised legal disputes. Even if Scienjoy
prevails in all such legal disputes, the departures of any top broadcaster may still have a negative impact on user engagement
and reputation. To retain top broadcasters, Scienjoy must devise better compensation schemes, improve its monetization capabilities,
and help the top broadcasters reach a wider audience. Although Scienjoy strives to improve in these respects, there is no guarantee
that the broadcasters will not leave Scienjoy platforms.
In terms of broadcaster cultivation, Scienjoy
cannot guarantee that the performance metrics Scienjoy uses to track promising broadcasters will enable Scienjoy to identify future
top broadcasters. Some of the broadcasters Scienjoy identifies as promising may turn out to be underperforming, and Scienjoy may
also fail to spot truly promising broadcasters in the early stages of their career. In addition to a waste of resources, either
one of these scenarios could prevent Scienjoy from cultivating top broadcasters, which could weaken its core competitive strength
against competing platforms and thus cause an outflow of users to those platforms.
If Scienjoy fails to implement an
effective revenue sharing fee policy, it may lose its broadcasters and its results of operations and financial condition may be
materially and negatively affected.
Scienjoy pays revenue sharing fees to
the broadcasters and talent agencies as compensation, which are determined based on a percentage of revenue from virtual gift
sales that are attributed to the broadcasters’ live streaming performance. Failure to implement a satisfactory revenue
sharing fee policy may result in undesired departures of broadcasters. For example, in 2017 and 2018 Scienjoy lowered its
revenue sharing percentage for its broadcasters, resulting in departures of a large number of its broadcasters from
Scienjoy’s platforms. As a result, Scienjoy’s revenue was adversely affected. Since then, Scienjoy adjusted its
revenue sharing fee policy to increase the sharing percentage for broadcasters. However, there is no guarantee that
Scienjoy’s current and future revenue sharing fee policy will keep its broadcasters satisfied over an extended period
of time.
Scienjoy partners with various talent
agencies to manage its broadcasters. If Scienjoy is not able to maintain its relationship with talent agencies, its operations
may be materially and adversely affected.
Scienjoy works with talent agencies to
manage and organize broadcasters on its platforms. Cooperation with talent agencies increases Scienjoy’s operational efficiency
in terms of discovering, supporting, and managing broadcasters in a more organized and structured manner, and turning amateur broadcasters
into full-time broadcasters. If Scienjoy fails to maintain its relationship with many of the talent agencies Scienjoy is currently
working with, Scienjoy may not be able to retain or attract broadcasters.
Failure to effectively manage the
growth of Scienjoy and control its periodic spending to maintain such growth may materially and adversely affect Scienjoy’s
brand, and its business and results of operations may be materially and adversely affected.
Scienjoy’s rapid growth has placed, and continues to place, a significant strain on its management and resources. Scienjoy may need to establish and expand
its capacities in all aspects of its business, such as operations, research and development, sales and marketing, and general
administration, in order to meet the increasing needs from a rapidly evolving market. Scienjoy cannot assure you that its current
level of growth will be sustainable. Scienjoy believes that its continued growth will depend on
its ability to attract and retain viewers and top broadcasters, to develop an infrastructure to service and support an expanding
body of viewers and broadcasters, to explore new monetization avenues, and to convert non-paying users to paying users and increase
user engagement levels. Scienjoy cannot assure you that Scienjoy will be successful in any of the above.
Scienjoy expects its costs and expenses
to continue to increase in the future as Scienjoy anticipates that Scienjoy will need to continue to implement, from time to time,
a variety of new and upgraded operational, informational and financial systems, procedures and controls on an as-needed basis,
including the continued improvement of its accounting and other internal management systems. Scienjoy will also need to expand,
train, manage and motivate its workforce and manage its relationships with viewers, talent agencies, broadcasters, and other business
partners. All of these endeavors involve risks and will require substantial management efforts and skills and significant additional
expenditures. Scienjoy expects to continue to invest in its infrastructure in order to provide its services rapidly and reliably
to viewers and broadcasters. Continued growth could end up straining Scienjoy’s ability to maintain reliable service levels
for all of its viewers and broadcasters, to develop and improve its operational, financial, legal and management controls, and
to enhance its reporting systems and procedures. Managing the growth of Scienjoy will require significant expenditures and the
allocation of valuable management resources. If Scienjoy fails to achieve the necessary level of efficiency in its organization
as Scienjoy grows, its business, results of operations, and financial condition could be harmed.
Scienjoy may fail to successfully
implement its monetization strategies.
Scienjoy’s streaming platforms are
free to access, and Scienjoy generates revenues primarily from live streaming and sales of virtual gifts. As a result, Scienjoy’s
revenue is affected by its ability to increase user engagement and convert non-paying users into paying users, which in turn depends
on its ability to retain quality broadcasters, innovate attractive content, and offer virtual gifts and other services. If Scienjoy
is not successful in enhancing its ability to monetize its existing services or developing new approaches to monetization, Scienjoy
may not be able to maintain or increase its revenues and profits or recover any associated costs. Scienjoy monitors market developments
and may adjust its monetization strategies accordingly from time to time, which may result in decreases of its overall revenue
or revenue contributions from some monetization channels. In addition, Scienjoy may in the future introduce new services to diversify
its revenue streams, including services with which Scienjoy has little or no prior development or operating experience. If these
new or enhanced services fail to engage customers or platform partners, Scienjoy may fail to generate sufficient revenues to justify
its investments, and its business and operating results and financial condition may suffer as a result.
Scienjoy’s past growth may
not be indicative of its future performance due to Scienjoy’s limited operation history with a relatively new business model
in a relatively new market.
Scienjoy commenced business
operations in 2012 and has experienced growth in the number of active and paying users and total revenue since 2014 (despite a decline in 2017 and 2018 due to Scienjoy’s
lowering its revenue sharing percentage for its broadcasters).
However, Scienjoy’s past growth may not be indicative of its future performance, as the markets for Scienjoy’s
live streaming platforms and the related products and services are relatively new and rapidly developing. Scienjoy must adapt
itself to overcome challenges in a constantly evolving new market, especially in terms of converting non-paying users to
paying users, maintaining a stable paying user base and attracting new paying users. Scienjoy’s business plan relies
heavily upon an expanding user base and the resulting increased revenue from live streaming, as well as its ability to
explore other monetization avenues. However, Scienjoy’s past experience and performance would not guarantee any future
success of Scienjoy if Scienjoy is not able to adapt rapidly to the evolving market.
As live streaming industry in China is
relatively young, there are few proven methods of projecting user demand or available industry standards on which Scienjoy can
rely. Currently Scienjoy derives its revenue primarily from sales of virtual gifts on its platforms. Although Scienjoy intends
to expand its monetization avenue, Scienjoy cannot assure you that its attempts to monetize its viewers and broadcasters will continue
to be successful, profitable or accepted, and therefore the income potential of its business is difficult to gauge.
Scienjoy’s growth prospects should
be considered in light of the risks and uncertainties that fast-growing early-stage companies with limited operating histories
in evolving industries may encounter, including, among others, risks and uncertainties regarding its ability to
|
●
|
develop new virtual gifts that are appealing to users;
|
|
●
|
attract, retain, and cultivate quality broadcasters;
|
|
●
|
maintain stable relationships with talent agencies; and
|
|
●
|
expand to new geographic markets with a suitable environment for the development of live-streaming
business.
|
Addressing these risks and uncertainties
will require significant capital expenditures and allocation of valuable management and employee resources. If Scienjoy fails to
successfully address any of the above risks and uncertainties, the size of its user base, its revenue and operating margin may
decline.
Scienjoy mainly competes with other
established entertainment live streaming platforms. If Scienjoy is unable to compete effectively, its business and operating results
may be materially and adversely affected.
Since running a successful live streaming
platform requires capital outlay and a large team of quality broadcasters who remain in short supply due to the fact
that most have signed contracts with existing platforms, there are high entry barriers for the entertainment live streaming industry.
As a result, Scienjoy’s major competitors are streaming platforms with an established presence in the industry. Scienjoy
must compete with these established players for user traffic and quality broadcasters and the competition remains intense.
In order to remain competitive, Scienjoy
may be required to spend additional resources, which may adversely affect its profitability. Scienjoy believes
that its ability to compete effectively depends upon many factors both within and beyond its control, including:
|
●
|
the popularity, usefulness, ease of use, performance and reliability of its services compared to
those of its competitors, and the research and development abilities of Scienjoy compared to its competitors;
|
|
●
|
its ability to timely respond to and adapt to industry trends, market development and
users’ preferences;
|
|
●
|
Scienjoy’s brand recognition in the market;
|
|
●
|
changes mandated by legislation, regulations or government policies, some of which may have a disproportionate effect on Scienjoy; and
|
|
●
|
acquisitions or consolidation within the industry, which may result in more formidable competitors.
|
Furthermore, if Scienjoy is involved in
disputes with any of its competitors that result in negative publicity to Scienjoy, such disputes, regardless of their veracity
or outcome, may harm Scienjoy’s reputation or brand image and in turn lead to reduced number of viewers and broadcasters.
Scienjoy’s competitors may unilaterally decide to adopt a wide range of measures targeted at it, including approaching its
top broadcasters or attacking its platforms. Any legal proceedings or measures Scienjoy takes in response to competition and disputes
with its competitors may be expensive, time-consuming, and disruptive to its operations and divert its management’s attention.
If Scienjoy fails to compete effectively
against other entertainment medium, its results of operations and financial condition may be materially and adversely affected.
Scienjoy’s users have a vast array
of entertainment choices. Other forms of entertainment, such as traditional PC and console games, online video services, social
media, as well as more traditional mediums such as television, movies, and sports events, are much more well-established in
mature markets and may be perceived by users to offer greater variety, affordability, interactivity, and enjoyment. Scienjoy’s
platforms compete against these other forms of entertainment for discretionary time and spending of its users. If Scienjoy
is unable to sustain sufficient interest of users in its platforms in comparison to other forms of entertainment, including new
forms of entertainment that may emerge in the future, its business model may no longer be viable.
Scienjoy may fail to expand its
business into overseas markets successfully.
Scienjoy’s business objective
includes expanding its business into overseas markets in Southeast Asia, the Middle East and South America. As Scienjoy continues
to expand its international footprint, it will be increasingly susceptible to the risks associated with international operations.
Scienjoy has a limited operating history outside of China and the ability to manage its international operations successfully
requires significant resources and management attention and is subject to particular challenges of supporting a rapidly growing
business in an environment of diverse cultures, languages, customs, legal systems, alternative dispute systems and economic, political
and regulatory systems. In addition, Scienjoy expects to incur significant costs associated with expanding its international operations,
including hiring personnel internationally. The risks and challenges associated with doing business internationally and its international
expansion include:
|
●
|
uncertain political and economic climates;
|
|
●
|
lack of familiarity
and burdens of complying with foreign laws, accounting and legal standards, regulatory
requirements, tariffs and other barriers;
|
|
●
|
unexpected changes in regulatory requirements, taxes,
tariffs, export quotas, custom duties or other trade restrictions;
|
|
●
|
lack of experience
in connection with the localization of Scienjoy’s applications, including translation
into foreign languages and adaptation for local practices, and associated expenses and
regulatory requirements;
|
|
●
|
difficulties in adapting to differing technology standards;
|
|
●
|
difficulties in managing
and staffing international operations, including differing legal and cultural expectations
for employee relationships and increased travel, infrastructure and legal compliance
costs associated with international operations;
|
|
●
|
fluctuations in exchange rates that may increase the
volatility of Scienjoy’s foreign-based revenue and expenses;
|
|
●
|
potentially adverse
tax consequences, including the complexities of foreign value-added tax, goods and services
tax and other transactional taxes;
|
|
●
|
difficulties in managing and adapting to differing
cultures and customs;
|
|
●
|
data privacy laws
which require that customer data be stored and processed in a designated territory subject
to laws different than China;
|
|
●
|
new and different sources of competition as well as
laws and business practices favoring local competitors and local employees;
|
|
●
|
increased financial accounting and reporting burdens
and complexities; and
|
|
●
|
restrictions on the repatriation of earnings.
|
Scienjoy’s business depends
on a strong brand, and any failure to maintain, protect, and enhance its brand would hurt its ability to retain or expand its user
base, or its ability to increase their level of engagement.
Scienjoy operates three platforms under
the brands “Showself” (秀色直播),“Lehai”(乐嗨)
and “Haixiu” (嗨秀). Scienjoy’s business
and financial performance is highly dependent on the strength and the market perception of its brands and services. A well-recognized
brand is critical to increasing Scienjoy’s user base and, in turn, facilitating its efforts to monetize its services and
enhancing its attractiveness to users. From time to time, Scienjoy conducts marketing activities across various media to enhance
its brand image and to guide public perception of its brands and services. In order to create and maintain brand awareness and
brand loyalty, to influence public perception and to retain existing and attract new mobile users, customers and platform partners,
Scienjoy may need to substantially increase its marketing expenditures. Since Scienjoy operates in a highly competitive market,
brand maintenance and enhancement directly affect its ability to maintain its market position. In addition, Scienjoy must exercise
strict quality control of its platforms to ensure that its brand image is not tarnished by substandard products or services. Any
misuse of Scienjoy’s platforms and any governmental adverse actions against Scienjoy’s platforms may harm its brand
and reputation.
Scienjoy must also find ways to distinguish
its platforms from those of its competitors. If for any reason Scienjoy is unable to maintain and enhance its brand recognition,
or if Scienjoy incurs excessive expenses in this effort, its business, results of operations, and prospects may be materially and
adversely affected.
Scienjoy’s core values of focusing
on user experience and user satisfaction first and acting for the long-term may conflict with the short-term operating results
of its business.
At this time Scienjoy is mainly
focusing on user experience and satisfaction, which Scienjoy believes is essential to its success and serves the best,
long-term interests of its company and its shareholders. Scienjoy may adopt strategies that Scienjoy thinks will benefit its
users, even if such strategies may negatively impact its operating results in the short-term. Scienjoy believes that a high
quality user experience on its platforms helps Scienjoy expand and maintain its current user base and create better monetizing
potential in the long-term.
If Scienjoy fails to obtain or maintain
the required licenses and approvals or if Scienjoy fails to comply with laws and regulations applicable to its industry, Scienjoy’s
business, results of operations, and financial condition may be materially and adversely affected.
In order to conduct and develop business
in China, Scienjoy has obtained the following valid licenses through its PRC variable interest entities: ICP License for provision
of Internet information services, Internet Culture Operation License for online performance and music, entertainment and game product
provision, Commercial Performance License for providing streamer agency services and License for producing radio and television
program.
However, the Internet industry is highly
regulated in China. Due to the uncertainties of interpretation and implementation of existing and future laws and regulations,
the licenses Scienjoy currently holds may be deemed insufficient by governmental authorities. In addition, as all licenses are
subject to periodic renewal, even though Scienjoy has successfully renewed such licenses in the past, there is no guarantee that
Scienjoy will be able to continue to do so in the future. These uncertainties may in the future restrain Scienjoy’s ability
to expand its business scope and may subject Scienjoy to fines or other regulatory actions by relevant regulators if its practice
is deemed as violating relevant laws and regulations. As Scienjoy develops and expands its business scope, Scienjoy may need to
obtain additional qualifications, permits, approvals, or licenses. Moreover, Scienjoy may be required to obtain additional licenses
or approvals if the PRC government adopts more stringent policies or regulations for its industry. If Scienjoy fails to obtain,
hold, or maintain any of the required licenses or permits or fails to make the necessary filings on time or at all, Scienjoy may
be subject to various penalties, such as confiscation of the net revenues that have been generated through the deemed unlicensed
activities, the imposition of fines, and the discontinuation or restriction of its operations. Any such penalties may disrupt
Scienjoy’s operations and materially and adversely affect its results of operations and financial condition.
Scienjoy may be subject to intellectual
property infringement claims or other allegations by third parties for information or content displayed on, retrieved from or linked
to its platforms, or distributed to its users, or for proprietary information appropriated by former employees, which may materially
and adversely affect Scienjoy’s business, financial condition, and prospects.
Companies in the Internet, technology,
and media industries are frequently involved in intellectual property infringement litigation. In China, the validity, enforceability,
and scope of protection of intellectual property rights in Internet-related industries, especially in the evolving live streaming
industry, are uncertain. Scienjoy has been and may in the future be subject to intellectual property infringement claims or other
allegations by third parties for information or content displayed on, retrieved from or linked to, recorded, stored or make accessible
on its platforms, or otherwise distributed to its users, including in connection with the music, movies, video and games played,
recorded or make accessible on its platforms during streaming. For example, Scienjoy faces, from time to time, allegations that
Scienjoy has featured pirated or illegally downloaded music and movies on its platforms, and that Scienjoy has infringed on the
trademarks and copyrights of third parties, including its competitors, or allegations that Scienjoy is involved in unfair trade
practices. As Scienjoy faces increasing competition and as litigation becomes a more common method for resolving commercial disputes
in China, Scienjoy faces a higher risk of being the subject of intellectual property infringement claims or other legal proceedings.
Scienjoy permits broadcasters to upload
text and graphics to its platforms and permits users to share them. Scienjoy platforms also permit broadcasters or users to choose
their username and profile photo. Under relevant PRC laws and regulations, online service providers, which provide storage space
for users to upload content or links to other services or content, could be held liable for copyright infringement under various
circumstances, including situations where the online service provider knows or should reasonably have known that the relevant content
uploaded or linked to on its platforms infringes upon the copyright of others and the online service provider failed to take necessary
actions to prevent such infringement.
Scienjoy has implemented internal control
measures to ensure that the design of its platforms and the content that is streamed on its platforms does not infringe on valid
intellectual properties, such as patents and copyrights held by third parties. Scienjoy also licenses certain intellectual properties
from third parties to implement certain functions available on its platforms.
Some of Scienjoy’s employees were
previously employed at other competing companies, including Scienjoy’s current and potential competitors. To the extent that
these employees are involved in the development of content or technology similar to that of Scienjoy at their former employers,
Scienjoy may become subject to claims that such employees or Scienjoy may have appropriated proprietary information or intellectual
properties of the former employers of its employees. If Scienjoy fails to successfully defend such claims, its results of operations
may be materially and adversely affected.
Defending claims is costly and can impose
a significant burden on its management and employees, and there can be no assurances that favorable final outcomes will be obtained
in all cases. Such claims, even if they do not result in liability, may harm Scienjoy’s reputation. Any resulting liability
or expenses, or changes required to its platforms to reduce the risk of future liability, may have a material adverse effect on
Scienjoy’s business, financial condition, and prospects.
Unauthorized use of Scienjoy’s
intellectual property and the expenses incurred in protecting its intellectual property rights may materially and adversely affect
Scienjoy’s business.
Scienjoy considers its copyrights,
trademarks, and other intellectual properties to be critical to its success, and relies on a combination of trademark and
copyright laws, trade secrets protection, restrictions on disclosure and other agreements that restrict the use of its
intellectual property to protect these rights. Although Scienjoy enters into confidentiality agreements and intellectual
property ownership agreements with its employees, these confidentiality agreements could be breached and Scienjoy might not
have adequate remedies for any breach. As a result, Scienjoy’s proprietary technology, know-how or other intellectual
property could otherwise become known to third parties. In addition, third parties may independently discover trade secrets
and proprietary information, limiting Scienjoy’s ability to assert any trade secret rights against such parties.
The measures Scienjoy uses to protect its
proprietary rights may not be adequate to prevent the infringement or misappropriation of its intellectual property. In addition,
Scienjoy cannot assure you that any of its trademark applications will ultimately proceed to registration or will result in registration
with adequate scope for its business. Some of Scienjoy’s pending applications or registrations may be successfully challenged
or invalidated by others. If its trademark applications are not successful, Scienjoy may have to use different marks for affected
products or services, or seek to enter into arrangements with any third parties who may have prior registrations, applications,
or rights, which might not be available on commercially reasonable terms, if at all.
Enforcement of intellectual property laws
in China has historically been lacking, primarily because of ambiguities in the laws and difficulties in enforcement. Accordingly,
intellectual property rights protection in China may not be as effective as in other jurisdictions with a more developed legal
framework regulating intellectual property rights. Policing unauthorized use of Scienjoy’s proprietary technology, trademarks,
and other intellectual property is difficult and expensive, and litigation may be necessary in the future to enforce its intellectual
property rights. Future litigation could result in substantial costs and diversion of its resources, and could disrupt its business,
as well as materially adversely affect its results of operations and financial condition.
Some of Scienjoy’s products
and services contain open source software, which may pose a particular risk to Scienjoy’s proprietary software, products,
and services in a manner that negatively affects its business.
Scienjoy uses open source software in some
of its products and services and will continue to use open source software in the future. There is a risk that open source software
licenses could be construed in a manner that imposes unanticipated conditions or restrictions on Scienjoy’s ability to provide
or distribute its products or services. Additionally, Scienjoy may face claims from third parties claiming ownership of, or demanding
release of, the open source software or derivative works that Scienjoy developed using such software. These claims could result
in litigation and could require Scienjoy to make its software source code freely available, purchase a costly license, or cease
offering the implicated products or services unless and until Scienjoy can re-engineer them to avoid infringement. This re-engineering
process could require significant additional research and development resources, and Scienjoy may not be able to complete it successfully.
Furthermore, because any software source
code Scienjoy contributes to open source projects is publicly available, Scienjoy’s ability to protect its intellectual property
rights with respect to such software source code may be limited or lost entirely. As a result, Scienjoy may be unable to prevent
its competitors or others from using such software source code contributed by Scienjoy.
Scienjoy’s content monitoring
system may not be effective in preventing misconduct by its users and misuse of its platforms.
Scienjoy operates entertainment live streaming
platforms that provide real-time streaming and interactions. Because Scienjoy does not have full control over how and what broadcasters
or viewers will use its platforms to communicate, Scienjoy’s platforms may be misused by individuals or groups of individuals
to engage in immoral, disrespectful, fraudulent or illegal activities. Scienjoy has implemented control procedures to detect and
block illegal or inappropriate content and illegal or fraudulent activities conducted through the misuse of its platforms, but
such procedures may not prevent all such content from being broadcasted or posted or activities from being carried out. Moreover,
real time streaming renders it harder for Scienjoy to filter illegal or inappropriate speeches, conduct, and behavior from its
platforms prior to airing. As a result, Scienjoy may face civil lawsuits or other actions initiated by the affected viewer,
or governmental or regulatory actions against Scienjoy. In response to allegations of illegal or inappropriate activities conducted
through Scienjoy’s platforms, PRC government authorities may intervene and hold Scienjoy liable for non-compliance with PRC
laws and regulations concerning the dissemination of information on the Internet and subject Scienjoy to administrative penalties
or other sanctions, such as requiring Scienjoy to restrict or discontinue some of the features and services provided on its websites
and mobile applications, or even revoke its licenses or permits to provide Internet content services. Scienjoy endeavors to ensure
all broadcasters are in compliance with relevant regulations, but Scienjoy cannot guarantee that all broadcasters will comply with
all PRC laws and regulations. Therefore, Scienjoy’s live streaming service may be subject to investigations or subsequent
penalties if content displayed on its platforms is deemed to be illegal or inappropriate under PRC laws and regulations.
As of the date of this proxy statement,
Scienjoy’s platform “Showself” (秀色直播)
has, since its operation commencement in 2014, received 5 administrative penalties from Beijing Cultural Market Administrative
Enforcement Department, all of which are minor penalties of fine, for the inappropriate conducts of broadcasters. The other two
platforms of Scienjoy, “Haixiu” (嗨秀秀场)
and “Lehai” (乐嗨秀场), received
1 and 2 administrative penalties, respectively, from the same Department for the same reason. All above mentioned defects have
been timely remedied by the platforms and all remedial measures have been reported to the Department for its review and approval.
Scienjoy may be held liable for information
or content displayed on, retrieved from or linked to its platforms, or distributed to its users if such content is deemed to violate
any PRC laws or regulations, and PRC authorities may impose legal sanctions on Scienjoy.
Scienjoy’s users are able to exchange
information, generate content and engage in various other online activities on Scienjoy’s live streaming platforms. Scienjoy
requires its broadcasters and users to agree to its terms of use upon account registration. The terms of use set out types of content
strictly prohibited on Scienjoy’s platforms. However, signing the terms of use does not guarantee the broadcasters and users
will comply with these terms.
In addition, because a majority of
the video and audio communications on Scienjoy’s platforms is conducted in real time, the content generated by
Scienjoy’s broadcasters and users on air cannot be filtered before they are streamed on Scienjoy’s platforms.
Therefore, users may engage in illegal conversations or activities, including the publishing of inappropriate or illegal
content on its platforms that may be unlawful under PRC laws and regulations.
Although Scienjoy has also developed a
robust content monitoring system and uses its best efforts to monitor content on its platforms, Scienjoy cannot detect every incident
of inappropriate content on its platforms due to the immense quantity of user-generated content. As such, government
authorities may hold Scienjoy liable for inappropriate or illegal content on its platforms and may subject Scienjoy to fines or
other disciplinary actions, including in serious cases suspension or revocation of the licenses necessary to operate its platforms,
if Scienjoy is deemed to have facilitated the appearance of inappropriate content placed by third parties on its platforms under
PRC laws and regulations.
Application stores may temporarily take
down Scienjoy’s applications if the content were deemed to violate relevant PRC laws or regulations.
Meanwhile, Scienjoy may face claims for
defamation, libel, negligence, copyright, patent or trademark infringement, other unlawful activities or other theories and claims
based on the nature and content of the information delivered on or otherwise accessed through its platforms. Defending any such
actions could be costly and require significant time and attention of the management and other resources, which would materially
and adversely affect its business.
The complexity, uncertainties, and
changes in PRC regulation of the Internet industry and companies may materially and adversely affect Scienjoy’s business
and financial condition.
The Internet industry is highly regulated
in China, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the Internet industry.
These Internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant
uncertainty. As a result, sometimes it may be difficult to evaluate the legal risks involved in certain actions or omissions. Issues,
risks, and uncertainties relating to PRC regulation of the Internet business include, but are not limited to, the following:
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There are uncertainties relating to the regulation of the Internet business in China,
including evolving licensing practices and the requirement for real-name registrations. Permits, licenses, or operations at
some of Scienjoy’s subsidiaries and PRC variable interest entity levels may be subject to challenge. Scienjoy may not
be able to timely obtain or maintain all the required licenses or approvals, permits, or to complete filing, registration or
other formalities necessary for its present or future operations, and Scienjoy may not be able to renew certain permits or
licenses or renew certain filing or registration or other formalities. In addition, although Scienjoy is not currently
required by PRC law to ask all users for their real name and personal information when they register for a user account, PRC
regulators could require Scienjoy to implement compulsory real-name registration for all users on its platforms in the
future. In late 2011, for example, the Beijing municipal government required micro bloggers in China to implement real-name
registration for all of their registered users. If Scienjoy were required to implement real-name registration for users on
its platforms, Scienjoy may lose a large number of registered user accounts for various reasons, including, for example,
because users may not be able to maintain multiple accounts and some users may dislike giving out their private information.
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New regulatory agencies may be established under the evolving PRC regulatory system for the Internet
industry. Such new agencies may issue new policies or new interpretations of existing laws and regulations. Scienjoy is unable
to determine what policies may be issued by any such new agencies in the future or how existing laws, regulations, and policies
will be interpreted by such new agencies.
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New laws, regulations or policies may be promulgated or announced that will regulate Internet activities,
including online video and online advertising businesses. If these new laws, regulations, or policies are promulgated, additional
licenses may be required for Scienjoy’s operations.
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The interpretation and application of existing PRC laws, regulations, and policies and possible
new laws, regulations, or policies relating to the Internet industry have created substantial uncertainties regarding the legality
of existing and future foreign investments in, and the businesses and activities of, Internet businesses in China. There are also
risks that Scienjoy may be found to violate the existing or future laws and regulations given the uncertainty and complexity of
China’s regulation of Internet business.
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Increases in the costs of content
on Scienjoy’s platforms may have an adverse effect on its business, results of operations, and financial condition.
To maintain and increase user base and
user paying ratio, Scienjoy must continue offering attractive and engaging content on its platforms. Scienjoy provides such content
mainly through its broadcasters. In order to attract and retain top broadcasters, Scienjoy needs to have an attractive revenue
sharing policy and provide marketing resources to support them. If competitor platforms offer higher compensation, costs for Scienjoy to retain its broadcasters may increase. As Scienjoy’s
business and user base further expand, Scienjoy also needs to continue updating and producing content and activities to meet the
more diversified interest of a larger user group. Scienjoy also needs to innovate the content on its platforms to capture and follow
the market trends, resulting in higher costs of the contents on its platforms. If Scienjoy is not able to continue to retain its
broadcasters and produce high quality content on its platforms at commercially acceptable costs, its business, financial condition,
and results of operations would be adversely impacted.
Scienjoy’s failure to anticipate
or successfully implement new technologies could render its proprietary technologies or platforms unattractive or obsolete, and
reduce its revenues and market share.
Scienjoy’s technological capabilities
and infrastructure underlying its live streaming platforms are critical to its success. The Internet industry is subject to rapid
technological changes and innovation. Scienjoy needs to anticipate the emergence of
new technologies and assess their market acceptance. Scienjoy also needs to invest significant resources, including financial resources,
in research and development to keep pace with technological advances in order to make its development capabilities, its platforms
and its services competitive in the market. However, development activities are inherently uncertain, and Scienjoy might encounter
practical difficulties in commercializing its development results. Scienjoy’s significant expenditures on research and development
may not generate corresponding benefits. Given the fast pace with which the Internet technology has been and will continue to be
developed, Scienjoy may not be able to timely upgrade its streaming technology, its engines or the software framework for its platforms’
development in an efficient and cost-effective manner, or at all. New technologies in programming or operations could render its
technologies, its platforms or products or services that Scienjoy is developing or expects to develop in the future obsolete or
unattractive, thereby limiting its ability to recover related product development costs, outsourcing costs and licensing fees,
which could result in a decline in its revenues and market share.
The proper functioning of Scienjoy’s
platforms is essential to its business. Any disruption to Scienjoy’s IT systems could materially affect its ability
to maintain the satisfactory performance of its platforms.
Disruptive and malfunctioned platforms
will drive away frustrated users of Scienjoy and reduce Scienjoy’s user base. Smooth and proper functioning of Scienjoy’s
platforms relies on Scienjoy’s IT systems. However, Scienjoy’s technology or infrastructure may not function properly
at all times. Any system interruptions caused by telecommunications failures, computer viruses, hacking or other attempts to harm
Scienjoy’s systems could result in the unavailability or slowdown of Scienjoy’s platforms and limit the attractiveness
of content provided on its platforms. Scienjoy’s servers may also be vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which could lead to system interruptions, website or mobile app slowdown or unavailability or
loss of data. Any of such occurrences could cause severe disruption to Scienjoy’s daily operations. As a result, Scienjoy’s
business and results of operations may be materially and adversely affected and its market share could decline.
Any compromise to the cyber security
of Scienjoy’s platforms could materially and adversely affect its business, reputation, and results of operations.
On November 7, 2016, the Standing Committee
of the National People’s Congress released the PRC Cyber Security Law, which took effect on June 1, 2017. The PRC Cyber Security
Law requires network operators to fulfill certain obligations to safeguard security in the cyberspace and enhance network information
management.
Scienjoy’s products and services
are generally provided through the Internet and involve the storage and transmission of users’ information. Any security
breach would expose Scienjoy to a risk of loss of information and result in litigation and potential liability. As the techniques
used to obtain unauthorized access, disable or degrade Internet services or sabotage operating systems change frequently and often
are not recognized until launched against a target, Scienjoy may not be able to anticipate such techniques or implement adequate
preventative measures. Upon a security breach, Scienjoy’s technical team will be notified immediately and coordinate with
the local support staff to diagnose and solve the technical problems. As of the date of this statement, Scienjoy has not experienced
any material incidents of security breach.
Despite the security measures Scienjoy
has implemented, its facilities, systems, procedures, and those of its third-party providers, may be vulnerable to security breaches,
act of vandalism, software viruses, misplaced or lost data, programming or human errors or other similar events which may disrupt
its delivery of services or expose the confidential information of its users and others. If an actual or perceived breach of its
security occurs, the market perception of the effectiveness of its security measures could be harmed, and Scienjoy may lose current
and potential users and be exposed to legal and financial risks, including legal claims, regulatory fines and penalties, which
in turn could adversely affect its business, reputation, and results of operations.
Concerns about the collection, use,
and disclosure of personal data and other privacy-related and security matters could deter customers and users from using Scienjoy’s
services and adversely affect its reputation and business.
Concerns about Scienjoy’s practices
with regard to the collection, use, or disclosure of personal information or other privacy-related and security matters, even if
unfounded, could damage its reputation and operations. The PRC Constitution, the PRC Criminal Law, the General Principles of the
PRC Civil Law and the PRC Cyber Security Law protect individual privacy in general, which require certain authorization or consent
from Internet users prior to collection, use, or disclosure of their personal data and also protection of the security of the personal
data of such users. In particular, Amendment 7 to the PRC Criminal Law prohibits institutions, companies, and their employees in
the telecommunications and other industries from selling or otherwise illegally disclosing a citizen’s personal information
obtained during the course of performing duties or providing services. Scienjoy’s internal policy requires its employees
to protect the personal data of its users, and employees who violate such policy are subject to disciplinary actions, including
dismissal. While Scienjoy strives to comply with all applicable data protection laws and regulations, as well as its own privacy
policies, any failure or perceived failure to comply may result in proceedings or actions against Scienjoy by government entities
or private individuals, which could have an adverse effect on its business. Moreover, failure or perceived failure to comply with
applicable laws and regulations related to the collection, use, or sharing of personal information or other privacy-related and
security matters could result in a loss of confidence in Scienjoy by customers and users, which could adversely affect its business,
results of operations and financial condition.
Scienjoy’s operations depend
on the performance of the Internet infrastructure and fixed telecommunications networks in China, which may experience unexpected
system failure, interruption, inadequacy, or security breaches.
Almost all access to the Internet in China
is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the
Ministry of Industry and Information Technology, or the MIIT. Moreover, Scienjoy primarily relies on a limited number of telecommunication
service providers to provide Scienjoy with data communications capacity through local telecommunications lines and Internet data
centers to host its servers. Scienjoy has limited access to alternative networks or services in the event of disruptions, failures
or other problems with China’s Internet infrastructure or the fixed telecommunications networks provided by telecommunication
service providers. Web traffic in China has experienced significant growth during the past few years. Effective bandwidth and server
storage at Internet data centers in large cities such as Beijing are scarce. With the expansion of its business, Scienjoy may be
required to upgrade its technology and infrastructure to keep up with the increasing traffic on its platforms. Scienjoy cannot
assure you that the Internet infrastructure and the fixed telecommunications networks in China can support the demands associated
with the continued growth in Internet usage. If Scienjoy cannot increase its capacity to deliver its online services, Scienjoy
may not be able to satisfy the increases in traffic Scienjoy anticipates from its expanding user base, and the adoption of its
services may be hindered, which could adversely impact its business and profitability.
In addition, Scienjoy has no control over
the costs of the services provided by telecommunication service providers. If the prices Scienjoy pays for telecommunications and
Internet services rise significantly, its results of operations may be materially and adversely affected. Furthermore, if Internet
access fees or other charges to Internet users increase, some users may be prevented from accessing the mobile Internet and thus
cause the growth of mobile Internet users to decelerate. Such deceleration may adversely affect Scienjoy’s ability to continue
to expand its user base.
Scienjoy uses third-party services
and technologies in connection with its business, and any disruption to the provision of these services and technologies to Scienjoy
could result in adverse publicity and a slowdown in the growth of its users, which could materially and adversely affect its business,
results of operations, and financial condition.
Scienjoy’s business depends upon
services and software provided by third parties. For example, Scienjoy’s user data is encrypted and saved on the storage
cloud provided by a third-party cloud services company. Scienjoy is relying on the security measures of such third party cloud
services company for data protection, and its disaster recovery system to minimize the possibility of data loss or breach ability.
If such third-party cloud services company has a system disruption and is not able to recover quickly, Scienjoy’s business
and operations may be adversely affected.
Scienjoy’s overall network relies
on broadband connections provided by third-party operators and Scienjoy expects this dependence on third parties to continue. The
networks maintained and services provided by such third parties are vulnerable to damage or interruption, which could impact Scienjoy’s
results of operations. See “—Scienjoy’s operations depend on the performance of the Internet infrastructure
and fixed telecommunications networks in China, which may experience unexpected system failure, interruption, inadequacy or security
breaches.”
Scienjoy also sells a significant portion
of its products and services through third-party online payment systems. If any of these third-party online payment systems suffers
security breaches, users may lose confidence in such payment systems and refrain from purchasing Scienjoy’s virtual gifts
online, in which case its results of operations would be negatively impacted.
Scienjoy exercises no control over the
third parties with whom Scienjoy has business arrangements. For some of services and technologies such as online payment systems,
Scienjoy relies on a limited number of third-party providers with limited access to alternative networks or services in the event
of disruptions, failures, or other problems. If such third parties increase their prices, fail to provide their services effectively,
terminate their service or agreements, or discontinue their relationships with us, Scienjoy could suffer service interruptions,
reduced revenues or increased costs, any of which may have a material adverse effect on its business, results of operations, and
financial condition.
User growth and engagement depend
upon effective interoperation with operating systems, networks, mobile devices, and standards that Scienjoy does not control.
Scienjoy offers access to its platforms
across a variety of PC and mobile operating systems and devices. Scienjoy is dependent on the interoperability of its services
with popular mobile devices and mobile operating systems that Scienjoy does not control, such as Windows, Android, and iOS. Any
such operating systems or devices that decide to degrade the functionality of Scienjoy’s services or give preferential treatment
to competitive services could adversely affect usage of Scienjoy’s services. In order to deliver high quality services, it
is important that Scienjoy’s services work well across a range of mobile operating systems, networks, mobile devices, and
standards that Scienjoy does not control. Scienjoy may not be successful in developing relationships with key participants in the
mobile industry or in developing services that operate effectively with these operating systems, networks, devices and standards.
Any difficulties for users and broadcasters in accessing and using Scienjoy’s platforms would harm Scienjoy’s user
growth and user engagement and in turn would adversely affect Scienjoy’s results of operations and financial condition.
Scienjoy relies on its mobile application
and PC application to provide services to its users and broadcasters which, if inaccessible, may have material adverse impact on
its business and results of operations.
Scienjoy relies on third-party mobile application
and PC application distribution channels such as Apple’s App Store, various Android application stores, and websites to distribute
its applications to users and broadcasters. Scienjoy expects a substantial number of downloads of its mobile applications and PC
applications will continue to be derived from these distribution channels. The promotion, distribution, and operation of Scienjoy’s
applications are subject to such distribution platforms’ standard terms and policies for application developers, and such
distribution channels have discretion to determine whether Scienjoy complies with their terms and policies. If any of such distribution
channels determines to take down Scienjoy’s applications or terminate its relationship with Scienjoy, Scienjoy’s business,
results of operations, and financial condition may be materially and adversely affected.
On August 28, 2019, Scienjoy’s
App “Showself” (秀色直播)
was removed from Apple’s App Store by Apple Inc.(“Apple”). In an email of the same date, Apple alleged that
Scienjoy had violated the Apple Developer Program License Agreement and Apple terminated Scienjoy’s status as an Apple developer
as well as the Apple Developer Agreement itself. No factual explanation was provided in Apple’s email for the alleged violation.
Scienjoy has been actively reaching out to Apple to resolve this issue but no further explanation has been provided by Apple yet.
Scienjoy’s App “Showself” (秀色直播)
is still in suspension as of the date of this Proxy Statement. The incident had caused Scienjoy significant decrease in the number
of downloads of its App “Showself” (秀色直播).
Based on the statistics and data for the four (4) months since the removal date until December 31, 2019, without taking into consideration
of any other factors that may affect Scienjoy’s operations and solely as a result of this suspension, the annualized decrease
of Scienjoy’s number of users is estimated to be approximately between 2% and 3% and the annualized decrease of revenue
is estimated to be approximately 10%. Scienjoy cannot guarantee that additional apps will not be taken down from Apple or other
third-party distribution channels in the future, which may disrupt Scienjoy’s operations and have a material adverse effect
on its business and results of operations.
Continuing efforts of Scienjoy’s
executive officers, key employees, and qualified personnel are essential to Scienjoy’s business and the loss of their services
may adversely and negatively impact Scienjoy’s business and results of operations.
Scienjoy’s future success depends
substantially on the continued efforts of its executive officers and key employees. If one or more of its executive officers or
key employees were unable or unwilling to continue their services with Scienjoy, Scienjoy might not be able to replace them easily,
in a timely manner, or at all. Since live streaming industry is characterized by high demand and intense competition for talent,
Scienjoy cannot assure you that Scienjoy will be able to attract or retain qualified staffs or other highly skilled employees.
In addition, as Scienjoy is relatively young, its ability to train and integrate new employees into its operations may not meet
the growing demands of its business, which may materially and adversely affect its ability to grow its business and hence its results
of operations.
If any of its executive officers or key
employees joins a competitor or forms a competing company, Scienjoy may lose users, know-how and key professionals and staff members.
Each of its executive officers and key employees has entered into an employment agreement and a non-compete agreement with Scienjoy.
However, certain provisions under the non-compete agreement may be deemed invalid or unenforceable under PRC law. If any dispute
arises between its executive officers and key employees and Scienjoy, Scienjoy cannot assure you that Scienjoy would be able to
enforce these non-compete agreements in China, where these executive officers reside, in light of uncertainties with China’s
legal system.
Scienjoy is subject to risks relating
to litigation.
Scienjoy has been involved in and may be
subject to litigation and claims of various types, including litigation alleging infringement of intellectual property rights and
unfair competition, claims and disputes involving broadcasters, customers, its employees and suppliers. Litigation is expensive,
subjects Scienjoy to the risk of significant damages, requires significant management time and attention and could have a material
and adverse effect on Scienjoy’s business, results of operations, and financial condition.
Scienjoy was once sued by another company
alleging that Scienjoy’s promotion team had used such company’s brand name as a keyword in a search engine promotion
scheme for Scienjoy’s three platforms “Showself” (秀色直播),
“Lehai” (乐嗨秀场), and “Haixiu”
(嗨秀秀场). Scienjoy and the alleging
company reached a settlement agreement that Scienjoy would buy the alleging company’s technical service for a price of RMB
600,000 (roughly USD 86,185). Moreover, in a separate lawsuit, Scienjoy’s platform “Lehai” (乐嗨秀场)
was sued for unfair competition. The judge hasn’t made a decision in this lawsuit as of the date of this proxy statement.
Scienjoy may also face litigations and claims in the future, which may require substantial management efforts and skills and significant
additional expenditures, and which could adversely affect its business, results of operations, and financial condition.
Scienjoy may be the subject of allegations,
harassing, or other detrimental conduct by third parties, which could harm its reputation and cause it to lose market share, users,
and customers.
Scienjoy has been subject to allegations
by third parties, negative Internet postings and other adverse public exposure on its business, operations and staff compensation.
Scienjoy may also become the target of harassment or other detrimental conduct by third parties or disgruntled former or current
employees. Such conduct may include complaints, anonymous or otherwise, to regulatory agencies, media or other organizations. Scienjoy
may be subject to government or regulatory investigation or other proceedings as a result of such third-party conduct and may be
required to spend significant time and incur substantial costs to address such third-party conduct, and there is no assurance that
Scienjoy will be able to conclusively refute each of the allegations within a reasonable period of time or at a commercially reasonable
cost, or at all. Additionally, allegations, directly or indirectly against Scienjoy, may be posted on the Internet, including social
media platforms by anyone, whether or not related to Scienjoy, on an anonymous basis. Any negative publicity on Scienjoy or its
management can be quickly and widely disseminated. Social media platforms and devices immediately publish the content of their
subscribers and participants post, often without filters or checks on the accuracy of the content posted. Information posted may
be inaccurate and adverse to Scienjoy, and it may harm Scienjoy’s reputation, business or prospects. The harm may be immediate
without affording Scienjoy an opportunity for redress or correction. Scienjoy’s reputation may be negatively affected as
a result of the public dissemination of negative and potentially false information about its business and operations, which in
turn may cause Scienjoy to lose market share, users or customers.
Negative publicity may materially
and adversely affect Scienjoy’s brand, reputation, business, and growth prospects.
Negative publicity involving Scienjoy,
its broadcasters, its users, its management, its live streaming platforms, or its business model may materially and adversely harm
Scienjoy’s brand and its business. Scienjoy cannot assure you that Scienjoy will be able to defuse negative publicity about
Scienjoy, its management and/or its services to the satisfaction of its investors, users and broadcasters, customers and platform
partners. There has been negative publicity about Scienjoy and the misuse of its services, which has adversely affected its brand,
public image, and reputation. Such negative publicity, especially when it is directly addressed against Scienjoy, may also require
Scienjoy to engage in defensive media campaigns. This may cause Scienjoy to increase its marketing expenses and divert its management’s
attention and may adversely impact its business and results of operations.
Contractual disputes with Scienjoy’s
talent agencies may harm its reputation, and may be costly or time-consuming to resolve.
Scienjoy enters into contractual arrangements
with talent agencies. Pursuant to these contracts, talent agencies are responsible for recruiting and training broadcasters and
providing content for Scienjoy’s platforms. Scienjoy shares with the talent agencies a certain percentage of the revenue
generated by the broadcasters they manage. Talent agencies will in turn enter into compensation arrangement with the broadcasters
they manage. From time to time, there may be contractual disputes between broadcasters and talent agencies, and/or between talent
agencies and Scienjoy. Any such disputes may not only be costly and time-consuming to solve, but may also be detrimental to the
quality of the content produced by the broadcasters, or even causing broadcasters to leave Scienjoy’s platforms.
Scienjoy enters into exclusivity agreements
with certain of its top broadcasters, pursuant to which such top broadcasters agree not to work for other live streaming platforms
in exchange for additional support and resources from Scienjoy. Although these top broadcasters are required to pay a certain amount
of fees if they breach the exclusivity agreements, Scienjoy cannot guarantee that such exclusivity agreements will be an effective
measure to deter these top broadcasters from leaving Scienjoy’s platforms.
Key performance metrics used by Scienjoy,
such as QAUs, paying users, ARPPU and paying ratio, may overstate the number of active and paying users that Scienjoy has, which
may lead to an inaccurate interpretation of Scienjoy’s revenue metrics and its business operations by Scienjoy’s
management and by investors, and may even misleadingly affect management’s business judgment of Scienjoy’s operations.
For performance tracking purposes,
Scienjoy monitors metrics such as the number of registered user accounts, active users, and paying users. Scienjoy calculates
certain operating metrics in the following ways: (a) the number of registered users, which refers to the number of users that
has registered and logged onto its platforms at least once since registration; (b) the number of active users, which refers to
the number of users that has visited its platforms through PC or mobile app at least once in a given period; (c) the number of
paying users, which refers to the number of users that has purchased virtual currencies on its platforms at least once in a given
period. The actual number of individual users, however, is likely to be lower than that of registered users, active users, and
paying users potentially significantly, due to various reasons such as fraudulent representation or improper registration. Some
of the user accounts may also be created for specific purposes such as to increase virtual gifting for certain performers in various
contests, but the number of registered users, active users, and paying users do not exclude user accounts created for such purposes.
Scienjoy has limited ability to validate or confirm the accuracy of information provided during the user registration process
to ascertain whether a new user account created was actually created by an existing user who is registering duplicative accounts.
The respective number of its registered users, active users, and paying users may overstate the number of individuals who register
on Scienjoy’s platforms, sign onto its platforms, purchase virtual gifts or other products and services on its platforms,
which may lead to an inaccurate interpretation of its operating metrics. Additionally, a user needs to register a separate account
for each Scienjoy’s platform to access such platform. When calculating the total numbers of MAUs and QAUS of Scienjoy as
a whole, a user with multiple accounts with Scienjoy may be counted more than once and such numbers may be higher than the actual
numbers of users. Additionally, Scienjoy is able to measure unique users only to the extent that these users are registered using
the same identification method. Since Scienjoy allows a user to register an account on Scienjoy’s platforms with the user’s
mobile number, Wechat account or QQ account, Scienjoy’s ability to identify unique users is limited.
If the tracked growth in the number of
its registered users, active users, and paying users is higher than the actual growth in the number of individuals registered,
active, or paying users, its user engagement level, sales, and business may not grow as quickly as Scienjoy expects. In addition,
such overstatement may cause inaccurate evaluation of Scienjoy’s operations by Scienjoy’s management and by investors,
which may also materially and adversely affect its business and results of operations.
The security of operations of, and
fees charged by, third-party online payment platforms may have a material adverse effect on Scienjoy’s business and results
of operations.
Currently, Scienjoy uses third-party online
payment platforms, such as China UnionPay, WeChat Pay, and Alipay, to receive a large part of the cash proceeds from sales of its
products and services through direct purchases on Scienjoy’s platforms. Any scheduled or unscheduled interruption in the
ability of Scienjoy’s users to use these and other online payment platforms could adversely affect Scienjoy’s payment
collection, and in turn, its revenue. In addition, in online payment transactions, secure transmission of user information, such
as debit and credit card numbers and expiration dates, personal information and billing addresses, over public networks, is essential
to user privacy protection and maintaining their confidence in Scienjoy’s platforms.
Scienjoy does not have control over the
security measures of its third-party payment platforms, and their security measures may not be adequate at present or may not be
adequate with the expected increased usage of online payment platforms. Scienjoy could be exposed to litigation and possible liability
if online transaction safety of its users is compromised in transactions involving payments for its products and services, which
could harm Scienjoy’s reputation and its ability to attract users and may materially adversely affect its business. Scienjoy
also relies on the stability of such payment transmissions to ensure the continued payment services provided to its users. If any
of these third-party online payment platforms fails to process or ensure the security of users’ payments for any reason,
Scienjoy’s reputation will be damaged and Scienjoy may lose its paying users and discourage the potential purchases, which
in turn, will materially and adversely affect its business, financial condition, and prospects.
Scienjoy’s users may suffer
third-party fraud when purchasing Scienjoy’s virtual currency and Scienjoy may suffer fraud when selling virtual currency
to users.
Scienjoy offers its users
multiple options to purchase its virtual currency. Users can purchase these virtual currencies directly on web streaming
portal, make in-app purchases using third-party payment channels including China Union Pay, WeChat pay, Alipay and
Apple’s App Store. Users can also purchase virtual currencies through third-party sales agencies officially authorized
by Scienjoy. Other than the above-mentioned purchase channels, there are no other means to purchase Scienjoy’s virtual
currency. However, from time to time, certain third parties fraudulently claim that they are sales agencies authorized by
Scienjoy and users can purchase Scienjoy’s virtual currency through them. If Scienjoy’s users choose to purchase
Scienjoy’s virtual currency from such unauthorized third parties, they may suffer losses from such fraudulent
activities by third parties. Although Scienjoy is not directly responsible for the losses in such case, its user experience
may be adversely affected and users may choose to leave Scienjoy’s platforms as a result. Such fraudulent activities by
third parties might also generate negative publicity, disputes, or even legal claims. The measures Scienjoy takes in response
to such negative publicity, disputes, or legal claims may be expensive, time consuming, and disruptive to its operations and
divert its management’s attention. Additionally, there is a risk that even Scienjoy’s duly authorized third-party sales
agencies may fail to deliver virtual currencies to users after users make payment. In this case, Scienjoy is responsible to
deliver such virtual currencies to users. Scienjoy may in turn demand payment from the authorized third-party sale agencies
but there is no guarantee that Scienjoy may recover the full payment.
Restrictions on virtual currency
may adversely affect Scienjoy’s revenues.
Due to the relatively short history
of virtual currencies in China, the regulatory framework governing the industry is still under development. On June 4, 2009,
the Ministry of Culture and the Ministry of Commerce jointly issued Notice on the Strengthening of the Administration of
Online Game Virtual Currency (the “Virtual Currency Notice”), which defines what a virtual currency is and
requires that entities obtain the approval from the competent culture administrative department before issuing virtual
currency and engaging in transactions using virtual currencies in connection with online games. The Virtual Currency Notice
regulates that virtual currency may only be used to purchase services and products provided by the online service provider
that issues the virtual currency, and also prohibits businesses that issue online game virtual currency from issuing virtual
currency to game players through means other than purchases with legal currency, and from setting game features that involve
the direct payment of cash or virtual currency by players for the chance to win virtual gifts or virtual currency based on
random selection through a lucky draw, wager, or lottery. These restrictions on virtual currency may result in lower sales of
online virtual currency.
Currently, the PRC government has not
promulgated any specific rules, laws, or regulations to directly regulate virtual currencies, except for the above-mentioned
Virtual Currency Notice. Although the term “virtual currency” is widely used in live streaming industry, Scienjoy
believes that the “virtual currency” used in its live streaming communities does not fall into a “virtual
currency” as defined under the Virtual Currency Notice, and Scienjoy is not subject to any online game virtual currency
laws or regulations for its live streaming business. Scienjoy has obtained the approval from the competent culture
administrative department for issuing a virtual currency for online games (which is set forth in the Internet Culture
Operation Licenses that Scienjoy has acquired). So far, Scienjoy has not issued any virtual currency for online games as
defined under the Virtual Currency Notice. However, due to the uncertainties of the interpretation and implementation of
the law and regulation, Scienjoy cannot assure you that the PRC regulatory authorities will not take a different view, in
which case Scienjoy may be required to obtain additional approvals or licenses or change its current business model and may
be subject to fines or other penalties, which could adversely affect its business.
Scienjoy’s results of operations
are subject to quarterly fluctuations due to seasonality.
Scienjoy experiences seasonality in its
business, reflecting seasonal fluctuations in Internet usage. For example, the number of active users tends to be higher during
the last quarter of the year while lower near Chinese New Year season. Furthermore, the number of paying users of Scienjoy’s
online live streaming platforms correlate with the marketing campaigns and promotional activities Scienjoy conducts which may coincide
with popular western or Chinese festivals. As a result, comparing its operating results on a period-to-period basis may not be
meaningful.
Scienjoy does not currently have
business insurance to cover its main assets and business. Any uninsured occurrence of business disruption, litigation, or natural
disaster could expose Scienjoy to significant costs, which could have an adverse effect on its results of operations.
Scienjoy currently does not have any business
liability or disruption insurance to cover its operations. Any uninsured occurrence of business disruption, litigation, or natural
disaster, or significant damages to Scienjoy’s uninsured equipment or facilities could disrupt its business operations, requiring
Scienjoy to incur substantial costs and divert its resources, which could have an adverse effect on its results of operations and
financial condition.
If Scienjoy fails to implement and
maintain an effective system of internal controls, Scienjoy may be unable to accurately report its results of operations, meet
its reporting obligations or prevent fraud, and investor confidence and the market price of its shares may be materially and adversely
affected.
Prior to the Business Combination, Scienjoy
is a private company with limited accounting personnel and other resources to address its internal controls and procedures. Scienjoy
lacks sufficient skilled staff with U.S. GAAP knowledge for the purpose of financial reporting and lacks formal accounting policies
and procedures manual to ensure proper financial reporting to comply with U.S. GAAP and SEC requirements. Scienjoy cannot assure
you that the measures that have been or will be adopted by Scienjoy may fully address the material weakness or other deficiencies
in its internal control over financial.
Upon the completion of this Business Combination,
Scienjoy will become a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley
Act of 2002, or Section 404, will require that Scienjoy include a report of management on its internal control over financial reporting
in its annual report beginning with its annual report for the year ending December 31, 2020. In addition, once Scienjoy ceases
to be an “emerging growth company” as such term is defined in the JOBS Act, its independent registered public accounting
firm must attest to and report on the effectiveness of its internal control over financial reporting. Scienjoy’s management
may conclude that its internal control over financial reporting is not effective. Moreover, even if its management concludes that
its internal control over financial reporting is effective, its independent registered public accounting firm, after conducting
its own independent testing, may issue a report that is qualified if it is not satisfied with its internal controls or the level
at which its controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently
from Scienjoy.
If Scienjoy fails to maintain the adequacy
of its internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, Scienjoy
may not be able to conclude on an ongoing basis that Scienjoy has effective internal control over financial reporting. If Scienjoy
fails to achieve and maintain an effective internal control environment, Scienjoy could suffer material misstatements in its financial
statements and fail to meet its reporting obligations, which would likely cause investors to lose confidence in its reported financial
information. This could in turn limit Scienjoy’s access to capital markets, harm its results of operations and lead to a
decline in the trading price of its shares. Additionally, ineffective internal control over financial reporting could expose Scienjoy
to increased risk of fraud or misuse of corporate assets and subject it to potential delisting from the stock exchange on which
Scienjoy is listed, regulatory investigations and civil or criminal sanctions. Scienjoy may also be required to restate its financial
statements from prior periods.
Scienjoy expects to grant share-based awards
in the future, which may have an adverse effect on its future profit.
Scienjoy expects to adopt share incentive
plans that permit granting of share-based compensation to employees, directors, and consultants in the future after this Business
Combination to incentivize their performance and align their interests with that of Scienjoy. As a result, its expenses associated
with share-based compensation may increase, which may have an adverse effect on its results of operations.
Non-compliance on the part of Scienjoy’s
employees or third parties involved in Scienjoy’s business could adversely affect its business.
Scienjoy’s compliance controls, policies,
and procedures may not protect Scienjoy from acts committed by its employees, agents, contractors, or collaborators that violate
the laws or regulations of the jurisdictions in which Scienjoy operates, which may adversely affect its business.
In addition, Scienjoy’s business
partners or other third parties involved in its business through its business partners (such as contractors, talent agencies, or
other third parties entered into business relationship with Scienjoy’s third- party business partners) may be subject to
regulatory penalties or punishments because of their regulatory compliance failures, which may, directly or indirectly, disrupt
Scienjoy’s business. When Scienjoy enters into a business relationship with a third party partner, Scienjoy cannot be certain
whether such third party business partner has infringed or will infringe any other third parties’ legal rights or violate
any regulatory requirements or rule out the likelihood of incurring any liabilities imposed on Scienjoy due to any regulatory failures
by such third party business partner. In addition, for those third parties actively involved in Scienjoy’s business through
Scienjoy’s business partners, Scienjoy cannot assure you that Scienjoy’s business partners will be able to supervise
and administrate those third parties. The legal liabilities and regulatory actions on Scienjoy’s business partners or other
third parties involved in its business may affect Scienjoy’s business activities and reputation and in turn, its results
of operations.
Scienjoy may not be able to ensure
compliance with United States economic sanctions laws.
The U.S. Department of the Treasury’s
Office of Foreign Assets Control, or OFAC, administers laws and regulations that generally prohibit U.S. persons and, in some instances,
foreign entities owned or controlled by U.S. persons, from conducting activities or transacting business with certain countries,
governments, entities or individuals that are targets of U.S. economic sanctions. Scienjoy does not and will not use any of its
funds for any activities or business with any country, government, entity, or individual in violation of U.S. economic sanctions.
While Scienjoy believes that Scienjoy has
been, and that Scienjoy continues to be, in compliance with applicable U.S. economic sanctions, current safeguards employed by
Scienjoy may fail to prevent broadcasters and users located in countries that are targets of U.S. economic sanctions from accessing
Scienjoy’s platforms. Non-compliance with applicable U.S. economic sanctions could subject Scienjoy to adverse media coverage,
investigations, and severe administrative, civil and possibly criminal sanctions, expenses related to remedial measures, and legal
expenses, which could materially adversely affect Scienjoy’s business, results of operations, financial condition and reputation.
Spammers and malicious software and
applications may affect user experience, which could reduce Scienjoy’s ability to attract users and materially and adversely
affect its business, results of operations, and financial condition.
Spammers may use Scienjoy’s streaming
platforms to send spam messages to users, which may affect user experience. As a result, users may reduce using Scienjoy’s
products and services or stop using them altogether. In spamming activities, spammers typically create multiple user accounts for
the purpose of sending a high volume of repetitive messages. Although Scienjoy attempts to identify and delete accounts created
for spamming purposes, Scienjoy may not be able to effectively eliminate all spam messages from its platforms in a timely fashion.
Any spamming activities could have a material and adverse effect on Scienjoy’s business, results of operations, and financial
condition.
In addition, malicious software and applications
may interrupt the operations of Scienjoy’s websites, Scienjoy’s PC clients or mobile apps and pass on such malware
to its users which could adversely hinder user experience. Although Scienjoy has been successfully blocking these attacks in the
past, Scienjoy cannot guarantee that this will always be the case, and in the incident if users experience a malware attack by
using Scienjoy’s platforms, users may associate the malware with Scienjoy’s websites, Scienjoy’s PC clients or
mobile apps, and Scienjoy’s reputation, business, and results of operations would be materially and adversely affected.
Scienjoy’s leased property
interests may be defective and its right to lease the properties affected by such defects may be challenged, which could adversely
affect its business.
Under PRC laws, all lease agreements
are required to be registered with local housing authorities. Scienjoy leases several premises in China. Scienjoy cannot
assure whether or not all landlords of these premises have registered the relevant lease agreements with the government
authorities, or have completed registration of their ownership rights to the premises. Furthermore, Scienjoy cannot assure
that some of the premises do not have a defective title. Scienjoy may be subject to monetary fines due to failure by the
landlords to complete the required registrations.
Scienjoy may also be forced to relocate
its operations if the landlords do not obtain valid title to or complete the required registrations with local housing authorities
in a timely manner or at all. Scienjoy might not be able to locate desirable alternative sites for its operations in a timely and
cost-effective manner which may adversely affect its business.
Future strategic alliances or acquisitions
may have a material and adverse effect on Scienjoy’s business, reputation, and results of operations.
Scienjoy may enter into strategic alliances,
including joint ventures or minority equity investments, with various third parties to further its business purpose from time to
time. These alliances could subject Scienjoy to a number of risks, including risks associated with sharing proprietary information, non-performance by
the third party and increased expenses in establishing new strategic alliances, any of which may materially and adversely affect
Scienjoy’s business. Scienjoy may have limited ability to monitor or control the actions of these third parties and, to the
extent any of these strategic third parties suffers negative publicity or harm to their reputation from events relating to their
business, Scienjoy may also suffer negative publicity or harm to its reputation by virtue of its association with any such third
party.
In addition, when appropriate opportunities
arise, Scienjoy may acquire additional assets, products, technologies or businesses that are complementary to its existing business.
In addition to possible shareholders’ approval, Scienjoy may also have to obtain approvals and licenses from relevant government
authorities for the acquisitions and to comply with any applicable PRC laws and regulations, which could result in increased delay
and costs, and may derail Scienjoy’s business strategy if it fails to do so. Furthermore, past and future acquisitions and
the subsequent integration of new assets and businesses into Scienjoy’s own require significant attention from Scienjoy’s
management and could result in a diversion of resources from its existing business, which in turn could have an adverse effect
on its business operations. Acquired assets or businesses may not generate the expected financial results. Acquisitions could result
in the use of substantial amounts of cash, potentially dilutive issuances of equity securities, the occurrence of significant goodwill
impairment charges, amortization expenses for other intangible assets and exposure to potential unknown liabilities of the acquired
business. Moreover, the costs of identifying and consummating acquisitions may be significant.
The coronavirus pandemic in China
may have an adverse impact on Scienjoy’s result of operation and financial condition for the fiscal year 2020.
The coronavirus pandemic has caused significant disruptions
to business operations and economic activities in China and will likely have a negative impact on China’s economy at least
in the short term. In the first few months of the fiscal year 2020, there has been no material adverse impact on Scienjoy’s
results of operation and financial condition. However, we expect that Chinese consumers’ spending momentum may weaken, in
general. As a result, the users of Scienjoy’s platforms may be unwilling to pay for live streaming shows. Operation-wise,
the prolonged nationwide work-from-home policy may decrease the overall productivity and morale of Scienjoy’s employees,
all of whom are located in China. In addition, due to restrictions on transportation, the broadcasters’ access to broadcast
studios are more limited and will need to perform their shows remotely without stage decoration, lighting, music, attire, and costumes,
which usually would have been provided by the talent agents in their studios. These factors may reduce the attractiveness of content
provided on Scienjoy’s platforms. If the coronavirus pandemic continues to affect China for longer than 6 months, we expect
an adverse impact on Scienjoy’s results of operation and financial condition for the fiscal year 2020. Furthermore,
although Scienjoy does not have operations in the U.S., the uncertainty about the coronavirus impact on the global economy has
caused and may continue to cause unforeseen and unprecedented volatility in the U.S. capital markets, which may adversely affect
the market for Scienjoy’s stock after the business combination.
Risk
Factors Relating to Scienjoy’s Corporate Structure
Scienjoy relies on contractual arrangements
with Zhihui Qiyuan (Scienjoy VIE) and its registered shareholders for Scienjoy’s operations in China, which may not be as
effective in providing operational control as direct ownership.
Due to PRC restrictions or prohibitions
on foreign ownership of Internet and other related businesses in China, Scienjoy
operates its business in China through Scienjoy VIEs, in which it has no ownership interest. Scienjoy relies on a series of contractual
arrangements with Zhihui Qiyuan (Scienjoy VIE) and its registered shareholders, including the powers of attorney, to control and
operate business of the Scienjoy VIEs (namely, Zhihui Qiyuan and its subsidiaries). These contractual arrangements are intended
to provide Scienjoy with effective control over its the Scienjoy
VIEs and allow Scienjoy to obtain economic benefits from them.
See “Corporate History and Structure—Contractual Arrangements with Scienjoy VIE and Its Respective Registered Shareholders”
for more details about these contractual arrangements. In particular, Scienjoy’s
ability to control the Scienjoy VIEs depends on the powers of attorney, pursuant to which Sixiang Wuxian (its indirect wholly-owned
subsidiary in China) can vote on all matters requiring shareholder approval in the Scienjoy VIEs. Scienjoy
believes these powers of attorney are legally enforceable but may not be as effective as direct equity ownership.
Any failure by Zhihui Qiyuan (Scienjoy
VIE) and its registered shareholders to perform their obligations under Scienjoy’s contractual arrangements with them would
have a material adverse effect on Scienjoy’s business.
Scienjoy relies on a series of contractual
arrangements with Zhihui Qiyuan (Scienjoy VIE) and its registered shareholders, including the powers of attorney, to control and
operate business of the Scienjoy VIEs. If Zhihui Qiyuan or its shareholders fail to perform their respective obligations under
the contractual arrangements, Scienjoy may incur substantial costs and expend substantial resources to enforce its rights. Scienjoy
may also have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming
damages, which it cannot assure you will be effective under PRC laws.
All these contractual arrangements are
governed by and interpreted in accordance with PRC law, and disputes arising from these contractual arrangements will be resolved
through arbitration in China. However, the legal system in China, particularly as it relates to arbitration proceedings, is not
as developed as the legal system in many other jurisdictions, such as the United States. There are very few precedents and little
official guidance as to how contractual arrangements in the context of a VIE should be interpreted or enforced under PRC law. There
remain significant uncertainties regarding the ultimate outcome of arbitration should legal action become necessary. These uncertainties
could limit Scienjoy’s ability to enforce these contractual
arrangements. In addition, arbitration awards are final and can only be enforced in PRC courts through arbitration award recognition
proceedings, which could cause additional expenses and delays. In the event Scienjoy
is unable to enforce these contractual arrangements or Scienjoy
experiences significant delays or other obstacles in the process of enforcing these contractual arrangements, it may not be able
to exert effective control over the Scienjoy VIEs and may lose
control over the assets owned by the Scienjoy VIEs. As a result,
it may be unable to consolidate the financial results of such entities in its combined and consolidated financial statements, its
ability to conduct its business may be negatively affected, and its operations could be severely disrupted, which could materially
and adversely affect its results of operations and financial condition.
If the PRC government deems that
the agreements that establish the structure for operating Scienjoy’s businesses in China do not comply with PRC regulations
on foreign investment in Internet and other related businesses, or if these regulations or their interpretation change in the future,
Scienjoy could be subject to severe penalties or be forced to relinquish its interests in those operations, and may need to reorganize
its current corporate structure to comply with PRC laws and regulations.
PRC laws and regulations impose certain
restrictions or prohibitions on foreign ownership of companies that engage in Internet and other related businesses (usually defined
as “value-added telecommunication business” under relevant PRC authorities), including the provision of Internet content
and online service operations, which fell under the catalogue of negative list published and updated by PRC Ministry of Commerce
from time to time. Specifically, foreign ownership is prohibited in industries of online audio and video program services and
Internet cultural business (excluding music), foreign ownership of an Internet content provider may not exceed 50%, and the major
foreign investor is required to have a record of good performance and operating experience in managing value-added telecommunications
business. Scienjoy is a company registered in the Cayman Islands
and Sixiang Wuxian (its indirect wholly-owned subsidiary in China) is a foreign-invested enterprise (or called “wholly foreign-owned
enterprise”, the “WFOE”) under PRC laws and regulations. To comply with PRC laws and regulations, Scienjoy
has to conduct its business in China mainly through Sixiang Wuxian and Zhihui Qiyuan (Scienjoy VIE) and their respective
subsidiaries, based on a series of contractual arrangements by and among Sixiang Wuxian, Zhihui Qiyuan, and its registered shareholders.
As a result of these contractual arrangements, Scienjoy exerts control over the Scienjoy
VIEs (namely, Zhihui Qiyuan and its subsidiaries) and consolidate their financial results in Scienjoy’s
financial statements under U.S. GAAP. Scienjoy VIEs (namely, Zhihui Qiyuan and its subsidiaries) hold the licenses, approvals,
and key assets that are essential for its operations.
In
the opinion of Scienjoy’s PRC counsel, Feng Yu Law Firm, based on its understanding
of the relevant PRC laws and regulations, each of the contracts among Sixiang Wuxian, Zhihui Qiyuan and its registered shareholders
is valid, binding, and enforceable in accordance with its terms. However, Scienjoy
has been further advised by its PRC counsel that there are substantial uncertainties regarding the interpretation and application
of current or future relevant PRC laws and regulations. Thus, the PRC government may ultimately take a view contrary to the opinion
of its PRC counsel. In addition, PRC government authorities may deem that foreign ownership is directly or indirectly involved
in each of Scienjoy VIEs’ shareholding structure. If Scienjoy’s group companies
(including Scienjoy’s WFOE and its subsidiaries and Scienjoy VIEs) are found in violation of any PRC laws or regulations,
or if the contractual arrangements among Sixiang Wuxian, Zhihui Qiyuan and its registered shareholders are determined as illegal
or invalid by the PRC court, arbitral tribunal or regulatory authorities, the relevant governmental authorities would have broad
discretion in dealing with such violation, including, without limitation:
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revoking the business licenses and/or operating licenses of such entities;
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levying fines on Scienjoy’s related PRC companies;
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confiscating any of Scienjoy’s income that they deem to be obtained through illegal operations;
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discontinuing or placing restrictions or onerous conditions on Scienjoy’s operations conducted
by its related PRC companies;
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placing restrictions on Scienjoy’s right to collect revenues;
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shutting down Scienjoy’s servers or blocking its app/websites;
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requiring it to change its corporate structure and contractual arrangements;
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imposing additional conditions or requirements with which Scienjoy may not be able to comply; or
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taking other regulatory or enforcement actions against Scienjoy that could be harmful to its business.
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The imposition of any of these penalties
may result in a material and adverse effect on Scienjoy’s ability to conduct
its business operations. In addition, if the imposition of any of these penalties causes Scienjoy
to lose the rights to direct the activities of its consolidated affiliated entities or the right to receive their economic
benefits, Scienjoy would no longer be able to consolidate their financial results.
Scienjoy may lose the ability to
use and enjoy assets held by the Scienjoy VIEs that are important to its business if its VIEs declare bankruptcy or become subject
to a dissolution or liquidation proceeding.
Scienjoy VIEs hold certain assets that
are important to Scienjoy’s operations, including the ICP License, SP License, the Internet Culture Operation Permit, the
Commercial Performance License, and Radio and Television Program Production and Operating Permit. Under Scienjoy’s contractual
arrangements, the shareholders of the Scienjoy VIEs may not voluntarily liquidate the Scienjoy VIEs or approve them to sell, transfer,
mortgage, or dispose of their assets or legal or beneficial interests in the business in any manner without its prior consent.
However, in the event that the shareholders breach this obligation and voluntarily liquidate the Scienjoy
VIEs, or the Scienjoy VIEs declare bankruptcy, or all or part
of their assets become subject to liens or rights of third-party creditors, Scienjoy may be unable to continue some or all of its
business activities, which could materially and adversely affect its business, results of operations, and financial condition.
Furthermore, if the Scienjoy VIEs undergo a voluntary or involuntary
liquidation proceeding, their shareholders or unrelated third-party creditors may claim rights to some or all of its assets, hindering
Scienjoy’s ability to operate its business, which could materially and adversely affect its business, financial condition,
and results of operations.
Contractual arrangements may be subject
to scrutiny by the PRC tax authorities. A finding that Scienjoy owes additional taxes could negatively affect its financial condition
and the value of your investment.
Pursuant to applicable PRC laws and regulations,
arrangements and transactions among related parties may be subject to audit or challenge by PRC tax authorities. Scienjoy may be
subject to adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among Sixiang Wuxian,
Zhihui Qiyuan, and its registered shareholders are not on an arm’s length basis and therefore constitute favorable transfer
pricing. As a result, the PRC tax authorities could require that Scienjoy VIEs adjust their taxable income upward for PRC tax purposes.
Such an adjustment could increase Scienjoy VIEs’ tax expenses without reducing the tax expenses of Sixiang Wuxian, subject
the Scienjoy VIEs to late payment fees and other penalties for under-payment of taxes, and result in the loss of any preferential
tax treatment Sixiang Wuxian may have. As a result, Scienjoy’s consolidated results of operations may be adversely affected.
Scienjoy’s shareholders or
the shareholders of the Scienjoy VIEs may have potential conflicts of interest with Scienjoy, which may materially and adversely
affect its business.
The shareholders of the Scienjoy VIEs include
persons who are also its shareholders or affiliates of its shareholders, and, in some cases, its directors or officers. Conflicts
of interest may arise between the roles of them as shareholders, directors or officers of Scienjoy and as shareholders of the Scienjoy
VIEs. For individuals who are also its directors and officers, Scienjoy relies on them to abide by the laws of the Cayman Islands,
which provide that directors and officers owe a fiduciary duty to Scienjoy to act in good faith and in its best interest and not
to use their positions for personal gain. The registered shareholders of Zhihui Qiyuan (Scienjoy VIE) have executed powers of attorney
to appoint Sixiang Wuxian (Scienjoy’s WFOE) or a person designated by Sixiang Wuxian to vote on their behalf and exercise
voting rights as the registered shareholders of Zhihui Qiyuan. Scienjoy cannot assure you that when conflicts arise, these shareholders
will act in the best interest of Scienjoy or that conflicts will be resolved in its favor. The legal frameworks of China and the
Cayman Islands do not provide guidance on resolving conflicts in the event of a conflict with another corporate governance regime.
If Scienjoy cannot resolve any conflicts of interest or disputes between it and these shareholders, it would have to rely on legal
proceedings, which may be expensive, time-consuming, and disruptive to its operations. There is also substantial uncertainty as
to the outcome of any such legal proceedings.
Additionally, Scienjoy relies on its shareholders
and the registered shareholders of Zhihui Qiyuan to secure, both at the internal and external level, all the necessary approvals,
permits, filings or other formalities and proceedings in relation to their respective investment in Scienjoy and/or the Scienjoy
VIEs. Scienjoy cannot assure you that its shareholders, registered shareholders of Zhihui Qiyuan and the Scienjoy VIEs have obtained
all of such necessary approvals, permits, filings or other formalities and proceedings. The failure to obtain such approvals, permits,
filings or other formalities and proceedings may adversely affect Scienjoy’s business and results of operation.
Scienjoy may rely on dividends paid
by its PRC subsidiaries to fund cash and financing requirements. Any limitation on the ability of its PRC subsidiaries to pay dividends
to Scienjoy could have a material adverse effect on its ability to conduct its business and to pay dividends to holders of the
ordinary shares and its ordinary shares.
Scienjoy and its Hong Kong subsidiary are
holding companies, and Scienjoy may rely on dividends to be paid by its PRC subsidiaries for its cash and financing requirements,
including the funds necessary to pay dividends and other cash distributions to the holders of the ordinary shares a and service
any debt it may incur. If Scienjoy’s PRC subsidiaries incur debt on their own behalf in the future, the instruments governing
the debt may restrict their ability to pay dividends or make other distributions to Scienjoy.
Under PRC laws and regulations, a wholly
foreign-owned enterprise in China, such as Sixiang Wuxian, may pay dividends only out of its accumulated profits as determined
in accordance with PRC accounting standards and regulations. In addition, according to current effective PRC laws and regulations
regarding foreign investment which may be updated following the effectiveness of PRC Foreign Investment Law, a wholly foreign-owned
enterprise is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated
losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such fund reaches 50% of its registered
capital. At the discretion of the board of directors of the wholly foreign-owned enterprise, it may allocate a portion of its after-tax
profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds
are not distributable as cash dividends. Any limitation on the ability of Scienjoy’s PRC subsidiaries to pay dividends or
make other distributions to Scienjoy could materially and adversely limit its ability to grow, make investments or acquisitions
that could be beneficial to its business, pay dividends, or otherwise fund and conduct its business.
Substantial uncertainties exist with
respect to whether the foreign investor’s controlling PRC onshore variable interest entities via contractual arrangements
will be recognized as “foreign investment” and how it may impact the viability of Scienjoy’s current corporate
structure and operations.
On March 15, 2019, the National People’s
Congress of the PRC adopted the PRC Foreign Investment Law, which will come into force on January 1, 2020. The PRC Foreign Investment
Law defines the “foreign investment” as the investment activities in China conducted directly or indirectly by foreign
investors in the following manners: (i) the foreign investor, by itself or together with other investors establishes a foreign
invested enterprises in China; (ii) the foreign investor acquires shares, equities, asset tranches, or similar rights and interests
of enterprises in China; (iii) the foreign investor, by itself or together with other investors, invests and establishes new projects
in China; (iv) the foreign investor invests through other approaches as stipulated by laws, administrative regulations or otherwise
regulated by the State Council. The PRC Foreign Investment Law keeps silent on how to define and regulate the “variable interest
entities,” while adding a catch-all clause that “other approaches as stipulated by laws, administrative regulations
or otherwise regulated by the State Council” can fall into the concept of “foreign investment,” which leaves
uncertainty as to whether the foreign investor’s controlling PRC onshore variable interest entities via contractual arrangements
will be recognized as “foreign investment.” Pursuant to the PRC Foreign Investment Law, PRC governmental authorities
will regulate foreign investment by applying the principle of pre-entry national treatment together with a “negative list,”
which will be promulgated by or promulgated with approval by the State Council or its authorized governmental department such as
Ministry of Commerce. Foreign investors are prohibited from making any investments in the industries which are listed as “prohibited”
in such negative list; and, after satisfying certain additional requirements and conditions as set forth in the “negative
list,” are allowed to make investments in the industries which are listed as “restricted” in such negative list.
For any foreign investor that fails to comply with the negative list, the competent authorities are entitled to ban its investment
activities, require such investor to take measures to correct its non-compliance and impose other penalties.
The Internet content service, Internet
audio-visual program services and online culture activities that Scienjoy conducts through its consolidated variable interest entities
are subject to foreign investment restrictions/prohibitions set forth in the Special Administrative Measures (Negative List) for
the Access of Foreign Investment (2019) issued by Ministry of Commerce.
The PRC Foreign Investment Law leaves leeway
for future laws, administrative regulations or provisions of the State Council and its departments to provide for contractual arrangements
as a form of foreign investment. It is therefore uncertain whether Scienjoy’s corporate structure will be seen as violating
foreign investment rules as Scienjoy is currently using the contractual arrangements to operate certain businesses in which foreign
investors are currently prohibited from or restricted to investing. Furthermore, if future laws, administrative regulations or
provisions of the State Council and its departments mandate further actions to be taken by companies with respect to existing contractual
arrangements, Scienjoy may face substantial uncertainties as to whether it can complete such actions in a timely manner, or at
all. If Scienjoy fails to take appropriate and timely measures to comply with any of these or similar regulatory compliance requirements,
its current corporate structure, corporate governance and business operations could be materially and adversely affected.
If the custodians or authorized persons
of Scienjoy’s controlling non-tangible assets, including chops and seals, fail to fulfill their responsibilities, or misappropriate
or misuse these assets, Scienjoy’s business and operations may be materially and adversely affected.
In China, a company chop or seal serves
as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally registered
company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition
to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of Scienjoy’s
PRC subsidiaries and the Scienjoy VIEs are generally held securely by the personnel designated or approved by Scienjoy in accordance
with its internal control procedures. To the extent those chops are not kept safe, are stolen, or are used by unauthorized persons
or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those
corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who
lacked the requisite power and authority to do so. If any of Scienjoy’s authorized personnel obtains, misuses, or misappropriates
its chops for whatever reason, it could experience disruptions in its operations. Scienjoy may also have to take corporate or legal
action, which could require significant time and resources to resolve while distracting management from its operations. Any of
the foregoing could adversely affect its business and results of operations.
Risk
Factors Relating to Doing Business in China
Uncertainties in the interpretation
and enforcement of PRC laws and regulations could limit the legal protections available to you and Scienjoy.
The PRC legal system is based on written
statutes where prior court decisions have limited value as precedents. Scienjoy’s PRC subsidiaries and Scienjoy VIEs, in
particular Sixiang Wuxian, a wholly foreign-owned enterprises, are subject to laws and regulations applicable to foreign-invested
enterprises as well as various Chinese laws and regulations generally applicable to companies incorporated in China. However, since
these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many
laws, regulations, and rules are not always uniform, and enforcement of these laws, regulations, and rules involves uncertainties.
From time to time, Scienjoy may have to
resort to administrative and court proceedings to enforce its legal rights. However, since PRC administrative and court authorities
have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate
the outcome of administrative and court proceedings and the level of legal protection Scienjoy may receive. Furthermore, the PRC
legal system is based in part on government policies and internal rules that may have retroactive effect. As a result, Scienjoy
may not be aware of its violation of these policies and rules until sometime after the violation. Such uncertainties, including
uncertainty over the scope and effect of its contractual, property (including intellectual property) and procedural rights, could
materially and adversely affect Scienjoy’s business and impede its ability to continue its operations.
Regulation and censorship of information
disseminated over the mobile and Internet in China may adversely affect Scienjoy’s business and subject Scienjoy to liability
for streaming content or content posted on its platforms.
Internet companies in China are subject
to a variety of existing and new rules, regulations, policies, and license and permit requirements. In connection with enforcing
these rules, regulations, policies, and requirements, relevant government authorities may suspend services by, or revoke licenses
of, any Internet or mobile content service provider that is deemed to provide illicit content online or on mobile devices, and
such activities may be intensified in connection with any ongoing government campaigns to eliminate prohibited content online.
For example, in 2016, the Office of the Anti-Pornography and Illegal Publications Working Group, the Cyberspace Administration
of China, the Ministry of Industry and Information Technology, the Ministry of Culture and the Ministry of Public Security jointly
launched a “Clean Up the Internet 2016” campaign. Based on publicly available information, the campaign aims to eliminate
pornographic information and content in the Internet information services industry by, among other things, holding liable individuals
and corporate entities that facilitate the distribution of pornographic information and content. Publicly traded Chinese Internet
companies voluntarily initiated self-investigations to filter and remove content from their websites and cloud servers.
Scienjoy endeavors to eliminate illicit
content from its platforms. Scienjoy has made substantial investments in resources to monitor content that broadcasters generate
on its platforms and the way in which its users engage with each other through its platforms. Scienjoy uses a variety of methods
to ensure its platforms remain a healthy and positive experience for its users. Although Scienjoy employs these methods to filter
content posted on its platforms, Scienjoy cannot be sure that its internal content control efforts will be sufficient to remove
all content that may be viewed as indecent or otherwise non-compliant with PRC law and regulations. Government standards and interpretations
as to what constitutes illicit online content or behavior are subject to interpretation and may change in a manner that could render
Scienjoy’s current monitoring efforts insufficient. The Chinese government has wide discretion in regulating online activities
and, irrespective of its efforts to control the content on its platforms, government campaigns and other actions to reduce illicit
content and activities could subject Scienjoy to negative press or regulatory challenges and sanctions, including fines, suspension
or revocation of its licenses to operate in China or a suspension or ban on its mobile or online platform, including suspension
or closure of one or more parts of or its entire business. Further, Scienjoy’s senior management could be held criminally
liable if Scienjoy is deemed to be profiting from illicit content on its platforms. Although Scienjoy’s business and operations
have not been materially and adversely affected by government campaigns or any other regulatory actions in the past, there is no
assurance that Scienjoy’s business and operations will be immune from government actions or sanctions in the future. If government
actions or sanctions are brought against Scienjoy, or if there are widespread rumors that government actions or sanctions have
been brought against Scienjoy, Scienjoy’s reputation could be harmed and Scienjoy may lose users and customers. As a result,
Scienjoy’s revenues and results of operations may be materially and adversely affected and the value of its ordinary shares
could be dramatically reduced.
Adverse changes in global or China’s
economic, political or social conditions or government policies could have a material adverse effect on Scienjoy’s business,
results of operations and financial condition.
Scienjoy’s revenues are substantially
sourced from China. Accordingly, Scienjoy’s results of operations, financial condition and prospects are influenced by economic,
political, and legal developments in China. Economic reforms begun in the late 1970s have resulted in significant economic growth.
However, any economic reform policies or measures in China may from time to time be modified or revised. China’s economy
differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement,
level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced
significant growth in the past 40 years, growth has been uneven across different regions and among different economic sectors and
the rate of growth has been slowing.
China’s economic conditions are sensitive
to global economic conditions. The global financial markets have experienced significant disruptions since 2008 and the United
States, Europe, and other economies have experienced periods of recession. The global macroeconomic environment is facing new challenges
and there is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the
central banks and financial authorities of some of the world’s leading economies. Recent international trade disputes, including
tariff actions announced by the United States, the PRC, and certain other countries, and the uncertainties created by such disputes
may cause disruptions in the international flow of goods and services and may adversely affect the Chinese economy as well as global
markets and economic conditions. There have also been concerns about the economic effect of military conflicts and political turmoil
or social instability in the Middle East, Europe, Africa, and other places. Any severe or prolonged slowdown in the global economy
may adversely affect the Chinese economy which in turn may adversely affect Scienjoy’s business and operating results.
The PRC government exercises significant
control over China’s economic growth through strategically allocating resources, controlling the payment of foreign currency-denominated
obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Although the PRC
economy has grown significantly in the past decade, that growth may not continue, as evidenced by the slow-down of the growth of
the PRC economy since 2012. Any adverse changes in economic conditions in China, in the policies of the PRC government or in the
laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could
adversely affect Scienjoy’s business and operating results, lead to a reduction in demand for its services and adversely
affect its competitive position.
Currently, there is no law or regulation
specifically governing virtual asset property rights and therefore it is not clear what liabilities, if any, live streaming platform
operators may have for virtual assets.
While participating on its platforms, Scienjoy’s
users acquire, purchase, and accumulate some virtual assets, such as gifts or certain status. Such virtual assets can be important
to users and have monetary value and, in some cases, are sold for actual money. In practice, virtual assets can be lost for various
reasons, often through other users’ unauthorized use of another user account and occasionally through data loss caused by
delay of network service, network crash, or hacking activities. Currently, there is no PRC law or regulation specifically governing
virtual asset property rights. As a result, there is uncertainty as to who the legal owner of virtual assets is, whether and how
the ownership of virtual assets is protected by law, and whether an operator of live streaming platform such as Scienjoy would
have any liability, whether in contract, tort or otherwise, to users or other interested parties, for loss of such virtual assets.
Based on recent PRC court judgments, the courts have typically held online platform operators liable for losses of virtual assets
by platform users and ordered online platform operators to return the lost virtual items to users or pay damages and losses. In
case of a loss of virtual assets, Scienjoy may be sued by its users and held liable for damages, which may negatively affect its
reputation and business, results of operations, and financial condition.
Under the PRC enterprise income tax
law, Scienjoy may be classified as a PRC “resident enterprise,” which could result in unfavorable tax consequences
to Scienjoy and its shareholders and have a material adverse effect on its results of operations and the value of your investment.
Under the PRC enterprise income tax law
that became effective on January 1, 2008 and other related rules and regulations published by PRC State Taxation Administration,
an enterprise established outside the PRC with “de facto management bodies” within the PRC is considered a “resident
enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on
its worldwide income. On April 22, 2009, the State Taxation Administration, or the SAT, issued the Circular Regarding the Determination
of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprise on the Basis of De Facto Management Bodies,
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. Further to SAT Circular 82, on August 3, 2011,
the State Taxation Administration issued the Administrative Measures of Enterprise Income Tax of Chinese-Controlled Offshore Incorporated
Resident Enterprises (Trial), or SAT Bulletin 45, which became effective on September 1, 2011, to provide more guidance on the
implementation of SAT Circular 82.
According to SAT Circular 82, an offshore
incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be considered a PRC tax resident enterprise
by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its
worldwide income only if all of the following conditions are met: (a) the senior management and core management departments in
charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions
are subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books, company seals,
and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (d) not less than half
of the enterprise’s directors or senior management with voting rights habitually reside in the PRC. SAT Bulletin 45 provides
further rules on residence status determination, post-determination administration as well as competent tax authorities procedures.
Although SAT Circular 82 and SAT Bulletin
45 apply only to offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise group and not those controlled
by PRC individuals or foreigners, the determination criteria set forth therein may reflect SAT’s general position on how
the term “de facto management body” could be applied in determining the tax resident status of offshore enterprises,
regardless of whether they are controlled by PRC enterprises, individuals, or foreigners.
Scienjoy does not meet all of the conditions
set forth in SAT Circular 82. Therefore, Scienjoy believes that Scienjoy should not be treated as a “resident enterprise”
for PRC tax purposes even if the standards for “de facto management body” prescribed in the SAT Circular 82 applied
to Scienjoy. For example, Scienjoy’s minutes and files of the resolutions of its board of directors and the resolutions of
its shareholders are maintained outside the PRC.
However, it is possible that the PRC tax
authorities may take a different view. If the PRC tax authorities determine that Scienjoy or any Hong Kong subsidiary is a PRC
resident enterprise for PRC enterprise income tax purposes, its world-wide income could be subject to PRC tax at a rate of 25%,
which could reduce Scienjoy’s net income. In addition, Scienjoy will also be subject to PRC enterprise income tax reporting
obligations. Although dividends paid by one PRC tax resident to another PRC tax resident should qualify as “tax-exempt income”
under the enterprise income tax law, Scienjoy cannot assure you that dividends paid by its PRC subsidiary to Scienjoy or any of
its Hong Kong subsidiaries will not be subject to a 10% withholding tax if Scienjoy or its Hong Kong subsidiary were treated as
a PRC resident enterprise. The PRC foreign exchange control authorities, which enforce the withholding tax on dividends, and the
PRC tax authorities have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated
as resident enterprises for PRC enterprise income tax purposes.
If Scienjoy is treated as a resident enterprise,
non-PRC resident shareholders may also be subject to PRC withholding tax on dividends paid by Scienjoy and PRC tax on gains realized
on the sale or other disposition of Scienjoy’s ordinary shares, if such income is sourced from within the PRC. The tax would
be imposed at the rate of 10% in the case of non-PRC resident enterprise shareholders and 20% in the case of non-PRC resident individual
holders. In the case of dividends, Scienjoy would be required to withhold the tax at source. Any PRC tax liability may be reduced
under applicable tax treaties or similar arrangements, but it is unclear whether a non-PRC shareholders 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 Scienjoy is treated
as a PRC resident enterprise. Although Scienjoy’s holding company is incorporated in the Cayman Islands, it remains unclear
whether dividends received and gains realized by its non-PRC resident shareholders will be regarded as income from sources within
the PRC if Scienjoy is classified as a PRC resident enterprise. Any such tax will reduce the returns on your investment in Scienjoy.
There are uncertainties with respect
to indirect transfers of PRC taxable properties outside a public stock exchange.
Scienjoy faces uncertainties on the reporting
and consequences on private equity financing transactions, private share transfers and share exchange involving the transfer of
shares in Scienjoy by non-resident investors. According to the Notice on Several Issues Concerning Enterprise Income Tax for Indirect
Share Transfer by Non-PRC Resident Enterprises, issued by the State Taxation Administration on February 3, 2015, or SAT Circular
7, an “indirect transfer” of assets of a PRC resident enterprise, including a transfer of equity interests in a non-PRC
holding company of a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer
of PRC taxable properties, if such transaction lacks reasonable commercial purpose and was undertaken for the purpose of reducing,
avoiding or deferring PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise
income tax, and tax filing or withholding obligations may be triggered, depending on the nature of the PRC taxable properties being
transferred. According to SAT Circular 7, “PRC taxable properties” include assets of a PRC establishment or place of
business, real properties in the PRC, and equity investments in PRC resident enterprises, in respect of which gains from their
transfer by a direct holder, being a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. When determining
if there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration
include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable properties;
whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income
mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable properties
have a real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business
model and organizational structure; the replicability of the transaction by direct transfer of PRC taxable properties; and the
tax situation of such indirect transfer outside China and its applicable tax treaties or similar arrangements. In respect of an
indirect offshore transfer of assets of a PRC establishment or place of business of a foreign enterprise, the resulting gain is
to be included with the annual enterprise filing of the PRC establishment or place of business being transferred, and would consequently
be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to PRC real properties or to equity
investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise,
a PRC enterprise income tax at 10% would apply, subject to available preferential tax treatment under applicable tax treaties or
similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. Where the payer
fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the competent tax authority by itself
within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. Currently, SAT
Circular 7 does not apply to the sale of shares by investors through a public stock exchange where such shares were acquired in
a transaction on a public stock exchange.
Scienjoy cannot assure you that the PRC
tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing and withholding or tax payment
obligations and associated penalties with respect to any internal restructuring, and its PRC subsidiary may be requested to assist
in the filing. Any PRC tax imposed on a transfer of Scienjoy’s shares not through a public stock exchange, or any adjustment
of such gains would cause Scienjoy to incur additional costs and may have a negative impact on the value of your investment in
Scienjoy.
Implementation of the new labor laws
and regulations in China may adversely affect Scienjoy’s business and results of operations.
Pursuant to the labor contract law that
took effect in January 2008, its implementation rules that took effect in September 2008 and its amendment that took effect in
July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration,
determining the term of employees’ probation and unilaterally terminating labor contracts. Due to lack of detailed interpretative
rules and uniform implementation practices and broad discretion of the local competent authorities, it is uncertain as to how the
labor contract law and its implementation rules will affect Scienjoy’s current employment policies and practices. Scienjoy’s
employment policies and practices may violate the labor contract law or its implementation rules, and Scienjoy may thus be subject
to related penalties, fines, or legal fees. Compliance with the labor contract law and its implementation rules may increase Scienjoy’s
operating expenses, in particular its personnel expenses. In the event that Scienjoy decides to terminate some of its employees
or otherwise change its employment or labor practices, the labor contract law and its implementation rules may limit its ability
to affect those changes in a desirable or cost-effective manner, which could adversely affect Scienjoy’s business and results
of operations. On October 28, 2010, the Standing Committee of the National People’s Congress promulgated the PRC Social Insurance
Law, or the Social Insurance Law, which became effective on July 1, 2011. According to the Social Insurance Law and related rules
and regulations, employees must participate in pension insurance, work-related injury insurance, medical insurance, unemployment
insurance, and maternity insurance and the employers must, together with their employees or separately, pay the social insurance
premiums for their employees. If the company has not fully paid such social insurance based on employee’s actual salaries,
it may face relevant authorities’ investigation and examination, and subject to penalties or fines.
Scienjoy expects its labor costs to increase
due to the implementation of these laws and regulations, as updated from time to time. As the interpretation and implementation
of these laws and regulations are still evolving and become stricter, PRC tax authorities, for example, may become the governmental
agencies for collection and examination of each company’s withholding and payment of social insurance after 2019 according
to related rules and policies. Scienjoy cannot assure you that its employment practice will at all times be deemed in full compliance
with labor-related laws and regulations in China, which may subject Scienjoy to labor disputes or government investigations. If
Scienjoy’s PRC subsidiaries are deemed to have violated relevant labor laws and regulations, they can be required to provide
additional compensation to their employees and Scienjoy’s business, results of operations, and financial condition could
be materially and adversely affected.
Further, labor disputes, work stoppages
or slowdowns at Scienjoy or any of its third-party service providers could significantly disrupt Scienjoy’s daily operation
or its expansion plans and have a material adverse effect on Scienjoy’s business.
China’s M&A Rules and certain
other PRC regulations establish complex procedures for certain acquisitions of Chinese companies by foreign investors, which could
make it more difficult for Scienjoy to pursue growth through acquisitions in China.
The Regulations on Mergers and Acquisitions
of Domestic Enterprises by Foreign Investors, or the M&A Rules, and other recently adopted regulations and rules concerning
mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by
foreign investors more time consuming and complex. For example, the M&A Rules require that PRC Ministry of Commerce (or previously
called “MOFCOM”) be notified in advance of any change-of-control transaction in which a foreign investor takes control
of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or
may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which
holds a famous trademark or PRC time-honored brand. Moreover, the PRC Anti-Monopoly Law promulgated by the Standing Committee of
the National People’s Congress effective as of August 1, 2008 and its related rules and regulations require that transactions
which are deemed concentrations and involve parties with specified turnover thresholds (i.e., during the previous fiscal year,
(i) the total global turnover of all operators participating in the transaction exceeds RMB10 billion and at least two of these
operators each had a turnover of more than RMB 400 million within China, or (ii) the total turnover within China of all the operators
participating in the concentration exceeded RMB 2 billion, and at least two of these operators each had a turnover of more than
RMB 400 million within China) must be cleared by the anti-monopoly enforcement authority before they can be completed. In addition,
on February 3, 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review System for
Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, also known as Circular 6, which officially established a
security review system for mergers and acquisitions of domestic enterprises by foreign investors. Further, MOFCOM promulgated the
Regulations on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors,
effective as of September 1, 2011, to implement Circular 6. Under Circular 6, a security review is required for mergers and acquisitions
by foreign investors having “national defense and security” concerns and mergers and acquisitions by which foreign
investors may acquire the “de facto control” of domestic enterprises with “national security” concerns.
Under the foregoing MOFCOM regulations, MOFCOM will focus on the substance and actual impact of the transaction when deciding whether
a specific merger or acquisition is subject to security review. If MOFCOM decides that a specific merger or acquisition is subject
to a security review, it will submit it to the Inter-Ministerial Panel, an authority established under Circular 6 led by the National
Development and Reform Commission, and MOFCOM under the leadership of the State Council, to carry out security review. The regulations
prohibit foreign investors from bypassing the security review by structuring transactions through trusts, indirect investments,
leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation
stating that the merging or acquisition of a company engaged in the Internet content or mobile games business requires security
review, and there is no requirement that acquisitions completed prior to the promulgation of the Security Review Circular are subject
to MOFCOM review. In addition, following the effectiveness of the PRC Foreign Investment Law, Scienjoy cannot assure that aforementioned
foreign M&A rules, regulations and policies will have extensive and substantial changes.
In the future, Scienjoy may grow its business
by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules
to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from MOFCOM
or its local counterparts may delay or inhibit Scienjoy’s ability to complete such transactions. Scienjoy believes that it
is unlikely that its business would be deemed to be in an industry that raises “national defense and security” or “national
security” concerns. However, MOFCOM or other government agencies may publish explanations in the future determining that
Scienjoy’s business is in an industry subject to the security review, in which case its future acquisitions in China, including
those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited.
PRC regulations relating to offshore
investment activities by PRC residents may limit the ability of Sixiang Wuxian (Scienjoy’s indirect wholly-owned subsidiary
in China) to increase its registered capital or distribute profits to Scienjoy or otherwise expose Scienjoy to liability and penalties
under PRC law.
The State Administration of Foreign Exchange
(SAFE) promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip
Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 and related rules and regulations that require PRC
residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore
entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update
their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information
(including change of such PRC citizens or residents, name, and operation term), increases or decreases in investment amount, transfers
or exchanges of shares, or mergers or divisions. According to the Notice on Further Simplifying and Improving Policies for the
Foreign Exchange Administration of Direct Investment released on February 13, 2015 by the SAFE, local banks will examine and handle
foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment
registration, under SAFE Circular 37 from June 1, 2015.
If Scienjoy’s shareholders or beneficial
owners who are PRC residents or entities (as applicable) do not complete their registration with the local SAFE branches, Scienjoy’s
PRC subsidiary (in particular, the WFOE) may be prohibited from distributing their profits and proceeds from any reduction in capital,
share transfer or liquidation to Scienjoy, and Scienjoy may be restricted in its ability to contribute additional capital to its
PRC subsidiary (in particular, the WFOE). Moreover, failure to comply with the SAFE registration described above could result in
liability under PRC laws for evasion of applicable foreign exchange restrictions. However, Scienjoy may not at all times be fully
aware or informed of the identities of all its shareholders or beneficial owners that are required to make such registrations,
and Scienjoy cannot compel its beneficial owners to comply with SAFE registration requirements. As a result, Scienjoy cannot assure
you that all of its shareholders or beneficial owners who are PRC residents or entities have complied with, and will in the future
make or obtain any applicable registrations or approvals required by SAFE regulations. Failure by such shareholders or beneficial
owners to comply with SAFE regulations, or failure by Scienjoy to amend the foreign exchange registrations of its PRC subsidiary
(in particular, the WFOE), could subject Scienjoy to fines or legal sanctions, restrict its overseas or cross-border investment
activities, limit its subsidiaries’ ability to make distributions or pay dividends or affect its ownership structure, which
could adversely affect its business and prospects.
PRC regulation of direct investment
and loans by offshore holding companies to PRC entities may delay or limit Scienjoy to make additional capital contributions or
loans to its PRC subsidiaries.
Scienjoy is an offshore holding company
conducting its operations in China through its PRC subsidiaries and the Scienjoy VIEs. Scienjoy may make loans to its PRC subsidiary
and the Scienjoy VIEs or it may make additional capital contributions to its PRC subsidiaries.
Any capital contributions or loans that
Scienjoy, as an offshore entity, makes to its PRC subsidiaries (in particular, the WFOE), are subject to PRC regulations. For example,
none of its loans to a PRC subsidiary (in particular, the WFOE) can exceed the difference between its total amount of investment
and its registered capital approved under relevant PRC laws, or certain amount calculated based on elements including capital or
net assets and the cross-border financing leverage ratio and the loans must be registered with the local branch of SAFE and the
competent departments of State Development and Reform Commission in case of any external debts of more than one year. Scienjoy’s
capital contributions to its PRC subsidiaries (in particular, the WFOE) must be approved by or filed with the MOFCOM, SAFE, or
their respective local counterpart.
On March 30, 2015, SAFE issued the Circular
on the Reforming of the Management Method of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE
Circular 19, which took effect on June 1, 2015. Under SAFE Circular 19, a foreign-invested enterprise, within the scope of business,
may choose to convert its registered capital from foreign currency to RMB on a discretionary basis, and the RMB capital so converted
can be used for equity investments within PRC, provided that such usage shall fall into the scope of business of the foreign-invested
enterprise, which will be regarded as the reinvestment of foreign-invested enterprise.
In light of the various requirements imposed
by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, Scienjoy cannot assure you
that it will be able to complete the necessary registration or obtain the necessary approval on a timely basis, or at all. If it
fails to complete the necessary registration or obtain the necessary approval, its ability to make loans or equity contributions
to its PRC subsidiaries (in particular, the WFOE) may be negatively affected, which could adversely affect the liquidity of its
PRC subsidiaries and their ability to fund their working capital and expansion projects and meet their obligations and commitments.
Fluctuations in exchange rates could
have a material adverse effect on Scienjoy’s results of operations and the value of your investment.
The value of the RMB against the U.S. dollar
and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange
policies, among other things. In July 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to
the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008
and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band.
Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015,
the Executive Board of the International Monetary Fund (IMF) completed the regular five-year review of the basket of currencies
that make up the Special Drawing Right, or the SDR, and decided that with effect from October 1, 2016, RMB is determined to be
a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the
Japanese yen and the British pound. In the fourth quarter of 2016, the RMB has depreciated significantly in the backdrop of a surging
U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress towards
interest rate liberalization and RMB internationalization, the PRC government may in the future announce further changes to the
exchange rate system and Scienjoy cannot assure you that the RMB will not appreciate or depreciate significantly in value against
the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policies may impact the exchange
rate between the RMB and the U.S. dollar in the future.
There remains significant international
pressure on the Chinese government to adopt a flexible currency policy to allow the RMB to appreciate against the U.S. dollar,
especially under the current circumstance of the Sino-US trade conflicts. Significant revaluation of the RMB may have a material
adverse effect on your investment. Substantially all of Scienjoy’s revenues and costs are denominated in RMB. Any significant
revaluation of RMB may materially and adversely affect Scienjoy’s revenues, earnings, and financial position. To the extent
that Scienjoy needs to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes,
appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount Scienjoy would receive from the
conversion. Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar
equivalent of Scienjoy’s earnings or the US dollar amount available to Scienjoy.
Very limited hedging options are available
in China to reduce Scienjoy’s exposure to exchange rate fluctuations. To date, Scienjoy has not entered into any hedging
transactions in an effort to reduce its exposure to foreign currency exchange risk. While Scienjoy may decide to enter into hedging
transactions in the future, the availability and effectiveness of these hedges may be limited and Scienjoy may not be able to adequately
hedge its exposure or at all. In addition, Scienjoy’s currency exchange losses may be magnified by PRC exchange control regulations
that restrict its ability to convert RMB into foreign currency.
Governmental control of currency
conversion may limit Scienjoy’s ability to utilize its revenues effectively and affect the value of your investment.
The PRC government imposes control on the
convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. Scienjoy receives
substantially all of its revenues in RMB. Under existing PRC foreign exchange regulations, payments of current account items, including
profit distributions, interest payments, and trade and service-related foreign exchange transactions, can be made in foreign currencies
without prior SAFE approval by complying with certain procedural requirements, but may be subject to internal rules of related
PRC subsidiary’s bank (in particular, the WFOE’s capital funds account open in bank), which is also under the monitor
of SAFE. Therefore, Scienjoy’s PRC subsidiaries (in particular, the WFOE) is able to pay dividends in foreign currencies
to Scienjoy without prior approval from SAFE, but should still comply with bank’s related rules. However, approval from or
registration with appropriate government authorities (including formalities in the bank) 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 loans denominated in foreign currencies.
The PRC government may also at its discretion restrict access to foreign currencies for current account transactions in the future.
If the foreign exchange control system prevents Scienjoy from obtaining sufficient foreign currencies to satisfy its foreign currency
demands, Scienjoy may not be able to pay dividends in foreign currencies to its shareholders.
Failure to comply with PRC regulations
regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan participants
or Scienjoy to fines and other legal or administrative sanctions.
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 the meantime, Scienjoy’s
directors, executive officers, and other employees who are PRC citizens or who are non-PRC residents residing in PRC for a continuous
period of not less than one year, subject to limited exceptions, and who have been granted incentive share awards by Scienjoy,
may follow the Circular on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock
Incentive Plan of Overseas Publicly-Listed Company, or the SAFE Circular 7, promulgated by the SAFE in 2012. Pursuant to the SAFE
Circular 7, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate
in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with
SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas listed company, and complete certain
other procedures. In addition, an overseas entrusted institution must be retained to handle matters in connection with the exercise
or sale of stock options and the purchase or sale of shares and interests. Scienjoy and its executive officers and other employees
who are PRC citizens or who reside in the PRC for a continuous period of not less than one year and who have been granted options
will be subject to these regulations when Scienjoy becomes an overseas listed company upon the completion of this Business Combination.
Failure to complete the SAFE registrations may subject them to fines and legal sanctions, and may also limit Scienjoy’s ability
to contribute additional capital into its PRC subsidiaries and limit its PRC subsidiaries’ ability to distribute dividends
to Scienjoy. Scienjoy also faces regulatory uncertainties that could restrict its ability to adopt additional incentive plans for
its directors, executive officers, and employees under PRC law.
The SAT has issued certain circulars concerning
equity incentive awards. Under these circulars, Scienjoy’s employees working in China who exercise share options or are granted
restricted shares or restricted units will be subject to PRC individual income tax. Sixiang Wuxian, Scienjoy’s wholly-owned
subsidiary in China, has obligations to file documents related to employee share options, restricted shares, or restricted units
with relevant tax authorities, and to withhold individual income taxes of those employees. If Scienjoy’s employees fail to
pay or Scienjoy fails to withhold their income taxes according to relevant laws and regulations, Scienjoy may face sanctions imposed
by the tax authorities or other PRC governmental authorities.
Risk
Factors Relating to Wealthbridge’s Business
Wealthbridge will be forced to
liquidate the trust account if it cannot consummate a business combination by the date that is 15 months from the closing of the
IPO, or May 8, 2020, or 21 months from the closing of the IPO, or November 8, 2020, if we further extend the period of time to
consummate a business combination. In the event of a liquidation, Wealthbridge’s public shareholders will receive $10.00
per share (plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company
to pay its tax obligations) and the Wealthbridge rights and warrants will expire worthless.
If Wealthbridge is unable to complete
a business combination by the date that is 15 months from the closing of the IPO, or May 8, 2020, or 21 months from the closing
of the IPO, or November 8, 2020, if we further extend the period of time to consummate a business combination, and is forced to
liquidate, the per-share liquidation distribution will be $10.00 (plus any pro rata interest earned on the funds held in the
Trust Account and not previously released to the Company to pay its tax obligations). Furthermore, there will be no distribution
with respect to the Wealthbridge rights and warrants, which will expire worthless as a result of Wealthbridge’s failure
to complete a business combination.
You must tender your Wealthbridge
ordinary shares in order to validly seek redemption at the extraordinary general meeting of shareholders.
In connection with tendering
your shares for redemption, you must elect either to physically tender your share certificates to Wealthbridge’s transfer
agent in each case two business days prior to the extraordinary general meeting, or to deliver your ordinary shares to the transfer
agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, which election would
likely be determined based on the manner in which you hold your ordinary shares. The requirement for physical or electronic delivery
two business days prior to the extraordinary general meeting ensures that a redeeming holder’s election to redeem is irrevocable
once the Business Combination is consummated. Any failure to observe these procedures will result in your loss of redemption rights
in connection with the vote on the Business Combination.
If third parties bring claims
against Wealthbridge, the proceeds held in trust could be reduced and the per-share liquidation price received by Wealthbridge’s
shareholders may be less than $10.00.
Wealthbridge’s
placing of funds in trust may not protect those funds from third party claims against Wealthbridge. Although Wealthbridge has received
from many of the vendors, service providers (other than its independent accountants) and prospective target businesses with which
it does business executed agreements waiving any right, title, interest or claim of any kind in or to any monies held in the trust
account for the benefit of Wealthbridge’s public shareholders, they may still seek recourse against the trust account. Additionally,
a court may not uphold the validity of such agreements. Accordingly, the proceeds held in trust could be subject to claims which
could take priority over those of Wealthbridge’s public shareholders. If Wealthbridge liquidates the trust account before
the completion of a business combination and distributes the proceeds held therein to its public shareholders, Oriental has contractually
agreed that it will be liable to ensure that the proceeds in the trust account are not reduced by the claims of target businesses
or claims of vendors or other entities that are owed money by us for services rendered or contracted for or products sold to us,
but only if such a vendor or prospective target business does not execute such a waiver. However, Wealthbridge cannot assure you
that they will be able to meet such obligation. Therefore, the per-share distribution from the trust account for our shareholders
may be less than $10.00 due to such claims.
Additionally, if Wealthbridge
is forced to file a bankruptcy case or a petition to wind up is filed against it in the British Virgin Islands court by a shareholder
or a creditor which is not dismissed, the proceeds held in the trust account could be subject to applicable liquidation proceedings,
and may be included in Wealthbridge’s estate and subject to the claims of third parties with priority over the claims of
its shareholders. To the extent any liquidation or insolvency claims deplete the trust account, Wealthbridge may not be able to
return $10.00 to our public shareholders.
Any distributions received
by Wealthbridge shareholders could be viewed as an unlawful payment if it was proved that immediately following the date on which
the distribution was made, Wealthbridge was unable to pay its debts as they fell due in the ordinary course of business.
Wealthbridge’s Amended and Restated
Memorandum and Articles of Association provides that it will continue in existence only until the date that is 15 months from
the closing of the IPO, or May 8, 2020, or 21 months from the closing of the IPO, or November 8, 2020, if we further extend the
period of time to consummate a business combination. If Wealthbridge is unable to consummate a transaction within the required
time periods, upon notice from Wealthbridge, the trustee of the trust account will distribute the amount in its trust account
to its public shareholders. Concurrently, Wealthbridge shall pay, or reserve for payment, from funds not held in trust, its liabilities
and obligations, although Wealthbridge cannot assure you that there will be sufficient funds for such purpose. If there are insufficient
funds held outside the trust account for such purpose, Oriental have contractually agreed that, if it liquidates prior to the
consummation of a business combination, they will be liable to ensure that the proceeds in the trust account are not reduced by
the claims of target businesses or claims of vendors or other entities that are owed money by Wealthbridge for services rendered
or contracted for or products sold to it, but only if such a vendor or prospective target business does not execute such a waiver.
Thereafter, Wealthbridge’s sole
business purpose will be to wind up and dissolve through a voluntary liquidation procedure under the Companies Law. In such a
situation under the Companies Law, a liquidator would be appointed and would give at least 21 days’ notice to creditors
of his intention to make a distribution by notifying known creditors (if any) and by placing a public advertisement in the British
Virgin Islands Official Gazette, although in practice this notice requirement need not necessarily delay the distribution of assets
as the liquidator may be satisfied that no creditors would be adversely affected as a consequence of a distribution before this
time period has expired. As soon as the affairs of Wealthbridge are fully wound-up, the liquidator must lay his final report and
accounts before a final general meeting which must be called by a public notice at least one month before it takes place. After
the final meeting, the liquidator must make a return to the Registrar confirming the date on which the meeting was held and three
months after the date of such filing Wealthbridge is dissolved. It is Wealthbridge’s intention to liquidate the trust account
to its public shareholders as soon as reasonably possible and Wealthbridge’s insiders have agreed to take any such action
necessary to liquidate the trust account and to wind up the affairs and dissolve Wealthbridge as soon as reasonably practicable
if Wealthbridge does not complete a business combination within the required time period. Pursuant to Wealthbridge’s Amended
and Restated Memorandum and Articles of Association, failure to consummate a business combination by May 8, 2020 (or November
8, 2020 if we further extend the time to complete a business combination) will trigger an automatic winding up of Wealthbridge.
However, the liquidator may determine that he or she requires additional time to evaluate creditors’ claims (particularly
if there is uncertainty over the validity or extent of the claims of any creditors). Also, a creditor or shareholder may file
a petition with the British Virgin Islands court which, if successful, may result in our liquidation being subject to the supervision
of that court. Such events might delay distribution of some or all of our assets to our public shareholders.
If Wealthbridge is forced
to enter into an insolvent liquidation under the BVI Insolvency Act, any distributions received by Wealthbridge shareholders could
be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution was made, Wealthbridge
was unable to pay its debts as they fall due in the ordinary course of business. As a result, a liquidator could seek to recover
all amounts received by Wealthbridge’s shareholders. Furthermore, Wealthbridge’s board may be viewed as having breached
their fiduciary duties to its creditors and/or may have acted in bad faith, and thereby exposing itself and Wealthbridge to claims
of damages, by paying public shareholders from the trust account prior to addressing the claims of creditors. Wealthbridge cannot
assure you that claims will not be brought against it for these reasons.
If Wealthbridge’s due
diligence investigation of Scienjoy was inadequate, then shareholders of Wealthbridge following the Business Combination could
lose some or all of their investment.
Even though Wealthbridge
conducted a due diligence investigation of Scienjoy, it cannot be sure that this diligence uncovered all material issues that may
be present inside Scienjoy or its business, or that it would be possible to uncover all material issues through a customary amount
of due diligence, or that factors outside of Scienjoy and its business and outside of its control will not later arise.
All of Wealthbridge’s
officers and directors own Wealthbridge ordinary shares and Wealthbridge warrants and rights which will not participate in liquidation
distributions and, therefore, they may have a conflict of interest in determining whether the business combination is appropriate.
All of Wealthbridge’s
officers and directors own an aggregate of 1,437,500 shares and 270,000 units of Wealthbridge. Such individuals have waived their
right to redeem these shares (including shares underlying the units), or to receive distributions with respect to these shares
(including shares underlying the units) upon the liquidation of the trust account if Wealthbridge is unable to consummate a business
combination. Accordingly, the Wealthbridge ordinary shares, as well as the Wealthbridge units purchased by our officers or directors,
will be worthless if Wealthbridge does not consummate a business combination. Based on a market price of $10.34 per ordinary share
of Wealthbridge on April 9, 2020, $0.06 per warrant on April 9, 2020, and $0.42 per right on April 9, 2020, the value of these
shares, rights, warrants and units was approximately $17,812,150. The Wealthbridge ordinary shares acquired prior to the IPO,
as well as the Wealthbridge units will be worthless if Wealthbridge does not consummate a business combination. Consequently,
our directors’ and officers’ discretion in identifying and selecting Scienjoy as a suitable target business may result
in a conflict of interest when determining whether the terms, conditions and timing of the Business Combination are appropriate
and in Wealthbridge’s shareholders’ best interest.
Wealthbridge is requiring shareholders
who wish to redeem their ordinary shares in connection with a proposed business combination to comply with specific requirements
for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline for exercising
their rights.
Wealthbridge is requiring
public shareholders who wish to redeem their ordinary shares to either tender their certificates to our transfer agent at any time
at or prior to the Extraordinary General Meeting or to deliver their shares to the transfer agent electronically using the Depository
Trust Company’s, or DTC, DWAC (Deposit/Withdrawal At Custodian) System. In order to obtain a physical certificate, a shareholder’s
broker and/or clearing broker, DTC and Wealthbridge’s transfer agent will need to act to facilitate this request. It is Wealthbridge’s
understanding that shareholders should generally allot at least two weeks to obtain physical certificates from the transfer agent.
However, because we do not have any control over this process or over the brokers or DTC, it may take significantly longer than
two weeks to obtain a physical stock certificate. While we have been advised that it takes a short time to deliver shares through
the DWAC System, we cannot assure you of this fact. Accordingly, if it takes longer than Wealthbridge anticipates for shareholders
to deliver their ordinary shares, shareholders who wish to redeem may be unable to meet the deadline for exercising their redemption
rights and thus may be unable to redeem their ordinary shares.
Wealthbridge will require its
public shareholders who wish to redeem their ordinary shares in connection with the Business Combination to comply with specific
requirements for redemption described above, such redeeming shareholders may be unable to sell their securities when they wish
to in the event that the Business Combination is not consummated.
If Wealthbridge requires
public shareholders who wish to redeem their ordinary shares in connection with the proposed Business Combination to comply with
specific requirements for redemption as described above and the Business Combination is not consummated, Wealthbridge will promptly
return such certificates to its public shareholders. Accordingly, investors who attempted to redeem their ordinary shares in such
a circumstance will be unable to sell their securities after the failed acquisition until Wealthbridge has returned their securities
to them. The market price for Wealthbridge’s ordinary shares may decline during this time and you may not be able to sell
your securities when you wish to, even while other shareholders that did not seek redemption may be able to sell their securities.
Wealthbridge’s initial
shareholders, including its officers and directors, control a substantial interest in Wealthbridge and thus may influence certain
actions requiring a shareholder vote.
Wealthbridge’s initial shareholders,
including all of its officers and directors, collectively own approximately 22.90% of its issued and outstanding ordinary shares.
However, if a significant number of shareholders vote, or indicate an intention to vote, against the Business Combination, Wealthbridge’s
officers, directors, initial shareholders or their affiliates could make such purchases in the open market or in private transactions
in order to influence the vote. Wealthbridge’s initial shareholders have agreed to vote any shares they own in favor of the
Business Combination.
If Wealthbridge’s security
holders exercise their registration rights with respect to their securities, it may have an adverse effect on the market price
of Wealthbridge’s securities.
Wealthbridge’s
initial shareholders are entitled to make a demand that it registers the resale of their insider shares at any time commencing
three months prior to the date on which their shares may be released from escrow. Additionally, the purchasers of the private
units and our initial shareholders, officers and directors are entitled to demand that we register the resale of the shares underlying
the private units private warrants and private rights and any securities our initial shareholders, officers, directors or their
affiliates may be issued in payment of working capital loans made to us at any time after we consummate a business combination.
If such persons exercise their registration rights with respect to all of their securities, then there will be an additional 1,734,500
shares of Wealthbridge ordinary shares eligible for trading in the public market. The presence of these additional ordinary shares
trading in the public market may have an adverse effect on the market price of Wealthbridge’s securities.
Wealthbridge will not obtain
a formal fairness opinion from an unaffiliated third party as to the fairness of the Business Combination to its shareholders.
Wealthbridge is not required to obtain
a formal fairness opinion from an unaffiliated third party that the price it is paying is fair to its public shareholders from
a financial point of view. Although the Board did receive advice from Chardan Capital Markets LLC that the valuation offered by
Scienjoy, compared to the valuation of the two most direct comparable companies, is favorable to Wealthbridge, such opinion was
informal and not documented. Therefore, Wealthbridge’s public shareholders therefore, must rely solely on the judgment of
Wealthbridge’s board of directors.
If the Business Combination’s
benefits do not meet the expectations of financial or industry analysts, the market price of Wealthbridge’s securities may
decline.
The market price of Wealthbridge’s
securities may decline as a result of the Business Combination if:
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Wealthbridge does not achieve the perceived benefits of the acquisition as rapidly as, or to the
extent anticipated by, financial or industry analysts; or
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The effect of the Business Combination on the financial statements is not consistent with the expectations
of financial or industry analysts.
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Accordingly, investors
may experience a loss as a result of decreasing share prices.
Wealthbridge’s directors
and officers may have certain conflicts in determining to recommend the acquisition of Scienjoy, since certain of their interests,
and certain interests of their affiliates and associates, are different from, or in addition to, your interests as a shareholder.
Wealthbridge’s
management and directors have interests in and arising from the Business Combination that are different from, or in addition to,
your interests as a shareholder, which could result in a real or perceived conflict of interest. These interests include the fact
that certain of the Wealthbridge ordinary shares owned by Wealthbridge’s management and directors, or their affiliates and
associates, would become worthless if the Business Combination Proposal is not approved and Wealthbridge otherwise fails to consummate
a business combination prior to its liquidation date.
Wealthbridge will
incur significant transaction costs in connection with transactions contemplated by the Share Exchange Agreement.
Wealthbridge will incur
significant transaction costs in connection with the Business Combination. If the Business Combination is not consummated, Wealthbridge
may not have sufficient funds to seek an alternative business combination and may be forced to voluntarily liquidate and subsequently
dissolve.
Risk
Factors Relating to the Business Combination
Wealthbridge and
Scienjoy have incurred and expect to incur significant costs associated with the Business Combination. Whether or not the Business
Combination is completed, the incurrence of these costs will reduce the amount of cash available to be used for other corporate
purposes by Wealthbridge if the Business Combination is completed or by Wealthbridge if the Business Combination is not completed.
Wealthbridge and Scienjoy
expect to incur significant costs associated with the Business Combination. Whether or not the Business Combination is completed,
Wealthbridge expects to incur approximately $500,000 in expenses, which do not include an aggregate of $7,342,500 of fees payable
to the underwriter and to an independent third party that acted as an advisor to the Business Combination (these fees are expected
to be paid through the issuance of an aggregate of 1,001,023 ordinary shares). These expenses will reduce the amount of cash available
to be used for other corporate purposes by Wealthbridge if the Business Combination is completed or by Wealthbridge if the Business
Combination is not completed.
In the event that
a significant number of Wealthbridge’s ordinary shares are redeemed, its stock may become less liquid following the Business
Combination.
If a significant number
of Wealthbridge’s ordinary shares are redeemed, Wealthbridge may be left with a significantly smaller number of shareholders.
As a result, trading in the shares of the company following the Business Combination may be limited and your ability to sell your
shares in the market could be adversely affected. Nasdaq may not list Wealthbridge’s shares on its exchange, which could
limit investors’ ability to make transactions in Wealthbridge’s securities and subject Wealthbridge to additional trading
restrictions.
Wealthbridge will
be required to meet the initial listing requirements to be listed on the Nasdaq Stock Market. Wealthbridge may not be able to meet
those initial listing requirements. Even if Wealthbridge’s securities are so listed, Wealthbridge may be unable to maintain
the listing of its securities in the future.
If Wealthbridge fails
to meet the initial listing requirements and Nasdaq does not list its securities on its exchange, Wealthbridge could face significant
material adverse consequences, including:
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a limited availability of market quotations
for its securities;
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a limited amount of news and analyst coverage
for the company; and
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a decreased ability to issue additional securities
or obtain additional financing in the future.
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Wealthbridge may
waive one or more of the conditions to the Business Combination without resoliciting shareholder approval for the Business Combination.
Wealthbridge may agree
to waive, in whole or in part, some of the conditions to its obligations to complete the Business Combination, to the extent permitted
by applicable laws. The board of directors of Wealthbridge will evaluate the materiality of any waiver to determine whether amendment
of this proxy statement and resolicitation of proxies is warranted. In some instances, if the board of directors of Wealthbridge
determines that a waiver is not sufficiently material to warrant resolicitation of shareholders, Wealthbridge has the discretion
to complete the Business Combination without seeking further shareholder approval. For example, it is a condition to Wealthbridge’s
obligations to close the Business Combination that there be no restraining order, injunction or other order restricting Scienjoy’s
conduct of its business, however, if the board of directors of Wealthbridge determines that any such order or injunction is not
material to the business of Scienjoy, then the board may elect to waive that condition and close the Business Combination.
There will be a
substantial number of Wealthbridge’s ordinary shares available for sale in the future that may adversely affect the market
price of Wealthbridge’s ordinary shares.
Wealthbridge currently
has an unlimited number of authorized shares of a single class each with no par value. The shares to be issued in the business
combination to the post-Business Combination shareholders, will be subject to certain restrictions on sale and cannot be sold for
365 calendar days from the date of the Business Combination with a few exceptions. After the expiration of this restricted period,
there will then be an additional approximately 16,400,000 shares that are eligible for trading in the public market. The availability
of such a significant number of securities for trading in the public market may have an adverse effect on the market price of Wealthbridge’s
shares.
Wealthbridge’s
shareholders will experience immediate dilution as a consequence of the issuance of ordinary shares as consideration in the Business
Combination. Having a minority share position may reduce the influence that Wealthbridge’s current shareholders have on the
management of Wealthbridge.
After the Business Combination, assuming
no redemptions of ordinary shares for cash, Wealthbridge’s current public shareholders will own approximately 22.2% of Wealthbridge,
Wealthbridge’s current directors, officers and affiliates will own approximately 6.1% of Wealthbridge, and the Sellers will
own approximately 68.2% of Wealthbridge. Assuming redemption by holders of 4,778,111 of Wealthbridge’s ordinary shares, Wealthbridge
public shareholders will own approximately 6.5% of Wealthbridge, Wealthbridge’s current directors, officers and affiliates
will own approximately 7.3% of Wealthbridge, and the Sellers will own approximately 82.0% of Wealthbridge. Upon consummation of
the Business Combination, Scienjoy will be a wholly-owned subsidiary of Wealthbridge.
Wealthbridge is
an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make
its securities less attractive to investors.
Wealthbridge is an “emerging growth
company,” as defined in the JOBS Act. It may remain an “emerging growth company” until the fiscal year ended
February 8, 2024. However, if its non-convertible debt issued within a three-year period exceeds $1.0 billion or an annual revenue
exceeds $1.07 billion, or the market value of its ordinary shares that are held by non-affiliates exceeds $700 million on the last
day of the second fiscal quarter of any given fiscal year, Wealthbridge would cease to be an emerging growth company as of the
following fiscal year. As an emerging growth company, Wealthbridge is not required to comply with the auditor attestation requirements
of section 404 of the Sarbanes-Oxley Act, has reduced disclosure obligations regarding executive compensation in its periodic reports
and proxy statements, and is exempt from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously approved. Additionally, as an emerging growth company, Wealthbridge has
elected to delay the adoption of new or revised accounting standards that have different effective dates for public and private
companies until those standards apply to private companies. As such, Wealthbridge’s financial statements may not be comparable
to companies that comply with public company effective dates. As a result, potential investors may be less likely to invest in
our securities.
Lavacano will control
the outcome of shareholder actions in Wealthbridge.
Upon completion of the
Business Combination, assuming none of the outstanding warrants has been exercised, Lavacano will hold 54.59% of Wealthbridge’s
ordinary shares. Lavacano’s voting power gives it the power to control actions that require shareholder approval under British
Virgin Islands law, our memorandum and articles of association and Nasdaq requirements, including the election and removal of
a majority of our board of directors, approval of significant mergers and acquisitions and other business combinations, and changes
to our memorandum and articles of association. Further, Wealthbridge’s amended and restated memorandum and articles of association
to be adopted upon completion of the Business Combination, lists an extensive list of reserved matters which cannot be enacted
without the consent of the Sellers.
Lavacano’s control may
cause transactions to occur that might not be beneficial to direct or indirect holders of Scienjoy’s ordinary shares following
the Business Combination and may prevent transactions that would be beneficial to you. For example, Lavacano’s voting control
may prevent a transaction involving a change of control of us, including transactions in which you as a holder of our ordinary
shares might otherwise receive a premium for your securities over the then-current market price. In addition, Lavacano is not prohibited
from selling a controlling interest in us to a third party and may do so without your approval and without providing for a purchase
of your ordinary shares. If Lavacano is acquired or otherwise undergoes a change of control, any acquirer or successor will be
entitled to exercise the voting control and contractual rights of Lavacano, and may do so in a manner that could vary significantly
from that of Lavacano.
Following the Business Combination,
we may become a “controlled company” within the meaning of the Nasdaq Stock Market Rules and, as a result, may
rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
Following
the Business Combination, assuming none of the outstanding warrants has been exercised, we
will be a “controlled company’’ as defined under the Nasdaq Stock Market Rules because Lavacano controls more
than 50% of our voting rights. For so long as we remain a controlled company under that definition, we are permitted to elect to
rely, and will rely, on certain exemptions from corporate governance rules, including:
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an exemption from the rule that a majority of our board of directors must
be independent directors;
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an exemption from the rule that the compensation of our chief executive officer
must be determined or recommended solely by independent directors; and
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an exemption from the rule that our director nominees must be selected or recommended
solely by independent directors.
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As a result, you will not have
the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
Following the Business
Combination, we may become a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we will
be exempt from certain provisions applicable to U.S. domestic public companies.
If Wealthbridge becomes a
“foreign private issuer”, as defined in Rule 36-4 promulgated under the Exchange Act (“Foreign Private Issuer”),
following the consummation of the Business Combination, Wealthbridge will be exempt from certain provisions of the securities
rules and regulations in the United States that are applicable to United States domestic issuers, including:
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the
rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current report on Form
8-K;
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the
section of the Exchange Act regulating the solicitation of proxies, consents or authorizations respect of a security registered
under the Exchange Act;
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the
section of the Exchange Act requiring directors, officers and 10% holders to file public reporting of their stock ownership
and trading activities and imposing liability on insiders who profit from trades made in a short period of time; and
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the
selective disclosure rules under Regulation FD restricting issuers from selectively disclosing material nonpublic information.
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Accordingly, the information
we will be required to file with or furnish to the SEC as a Foreign Private Issuer is less extensive and less frequent as compared
to the information required to be filed with the SEC by U.S. domestic issuers.
In addition, if we become
a foreign private issuer whose securities are listed on the Nasdaq Capital Market, we will be permitted to follow certain home
country corporate governance practices in lieu of the requirements of the Nasdaq Rules pursuant to Nasdaq Rule 5615(a)(3). Certain
corporate governance practices in the British Virgin Islands, which is our home country, may differ significantly from the Nasdaq
corporate governance listing standards. If Wealthbridge becomes a Foreign Private Issuer following the consummation of the Business
Combination, we expect to follow British Virgin Islands corporate governance practices in lieu of the corporate governance requirements
of the Nasdaq that listed companies must have: (i) a majority of independent directors; (ii) a nominating/corporate
governance committee composed entirely of independent directors; and (iii) a compensation committee composed entirely of
independent directors. Therefore, if we become a Foreign Private Issuer, our shareholders may be afforded less protection than
they otherwise would enjoy under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers.
Wealthbridge’s contemplated
dual-class share structure with different voting rights and conversion of certain ordinary shares will limit your ability to influence
corporate matters and could discourage others from pursuing any change of control transactions that holders of ordinary shares
may view as beneficial.
If Wealthbridge becomes a Foreign
Private Issuer following the consummation of the Business Combination, Wealthbridge plans to use its reasonable best efforts to
adopt a dual-class share structure, which includes reclassification of existing ordinary shares into class A ordinary shares with
one vote per share and authorization and issuance of class B ordinary shares with ten votes per share. Additionally, together
with the adoption of a dual-class share structure, part of the ordinary shares held by Lavacano will be converted into class B
ordinary shares. While the adoption of a dual-class structure requires Wealthbridge shareholders approval, Lavacano will be holding
more than fifty percent of the voting rights post Business Combination and it is likely that the proposal to adopt a dual-class
structure will be approved. Adoption of the dual-class structure and the conversion of certain ordinary shares held by Lavacano
into class B ordinary shares will result in further concentration of ownership held by Lavacano. Consequently, Lavacano will have
considerable influence over matters such as decisions regarding mergers, consolidations and the sale of all or substantially all
of Wealthbridge’s assets, election of directors and other significant corporate actions. Lavacano may also take actions
that are not in the best interest of Wealthbridge or Wealthbridge’s other shareholders. In addition to limiting your ability
to influence corporate matters, this concentration of ownership may discourage, delay or prevent a change in control of Wealthbridge,
which could have the effect of depriving Wealthbridge’s other shareholders of the opportunity to receive a premium for their
shares as part of a sale of Wealthbridge and may reduce the price of Wealthbridge’s ordinary shares.
Wealthbridge’s contemplated
dual-class structure of ordinary shares may adversely affect the trading market for Wealthbridge’s ordinary shares.
S&P Dow Jones and FTSE Russell
have recently announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices,
including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no
more than 5% of total voting power from being added to such indices. In addition, several shareholder advisory firms have announced
their opposition to the use of multiple class structures. As a result, the dual class structure of Wealthbridge’s ordinary
shares may prevent the inclusion of Wealthbridge’s ordinary shares in such indices and may cause shareholder advisory firms
to publish negative commentary about Wealthbridge’s corporate governance practices or otherwise seek to cause Wealthbridge
to change Wealthbridge’s capital structure. Any such exclusion from indices could result in a less active trading market
for Scienjoy’s ordinary shares. Any actions or publications by shareholder advisory firms critical of Wealthbridge’s
corporate governance practices or capital structure could also adversely affect the value of Wealthbridge’s ordinary shares.
The appointed Temporary
Receiver of Link Motion Inc. (f/k/a NQ Mobile Inc.) may bring an action to restore Link Motion Inc.’s senior position in
the Showself businesses, which may result in claims against us if we acquire Scienjoy.
On December 13, 2018, a shareholder
plaintiff filed a derivative lawsuit on behalf of, and against Link Motion Inc. (“LKM”) and three individual defendants,
including the chairman of the board of directors of LKM, in the United States District Court for Southern District of New York.
In this lawsuit, the shareholder plaintiff alleged certain wrong doing by the individual defendants in connection with the sales
of LKM’s corporation assets, including the sale of a 65% equity interest in the Showself businesses (currently is conducted
via Zhihui Qiyuan) to Tongfang Investment Fund Series SPC (“TF”) pursuant to a share purchase agreement dated as of
March 30, 2017. On February 1, 2019, the court issued a Preliminary Injunction Order which preliminarily enjoins the defendants
to take corrective action as necessary to restore LKM’s senior position in the underlying assets of the Showself businesses
and appointed a temporary receiver for LKM during the pendency of this action. The temporary receiver has certain statutory powers
and specified delineated powers, including but not limited to, commence, continue and/or control any action on behalf of LKM in
the U.S., the PRC, or elsewhere. Although Scienjoy believes that its equity securities are owned by the Sellers, if we acquire
Scienjoy, it is possible that we could be sued in connection with these ongoing proceedings, which could be costly to defend,
and a judgment against us could result in significant damages. As of the date of this proxy statement and to Wealthbridge’s
knowledge, the temporary receiver has yet brought any claims in any jurisdiction to restore LKM’s 65% equity interest in
the Showself businesses. However we cannot guarantee that such claims will not be brought in the future.
Certain provisions
of the Third Amended and Restated Memorandum and Articles of Association may be deemed to have an antitakeover effect.
The Third Amended and Restated
Memorandum and Articles of Association may have the effect of delaying, deferring or preventing or rendering more difficult a
change in control of Wealthbridge that a shareholder might consider in his or her best interest, including the following:
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Separation of the board
of directors into two classes. Our directors are appointed by our shareholders and are
subject to rotational retirement every two years. The initial terms of office of the
Class I and Class II directors have been staggered over a period of two years to ensure
that all directors of the company do not face re-election in the same year. This could
have the effect of making it more difficult for a potential acquiror to take over the
company.
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Poison Pill Defenses.
Under the Companies Law there are no provisions that specifically prevent the issuance
of preferred shares or any such other ‘poison pill’ measures. The Third Amended
and Restated Memorandum and Articles of Association of Wealthbridge also do not contain
any express prohibitions on the issuance of any preferred shares. Therefore, the directors
without the approval of the holders of ordinary shares may issue preferred shares that
have characteristics that may be deemed to be anti-takeover. Additionally, such a designation
of shares may be used in connection with plans that are poison pill plans.
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement
contains forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events.
Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other
statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,”
“estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,”
“potential,” “predict,” “project,” “will” or similar words or phrases, or the negatives
of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that
a statement is not forward-looking. Examples of forward-looking statements in this proxy statement include, but are not limited
to, statements regarding our disclosure concerning Scienjoy’s operations, cash flows, financial position and dividend policy.
Forward-looking statements
appear in a number of places in this proxy statement including, without limitation, in the sections entitled “Dividend Policy,”
“Management’s Discussion and Analysis of Financial Conditions and Results of Operations of Scienjoy Inc.,” and
“Scienjoy Inc.’s Business”. The risks and uncertainties include, but are not limited to:
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future operating or financial results;
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future payments of dividends and the availability of cash for payment of dividends;
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Scienjoy’s expectations relating to dividend payments and forecasts of its ability to make
such payments;
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future acquisitions, business strategy and expected capital spending;
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assumptions regarding interest rates and inflation;
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the combined company’s financial condition and liquidity, including its ability to obtain
additional financing in the future to fund capital expenditures, acquisitions and other general corporate activities;
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estimated future capital expenditures needed to preserve Wealthbridge’s capital base;
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ability of the combined company to effect future acquisitions and to meet target returns; and
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other factors discussed in “Risk Factors.”
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Forward-looking statements
are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual
results to differ materially from those expected or implied by the forward-looking statements. Actual results could differ materially
from those anticipated in forward-looking statements for many reasons, including the factors described in “Risk Factors”
in this proxy statement. Accordingly, you should not rely on these forward-looking statements, which speak only as of the date
of this proxy statement. We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or
events after the date of this proxy statement or to reflect the occurrence of unanticipated events. You should, however, review
the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission after
the date of this proxy statement.
CAPITALIZATION
The following table sets forth the
capitalization on unaudited, historical basis of each of Scienjoy and Wealthbridge as of December 31, 2019 and after giving effect
to the Business Combination, assuming (i) that no holders of Wealthbridge ordinary shares exercise their redemption rights and
(ii) that the maximum number of holders of Wealthbridge ordinary shares have properly exercised their redemption rights.
(in thousands)
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Historical
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As Adjusted
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As of December 31, 2019
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Scienjoy
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Wealthbridge
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Assuming
No
Redemption
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Assuming
Maximum
Redemption
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Cash and cash equivalents
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$
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19,729
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$
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12
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$
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73,469
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$
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24,306
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Marketable securities held in trust account
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—
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58,588
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—
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—
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Loans payables – related parties
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794
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—
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794
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794
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Amounts due to related parties
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1,218
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—
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1,218
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1,218
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Promissory note – related party
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—
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466
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—
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—
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Ordinary shares, subject to possible redemption
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—
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50,901
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—
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—
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Total shareholders’ equity
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25,069
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5,000
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79,146
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29,983
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Total capitalization
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$
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27,081
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$
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56,367
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$
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81,158
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$
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31,995
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EXTRAORDINARY
GENERAL MEETING OF WEALTHBRIDGE SHAREHOLDERS
General
We are furnishing this
proxy statement to the Wealthbridge shareholders as part of the solicitation of proxies by our board of directors for use at the
extraordinary general meeting of Wealthbridge shareholders to be held on May 5, 2020 and at any adjournment or postponement thereof.
This proxy statement is first being furnished to our shareholders on or about April 13, 2020 in connection with the vote on the
Business Combination Proposal, the Amendment Proposal, the Nasdaq Proposal, and the Business Combination Adjournment Proposal.
This document provides you with the information you need to know to be able to vote or instruct your vote to be cast at the extraordinary
general meeting.
Date, Time and Place
The extraordinary general meeting of shareholders
will be held on May 5, 2020 at 10:00 a.m. Eastern Time, or such other date, time and place to which such meeting may be adjourned
or postponed. Due to the COVID-19 pandemic, Wealthbridge will be holding the Extraordinary General Meeting as a teleconference
using the following dial-in information:
US Toll Free
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1-888-433-2831
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International Toll
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1-719-955-2379
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Participant Passcode
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441090
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Purpose of the Extraordinary General Meeting
of Wealthbridge Shareholders
At the extraordinary
general meeting of shareholders, we are asking holders of Wealthbridge ordinary shares to approve the following proposals:
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To approve the Share Exchange Agreement and the transactions contemplated thereunder, including
but not limited to the acquisition of all of the issued and outstanding shares and any other equity interests of Scienjoy from
the Sellers, as provided for in the Share Exchange Agreement and the consideration paid to the Sellers and the earn-out consideration
by way of new issue of ordinary shares credited as fully paid in accordance with the Share Exchange Agreement, or the “Business
Combination.” This proposal is referred to as the “Business Combination Proposal” or “Proposal No. 1.”
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To approve as a shareholder
resolution the change of Wealthbridge’s name to Scienjoy Holding Corporation and
the adoption of the Third Amended and Restated Memorandum and Articles of Association
of Wealthbridge as further described herein. This proposal is referred to as the “Amendment
Proposal” or “Proposal No. 2.”
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To approve the issuance of more than 20% of the issued and outstanding ordinary shares of Wealthbridge
pursuant to the terms of the Share Exchange Agreement, as required by Nasdaq Listing Rules 5635(a) and (d). This proposal is referred
to as the “Nasdaq Proposal” or “Proposal 3.”
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To approve the adjournment of the extraordinary general meeting in the event Wealthbridge does
not receive the requisite shareholder vote to approve the Business Combination. This proposal is called the “Business Combination
Adjournment Proposal” or “Proposal 4”.
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Recommendation of Wealthbridge’s Board of Directors
Wealthbridge’s board of directors:
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has determined that each of the Business Combination Proposal and the other Proposals are fair
to, and in the best interests of, Wealthbridge and its shareholders;
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has approved the Business Combination Proposal and the other Proposals; and
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recommends that Wealthbridge’s shareholders vote “FOR” each of the Business Combination
Proposal, the Amendment Proposal, the Nasdaq Proposal, and the Business Combination Adjournment Proposal.
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Wealthbridge’s
board of directors have interests that may be different from or in addition to your interests as a shareholder. See “The
Business Combination Proposal — Interests of Certain Persons in the Business Combination” in this proxy statement for
further information.
Record Date; Who is Entitled to Vote
We have fixed the close
of business on April 9, 2020, as the “record date” for determining those Wealthbridge shareholders entitled to notice
of and to vote at the extraordinary general meeting. As of the close of business on April 9, 2020, there were 7,457,500 ordinary
shares of Wealthbridge outstanding and entitled to vote. Each holder of Wealthbridge ordinary shares is entitled to one vote per
share on each of the Business Combination Proposal, the Amendment Proposal, the Nasdaq Proposal, and the Business Combination
Adjournment Proposal.
As of April 9, 2020, Wealthbridge’s
initial shareholders, either directly or beneficially, owned and were entitled to vote 1,707,500 ordinary shares, or approximately
22.90% of Wealthbridge’s outstanding ordinary shares. With respect to the Business Combination, Wealthbridge’s initial
shareholders have agreed to vote their respective ordinary shares acquired by them in favor of the Business Combination Proposal
and related proposals. They have indicated that they intend to vote their shares, as applicable, “FOR” each of the
other proposals, although there is no agreement in place with respect to these proposals.
Quorum and Required Vote for Shareholder
Proposals
A quorum of Wealthbridge
shareholders is necessary to hold a valid meeting. A quorum will be present at the extraordinary general meeting of Wealthbridge
shareholders if a majority of the Wealthbridge ordinary shares issued and outstanding and entitled to vote at the extraordinary
general meeting is represented in person or by proxy. Abstentions present in person and by proxy will count as present for the
purposes of establishing a quorum but broker non-votes will not.
Approval
of the Business Combination Proposal, the Amendment Proposal, the Nasdaq Proposal, and the Business Combination Adjournment Proposal
will require the affirmative vote of the holders of a majority of the issued and outstanding ordinary shares of Wealthbridge present
and entitled to vote at the extraordinary general meeting. Attending the extraordinary general meeting either in person or by proxy
and abstaining from voting will have the same effect as voting against all the Proposals and, assuming a quorum is present, broker
non-votes will have no effect on the voting on Proposals.
Voting Your Shares
Each Wealthbridge ordinary
share that you own in your name entitles you to one vote for each Proposal on which such shares are entitled to vote at the extraordinary
general meeting. Your proxy card shows the number of ordinary shares that you own.
There are two ways to
ensure that your Wealthbridge ordinary shares, as applicable, are voted at the extraordinary general meeting:
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You can cause your shares to be voted by signing and returning the enclosed proxy card to Morrow Sodali LLC not later than the time appointed for the extraordinary general meeting or adjourned meeting. If you submit your proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted, as recommended by our board, “FOR” the adoption of the Business Combination Proposal, the Amendment Proposal, the Nasdaq Proposal, and the Business Combination Adjournment Proposal. Votes received after a matter has been voted upon at the extraordinary general meeting will not be counted.
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You can attend the extraordinary general meeting and vote in person. We will give you a ballot
when you arrive. However, if your shares are held in the name of your broker, bank or another nominee, you must get a proxy from
the broker, bank or other nominee. That is the only way we can be sure that the broker, bank or nominee has not already voted your
shares.
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IF YOU RETURN YOUR PROXY
CARD WITHOUT AN INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES WILL BE VOTED IN FAVOR OF THE BUSINESS COMBINATION PROPOSAL (AS
WELL AS THE OTHER PROPOSALS). IN ORDER TO REDEEM YOUR SHARES, YOU MUST TENDER YOUR SHARES TO OUR TRANSFER AGENT AT LEAST TWO BUSINESS
DAYS PRIOR TO THE EXTRAORDINARY GENERAL MEETING. YOU MAY TENDER YOUR SHARES FOR REDEMPTION BY EITHER DELIVERING YOUR SHARE CERTIFICATE
TO THE TRANSFER AGENT OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING THE DEPOSITORY TRUST COMPANY’S DEPOSIT/WITHDRAWAL
AT CUSTODIAN (“DWAC”) SYSTEM. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE TENDERED SHARES WILL NOT BE
REDEEMED FOR CASH AND WILL BE RETURNED TO THE APPLICABLE SHAREHOLDER. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT
THE ACCOUNT EXECUTIVE AT YOUR BROKER OR BANK TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS.
Revoking Your Proxy
If you give a proxy,
you may revoke it at any time before it is exercised by doing any one of the following:
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you may send another proxy card with a later date;
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if you are a record holder, you may notify our corporate secretary in writing before the extraordinary
general meeting that you have revoked your proxy; or
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you may attend the extraordinary general meeting, revoke your proxy, and vote in person, as indicated
above.
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Who Can Answer Your Questions About
Voting Your Shares
If you have any questions
about how to vote or direct a vote in respect of your ordinary shares, you may call Morrow Sodali LLC, our proxy solicitor, at
800-662-5200 for individual call or 203-658-9400 if you are banks or brokers, or Wealthbridge at +(86) 186-0217-2929.
No Additional Matters May Be Presented
at the Extraordinary General Meeting
This extraordinary general
meeting has been called only to consider the approval of the Business Combination. Under Wealthbridge’s Amended and Restated
Memorandum and Articles of Association, other than procedural matters incident to the conduct of the extraordinary general meeting,
no other matters may be considered at the extraordinary general meeting if they are not included in the notice of the extraordinary
general meeting.
Redemption Rights
Pursuant to Wealthbridge’s
Amended and Restated Memorandum and Articles of Association, a holder of Wealthbridge’s ordinary shares may demand that Wealthbridge
redeem such ordinary share for cash in connection with a business combination. You may not elect to redeem your shares prior to
the completion of a business combination.
If you are a public shareholder and you
seek to have your shares redeemed, you must (i) demand, no later than 5:00 p.m., Eastern Time on May 1, 2020 (two business days
before the extraordinary general meeting), that Wealthbridge redeem your shares into cash; and (ii) submit your request in writing
to Wealthbridge’s transfer agent, at the address listed at the end of this section and delivering your shares to Wealthbridge’s
transfer agent physically or electronically using the DWAC system at least two business days prior to the vote at the meeting.
In order to validly request redemption, you must either make a request for redemption on the proxy card or separately send a request
in writing to Wealthbridge’s transfer agent. The proxy card or separate request must be signed by the applicable shareholder
in order to validly request redemption. A shareholder is not required to submit a proxy card or vote in order to validly exercise
redemption rights.
You may tender the ordinary
shares for which you are electing redemption by two business days before the extraordinary general meeting by either:
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Delivering certificates representing Wealthbridge’s ordinary shares to Wealthbridge’s
transfer agent, or
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Delivering the Wealthbridge ordinary shares electronically through the DWAC system
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Wealthbridge shareholders
will be entitled to redeem their Wealthbridge ordinary shares for a full pro rata share of the trust account (currently anticipated
to be no less than approximately $10.32 per share) net of taxes payable.
Any corrected or changed written demand
of redemption rights must be received by Wealthbridge’s transfer agent two (2) business days prior to the extraordinary general
meeting. No demand for redemption will be honored unless the holder’s shares have been delivered (either physically or electronically)
to the transfer agent at least two (2) business days prior to the vote at the meeting.
Public shareholders may seek to have their
shares redeemed regardless of whether they vote for or against the Business Combination and whether or not they are holders of
ordinary shares as of the Record Date. Any public shareholder who holds shares of Wealthbridge on or before May 1, 2020 (two business
days before the extraordinary general meeting) will have the right to demand that his, her or its shares be redeemed for a pro
rata share of the aggregate amount then on deposit in the trust account, less any taxes then due but not yet paid, at the consummation
of the Business Combination.
In connection with tendering
your shares for redemption, you must elect either to physically tender your share certificates to Wealthbridge’s transfer
agent or deliver your shares to the transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal
At Custodian) System, in each case, by two business days prior to the extraordinary general meeting.
Through the DWAC system,
this electronic delivery process can be accomplished by contacting your broker and requesting delivery of your shares through the
DWAC system. Delivering shares physically may take significantly longer. In order to obtain a physical stock certificate, a shareholder’s
broker and/or clearing broker, DTC, and Wealthbridge’s transfer agent will need to act together to facilitate this request.
There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering
them through the DWAC system. The transfer agent will typically charge the tendering broker $45 and the broker would determine
whether or not to pass this cost on to the redeeming holder. It is Wealthbridge’s understanding that shareholders should
generally allot at least two weeks to obtain physical certificates from the transfer agent. Wealthbridge does not have any control
over this process or over the brokers or DTC, and it may take longer than two weeks to obtain a physical stock certificate. Shareholders
who request physical stock certificates and wish to redeem may be unable to meet the deadline for tendering their ordinary shares
before exercising their redemption rights and thus will be unable to redeem their ordinary shares.
In the event that a shareholder
tenders its ordinary shares and decides prior to the consummation of the Business Combination that it does not want to redeem its
ordinary shares, the shareholder may withdraw the tender. In the event that a shareholder tenders ordinary shares and the business
combination is not completed, these ordinary shares will not be redeemed for cash and the physical certificates representing these
ordinary shares will be returned to the shareholder promptly following the determination that the Business Combination will not
be consummated. Wealthbridge anticipates that a shareholder who tenders ordinary shares for redemption in connection with the vote
to approve the Business Combination would receive payment of the redemption price for such ordinary shares soon after the completion
of the Business Combination.
If properly demanded by Wealthbridge’s
public shareholders, Wealthbridge will redeem each share into a pro rata portion of the funds available in the Trust Account,
calculated as of two business days prior to the anticipated consummation of the Business Combination. As of the record date, this
would amount to approximately $10.00 per share, plus interest less taxes payable. If you exercise your redemption rights, you
will be exchanging your Wealthbridge ordinary shares for cash and will no longer own the ordinary shares. If Wealthbridge is unable
to complete the Business Combination by the date that is 15 months from the closing of the IPO, or May 8, 2020, or 21 months from
the closing of the IPO, or November 8, 2020, if we further extend the period of time to consummate a business combination, it
will voluntarily liquidate and subsequently dissolve and public shareholders would be entitled to receive approximately $10.00
per share, plus interest less taxes payable, upon such liquidation.
Notwithstanding the foregoing,
a holder of the public shares, together with any affiliate of his or her or any other person with whom he or she is acting in concert
or as a “group” (as defined in Section 13(d)-(3) of the Securities Exchange Act of 1934 (the “Exchange Act”)
will be restricted from seeking redemption rights with respect to more than 20% of the ordinary shares.
If too many public stockholders
exercise their redemption rights, we may not be able to meet certain condition, and as a result, would not be able to proceed with
the Business Combination.
Tendering Ordinary Share Certificates
in connection with Redemption Rights
Wealthbridge is requiring
the Wealthbridge public shareholders seeking to exercise their redemption rights, whether they are record holders or hold their
shares in “street name,” to either tender their certificates to Wealthbridge’s transfer agent, or to deliver
their shares to the transfer agent electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian)
System, at the holder’s option prior to two business days immediately preceding the extraordinary general meeting. There
is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering
them through the DWAC System. The transfer agent will typically charge the tendering broker $45.00 and it would be up to the broker
whether to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether Wealthbridge requires
holders seeking to exercise redemption rights to tender their ordinary shares. The need to deliver ordinary shares is a requirement
of exercising redemption rights regardless of the timing of when such delivery must be effectuated.
Any request for redemption,
once made, may be withdrawn at any time up to two business days immediately preceding the extraordinary general meeting. Furthermore,
if a shareholder delivered his certificate for redemption and subsequently decided prior to the date immediately preceding the
extraordinary general meeting not to elect redemption, he may simply request that the transfer agent return the certificate (physically
or electronically).
A redemption payment
will only be made in the event that the proposed Business Combination is consummated. If the proposed Business Combination is not
completed for any reason, then public shareholders who exercised their redemption rights would not be entitled to receive the redemption
payment. In such case, Wealthbridge will promptly return the share certificates to the public shareholder.
Appraisal Rights
Appraisal rights are
not available to holders of Wealthbridge ordinary shares in connection with the proposed Business Combination.
Proxies and Proxy Solicitation Costs
We are soliciting proxies on behalf of
our board of directors. This solicitation is being made by mail but also may be made by telephone or in person. Wealthbridge and
its directors, officers and employees may also solicit proxies in person, by telephone or by other electronic means. Any solicitation
made and information provided in such a solicitation will be consistent with the written proxy statement and proxy card. Morrow
Sodali LLC, a proxy solicitation firm that Wealthbridge has engaged to assist it in soliciting proxies, will be paid its customary
fee and out-of-pocket expenses.
Wealthbridge will ask
banks, brokers and other institutions, nominees and fiduciaries to forward its proxy materials to their principals and to obtain
their authority to execute proxies and voting instructions. Wealthbridge will reimburse them for their reasonable expenses.
If you send in your completed
proxy card, you may still vote your shares in person if you revoke your proxy before it is exercised at the extraordinary general
meeting.
Wealthbridge Initial Shareholders
In May and July, 2018, 1,150,000 shares
were sold to our initial shareholders. On October 15, 2018, Wealthbridge affected a 5 for 4 share split resulting in an aggregate
of 1,437,500 ordinary shares outstanding to our initial shareholders, which we refer to throughout this proxy statement as the
“insider shares,” for an aggregate purchase price of $25,100. Simultaneous with the consummation of the IPO, we consummated
the private placement of 247,500 Private Placement Units” at a price of $10.00 per Private Placement Unit, generating total
proceeds of $2,475,000. The Private Placement Units were purchased by Wealthbridge’s sponsor. The underwriters exercised
the over-allotment and on February 20, 2019, Wealthbridge consummated the private sale of an additional 22,500 private units to
its sponsor, generating gross proceeds of $225,000.
Pursuant to a registration
rights agreement between us and our initial shareholders, those shareholders are entitled to certain registration rights with respect
to the Wealthbridge rights held by them, as well as the underlying securities. The holders of these securities are entitled to
make up to two demands that Wealthbridge register such securities. The holders of the initial shares can elect to exercise these
registration rights at any time commencing three months prior to the date on which these ordinary shares are to be released from
escrow. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements
filed subsequent to the consummation of a business combination. Wealthbridge will bear the expenses incurred in connection with
the filing of any such registration statements.
THE BUSINESS
COMBINATION PROPOSAL
The discussion in this
proxy statement of the Business Combination and the principal terms of the Share Exchange Agreement, is subject to, and is qualified
in its entirety by reference to, the Share Exchange Agreement. The full text of the Share Exchange Agreement is attached hereto
as Annex A, which is incorporated by reference herein.
General Description of the Business
Combination
Business Combination with Scienjoy;
Business Combination Consideration
On the closing date of the transactions
contemplated by the Share Exchange Agreement, the Sellers will sell to Wealthbridge, and Wealthbridge will purchase from the Sellers,
all of the issued and outstanding shares and other equity interests in and of Scienjoy, and Wealthbridge will issue 16,400,000
of its ordinary shares to the Sellers, among which 1.64 million ordinary shares of Wealthbridge are to be issued and held in escrow
to satisfy any indemnification obligations of the Sellers. The issuance of shares of Wealthbridge to the Sellers is being consummated
on a private placement basis, pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The aggregate value of the
initial consideration to be paid by Wealthbridge in the business combination is approximately $164 million (calculated as follows:
16,400,000 ordinary shares of Wealthbridge to be issued to the Sellers, multiplied by $10.00 (the deemed value of the shares in
the Share Exchange Agreement). The Sellers are also entitled to receive an additional 3,000,000 ordinary shares of Wealthbridge
at the closing because Scienjoy’s net income before tax for the year ended December 31, 2019 is RMB 156,540,470, greater
than the Earnout 1 Target (as defined in the Share Exchange Agreement). Additionally, the Sellers may be entitled to receive additional
earnout shares as follows: (1) if Scienjoy’s net income before tax for the year ended December 31, 2020 is greater than or
equal to either US$28,300,000 or RMB 190,000,000, the Sellers will be entitled to receive 3,000,000 ordinary shares of Wealthbridge
(subject to the reclassification of the ordinary shares of Wealthbridge as described in more details in the Voting Agreement);
and (2) if Scienjoy’s net income before tax for the year ended December 31, 2021 is greater than or equal to either US$35,000,000
or RMB 235,000,000, the Sellers will be entitled to receive 3,000,000 ordinary shares of Wealthbridge (subject to the reclassification
of the ordinary shares of Wealthbridge as described in more details in the Voting Agreement).
Notwithstanding the net income before tax
achieved by the post-transaction company for any period, the Sellers will receive (i) 3,000,000 earnout shares if the share price
of Wealthbridge is higher than $20.00 for any sixty days in any period of ninety consecutive trading days between the 13th month
and 24th month following the Closing, and (ii) 3,000,000 earnout shares if the share price of Wealthbridge is higher than $25.00
for any sixty days in any period of ninety consecutive trading between the 25th month and 36th month following the Closing.
Wealthbridge currently has an unlimited number of authorized
shares of no par value.
After the Business Combination, assuming
no redemptions of ordinary shares for cash, Wealthbridge’s current public shareholders will own approximately 22.2% of Wealthbridge,
Wealthbridge’s current directors, officers and affiliates will own approximately 6.1% of Wealthbridge, and the Sellers will
own approximately 68.2% of Wealthbridge. Assuming redemption by holders of 4,778,111 of Wealthbridge’s ordinary shares, Wealthbridge
public shareholders will own approximately 6.5% of Wealthbridge, Wealthbridge’s current directors, officers and affiliates
will own approximately 7.3% of Wealthbridge, and the Sellers will own approximately 82.0% of Wealthbridge. Upon consummation of
the Business Combination, Scienjoy will be a wholly-owned subsidiary of Wealthbridge. Lavacano, one of the two Sellers, may distribute
its shares of Wealthbridge to its two shareholders in the future.
Assuming the Business Combination Proposal
is approved, the parties to the transaction expect to close the Business Combination no later than May 8, 2020.
Background of the Business Combination
Wealthbridge was incorporated
as a blank check company on May 2, 2018, under the laws of the British Virgin Islands, for the purpose of entering into a merger,
share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or
more businesses or entities, which we refer to as a “target business.” Wealthbridge’s efforts to identify a prospective
target business were not limited to any particular industry or geographic region.
Wealthbridge completed its IPO on February
8, 2019 of 5,000,000 units, with each unit consisting of one Ordinary Share, no par value, one redeemable Warrant and one Right
to receive one-tenth of an ordinary share upon consummation of an initial business combination. Simultaneous with the consummation
of the IPO, we consummated the private placement of 247,500 Private Placement Units at a price of $10.00 per Private Placement
Unit, generating total proceeds of $2,475,000. The Private Placement Units were purchased by Wealthbridge’s sponsor. The
underwriters in the IPO exercised the over-allotment option and, on February 20, 2019, the underwriters purchased 750,000 over-allotment
option Units, which were sold at an offering price of $10.00 per Unit, generating gross proceeds of $7,500,000. Simultaneously
with the sale of the over-allotment Units, Wealthbridge consummated the private sale of an additional 22,500 Private Units to its
sponsor, generating gross proceeds of $225,000.
After deducting the underwriting discounts
and commissions and the offering expenses, a total of $57,500,000 was deposited into a trust account established for the benefit
of Wealthbridge’s public shareholders, and the remaining proceeds became available to be used to provide for business, legal
and accounting due diligence on prospective business combinations and continuing general and administrative expenses. As of December
31, 2019, we have approximately $11,600 of unused net proceeds that were not deposited into the trust fund to pay future general
and administrative expenses. The net proceeds deposited into the trust fund remain on deposit in the trust fund earning interest.
As of December 31, 2019, there was $58,588,138 held in the trust fund (including approximately $1,088,000 of interest income and
unrealized gains, which we can withdraw to pay taxes, and $2,012,500 of deferred underwriting compensation). On
April 10, 2020, Wealthbridge and Chardan entered into a deferred underwriting fee agreement pursuant to which Chardan will receive
shares equal to the total amount of deferred underwriting fee divided by the effective conversion price. The effective conversion
price is defined as the volume weighted average price (VWAP) of Wealthbridge’s rights from the date of the mailing of this
proxy statement to the date of the Extraordinary General Meeting, multiplied by 10. For purpose of preparing the pro forma adjustment,
the effective conversion price was assumed to be $4.30, which is based on the VWAP of the rights for the 30 days ended April 7,
2020, which would result in the issuance of 468,023 ordinary shares.
In accordance with Wealthbridge’s
Amended and Restated Memorandum and Articles of Association, the amounts held in the trust account may only be used by Wealthbridge
upon the consummation of a business combination, except that there can be released to Wealthbridge, from time to time, any interest
earned on the funds in the trust account that it may need to pay its tax obligations. The remaining interest earned on the funds
in the trust account will not be released until the earlier of the completion of a business combination and Wealthbridge’s
liquidation. Wealthbridge executed a definitive agreement on October 28, 2019 and it must voluntarily liquidate unless a business
combination is consummated by the date that is 15 months from the closing of the IPO, or May 8, 2020, or 21 months from the closing
of the IPO, or November 8, 2020, if we further extend the period of time to consummate a business combination.
Promptly after the IPO, the officers and
directors of Wealthbridge commenced the process of locating potential targets. Over the course of Wealthbridge’s search for
target companies, Wealthbridge management evaluated in excess of 25 target companies. Wealthbridge entered into advanced discussions
with the following four (4) targets in different industries, including a $200 million aviation leasing company, a $300 million
aviation manufacturer, a $150 million outsourcing software as a service (“SAAS”) business, and a $200 million film
production business, but did not proceed with these targets for the reasons indicated:
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1.
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We decided not to proceed with the aviation leasing company because the shareholder of the aviation
leasing company is a state-owned enterprise and consequently a business combination with such company would require complex governmental
approvals and take an extended period of time.
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2.
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The shareholders of the aviation manufacturer withdrew from negotiations because they were unhappy
with the valuation we offered.
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3.
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The shareholders of the outsourcing SAAS business decided to pursue an IPO instead of a transaction
with us.
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4.
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We terminated negotiations as the film industry in China started to become heavily restricted and
state-governed and also considering the increasing concerns on the U.S. and China trade war.
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On March 10 , 2019, Wealthbridge was contacted
by Mr. Jian Liu, a representative of China Fuhua Hong Kong Financial Group Limited (“Fuhua”), a financial services
company in Hong Kong, China. Mr. Yongsheng Liu, the Chief Executive Officer of Wealthbridge, spoke with Mr. Jian Liu and entered
into an engagement letter engaging Fuhua to introduce potential targets to Wealthbridge on April 15, 2019. This letter provides
that the Wealthbridge shall pay Fuhua equal to 1.8% of the aggregate value of the initial consideration, i.e., 164 million, in
the form of newly issued Company shares. 1.8% was later reduced to 1% based on an amended agreement dated April 7, 2020.
On March 14, 2019, Mr. Jian Liu arranged
for Mr. Yongsheng Liu and Mr. Xiaowu He, the Chief Executive Officer of Scienjoy, to have a conference call. Mr. Yongsheng Liu
described the SPAC structure and a possible timeline with Mr. Xiaowu He, and Mr. Xiaowu He introduced Scienjoy’s business
model and general financial information to Mr. Yongsheng Liu.
On March 20, 2019, Scienjoy and Wealthbridge
executed a non-disclosure agreement.
On March 22, 2019, Scienjoy sent draft
financial statements and due diligence documents to Wealthbridge. Subsequently, on April 4, 2019, Mr. Yongsheng Liu and Mr. Jining
Li, one of Wealthbridge’s directors, and Mr. Xiaowu He from Scienjoy held a meeting at Hong Kong to discuss the potential
business combination opportunity. During the meeting, Wealthbridge introduced the SPAC structure to Mr. Xiaowu He, CEO of Scienjoy,
and Scienjoy’s team presented its business model and advised Wealthbridge that it was considering an initial public offering.
From April 5, 2019 to April 9, 2019,
Mr. Yongsheng Liu had several phone calls with Mr. Jack Liu, the senior vice president of our financial advisor Chardan Capital
Markets, LLC (“Chardan”), to update Chardan on Wealthbridge’s progress and to discuss a potential transaction
with Scienjoy.
On April 6, 2019, Mr. Yongsheng Liu met
with Mr. Jining Li to review Scienjoy’s business model. After reviewing the model, they believed that Scienjoy’s business
model would be easy to understand by investors. In addition, they noted that NASDAQ has many successful live streaming companies
listed on the exchange. Following this meeting, Mr. Yongsheng Liu discussed Scienjoy with Wealthbridge’s members of the Board
of Directors, who agreed that Scienjoy would be a good potential target.
From April 9, 2019 to April 24, 2019, the
Wealthbridge team and Scienjoy team held a number of telephone conferences to discuss a letter of intent (“LOI”). On
April 12, 2019, Wealthbridge sent an initial draft of LOI for Scienjoy’s review. The LOI provided for, among other things,
the issuance at closing of 16 million shares of Wealthbridge, with an additional 9 million earnout shares being issued if certain
targets were met, and Scienjoy paying Wealthbridge $250,000 in the event that Scienjoy breached any LOI entered into between the
parties.
On April 14, 2019, Mr. Yongsheng Liu and
Mr. Xiaowu He had phone call to negotiate the terms of the earnout shares and the deposit.
On April 26, 2019, Mr. Yongsheng Liu signed
the negotiated LOI on behalf of Wealthbridge. On April 27, 2019, Mr. Xiaowu He counter-signed the LOI on behalf of Scienjoy. The
signed LOI provided for issuance at closing of 16.4 million Wealthbridge shares, with an additional 9 million earnout shares being
issued if certain targets were met, and also that Scienjoy agreed to pay $200,000 initial deposit and $500,000 second deposit to
cover the expenses of the Business Combination.
On May 6, 2019, the Wealthbridge team met
with Scienjoy’s team in Scienjoy’s Beijing office to begin the due diligence process.
From May 8, 2019 to May 29, 2019, Mr.
Yongsheng Liu from Wealthbridge, Mr. Xiaowu He from Scienjoy and Mr. Jack Liu from Chardan held multiple calls to discuss which
firm to hire to act as Scienjoy’s auditor. On May 22, 2019, Mr. Yongsheng Liu, on behalf of Wealthbridge, engaged Loeb &
Loeb LLP (“Loeb”), as legal counsel. On June 3, 2019, Scienjoy engaged Friedman LLP as its auditing firm.
On June 5, 2019, Mr. Yongsheng Liu, Ms.
Xiaoyan Tang, Wealthbridge’s CFO, and other management members of Wealthbridge’s team held a conference call to report
to Wealthbridge’s board of directors the results of the due diligence process and the progress of the transaction with Scienjoy.
From June 10, 2019 to June 14, 2019, Mr.
Yongsheng Liu and Mr. Jining Li, one of Wealthbridge’s directors, went to New York to meet with the professionals involved
in the transaction to discuss the process for completing the transaction.
On June 10, 2019, Mr. Yongsheng Liu and
Mr. Jining Li met with the team at Chardan at their New York office to discuss the transaction process, potential investors for
the transaction, and the impact of the trade war between China and the U.S. on a transaction with Scienjoy. Also on the same day,
Mr. Yongsheng Liu met with Loeb to discuss the details of the Share Exchange Agreement, to learn more about NASDAQ requirements,
and the progress of legal due diligence of Scienjoy.
On June 11, 2019, Mr. Yongsheng Liu met
with an investment bank and a hedge fund to discuss potential investor interests in Scienjoy.
On June 12, 2019, Wealthbridge’s
team met with Loeb to discuss due diligence and the progress on the Share Exchange Agreement.
On June 18, 2019, Wealthbridge’s
team met with Scienjoy’s team. Scienjoy updated Wealthbridge on the progress of the audit, and the parties negotiated the
terms of a definitive agreement between Wealthbridge and Scienjoy, including the number of directors for a board, Scienjoy’s
presentations and warranties, equity financing and etc.
On June 19, 2019, a meeting was held in
Scienjoy’s Beijing office, Ms. Xiaoyan Tang and Mr. Xiaowu He discussed the progress on the audit.
On June 25, 2019, a conference call was
held among Loeb’s team, Wealthbridge’s team, Mr. Xiaoyin Wang, Scienjoy’s legal advisor, and Scienjoy’s
PRC counsel. Among the items discussed were the proposed timeline for the potential business combination and an update on the due
diligence process.
From July 5, 2019 to July 26, 2019, members
of the management teams of Wealthbridge and Scienjoy met with serval potential investors in China.
On July 30, 2019, Mr. Yongsheng Liu and
Loeb discussed the structure of Scienjoy and certain terms of the potential business combination.
On August 4, 2019, Loeb sent a draft of
the Share Exchange Agreement to the management team of Wealthbridge.
On August 7, 2019, Mr. Yongsheng Liu and
Loeb discussed certain terms of the draft Share Exchange Agreement.
On August 8, 2019, Wealthbridge sent an
initial version of the Share Exchange Agreement to Scienjoy for Scienjoy’s review.
On August 22, 2019, Mr. Yongsheng Liu and
Mr. Xiaowu He had a conference call to update each other on various aspects of the deal, including auditing, legal due diligence,
and certain terms of the Share Exchange Agreement.
From September 9, 2019 to September 13,
2019, Mr. Yongsheng Liu had a number of meetings in New York, including with Loeb, Friedman and Chardan, to discuss the status,
terms and documents for the potential business combination, including the Share Exchange Agreement, Scienjoy’s Financial
Statements and production of a draft proxy statement.
On September 17, 2019, Mr. Yongsheng Liu
and Mr. Xiaowu He held a conference call to discuss plans for a roadshow.
On September 26, 2019, Mr. Yongsheng Liu
and Mr. Xiaowu He held a meeting at Scienjoy’s Beijing office to negotiate certain terms of the Share Exchange Agreement,
including board of directors, termination fee, share exchange price, earnout payment, trust extension, escrow of a portion of the
shares being issued at closing and indemnification.
From October 8, 2019 to October 25, 2019,
there were multiple conference calls and emails among the representatives of Wealthbridge, Scienjoy, Loeb, and JunHe Law Offices
LLC to discuss and negotiate certain outstanding provisions of the Share Exchange Agreement, including the termination fee, board
of directors, and indemnification obligations.
On October 25, 2019, the management teams
of both Wealthbridge and Scienjoy agreed to present the Share Exchange Agreement to their respective Boards of Directors.
On October 27, 2018, Wealthbridge’s
Board held a special board meeting to review the transaction with Scienjoy. At this meeting, Wealthbridge’s Board of Directors
approved the transaction and authorized Wealthbridge to enter into the definitive agreement with Scienjoy for the purpose of consummating
a business combination.
On October 28, 2019, the Share Exchange
Agreement was signed by both parties.
On November 1, 2019, the signing of the
Share Exchange Agreement by Wealthbridge and Scienjoy was announced to the public. Wealthbridge filed a Current Report on Form
8-K in the meanwhile including the press release and a copy of the Share Exchange Agreement.
Wealthbridge’s Board’s Reasons
for the Approval of the Business Combination
Before reaching its decision, the Wealthbridge’s
Board reviewed the results of Wealthbridge management’s due diligence investigation, and the due diligence investigations
of Wealthbridge’s third party legal advisors. On October 27, 2019, Wealthbridge’s Board unanimously approved the Share
Exchange Agreement and the transactions contemplated thereby, determined that the Business Combination is in the best interests
of Wealthbridge shareholders, directed that the agreements be submitted to Wealthbridge’s shareholders for approval and
adoption, and recommended that Wealthbridge’s shareholders approve and adopt the agreements and transactions contemplated
thereby.
Prior to reaching the decision to approve
the agreements and the transaction, our board of directors received information from its legal advisors and third-party resources.
We retained Chardan Capital Markets, LLC (“Chardan”) as our financial advisor, which also served as the lead underwriter
of our initial public offering in 2019. Chardan is an independent, fully licensed, FINRA-registered, global investment bank and
its range of services include capital raising, merger and acquisition advisory, strategic advisory, equity research, corporate
access and institutional trading. It is also a bank that underwrites, advises, manages, and sponsors special purpose acquisition
companies (SPACs). Chardan has been an underwriter in 35 SPAC offerings from 2016 to 2019, and also has acted as buyside M&A,
capital markets, and financial advisor in 9 SPAC business combination in 2018 and 2019. Wealthbridge’s board mainly considered
the following factors during our selection of financial advisor and finally decided to retain Chardan as our financial advisor:
1) the financial advisor should have extensive M&A transaction experience and be able to offer support during negotiation
and deal structuring; 2) the financial advisor should be familiar with the SPAC transaction process and could advise the company
on a plan to complete the business combination transaction; and 3) the financial advisor should have extensive experience working
with public company clients.
We entered into a financial advisory agreement
with Chardan on April 9, 2019, according to which Chardan is engaged to provide us financial advisory services in connection with
the identification of and negotiation with potential targets, assistance with due diligence, marketing, financial analyses and
investor relations. The advisory fee will be paid in the form of newly issued shares of the combined company at the closing and
is based on the aggregate value of the Business Transaction equal to two percent (2%) of the amount up to $175 million plus one
percent (1.0%) of the aggregate value above $175 million. If such transaction occurs through multiple closings, then pro rata portion
of such fees will be paid upon each closing. Therefore, in the event a Business Combination is consummated, Wealthbridge will be
obligated to pay Chardan a fee of $3,690,000 at the closing in the form of 369,000 newly issued shares of the combined company.
No fee has been paid or will be paid to Chardan for any services if provided in valuing or determining the fairness of the consideration
being paid to Scienjoy.
In addition, Scienjoy entered into a service agreement with
Chardan on April 7, 2020, according to which Chardan is engaged to provide Scienjoy professional advisory, consulting and other
investment banking services in connection with the Business Combination, including advice related to business and finance, capital
market activities, market data, up-listing processes, general industry insight and investor relations. The aggregate advisory
fee under such service agreement is $240,000, payable to Chardan before April 21, 2020.
Mr. Yongsheng Liu and other management
members had a number of conference calls with Mr. Jack Liu, the senior vice president of Chardan to discuss the reasonableness
of the valuation and the amount of consideration to be paid proposed by Scienjoy; however no written communications or written
reports as to the valuation of Scienjoy were produced by our financial advisor. According to Chardan, the valuation offered
by Scienjoy, compared to DOYU and HUYA, the most direct comparable companies due to the similar revenue model and sector focus,
the same geographical location coverage, and the fact that they are all listed on major U.S. listing exchanges, is favorable.
See “Favorable Valuation” below for further information. Chardan did not recommend the amount of consideration
to be paid.
Since Wealthbridge’s IPO in February
of 2019, our management team and board of directors have been conducting a search for potential business combination partners.
Wealthbridge’s management and the board of directors considered a wide variety of factors in connection with its evaluation
of the Business Combination but did not find it to be practical to quantify or assign weights to the specific factors in reaching
its final decision. In considering the Business Combination with Scienjoy and prior to reaching the final decision, our management
team and the board of directors reviewed the results of the business and financial due diligence conducted by our management and
third party legal and financial advisors, which included:
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Analysis and review of Scienjoy’s historical financial.
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Review of Scienjoy’s online live streaming revenue model and unit economics.
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Interviews with senior executives from various business departments of Scienjoy.
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Multiple rounds of discussion with the CEO of Scienjoy on future organic and acquisitive growth
strategy.
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Discussions with the controlling shareholder on future capital markets strategy and long term investor
support.
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Background checks on Scienjoy’s current and past key stakeholders.
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Review of Scienjoy’s material business contracts.
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Review of prevailing industry changes and potential regulatory challenges for online live streaming
industry in China and the possible strategies in facing these changes and challenges.
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Legal due diligence review conducted by legal counsels.
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Assessment of total addressable market, its key competitors, competitive advantages, barriers of
entry, and target market share.
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Review of other Chinese online live streaming company comparables publicly listed in the U.S.
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After reviewing the results of the business
and financial due diligence listed above, our management team and the board of directors determined to proceed with a transaction
with Scienjoy for the following reasons:
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Established Business Model
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As early as 2005, live-streaming culture
began in China when public video streaming services were repurposed by users to host public live streaming performances online.
Today, millions of audience are watching anchors or hosts perform live entertainment streaming shows online each night on various
live-streaming platforms. Scienjoy focuses on show-room live-streaming where hosts sing and dance in front of a webcam. As its
popularity grew, live-streaming sessions have shifted to become a new form of social media, allowing the creation of social connections
between hosts and audiences. Audience members that are reluctant to integrate into traditional social settings are provided with
a new means of developing social connections.
Show-room live-streaming companies generate
revenue from virtual item sales to audience members that gift these virtual items to anchors or hosts. These recipients of the
virtual gifts then sell the virtual gift items at a discount back to the live streaming company to generate revenue. Purchasing
virtual gifts is becoming increasingly accepted and popular among live streaming audience. Given the strong cultural and extensive
support in China, as well as the history of live streaming, the board of directors of Wealthbridge found Scienjoy uniquely and
attractively positioned in a promising and high potential industry.
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Large and Growing Sector
|
Online live entertainment streaming, according
to a Frost & Sullivan report, accounts for 29% of the entire mobile live streaming market in China and its market size is estimated
to grow from $1.9 billion in 2018 to $5.4 billion in 2022, representing a compound annual growth rate, or CAGR, of 29.8%.
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Significant Technology Advantage
|
Since its inception in 2011, Scienjoy has
developed deep video streaming industry knowledge and expertise and established itself as a pioneer in video technology. Scienjoy
developed its proprietary set of end-to-end (broadcaster-to-user) mobile video streaming solutions. Other advanced video technologies
developed by Scienjoy include mobile-compatible animation engine technology, event-driven asynchronous business processing mechanism,
linearly expanding deployment of servers, modular service development and assembly, high-throughput parallel messaging service
clusters, and spam filtering based on machine learning. Scienjoy has invested heavily in augmented reality, virtual reality, artificial
intelligence, big data mining technology, and physics engine technology.
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Impressive User Scale and Economics
|
According to the third party YIGUAN
ANALYSYS data report in 2019 (which is publicly available without payment and is not commissioned by Wealthbridge or Scienjoy
in connection with this proxy statement), for six consecutive calendar quarters from the first quarter of 2018 through the second
quarter of 2019, Showself Live Streaming, Scienjoy’s flagship platform, continuously ranked No. 1 among major platforms
in the vertical show live streaming sector in terms of QAU, and for the year 2018, it ranked No. 5 in among major platforms in
all entertainment related streaming platforms including the pan entertainment sector and the show sector, also in terms of QAU.
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Experienced founding management team
|
Scienjoy’s founding team, Mr. Xiaowu
He, Mr. Bo Wan, Mr. Wesley Lu, currently hold positions of CEO, COO and EVP, respectively, at the company. The seasoned executive
team not only have established a common vision but also demonstrated their strong conviction of the business by investing together
each considerable time and energy at strategic level.
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Financial Terms of the Share Exchange Agreement.
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The board of Wealthbridge took note of
the post-Closing ownership structure whereby the existing owner of Scienjoy agreed to: (i) accept all of their financial consideration
for the Business Combination in equity; and (ii) a six to twelve-month lock-up period with respect to the equity consideration
received from the Business Combination.
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Growth Opportunities via M&A
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The board of Wealthbridge believes that
Scienjoy is well-positioned for future growth via bolt-on acquisitions as Wealthbridge believes that the live streaming market
in China will undergo a consolidation. After the Business Combination and public listing, Scienjoy will be able to leverage public
equity currency to pursue acquisitions.
Wealthbridge’s board, in consultation
with its financial advisor, determined to use a public comparable company analysis to determine Wealthbridge’s value. Among
various valuation metrics, we believe that EV/Sales and P/E multiple, or Price-to-Earning ratio, reflects the value of Scienjoy
and its comparable companies in the live streaming space. Between the two valuation metrics, Wealthbridge believes that P/E is
likely to be perceived by public market investors as the most relevant valuation metric for Scienjoy.
In arriving at its valuation conclusion,
our financial advisor reviewed all 6 Chinese companies that are currently listed publicly and offer live streaming as one of their
core products. They are Inke Limited (HKSE: 03700), JOYY Inc.(NASDAQ:YY), Bilibili Inc., (NASDAQ: BILI), Douyu International Holdings
Limited (NASDAQ: DOYU), Huya Inc. (NYSE: HUYA), and Momo Inc. (NASDAQ: MOMO). Among these 6 comparable companies, all but Inke
Limited are listed in the U.S. stock exchanges. Inke is currently listed on Hong Kong stock exchange and appears to be the only
company in the list that has reported a negative year over year revenue growth. Inke and JOYY compete directly with Scienjoy in
the live entertainment streaming business. DOYU and HUYA are more focused on live game streaming and MOMO’s revenue is mainly
from online social relationships business based on location and interests. BILI’s business is much broader and covers videos,
live broadcasting and mobile games. YY, HUYA and MOMO are the only 3 companies that reported positive net earnings.
Among the potentially comparable companies
identified by our financial advisor, Wealthbridge placed less emphasis on Inke due to its negative growth trend. Wealthbridge’s
board did not view JOYY and MOMO as most relevant comparable companies as streaming revenue only accounts for a small percentage
of their total revenue. Wealthbridge’s board consequently focused on HUYA and DOYU, two Chinese live streaming companies
that recently completed their IPOs in the U.S. Wealthbridge determined that these two pure play streaming companies are the most
direct comparable companies due to the similar revenue model and sector focus, and the same geographical location coverage, and
the fact that they are all listed on major U.S. listing exchanges. Wealthbridge’s board also considered a number of other
factors. For example, in terms of user spending and profit margin, Scienjoy’s paying users have higher average spending
than those of HUYA and DOYU, and as a result Scienjoy achieves a higher net income margin. Wealthbridge’s board recognized
that HUYA and DOYU have greater scale in terms of revenue, registered users, active users and paying users. Therefore, it concluded
that Scienjoy’s smaller scale compared to HUYA and DOYU should lead to a modest discounted valuation multiple, although
this was offset by the premium associated with its higher profit margins.
Scienjoy, after Business Combination with
Wealthbridge, will have a pro forma equity market value of approximately $250 million at closing, or approximately 1.9x estimated
2019 sales or 12.6x 2019 estimated net income, assuming no redemptions. Compared to the 2.7x EV/Sales of DOYU and 4.0x EV/Sales
or 74.4x P/E of HUYA, Scienjoy’s equity is being valued at a 29% discount to DOYU and 83% discount (based on P/E) or 53%
discount (based on EV/Sales) to HUYA.
In making its recommendation, the board
of Wealthbridge also considered, among other things, the following negative factors relating to the Business Combination:
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The risk that Scienjoy may experience difficulties in competing with other live entertainment streaming
companies and executing its growth plan.
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The risk that Scienjoy may not be able to manage its expected growth.
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The risks that Scienjoy may be exposed to data security breach and cyber attacks.
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The risks that Scienjoy may fail to attract and retain high quality and popular broadcasters, hosts
or anchors to use its platform for their streaming performance.
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The risk that viewers will no longer find performance content on the Scienjoy’s platform
entertaining.
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The risk that Scienjoy will lose its technological competitive edge as its competitors increase
their R&D spending.
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The risk that Scienjoy has limited control on how its users will perform on its streaming platform.
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The risk that Scienjoy’s financial performance may be affected by seasonal fluctuations.
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The risk associated with future regulatory uncertainty for the live entertainment streaming industry
in China and the effects it may have on Scienjoy’s revenue.
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The risk that the board of Wealthbridge may not have properly valued Scienjoy’s business.
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The risk that certain key employees of Scienjoy may not choose to remain with the company post-Closing.
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The risk that Scienjoy may fail to maintain important business relationships with third parties.
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The possibility of litigation challenging the Business Combination or the combined company post
Business Combination.
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The risk that some of the current Public Shareholders would exercise their Redemption Rights, thereby
depleting the amount of cash available in the Trust Account.
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The risk that the announcement of the Business Combination and potential diversion of Scienjoy’s
management and employee attention may adversely affect Scienjoy’s operations.
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The risk that the Business Combination may not be consummated in a timely manner or that the Closing
might not occur despite the companies’ efforts, including by reason of a failure to obtain the approval of Wealthbridge’s
shareholders.
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The other risks described in the “Risk Factors” section of this proxy statement.
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The board of Wealthbridge concluded that
the potential benefits that it expects its shareholders to achieve as a result of the Business Combination outweighs the potential
negative factors described above. Accordingly, the board of Wealthbridge unanimously determined that the Share Exchange Agreement
and the Business Combination are advisable, fair to, and in the best interests of, its shareholders.
Other Considerations
The board of directors focused its
analysis on whether the Business Combination is likely to generate a return for its shareholders that is greater than if the trust
were to be liquidated. Our board of directors unanimously concluded that the Share Exchange Agreement with Scienjoy is in the
best interests of the Wealthbridge shareholders. The board of directors of Wealthbridge did not obtain a formal fairness opinion
regarding the amount of consideration to be paid from an unaffiliated third party financial advisor, on which to base its assessment,
although it did receive advice about the consideration to be paid to Scienjoy from Chardan Capital Markets LLC. According to Chardan,
the valuation offered by Scienjoy, compared to the valuation of the two most direct comparable companies, is favorable to Wealthbridge.
Because of the financial skills and background of its members, the board of directors believes it was qualified to perform the
analysis discussed in this section and did not obtain a formal fairness opinion.
Recommendation of Wealthbridge’s
Board of Directors
After careful consideration,
Wealthbridge’s Board determined that the Business Combination with Scienjoy is in the best interests of Wealthbridge and
its shareholders. On the basis of the foregoing, Wealthbridge’s Board has approved and declared advisable the Business Combination
with Scienjoy and recommends that you vote or give instructions to vote “FOR” each of the Business Combination Proposal
and the other proposals.
The board of directors
recommends a vote “FOR” each of the Business Combination Proposal and the other proposals — Wealthbridge’s
board of directors have interests that may be different from, or in addition to your interests as a shareholder. See “The
Business Combination Proposal — Interests of Certain Persons in the Acquisition” in this proxy statement for further
information.
Interests of Certain Persons in the
Business Combination
When you consider the recommendation of
the board of directors in favor of adoption of the Business Combination Proposal and other proposals, you should keep in mind that
the directors and officers of Wealthbridge have interests in the Business Combination that are different from, or in addition to,
your interests as a shareholder, including:
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In the absence of shareholder approval for
a further extension, if the proposed Business Combination is not completed by May 8, 2020 or by the latest November 8, 2020,
if we further extend the period of time to consummate a business combination, Wealthbridge will be forced to wind up its affairs
and liquidate. In such event, the 1,437,500 ordinary shares of Wealthbridge held by Wealthbridge officers, directors and affiliates,
which were acquired prior to the IPO for an aggregate purchase price of $25,000, will be worthless, as will the 270,000 private
units that were acquired simultaneously in connection with the IPO for an aggregate purchase price of $2,700,000. Each of
Wealthbridge’s officers and directors has a pecuniary interest in, as specified in the following table:
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Name
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Shares in which such person has
a pecuniary interest
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Units in which such person has a
pecuniary interest
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Oriental Holdings Limited(1)
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1,200,000
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270,000
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Yongsheng Liu
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143,750
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0
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Xiaoyan Tang
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12,500
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0
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Ray Chen
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6,250
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0
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Jining Li (2)
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1,200,000
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270,000
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Kinpui Choi
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|
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12,500
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0
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Weiping Chen
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12,500
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0
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Simin Xie
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12,500
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0
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(1) Jining
Li and Yongsheng Liu jointly own, and Jining Li controls, Oriental Holdings Limited, our sponsor.
(2) Consists of shares owned
by Oriental Holdings Limited, our sponsor.
Such ordinary shares and units
had an aggregate market value of approximately $17,812,150 based on the last sale price of Wealthbridge’s ordinary shares
of $10.34 and Wealthbridge’s units of $10.92, on the Nasdaq Capital Market as of the Record Date;
As a result, the financial interest
of Wealthbridge’s officers, directors and initial shareholders or their affiliates could influence its officers’ and
directors’ motivation in selecting Scienjoy as a target and therefore there may be a conflict of interest when it determined
that the Business Combination is in the shareholders’ best interest;
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Unless Wealthbridge consummates the Business Combination, its officers, directors and initial shareholders
will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceeded the amount
of its working capital. As a result, the financial interest of Wealthbridge’s officers, directors and initial shareholders
or their affiliates could influence its officers’ and directors’ motivation in selecting Scienjoy as a target and therefore
there may be a conflict of interest when it determined that the Business Combination is in the shareholders’ best interest.
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The exercise of Wealthbridge’s directors’ and officers’ discretion in agreeing
to changes or waivers in the terms of the transaction may result in a conflict of interest when determining whether such changes
or waivers are appropriate and in our shareholders’ best interest.
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If the Business Combination with Scienjoy is completed, Scienjoy will designate five members to
the board of Wealthbridge.
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Anticipated Accounting Treatment
The Business Combination will be accounted
for as a reverse merger in accordance with U.S. GAAP. Under this method of accounting, Wealthbridge will be treated as the “acquired”
company for financial reporting purposes. This determination was primarily based on the holders of Scienjoy expecting to have a
majority of the voting power of the post-combination company, Scienjoy senior management comprising substantially all of the senior
management of the post-combination company, the relative size of Scienjoy compared to Wealthbridge, and Scienjoy operations comprising
the ongoing operations of the post-combination company. Accordingly, for accounting purposes, the Business Combination will be
treated as the equivalent of Scienjoy issuing stock for the net assets of Wealthbridge, accompanied by a recapitalization. The
net assets of Wealthbridge will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations
prior to the Business Combination will be those of Scienjoy.
Regulatory Approvals
The Business Combination and the other
transactions contemplated by the Share Exchange Agreement are not subject to any additional federal or state regulatory requirements
or approvals, including the Hart-Scott Rodino Antitrust Improvements Act of 1976.
THE
SHARE EXCHANGE AGREEMENT
The following is a summary
of the material provisions of the Share Exchange Agreement, a copy of which is attached as Annex A to this proxy statement.
You are encouraged to read the Share Exchange Agreement in its entirety for a more complete description of the terms and conditions
of the Acquisition.
Business Combination with Scienjoy;
Acquisition Consideration
Upon the closing of
the transactions contemplated in the Share Exchange Agreement, Wealthbridge will acquire 100% of the issued and outstanding securities
of Scienjoy, in exchange for approximately 16.4 million ordinary shares of Wealthbridge, among which 1.64 million ordinary shares
of Wealthbridge are to be issued and held in escrow to satisfy any indemnification obligations of the Sellers. The Sellers are
also entitled to receive an additional 3,000,000 ordinary shares of Wealthbridge at the closing because Scienjoy’s net income
before tax for the year ended December 31, 2019 is RMB 156,540,470, greater than the Earnout 1 Target (as defined in the Share
Exchange Agreement). Additionally, the Sellers may be entitled to receive additional earnout shares as follows: (1) if Scienjoy’s
net income before tax for the year ended December 31, 2020 is greater than or equal to either US$28,300,000 or RMB 190,000,000,
the Sellers will be entitled to receive 3,000,000 ordinary shares of Wealthbridge (subject to the reclassification of the ordinary
shares of Wealthbridge as described in more details under Section “Voting Agreement” below); and (2) if Scienjoy’s
net income before tax for the year ended December 31, 2021 is greater than or equal to either US$35,000,000 or RMB 235,000,000,
the Sellers will be entitled to receive 3,000,000 ordinary shares of Wealthbridge (subject to the reclassification of the ordinary
shares of Wealthbridge as described in more details under Section “Voting Agreement” below).
Notwithstanding the net income before tax
achieved by the post-transaction company for any period, the Sellers will receive (i) 3,000,000 earnout shares if the share price
of Wealthbridge is higher than $20.00 for any sixty days in any period of ninety consecutive trading days between the 13th month
and 24th month following the Closing, and (ii) 3,000,000 earnout shares if the share price of Wealthbridge is higher than $25.00
for any sixty days in any period of ninety consecutive trading between the 25th month and 36th month following the Closing.
We refer to this transaction
as the “Business Combination.”
Representations and Warranties
In the Share Exchange Agreement, Scienjoy
makes certain representations and warranties (with certain exceptions set forth in the disclosure schedule to the Share Exchange
Agreement) relating to, among other things: (a) proper corporate organization of Scienjoy and its subsidiaries and other companies
in which it is a minority shareholder and similar corporate matters; (b) authorization, execution, delivery and enforceability
of the Share Exchange Agreement and other transaction documents; (c) absence of conflicts; (d) capital structure and title to units;
(e) accuracy of constitutional documents and corporate records; (f) required consents and approvals; (g) financial information;
(h) absence of certain changes or events; (i) title to assets and properties; (j) material contracts; (k) insurance; (l) licenses
and permits; (m) compliance with laws, including those relating to foreign corrupt practices and money laundering; (n) ownership
of intellectual property; (o) customers and suppliers; (p) employment and labor matters; (q) taxes and audits; (r) environmental
matters; (s) brokers and finders; (t) that Scienjoy is not an investment company; and (u) other customary representations and warranties.
In the Share Exchange Agreement, Wealthbridge
makes certain representations and warranties relating to, among other things: (a) proper corporate organization and similar corporate
matters; (b) authorization, execution, delivery and enforceability of the Share Exchange Agreement and other transaction documents;
(c) litigation; (d) brokers and finders; (e) capital structure; (f) validity of share issuance; (g) minimum trust fund amount;
and (h) validity of Nasdaq Stock Market listing; (i) SEC filing requirements; (j) certain business practices; (k) compliance with
laws, including those relating to foreign corrupt practices and money laundering.
Conduct Prior to Closing; Covenants
Each of Scienjoy and Wealthbridge has agreed
to operate the business in the ordinary course, consistent with past practices, prior to the closing of the Acquisition (with certain
exceptions) and not to take certain specified actions without the prior written consent of the other party.
The Share Exchange Agreement also contains
covenants providing for:
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Each party providing access to their books and records and providing information relating their respective business to the
other party, its counsel and other representatives;
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Each party to ensure that the minimum remaining amount in Wealthbridge’s trust account is no less than $10,000,000, after
giving effect to the payments to redeeming shareholders, provided, however, that the reasonable expenses and costs incurred by
Wealthbridge, if any, in connection with such financing shall be borne or reimbursed by Scienjoy;
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Scienjoy to deliver the financial statements required by Wealthbridge to make applicable filings with the SEC;
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Cooperate in making certain filings with the SEC; and
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Scienjoy’s agreement to pay certain amounts to extend the time Wealthbridge has to complete a business combination under
certain circumstances and if necessary.
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Conditions to Closing
General Conditions
Consummation of the
Share Exchange Agreement and the Acquisition is conditioned on, among other things, (i) the absence of any order, stay, judgment
or decree by any government agency making the Acquisition illegal or otherwise preventing the Acquisition; (ii) Wealthbridge receiving
approval from its shareholders to the Acquisition, and (iii) Wealthbridge remaining its listing on Nasdaq and the additional listing
application for the closing payment shares being approved by Nasdaq.
Scienjoy and the Sellers’s
Conditions to Closing
The obligations of the Sellers and Scienjoy
to consummate the transactions contemplated by the Share Exchange Agreement, in addition to the conditions described above, are
conditioned upon each of the following, among other things:
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Wealthbridge complying with all of its obligations under the Share Exchange Agreement;
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the representations and warranties of Wealthbridge being true on and as of the closing date;
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Wealthbridge filing with the BVI Registrar of Corporate Affairs the Third Amended and Restated
Memorandum and Articles of Association of Wealthbridge in the form included in the Proxy Statement and approved at the Extraordinary
General Meeting; and
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there having been no material adverse effect to Wealthbridge.
|
Wealthbridge’s Conditions
to Closing
The obligations of Wealthbridge to consummate
the transactions contemplated by the Share Exchange Agreement, in addition to the conditions described above in the first paragraph
of this section, are conditioned upon each of the following, among other things:
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Scienjoy complying with all of its obligations under the Share Exchange Agreement;
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●
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the representations and warranties of Scienjoy being true on and as of the closing date of the acquisition and Scienjoy complying with all required covenants in the Share Exchange Agreement;
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●
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there having been no material adverse effect to Scienjoy’s business; and
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●
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Wealthbridge receiving a legal opinion from Scienjoy’s counsel in the PRC and Cayman Islands.
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Termination
The Share Exchange Agreement may be terminated
and/or abandoned at any time prior to the closing, whether before or after approval of the proposals being presented to Wealthbridge’s
shareholders, by:
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Wealthbridge, if the audited financial statements for the years ended December 31, 2018, 2017 and 2016 have not been delivered by March 15, 2020;
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●
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either Wealthbridge or Scienjoy, if the closing has not occurred by May 8, 2020 and the first extension has been obtained, provided that the right to terminate the Share Exchange Agreement shall not be available to any party who is in a material breach of the Share Exchange Agreement and such breach shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to May 8, 2020;
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●
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either Wealthbridge or Scienjoy, if the closing has not occurred by August 8, 2020 and the second extension has been obtained, provided that, the right to terminate the Share Exchange Agreement shall not be available to any party who is in a material breach of the Share Exchange Agreement and such breach shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to August 8, 2020;
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either Wealthbridge or Scienjoy if the closing has not occurred by September 30, 2020;
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either Wealthbridge or Scienjoy if the proxy statement with respect to the transactions under the Share Exchange Agreement has not been filed with the SEC by March 31, 2020;
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Wealthbridge, if Scienjoy has materially breached any representation, warranty, agreement or covenant contained in the Share Exchange Agreement and such breach has not been cured by the earlier of September 30, 2020 and fifteen (15) days following the receipt by Scienjoy a notice describing such breach; or
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●
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Scienjoy, if Wealthbridge has materially breached any representation, warranty, agreement or covenant contained in the Share Exchange Agreement and such breach has not been cured by the earlier of September 30, 2020 and fifteen (15) days following the receipt by Wealthbridge a notice describing such breach.
|
Indemnification
Until the one year anniversary of the date
of the Share Exchange Agreement, Scienjoy and Sellers agreed to indemnify Wealthbridge and its affiliates from any damages arising
from any breach, inaccuracy or nonfulfillment or the alleged breach, inaccuracy or nonfulfillment of any of the representations,
warranties and covenants of Scienjoy and the Sellers contained in the Share Exchange Agreement or any of the additional agreements
or any certificate or other writing delivered pursuant to the Share Exchange Agreement. The indemnification applies only to amounts
(in aggregate) in excess of $50,000, and the indemnification obligations are capped at the value of 1,640,000 shares that are being
held in escrow. Such indemnification can only be satisfied with the cancellation of Wealthbridge ordinary shares.
The foregoing summary of the Share Exchange
Agreement does not purport to be complete and is qualified in its entirety by reference to the actual agreement, which is filed
as Annex A hereto.
In addition to the Share Exchange agreement,
the following agreements will be entered into in connection with the closing of the business combination.
Escrow Agreement
In connection with the Acquisition, Wealthbridge,
the Sellers and an escrow agent will enter into an Escrow Agreement pursuant to which Wealthbridge will deposit 1,640,000 of its
ordinary shares, representing 10% of the aggregate amount of shares to be issued to the Sellers pursuant to the Acquisition, to
secure the indemnification obligations of the Sellers as contemplated by the Share Exchange Agreement. The form of Escrow Agreement
that was attached as an exhibit to the Share Exchange Agreement is attached to this proxy statement as Annex C.
Registration Rights Agreement
In connection with the Acquisition,
Wealthbridge and the Sellers will enter into a Registration Rights Agreement to provide for the registration of the ordinary
shares being issued to the Sellers in connection with the Acquisition. The Sellers will be entitled to (i) make a written
demand for registration under the Securities Act of all or part of the closing payment shares (up to a maximum of two demands
in total), and (ii) “piggy-back” registration rights with respect to registration statements filed following the
consummation of the Acquisition. Wealthbridge will bear the expenses incurred in connection with the filing of any such
registration statements. The form of Registration Agreement that was attached as an exhibit to the Share Exchange Agreement
is attached to this proxy statement as Annex D.
Voting Agreement
In connection with the Acquisition, Wealthbridge,
Oriental Holdings Limited (Wealthbridge’s sponsor) and the Sellers will enter into a six year Voting Agreement, which will
provide that, (i) after the closing of the Acquisition and as promptly as practicable following the determination that the combined
company qualifies as a Foreign Private Issuer, each voting party agrees to vote to reclassify the Wealthbridge ordinary shares
into class A and class B ordinary shares and convert a certain amount of class A ordinary shares to class B ordinary shares, as
described in Section 9.8 of the Share Exchange Agreement; and (ii) the Sellers will have the right to designate five (5) persons
that the parties to the Voting Agreement must vote in favor of in connection with an election of directors and Oriental Holdings
Limited will have the right to designate two (2) directors that the parties to the Voting Agreement must vote in favor of in connection
with an election of directors. The form of Voting Agreement that was attached as an exhibit to the Share Exchange Agreement is
attached to this proxy statement as Annex E.
Lock-Up Agreements
In connection with the Acquisition, Wealthbridge
will enter into a Lock-Up Agreement with each Seller with respect to certain lock-up arrangements, which will provide that each
Seller will not, within 365 calendar days from the Closing of the Acquisition, offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any of the shares issued in connection with the Acquisition, enter into a transaction that
would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of such shares, whether any of these transactions are to be settled by delivery of any such
shares, in cash, or otherwise. However, the Sellers will be allowed to transfer any of the lock-up shares (other than the escrow
shares while they are held in the escrow account) under the situations specified in the Lock-Up Agreement. The form of Lock-Up
Agreements that were attached as an exhibit to the Share Exchange Agreement is attached to this proxy statement as Annex F.
THE AMENDMENT
PROPOSAL
Purpose of the Amendment Proposal
In connection with the
transactions contemplated by the Share Exchange Agreement, Wealthbridge and Scienjoy have agreed that post-closing, Wealthbridge
will change its name to “Scienjoy Holding Corporation” in order to represent the business of the combined company after
the closing of the Business Combination.
Required Vote
Approval of the Amendment
Proposal requires the affirmative vote of the majority of the issued and outstanding ordinary shares present and entitled to vote
at the extraordinary general meeting.
Board Recommendation
The board of directors
recommends a vote “FOR” adoption of the Amendment Proposal.
THE NASDAQ
PROPOSAL
Background and Overview
Under the terms of the Share Exchange Agreement,
Wealthbridge is required to issue more than 20% of its issued and outstanding ordinary shares to the Sellers in a private placement
transaction. Because of the issuance of in excess of 20% of the outstanding ordinary shares of Wealthbridge, we are required to
obtain shareholder approval in order to comply with Nasdaq Listing Rules 5635(a) and (d).
Under Nasdaq Listing Rule 5635(a), shareholder
approval is required prior to the issuance of securities in connection with the acquisition of another company if such securities
are not issued in a public offering and (A) such securities have, or will have upon issuance, voting power equal to or in excess
of 20% of the voting power outstanding before the issuance of ordinary shares (or securities convertible into or exercisable for
ordinary shares); or (B) the number of ordinary shares to be issued is or will be equal to or in excess of 20% of the number of
ordinary shares outstanding before the issuance of the stock or securities.
Under Nasdaq Listing Rule 5635(d), shareholder
approval is required for a transaction other than a public offering involving the sale, issuance or potential issuance by an issuer
of ordinary shares (or securities convertible into or exercisable for ordinary shares) at a price that is less than the greater
of book or market value of the stock if the number of ordinary shares to be issued is or may be equal to 20% or more of the ordinary
shares, or 20% or more of the voting power, outstanding before the issuance.
Effect of Proposal on Current Shareholders
If the Nasdaq Proposal is adopted, Wealthbridge
would issue shares representing more than 20% of its outstanding ordinary shares in connection with the Business Combination. The
issuance of such shares would result in significant dilution to the Wealthbridge shareholders and would afford such shareholders
a smaller percentage interest in the voting power, liquidation value and aggregate book value of Wealthbridge.
If the Nasdaq Proposal is not approved
and we consummate the Business Combination on its current terms, Wealthbridge would be in violation of Nasdaq Listing Rule 5635(a)
and potentially Nasdaq Listing Rule 5635(d), which could result in the delisting of our securities from the Nasdaq Capital Market.
If Nasdaq delists our securities from trading on its exchange, we could face significant material adverse consequences, including:
|
*
|
a limited availability of market quotations for our securities;
|
|
|
|
|
*
|
reduced liquidity with respect to our securities;
|
|
|
|
|
*
|
a determination that our shares are a “penny stock,” which will require brokers trading in our securities to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our securities;
|
|
|
|
|
*
|
a limited amount of news and analyst coverage for the post-transaction company; and
|
|
|
|
|
*
|
a decreased ability to issue additional securities or obtain additional financing in the future.
|
It is a condition to the obligations of
the Sellers and Scienjoy to close the Business Combination that Wealthbridge’s ordinary shares remain listed on the Nasdaq
Capital Market. As a result, if the Nasdaq Proposal is not adopted, the Business Combination may not be completed.
Required Vote
Approval of the Nasdaq
Proposal requires the affirmative vote of the holders of a majority of Wealthbridge ordinary shares represented in person or by
proxy at the extraordinary general meeting of Wealthbridge shareholders and entitled to vote thereon.
Board Recommendation
The board of directors recommends a vote “FOR”
adoption of the Nasdaq Proposal.
THE BUSINESS
COMBINATION ADJOURNMENT PROPOSAL
Purpose of the Business Combination
Adjournment Proposal
In the event there are not sufficient
votes for, or otherwise in connection with, the adoption of the Share Exchange Agreement and the transactions contemplated thereby,
the Wealthbridge’s Board of directors may adjourn the extraordinary general meeting to a later date, or dates, if necessary,
to permit further solicitation of proxies. In no event will Wealthbridge seek adjournment which would result in soliciting of
proxies, having a shareholder vote, or otherwise consummating a business combination after the date that is 15 months from the
closing of the IPO, or May 8, 2020, or 21 months from the closing of the IPO, or November 8, 2020, if we further extend the period
of time to consummate a business combination.
Required Vote
Approval of the Business
Combination Adjournment Proposal requires the affirmative vote of the holders of a majority of the Wealthbridge ordinary shares
as of the record date represented in person or by proxy at the extraordinary general meeting of Wealthbridge shareholders and entitled
to vote thereon. Adoption of the Business Combination Adjournment Proposal is not conditioned upon the adoption of any of the other
proposals.
Board Recommendation
The board of directors
recommends a vote “FOR” adoption of the Business Combination Adjournment Proposal.
SELECTED
HISTORICAL COMBINED AND CONSOLIDATED FINANCIAL AND OPERATING DATA OF SCIENJOY INC.
The data below as for the years
ended December 31, 2017, 2018 and 2019 has been derived from Scienjoy’s audited combined and consolidated financial
statements for such years, which are included in this proxy statement. Scienjoy’s combined and consolidated financial
statements are prepared and presented in accordance with U.S. GAAP.
Scienjoy’s historical results are
not necessarily indicative of results to be expected for any future period. The information is only a summary and should be read
in conjunction with Scienjoy’s combined and consolidated financial statements and related notes, and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations of Scienjoy Inc.” contained elsewhere herein.
The historical results included below and elsewhere in this proxy statement are not indicative of the future performance of Scienjoy
or Wealthbridge.
Summary Combined and Consolidated Statements
of Income
(Amounts in thousands of Renminbi
(“RMB”) and US dollars (“US$”)
|
|
For
the years ended December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Live
streaming - consumable virtual items revenue
|
|
¥
|
803,190
|
|
|
¥
|
716,561
|
|
|
¥
|
884,385
|
|
|
$
|
127,034
|
|
Live streaming
- time based virtual item revenue
|
|
|
33,331
|
|
|
|
26,432
|
|
|
|
26,812
|
|
|
|
3,851
|
|
Technical
services
|
|
|
83
|
|
|
|
25
|
|
|
|
3,429
|
|
|
|
493
|
|
Total
revenue
|
|
|
836,604
|
|
|
|
743,018
|
|
|
|
914,626
|
|
|
|
131,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
(654,332
|
)
|
|
|
(594,084
|
)
|
|
|
(720,637
|
)
|
|
|
(103,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
182,272
|
|
|
|
148,934
|
|
|
|
193,989
|
|
|
|
27,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and
marketing expenses
|
|
|
(3,240
|
)
|
|
|
(5,005
|
)
|
|
|
(3,804
|
)
|
|
|
(546
|
)
|
General
and administrative expenses
|
|
|
(10,869
|
)
|
|
|
(16,265
|
)
|
|
|
(11,957
|
)
|
|
|
(1,717
|
)
|
Research
and development expenses
|
|
|
(10,610
|
)
|
|
|
(10,957
|
)
|
|
|
(21,523
|
)
|
|
|
(3,092
|
)
|
Provision
(recovery) for doubtful accounts
|
|
|
508
|
|
|
|
(6,826
|
)
|
|
|
(854
|
)
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
158,061
|
|
|
|
109,881
|
|
|
|
155,851
|
|
|
|
22,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,686
|
|
|
|
1,444
|
|
|
|
1,005
|
|
|
|
144
|
|
Other income
(loss), net
|
|
|
3,235
|
|
|
|
31
|
|
|
|
(310
|
)
|
|
|
(45
|
)
|
Foreign
exchange gain (loss), net
|
|
|
(21
|
)
|
|
|
11
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
162,961
|
|
|
|
111,367
|
|
|
|
156,541
|
|
|
|
22,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expenses
|
|
|
(6,217
|
)
|
|
|
(4,627
|
)
|
|
|
(6,623
|
)
|
|
|
(951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
¥
|
156,744
|
|
|
¥
|
106,740
|
|
|
¥
|
149,918
|
|
|
$
|
21,534
|
|
Summary Combined and Consolidated Balance Sheet
(Amounts in thousands of Renminbi (“RMB”)
and US dollars (“US$”)
|
|
As
of December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
¥
|
129,447
|
|
|
¥
|
65,294
|
|
|
¥
|
137,351
|
|
|
$
|
19,729
|
|
Accounts receivable, net
|
|
|
243,500
|
|
|
|
221,377
|
|
|
|
120,110
|
|
|
|
17,253
|
|
Total current assets
|
|
¥
|
437,298
|
|
|
¥
|
348,301
|
|
|
¥
|
269,525
|
|
|
$
|
38,715
|
|
Long term investment
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
|
|
718
|
|
Long term deposits and other assets
|
|
|
2,570
|
|
|
|
2,504
|
|
|
|
2,761
|
|
|
|
397
|
|
Total non-current assets
|
|
|
4,734
|
|
|
|
3,944
|
|
|
|
10,473
|
|
|
|
1,505
|
|
TOTAL ASSETS
|
|
¥
|
442,032
|
|
|
¥
|
352,245
|
|
|
¥
|
279,998
|
|
|
$
|
40,220
|
|
Accounts payable
|
|
|
63,455
|
|
|
|
81,699
|
|
|
|
27,163
|
|
|
$
|
3,903
|
|
Amounts due to related parties
|
|
|
26,097
|
|
|
|
130,687
|
|
|
|
8,482
|
|
|
|
1,218
|
|
Deferred revenue
|
|
|
56,315
|
|
|
|
38,402
|
|
|
|
40,288
|
|
|
|
5,787
|
|
Total current liabilities
|
|
¥
|
157,145
|
|
|
¥
|
295,309
|
|
|
¥
|
105,472
|
|
|
$
|
15,151
|
|
Total shareholder’s equity
|
|
¥
|
284,887
|
|
|
¥
|
56,936
|
|
|
¥
|
174,526
|
|
|
$
|
25,069
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
¥
|
442,032
|
|
|
¥
|
352,245
|
|
|
¥
|
279,998
|
|
|
$
|
40,220
|
|
Summary Combined and Consolidated Cash Flow Data
(Amounts in thousands of Renminbi (“RMB”)
and US dollars (“US$”)
|
|
For
the years ended December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
¥
|
169,788
|
|
|
¥
|
107,286
|
|
|
¥
|
228,886
|
|
|
$
|
32,877
|
|
Net cash used in investing activities
|
|
|
(691
|
)
|
|
|
(553
|
)
|
|
|
(5,457
|
)
|
|
|
(784
|
)
|
Net cash used in financing activities
|
|
|
(66,157
|
)
|
|
|
(170,886
|
)
|
|
|
(151,372
|
)
|
|
|
(21,743
|
)
|
Net (decrease) increase in cash and cash equivalents
|
|
|
102,940
|
|
|
|
(64,153
|
)
|
|
|
72,057
|
|
|
|
10,350
|
|
Cash and cash equivalents at beginning of the year
|
|
|
26,507
|
|
|
|
129,447
|
|
|
|
65,294
|
|
|
|
9,379
|
|
Cash and cash equivalents at end of the year
|
|
¥
|
129,447
|
|
|
¥
|
65,294
|
|
|
¥
|
137,351
|
|
|
$
|
19,729
|
|
COMPARATIVE SHARE INFORMATION
The following table sets forth the
historical comparative share information for Scienjoy and Wealthbridge on a stand-alone basis and the unaudited pro forma combined
per share information after giving effect to the Business Combination, (1) assuming no Wealthbridge shareholders exercise redemption
rights with respect to their ordinary shares upon the consummation of the Business Combination; and (2) assuming that Wealthbridge
shareholders exercise their redemption rights with respect to a maximum of 4,778,111 ordinary shares upon consummation of the
Business Combination.
The historical information should be read in conjunction with
the information in the sections entitled “Selected Historical Financial Information of Wealthbridge” and “Selected
Historical Consolidated Financial and Other Data of Scienjoy” and the historical financial statements of Wealthbridge
and Scienjoy incorporated by reference in or included elsewhere in this proxy statement. The unaudited pro forma condensed
combined per share information is derived from, and should be read in conjunction with, the information contained in the section
of this proxy statement entitled “Unaudited Pro Forma Condensed Combined Financial Information.”
The unaudited pro forma combined share information below does
not purport to represent what the actual results of operations or the earnings per share would been had the companies been combined
during the periods presented, nor to project the Company’s results of operations or earnings per share for any future date
or period. The unaudited pro forma combined shareholders’ equity per share information below does not purport to represent
what the value of Wealthbridge and Scienjoy would have been had the companies been combined during the periods presented.
(in thousands, except share and per share
data)
|
|
Scienjoy
|
|
|
Wealthbridge
|
|
|
Pro Forma Combined Assuming No Redemptions into Cash
|
|
|
Pro Forma Combined Assuming Maximum Redemptions into Cash
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
21,534
|
|
|
$
|
151
|
|
|
$
|
21,584
|
|
|
$
|
21,584
|
|
Shareholders’ equity
|
|
|
25,069
|
|
|
|
5,000
|
|
|
|
81,734
|
|
|
|
32,571
|
|
Weighted average shares outstanding — basic and diluted
|
|
|
|
|
|
|
2,276,509
|
|
|
|
28,523,773
|
|
|
|
23,745,662
|
|
Basic and diluted net (loss) income per share
|
|
|
|
|
|
|
(0.35
|
)
|
|
|
0.76
|
|
|
|
0.91
|
|
Shareholders’ equity per share — basic and diluted
|
|
|
|
|
|
|
2.20
|
|
|
|
2.87
|
|
|
|
1.37
|
|
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Introduction
Wealthbridge is providing the following
unaudited pro forma combined financial information to aid you in your analysis of the financial aspects of the Business Combination.
The unaudited pro forma combined balance
sheet as of December 31, 2019 gives pro forma effect to the Business Combination as if it had been consummated as of that date.
The unaudited pro forma combined statements of operations the year ended December 31, 2019 give pro forma effect to the Business
Combination as if it had occurred as of January 1, 2019. This information should be read together with Scienjoy’s and Wealthbridge’s
respective audited and unaudited financial statements and related notes, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations of Scienjoy,” “Management’s Discussion and Analysis
of Financial Condition and Results of Operations of Wealthbridge” and other financial information included elsewhere
in this proxy statement.
The unaudited pro forma combined balance
sheet as of December 31, 2019 has been prepared using the following:
|
●
|
Scienjoy’s
audited historical consolidated balance sheet as of December 31, 2019, as included elsewhere in this proxy statement; and
|
|
●
|
Wealthbridge’s
audited historical balance sheet as of December 31, 2019, as included elsewhere in this proxy statement.
|
The unaudited pro forma combined statement
of operations for the year ended December 31, 2019 has been prepared using the following:
|
●
|
Scienjoy’s
audited historical consolidated statement of income for the year ended December 31, 2019, as included elsewhere in this proxy
statement; and
|
|
●
|
Wealthbridge’s
audited historical statement of operations for the year ended December 31, 2019, as included elsewhere in this proxy statement.
|
Description
of the Transactions
Upon the closing of the transactions contemplated
in the Share Exchange Agreement, Wealthbridge will acquire 100% of the issued and outstanding securities of Scienjoy, in exchange
for approximately 16.4 million ordinary shares of Wealthbridge, among which 1.64 million ordinary shares of Wealthbridge are to
be issued and held in escrow to satisfy any indemnification obligations of the Sellers. The Sellers are also entitled to receive
an additional 3,000,000 ordinary shares of Wealthbridge at the closing because Scienjoy’s net income before tax for the year
ended December 31, 2019 is RMB 156,540,470, greater than the Earnout 1 Target (as defined in the Share Exchange Agreement). Additionally,
the Sellers may be entitled to receive additional earnout shares as further described in the Share Exchange Agreement. In addition,
Scienjoy, the Sellers and Wealthbridge agreed to ensure that the minimum remaining amount in our trust account is no less than
$10,000,000, after giving effect to the payments to redeeming shareholders, provided, however, that the reasonable expenses and
costs incurred by Wealthbridge, if any, in connection with such financing shall be borne or reimbursed by Scienjoy. In the event
that shareholder redemptions exceed such amount, Scienjoy can waive the requirement that the minimum remaining amount in our trust
account be no less than $10,000,000, provided that the combined company has net tangible assets of at least $5,000,001 upon the
consummation of the Business Combination. Waiving of the $10,000,000 minimum remaining amount would cause the number of shares
that could be redeemed to increase, as well as increase the payments to redeeming shareholders. If the full $10,000,000 is waived,
shares subject to redemption would be 5,750,000 shares and payments to redeeming shareholders would be approximately $59.163 million
(as of December 31, 2019). For more information about the Business Combination, please see the section entitled “The
Business Combination Proposal.” A copy of the Share Exchange Agreement is attached to the accompanying proxy statement
as Annex A.
Accounting
for the Business Combination
The Business Combination will be
accounted for as a reverse merger in accordance with U.S. GAAP. Under this method of accounting, Wealthbridge will be treated as
the “acquired” company for financial reporting purposes. This determination was primarily based on the holders of Scienjoy
expecting to have a majority of the voting power of the post-combination company, Scienjoy senior management comprising substantially
all of the senior management of the post-combination company, the relative size of Scienjoy compared to Wealthbridge, and Scienjoy
operations comprising the ongoing operations of the post-combination company. Accordingly, for accounting purposes, the Business
Combination will be treated as the equivalent of Scienjoy issuing stock for the net assets of Wealthbridge, accompanied by a recapitalization.
The net assets of Wealthbridge will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations
prior to the Business Combination will be those of Scienjoy.
Basis
of Pro Forma Presentation
The historical financial information
has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination,
are factually supportable, and as it relates to the unaudited pro forma combined statement of operations, are expected to have
a continuing impact on the results of the post-combination company. The adjustments presented on the unaudited pro forma combined
financial statements have been identified and presented to provide relevant information necessary for an accurate understanding
of the post-combination company upon consummation of the Business Combination.
The unaudited pro forma combined
financial information is for illustrative purposes only. The financial results may have been different had the companies always
been combined. You should not rely on the unaudited pro forma combined financial information as being indicative of the historical
financial position and results that would have been achieved had the companies always been combined or the future financial position
and results that the post-combination company will experience. Scienjoy and Wealthbridge have not had any historical relationship
prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
The unaudited pro forma combined
financial information has been prepared assuming two alternative levels of redemption into cash of Wealthbridge ordinary shares:
|
●
|
Scenario 1 — Assuming no redemptions for cash: This presentation assumes that no Wealthbridge
shareholders exercise redemption rights with respect to their ordinary shares upon consummation of the Business Combination; and
|
|
●
|
Scenario
2 — Assuming redemptions of 4,778,111 ordinary shares for cash: This presentation assumes that Wealthbridge shareholders
exercise their redemption rights with respect to a maximum of 4,778,111 ordinary shares upon consummation of the Business
Combination at a redemption price of approximately $10.29 per share. The maximum redemption amount is derived so that there
is a minimum remaining amount in our trust account of $10,000,000, after giving effect to the payments to redeeming shareholders.
Scenario 2 includes all adjustments contained in Scenario 1 and presents additional adjustments to reflect the effect of the
maximum redemptions.
|
Included in the shares outstanding and
weighted average shares outstanding as presented in the pro forma combined financial statements are 16,400,000 ordinary shares
to be issued to Scienjoy shareholders in connection with the Share Exchange Agreement and 3,000,000 ordinary shares to be issued
to Scienjoy shareholders in connection with achievement of the Earnout 1 Target under Scenarios 1 and 2.
As a result of the Business Combination
and immediately following the closing of the Business Combination, assuming no Wealthbridge shareholders elect to redeem their
shares for cash, Scienjoy will own approximately 68.2% of the outstanding Wealthbridge ordinary shares, the former shareholders
of Wealthbridge will own approximately 28.3% of the outstanding Wealthbridge ordinary shares, an independent third party that acted
as an advisor in connection with the Business Combination will own approximately 0.6% of the outstanding Wealthbridge ordinary
shares, and our underwriter will own approximately 2.9% of the outstanding Wealthbridge ordinary shares as of December 31, 2019
(in each case, not giving effect to any shares issuable to them upon the exercise of warrants and the unit purchase option).
If 4,778,111 ordinary shares are redeemed
for cash, which assumes the maximum redemption of Wealthbridge ordinary shares with a minimum of $10,000,000 remaining in the trust
account, after giving effect to payments to redeeming shareholders, Scienjoy will own approximately 82.0% of the outstanding Wealthbridge
ordinary shares, Wealthbridge former shareholders will own approximately 13.8% of the outstanding Wealthbridge ordinary shares,
an independent third party that acted as an advisor in connection with the Business Combination will own approximately 0.7% of
the outstanding Wealthbridge ordinary shares, and our underwriter will own approximately 3.5% of the outstanding Wealthbridge ordinary
shares as of December 31, 2019 (in each case, not giving effect to any shares issuable to them upon the exercise of warrants and
the unit purchase option).
PRO FORMA
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2019
(UNAUDITED)
|
|
|
|
|
|
|
|
Scenario 1
Assuming No
Redemptions into Cash
|
|
|
Scenario 2
Assuming Maximum
Redemptions into Cash
|
|
|
|
(A)
Scienjoy
|
|
|
(B)
Wealthbridge
|
|
|
Pro Forma Adjustments
|
|
|
Pro Forma Balance Sheet
|
|
|
Pro Forma Adjustments
|
|
|
Pro Forma Balance Sheet
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,729
|
|
|
$
|
12
|
|
|
$
|
59,163
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(466
|
)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,381
|
)(4)
|
|
$
|
76,057
|
|
|
$
|
(49,163
|
)(5)
|
|
$
|
26,894
|
|
Accounts receivable, net
|
|
|
17,253
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,253
|
|
|
|
-
|
|
|
|
17,253
|
|
Amounts due from related parties
|
|
|
73
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73
|
|
|
|
-
|
|
|
|
73
|
|
Prepaid expenses and other current assets
|
|
|
1,660
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1,661
|
|
|
|
-
|
|
|
|
1,661
|
|
Total Current Assets
|
|
|
38,715
|
|
|
|
13
|
|
|
|
56,316
|
|
|
|
95,044
|
|
|
|
(49,163
|
)
|
|
|
45,881
|
|
Marketable securities held in Trust Account
|
|
|
-
|
|
|
|
58,588
|
|
|
|
575
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,163
|
)(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Property and equipment, net
|
|
|
106
|
|
|
|
-
|
|
|
|
-
|
|
|
|
106
|
|
|
|
-
|
|
|
|
106
|
|
Intangible assets, net
|
|
|
28
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28
|
|
|
|
-
|
|
|
|
28
|
|
Long term investments
|
|
|
718
|
|
|
|
-
|
|
|
|
-
|
|
|
|
718
|
|
|
|
-
|
|
|
|
718
|
|
Long term deposits and other assets
|
|
|
397
|
|
|
|
-
|
|
|
|
-
|
|
|
|
397
|
|
|
|
-
|
|
|
|
397
|
|
Deferred IPO costs
|
|
|
188
|
|
|
|
-
|
|
|
|
-
|
|
|
|
188
|
|
|
|
-
|
|
|
|
188
|
|
Deferred tax assets
|
|
|
68
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68
|
|
|
|
-
|
|
|
|
68
|
|
Total Assets
|
|
$
|
40,220
|
|
|
$
|
58,601
|
|
|
$
|
(2,272
|
)
|
|
$
|
96,549
|
|
|
$
|
(49,163
|
)
|
|
$
|
47,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
4,887
|
|
|
$
|
222
|
|
|
$
|
(558
|
)
|
|
$
|
4,551
|
|
|
$
|
-
|
|
|
$
|
4,551
|
|
Accrued salary and employee benefits
|
|
|
1,254
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,254
|
|
|
|
-
|
|
|
|
1,254
|
|
Income tax payable
|
|
|
1,211
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,211
|
|
|
|
-
|
|
|
|
1,211
|
|
Loan payables - related parties
|
|
|
794
|
|
|
|
-
|
|
|
|
-
|
|
|
|
794
|
|
|
|
-
|
|
|
|
794
|
|
Amounts due to related parties
|
|
|
1,218
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,218
|
|
|
|
-
|
|
|
|
1,218
|
|
Deferred revenue
|
|
|
5,787
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,787
|
|
|
|
-
|
|
|
|
5,787
|
|
Total Current Liabilities
|
|
|
15,151
|
|
|
|
222
|
|
|
|
(558
|
)
|
|
|
14,815
|
|
|
|
-
|
|
|
|
14,815
|
|
Promissory note - related party
|
|
|
-
|
|
|
|
466
|
|
|
|
575
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,041
|
)(3)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Deferred underwriting fees
|
|
|
-
|
|
|
|
2,012
|
|
|
|
(2,012
|
)(4)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Liabilities
|
|
|
15,151
|
|
|
|
2,700
|
|
|
|
(3,036
|
)
|
|
|
14,815
|
|
|
|
-
|
|
|
|
14,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares subject to redemption
|
|
|
-
|
|
|
|
50,901
|
|
|
|
(50,901
|
)(5)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
10
|
|
|
|
4,909
|
|
|
|
575
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,343
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,901
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,469
|
(6)
|
|
|
65,207
|
|
|
|
(49,163
|
)(5)
|
|
|
16,044
|
|
Share subscription receivables
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
10
|
(6)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in capital
|
|
|
1,388
|
|
|
|
-
|
|
|
|
(1,388
|
)(6)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Statuory reserves
|
|
|
1,732
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,732
|
|
|
|
-
|
|
|
|
1,732
|
|
Retained earnings (Accumulated deficit)
|
|
|
21,949
|
|
|
|
91
|
|
|
|
(7,154
|
)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91
|
)(6)
|
|
|
14,795
|
|
|
|
-
|
|
|
|
14,795
|
|
Total Shareholders’ Equity
|
|
|
25,069
|
|
|
|
5,000
|
|
|
|
51,665
|
|
|
|
81,734
|
|
|
|
(49,163
|
)
|
|
|
32,571
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
40,220
|
|
|
$
|
58,601
|
|
|
$
|
(2,272
|
)
|
|
$
|
96,549
|
|
|
$
|
(49,163
|
)
|
|
$
|
47,386
|
|
Pro
Forma Adjustments to the Unaudited Combined Balance Sheet
|
(A)
|
Derived
from the audited consolidated balance sheet of Scienjoy as of December 31, 2019. See
Scienjoy’s financial statements and the related notes appearing elsewhere in this
proxy statement.
|
|
(B)
|
Derived
from the audited balance sheet of Wealthbridge as of December 31, 2019. See Wealthbridge’s
financial statements and the related notes appearing elsewhere in this proxy statement.
|
|
(1)
|
Reflects
the additional funding received to extend the time by which the Company has to consummate
a Business Combination to May 8, 2020.
|
|
(2)
|
Reflects
the release of cash from marketable securities held in the trust account.
|
|
(3)
|
Reflects the
repayment of promissory notes in the aggregate amount of $1,041,000 due to the Sponsor and Scienjoy, of which $466,000 will
be in cash to the Sponsor and $575,000 will be paid to the Sellers through the issuance of 57,500 units, valued at $10.00 per
share.
|
|
(4)
|
Reflects
the payment of fees and expenses related to the Business Combination,
including $558,000 of accounts payable and accrued expenses directly attributable to the Business Combination, the deferred underwriting
fee of $2,012,500 and legal, financial advisory, accounting and other professional fees of $7,154,000. An aggregate of $5,330,000
of fees payable to the underwriter and to an independent third party that acted as an advisor to the Business Combination will
be paid through the issuance of an aggregate of 533,000 ordinary shares, valued of $10.00 per share. Wealthbridge and Chardan entered
into a deferred underwriting fee agreement on April 10, 2020, pursuant to which Chardan will receive shares equal to the total
amount of deferred underwriting fee divided by the effective conversion price. The effective conversion price is defined as the
volume weighted average price (VWAP) of Wealthbridge’s rights from the date of the mailing of this proxy statement to the
date of the Extraordinary General Meeting, multiplied by 10. For purpose of preparing the pro forma adjustment, the effective conversion
price was assumed to be $4.30, which is based on the VWAP of the rights for the 30 days ended April 7, 2020, which would result
in the issuance of 468,023 ordinary shares. The direct, incremental costs of the Business Combination related to the legal, financial
advisory, accounting and other professional fees of approximately $7,154,000 is reflected as an adjustment to retained earnings
and is not shown as an adjustment to the statement of operations since it is a nonrecurring charge resulting directly from the
Business Combination.
|
|
(5)
|
In
Scenario 1, which assumes no Wealthbridge shareholders exercise their redemption rights, the ordinary shares subject to redemption
for cash amounting to $50,901,000 would be transferred to permanent equity. In Scenario 2, which assumes the same facts as described
in Items 1 through 3 above, but also assumes the maximum number of shares are redeemed for cash by the Wealthbridge shareholders,
$49,163,000 would be paid out in cash. The $49,163,000, or 4,778,111 ordinary shares, represents the maximum redemption amount,
assuming a minimum of $10,000,000 in the trust account, after giving effect to payments to redeeming shareholders based on a consummation
of the Business Combination on December 31, 2019.
|
|
(6)
|
Reflects
the recapitalization of Wealthbridge through (a) the contribution of all the share capital in Scienjoy to Wealthbridge, (b) the
issuance of 16,400,000 ordinary shares and (d) the elimination of the historical retained earnings of Wealthbridge, the accounting
acquiree.
|
In connection with the achievement
of the Earnout 1 Target, an aggregate of 3,000,000 ordinary shares will be issued to the Scienjoy shareholders.
Upon consummation of the Business
Combination, 6,077,500 rights (including the rights underlying the units based on the promissory note issued to Scienjoy on January
29, 2020) would convert into 602,000 ordinary shares.
PRO
FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2019
(UNAUDITED)
|
|
|
|
|
|
|
|
Scenario 1
Assuming No
Redemptions into Cash
|
|
|
Scenario 2
Assuming Maximum
Redemptions into Cash
|
|
|
|
(A)
Scienjoy
|
|
|
(B)
Wealthbridge
|
|
|
Pro Forma Adjustments
|
|
|
Pro Forma Income Statement
|
|
|
Pro Forma Adjustments
|
|
|
Pro Forma Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
131,378
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
131,378
|
|
|
$
|
-
|
|
|
$
|
131,378
|
|
Cost of revenues
|
|
|
103,513
|
|
|
|
-
|
|
|
|
-
|
|
|
|
103,513
|
|
|
|
-
|
|
|
|
103,513
|
|
Gross profit
|
|
|
27,865
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,865
|
|
|
|
-
|
|
|
|
27,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
546
|
|
|
|
-
|
|
|
|
-
|
|
|
|
546
|
|
|
|
-
|
|
|
|
546
|
|
General and administrative expenses
|
|
|
1,717
|
|
|
|
937
|
|
|
|
(953
|
)(1)
|
|
|
1,701
|
|
|
|
-
|
|
|
|
1,701
|
|
Research and development expenses
|
|
|
3,092
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,092
|
|
|
|
-
|
|
|
|
3,092
|
|
Other operating income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Provision for doubtful accounts
|
|
|
123
|
|
|
|
-
|
|
|
|
-
|
|
|
|
123
|
|
|
|
-
|
|
|
|
123
|
|
Operating income (loss)
|
|
|
22,387
|
|
|
|
(937
|
)
|
|
|
953
|
|
|
|
22,403
|
|
|
|
-
|
|
|
|
22,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
144
|
|
|
|
1,085
|
|
|
|
(1,085
|
)(2)
|
|
|
144
|
|
|
|
-
|
|
|
|
144
|
|
Unrealized gain on marketable securities
|
|
|
-
|
|
|
|
3
|
|
|
|
(3
|
)(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign exchange gain (loss), net
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
Other expense, net
|
|
|
(45
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(45
|
)
|
|
|
-
|
|
|
|
(45
|
)
|
Income before income taxes
|
|
|
22,485
|
|
|
|
151
|
|
|
|
(135
|
)
|
|
|
22,501
|
|
|
|
-
|
|
|
|
22,501
|
|
Provision for income taxes
|
|
|
951
|
|
|
|
-
|
|
|
|
(34
|
)(3)
|
|
|
917
|
|
|
|
-
|
|
|
|
917
|
|
Net income
|
|
$
|
21,534
|
|
|
$
|
151
|
|
|
$
|
(101
|
)
|
|
$
|
21,584
|
|
|
$
|
-
|
|
|
$
|
21,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
|
|
|
|
2,276,509
|
|
|
|
26,247,264
|
(4)
|
|
|
28,523,773
|
|
|
|
(4,778,111
|
)(4)
|
|
|
23,745,662
|
|
Basic and diluted net (loss) income per share
|
|
|
|
|
|
$
|
(0.35
|
)
|
|
|
|
|
|
$
|
0.76
|
|
|
|
|
|
|
$
|
0.91
|
|
Pro Forma Adjustments to the Unaudited
Combined Statements of Operations
|
(A)
|
Derived
from the audited consolidated statement of income of Scienjoy for the year ended December 31, 2019. See Scienjoy’s financial
statements and the related notes appearing elsewhere in this proxy statement.
|
|
(B)
|
Derived
from the audited statement of operations of Wealthbridge for the year ended December 31, 2019. See Wealthbridge’s financial
statements and the related notes appearing elsewhere in this proxy statement.
|
|
(1)
|
Represents
an adjustment to eliminate direct, incremental costs of the Business Combination which are reflected in the historical financial
statements of Scienjoy and Wealthbridge in the amount of $689,000 and $264,000, respectively, for the year ended December
31, 2019.
|
|
(2)
|
Represents an adjustment to eliminate interest income and
unrealized gain on marketable securities held in the trust account as of the beginning of the period.
|
|
(3)
|
To record normalized
blended statutory income tax benefit rate of 25% for pro forma financial presentation
purposes.
|
|
(4)
|
The calculation
of weighted average shares outstanding for basic and diluted net loss per share assumes
that Wealthbridge’s initial public offering occurred as of January 1, 2019. In
addition, as the Business Combination is being reflected as if it had occurred on this
date, the calculation of weighted average shares outstanding for basic and diluted net
loss per share assumes that the shares have been outstanding for the entire period presented.
This calculation is retroactively adjusted to eliminate the number of shares redeemed
in the Business Combination for the entire period.
|
The following presents the calculation
of basic and diluted weighted average ordinary shares outstanding. The computation of diluted loss per share excludes the effect
of (1) warrants to purchase 3,010,000 ordinary shares and (2) a unit purchase option exercisable for 431,250 ordinary shares, warrants
to purchase 215,625 ordinary shares and rights that convert into 43,125 ordinary share, because the inclusion of these securities
would be anti-dilutive.
|
|
Scenario 1
Combined
(Assuming No
Redemptions
Into Cash)
|
|
|
Scenario 2
Combined
(Assuming
Maximum
Redemptions
Into Cash)
|
|
Weighted average shares calculation, basic and diluted
|
|
|
|
|
|
|
Wealthbridge public shares
|
|
|
6,325,000
|
|
|
|
1,546,889
|
|
Wealthbridge Sponsor shares
|
|
|
1,734,500
|
|
|
|
1,734,500
|
|
Wealthbridge shares issued to independent third party
|
|
|
164,000
|
|
|
|
164,000
|
|
Wealthbridge shares issued to underwriter
|
|
|
837,023
|
|
|
|
837,023
|
|
Wealthbridge shares issued for conversion of promissory note
|
|
|
63,250
|
|
|
|
63,250
|
|
Wealthbridge shares issued for earnout
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
Wealthbridge shares issued in the Business Combination
|
|
|
16,400,000
|
|
|
|
16,400,000
|
|
Weighted average shares outstanding
|
|
|
28,523,773
|
|
|
|
23,745,662
|
|
Percent of shares owned by Scienjoy
|
|
|
68.2
|
%
|
|
|
82.0
|
%
|
Percent of shares owned by independent third party
|
|
|
0.6
|
%
|
|
|
0.7
|
%
|
Percent of shares owned by underwriter
|
|
|
2.9
|
%
|
|
|
3.5
|
%
|
Percent of shares owned by Wealthbridge
|
|
|
28.3
|
%
|
|
|
13.8
|
%
|
HISTORY
AND CORPORATE STRUCTURE OF SCIENJOY INC.
History of Scienjoy Inc.
Scienjoy
is a holding company incorporated under the laws of the Cayman Islands on March 2, 2017 with authorized shares of 500,000,000
shares at a par value of $0.0001.
Scienjoy,
through its subsidiaries and variable interest entities, is principally engaged in operating its own live streaming platforms in
the People’s Republic of China (the “PRC”). In 2014, Scienjoy’s first live streaming APP Showself Live
Streaming was launched. Scienjoy subsequently launched “Lehai”
in 2015 and “Haixiu” in 2016.
Reorganization
On
January 1, 2018, Tongfang Investment Fund Series SPC (“TF”) completed the acquisition of a 65% equity interest
in Sixiang Times (Beijing) Technology Co., Ltd (“Sixiang Times”) from NQ Mobile Inc., Ltd. Through the acquisition
of Sixiang Times, TF acquired a controlling position in Holgus Sixiang Information Technology Co., Ltd (“Holgus”),
Kashgar Sixiang Times Internet Technology Co., Ltd (“Kashgar”), Beijing Sixiang Shiguang Technology Co., Ltd (“SG”),
Hai Xiu (Beijing) Technology Co., Ltd (“HX”) and Beijing Le Hai Technology Co., Ltd (“LH”).
On May 18, 2017, Scienjoy
established its wholly owned subsidiary in Hong Kong, Scienjoy International Limited (“Scienjoy HK”), as a holding
company holding all of the outstanding shares of Sixiang Wuxian (Beijing) Technology Co., Ltd (“WX” or “WFOE”)
which was established in PRC on October 17, 2017 under the laws of the People’s Republic of China as a holding company holding
all of the equity interest of Sixiang Zhihui (Beijing) Technology Co., Ltd. (“ZH”), which was incorporated on July
5,2018.
Scienjoy established
ZH (through WX), as a holding company for purpose of holding all of the outstanding equity interest of Holgus and Kashgar, as follows:
(i) On
July 18, 2018, Sixiang Times and ZH executed an equity transfer agreement with Sixiang Time. Pursuant to the agreement, 100% equity
interest in Holgus was transferred to ZH.
(ii) On
July 24, 2018, Sixiang Times and ZH executed an equity transfer agreement. Pursuant to the agreement, 100% equity interest in Kashgar
was transferred to ZH. In consideration of the transfer, Scienjoy paid RMB10,000,000 to the former shareholders of Kashgar.
On November 16, 2018,
Sixiang Times and other minority shareholders respectively entered into certain equity transfer agreements with Sixiang Huizhi
(Beijing) Technology Culture Co., Ltd. (“HZ”) and Tianjin Sihui Peiying Technology Co., Ltd. (“SY”), and
transferred 100% of the equity interest in SG to HZ, and transferred 100% of the equity interest in HX and LH to HZ and SY. Both
HZ and SY were ultimately controlled by TF.
On January 28, 2019,
HZ and SY executed equity transfer agreement with Zhihui Qiyuan. Pursuant to the agreement, 100% of the equity interest in SG,
HX and LH was transferred to Zhihui Qiyuan, which is ultimately controlled by TF. In consideration of the transfer, Scienjoy paid
RMB 32,000,000 to HZ and SY.
On January 29, 2019, Scienjoy, through
its wholly owned subsidiary WFOE, entered into a series of contractual arrangements (“VIE Agreements”) with Zhihui
Qiyuan and its registered shareholders, and in substance obtained control over all equity shares, risks and rewards of SG, HX and
LH through Zhihui Qiyuan. For a description of the VIE agreements pursuant to which Scienjoy and
its subsidiaries were established as a primary beneficiary of Zhihui Qiyuan, see “History and Corporate Structure of Scienjoy
Inc.-- Contracts that give Scienjoy effective control of the Scienjoy VIEs.”
Scienjoy’s Corporate Structure
Scienjoy
is a Cayman Islands holding company and conducts its operations in the People’s Republic of China (the “PRC”)
through Zhihui Qiyuan, and other Scienjoy VIEs, including SG, HX and LH, and through WFOE and the wholly owned subsidiaries of
WFOE, including Kashgar and Holgus. Through its Hong Kong subsidiary Scienjoy International Limited, Scienjoy owns a direct
equity interest in WFOE. WFOE, Zhihui Qiyuan and Zhihui Qiyuan’s registered shareholders are parties to the VIE Agreements,
pursuant to which the profits of Zhihui Qiyuan, and other Scienjoy VIEs, including SG, HX and LH, each such company formed under
PRC Law, are directly or indirectly payable to WFOE, and in connection with such VIE Agreements, the Scienjoy VIEs are directly
or indirectly controlled by WFOE. Any failure by any of the Scienjoy VIEs or their respective shareholders to perform their obligations
under these contractual arrangements, and any failure by Scienjoy to maintain effective control over any of these Scienjoy VIEs,
would have a material adverse effect on Scienjoy’s business. See “Risk Factors—Risks Related to Scienjoy Inc.’s
Corporate Structure.”
The following diagram
illustrates Scienjoy’s corporate structure as of the date of this proxy statement. Unless otherwise indicated,
equity interests depicted in this diagram are held 100%. The relationship between WFOE and Zhihui Qiyuan as illustrated in this
diagram are governed by contractual arrangements and do not constitute equity ownership.
Contractual Arrangements among WFOE,
the Scienjoy VIEs and the Shareholders of the Scienjoy VIEs
Current PRC laws and
regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunication
services, and certain other business. Scienjoy is a company registered in the Cayman Islands. To comply with PRC laws and regulations,
Scienjoy primarily conducts its business in China through the WFOE and the Scienjoy VIEs, based on a series of contractual arrangements
by and among WFOE, the Scienjoy VIEs and the Shareholders of the Scienjoy VIEs. As a result of these contractual arrangements,
Scienjoy exerts control over Scienjoy’s consolidated affiliated entities in the PRC and consolidates their operating results
in its financial statements under U.S. GAAP. The following is a summary of the contractual arrangements that provide Scienjoy
with effective control of Scienjoy VIEs and that enables it to receive substantially all of the economic benefits from the Scienjoy
VIEs’ operations.
Contracts that give Scienjoy effective
control of the Scienjoy VIEs
Exclusive Option Agreement.
Pursuant to the exclusive
option agreement (including its amendment or supplementary agreements, if any, the “Exclusive Option Agreement”) amongst
WFOE, Zhihui Qiyuan and the registered shareholders who collectively owned all of Zhihui Qiyuan, the registered shareholders irrevocably
granted WFOE or its designated party, an exclusive option to purchase all or part of the equity interests held by the registered
shareholders in Zhihui Qiyuan, when and to the extent permitted under PRC law, at an amount equal to the lowest permissible purchase
price as set by PRC law. Zhihui Qiyuan cannot declare any profit distributions, or create any encumbrances in any form without
the prior written consent of WFOE. The registered shareholders must remit in full any funds received from Zhihui Qiyuan to WFOE,
in the event any distributions are made by the VIE pursuant to any written consents of WFOE.
The Exclusive Option
Agreement shall remain effective for twenty (20) years and shall be automatically extended for an additional period of one (1)
year. The additional period automatically enters the renewal extension of one (1) year at the end of each extended additional period.
WFOE has the right to terminate this agreement at any time after giving a thirty (30) days’ prior termination notice.
Power of Attorney
Agreements.
The registered shareholders
of Zhihui Qiyuan entered into the power of attorney agreement (including its amendment or supplementary agreements, if any, the
“Power of Attorney Agreement”) whereby such registered shareholders granted an irrevocable proxy of the voting rights
underlying their respective equity interests in Zhihui Qiyuan to WFOE, which includes, but are not limited to, all the shareholders’
rights and voting rights empowered to the registered shareholders by the PRC company law and Zhihui Qiyuan’s Article of Association.
The power of attorney remains irrevocable and continuously valid from the date of execution so long as each such shareholder remains
as a shareholder of Zhihui Qiyuan.
Share Pledge Agreement.
Pursuant to the share
pledge agreement (including its amendment or supplementary agreements, if any, the “Share Pledge Agreement”) among
WFOE, Zhihui Qiyuan and the registered shareholders of Zhihui Qiyuan, such registered shareholders have pledged all their equity
interests in Zhihui Qiyuan to guarantee the performance of Zhihui Qiyuan’ obligations under the Exclusive Option Agreement,
Exclusive Business Cooperation Agreement and Power of Attorney Agreement.
If Zhihui Qiyuan breaches
its contractual obligations under any of other VIE Agreements, WFOE, as pledgee, will be entitled to certain rights, including
the right to sell the pledged equity interests. The registered shareholders of Zhihui Qiyuan agreed not to transfer, sell, pledge,
dispose of or otherwise create any new encumbrance on their equity interests in Zhihui Qiyuan without the prior written consent
of WFOE. The Share Pledge Agreement shall be continuously valid until all obligations under the VIE Agreements have been fulfilled,
or the VIE Agreements are terminated, or the secured debts has been fully executed.
Contracts that enable Scienjoy to
receive substantially all of the economic benefits from the Scienjoy VIEs
Exclusive Business Cooperation Agreements
Pursuant to the exclusive
business cooperation agreement (including its amendment or supplementary agreements, if any, the “Exclusive Business Cooperation
Agreement”) between WFOE and Zhihui Qiyuan, WFOE is to provide exclusive business support, technical and consulting services
related to all technologies needed for its business in return for fees that equals to all of the consolidated net income after
offsetting previous year’s loss (if any) of SG, HX and LH. The service fees may be adjusted by WFOE based on the following
factors:
|
●
|
complexity
and difficulty of the services pursuant to the business cooperation agreement to Zhihui Qiyuan during the month (the “Monthly
Services”)
|
|
●
|
the number of WFOE’s employees who
provided the Monthly Services and the qualifications of the employees;
|
|
●
|
the number of hours WFOE’s employees
spent to provide the Monthly Services;
|
|
●
|
nature and value of the Monthly Services;
|
|
●
|
market reference price; and
|
|
●
|
Zhihui Qiyuan’ operating conditions
for the month.
|
The term of the Exclusive
Business Cooperation Agreement is twenty (20) years and shall be automatically extended for an additional period of one (1) year.
The additional period automatically enters the renewal extension of one (1) year at the end of each extended additional period.
Besides, WFOE has the right to terminate this agreement at any time after giving a thirty (30) days’ prior termination notice.
In the opinion of Beijing
Feng Yu Law Firm (北京锋昱律师事务所) (“Feng Yu Law Firm”), Scienjoy’s
PRC legal counsel:
|
●
|
based on its understanding of the relevant laws and regulations, is of the opinion that each of
the contracts among WFOE, Zhihui Qiyuan and its registered shareholders are valid, binding and enforceable in accordance with their
terms and do not violate current effective applicable PRC Laws.
|
However,
Scienjoy’s PRC legal counsel has advised that there are substantial uncertainties regarding the interpretation and application
of current and future PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities may in the future take a view
that is contrary to the opinion of Scienjoy’s PRC legal counsel. Scienjoy’s PRC legal counsel has further advised that
if the PRC government finds that the agreements that establish the structure for operating Scienjoy’s Internet related value-added
business do not comply with PRC government restrictions on foreign investment in the aforesaid business Scienjoy engages in, Scienjoy
could be subject to severe penalties including being prohibited from continuing operations. See “Risk Factors—Risks
Relating to Scienjoy’s Corporate Structure.” See “Risks Relating to Doing Business in China—
Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to
you and Scienjoy.”
SCIENJOY
INC.’S BUSINESS
Mission
Scienjoy is committed to establishing a
mobile entertainment social community where users can enjoy interactive mobile live streaming and asynchronous social connection.
Overview
Scienjoy is a leading provider of mobile
live streaming platforms in China and focuses on interactive show live streaming. It has 33.8 million active users and 34,651
active show broadcasters for the year ended December 31, 2019. As of December 31, 2019, Scienjoy has approximately 200.4 million
registered users and operates primarily on three primary platforms (Showself Live Streaming, Lehai Live Streaming and Haixiu Live
Streaming), each using Scienjoy’s own mobile applications, and has created a vibrant, interactive, and close community.
According to the third party YIGUAN ANALYSYS data report in 2019 (which is publicly available without payment and is not commissioned
by Wealthbridge or Scienjoy in connection with this proxy statement), for six consecutive calendar quarters from the first quarter
of 2018 through the second quarter of 2019, Showself Live Streaming, Scienjoy’s flagship platform, continuously ranked No.
1 among major platforms in the vertical show live streaming sector in terms of QAU, and for the year 2018, it ranked No. 5 in
among major platforms in all entertainment related streaming platforms including the pan entertainment sector and the show sector,
also in terms of QAU.
With China’s rapid technological
progress and booming economic development, the past 10 years witnessed a dramatic growth of mobile Internet users in China. According
to the Frost & Sullivan Report (2018), the mobile internet market increased from RMB 99.2 billion in 2013 to RMB 1,535.2 billion
in 2017 and is expected to continue to grow at a rapid rate, reaching RMB 5,807.4 billion in 2022. Scienjoy’s platforms
brings together a pool of talented broadcasters and devoted viewers by customizing the live streaming videos according to use
profiles and developing interactive features that promote a more interactive and engaging experience.
Scienjoy operates a mobile live streaming
business by which it provides live streaming entertainment from professional “broadcasters” to the end-users, allowing
for operation of live social video communities. Using Scienjoy’s mobile applications, users can select broadcasters and enter
real time video rooms to interact with them. In addition to the real-time interaction, users can also view photos posted by broadcasters
in their personal pages, leave comments, and engage in private chats with broadcasters when such broadcasters are not streaming.
In addition, users can also play simple, fun games using virtual currencies within the video rooms while watching live streaming
of a broadcaster.
While users have free access to all real
time video rooms, revenue is primarily generated through sales of Scienjoy’s virtual currency. Users can purchase virtual
currency on Scienjoy’s platforms and can use such virtual currency to buy virtual items for broadcasters to show their support.
Scienjoy shares revenues generated on the platforms with talents agencies, which in turn share revenues with broadcasters. Under
the leadership of its experienced management team, Scienjoy continues to invest in technology advancement and industry collaboration
to expand its user base and improve its content. Scienjoy is dedicated to achieving sustainable development and transforming the
industry through its bold and creative live streaming philosophy.
Scienjoy has achieved significant growth
since its inception. The number of registered users of Scienjoy’s platforms at year end has increased from 139.5 million
in 2017 to 170.7 million in 2018. As of December 31, 2019, it has reached approximately 200.4 million. The platforms’ annual
ARPPU was RMB1,170, RMB 1,406 and RMB1,306 for the years ended December 31, 2017, 2018 and 2019, respectively. The platforms’
paying ratio has increased from an average of 1.30% in 2017, to 1.40% in 2018, and to 2.1% in 2019.
Competitive
Strengths
Scienjoy believes the following competitive
strengths contribute to Scienjoy’s success and differentiate it from its competitors:
Multi-Platform Live Streaming
Starting in 2014 with the launch of the
Showself Live Streaming platform, Scienjoy’s user base has grown into one of the largest in China, and now Scienjoy is one
of the leading show live streaming providers in China. Scienjoy’s show live streaming products satisfy users’ psychological
needs and decrease users’ stress, loneliness, depression, frustration etc. in the real life.
Scienjoy’s user traffic and revenue
spread across multiple products supported by multiple mobile applications. Scienjoy believes this multi-product approach increases
Scienjoy’s competitiveness by allowing Scienjoy to target different sections of the population simultaneously more effectively,
achieve better traffic matching between users and broadcasters, extend the retention of broadcasters and users on Scienjoy’s
platforms, and benefit from user traffic acquisition while mitigating risks of focusing on a single platform. Scienjoy believes
that its already established position across multiple platforms provides Scienjoy with the ability to compete effectively for users
and a base from which Scienjoy can expand, either into additional show live streaming platforms or into other sections of the live
streaming market.
As a pioneer in the live streaming market,
Scienjoy developed its own set of end-to-end (broadcaster-to-user) mobile video solutions. Many of the systems and technologies
Scienjoy has developed, including, among others, its mobile-compatible animation engine technology, event-driven asynchronous business
processing mechanism, linearly expanding deployment of its servers, modular service development and assembly, high-throughput parallel
messaging service clusters and spam filtering based on machine learning, provide Scienjoy with competitive advantages. Scienjoy
believes its existing systems and technologies, supported by its continuing efforts in technology innovation, including with regard
to augmented reality/virtual reality (“AR/VR”), artificial intelligence (“AI”), big data technology, machine
learning and physics engine technology, provide Scienjoy with the necessary technical skills to compete and expand in this rapidly
changing industry.
Innovative Product Features and Operating Philosophy
Scienjoy’s product offerings include
numerous innovative features designed to improve user experience, increase user-stickiness, and enhance its monetization ability.
These include, among others:
|
●
|
gamified product and operating philosophy that enable
users to enjoy the exciting alternative life in the mobile live streaming virtual world. In this virtual world, users can enjoy
the real interactive activities with broadcasters and also build their virtual life.
|
|
●
|
a range of online games for users to play while watching streaming. These include simple, fun games like pet run, crazy racing
and gold egg smashing. Users pay virtual currency to play games for a chance to hit a virtual currency jackpot or win virtual goods
that they can then send to broadcasters who can then monetize the goods. These games enhance user engagement during live streaming
and encourage and facilitate the use of virtual currency and virtual goods.
|
|
●
|
both real-time streaming and asynchronous social functions. Users of Scienjoy’s platforms can communicate with broadcasters
and other users not only when broadcasters are streaming, but also afterwards through sending private texts and photos, and commenting
on photos posted on the personal pages of specific broadcasters. This allows users to interact with broadcasters and their communities
any time they wish.
|
Strong Data Analytics Capabilities
The ability to understand market traffic
and pair users with suitable broadcasters and activities is key to driving user stickiness and monetization in the mobile live
streaming industry. Scienjoy is able to use analytics-driven operational capabilities to understand individual user behavior and
larger industry trends. This allows Scienjoy to better guide individual users to appropriate broadcasters, adjust the platform
interface to guide user traffic throughout the broadcasters while maintaining user experience, and analyze traffic on other sites
such as network alliances to select the best methods and targets for traffic acquisition. Scienjoy’s data insights and strong
technological capabilities enable Scienjoy to innovate and optimize products on an ongoing basis and allow Scienjoy to precisely
operate Scienjoy’s platforms based on large quantities of statistics collected and analyzed.
Experienced Management Team and Professional Staff with
Strong Operational Capabilities
Scienjoy’s senior management team
has extensive experience working with the mobile Internet, in related computer-technology industries, big data analysis, and cutting-edge
technologies. Members of Scienjoy’s senior management team have experience of over 20 years in various segments of the technology,
business operation, and Internet industries. Under the leadership of its senior management members, Scienjoy has successfully identified
trends in mobile streaming and timely seized opportunities for growth and innovation.
Scienjoy’s management team has extensive
experience and skill in research and development, quality control, and Internet infrastructure and operations. Scienjoy believes
that as mobile streaming matures, strong operational and execution capabilities will become increasingly important to remaining
competitive and Scienjoy’s strong team with years of relevant experience will provide Scienjoy with a competitive advantage.
Strategies
Scienjoy’s business objective is
to further strengthen its position in the mobile show live streaming industry and to leverage its existing position to expand its
business into other related industries in China and oversea markets. Scienjoy intends to implement the following strategies:
Provide More Engaging and Professional Content
Scienjoy will keep introducing more engaging
content to retain users and further boost users’ willingness to purchase virtual goods. Although most broadcasters working
in the live streaming industry provide various entertainments for users, the content provided is generally not as professional
as traditional performers. Therefore, there is still an opportunity for Scienjoy to cooperate with more traditional artists and
to train its broadcasters to produce a more professional product.
Build up Competitive Differentiation with Live Streaming
2.0 Philosophy
Currently users primarily enjoy broadcasters’
talent shows and interaction by texting with broadcasters. Scienjoy has executable proposals to achieve a competitive differentiation
with rivals in the live streaming industry. Scienjoy is building up a live streaming 2.0 era, in which users can enjoy an immersive
alternative online life. On this live streaming 2.0 era, users not only enjoy the real experiences with broadcasters through various
interactions but also play virtual games with broadcasters and other users together on Scienjoy’s platforms. Inside the alternative
online world, users will play in many parallel artificial universes such as Kung Fu world, ancient China, Sci-fi world etc. Broadcasters
will also participate in the games with users, merging the real live streaming world with the alternative on-line world.
Scienjoy plans to stage the release of
its live streaming 2.0, including the estimated release of the Alpha version around June 2020 and the official version around March
2021. However, there is no guarantee that Scienjoy will meet these estimated release timelines due to changes in market conditions
or any other factors that may require Scienjoy to postpone the release of its live streaming 2.0.
Scienjoy believes this live streaming
2.0 philosophy will further improve user experiences and increase user engagement and ARPPU so as to keep Scienjoy in the leading
position in live streaming industry. Scienjoy will be the first one to combine game and live streaming and make an innovative
live streaming world. Admittedly, the realization of this live streaming 2.0 philosophy requires the cutting-edge technologies,
such as AR/VR, AI, animation, and big data, etc. Scienjoy is confident that its innovative technology research and development
will ensure it can achieve this goal.
Further Expand Its Mobile Live Streaming Business in China
and Overseas
Scienjoy intends to update it mobile
applications to allow for easier content creation and sharing by its users. Scienjoy believes that the convenience offered will
continue to improve user stickiness and develop it into a destination for social interactions. Meanwhile, Scienjoy’s multiple
platforms can serve a broad range of potential end markets. Scienjoy plans integrate its registered user accounts across multiple
mobile applications into a unified account system. Scienjoy believes this will lead to a virtuous cycle: the resulting higher
user engagement level would provide Scienjoy with more opportunities to cross-promote its products and gather incremental user
data for further product optimization and development.
Scienjoy has plans to expand its business
globally. Scienjoy has obtained considerable experience in mobile live streaming industry and plans to promote its mobile live
streaming platform in Southeast Asia, Middle East and South America.
Diversify the Live Streaming Business
After years of development in the field
of live video broadcasting, Scienjoy has rich experience in technology, research and development, product promotion, and other
aspects of live streaming platforms operations. Since its formation, Scienjoy has focused on operating show live streaming platforms.
Going forward, in addition to continuing to establish its position in this segment, Scienjoy plans to leverage its relevant expertise
to expand its business into undeveloped areas based on its current user base, broadcasters, and partners.
First, Scienjoy would like to develop its
advertising business model by providing the market with comprehensive advertising proposals, combining traditional banners and
video commercials with operative events and virtual items. Scienjoy plans to acquire new media advertising companies or teams to
promote its advertising business which focuses on brands suitable for its user profiles.
Secondly, Scienjoy would like to provide
value-added services for its broadcasters and users. Since the inception of its business Scienjoy has partnered with approximately
200,000 broadcasters. Many of these broadcasters desire to improve their physical looks. Scienjoy finds it a good business opportunity
to provide a fee-based platform which will refer broadcasters to appropriate appearance enhancement hospitals. In addition, since
Scienjoy has a large number of users who live in lower tier cities and have demands in various professional area, such as investment,
high-end tourism, children’s international education and healthcare. Scienjoy can build a sustainable referral business for
its users as well.
Thirdly, Scienjoy would like to build up
its ecommerce business, which will be combined with Scienjoy’s existing live streaming business. In this new business model,
Scienjoy’s broadcasters may introduce to their viewers the products sold on Scienjoy’s platforms. Scienjoy possesses
comprehensive live streaming technologies, including artificial intelligence and big data, and believes it has technical capacity
and expertise to combine ecommerce business with its live streaming business. To achieve this Scienjoy has plans to strategically
partner with suitable ecommerce platforms and jointly build up its ecommerce business based on its current technologies, broadcasters’
network and users base.
Explore Technology Services Business
Scienjoy’s income has historically
come from sales of virtual currency to users. Almost 100% of Scienjoy’s total revenue has derived from the sale of virtual
items and virtual currency with respect to its live streaming business. Going forward, Scienjoy plans to leverage its expertise
and user base to expand its revenue sources. In particular, Scienjoy has plans to enter into cooperative arrangements with smaller
live-streaming team, through which Scienjoy will provide such platforms with technology, operation and maintenance and promotional
support services in return of revenue sharing.
Continue
to Invest in and Develop Technologies Such as Virtual Reality (VR)/Augmented Reality (AR) and Artificial Intelligence (AI)
Scienjoy intends to continue to invest
in its data analytics capabilities and cutting-edge technologies. Scienjoy also plans to further develop its technology stacks,
including, but not limited to, machine learning, physics engine, AR/VR, and AI technologies to better understand and anticipate
user behavioral trends, which in turn can be applied to the development of Scienjoy’s applications.
Tap into
the Next Phase of Explosive Industry Potential through M&A
Mergers & Acquisitions will be one
of crucial strategies to expand Scienjoy’s business swiftly, which support rapid execution of each element of its business
growth. The targeted sectors include related high-tech companies, data analysis companies, live streaming companies (especially
oversea targets), new media advertising companies, and beauty industry related companies. Scienjoy already has one or two target
companies almost for each of the above-mentioned sectors.
Scienjoy’s
Platforms
Scienjoy operates its live streaming communities
through multiple platforms, each with its own mobile applications. Scienjoy currently operates primarily three platforms: Showself
Live Streaming, Lehai Live Streaming and Haixiu Live Streaming. These platforms together make Scienjoy the leading provider of
mobile show live streaming.
Showself Live Streaming
Showself Live Streaming is Scienjoy’s
first live streaming platform and remains the most popular of its platforms in terms of registered users and revenue. The platform
was first launched in April 2014. Showself Live Streaming is widely accessible to most mobile internet users in China because Scienjoy’s
live streaming-enabled features only require minimal bandwidth. The following is the typical screenshot for the mobile application
of Showself Live Streaming.
Lehai Live Streaming
Lehai Live Streaming was launched in July
2015 and adheres to the concept of “having fun together.” The following is the typical screenshot for the mobile application
of Lehai Live Streaming (the iOS version may vary).
Haixiu Live Streaming
Haixiu Live Streaming was launched in April
2016 and is Scienjoy’s third platform. The following is the typical screenshot for the mobile application of Haixiu Live
Streaming (the iOS version may vary).
Key Differences among the Platforms
All three platforms are categorized as
“show live streaming” in which professional broadcasters provide live streaming entertainment for users primarily in
the form of performances (singing, dancing, talk shows, etc.). Broadcasters on all three platforms have been trained by broadcaster
agents to provide content more professional than that of average amateur broadcasters. Due to different broadcasters and user bases,
the three platforms differ in their operation strategies, including the followings:
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Showself is the largest platform of Scienjoy. Because of the large number of broadcasters and users
base, Showself has capacity to organize different talent shows and events, such as singing, poem writing and traditional Chinese
opera.
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As compared to Showself, Lehai and Haixiu have less users who are likely to spend money on live
streaming shows. As such, in addition to live streaming shows, Lehai and Haixiu offers more free games or games that do not require
much spending.
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Lehai works more closely with some talent
agencies than the others. Showself and Haixiu maintain good relationship with all talent agencies. Showself’s and Haixiu’s
strategy has been proved to be more effective and Lehai plans to adopt the same strategy.
Layout and functions of the mobile application of Scienjoy’s
Platforms
The layout and functions of the mobile
applications of Scienjoy’s platforms are substantially the same. The above screenshots and descriptions illustrate the layout
and some of the basic functions of the Showself Live Streaming application:
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Square. This page serves as a menu for currently streaming broadcasters. Users can
search this page for broadcasters they want to watch. For users who do not already know any broadcasters or have no existing preference
as to which broadcasters they want to watch, several groupings of broadcasters who are conducting ongoing live streaming are presented
in the square under different headings to help viewers find a broadcaster they will enjoy. These groupings are organized under
different labels, such as recommended broadcasters (based on comprehensive analysis and mining of user-specific data such as user’s
location, login time, retention, daily activity, and consumer behavior), broadcasters located in the same city as the users, broadcasters
currently followed by the user, broadcasters recently viewed by the user, and broadcaster “PK” (broadcasters currently
competing against each other in terms of value of gifts received within ten minutes), and other labels.
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Broadcasters’ names, number
of current online viewers, and grade based on the value of gifts received by such broadcaster along with a snapshot of the current
stream are provided on the pages for viewers’ use in selecting a broadcaster. These pages are updated with a new batch of
broadcasters with every refresh by users, presenting them with a wider range of broadcasters to choose from. For new users, this
interface provides them with an easy way to start exploring the platform. For existing users, broadcasters with closest relationship
in terms of chat frequency and value of gifts sent are always presented in the first page of the square if the broadcaster is online
and this makes it easier for users to closely watch live streaming of broadcasters they have followed. In all cases, clicking on
a broadcaster’s picture will take users to a real time video room from which they can view and interact with the broadcaster.
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Ranking Lists. This page presents lists of top broadcasters by various criteria,
including highest value of gifts received by the broadcasters (on a daily, weekly, monthly and all-time basis) and greatest number
of virtual flowers or the specially designated weekly “star gifts.” received by broadcasters. These ranking lists provide
further information to viewers about broadcasters’ popularity to help them identify top broadcasters and can also motivate
users to support their favorite broadcasters on the list. This also promotes positive competition between broadcasters. The page
also contains lists of viewers (by account name) that have spent the highest amount of virtual currency in the last day, week,
month and all-time.
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Guardian
Teams.
Guardian teams are
small groups of users organized by users with sufficient high user grades and which other
users can join. This function allows small groups of like-minded users to interact online,
form friendships, and support their favorite broadcasters as a group. This encourages
user engagement and active participation. This also helps to improve user experience
and enhance users’ paying willingness. The guardian team page shows rankings of
guardian teams by various criteria, including highest value of virtual currencies spent
by guardian teams (on a daily and all-time basis) and the value of gifts received by
the broadcasters from top guardian teams (on a weekly and bi-weekly basis).
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Discovery. This page allows users to follow photos posted by broadcasters and activities
organized by the platform. It is also the page through which users can purchase virtual items using “Xiu Bi,” the virtual
currency used on the platform.
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Me. Users can check and manage their personal accounts through this page. Personal
account information displayed mainly includes the broadcasters by such users, current virtual currency balance, virtual items purchased,
guardian teams to which the users belong and intimate broadcasters list.
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Content
on Scienjoy’s Platform
Scienjoy has a number of live broadcasting
platforms. They provide entertainment content for users and have actively explored new entertainment, new agency, and other fields
in the upstream and downstream industry, combining entertainment, agents, and mobile Internet to create online entertainment online-merge-offline
(“OMO”). For the agents, the platforms provide support for product activities, brand building, management empowerment,
data support, and technical tools, and help it clarify its development path and strategy from the perspective of industry analysis.
For the broadcasters, the platforms have provided training through agents for items such as stage decoration, lighting, music,
attire, makeup, costumes, talent skills (such as singing, dancing, talk show and musical instruments), communication skills, and
service awareness. The platforms, agents, and broadcasters rely on each other and bridge the path for each other to build a healthy
and stable entertainment ecology.
For Scienjoy, the establishment of a content
security system is not only a means of defense but also a strong strategic offense. Through AI technology, image recognition, big
data analysis, combination of artificial audit, the platforms have a vertical monitoring system to monitor all live streaming content
24/7 to ensure that the content is legal and in compliance, and is providing the best service to every user at the same time, creating
a refreshing and delightful user experience to increase its revenue.
Quality and engaging content is the core
of Scienjoy’s development. One way for Scienjoy to offer engaging content is to organize a variety of original shows on its
platforms, such as “Singer Alliance,” “Run Ms. Cang Run” and “King of Brain PK.” Secondly,
Scienjoy’s platforms make efforts to support talented broadcasters by organizing special shows for these broadcasters such
as “Crown of Weekly Star” and “The Showself Voice.” Thirdly, Scienjoy’s platforms continue to expand
their shows to new areas such as traditional opera and intangible cultural heritages. These shows include the live streaming series
of “Revisiting the Intangible Cultural Heritage,” “Beauty of Quintessential Chinese Culture,” and “I
Write a Love Poem for My Hometown.”
Scienjoy’s
Users
Scienjoy has an active and
well-structured user base. In 2014, it transformed itself from a social network platform to a show live streaming platform.
Since then, it has experienced increased broadcasting competition and refined its operations. It has also accumulated a
diversified user group through constant innovation and promotion. As of December 31, 2019, the number of users on
Scienjoy’s platforms was approximately 200.4 million.
Scienjoy does not limit itself to acquiring
users solely through self-growth fission or third-party marketing. Instead, Scienjoy adopts the model of win-win game to achieve
stable and mutually beneficial expansion of its user base. In 2019, the platforms’ the number of paying users was 697,475
and their average revenue per paid user (ARPPU) for fiscal 2019 was RMB1,306.
To mitigate any concentration risks from
a single user group structure, Scienjoy has been working on to develop a diversified base of user groups, which include young active
users with short interest span as well as users in their thirties with high spending power. In addition, a considerable number
of Scienjoy’s users are located in economically developed areas with more leisure life styles. These users have relatively
high disposable income and more leisure time. They tend to appreciate online entertainment more and are willing to spend money
on online entertainment.
Scienjoy’s
Broadcasters
The supply of talented and popular broadcasters
is essential to Scienjoy, particularly given Scienjoy’s focus on developing professionally generated content. Broadcasters
serve as the primary interface with users and, therefore, the success of Scienjoy’s platforms depend largely on the talent
and popularity of the broadcasters.
Engagement of Broadcasters
Scienjoy primarily cooperates with online
and offline broadcaster agents, or the talent agents, to recruit and manage broadcasters on an ongoing basis. Each of the platforms
also has an online application process for registered users to become broadcasters and Scienjoy will select certain applicants
and refer them to the appropriate talent agents. As such, Scienjoy enters into all contracts with the talent agents, as opposed
to with each broadcaster on an individual basis.
Before broadcasting on the platform, all
broadcasters must agree to the terms and conditions of Scienjoy’s platforms, which includes the rules of the platforms that
the broadcasters must abide by while live streaming and also the legal consequences for violation of the rules. If any such violations
occur, Scienjoy will hold the broadcasters directly liable.
For selected broadcasters Scienjoy identifies
as popular or having great potential or offering high-quality content, in addition to the above two agreements, Scienjoy will separately
enter into an exclusivity agreement with such broadcasters, which requires that the broadcasters can only live stream on Scienjoy’s
platforms exclusively for a certain period of time. In return, Scienjoy provides more resources and support to such broadcasters
by recommending their contents to potential interested users, increasing user traffic, and improving their popularity. Scienjoy
will be entitled to sizeable liquidated damages if the broadcasters breach the exclusivity agreement.
Cooperation with the Talent Agencies
Talent agencies recruit broadcasters and
provide live streaming content to Scienjoy. Scienjoy shares revenue with the talent agencies, who pay salaries to or share fees
with their broadcasters. Talent agencies are also responsible for educating and training the broadcasters on live streaming skills
and techniques, such as dress codes, room settings and communication skills. As a result, talent agencies help broadcasters to
better present their live streaming content. The use of talent agencies also frees Scienjoy from direct dealings with the broadcasters.
Monitoring and Management of Broadcasters
Scienjoy sets out rules with which broadcasters
must comply with while using its platforms, including compliance with laws and regulations of the PRC, no performances involving
guns, knives or threats to lives, no infringement of legal rights of others and no pornography.
Scienjoy has the right to monitor and manage
the performances of any broadcasters on its platforms. Appropriate measures are taken with respect to any broadcasters that fail
to comply with the above mentioned rules. Such measures range from warnings and fines to temporary or permanent suspension from
the platforms, and can be taken unilaterally by Scienjoy as it deems fit. Since broadcasters are represented by agents, notice
of any illegal behavior or violations of platform rules will also be made to the relevant agent. The relevant agent is required
to correct any such violation upon receipt of the notification. If the violation is not corrected during the applicable grace period,
Scienjoy has the right to terminate its cooperation with the relevant agent.
Marketing
Scienjoy’s marketing and promotional
strategy includes, among others, the use of third-party marketing channels to both promote its platforms and acquire users. These
marketing channels primarily include advertising agencies which provide Scienjoy with market visibility and numerous opportunities
to attract new users. Scienjoy typically enters into one-year framework agreements with such advertising agencies which require
Scienjoy to purchase a minimum aggregate amount of advertising during the terms of the agreements. The advertisements are either
display-based or performance-based, and are priced primarily based on cost-per-download, cost-per-time, cost-per-activation or
cost-per-click. Scienjoy is generally able to monitor the performance and effectiveness of the advertisements directly or through
the advertising agencies.
Scienjoy uses mobile application platforms,
such as the Apple App Store and Android App Download Centers, to dispense and showcases its mobile platforms to a wide audience
as well as to advertise the positive customer feedback which Scienjoy’s platforms have received. Users can download the apps
from these application platforms for free. Users are also able to review and rate Scienjoy’s applications through these platforms.
Quality
Control and Content Monitoring
Scienjoy has programmers with extensive
application testing experience who systematically test Scienjoy’s platforms to ensure that they conform to Scienjoy’s
standards. Scienjoy is also required under PRC laws and regulations, such as the Administrative Provisions on Mobile Internet Applications
Information Services, to monitor content on its platforms.
Scienjoy has developed a comprehensive
technology to screen content on its applications against a filter list, item by item. The filter list compiles content and behaviors
that Scienjoy has determined, taking into account relevant PRC laws and regulations, are likely to be indicative of inappropriate,
politically-sensitive, provocative or inflammatory language, sexually-suggestive language and body movements, full or partial nudity
or illegal content or activities, abusive language or actions towards other users, spam, scams, or acts and threats of violence.
Content identified as falling into the filter list would be blocked or removed. In addition, Scienjoy regularly reviews any complaints
alleging the inappropriate nature of content on its platforms and removes such content promptly.
Broadcasters are also responsible for monitoring
the content in their rooms and ensuring that their rooms comply with applicable laws and regulations and terms of Scienjoy’s
service. Broadcasters can block users who transmit inappropriate information from posting comments in their rooms or exclude users
from their rooms. Broadcasters also have the ability to promote certain users to act as moderators to help manage rooms in this
way. Scienjoy also monitors and takes measures to deal with any infringements of its content policies by broadcasters.
Payment
Users are able to purchase virtual items
Scienjoy sells on its platforms by using virtual currency. Generally, users purchase virtual currency with from third-party distributors
with which Scienjoy has entered agreements. Users are also able to purchase virtual currency directly from Scienjoy’s platforms
using various payment channels such as Alipay and WeChat Pay. Once users have purchased such virtual currency, they are able to
purchase virtual items. Once purchased, such virtual currency or virtual items cannot be returned in exchange for cash and Scienjoy
does not provide users with a right of refund of any kind.
Scienjoy’s
Technology
Scienjoy possesses technological infrastructure
and capacity that supports increasing operational efficiency, enabling innovations, and outperforming its competitors.
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AI And Big Data Analysis:
by using data and AI technology, Scienjoy analyzes user behavioral data. Through the results of such data analysis, Scienjoy
can better understand users’ needs and know how better match content with users. These operations help Scienjoy improve
its user experience as well as paying ratio and ARPPU.
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Live Streaming Technology: Scienjoy has a complete peer to peer (the host starts
to stream video for the user to play) live mobile video solution with independent intellectual property rights, and it is being
constantly optimized. In the user end, Scienjoy has made special optimization for video streaming playback processing in combination
with CDN service providers, which supports fast video download and opening, reasonable buffering to reduce the Caton rate, so as
to ensure a smooth experience for users.
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Video Monitoring Technology: this specially developed monitoring program can carry
out real-time video monitoring for all video streams in combination with AI technology, and create a three-dimensional content
monitoring system in combination with 24-hour continuous manual audit to discover potential violations and block applicable content.
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Server and Infrastructure: by using the situation awareness security service provided
by Alibaba cloud and combined with the self-built monitoring platform, Scienjoy can alert the system of abnormal phenomena and
prevent virus and hacker intrusion.
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Intellectual
Property
Scienjoy regards its software copyrights,
domain names, trademarks and other intellectual property as critical to its success. As of December 31, 2019, Scienjoy has registered
72 copyrights in China (71 of which are software copyrights for the platforms’ operating systems), 3 domain names (showself.com,
lehaitv.com, and haixiutv.com), 6 patents for live streaming technology, and 46 trademarks including the Showself, Haixiu, and
Lehai logos, with additional 6 patents in the process of application.
Scienjoy relies on trademark and copyright
law, trade secret protection, non-competition and confidentiality and/or license agreements with its employees, customers, partners
and others to protect its intellectual property rights. In general, Scienjoy’s employees must enter into a standard intellectual
property and confidential agreement which acknowledges that (1) all inventions, trade secrets, developments and other processes
generated by employees on its behalf are Scienjoy’s property, and such employees are assigning to Scienjoy any ownership
rights they may claim in those work; and (2) such employees undertake to keep confidential all information related to Scienjoy’s
methods, business and trade secrets during and for a reasonable time after their employment with Scienjoy.
Competition
Scienjoy focuses on show live stream
model and in this area Scienjoy faces significant competition from providers of similar online streaming services. Scienjoy’s
competitors in the mobile live streaming market in China include other providers of show live streaming products, such as KuGou,
MEME, and Shiliu, as well as other pan-entertainment streaming platforms such as Inke, Huajiao, and gaming streaming DOYU and
HUYA. Scienjoy competes to promote its products and gain users, to attract and hire management personnel with operational experience,
and to secure diversified marketing channels.
Employees
Scienjoy had 197 employees as of December
31, 2019. As of December 31, 2019, all of Scienjoy’s employees were located in China. The following table sets forth a breakdown
of Scienjoy’s employees by function as of December 31, 2019.
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As of
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December 31, 2019
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Number
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%
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Functions:
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General operations
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70
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35.5
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Research and development
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58
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29.4
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Sales and marketing
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18
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9.1
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Legal and internal audit
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2
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1.0
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General administration
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35
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17.9
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Products
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14
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7.1
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Total number of employees
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197
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100.0
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Legal
Proceedings
Scienjoy is currently not a party to any
material legal or administrative proceedings. Scienjoy may from time to time be subject to various legal or administrative claims
and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless
of the outcome, is likely to result in substantial cost and diversion of Scienjoy’s resources, including its management’s
time and attention. See “Risk Factors—Risks Related to Scienjoy’s Business and Industry—Scienjoy may be
held liable for information or content displayed on, retrieved from or linked to its platform, or distributed to its users, and
PRC authorities may impose legal sanctions on Scienjoy, including, in serious cases, suspending or revoking the licenses needed
to operate its platform,” and “Risk Factors—Risks Related to Scienjoy’s Business and Industry—Scienjoy
may be subject to intellectual property infringement claims or other allegations, which could result in Scienjoy’s payment
of substantial damages, penalties and fines, removal of relevant content from its websites and apps or seeking license arrangements
which may not be available on commercially reasonable terms.”
INDUSTRY
OVERVIEW
Information, including statistics
and estimates, set forth in this section has been derived from an industry report independently prepared by Frost & Sullivan
in 2018 (not commissioned by Wealthbridge or Scienjoy in connection with this proxy statement. Scienjoy believes that the sources
of such information are appropriate, and Scienjoy has taken reasonable care in extracting and reproducing such information. Scienjoy
has no reason to believe that such information is false or misleading in any material respect or that any fact has been omitted
that would render such information false or misleading in any material respect. However, such information involves a number of
assumptions and limitations, and actual events or circumstances may differ materially from events and circumstances that are assumed
in this information. Therefore, you are cautioned not to place any undue reliance on the information, including statistics and
estimates, set forth in this section. Forecasts and other forward-looking information obtained from the sources of such information
are subject to the same qualifications and uncertainties as the other forward-looking statements in this proxy statement, as well
as risks due to a variety of factors, including those described under “Risk factors” and elsewhere in this proxy statement.
Background
Development of the mobile
live streaming market in China over the past decade has been influenced by a number of macroeconomic and technological factors
and trends. As the Chinese economy continues to grow, disposal income
increases along with demand for cultural and entertainment activities. At the same time, rising penetration rates for smartphones
and other smart mobile devices and advances in mobile communication technology drive the increased use of the mobile internet in
China.
Increasing Mobile Internet Use in
China
According to the Frost & Sullivan
Report, with rapid development of advanced technology, including the 4th Generation mobile communication technology and development
in smartphones and other smart mobile devices, and the expansion of internet coverage in China, the number of mobile internet
users in China experienced grow from 500.1 million in 2013 to 752.7 million users in 2017, representing a CAGR of 10.8%. This
represented an increase in the penetration rate of mobile internet users in China from 36.80% in 2013 to 54.1% in 2017. According
to the Frost & Sullivan Report, the number of mobile internet users in China is expected to keep rising to approximately 987.0
million in 2022. The increase in the number of mobile internet users in China has been accompanied by rapid growth of the overall
size of the mobile internet market in China. The mobile internet market increased from RMB 99.2 billion in 2013 to RMB 1,535.2
billion in 2017, representing a CAGR of 98.4%. According to the Frost & Sullivan Report, the estimated size of this market
will reach RMB 5,807.4 billion in 2022, representing a CAGR of 30.5% from 2017 to 2022. The following chart sets forth historical
and projected mobile internet market size in China for the years indicated.
Market Size of Mobile Internet Market
in China, by Revenue, 2013-2022E
Source: Frost & Sullivan
Added Value of Cultural and Entertainment Industry
According to the Frost & Sullivan Report,
with people’s increasing spending on entertainment related products and services, the value of cultural and entertainment
industry in China grew from RMB2,135.1 billion in 2013 to RMB3,546.2 billion in 2017, representing a CAGR of 13.5%. Frost and Sullivan
estimated that the value of the cultural and entertainment industry in China will have a CAGR of 9.7% from 2017 to 2022, reaching
RMB5,502.7 billion in 2022.
Increasing Expenditure Per Capita on Cultural and Entertainment
Activities
According to the Frost & Sullivan Report, along with the
growth in the annual disposable income per capita in the PRC, the average annual expenditure on cultural and entertainment activities
per capita increased from RMB1,569.0 in 2013 to RMB2,550.9 in 2017, representing a CAGR of 12.9%. Specifically, the average annual
expenditure on PC and mobile entertainment per capita increased from RMB378.1 and RMB258.9 in 2013 to RMB654.3 and RMB676.7 in
2017 respectively, representing CAGR of 14.7% and 27.1%, respectively. The average annual expenditure on offline cultural and entertainment
activities per capita increased at a CAGR of 7.0%. With the development of overall cultural industry, especially online entertainment,
Frost and Sullivan estimated that the average annual expenditure on cultural and entertainment activities per capita in the PRC
will reach RMB3,843.2 in 2022, representing a CAGR of 9.1% from 2017 to 2022.
Overview
of Mobile Live Streaming Market in China
Market Size of Mobile Live Streaming
in China
According to the Frost & Sullivan
Report, driven by the growing demand for real-time live streaming and the increasing number of mobile Internet users, the market
size of mobile live streaming in China in terms of the number of total registered users grew at a CAGR of 128.0% from 2013 to
2017, rising from 8.3 million users in 2013 to 223.4 million users in 2017.
The Frost & Sullivan Report projects
that the number of users in the mobile live streaming market in China will continue to grow to reach 654.4 million in 2022, representing
a CAGR of 24.0% from 2017 to 2022. The following chart sets forth historical and projected number of users in the mobile live streaming
market in China for the years indicated.
Market Size of Mobile Live Streaming
Market in China, by Total Registered User Number, 2013-2022E
Source: Frost & Sullivan
Classification of Mobile Live Streaming
by Types of Platforms
Mobile live streaming is a form of online
entertainment in which video content is transmitted to users in real time through mobile devices, and such users are provided with
the opportunity to engage in multi-person real time interactions with broadcasters and other users.
According to the Frost & Sullivan
Report, Mobile live streaming platforms can be categorized into several major types according to the content they provide. Mobile
live streaming platforms primarily include:
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Show Platforms: Show live streaming platforms covers streaming in which professional
broadcasters perform talent shows (for example, singing, dancing, talk shows) to attract and interact with users. Users can give
virtual gifts to broadcasters to express their appreciation and communicate with other users.
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Pan entertainment Platforms: Pan entertainment live streaming refers to live streaming
of content related to the entertainment industry, covering a wide range of content including broadcasters’ daily life, travel,
concerts or sports. Broadcasters can include any registered user on the platform and streamed content often includes user-generated
videos and other content.
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Game Platforms: Game live streaming platforms enable users to watch broadcasters
playing computer games in real time, and to share their feelings and opinions instantly via the platforms. The majority of the
broadcasters show to the users the screens of the games they are playing and share tips and strategies with the users.
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Other Platforms: Apart from show live streaming, pan entertainment live streaming,
and game live streaming, the vertical live streaming of specific topics of interests, such as sports, finance and education also
form a significant part of mobile live streaming.
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According to the Frost & Sullivan Report,
pan entertainment live streaming makes up the largest segment of the mobile live streaming market in China, representing approximately
52.5% of the market by revenue in 2017, followed by show live streaming (representing 29.2%), game live streaming (representing
16.4%) and others (representing 1.9%). Each of these segments grew significantly from 2013 to 2017 and is expected to continue
to grow going forward. The following chart sets forth historical and projected mobile live streaming market size for the years
indicated by the category of streaming platform.
Market Size Breakdown for Mobile Live
Streaming Market by Types of Platforms in China, 2013-2022E
Source: Frost & Sullivan
Operation Model
The operation of mobile live streaming
platforms primarily involves the sourcing of content and delivery of such content through streaming platforms to individuals and
other users.
According to the Frost & Sullivan
Report, upstream in the industry value chain consists of various content sources. These include professional broadcasters, often
under the standardized management of agents, and non-professional broadcasters, which could be anyone registered on a mobile live
streaming platform. The content presented and the nature of broadcasters can vary depending on the type of streaming platform.
In general, game live streaming platforms rely heavily on a small number of top broadcasters who have outstanding game-playing
skills, and who typically receive high signing bonuses and/or share a high percentage of revenue generated on the platform. Young,
male game players are main users of game live streaming platforms. Broadcasters of pan entertainment live streaming platforms
are largely made up of non-professional young people with diverse interests and features which can attract a wide range of users.
According to the Frost & Sullivan
Report, the downstream segment of the industry primarily includes individual users/viewers of the platforms who are able to use
the platforms to view streaming entertainment and facilitate social connectivity with broadcasters and other users. The diagram
below illustrates the industry value chain of mobile live streaming.
Source: Frost & Sullivan
Revenue Sharing Model
According to the Frost & Sullivan
Report, mobile live streaming platforms use three basic categories of revenue sharing models to monetize their live streaming
operations:
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Gift model: members of the viewing audience purchase virtual gifts from the platform and the related income from
such transaction is distributed among broadcasters, agents and the platforms;
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Advertisement model: the platforms act as agents and streaming broadcasters present advertisements to users;
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Shopping model: streaming platforms function as a service provider to bring traffic to e-commerce platforms.
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Key Drivers of Mobile Live Streaming
Industry in China (Source: Frost & Sullivan)
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Upgrading of the mobile Internet in China. In the past few years, the upgrading to
4G technologies has boosted data transmission rates, which has improved the penetration rate of 4G users. In addition, the development
of mobile Internet technologies has lowered the bandwidth costs, which led to the overall cost reduction of the mobile live streaming
market. Thus, the upgrading of mobile Internet in China brings the growth momentum for the mobile live streaming market in China.
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Rising social demand. In recent years, the rising demand for social activities
has driven the rapid development of the mobile live streaming market in China. Mobile live streaming products have created
channels of direct communication between online broadcasters and viewers, and are constantly being updated to satisfy
users’ demand.
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Power of capital. With the influx of a substantial amount of funds in mobile live
streaming platforms, mobile live streaming platforms are expected to improve operations through upgrading bandwidth, training of
hosts and supervision of the live streaming content.
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Popularity of mobile payment. With the increasing popularity of mobile payment ,
viewers are much more willing to pay for live streaming.
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Exploration of the overseas market. As the mobile live streaming market in China
is approaching saturation, the ‘One Belt, One Road’ initiative offers mobile live streaming platforms opportunities
to explore the overseas areas and expand their business further. As countries along the road have lower low traffic costs, limited
research and development capabilities, and lack of local Internet products, mobile live streaming platforms are able to launch
their products and benefit from the rapid growth of the overseas market.
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Development of new technology. The adoption of new technology like Virtual Reality
(VR)/Augmented Reality (AR) will give mobile live streaming a brand-new experience, dramatically enhancing the interaction between
users and hosts. The improvement of the users’ experience will bring mobile live streaming platforms more opportunities to
retain existing users and attract new users and enhance the data flow of the platforms.
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Market
Constraints of Mobile Live Streaming Industry in China (Source:
Frost & Sullivan)
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The homogenization of content. Due to the homogeneous content of the mobile live
streaming, platforms are having difficulties retaining users. The categories of mobile live streaming are far from being abundant
and the platforms are obscure positioning, which resulted in the low stickiness of users. As the users are the foundation of mobile
live streaming market, the homogenization of content will restrict the development of the market.
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Incomplete legal system. Despite the establishment of laws and regulations
related to the content and relevant intellectual property of mobile live streaming in China, key weaknesses remain in China’s
protection and enforcement of live streaming content. Lack of regulations regarding mobile live streaming is not conducive to innovation
and the development of high quality the mobile live streaming content, thus limiting the growth of the mobile live streaming market
in China in the future.
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Heavy reliance on the gifts model. Currently, the main revenue for mobile live streaming
platforms come from users’ gifts, which is based on the interaction between users and hosts. Due to the low entry barriers
for hosts, the quality of streaming content and the ability to acquire gifts is difficult to control. If a mobile live streaming
platform loses the users, the platform will lose its ability to generate revenue.
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REGULATIONS
IN PRC
This section summarizes the principal current
PRC laws and regulations relevant to Scienjoy’s business and operations.
As the live streaming industry is still
at an early stage of development in China, new laws and regulations may be promulgated from time to time to introduce new regulatory
requirements, including but not limited to, requirements of obtaining new licenses and permits in addition to those Scienjoy currently
have. There are substantial uncertainties with respect to the interpretation and implementation of current and future PRC laws
and regulations, including those applicable to live streaming industries and Scienjoy’s business. This section sets forth
a summary of the most significant laws and regulations that are applicable to Scienjoy’s current business activities in China
and that affect the dividends payment to our shareholders.
Regulations
Relating to Telecommunications Services
In September 2000, the State Council issued
the Regulations on Telecommunications of China, or the Telecommunications Regulations, as amended on July 29, 2014 and February
6, 2016, to regulate telecommunications activities in China. The Telecommunications Regulations set out basic guidelines on different
types of telecommunications business activities in China. According to the Catalog of Telecommunications Business (2015 Amendment)
implemented on March 1, 2016 (as amended on February 6, 2019), Internet information services constitute a type of value-added telecommunications
service. The Telecommunications Regulations require operators of value-added telecommunications services to obtain value-added
telecommunications business operation licenses from MIIT, or its provincial branches prior to the commencement of such services.
The Regulations for the Administration
of Foreign-Invested Telecommunications Enterprises, or the FITE Regulations, which took effect on January 1, 2002 and were amended
on September 10, 2008 and February 6, 2016, regulate foreign direct investment in telecommunications companies in China. The FITE
Regulations stipulate that foreign investors are generally prohibited from holding ultimately more than 50% of equity interest
in a foreign-invested enterprise that provides value-added telecommunications services, including, among others, provisions of
Internet content. In addition, foreign investors are required to have sufficient experience operating value-added telecommunications
business when applying for the MIIT’s value-added telecommunications business operation license.
On July 13, 2006, the Ministry of Information
Industry (which is the predecessor of MIIT) issued the Circular on Strengthening the Administration of Foreign Investment in Value-added
Telecommunications Services, or the MIIT Circular 2006, which provides that (a)foreign investors can only operate a telecommunications
business in China through telecommunications enterprises with a valid telecommunications business operation license; (b) domestic
license holders may not rent, transfer or sell telecommunications business operation licenses to foreign investors in any form
or provide any foreign investors with resources, venues or facilities to promote unlicensed operations of telecommunications businesses
in China; (c) value-added telecommunications service providers or their shareholders must directly own the domain names and registered
trademarks that are used in their daily operations; (d) each value-added telecommunications service provider must have necessary
facilities for its approved business operations and maintain such facilities in the geographic regions specified in its license;
and (e) all value-added telecommunications service providers should improve their network and information security, establish a
relevant information safety system and set up emergency plans to ensure network and information safety.
According to the Special Administrative
Measures (Negative List) for the Access of Foreign Investment (2019 version) (the “Negative List”) promulgated jointly
by the MOFCOM and the National Development and Reform Commission (the “NDRC”) on June 30, 2019, the Foreign investors
are prohibited from making any investments in the industries which are listed as “prohibited” in the Negative List; and,
after satisfying certain additional requirements and conditions as set forth in the Negative List, are allowed to make investments
in the industries which are listed as “restricted” in the Negative List. For any foreign investor that fails to comply
with the Negative List, the competent authorities are entitled to ban its investment activities, require such investor to take
measures to correct its non-compliance and impose other penalties. The internet content service, internet audio-visual program
services and online culture activities are subject to foreign investment restrictions/prohibitions set forth in the Negative List.
Regulations
Relating to Internet Information Services
The Administrative Measures on Internet
Information Services (the “ICP Measures”) issued by the State Council on September 25, 2000 and amended on January 8,
2011, regulate provisions of Internet information services in the PRC. According to the ICP Measures, Internet information services
refers to provisions of information through the Internet to online subscribers, including commercial and non-commercial services.
Pursuant to the ICP Measures, commercial Internet information service providers shall obtain ICP Licenses from relevant PRC local
authorities before engaging in commercial Internet information services in China. The Measures for the Administration of Telecommunications
Business Licensing issued by Ministry of Information Industry firstly on December 26, 2001 and as most recently amended by MIIT
on July 3, 2017 and effective as of September 1, 2017, further provides the requirements and formalities regarding application
for value-added telecommunications business operation licenses, which is also regarded as the guideline for application for ICP
License in local competent authorities. In addition, according to relevant PRC laws, administrative regulations or rules, providers
of Internet information services in respect of news, publishing, education, medical treatment, health, pharmaceuticals or medical
apparatuses shall obtain consent of the relevant PRC competent authority before applying for an operating permit or carrying out
record-filing procedures.
Additionally, the ICP Measures and other
relevant measures also prohibit publication of any content that propagates, among others, obscenity, pornography, gambling and
violence, incite the commission of crimes or infringe upon the lawful rights and interests of third parties. If an Internet information
services provider detects that information transmitted on its system falls under the specified prohibition, such provider must
immediately terminate the transmission and delete the information and report it to the government authorities. Any provider’s violation
of these prohibitions, in serious cases, will lead to revocation of its ICP License and shutdown of its Internet systems.
According to the Online Live Streaming
Regulations published by CAC on May 2, 2017 and effective as of June 1, 2017, online live streaming service providers and online
live streaming publishers that provide internet news information services without licenses, or exceeding the scope of their licenses,
are subject to punishment by the CAC and the internet information offices at the level of provinces, autonomous regions, or municipalities
directly under the Central Government in accordance with the Regulations for the Administration of Internet News Information Services
which may include an order to cease such services. Other violations of the Online Live Streaming Regulations are subject to punishment
by the national and local internet information offices in accordance with PRC laws; if such violations constitute crime, criminal
liability shall be investigated in accordance with relevant PRC law.
Regulations
Relating to Mobile Internet Applications Information Services
In addition to the Telecommunications Regulations
and other regulations above, mobile applications (the “APPs”) and the Internet application store (the “APP Store”)
are specially regulated by the Regulations for the Administration of Mobile Internet Applications Information Services (the “APP
Provisions”), which were promulgated by the Cyberspace Administration of China (“CAC”) on June 28, 2016 and became
effective on August 1, 2016.
Pursuant to the APP Provisions, the APP
information service providers shall satisfy relevant qualifications required by laws and regulations, strictly carry out the information
security management responsibilities and fulfill their obligations in various aspects relating to the real-name system, protection
of users’ information and the examination and management of information content. The APP Store service providers shall file with
the local cyberspace administration authorities within thirty (30) days after its APP Store services have launched, and such APP
Store service providers are responsible for overseeing APP providers operated on their stores.
Regulations
Relating to Online Transmission of Audio-Visual Programs and Online Living Streaming Business
On April 13, 2005, the State Council promulgated
the Certain Decisions on the Entry of the Non-public-owned Capital into the Cultural Industry, according to which private capital
shall not use information network to engage in audio-visual programs service. On July 6, 2005, five PRC governmental authorities,
including the Ministry of Culture (“MOC”), the State Administration of Radio, Film and Television (“SARFT”),
the General Administration of Press and Publication (“GAPP”), the National Development and Reform Commission (“NDRC”)
and the Ministry of Commerce (“MOFCOM”), jointly adopted the Several Opinions on Canvassing Foreign Investment into
the Cultural Sector. On December 20, 2007, the SARFT and the MIIT jointly promulgated the Provisions on the Administration of Internet
Audio-Visual Program Service, which took effect on January 31, 2008 and were subsequently amended on August 28, 2015, according
to which, the entities engaged in business of online audio-visual programs shall obtain the “License for Online Transmission
of Audio/Visual Program”. Under these provisions, foreign-invested companies are actually prohibited from engaging in the
business of distributing audio-visual programs and service through Internet.
Providers of audio-visual program services
through the Internet (including through mobile networks), in general, must be either state-owned or state-controlled entities,
and the business to be carried out by such providers must satisfy the overall planning and guidance catalog for Internet audio-visual
program service determined by SARFT; and such providers are required to obtain the License for Online Transmission of Audio/Video
Program issued by National Radio and Television Administration (“NRTA”), or complete certain registration procedures
with NRTA.
On May 21, 2008, SARFT issued a Notice
on Relevant Issues Concerning Application and Approval of License for the Online Transmission of Audio-Visual Programs, as amended
on August 28, 2015, which further sets out detailed provisions concerning the application and approval process regarding the License
for Online Transmission of Audio/Video Program. The notice also stipulates that the qualified entities for application of such
license shall include the companies absolutely controlled by multiple state-owned shareholders and enterprises relatively controlled
by state-owned capital (there shall be no affiliation between non-state-owned shareholders), and exclude foreign-invested enterprises.
Further, on March 30, 2009, SARFT promulgated the Notice on Strengthening the Administration of the Content of Internet Audio-Visual
Programs, which reiterates the pre-approval requirements for the audio-visual programs transmitted through the Internet, including
through mobile networks, where applicable, and prohibits certain types of Internet audio-visual programs containing violence, pornography,
gambling, terrorism, superstition or other similarly prohibited elements.
On March 17, 2010, the SARFT issued the
Internet Audio-Visual Program Services Categories (Provisional), or the Provisional Categories, as adjusted on March 10, 2017,
which classified Internet audio/visual program services into four categories. In addition, the “Notice concerning Strengthening
the Administration of the Streaming Service of Online Audio/Visual Programs” promulgated by the State Administration of Press,
Publication, Radio, Film and Television (or the SAPPRFT, which is the predecessor of NRTA) on September 2, 2016 emphasizes that,
unless a specific license is granted under the Provisional Categories, the audio/visual programs service provider is forbidden
from engaging in live streaming on major political, military, economic, social, cultural and sports events.
On July 6, 2012, the SARFT and the CAC
issued the Notice Regarding Further Enhancement of Management of Online Audio and Video Programs such as Online Drama Series and
Microfilms, pursuant to which providers of Internet audio-visual program services which are engaged in the production of online
audio-visual programs such as online drama series and microfilms and broadcast such programs on their own websites shall lawfully
obtain the Radio and Television Program Production and Operating Permit issued by local branches of the NRTA and corresponding
License for Online Transmission of Audio/Video Program at the same time. Providers of Internet audio-visual program services shall
report the information on online audio-visual programs such as online drama series and microfilms which have been reviewed and
approved to the provincial branches of the NRTA in their domiciles for filing.
On April 25, 2016, the SAPPRFT promulgated
the Provisions on the Administration of Private Network and Targeted Communication Audio-visual Program Services (effective as
of June 1, 2016), which apply to the provision of radio, television programs and other audio-visual programs to a targeted audience
on television and all types of handheld electronic equipment. This provision covers the Internet and other information networks
as targeted transmission channels, including the provision of content, integrated broadcast control, transmission and distribution
and other activities conducted in such forms as Internet protocol television, private network mobile television and Internet television.
Anyone who provides private network and targeted transmission audio-visual program services must obtain a License for Online Transmission
of Audio/Video Program issued by the SARFT and operate its business pursuant to the scope as provided in such license. Foreign-invested
enterprises are not allowed to engage in the above referenced businesses.
On July 1, 2016, the MOC promulgated the
Notice on Strengthening the Administration of Network Performance, which regulates the behavior of entities conducting businesses
related to network performance and performers. Entities operating network performances shall be responsible for the services and
content posted on their website by performers. They must refine their content management mechanism and shut down the channel and
stop the dissemination of any network performance as soon as they realize that such network performance is in violation of relevant
laws and regulations. Network performers shall be responsible for their performances and shall not perform any program containing
violence, pornography, or other similarly prohibited elements.
In addition, the SAPPRFT issued the Notice
Concerning Strengthening the Administration the Streaming Service of Online Audio-Visual Programs in September 2016, pursuant to
which an Internet live-streaming service provider shall (i) equip personnel to review the content of the live-stream; (ii) establish
the technical methods and work mechanisms in order to replace the unlawful content by using the backup program; and (iii) record
the live-streaming program and keep the records for at least sixty (60) days to fulfill the inspections requirements from the competent
administrative authorities. The CAC promulgated the Regulations for the Administration of Online Live-Streaming Services, or Internet
Live-Streaming Services Provisions, on November 4, 2016, effect as of December 1, 2016, according to which, an Internet live-streaming
service provider shall (a) establish a live-streaming content review platform; (b) conduct authentication registration of Internet
live-streaming issuers based on their identity certificates, business licenses and organization code certificates; and (c) enter
into a service agreement with Internet live-streaming services user to specify both parties’ rights and obligations.
On March 16, 2018, the SAPPRFT issued the
Notice on Further Regulating the Communication Order of Internet Audio-Visual Programs, which requires that, among others, audio-visual
platforms shall: (i) not produce or transmit programs intended to parody or denigrate classic works, (ii) not re-edit, re-dub,
re-caption or otherwise ridicule classic works, radio and television programs, or original Internet audio-visual programs without
authorization, (iii) not transmit re-edited programs, which unfairly distort the original content, (iv) strictly monitor the adapted
content uploaded by platform users and not provide transmission channels for illicit content, (v) immediately take down unauthorized
content upon receipt of complaints from copyright owners, radio and television stations, or film and television production institutions,
(vi) strengthen the administration of movie trailers and prevent improper broadcasting of movie clips and trailers prior to authorized
release, and (vii) strengthen the administration of sponsorship and endorsement for Internet audio-visual programs. Pursuant to
this notice, the provincial branches of the NRTA shall have the authority to supervise radio and television stations and websites
that offer audio-visual programs within its jurisdiction and require them to further improve their content management systems and
implement relevant management requirements.
Regulations
Relating to Online Cultural Activities
The Ministry of Culture promulgated the
Provisional Measures on Administration of Internet Culture firstly in 2011, as most recently amended on December 15, 2017, and
the Notice on Issues Relating to Implementing the Newly Revised Provisional Measures on Administration of Internet Culture promulgated
by the Ministry of Culture in 2011, which apply to entities that engage in activities related to “online cultural products.”
“Online cultural products” are classified as cultural products developed, published and disseminated through the Internet
which mainly include: (i) online cultural products particularly developed for publishing through the Internet, such as, among other
things, online music and video files, network games and online animation features and cartoons (including flash animation); and
(ii) online cultural products converted from audio and visual products, games, performing arts, artworks and animation features
and cartoons, and published on the Internet. Pursuant to this legislation, entities are required to obtain the Internet Culture
Operation Licenses from the applicable provincial level counterpart of the Ministry of Culture and Tourism (“MCT”,
which is the predecessor of MOC) if they intend to commercially engage in any of the following types of activities:
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production, duplication, import, release or broadcasting of online cultural products;
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publishing of online cultural products on the Internet or transmission thereof to computers, fixed-line
or mobile phones, radios, television sets or game consoles for the purpose of browsing, reading, reviewing, using or downloading
such products by online users; or
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exhibitions or contests related to online cultural products.
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On August 12, 2013, the MOC issued the
Administrative Measures for Content Self-Review by Internet Culture Business Entities, effective as of December 1, 2013, which
requires Internet culture business entities to review the content of products and services to be provided prior to providing such
content and services to the public. The content management system of an Internet culture business entity is required to specify
the responsibilities, standards and processes for content review as well as accountability measures, and is required be filed with
the provincial level counterpart of the MCT.
Regulations
Relating to Virtual Currency
On January 25, 2007, the Ministry of Public
Security, the MOC, the Ministry of Information Industry and the GAPP jointly issued a circular regarding online gambling which
has implications on the issuance and use of virtual currency. It basically bans the conversion of virtual currency into real currency
or property and prohibits transfer of virtual currency among game players.
On February 15, 2007, fourteen PRC regulatory
authorities jointly issued a circular to further strengthen the oversight of Internet cafes and online games. In accordance with
the circular, the People’s Bank of China, or PBOC, has the authority to regulate virtual currency, including: (a) setting limits
on the aggregate amount of virtual currency that can be issued by online game operators and the amount of virtual currency that
can be purchased by an individual; (b) stipulating that virtual currency issued by online game operators can only be used for purchasing
virtual products and services within the online games and not for purchasing tangible or physical products; (c) requiring that
the price for redemption of virtual currency shall not exceed the respective original purchase price; and (d) banning the trading
of virtual currency.
On June 4, 2009, the MOC and the MOFCOM
jointly issued a notice to strengthen the administration of online game virtual currency. The Virtual Currency Notice requires
businesses that (a) issue online game virtual currency (in the form of prepaid cards and/or pre-payment or prepaid card points),
or (b) offer online game virtual currency transaction services to apply for approval from the MCT through its provincial branches
within three (3) months after the issuance of the notice. The Virtual Currency Notice businesses that issue virtual currency for
online games are prohibited from offering services that can trade virtual currency. Any company that fails to file the necessary
application will be subject to sanctions, including but not limited to, mandatory corrective actions and fines. Based on the Virtual
Currency Notice, the MOC further promogulated a filing guideline for the “online game virtual currency distribution enterprises”
and “online game virtual currency trading enterprises” on July 20, 2009 to regulate the entities involving such virtual
currency businesses.
Currently, the PRC government has not promulgated
any specific rules, laws or regulations to directly regulate virtual currency, except for the above-mentioned online game virtual
currency. To comply with the principle of above-mentioned regulations, in relation to online streaming business, Scienjoy’s
virtual currency currently can only be used by viewers to exchange for virtual items/gifts to be used to show support for performers
or gain access to privileges and special features in the channels which are services in nature instead of “real currency or
property.” Once the virtual currency is exchanged by viewers for virtual items/gifts or the relevant privileged services,
the conversion transaction is completed and Scienjoy will immediately cancel the virtual properties in its internal system. See
“Risk Factors—Risks Related to Doing Business in China—Restrictions on virtual currency may adversely affect Scienjoy’s
revenues.”
Regulations
Relating to Commercial Performances
The Administrative Regulations on Commercial
Performances was firstly promulgated by the State Council in 2005 and as most recently amended on February 6, 2016. According to
these regulations, to legally engage in commercial performances, a culture and arts performance group shall have full-time performers
and equipment in line with its performing business, and file an application with the culture administrative department of the people’s
government at the county level for approval; while a performance brokerage agency shall have three or more full-time performance
brokers and funds suitable for the relevant business, and file an application with the culture administrative department at the
provincial level. The culture administrative department shall make a decision within twenty (20) days from the receipt of the application
whether to approve the application, and upon approval, will issue a commercial performance license. Currently, there is no related
regulations or governmental interpretation to specify if above regulations apply to live streaming business.
Regulations
Relating to Production of Radio and Television Programs
On July 19, 2004, the SARFT issued the
Regulations on the Administration of Production and Operation of Radio and Television Programs, or the Radio and TV Programs Regulations,
which took effect on August 20, 2004 and was amended on August 28, 2015. The Radio and TV Programs Regulations require any entities
engaging in the production and operation of radio and television programs to obtain a license for such businesses from the NRTA
or its provincial branches. Entities with the Radio and Television Program Production and Operating Permit must conduct their business
operations strictly in compliance with the approved scope of production and operations and these entities (except radio and TV
stations) must not produce radio and TV programs regarding current political news or similar subjects.
Regulations
Relating to Intellectual Property Rights
Copyright
China has enacted various laws and regulations
relating to the protection of copyright. China is a signatory to some major international conventions on protection of copyright
and became a member of the Berne Convention for the Protection of Literary and Artistic Works in October 1992, the Universal Copyright
Convention in October 1992 and the Agreement on Trade-Related Aspects of Intellectual Property Rights upon its accession to the
World Trade Organization in December 2001.
The PRC Copyright Law, promulgated in 1990
and amended in 2001 and 2010, or the Copyright Law, and its related implementing regulations, promulgated in 2002 and amended in
2013, are the principal laws and regulations governing copyright related matters. The Copyright Law provides that Chinese citizens,
legal persons, or other organizations shall, whether published or not, enjoy copyright of their works, which include, among others,
works of literature, art, natural science, social science, engineering technology and computer software.
The State Council and the National Copyright
Administration have promulgated various rules and regulations relating to the protection of software in China. According to these
rules and regulations, software owners, licensees and transferees may register their rights in software with the Copyright Protection
Center of China and obtain software copyright registration certificates. Although such registration is not mandatory under PRC
law, software owners, licensees and transferees are encouraged to go through the registration process and registered software rights
may be entitled to better protection. For the number of software programs for which Scienjoy had registered software copyrights
as of the date of this statement.
The amended Copyright law covers Internet
activities, products disseminated over the Internet and software products, among the subjects entitled to copyright protection.
Registration of copyright is voluntary, and it is administrated by the Copyright Protection Center of China. To further clarify
some key Internet copyright issues, on December 17, 2012, the PRC Supreme People’s Court promulgated the Regulation on Several
Issues Concerning Applicable Laws on Trial of Civil Disputes over the Infringement of Information Network Transmission Right, or
the 2013 Regulation. The 2013 Regulation took effect on January 1, 2013, and replaced the Interpretations on Some Issues Concerning
Applicable Laws for Trial of Disputes over Internet Copyright that was initially adopted in 2000 and subsequently amended in 2004
and 2006. Under the 2013 Regulation, where an Internet information service provider works in cooperation with others to jointly
provide works, performances, audio and video products of which the right holders have information network transmission right, such
behavior will constitute joint infringement of third parties’ information network transmission right, and the PRC court shall order
such Internet information service provider to assume joint liability for such infringement.
To address the problem of copyright infringement
related to content posted or transmitted on the Internet, the National Copyright Administration and Ministry of Information Industry
jointly promulgated the Measures for Administrative Protection of Copyright Related to Internet on April 29, 2005. These measures,
which became effective on May 30, 2005, apply to acts of automatically providing services such as uploading, storing, linking or
searching works, audio or video products, or other content through the Internet based on the instructions of Internet users who
publish content on the Internet, or the Internet Content Providers, without editing, amending or selecting any stored or transmitted
content. When imposing administrative penalties upon the act which infringes upon any user’s right of communication through information
networks, the Measures for Imposing Copyright Administrative Penalties, promulgated in 2009, shall be applied.
Where a copyright holder finds that certain
Internet content infringes upon its copyright and sends a notice to the relevant Internet information service operator, the relevant
Internet information service operator is required to (i) immediately take measures to remove the relevant content and (ii) retain
all infringement notices for six months and to record the content, display time and IP addresses or the domain names related to
the infringement for 60 days. If the content is removed by an Internet information service operator according to the notice of
a copyright holder, the content provider may deliver a counter-notice to both the Internet information service operator and the
copyright holder, stating that the removed content does not infringe upon the copyright of other parties. After the delivery of
such counter-notice, the Internet information service operator may immediately reinstate the removed content and shall not bear
administrative legal liability for such reinstatement.
An Internet information service operator
may be subject to cease-and-desist orders and other administrative penalties such as confiscation of illegal income and fines,
if it is clearly aware of a copyright infringement through the Internet or, although not aware of such infringement, it fails to
take measures to remove relevant content upon receipt of the copyright owner’s notice of infringement and, as a result, damages
public interests. Where there is no evidence to indicate that an Internet information service operator is clearly aware of the
existence of copyright infringement, or the Internet information service operator has taken measures to remove relevant content
upon receipt of the copyright owner’s notice, the Internet information service provider shall not bear the relevant administrative
legal liabilities.
Scienjoy have adopted measures to mitigate
copyright infringement risks, but Scienjoy could still face copyright infringement claims with respect to copyrighted content being
streamed live or songs performed live on Scienjoy’s platform.
Patent
The National People’s Congress adopted
the PRC Patent Law in 1984 and amended it in 1992, 2000 and 2008, respectively. A patentable invention, utility model or design
must meet three conditions: novelty, inventiveness and practical applicability. Patents cannot be granted for scientific discoveries,
rules and methods for intellectual activities, methods used to diagnose or treat diseases, animal and plant breeds or substances
obtained by means of nuclear transformation. The Patent Office under the State Intellectual Property Office is responsible for
receiving, examining and approving patent applications. A patent is valid for a twenty-year term for an invention and a ten-year
term for a utility model or design. Except under certain specific circumstances provided by law, any third-party user must obtain
consent or a proper license from the patent owner to use the patent, or else the use will constitute an infringement of the rights
of the patent holder.
According to the PRC Patent Law, if the
Patent Office finds the application of an invention conforms to the legal requirements after its preliminary examination of such
application documents, it shall publish the application promptly within eighteen (18) full months after the filing date. According
to the Guidelines of Patent Examination, the examination of a patent shall include the preliminary examination, the substantive
examination, examination of international applications entering the national phase and review. However, the above-mentioned regulations
do not explicitly state how long it takes for a patent application to be approved or denied. In practice, it generally may take
up to one year for the Patent Office to review and approve or deny applications of patents in the category of utility model or
design and two to five years in the category of invention.
Trademark
The PRC Trademark Law, adopted in 1982
and amended in 1993, 2001, 2013 and 2019, with its implementation rules adopted in 2014, protects registered trademarks. The Trademark
Office of National Intellectual Property Administration, or the Trademark Office handles trademark registrations and grants a protection
term of ten years to registered trademarks, which may be extended for another ten years upon request. Trademark license agreements
must be filed with the Trademark Office for record.
Domain name
In September 2002, China Internet Network
Information Center (“CNNIC”) issued the Implementing Rules for Domain Name Registration setting forth detailed rules
for registration of domain names, which was amended on May 29, 2012. On September 1, 2014 the CNNIC issued the Measures on Domain
Name Dispute Resolution and relevant implementing rules, pursuant to which the CNNIC can authorize a domain name dispute resolution
institution to decide disputes. On August 24, 2017, the MIIT promulgated the Measures for Administration of Internet Domain Names,
which regulates the registration of domain names.
Regulations
Relating to Internet Infringement
On December 26, 2009, the Standing Committee
of National People’s Congress promulgated the PRC Tort Law, or the Tort Law, which became effective on July 1, 2010. Under the
Tort Law, an Internet user or an Internet service provider that infringes upon the civil rights or interests of others through
using the Internet assumes tort liability. If an Internet user infringes upon the civil rights or interests of another through
using the Internet, the person being infringed upon has the right to notify and request the Internet service provider whose Internet
services are facilitating the infringement to take necessary measures including the deletion, blocking or disconnection of an Internet
link. If, after being notified, the Internet service provider fails to take necessary measures in a timely manner to end the infringement,
it will be jointly and severally liable for any additional harm caused by its failure to act.
Regulations
Relating to Internet Content and Information Security
The Administrative Measures on Internet
Information Services (effective as of January 8, 2011) specify that Internet information services regarding news, publications,
education, medical and health care, pharmaceutical and medical appliances, among other things, are to be examined, approved and
regulated by the relevant authorities. Internet information providers are prohibited from providing services beyond those included
in the scope of their ICP Licenses or filings. The PRC government has promulgated measures relating to Internet content through
a number of governmental agencies, including the MIIT, the Ministry of Culture and the General Administration of Press and Publication.
These measures specifically prohibit Internet activities, that result in the publication of any content which is found to propagate
obscenity, gambling or violence, instigate crimes, undermine public morality or the cultural traditions of the PRC or compromise
state security or secrets. Internet information providers must monitor and control the information posted on their websites. If
any prohibited content is found, they must remove the offensive content immediately, keep a record of it and report it to the relevant
authorities.
On December 13, 2005, the Ministry of Public
Security promulgated Provisions on Technological Measures for Internet Security Protection, or the Internet Protection Measures,
which took effect on March 1, 2006. The Internet Protection Measures requires all Internet information services operators to take
proper measures including anti-virus, data back-up and other related measures, and keep records of certain information about their
users (including user registration information, log-in and log-out time, IP address, content and time of posts by users) for at
least sixty (60) days and submit the above information as required by laws and regulations.
The Standing Committee of National People’s
Congress, China’s national legislative body, enacted the Decisions on the Maintenance of Internet Security on December 28, 2000
and subsequently amended on August 27, 2009, that may subject any persons to criminal liabilities in China for any attempt to:
(i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information;
leak state secrets; (iv) spread false commercial information; or (v) infringe on intellectual property rights. The Ministry of
Public Security has promulgated measures that prohibit the use of the Internet in ways which, among other things, results in a
leakage of state secrets or a spread of socially destabilizing content.
In 1997, the Ministry of Public Security
issued the Administration Measures on the Security Protection of Computer Information Network with International Connections (amended
by the State Council of PRC. in 2011), which prohibit using the Internet in ways which, among others, result in a leak of state
secrets or a spread of socially destabilizing content. The Ministry of Public Security has supervision and inspection powers in
this regard, and relevant local security bureaus may also have jurisdiction. If an ICP License holder violates these measures,
the PRC government may revoke its ICP License and shut down its website.
On December 28, 2012, the Standing Committee
of the National People’s Congress reiterated relevant rules on the protection of Internet information by issuing the Decision on
Strengthening the Protection of Network Information, or the 2012 Decision. The 2012 Decision distinctly clarified certain relevant
obligations of Internet information service providers. Once it discovers any transmission or disclosure of information prohibited
by the relevant laws and regulations, the Internet information service provider shall stop transmission of such information, take
measures such as elimination, keeping relevant records and reporting to relevant authorities. To comply with the above laws and
regulations, Scienjoy have developed the following mechanisms to monitor the content on Scienjoy’s platform as AI-backed
automatic detection process, manual review, self-regulation system by streamers and room managers and report by users.
Regulations
Relating to Privacy Protection
Under the Several Provisions on Regulating
the Market Order of Internet Information Services, issued by the Ministry of Industry and Information Technology in 2011, an ICP
service operator may not collect any user personal information or provide such information to third parties without the consent
of a user. An ICP service operator must expressly inform the users of the method, content and purpose for the collection and processing
of such user personal information and may only collect such information necessary for the provision of its services. PRC laws and
regulations prohibit Internet content providers from disclosing any information transmitted by users through their networks to
any third parties without their authorization unless otherwise permitted by law. An ICP service operator is also required to properly
keep the user personal information, and in case of any leak or likely leak of the user personal information, the ICP service operator
must take immediate remedial measures and, in severe circumstances, make an immediate report to the telecommunication’s regulatory
authority. In addition, pursuant to the 2012 Decision and the Order for the Protection of Telecommunication and Internet User Personal
Information issued by the Ministry of Industry and Information Technology in July 2013, any collection and use of user personal
information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within
the specified purposes, methods and scope. An ICP service operator must also keep such information strictly confidential, and is
further prohibited from divulging, tampering or destroying of any such information, or selling or providing such information to
other parties. If an Internet content provider violates these regulations, the MIIT or its local bureaus may impose penalties and
the Internet content provider may be liable for damages caused to its users.
Regulations
Relating to Internet Publication and Cultural Products
On February 4, 2016, State Administration
of Press, Publication, Radio, Film and Television (or the SAPPRFT, which is the predecessor of NRTA), and the MIIT issued the Administrative
Provisions on Online Publishing Services, or the Online Publishing Provisions, which took effect on March 10, 2016. According to
the Online Publishing Provisions, all online publishing services provided within the territory of China are subject to the Online
Publishing Provisions, and an online publishing services permit shall be obtained in order to provide online publishing services.
Pursuant to the Online Publishing Provisions, “online publishing services” refer to providing online publications to
the public through information networks; and “online publications” refer to digital works with publishing features such
as having been edited, produced or processed and are made available to the public through information networks, including: (i)
written works, pictures, maps, games, cartoons, audio-visual reading materials and other original digital works containing useful
knowledge or ideas in the field of literature, art, science or other fields; (ii) digital works of which the content is identical
to that of any published book, newspaper, periodical, audio-visual product, electronic publication or the like; (iii) network literature
databases or other digital works, derived from any of the aforesaid works by selection, arrangement, collection or other means;
and (iv) other types of digital works as may be determined by the SAPPRFT.
Regulations
Relating to Foreign Currency Exchange and Dividend Distribution
Foreign currency exchange
The core regulations governing foreign
currency exchange in China are the Foreign Exchange Administration Regulations, as amended in August 2008, or the FEA Regulations.
Certain organizations in the PRC, including foreign invested enterprises, may purchase, sell and/or remit foreign currencies at
certain banks authorized to conduct foreign exchange business upon providing valid commercial documents. However, approval of the
State Administration of Foreign Exchange, or SAFE, is required for capital account transactions.
On August 29, 2008, the SAFE issued Circular
142 to regulate the conversion of foreign currency into Renminbi by a foreign-invested enterprise by restricting the ways in which
converted Renminbi may be used. Circular 142 requires that the registered capital of a foreign-invested enterprise converted into
Renminbi from foreign currencies may only be utilized for purposes within its business scope. Meanwhile, the SAFE strengthened
its oversight of the flow and the use of the registered capital of a foreign-invested enterprise settled in Renminbi converted
from foreign currencies. The use of such Renminbi capital may not be changed without the SAFE’s approval, and may not in any case
be used as repayment of Renminbi loans if the proceeds of such loans have not been used.
In 2014, the SAFE decided to reform the
foreign exchange administration system to satisfy and facilitate the business and capital operations of foreign-invested enterprises,
and issued the Circular on the Relevant Issues Concerning the Launch of Reforming Trial of the Administration Model of the Settlement
of Foreign Currency Capital of Foreign-Invested Enterprises in Certain Areas on July 4, 2014, or SAFE Circular 36. The SAFE Circular
36 suspends the application of SAFE Circular 142 in certain areas and allows a foreign-invested enterprise registered in such areas
to use the Renminbi capital converted from foreign currency registered capital for equity investments within the scope of business,
which will be regarded as the reinvestment of foreign-invested enterprise. On March 30, 2015, the SAFE issued the Circular on the
Reforming of the Management Method of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular
19, which took effect on June 1, 2015, and replaced SAFE Circular 142 and SAFE Circular 36. Under SAFE Circular 19, a foreign-invested
enterprise, within the scope of business, may also choose to convert its registered capital from foreign currency to Renminbi on
a discretionary basis, and the Renminbi capital so converted can be used for equity investments within the PRC, which will be regarded
as the reinvestment of foreign-invested enterprise.
Dividend distribution
The Foreign Investment Enterprise Law,
promulgated in 1986 and amended in 2000, 2016 and 2019 (which will be superseded by the Foreign Investment Law published on March
15, 2019 and effective as of January 1, 2020), and the Administrative Rules under the Foreign Investment Enterprise Law, promulgated
in 1990 and amended in 2001 and 2014 (which will be superseded by related rules after January 1, 2020), are the key regulations
governing distribution of dividends of foreign-invested enterprises.
According to these regulations, a wholly
foreign-owned enterprise in China, or a WFOE, may pay dividends only out of its accumulated profits, if any, determined in accordance
with PRC accounting standards and regulations. In addition, a WFOE is required to allocate at least 10% of its accumulated profits
each year, if any, to statutory reserve funds unless its reserves have reached 50% of the registered capital of the enterprises.
These reserves are not distributable as cash dividends. The proportional ratio for withdrawal of rewards and welfare funds for
employees shall be determined at the discretion of the WFOE. Profits of a WFOE shall not be distributed before the losses thereof
before the previous accounting years have been made up. Any undistributed profit for the previous accounting years may be distributed
together with the distributable profit for the current accounting year.
Pursuant to the SAFE’s Circular on Relevant
Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE
Circular 37, issued and effective on July 4, 2014, and its appendices, PRC residents, including PRC institutions and individuals,
must register with local branches of the 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 interest
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, including but not limited to increases or decreases 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 distributions of profit to the offshore parent and from carrying out subsequent cross-border
foreign exchange activities and the special purpose vehicle may be restricted in their ability to contribute additional capital
into its PRC subsidiary. And, failure to comply with the various SAFE registration requirements described above could result in
liability under PRC law for foreign exchange evasion, including (i) up to 30% of the total amount of foreign exchange remitted
overseas and deemed to have been evasive and (ii) in circumstances involving serious violations, a fine of no less than 30% of
and up to the total amount of remitted foreign exchange deemed evasive. Furthermore, the persons-in-charge and other persons at
Scienjoy’s PRC subsidiaries who are held directly liable for the violations may be subject to criminal sanctions. These regulations
apply to our direct and indirect shareholders who are PRC residents and may apply to any offshore acquisitions and share transfer
that we make in the future if our shares are issued to PRC residents.
Stock Option Rules
Pursuant to the Circular on Issues Concerning
the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed
Company issued by the SAFE on February 15, 2012, or the SAFE Circular 7, employees, directors, supervisors and other senior management
participating in any stock incentive plan of an overseas publicly listed company who are PRC citizens or who are non PRC citizens
residing in China for a continuous period of not less than one year, subject to a few exceptions, are required to register with
the SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain
other procedures. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit their
ability to contribute additional capital into their wholly foreign-owned subsidiaries in China and limit these subsidiaries’ ability
to distribute dividends to their overseas parent company. The PRC agents shall, on behalf of the PRC residents who have the right
to exercise the employee share options, apply to the SAFE or its local branches for an annual quota for the payment of foreign
currencies in connection with the PRC residents’ exercise of the employee share options. The foreign exchange proceeds received
by the PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas
listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such PRC residents.
In addition, the PRC agents shall file each quarter the form for record-filing of information of the Domestic Individuals Participating
in the Stock Incentive Plans of Overseas Listed Companies with the SAFE or its local branches. Scienjoy and its PRC citizen employees
who are granted share options, or PRC option holders, will be subject to the SAFE Circular 7 when Scienjoy becomes an overseas
listed company upon the completion of this transaction. If PRC option holders fail to comply with the SAFE Circular 7, Scienjoy
and PRC option holders may be subject to fines and other legal sanctions.
In addition, the State Administration for
Taxation has issued circulars concerning employee share options, under which employees working in the PRC who exercise share options
will be subject to PRC individual income tax. Scienjoy’s PRC subsidiaries have obligations to file documents related to employee
share options with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share
options. If Scienjoy’s employees fail to pay or if Scienjoy fail to withhold their income taxes as required by relevant laws
and regulations, Scienjoy may face sanctions imposed by the PRC tax authorities or other PRC government authorities.
Regulations
Relating to Tax
PRC enterprise income tax
The PRC enterprise income tax is calculated
based on the taxable income determined under the applicable enterprise income tax (“EIT”) Law and its implementation
rules. On March 16, 2007, the National People’s Congress of China enacted the New EIT Law, which became effective on January 1,
2008 and was subsequently amended on February 24, 2017 and December 29, 2018. On December 6, 2007, the State Council promulgated
the implementation rules to the New EIT Law, which was amended and became effective on January 1, 2008, and was subsequently amended
on April 23, 2019.
Under the PRC Enterprise Income Tax Law,
an enterprise established outside China with “de facto management bodies” within China is considered a “resident
enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on
its worldwide income. A circular issued by the State Taxation Administration in April 2009 and amended in 2017 and 2018 regarding
the standards used to classify certain Chinese invested enterprises controlled by Chinese enterprises or Chinese enterprise groups
and established outside of China as “resident enterprises”, or the SAT Circular 82 clarified that dividends and other
income paid by such PRC “resident enterprises” will be considered PRC source income and subject to PRC withholding tax,
currently at a rate of 10%, when paid to non PRC enterprise shareholders. This circular also subjects such PRC “resident enterprises”
to various reporting requirements with the PRC tax authorities. Under the implementation regulations to the PRC Enterprise Income
Tax Law, a “de facto management body” is defined as a body that has material and overall management and control over
the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise.
According to the SAT Circular 82, a Chinese-controlled
offshore-incorporated enterprise will be regarded as a PRC tax resident by virtue of having its “de facto management body”
in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions set forth
in Circular 82 are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating
to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the
PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals and board and shareholder resolutions are
located or maintained in the PRC; and (iv) 50% or more of voting board members or senior executives habitually reside in the PRC.
PRC indirect transfer tax
On February 3, 2015, the SAT issued the
Notice on Several Issues Concerning Enterprise Income Tax for Indirect Assets Transfer by Non-PRC Resident Enterprises, as amended
in 2017, or SAT Circular 7. Pursuant to SAT Circular 7, an “indirect transfer” of assets, including equity interests
in a PRC resident enterprise, by non-PRC resident enterprises, may be recharacterized and treated as a direct transfer of PRC taxable
assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment
of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax.
When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken
into consideration include, inter alia, whether the main value of the equity interest of the relevant offshore enterprise derives
directly or indirectly from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consist of direct
or indirect investment in China or if its income is mainly derived from China; and whether the offshore enterprise and its subsidiaries
directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk
exposure. According to SAT Circular 7, where the payor fails to withhold any or sufficient tax, the transferor shall declare and
pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor
to default interest. SAT Circular 7 does not apply to transactions of sale of shares by investors through a public stock exchange
where such shares were acquired on a public stock exchange. On October 17, 2017, the SAT issued the Circular on Issues of Tax Withholding
regarding Non-PRC Resident Enterprise Income Tax, or SAT Circular 37, which further elaborates the relevant implemental rules regarding
the calculation, reporting and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless, there remain
uncertainties as to the interpretation and application of SAT Circular 7. SAT Circular 7 may be determined by the tax authorities
to be applicable to our offshore transactions or sale of our shares or those of our offshore subsidiaries where non-resident enterprises,
being the transferors, were involved.
Value added tax
On January 1, 2012, the State Taxation
Administration officially launched a pilot VAT reform program, or Pilot Program, applicable to businesses in selected industries.
Businesses in the Pilot Program would pay VAT instead of business tax. The Pilot Industries in Shanghai included industries involving
the leasing of tangible movable property, transportation services, research and development and technical services, information
technology services, cultural and creative services, logistics and ancillary services, certification and consulting services. The
Pilot Program initially applied only to transportation industry and modern service industries, Pilot Industries, in Shanghai in
2011 and expanded to eight trial regions (including Beijing) and nationwide progressively from August to December 2012. The Pilot
Industries in Shanghai included industries involving the leasing of tangible movable property, transportation services, research
and development and technical services, information technology services, cultural and creative services, logistics and ancillary
services, certification and consulting services. Revenues generated by advertisement services, a type of “cultural and creative
services,” are subject to the VAT rate of 6%. According to official announcements made by competent authorities in Beijing,
Beijing launched the same Pilot Program on September 1, 2012, Revenues generated by advertisement services, a type of “cultural
and creative services,” are subject to the VAT rate of 6%.
On December 12, 2013, the Ministry of Finance
and the SAT issued the Circular on Including the Railway Transportation and Postal Industries in the Pilot Program of Replacing
Business Tax with Value-Added Tax, or the Pilot Collection Circular. The scope of certain modern services industries under the
Pilot Collection Circular is expanded to cover research and development and technical services, cultural and creative services,
and radio, film and television services. In addition, according to the Notice on Including the Telecommunications Industry in the
Pilot Program of Levying Value-added Tax in Lieu of Business Tax, which became effective on June 1, 2014, the scope of certain
modern services industries under the Pilot Collection Circular is further expanded to cover the telecommunications industry. On
March 23, 2016, the MOF and the SAT issued the Circular on Comprehensively Promoting the Pilot Program of the Collection of Value
added Tax in Lieu of Business Tax. Effective from May 1, 2016, the PRC tax authorities collect VAT in lieu of Business Tax in all
regions and industries. All of Scienjoy’s entities were subject to VAT at the rate of 3% (as the “small-scale tax payer”)
or 6% (as the “general tax payer”) for services provided and 16% for goods sold as of December 31, 2018. On March 20,
2019, the SAT announced that the VAT rate of 16% for sale of goods be reduced to 13%, effective from April 1, 2019.
Withholding Tax on Dividend
A PRC resident enterprise which distributes
dividends to its non-PRC shareholders should withhold PRC income tax at a rate of 10% according to PRC law. However, pursuant to
the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention
of Fiscal Evasion with respect to Taxes on Income, if the beneficial owner of the dividends is a Hong Kong resident enterprise,
which directly holds at least 25% of the equity interest of the aforesaid enterprise (i.e., the dividend distributor), the tax
levied shall be 5% of the distributed dividends. Meanwhile, the Circular of the State Taxation Administration on the Interpretation
and the Determination of the “Beneficial Owners” in the Tax Treaties has stipulated some factors that are unfavorable
to the determination of “beneficial owner,” particularly in the case of holding companies.
In addition, pursuant to the Circular of
the State Taxation Administration on Relevant Issues Relating to the Implementation of Dividend Clauses in Tax Treaties, which
was issued by the SAT on February 20, 2009, for a tax resident of the counterparty to the tax treaty to be entitled to such tax
treatment specified in the tax treaty for with respect to the dividends paid to it by a Chinese resident company, all of the following
requirements should be satisfied: (i) the tax resident who obtains dividends should be a company as provided in the tax treaty;
(ii) the equity interests and the voting shares of the Chinese resident company directly owned by such tax resident reach a specified
percentage; and (iii) the capital ratio of the Chinese resident company directly owned by such tax resident reaches the percentage
specified in the tax treaty at any time within 12 months prior to acquiring the dividends.
Regulations
Relating to Labor and Social Insurance
The principal laws that govern employment
include: (i) the PRC Labor Law, promulgated by the Standing Committee of the National People’s Congress on July 5, 1994, which
has been effective since January 1, 1995 and most recently amended on December 29, 2018; and (ii) the PRC Labor Contract Law, promulgated
by the Standing Committee of the National People’s Congress on June 29, 2007 and amended on December 28, 2012.
According to the PRC Labor Law and the
PRC Labor Contract Law, employers must execute written labor contracts with full-time employees. All employers must compensate
their employees with wages equal to at least the local minimum wage standards. All employers are required to establish a system
for labor safety and sanitation, strictly comply with state rules and standards and provide employees with workplace safety training.
Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other administrative penalties.
For serious violations, criminal liability may arise.
In addition, an employer is obligated to
sign an indefinite term labor contract with an employee if the employer continues to employ the employee after two consecutive
fixed term labor contracts. The employer also has to pay compensation to the employee if the employer terminates an indefinite
term labor contract. Moreover, employers in China are required to provide employees with welfare schemes covering pension insurance,
unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and housing funds.
According to the Social Insurance Law,
an employer that fails to make social insurance contributions may be ordered to pay the required contributions within a stipulated
deadline and be subject to a late fee. If the employer still fails to rectify the failure to make social insurance contributions
within the stipulated deadline, it may be subject to a fine ranging from one to three times the amount overdue. According to the
Regulations on Administration of Housing Fund, an enterprise that fails to make housing fund contributions may be ordered to rectify
the noncompliance and pay the required contributions within a stipulated deadline; otherwise, an application may be made to a local
court for compulsory enforcement.
Regulations
Relating to M&A and Overseas Listings
On August 8, 2006, six PRC governmental
agencies jointly promulgated the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A
Rules, which became effective on September 8, 2006, and were amended on June 22, 2009. The M&A Rules require offshore special
purpose vehicles formed to pursue overseas listing of equity interests in PRC companies and controlled directly or indirectly by
PRC companies or individuals to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing
and trading of such special purpose vehicle’s securities on any stock exchange overseas.
The application of the M&A Rules remains
unclear. Scienjoy are advised by its PRC legal counsel, Feng Yu Law Firm , that based on its understanding on the current PRC laws,
rules and regulations, prior approval from the CSRC is not required under the M&A Rules for the listing and trading of our
stock on the Nasdaq.
MANAGEMENT’s
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF SCIENJOY INC.
You should read the following discussion
and analysis of Scienjoy’s financial condition and results of operations in conjunction with its combined financial statements
and consolidated financial statements and the related notes included in this proxy statement. This discussion contains forward-looking
statements that involve risks and uncertainties. Scienjoy’s actual results and the timing of selected events could differ
materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth
under “Risk Factors” and elsewhere in this proxy statement.
Overview
Scienjoy is a leading provider of mobile
entertainment live streaming platforms in China and operates its platforms on both PC and mobile apps, through which users can
enjoy immersive and interactive entertainment live streaming. Scienjoy had approximately 200 million registered users by the end
of December 2019 and approximately 34 million active users for 2019.
Scienjoy adopts a multi-platform strategy and
is currently running three platforms: the Showself live streaming platform launched in 2014, the Lehai live streaming platform
launched in 2015, and the Haixiu live streaming platform launched in 2016. All of three platforms are categorized as “SHOW
live streaming” in which professional broadcasters provide live streaming entertainment for users primarily in the form of
performances (such as singing, dancing, and talk shows). Broadcasters on all three platforms have been professionally trained by
relevant broadcaster agents to provide more professional content. Despite the similarity in contents, the three platforms adopt
different operation strategies, such as, to name a few, different broadcaster policy, events, promotion, and games. Scienjoy provides
a technological infrastructure to enable broadcasters, online users and viewers to interact with each other during live streaming.
All three platforms can be accessed
for free. Scienjoy mainly derives its revenue from sales of virtual items on the platforms. Users can purchase virtual currency
to purchase virtual items for use on Scienjoy’s platforms. Users can recharge their virtual currency on Scienjoy’s
platforms through various online third-party payment platforms, such as WeChat Pay or AliPay. The revenue of Scienjoy was RMB836.604
million for the year ended December 31, 2017, RMB743.018 million for the year ended December 31, 2018 and RMB914.626 million for
the year ended December 31, 2019, respectively. Scienjoy had net income RMB156.744 million for the year ended December 31, 2017,
RMB106.740 million for the year ended December 31, 2018 and RMB 149.918 million for the year ended December 31, 2019, respectively.
Scienjoy was incorporated under the laws of
the Cayman Islands on March 2, 2017 with authorized shares of 500,000,000 shares at a par value of $0.0001. Scienjoy operates its
platforms in the People’s Republic of China (the “PRC”) through its wholly owned subsidiary, Sixiang Wuxian (Beijing)
Technology Co., Ltd, and under a contractual arrangement with Zhihui Qiyuan (Beijing) Technology Co., Ltd. and their respective
subsidiaries.
Key Factors
Affecting Scienjoy’s Results of Operations
General Factors
Development of the mobile live streaming market
in China over the past decade has been influenced by a number of macroeconomic and technological factors and trends, including
increasing disposable income and demand for cultural and entertainment activities and increased use of the mobile internet. Scienjoy’s
business and operating results are affected by general factors affecting China’s entertainment live streaming industry, which
may include the following:
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China’s overall macroeconomic landscape
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China’s overall entertainment and mobile entertainment
growth
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Usage and penetration rate of mobile Internet and
mobile payment
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Growth and competitive landscape of China’s
mobile live streaming market, especially entertainment SHOW live streaming
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Governmental policies affecting China’s live
streaming industry
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Unfavorable changes in any of these general
industry conditions could negatively affect demand for Scienjoy’s services and materially and adversely affect its results
of operations.
Specific Factors
While Scienjoy’s business is influenced
by general factors affecting the mobile live streaming industry in China, Scienjoy believes its results of operations are more
directly affected by company specific factors, including the following major factors:
Scienjoy’s ability to retain broadcasters
and enhance user experience
Scienjoy continues to improve
its operational capability with more attractive contents, such as music, dancing, talk shows, traditional drama,
online competitions and offline events, to further enhance user experience. Scienjoy is offering different contents and games
to attract more users to pay for its services and to pay more money per user as well. Therefore quality broadcasters
and interesting contents are essential to Scienjoy’s operations. In order to retain quality broadcasters, Scienjoy has
developed a revenue sharing policy, pursuant to which Scienjoy shares revenues generated on the platforms with talents
agencies, which in turn share revenues with broadcasters. Additionally, in order to maintain the quality of broadcasters
and service, Scienjoy is very cautious in hiring broadcasters and has adopted strict operation procedures for screening
broadcasters before hiring. Scienjoy primarily works with professional agents to identify and retain new broadcasters. The
increasing number of trained broadcasters, who provide better quality performance, also contributes to improved ARPPU and
paying ratio of Scienjoy.
Scienjoy’s ability to maintain and
expand its user base
User base is another key factor for success
in the mobile live streaming industry. Scienjoy endeavors to provide attractive content to keep users on its platforms as long
as possible. Scienjoy’s multi-platform strategy attempt to retain users by providing diversified content, promotions and
an enhanced user experience.
With respect to user base, mobile SHOW live
streaming sector differs from other mobile live streaming sectors such as pan entertainment live streaming and game live streaming
sector. Because, for SHOW live streaming, each broadcaster interacts in real time with users and therefore the number of users
that each broadcaster can entertain at the same period in his/her video room is limited.
The number of Scienjoy’s paying
user increased by 32%, from 528,457 paying users in fiscal 2018 to 697,475 paying users in fiscal 2019 due to Scienjoy’s
new strategy to focus on attracting and retaining targeted users who are willing to spend more on its platforms. As a result,
Scienjoy’s revenue for the year ended December 31, 2019 increased to RMB914.626 million from RMB743.018 million for the
year ended December 31, 2018. This indicates that Scienjoy can generate higher revenues when Scienjoy focuses on the targeted
users who are willing to spend more on its platforms.
Scienjoy continues to seek opportunities to
grow its user base and enhance its user engagement. Scienjoy’s ability to do so largely depends on its ability to recruit,
train, and retain high quality broadcasters and its ability to produce high quality content. Scienjoy also intends to continue
to invest in its brand recognition.
Scienjoy intends to further explore overseas
markets to expand its business and user base through both organic expansion and selective investments, including its plan to expand
the business to South-East Asian, Middle East, and South America regions in 2020.
Scienjoy’s ability to improve innovative
technologies
The ability to understand market traffic and
pair users with suitable broadcasters and activities is key for user stickiness and monetization in the mobile SHOW live streaming
industry. By using big data analysis to understand individual user behavior and industry trends, Scienjoy intends to adjust its
platform to better guide users to appropriate broadcasters as well as to analyze traffic on other sites to select the best methods
and targets for user acquisition.
Scienjoy intends to continue to invest in other
technologies such as virtual reality, augmented reality, machine learning, and artificial intelligence. In addition, Scienjoy has
a comprehensive plan to release its live streaming 2.0, which allows each user to build up his/her own virtual life combining real
interactions with virtual enjoyments in its platform. The realization of Scienjoy’s live streaming 2.0 will be primarily
based on innovative technologies such as virtual reality, augmented reality and big data. Currently Scienjoy plans to stage the
release of its live streaming 2.0, including the estimated release of the Alpha version around June 2020 and the official version
around March 2021. However, there is no guarantee that Scienjoy will meet these estimated release timelines due to changes in market
conditions or any other factors that may require Scienjoy to postpone the release of its live streaming 2.0.
Key Components
of Results of Operations
Amounts in thousands of RMB and US$, except share and per share data or otherwise
stated
|
|
For the Years Ended December
31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Live Streaming – consumable virtual items
|
|
|
803,190
|
|
|
|
716,561
|
|
|
|
884,385
|
|
|
|
127,034
|
|
Live Streaming – time-based virtual items
|
|
|
33,331
|
|
|
|
26,432
|
|
|
|
26,812
|
|
|
|
3,851
|
|
Technical services
|
|
|
83
|
|
|
|
25
|
|
|
|
3,429
|
|
|
|
493
|
|
Total net revenues
|
|
|
836,604
|
|
|
|
743,018
|
|
|
|
914,626
|
|
|
|
131,378
|
|
Cost of revenues
|
|
|
(654,332
|
)
|
|
|
(594,084
|
)
|
|
|
(720,637
|
)
|
|
|
(103,513
|
)
|
Gross profit
|
|
|
182,272
|
|
|
|
148,934
|
|
|
|
193,989
|
|
|
|
27,865
|
|
Sales and marketing expenses
|
|
|
(3,240
|
)
|
|
|
(5,005
|
)
|
|
|
(3,804
|
)
|
|
|
(546
|
)
|
General and administrative expenses
|
|
|
(10,869
|
)
|
|
|
(16,265
|
)
|
|
|
(11,957
|
)
|
|
|
(1,717
|
)
|
Research and development expenses
|
|
|
(10,610
|
)
|
|
|
(10,957
|
)
|
|
|
(21,523
|
)
|
|
|
(3,092
|
)
|
Provision (recovery) for doubtful accounts
|
|
|
508
|
|
|
|
(6,826
|
)
|
|
|
(854
|
)
|
|
|
(123
|
)
|
Income from operations
|
|
|
158,061
|
|
|
|
109,881
|
|
|
|
155,851
|
|
|
|
22,387
|
|
Interest income
|
|
|
1,686
|
|
|
|
1,444
|
|
|
|
1,005
|
|
|
|
144
|
|
Other income (loss), net
|
|
|
3,235
|
|
|
|
31
|
|
|
|
(310
|
)
|
|
|
(45
|
)
|
Foreign exchange gain(loss), net
|
|
|
(21
|
)
|
|
|
11
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
Income before income taxes
|
|
|
162,961
|
|
|
|
111,367
|
|
|
|
156,541
|
|
|
|
22,485
|
|
Income tax expenses
|
|
|
(6,217
|
)
|
|
|
(4,627
|
)
|
|
|
(6,623
|
)
|
|
|
(951
|
)
|
Net income
|
|
|
156,744
|
|
|
|
106,740
|
|
|
|
149,918
|
|
|
|
21,534
|
|
Revenues
Scienjoy’s revenues consist of
live streaming revenue and technical services revenue. Scienjoy generates technical services revenue from providing technical
development and advisory services, but the technical services revenue accounts for less than 1% of revenue and is immaterial.
Scienjoy generates its revenue mostly from the sales of virtual items used in its live streaming business.
Virtual items are categorized as consumable
and time-based items. Consumable items, as virtual gift service, are consumed and used by users upon purchase, while time-based
virtual items, such as privilege titles, could be used for a fixed period of time. Accordingly, revenue is recognized at the time
when the virtual item is delivered and consumed if the virtual item is a consumable item or, in the case of time-based virtual
item, recognized ratably over the period each virtual item is made available to the user, which is usually over one to multiple
months and does not exceed one year. For the years ended December 31, 2017, 2018 and 2019, revenue from consumable virtual items
represented over 95% of the total net revenue.
As Scienjoy continues to grow its live
streaming business, and enhance its user engagement and expand virtual gifting scenarios to increase users’ willingness to
pay, Scienjoy expects its revenue from the sales of virtual items in its live streaming business to increase.
The following table sets forth types
of Scienjoy’s revenue for the periods indicated:
|
|
For the Years Ended
December 31,
|
|
Amounts in thousands of RMB
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
NET REVENUES
|
|
|
|
|
|
|
|
|
|
Live Streaming – consumable virtual items
|
|
|
803,190
|
|
|
|
716,561
|
|
|
|
884,385
|
|
Live Streaming – time-based virtual items
|
|
|
33,331
|
|
|
|
26,432
|
|
|
|
26,812
|
|
Technical services
|
|
|
83
|
|
|
|
25
|
|
|
|
3,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
836,604
|
|
|
|
743,018
|
|
|
|
914,626
|
|
Scienjoy’s revenue declined to
RMB743.018 million for the year ended December 31, 2018 from RMB 836.604 million for the year ended December 31, 2017. The decline
was primarily attributable to a decrease of 11% in live streaming revenue from consumable virtual items because of a lower revenue
sharing fee paid to its broadcasters in fiscal 2018, which resulted in departures of many broadcasters and reduced the number
of paying users from 715,122 in fiscal 2017 to 528,457 in fiscal 2018. However, due to Scienjoy’s continuing efforts in
growing and monetizing its business, the ARPPU increase from RMB 1,170 in fiscal 2017 to RMB 1,406 in fiscal 2018.
In fiscal 2019, Scienjoy increased
its revenue sharing fee for its broadcasters to retain and attract more broadcasters. Scienjoy also continued to introduce more
events and games to further increase users’ willingness to pay and paying amount. As a result, Scienjoy’s revenue
increased to RMB914.626 million for the year ended December 31, 2019 from RMB743.018 million for the year ended December 31, 2018.
The increase was primarily attributable to an increase of 23% in live streaming revenue from consumable virtual items due to the
increase of the number of paying users from 528,457 in fiscal 2018 to 697,475 in fiscal 2019.
Scienjoy currently operates three live
streaming platforms, consisting of: Showself Live Streaming, Lehai Live Streaming and Haixiu Live Streaming. The following table
sets forth Scienjoy’s revenue by platforms for the periods indicated:
|
|
For the year ended December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
Amounts in thousands of RMB
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Showself
|
|
|
515,684
|
|
|
|
466,460
|
|
|
|
530,111
|
|
Lehai
|
|
|
198,498
|
|
|
|
190,121
|
|
|
|
181,626
|
|
Haixiu
|
|
|
122,339
|
|
|
|
86,412
|
|
|
|
199,460
|
|
technical services
|
|
|
83
|
|
|
|
25
|
|
|
|
3,429
|
|
TOTAL
|
|
|
836,604
|
|
|
|
743,018
|
|
|
|
914,626
|
|
The total number of paying users at Showself Live, Lehai
Live, and Haixiu Live for the periods indicated is as following:
|
|
For the year ended December 31,
|
|
Number of paying users
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
Showself
|
|
|
438,590
|
|
|
|
354,213
|
|
|
|
390,315
|
|
Lehai
|
|
|
154,708
|
|
|
|
113,737
|
|
|
|
78,890
|
|
Haixiu
|
|
|
121,824
|
|
|
|
60,507
|
|
|
|
228,270
|
|
TOTAL
|
|
|
715,122
|
|
|
|
528,457
|
|
|
|
697,475
|
|
The ARPPU by Showself Live, Lehai Live, and Haixiu Live
is as following (amounts in RMB):
|
|
For the Years Ended December
31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
Amounts in RMB
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Showself
|
|
|
1,176
|
|
|
|
1,317
|
|
|
|
1,358
|
|
Lehai
|
|
|
1,283
|
|
|
|
1,672
|
|
|
|
2,302
|
|
Haixiu
|
|
|
1,004
|
|
|
|
1,428
|
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual ARPPU
|
|
|
1,170
|
|
|
|
1,406
|
|
|
|
1,306
|
|
Among three live streaming platforms,
Showself Live streaming contributed 56% to 67% of the paying users for the all the periods indicated. Scienjoy’s ARPPU in
each platform may fluctuate from period to period due to the mix of live streaming services purchased by the paying users. The
overall ARPPU for the years ended December 31, 2017, 2018 and 2019 was RMB 1,170, RMB 1,406 and RMB 1,306, respectively.
Cost of Revenues
Scienjoy’s cost of revenues primarily
consists of (i) revenue sharing fees, including payments to various broadcasters and content providers, (ii) user acquisition costs,
(iii) bandwidth related costs, and (iv) other costs.
The table below shows the cost of revenues in absolute amounts for
the periods indicated.
|
|
For the years ended December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
Amounts in thousands of RMB and US$, except share and per share data or otherwise stated
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Revenue sharing fees
|
|
|
(496,220
|
)
|
|
|
(467,303
|
)
|
|
|
(597,940
|
)
|
User acquisition costs
|
|
|
(132,833
|
)
|
|
|
(100,134
|
)
|
|
|
(94,367
|
)
|
Bandwidth related costs
|
|
|
(7,633
|
)
|
|
|
(8,941
|
)
|
|
|
(6,275
|
)
|
Others
|
|
|
(17,646
|
)
|
|
|
(17,706
|
)
|
|
|
(22,055
|
)
|
Cost of revenues
|
|
|
(654,332
|
)
|
|
|
(594,084
|
)
|
|
|
(720,637
|
)
|
Revenue
sharing fees and content cost: Scienjoy’s revenue sharing fees represent its
payment to broadcasters based on a percentage of revenue from sales of virtual items,
including virtual gifts and other subscription based privileges. Revenue sharing fees
were 59%, 63% and 65% of revenues for the years ended December 31, 2017, 2018 and 2019,
respectively. Scienjoy reduced its revenue sharing percentage for its broadcasters in
2017 and the first half year of 2018, which resulted in departures of broadcasters and
lower revenue for the second half year of 2018. Subsequently, Scienjoy adjusted its revenue
sharing policy and provided broadcasters with higher revenue sharing percentage to attract
more talented broadcasters. As a result, the revenue sharing fees increased by 28% in
fiscal 2019 compared to fiscal 2018. Scienjoy expects its sharing fees and content cost
for live streaming revenue to increase in line with the growth of its live streaming
operations.
User acquisition costs: Scienjoy
acquires users primarily through viral marketing, or word-of-mouth marketing, and online download. Scienjoy provides online downloads
of its apps via various third-party websites, including online advertising networks, internet portals and mobile application stores.
Scienjoy pays such third parties a fee for each registered user account acquired through them. User acquisition costs decreased
from RMB132.833 million for the year ended December 31, 2017 to RMB100.134 million for the year ended December 31, 2018 corresponding
to a decrease in revenue in 2018. User acquisition costs further decreased from RMB100.134 million in fiscal 2018 to RMB94.367
million in fiscal 2019. With increasing brand awareness and increased quality content provided by Broadcasters, the Company expects
user acquisition costs to decrease.
Bandwidth related cost: Bandwidth
related cost consists of fees that Scienjoy pays to telecommunication service providers for server hosting, bandwidth and content
delivery-related services such as CDN (content delivery network). The Company incurred RMB8.941 million in bandwidth related cost
in fiscal 2018, increased 17% from RMB7.633 million bandwidth related cost in fiscal 2017. With the increasing competition in
hosting and bandwidth market and optimized technology, Scienjoy was able to cut down bandwidth related costs with its growing
live streaming operations. For the year ended December 31, 2019, the Company’s bandwidth related cost amounted to RMB6.275
million, a decrease of 30% as compared to fiscal 2018.
Others: Other costs include
(i) fees that Scienjoy pays to third-party payment processing platforms through which its users purchase its virtual currencies,
technology service costs, and content producing costs, (ii) personnel fees directly related to the revenue such as operation employees’
salary and benefits, and (iii) depreciation and amortization expense for servers and other equipment, and intangibles directly
related to operating the platforms. For the years ended December 31, 2017, 2018 and 2019, other cost represented approximately
2% of related total revenue.
Operating Expenses
Scienjoy’s operating expenses consists of (i) sales and marketing
expenses, (ii) research and development expenses, (iii) general and administrative expenses, and (iv) provision for doubtful accounts.
Amounts in thousands of RMB and US$, except share and per share data or otherwise
stated
|
|
For the years ended
December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Sales and marketing expenses
|
|
|
(3,240
|
)
|
|
|
(5,005
|
)
|
|
|
(3,804
|
)
|
General and administrative expenses
|
|
|
(10,869
|
)
|
|
|
(16,265
|
)
|
|
|
(11,957
|
)
|
Research and development expenses
|
|
|
(10,610
|
)
|
|
|
(10,957
|
)
|
|
|
(21,523
|
)
|
(Provision) Recovery for doubtful accounts
|
|
|
508
|
|
|
|
(6,826
|
)
|
|
|
(854
|
)
|
Sales and marketing expenses:
Scienjoy’s sales and marketing expenses mainly consist of (i) salaries and benefits for sales and marketing employees, and
(ii) branding and advertisement expenses, including advertisements, holding promotional events and developing and designing marketing
campaigns. Scienjoy expects to target sales and marketing expenditures to attract targeted paying users.
General and administrative
expenses: Scienjoy’s general and administrative expenses primarily consist of (i) salaries and benefits for its general
and administrative staff, (ii) consulting fees, (iii) other expenses primarily including general office expenses, and (iv)
office rental expenses. Scienjoy expects that general and administrative expenses will increase when Scienjoy becomes a
public company and incurs additional costs to comply with its reporting obligations under the U.S. securities laws.
Research and development expenses: Scienjoy’s
research and development expenses primarily consist of (i) salaries and benefits for its research and development employees, and
(ii) other expenses primarily including depreciation related to research use. Scienjoy expects its research and development expenses
to continue to grow as Scienjoy continues to invest in innovative technologies to offer users a better experience.
Provision for doubtful accounts: Scienjoy
maintains an allowance for doubtful accounts which reflects its best estimate of amounts that potentially will not be collected.
When Scienjoy determines the allowance for doubtful accounts, it takes into consideration various factors including but not limited
to collection history and credit-worthiness of the debtors as well as the age of the individual receivables account. Scienjoy expects
that the provision for doubtful accounts to decline as it has committed more resources to collection of account receivables.
Results of Operations
Year Ended December 31, 2018 Compared
to Year Ended December 31, 2017
Revenue: Scienjoy’s
Total revenues decreased by RMB93.586 million, or 11.19%, from RMB836.604 million for the year ended December 31, 2017 to RMB743.018
million for the year ended December 31, 2018. Such decrease was primarily attributable to the decrease of revenue sharing percentage
for broadcasters in 2018 that resulted in departures of many broadcasters and their viewers. The number of quarterly average active
broadcasters decreased from 15,530 in 2017 to 12,491 in 2018, which negatively affected the Scienjoy’s revenue.
Despite the decrease in revenue, the average
ARPPU increased by 20% from RMB1,170 in 2017 to RMB1,406 in 2018. The paying ratio slightly increased from 1.3% in 2017 to 1.4%
in 2018. The increase in average ARPPU and paying ratio were attributable to Scienjoy’s continuing effort to develop users’
willingness to pay, including by offering compelling content, expanding virtual gifting scenarios, optimizing product features
and introducing new games in live video rooms.
Cost of revenues: Scienjoy’s
cost of revenues decreased by 9%, from RMB654.332 million for the year ended December 31, 2017 to RMB594.084 million for the year
ended December 31, 2018. The decrease was primarily attributable to the lower amount of revenue sharing fees. Revenue decreased
by 11.19% from 2017 to 2018, while the cost of revenues decreased by 9%.
|
●
|
Revenue
sharing fees: Scienjoy increased the revenue sharing fee percentage for broadcasters in the second half of year 2018 and
the ratio of revenue sharing fees to revenue increased from 59% in 2017 to 63% in 2018.
|
|
●
|
User
acquisition costs: the ratio of user acquisition costs to net revenue decreased from 16% in 2017 to 13% in 2018 after
Scienjoy focused on its target users, resulting in lower costs but higher percentage of users willing to spend money on Scienjoy’s
platforms The decrease of the ratio of user acquisition costs to net revenue partially offset the increase of the ratio of
revenue sharing fees to net revenue.
|
Gross profit: As a result of
the foregoing, Scienjoy’s gross profit decreased by 18% from RMB182.272 million for the year ended December 31, 2017 to
RMB148.934 million for the year ended December 31, 2018. The gross profit margin decreased from 22% for the year ended December
31, 2017 to 20% for the year ended December 31, 2018.
Operating expenses: Scienjoy’s
total operating expenses increased by 61%, from RMB24.211 million in 2017 to RMB39.053 million in 2018. The increase of total
operating expenses was primarily because of the increase of sales and marketing expenses, general and administrative expenses
and provision for doubtful accounts.
|
●
|
Sales
and marketing expenses: Scienjoy’s sales and marketing expenses increased by
54%, from RMB3.24 million for the year ended December 31, 2017 to RMB5.005 million for
the year ended December 31, 2018. This increase was primarily attributable to the implementation
of marketing events in 2018. To enhance its brand recognition and popularity, Scienjoy
held a series of offline brand events during the six months ended June 30, 2018 such
as kiosk buildup in several second tier cities.
|
|
●
|
General
and administrative expenses: Scienjoy’s general and administrative expenses
increased by 50%, from RMB10.869 million for the year ended December 31, 2017 to RMB16.265
million for the year ended December 31, 2018. The increase of general and administrative
expenses was primarily attributable to the increase of salary and welfare, and service
charge such as professional and consulting fees. The salary and welfare increased from
RMB6.09 million in 2017 to RMB8.99 million in 2018, and the professional and consulting
fees increased from RMB0.57 million in 2017 to RMB2.49 million in 2018.
|
|
●
|
Research and development expenses: Scienjoy
research and development expenses remained approximately the same, with approximately RMB10.61 million for the year ended December
31, and RMB10.957 million for the year ended December 31, 2018.
|
|
●
|
Provision for doubtful accounts: The provision
for doubtful accounts was RMB0.508 million for the year ended December 31, 2017, and was RMB6.826 million for the year ended December
31, 2018. The increase of provision for doubtful accounts was primarily because the collection of account receivable was lower
in 2018.
|
Net income: As the result of
the foregoing, Scienjoy’s net income decreased by 32% from RMB156.744 million for the year ended December 31, 2017 to RMB106.740
million for the year ended December 31, 2018.
Year Ended December 31, 2019 Compared
to Year Ended December 31, 2018
Revenue: Total revenues increased
by RMB171.608 million, or 23%, from RMB743.018 million for the year ended December 31, 2018 to RMB914.626 million for the year
ended December 31, 2019. Such increase was primarily attributable to Scienjoy’s continuing efforts to grow and monetize
its business, resulting in increased user willingness to pay. These efforts include offering compelling content, optimizing product
features and introducing new games in live video rooms. User paying willingness is represented by paying ratio and user paying
amount, represented by ARPPU. Scienjoy’s paying ratio increased from 1.4% for the year ended December 31, 2018 to 2.1% for
the year ended December 31, 2019 Due to expanded and diversified user base, Scienjoy’s average ARPPU decreased slightly
by 7%, from RMB 1,406 for the year ended December 31, 2018 to RMB 1,306 for the for the year ended December 31, 2019.
Cost of revenues: Scienjoy’s
cost of revenues increased by 21%, from RMB594.084 million for the year ended December 31, 2018 to RMB720.637 million for the
year ended December 31, 2019. The increase was primarily due to increased revenue resulting a higher revenue sharing fee to broadcasters.
Scienjoy intends to provide competitive revenue sharing fee for broadcasters to attract more quality livestreaming content to
users. On the other side, with the increased of brand awareness, the user acquisition cost have been lower by 6% from 2018 to
2019.
Gross profit: As a result of
the foregoing, Scienjoy’s gross profit increased by 30%, from RMB148.934 million for the year ended December 31, 2018 to
RMB193.989 million for the year ended December 31, 2019. The gross profit margin increased from 20% in 2018 to 21% in 2019.
Operating expenses:
|
●
|
Sales
and marketing expenses: Scienjoy’s sales and marketing expenses decreased by 24%, from RMB5.005 million for
the year ended December 31, 2018 to RMB3.804 million for the year ended December 31, 2019. The decrease was primarily attributable
to the decrease of marketing expenses. Scienjoy held a series of offline brand events for the year ended December 31, 2018,
such as kiosk buildup in several second tier cities, while Scienjoy did not have the similar marketing events for the year
ended December 31, 2019.
|
|
●
|
General
and administrative expenses: Scienjoy’s general and administrative expenses decreased by 26%, from RMB16.265
million for the year ended December 31, 2018 to RMB11.957 million for the year ended December 31, 2019. The decrease of general
and administrative expenses was primarily attributable to the decrease of service fees and external consulting fees and improved
managerial efficiency.
|
|
●
|
Research
and development expenses: Scienjoy’s research and development expenses increased from RMB10.957 million in
2018 to RMB21.523 million in 2019. Scienjoy continues to strategically focus on cutting edge technologies and invested more
resources in R&D. As a result, the R&D’s headcount increased from 45 in fiscal 2018 to 72 in fiscal 2019 and
the salary and welfare for R&D employees increased by 96% from RMB9.183 million for the year ended December 31, 2018 to
RMB18.512 million for the year ended December 31, 2019.
|
|
●
|
Provision
for doubtful accounts: Scienjoy’s provision for doubtful accounts decreased by 87% from RMB6.826 million for the
year ended December 31,2018 to RMB0.854 million for the years ended December 31,2019, The decrease due to the Company’s
continuous collection efforts in fiscal 2019.
|
Net income: As a result of the
foregoing, net income increased by 40%, from RMB106.740 million for the year ended December 31, 2018 to RMB 149.918 million for
the year ended December 31, 2019.
Critical
Accounting Policies and Estimates
Scienjoy prepares its financial statements
in conformity with U.S. GAAP, which requires Scienjoy to make judgments, estimates and assumptions. Scienjoy continually evaluates
these estimates and assumptions based on the most recently available information, its own historical experience and various other
assumptions that Scienjoy believes to be reasonable under the circumstances. Since the use of estimates is an integral component
of the financial reporting process, actual results could differ from Scienjoy’s expectations as a result of changes in its
estimates. Some of Scienjoy’s accounting policies require a higher degree of judgment than others in their application and
require Scienjoy to make significant accounting estimates.
The following descriptions of critical accounting
policies, judgments and estimates should be read in conjunction with Scienjoy’s combined and consolidated financial statements
and accompanying notes and other disclosures included in this proxy statement.
Accounts Receivable and Allowance for
Doubtful Accounts
Accounts receivable are stated at the historical
carrying amount net of allowance for doubtful accounts. Accounts are considered overdue after 180 days.
Scienjoy maintains an allowance for doubtful
accounts which reflects its best estimate of amounts that potentially will not be collected. Scienjoy takes into consideration
various factors to determine the allowance for doubtful accounts, including but not limited to, historical collection experience
and credit-worthiness of the debtors as well as the age of the individual receivables balance. Additionally, Scienjoy makes specific
bad debt provisions based on any specific knowledge Scienjoy has acquired that might indicate that an account is uncollectible.
The facts and circumstances for each account may require Scienjoy to use substantial judgment in assessing its collectability.
Account balances are charged off against the
allowance after all means of collection have been exhausted and the likelihood of collection is not probable.
Revenue Recognition
On January 1, 2019, the Company adopted
ASC 606, “Revenue from Contracts with Customers” using the modified retrospective method applied to those contracts
which were not completed as of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under
Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic
accounting under Topic 605. Based on the Company’s assessment, the adoption of ASC 606 did not result in any adjustment
on the Company’s consolidated financial statements, and there were no material differences between the Company’s adoption
of ASC 606 and its historic accounting under ASC 605.
Revenues are recognized when control
of the promised virtual items or services is transferred to the Company’s customers, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for those virtual items or services. Revenue is recorded, net of sales related
taxes and surcharges. The Company derives their revenue from live streaming service and technical service.
Live Streaming
The Company is principally engaged
in operating its own live streaming platforms, which enable broadcasters and viewers to interact with each other during live streaming.
The Company is responsible for providing a technological infrastructure to enable the broadcasters, online users and viewers to
interact through live streaming platforms. All the platforms can be accessed for free. The Company mainly derives the revenue
from sales of virtual items in the platforms. The Company has a recharge system for users to purchase the Company’s virtual
currency then purchase virtual items for use. Users can recharge via various online third-party payment platforms, including WeChat
Pay, AliPay and other payment platforms.
Virtual currency is non-refundable
and often consumed soon after it is purchased.
The Company designs, creates and offers
various virtual items for sales to users with pre-determined stand-alone selling price. Virtual items are categorized as consumable
and time-based items. Consumable items are consumed upon purchase and use while time-based items could be used for a fixed period
of time. Users can purchase and present consumable items to broadcasters to show support for their favorite broadcasters, or purchase
time-based virtual items for one or multiple months for a monthly fee, which provide users with recognized status, such as priority
speaking rights or special symbols over a period of time.
The Company shares a portion of the
sales proceeds of virtual items (“revenue sharing fee”) with broadcasters and talent agencies in accordance with their
revenue sharing arrangements. Broadcasters, who do not have revenue sharing arrangements with the Company, are not entitled to
any revenue sharing fee.
The Company also utilizes third-party
payment collection channels, which charges the payment handling cost for users to purchase the virtual currency directly from
it. The payment handling costs are recorded in cost of sales.
The Company evaluates and determines
that it is the principal and views users to be its customers, because the Company controls the virtual items before they are transferred
to users. Its control is evidenced by the Company’s sole ability to monetize the virtual items before they are transferred
to users, and is further supported by the Company being primarily responsible to the users for the delivery of the virtual items
as well as having full discretion in establishing pricing for the virtual items. Accordingly, the Company reports live streaming
revenues on a gross basis with the amounts billed to users recorded as revenues and revenue sharing fee paid to broadcasters and
related agencies recorded as cost of revenues.
Sales proceeds are initially recorded
as deferred revenue and recognized as revenue based on the consumption of the virtual items. The Company has determined that each
individual virtual item represents a distinct performance obligation. Accordingly, live streaming revenue is recognized immediately
when the consumable virtual item is used, or in the case of time-based virtual items, revenue is recognized over the fixed period
on a straight line basis. The Company does not have further obligations to the user after the virtual items are consumed. The
Company’s live streaming virtual items are generally sold without right of return and the Company does not provide any other
credit and incentive to its users. Unconsumed virtual currency is recorded as deferred revenue.
The Company also cooperates with independent
third-party distributors to sell virtual currency through annual distribution agreements with these distributors. Third-party
distributors purchase virtual currency from the Company with no refund provision according to the annual distribution agreements,
and they are responsible for selling the virtual currency to end users. They may engage their own sales representatives, which
are referred to as “sales agents” to directly sell to individual end users. The Company has no control over such “sales
agents”. The Company has discretion to determine the price of the virtual currency sold to its third-party distributors,
but has no discretion as to the price at which virtual currency is sold by its third-party distributors to the sales agents.
Technical Services
Scienjoy generates technical services revenues
from providing technical development and advisory services, which accounts for only less than 1% of revenue. As the amount was
immaterial, and short-term in nature, which is usually less than six months, Scienjoy recognizes revenue when service was rendered
and accepted by customers.
Practical expedients and exemptions
The Company’s contracts have
an original duration of one year or less. Accordingly, the Company does not disclose the value of unsatisfied performance obligations.
Contract balances
Contract balances include accounts
receivable and deferred revenue. Accounts receivable primarily represent cash due from distributors and are recorded when the
right to consideration is unconditional. The allowance for doubtful accounts reflects the best estimate of probable losses inherent
to the account receivable balance. Deferred revenue primarily includes unconsumed virtual currency and unamortized revenue from
virtual items in the Company’s platforms, where there is still an obligation to be provided by the Company, which will be
recognized as revenue when all of the revenue recognition criteria are met. Due to the generally short-term duration of the relevant
contracts, the majority of the performance obligations are satisfied within one year. The amount of revenue recognized that was
included in the deferred revenue balance at the beginning of the year was RMB38.4 million for the year ended December 31, 2019.
Income Taxes
Scienjoy accounts for current income taxes
in accordance with the laws of the relevant tax authorities. Scienjoy follows the liability method in accounting for income taxes
in accordance to ASC topic 740 (“ASC 740”), Income Taxes. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates
that will be in effect in the period in which the differences are expected to reverse. A valuation allowance would be recorded
against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all,
of the deferred tax assets will not be realized.
The guidance on accounting for uncertainties
in income taxes prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. Guidance was also provided on recognition of income tax assets and liabilities,
classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with
tax positions, accounting for income taxes in interim periods, and income tax disclosures. Significant judgment is required in
evaluating Scienjoy’s uncertain tax positions and determining the provision for income taxes. Scienjoy recognizes interests
and penalties, if any, under accrued expenses and other current liabilities on the balance sheet and under other expenses in the
statement of comprehensive loss. Scienjoy did not recognize any interest and penalties associated with uncertain tax positions
for the years ended December 31, 2018 and 2019. As of December 31, 2018 and 2019, Scienjoy did not have any significant unrecognized
uncertain tax positions.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU
No. 2016-02 (“ASU 2016-02”), Leases (Topic 842). ASU 2016-02 specifies the accounting for leases. For operating
leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present
value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated
so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. In July 2018, ASU 2018-11,
the FASB further amended the guidance to provide another transition method in addition to the existing transition method by allowing
entities to initially apply the new leases standard at the adoption date and recognize an accumulative-effective adjustment to
the opening balance of retained earnings in the period of adoption. For non-public business entities, this aforementioned guidance
is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after
December 15, 2020. In November 2019, the FASB issued ASU No. 2019-10, by which to defer the effective date for all other entities
by an additional year. Early adoption is permitted. As of December 31, 2019, the Company has RMB2,701 (US$388) of future minimum
operating lease commitments that are not currently recognized on its consolidated balance sheets (Note 14). Therefore, the Company
would expect changes to its consolidated balance sheets for the recognition of these and any additional leases entered into in
the future upon adoption.
In June 2016, the FASB issued ASU No.
2016-13 (“ASU 2016-13”), Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments. ASU 2016-13 changes the impairment model for most financial assets and certain other instruments.
The standard will replace “incurred loss” approach with an “expected loss” model for instruments measured
at amortized cost. The standard is effective for non-public business entities for annual periods beginning after December 15,
2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company does
not expect this guidance will have a material impact on its consolidated financial statements.
In July 2018, the FASB issued Update
No. 2018-09, Codification Improvements. This Update includes several amendments to the FASB Accounting Standards Codification
(Codification) intended to clarify, improve, or correct errors in the Codification. Some amendments do not require transition
guidance and are effective upon issuance. The amendments requiring transition guidance was effective for the Company beginning
on January 1, 2020. The adoption of this new standard is not expected to have a material impact on its consolidated financial
statements.
In August 2018, the FASB issued Update
No. 2018-13, Fair Value Measurement (Topic 820)-Disclosure Framework-Changes to the Disclosure Requirements for Fair Value
Measurement. The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820 based on
the concepts in the Concepts Statement including the consideration of costs and benefits. The new standard was effective for the
Company beginning on January 1, 2020. The adoption of this new standard is not expected to have a material impact on its consolidated
financial statements.
In October 2018, the FASB issued ASU
No. 2018-17 (“ASU 2018-17”), Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable
Interest Entities. The updated guidance requires entities to consider indirect interests held through related parties under common
control on a proportional basis rather than as the equivalent of a direct interest in its entirety when determining whether a
decision-making fee is a variable interest. The amendments in this update are effective for non-public business entities for fiscal
years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021, with early
adoption permitted. These amendments should be applied retrospectively with a cumulative-effect adjustment to retained earnings
at the beginning of the earliest period presented. The Company is currently evaluating the impact of adopting this standard on
its consolidated financial statements.
In April 2019, the FASB issued Update
No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and
Hedging, and Topic 825, Financial Instruments. This Update includes several amendments to the Codification intended to clarify,
improve, or correct errors in the Codification. Some amendments do not require transition guidance and are effective upon issuance.
The amendments requiring transition guidance have the same effective dates as Update No. 2016-13. The Company is evaluating the
impact of this standard on its consolidated financial statements.
In December 2019, the FASB issued ASU
No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes.
The new guidance eliminates certain exceptions related to the approach for intra period tax allocation, the methodology for calculating
income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also simplifies
aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions
that result in a step-up in the tax basis of goodwill. This ASU will become effective for the Company's annual and interim periods
beginning in January 1, 2021, and early adoption is permitted. The Company is evaluating the impact of this standard on its consolidated
financial statements.
Liquidity and Capital Resources
Cash Flows and Working Capital
Scienjoy’s sources of liquidity
are primarily from the cash earned from its operating activities and cash by financing activities. Financial instruments that
potentially subject Scienjoy to significant concentrations of credit risk consist primarily of cash and cash equivalents. Scienjoy’s
cash and cash equivalents consist of cash on hand and demand deposits placed with banks or other financial institutions which
are unrestricted as to withdrawal and use and have original maturities less than three months. Cash and cash equivalents also
consist of funds earned from the operating revenues which were held at the third party platform fund accounts which are unrestricted
as to immediate use or withdraw.
As of December 31, 2019, RMB
132.729 million and RMB 2.579 million were deposited with financial institutions and the third-party payment platforms
located in the PRC. As of December 31, 2019, cash of USD 295,500 (approximately RMB 2 million) was deposited with financial
institutions. As of December 31, 2019, cash and cash equivalents of the VIEs in an aggregate, RMB 41.327 million and RMB
2.579 million respectively, were deposited with financial institutions and the third-party payment platforms located in the
PRC. Scienjoy has no short term investments as of December 31, 2019. These balances are not covered by insurance.
A majority of Scienjoy’s expense
transactions are denominated in RMB and a significant portion of assets and liabilities of Scienjoy and its subsidiaries (including
the VIEs) are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC certain foreign exchange transactions
are required by law to be transacted only by authorized financial institutions at exchange rates set by the PBOC. Remittances
in currencies other than RMB by Scienjoy in China must be processed through the PBOC or other PRC foreign exchange regulatory
bodies which require certain supporting documentation in order to effect the remittance.
The financial institutions that Scienjoy
uses mainly include China Zheshang Bank and Agriculture Bank of China, which are Listed Banks in PRC capital markets. In China,
banks are endorsed by the government. The third-party payment platforms mainly include Ali Pay and Apple Pay, both of which are
well-known multinational companies. While Scienjoy believes that these financial institutions are of high credit quality, it also
continually monitor their credit worthiness.
Scienjoy intends to finance its future working
capital requirements and capital expenditures from cash generated from operating activities and funds raised from financing activities.
Scienjoy believes that its current cash and cash equivalents, together with its cash generated from operating activities and financing
activities, will be sufficient to meet its present anticipated working capital requirements and capital expenditures. However,
Scienjoy may decide to enhance is liquidity position or increase its cash reserve for future investments or operations through
additional capital and finance funding. Issuance of additional equity securities, including convertible debt securities, would
dilute Scienjoy’s earnings per share. The incurrence of debt would divert cash for working capital and capital expenditures
to service debt obligations and could result in operating and financial covenants that restrict Scienjoy’s operations and
Scienjoy’s ability to pay dividends to its shareholders.
As a holding company with no material operations
of its own, Scienjoy conducts its operations primarily through its PRC subsidiaries and its variable interest entity (VIE) and
the VIE’s subsidiaries. Scienjoy is permitted under PRC laws and regulations to provide funding to its PRC subsidiaries in
China through capital contributions or loans, subject to the approval of government authorities and limits on the amount of capital
contributions and loans.
The following table presents the summary of
Scienjoy’s cash flow data.
Amounts in thousands of RMB and US$, except share and per share data or otherwise
stated
|
|
For the years ended
December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
Net cash provided by operating activities
|
|
|
169,788
|
|
|
|
107,286
|
|
|
|
228,886
|
|
Net cash used in investing activities
|
|
|
(691
|
)
|
|
|
(553
|
)
|
|
|
(5,457
|
)
|
Net cash used in financing activities
|
|
|
(66,157
|
)
|
|
|
(170,886
|
)
|
|
|
(151,372
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
102,940
|
|
|
|
(64,153
|
)
|
|
|
72,057
|
|
Cash and cash equivalents at beginning of the period
|
|
|
26,507
|
|
|
|
129,447
|
|
|
|
65,294
|
|
Cash and cash equivalents at end of the period
|
|
|
129,447
|
|
|
|
65,294
|
|
|
|
137,351
|
|
Operating Activities
Net cash provided by or used in operating activities
consisted primarily of Scienjoy’s net income/loss adjusted by non-cash adjustments, such as provision for doubtful accounts,
and adjusted by changes in operating assets and liabilities, such as accounts receivable.
Net cash provided by operating activities
was RMB228.886 million for the year ended December 31, 2019. The difference between the net cash provided by operating activities
and net income of RMB149.918 million was primarily attributable to non-cash adjustment related to bad debt provision of RMB0.854
million, a decrease in accounts receivable of RMB100.432 million due to improved collection and increase of revenue, a decrease
in prepaid expenses and other current assets of RMB18.553 million mainly due to a refund of RMB20 million investment deposit made
in fiscal 2018, an increase in accrued expenses and other current liabilities of RMB6.520 million due to increased surcharge payable
and security deposits received from business venders, and an increase in accrued salary and employee benefits of RMB4.603 million
due to increased headcount and additional annual bonus incurred in 2019, partially offset by a decrease in accounts payable of
RMB54.533 million due to more payments to suppliers in fiscal 2019.
Net cash provided by operating activities
was RMB107.286 million for the year ended December 31, 2018. The difference between net income and net cash provided by operating
activities was small and primarily because non-cash adjustments almost offset changes in operating assets and liabilities. Non-cash
adjustments contributed RMB8.104 million in 2018, which was primarily attributable to depreciation of property and equipment of
RMB1.167 million and provision for doubtful accounts of RMB6.826 million due to an increase in the portion over 12 months of accounts
receivable. Change in operating assets and liabilities depleted RMB7.558 million in 2018, which was primarily attributable to
a decrease in accounts receivable of RMB15.297 million, an increase in accounts payable of RMB18.243 million, a decrease in deferred
revenue of RMB17.913 million and an increase in prepaid expense and other current assets of RMB24.445 million. The decrease in
accounts receivable was attributable to less revenue in 2018 comparing to 2017 and Scienjoy’s continuous efforts on accounts
receivable collection. The increase in accounts payable was primarily because more purchase incurred in the second half of 2018
with increasing broadcaster’s livestream activities. The decrease in deferred revenue was primarily attributable to the
decrease in the unconsumed virtual currency as of December 31, 2018, and the increase in prepaid expenses and other current assets
was primarily because Scienjoy made an investment in a limited partnership in Xiamen to engage in investments. The investment
plan was terminated, and Scienjoy received its investment of RMB20 million back in 2019.
Net cash provided by operating activities
was RMB169.788 million for the year ended December 31, 2017, in which Scienjoy had net income of RMB156.744 million, non-cash
adjustments contributed RMB0.592 million, and change in operating assets and liabilities contributed of RMB12.452 million. The
difference between net income and net cash provided by operating activities was primarily attributable to the decrease in accounts
receivable of RMB123.839 million and increase in deferred revenue of RMB15.062 million, partially offset by a decrease in accounts
payable of RMB134.176 million. The decrease in accounts receivable was primarily attributable to improved accounts receivable
collection in 2017. The increase in deferred revenue was primarily attributable to the decrease in the unconsumed virtual currency
as of December 31, 2017. The decrease in accounts payable was primarily due to Scienjoy effectively dealing with more payments
of broadcaster agents and user acquisition partners with the improved business operation.
Investing Activities
Net cash used in investing activities
was primarily due to (a) purchases of property and equipment such as electronic equipment, and intangible assets such as trademark,
software copyrights, and patents;
(b) long-term investment.
Net cash used in investing activities
amounted to RMB5.457 million for the year ended December 31, 2019, primarily due to a RMB5 million equity investment in Hangzhou
Zhengrui Energy Technology LLP and RMB0.457 million purchase of equipment.
Net cash used in investing activities was
RMB0.553 million for the year ended December 31, 2018, primarily due to cash paid for equipment of RMB0.53 million and intangible
assets of RMB0.02 million.
Net cash used in investing activities was
RMB0.691 million for the year ended December 31, 2017, primarily due to cash paid for equipment of RMB0.62 million and intangible
assets of RMB0.07 million.
Financing Activities
Net cash used in financing activities
amounted to RMB151.372 million for the year ended December 31, 2019, primarily due to the payments for dividends of RMB104.590
million to shareholders and capital distributions of RMB32.328 million due to the reorganization and the repayments of RMB13.147
million to related parties as well as RMB1.307 million paid to IPO related cost.
Net cash used in financing activities was
RMB170.886 million for the year ended December 31, 2018, primarily due to the payment of dividends of RMB228.5 million to shareholders
due to Scienjoy’s reorganization in 2018, non-recurring event, and a capital distribution due to the reorganization of RMB10
million, offsetting the net proceeds of RMB59.215 million from borrowings from related parties and capital contributions of RMB8.399
million.
Net cash used in financing activities amounted
to RMB66.157 million for the year ended December 31, 2017, primarily due to the net repayment of RMB69.944 million to related parties,
offsetting the net proceeds of RMB3.787 million from capital contributions.
Net cash provided by financing activities
amounted to RMB38.838 million for the year ended December 31, 2016, primarily attributable to RMB21.895 million from proceeds from
related parties and the net proceeds of RMB16.943 million from capital contributions.
Capital Expenditures.
For the years ended December 31, 2017,
2018 and 2019, the Company’s capital expenditure amounted to RMB 0.7 million, RMB0.6 million and RMB0.5 million, respectively.
Off-Balance Sheet Commitments and Arrangements
Scienjoy has not entered into any financial
guarantees or other commitments to guarantee the payment obligations of any third parties. Scienjoy has not entered into any derivative
contracts that are indexed to its shares and classified as shareholder’s equity or that are not reflected in its combined and consolidated
financial statements. Furthermore, Scienjoy does 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.
Contractual Obligations
The following table sets forth Scienjoy’s
contractual obligations as of December 31, 2019:
|
|
Payment Due by Period
|
|
Contractual Obligations
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than
5 years
|
|
|
|
(in RMB Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payable to Related Parties
|
|
|
14,007
|
|
|
|
14,007
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Operating Lease Obligations
|
|
|
2,701
|
|
|
|
1,245
|
|
|
|
1,456
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
16,708
|
|
|
|
15,252
|
|
|
|
1,456
|
|
|
|
-
|
|
|
|
-
|
|
Quantitative
and Qualitative Disclosure about Market Risk
Interest Rate Risk
Scienjoy’s exposure to interest rate risk primarily relates
to the interest income generated by excess cash, which is mostly held in interest bearing bank deposits. Scienjoy has not used
derivative financial instruments to manage its interest risk exposure. Interest earning instruments carry a degree of interest
rate risk. Scienjoy has not been exposed to, nor does Scienjoy anticipate being exposed to, material risks due to changes in market
interest rates.
Credit Risk
Financial instruments that potentially
subject Scienjoy to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable,
other receivables included in prepaid expenses, other current assets, and amounts due from related parties. As of December 31,
2018 and 2019, RMB65.294 million and RMB134.772 million, respectively, were deposited with major financial institutions located
in the PRC. Management believes that these financial institutions are of high credit quality and continually monitor the credit
worthiness of these financial institutions. Historically, deposits in Chinese banks are secure due to the state policy on protecting
depositors’ interests.
For the credit risk related to accounts receivable, Scienjoy performs
ongoing credit evaluations of customers. Scienjoy establishes an allowance for doubtful accounts based upon estimates, factors
surrounding the credit risk of specific customers and other information. The allowance amounts were immaterial for all periods
presented.
Foreign Exchange Risk
Substantially all of Scienjoy’s businesses are transacted
in RMB, which is not freely convertible into foreign currencies. On January 1, 1994, the PRC government abolished the dual rate
system and introduced a single rate of exchange as quoted daily by the People’s Bank of China. However, the unification
of the exchange rates does not imply the convertibility of RMB into US$ or other foreign currencies. All foreign exchange transactions
continue to take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies
at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s
Bank of China or other institutions requires submitting a payment application form together with suppliers’ invoices, shipping
documents and signed contracts.
SELECTED HISTORICAL
FINANCIAL INFORMATION OF WEALTHBRIDGE
The following table sets forth selected
historical financial information derived from Wealthbridge’s audited financial statements as of and for the year ended December
31, 2019 and as of December 31, 2018 and for the period from May 2, 2018 (inception) through December 31, 2018, which is included
elsewhere in this proxy statement. Such financial information should be read in conjunction with the audited financial statements
and related notes included elsewhere in this proxy statement.
The historical results presented below are
not necessarily indicative of the results to be expected for any future period. You should carefully read the following selected
financial information in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition
and Results of Operations of Wealthbridge” and Wealthbridge’s financial statements and the related notes appearing
elsewhere in this proxy statement.
(in thousands, except share and per-share
data)
|
|
Year Ended December 31,
2019
|
|
|
For the Period
from May 2,
2018
(inception)
Through
December 31,
2018
|
|
Income Statement Data:
|
|
|
|
|
|
|
Operating costs
|
|
$
|
937
|
|
|
$
|
61
|
|
Interest income and unrealized gain on marketable securities held in the trust account
|
|
$
|
1,088
|
|
|
$
|
—
|
|
Net income (loss)
|
|
$
|
151
|
|
|
$
|
(61
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
Weighted average shares outstanding, basic and diluted
|
|
|
2,276,509
|
|
|
|
1,250,000
|
|
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
Total assets
|
|
$
|
58,601
|
|
|
$
|
367
|
|
Total liabilities
|
|
$
|
2,700
|
|
|
$
|
403
|
|
Ordinary shares subject to possible redemption
|
|
$
|
50,901
|
|
|
$
|
—
|
|
Total stockholders’ equity (deficit)
|
|
$
|
5,000
|
|
|
$
|
(36
|
)
|
MANAGEMENT’s
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF WEALTHBRIDGE
The following discussion should be read in
conjunction with our Financial Statements and footnotes thereto contained in this report.
Overview
Wealthbridge was incorporated
as a blank check company on May 2, 2018, under the laws of the British Virgin Islands, for the purpose of entering into a merger,
share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or
more businesses or entities, which we refer to as a “target business.”
We presently have no revenue, have had losses
since inception from incurring formation costs and have no other operations other than the active solicitation of a target business
with which to complete a business combination. We have relied upon the sale of our securities and loans from our officers and directors
to fund our operations.
Offering
Proceeds Held in Trust
Wealthbridge completed its IPO on February
8, 2019 of 5,000,000 units, with each unit consisting of one Ordinary Share, no par value, one redeemable Warrant and one Right
to receive one-tenth of an ordinary share upon consummation of an initial business combination. Simultaneous with the consummation
of the IPO, we consummated the private placement of 247,500 Private Placement Units at a price of $10.00 per Private Placement
Unit, generating total proceeds of $2,475,000. The Private Placement Units were purchased by Wealthbridge’s sponsor. The
underwriters in the IPO exercised the over-allotment option and on February 20, 2019, the underwriters purchased 750,000 over-allotment
option Units, which were sold at an offering price of $10.00 per Unit, generating gross proceeds of $7,500,000. Simultaneously
with the sale of the over-allotment Units, Wealthbridge consummated the private sale of an additional 22,500 Private Units to its
sponsor, generating gross proceeds of $225,000.
After deducting the underwriting discounts
and commissions and the offering expenses, a total of $57,500,000 was deposited into a trust account established for the benefit
of Wealthbridge’s public shareholders.
Our management has broad discretion with respect
to the specific application of the net proceeds of the IPO and the private placement, although substantially all of the net proceeds
are intended to be applied generally towards consummating a business combination successfully.
Proposed
Business Combination
On October 28, 2019, Wealthbridge, the Sellers,
and Scienjoy Inc. entered into the Share Exchange Agreement, pursuant to which Wealthbridge will purchase from the Sellers all
of the issued and outstanding shares and other equity interests in and of Scienjoy. Scienjoy is a holding company incorporated
under the laws of the Cayman Islands on March 2, 2018 with its WFOE and VIE Entities, operating its own live streaming platforms
in PRC.
Upon the closing of the transactions contemplated in the Share
Exchange Agreement, Wealthbridge will acquire 100% of the issued and outstanding securities of Scienjoy, in exchange for approximately
16.4 million ordinary shares of Wealthbridge, among which 1.64 million ordinary shares of Wealthbridge are to be issued and held
in escrow to satisfy any indemnification obligations of the Sellers. The Sellers are also entitled to receive an additional 3,000,000
ordinary shares of Wealthbridge at the closing because Scienjoy’s net income before tax for the year ended December 31, 2019
is RMB 156,540,470, greater than the Earnout 1 Target (as defined in the Share Exchange Agreement). Additionally, the Sellers may
be entitled to receive additional earnout shares as follows: (1) if Scienjoy’s net income before tax for the year ended December
31, 2020 is greater than or equal to either US$28,300,000 or RMB 190,000,000, the Sellers will be entitled to receive 3,000,000
ordinary shares of Wealthbridge (subject to the reclassification of the ordinary shares of Wealthbridge as described in more details
in the Voting Agreement above); and (2) if Scienjoy’s net income before tax for the year ended December 31, 2021 is greater
than or equal to either US$35,000,000 or RMB 235,000,000, the Sellers will be entitled to receive 3,000,000 ordinary shares of
Wealthbridge (subject to the reclassification of the ordinary shares of Wealthbridge as described in more details in the Voting
Agreement above).
Notwithstanding the net income before tax achieved by the post-transaction
company for any period, the Sellers will receive (i) 3,000,000 earnout shares if the share price of Wealthbridge is higher than
$20.00 for any sixty days in any period of ninety consecutive trading days between the 13th month and 24th month following the
Closing, and (ii) 3,000,000 earnout shares if the share price of Wealthbridge is higher than $25.00 for any sixty days in any period
of ninety consecutive trading between the 25th month and 36th month following the Closing.
Results
of Operations
We have neither engaged in any operations
nor generated any revenues to date. Our only activities from inception to December 31, 2019 were organizational activities and
those necessary to prepare for the Initial Public Offering, described below, and, after our Initial Public Offering, identifying
a target company for a Business Combination and activities in connection with the potential acquisition of Scienjoy. We do not
expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income
in the form of interest income on marketable securities held in the Trust Account. We are incurring expenses as a result of being
a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the year ended December 31, 2019,
we had net income of $151,393, which consisted of interest earned on marketable securities held in the Trust Account of $1,085,110
and an unrealized gain on marketable securities held in the Trust Account of $3,028, offset by operating costs of $936,745.
For the period from May 2, 2018 (inception)
through December 31, 2018, we had a net loss of $60,837, which consisted of operating and formation costs.
Liquidity and Capital Resources
On February 8, 2019, we consummated
the Initial Public Offering of 5,000,000 Units, at a price of $10.00 per Unit, generating gross proceeds of $50,000,000. Simultaneously
with the closing of the Initial Public Offering, we consummated the sale of 247,500 Private Units to our Sponsor, generating gross
proceeds of $2,475,000.
On February 20, 2019, in connection with the
underwriters’ exercise of their over-allotment option in full, we consummated the sale of an additional 750,000 Units at
a price of $10.00 per Unit, generating total gross proceeds of $7,500,000. In addition, we also consummated the sale of an additional
22,500 Private Units at $10.00 per Private Unit, generating total gross proceeds of $225,000.
Following the Initial Public Offering,
the exercise of the over-allotment option and the sale of the Private Units, a total of $57,500,000 was placed in the Trust Account.
We incurred $4,415,225 in Initial Public Offering related costs, including $1,725,000 of underwriting fees, $2,012,500 of deferred
underwriting fees and $677,725 of other costs. On April 10, 2020, Wealthbridge and Chardan entered into a
deferred underwriting fee agreement, pursuant to which Chardan will receive shares equal to the total amount of deferred underwriting
fee divided by the effective conversion price. The effective conversion price is defined as the volume weighted average price (VWAP)
of Wealthbridge’s rights from the date of the mailing of this proxy statement to the date of the Extraordinary General Meeting,
multiplied by 10. For purpose of preparing the pro forma adjustment, the effective conversion price was assumed to be $4.30, which
is based on the VWAP of the rights for the 30 days ended April 7, 2020, which would result in the issuance of 468,023 ordinary
shares.
For the year ended December 31, 2019,
cash used in operating activities was $715,669. Net income of $151,393 was offset by interest earned on marketable securities
held in the Trust Account of $1,085,110 and an unrealized gain on marketable securities held in the Trust Account of $3,028. Changes
in operating assets and liabilities provided $221,076 of cash for operating activities.
At December 31, 2019, we had marketable
securities held in the Trust Account of $58,588,138 (including approximately $1,088,000 of interest income and unrealized gains).
We intend to use substantially all of the funds held in the trust account to acquire a target business or businesses and to pay
our expenses relating thereto. To the extent that our share capital is used in whole or in part as consideration to effect our
initial business combination, the remaining proceeds held in the trust account will be used as working capital to finance the
operations of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding
the target business’ operations, for strategic acquisitions and for marketing, research and development of existing or new
products. Such funds could also be used to repay any operating expenses or finders’ fees which we had incurred prior to
the completion of our initial business combination if the funds available to us outside of the trust account were insufficient
to cover such expenses.
At December 31, 2019, we had cash of
$11,610 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate
target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or
similar locations of prospective target businesses or their representatives or owners, review corporate documents and material
agreements of prospective target businesses, and structure, negotiate and complete a business combination.
In order to fund working capital deficiencies
or finance transaction costs in connection with an initial business combination, our Sponsor or an affiliate of our Sponsor, or
our officers and directors may, but are not obligated to loan us funds. If we complete our initial business combination, we would
repay such loaned amounts. In the event that our initial business combination does not close, we may use a portion of the working
capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such
repayment. Such loans would be evidenced by promissory notes. Up to $500,000 of notes may be convertible into Private Units, at
a price of $10.00 per Unit.
We do not believe we will need to raise
additional funds in order to meet the expenditures required for operating our business prior to our initial business combination.
However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an
initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate
our business prior to our business combination. Moreover, we may need to obtain additional financing either to complete our business
combination or because we become obligated to redeem a significant number of our public shares upon completion of our business
combination, in which case we may issue additional securities or incur debt in connection with such business combination. If we
are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced
to cease operations and liquidate the trust account.
Off-Balance
Sheet Arrangements
We have no obligations, assets or liabilities
which would be considered off-balance sheet arrangements as of December 31, 2019. We do not participate in transactions that create
relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would
have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance
sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities,
or purchased any non-financial assets.
Contractual
Obligations
We do not have any long-term debt, capital
lease obligations, operating lease obligations or long-term liabilities other than an agreement to pay our Sponsor a monthly fee
of $10,000 for general and administrative services, including office space, utilities and administrative services to the Company.
We began incurring these fees on February 5, 2019 and will continue to incur these fees monthly until the earlier of the completion
of the business combination and the Company’s liquidation.
The underwriters are entitled to a
deferred fee of 3.50% of the gross proceeds of the Initial Public Offering, or $2,012,500. The deferred fee will be paid in cash
upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting
agreement.
In addition, we entered into an agreement
with Chardan to provide financial advisory services to us in connection with the identification of and negotiation with potential
targets, assistance with due diligence, marketing, financial analyses and investor relations. In the event a Business Combination
is consummated, we shall pay Chardan an aggregate fee based on the Aggregate Value (as defined in the agreement) of the Business
Combination immediately following the closing of the Business Combination in the form of newly issued shares.
Critical
Accounting Policies
The preparation of financial statements and
related disclosures in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could
materially differ from those estimates. We have identified the following critical accounting policies:
Ordinary shares subject
to redemption
We account for our ordinary shares subject
to possible conversion in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity.” Ordinary shares subject to mandatory redemption are classified as a liability instrument and are
measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that
are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within
our control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity.
Our ordinary shares feature certain redemption rights that are considered to be outside of our control and subject to occurrence
of uncertain future events. Accordingly, ordinary shares subject to possible redemption are presented at redemption value as temporary
equity, outside of the shareholders’ equity section of our condensed balance sheets.
Net loss per ordinary
share
We apply the two-class method in calculating
earnings per share. Ordinary shares subject to possible redemption which are not currently redeemable and are not redeemable at
fair value, have been excluded from the calculation of basic net loss per ordinary share since such shares, if redeemed, only participate
in their pro rata share of the Trust Account earnings. Our net income is adjusted for the portion of income that is attributable
to ordinary shares subject to redemption, as these shares only participate in the earnings of the Trust Account and not our income
or losses.
Recent accounting
pronouncements
Management does not believe that any recently
issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our financial statements.
WEALTHBRIDGE’S
BUSINESS
Overview
Wealthbridge was incorporated
as a blank check company on May 2, 2018, under the laws of the British Virgin Islands, for the purpose of entering into a merger,
share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or
more businesses or entities, which we refer to as a “target business.”
Wealthbridge’s Amended and Restated
Memorandum and Articles of Association provides that its corporate existence will terminate, a voluntary liquidator will be appointed
and it will liquidate the trust account (described herein) and distribute the funds included therein to the holders of ordinary
shares sold in its initial public offering if it does not consummate a Business Combination by the date that is 15 months from
the closing of the IPO, or May 8, 2020, or 21 months from the closing of the IPO, or November 8, 2020, if we further extend the
period of time to consummate a business combination.
Offering
Proceeds Held in Trust
Wealthbridge completed its IPO on February
8, 2019 of 5,000,000 units, with each unit consisting of one Ordinary Share of no par value, one redeemable Warrant and one Right
to receive one-tenth of an ordinary share upon consummation of an initial business combination. Simultaneous with the consummation
of the IPO, we consummated the private placement of 247,500 Private Placement Units at a price of $10.00 per Private Placement
Unit, generating total proceeds of $2,475,000. The Private Placement Units were purchased by Wealthbridge’s sponsor. The
underwriters in the IPO exercised the over-allotment option and on February 20, 2019, the underwriters purchased 750,000 over-allotment
option Units, which were sold at an offering price of $10.00 per Unit, generating gross proceeds of $7,500,000. Simultaneously
with the sale of the over-allotment Units, Wealthbridge consummated the private sale of an additional 22,500 Private Units to its
sponsor, generating gross proceeds of $225,000.
After deducting the underwriting discounts
and commissions and the offering expenses, a total of $57,500,000 was deposited into a trust account established for the benefit
of Wealthbridge’s public shareholders, and the remaining proceeds became available to be used to provide for business, legal
and accounting due diligence on prospective business combinations and continuing general and administrative expenses. As of December
31, 2019, we have approximately $11,600 of unused net proceeds that were not deposited into the trust fund to pay future general
and administrative expenses. The net proceeds deposited into the trust fund remain on deposit in the trust fund earning interest.
As of December 31, 2019, there was $58,588,138 held in the trust fund (including approximately $1,088,000 of interest income and
unrealized gains which we can withdraw to pay taxes, and $2,012,500 of deferred underwriting compensation). On
April 10, 2020, Wealthbridge and Chardan entered into a deferred underwriting fee agreement pursuant to which Chardan will receive
shares equal to the total amount of deferred underwriting fee divided by the effective conversion price. The effective conversion
price is defined as the volume weighted average price (VWAP) of Wealthbridge’s rights from the date of the mailing of this
proxy statement to the date of the Extraordinary General Meeting, multiplied by 10. For purpose of preparing the pro forma adjustment,
the effective conversion price was assumed to be $4.30, which is based on the VWAP of the rights for the 30 days ended April 7,
2020, which would result in the issuance of 468,023 ordinary shares.
Business
Combination Activities
On October 28, 2019, Wealthbridge entered
into the Share Exchange Agreement, pursuant to which Wealthbridge will acquire all of the issued and outstanding shares and other
equity interests of Scienjoy from the Sellers and Scienjoy will become a wholly-owned subsidiary of Wealthbridge. In the event
that the Business Combination is not consummated by the date that is 15 months from the closing of the IPO, or May 8, 2020, or
21 months from the closing of the IPO, or November 8, 2020, if we further extend the period of time to consummate a business combination,
Wealthbridge’s corporate existence will terminate, a voluntary liquidator will be appointed and Wealthbridge will distribute
the proceeds held in the trust account to its public shareholders. See “The Share Exchange Agreement” for more information.
Redemption Rights
Pursuant to Wealthbridge’s
Amended and Restated Memorandum and Articles of Association, Wealthbridge shareholders (except the initial shareholders) will be
entitled to redeem their Wealthbridge ordinary shares for a pro rata share of the trust account net of taxes payable (currently
anticipated to be no less than approximately $10.00 per ordinary share for shareholders).
Wealthbridge will consummate its initial
business combination only if public shareholders holding 4,995,517 ordinary shares elect to redeem their ordinary shares for cash
based on the financial numbers as of December 31, 2019.
Wealthbridge’s initial
shareholders do not have redemption rights with respect to any ordinary shares owned by them, directly or indirectly (nor will
they seek appraisal rights with respect to such ordinary shares if appraisal rights would be available to them).
Automatic Dissolution
and Subsequent Liquidation of Trust Account if No Business Combination
If we do not complete a business combination
within 15 months from the closing of the IPO, or May 8, 2020, or 21 months from the closing of the IPO, or November 8, 2020, if
we further extend the period of time to consummate a business combination, it will trigger our automatic winding up, voluntary
liquidation and subsequent dissolution pursuant to the terms of Wealthbridge’s Amended and Restated Memorandum and Articles
of Association. Accordingly, no vote would be required from our shareholders to commence such a voluntary winding up. However,
if we anticipate that we may not be able to consummate our initial business combination within 12 months, we may, but are not
obligated to, extend the period of time to consummate a business combination by an additional three months (for a total of up
to 21 months to complete a business combination). Pursuant to the terms of Wealthbridge’s Amended and Restated Memorandum
and Articles of Association and the trust agreement entered into between us and Continental Stock Transfer & Trust Company,
LLC, in order to extend the time available for us to consummate our initial business combination, our insiders or their affiliates
or designees, upon five days advance notice prior to the applicable deadline, must deposit into the trust account $575,000 as
the underwriters’ over-allotment option was exercised in part ($0.10 per share), on or prior to the date of the applicable
deadline. The insiders or their affiliates or designees will receive a non-interest bearing, unsecured promissory note equal to
the amount of any such deposit for each such extension. The note for the first extension will not be repaid in the event that
we are unable to close a business combination. The note for the second extension (if applicable) and the note for the third extension
(if applicable) will be repaid by the Sponsor or its designees in the event that Wealthbridge is unable to complete a Business
Combination. All of such notes shall be automatically converted upon consummation of our business combination into additional
private units at a price of $10.00 per unit. Our shareholders have approved the issuance of the private units upon conversion
of such notes, to the extent the holder wishes to so convert such notes at the time of the consummation of our initial business
combination. In the event that we receive notice from our insiders five days prior to the applicable deadline of their intent
to effect an extension, we intend to issue a press release announcing such intention at least three days prior to the applicable
deadline. In addition, we intend to issue a press release the day after the applicable deadline announcing whether or not the
funds had been timely deposited. Our insiders and their affiliates or designees are not obligated to fund the trust account to
extend the time for us to complete our initial business combination (except that Scienjoy agrees to fund the trust account to
extend the time to May 8, 2020). To the extent that some, but not all, of our insiders, decide to extend the period of time to
consummate our initial business combination, such insiders (or their affiliates or designees) may deposit the entire amount required.
If we are unable to consummate our initial business combination within such time period, we will, as promptly as possible but
not more than ten business days thereafter, redeem 100% of our outstanding public shares for a pro rata portion of the funds held
in the trust account, including a pro rata portion of any interest earned on the funds held in the trust account and not necessary
to pay our taxes, and then seek to voluntarily liquidate and subsequently dissolve. However, we may not be able to distribute
such amounts as a result of claims of creditors which may take priority over the claims of our public shareholders. In the event
of our voluntary liquidation and subsequent dissolution, the public rights will expire and will be worthless.
The amount in the trust account
under the Companies Law will be treated as distributable provided that immediately following the date on which the distribution
is proposed to be made, we are able to pay our debts as they fall due in the ordinary course of business. If we are forced to liquidate
the trust account, we anticipate that we would distribute to our public shareholders the amount in the trust account calculated
as of the date that is two days prior to the distribution date (including any accrued interest). Prior to such distribution, we
would be required to assess all claims that may be potentially brought against us by our creditors for amounts they are actually
owed and make provision for such amounts, as creditors take priority over our public shareholders with respect to amounts that
are owed to them. We cannot assure you that we will properly assess all claims that may be potentially brought against us. As such,
our shareholders could potentially be liable for any claims of creditors to the extent of distributions received by them as an
unlawful payment in the event we enter an insolvent liquidation. Furthermore, while we will seek to have all vendors and service
providers (which would include any third parties we engaged to assist us in any way in connection with our search for a target
business) and prospective target businesses execute agreements with us waiving any right, title, interest or claim of any kind
they may have in or to any monies held in the trust account, there is no guarantee that they will execute such agreements. Nor
is there any guarantee that, even if such entities execute such agreements with us, they will not seek recourse against the trust
account or that a court would conclude that such agreements are legally enforceable.
Each of our initial shareholders
and our sponsor has agreed to waive its rights to participate in any liquidation of our trust account or other assets with respect
to the insider shares and private units and to vote their insider shares and private shares in favor of any dissolution and plan
of distribution which we submit to a vote of shareholders. There will be no distribution from the trust account with respect to
our warrants or rights, which will expire worthless.
If we are unable to complete
an initial business combination and expend all of the net proceeds of the IPO, other than the proceeds deposited in the trust account,
and without taking into account interest, if any, earned on the trust account, the initial per-share distribution from the trust
account would be $10.00.
The proceeds deposited in
the trust account could, however, become subject to the claims of our creditors which would be prior to the claims of our public
shareholders. Although we will seek to have all vendors, including lenders for money borrowed, prospective target businesses or
other entities we engage execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies
held in the trust account for the benefit of our public shareholders, there is no guarantee that they will execute such agreements
or even if they execute such agreements that they would be prevented from bringing claims against the trust account, including
but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging
the enforceability of the waiver, in each case in order to gain an advantage with a claim against our assets, including the funds
held in the trust account. If any third party refused to execute an agreement waiving such claims to the monies held in the trust
account, we would perform an analysis of the alternatives available to us if we chose not to engage such third party and evaluate
if such engagement would be in the best interest of our shareholders if such third party refused to waive such claims. Examples
of possible instances where we may engage a third party that refused to execute a waiver include the engagement of a third party
consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants
that would agree to execute a waiver or in cases where management is unable to find a provider of required services willing to
provide the waiver. In any event, our management would perform an analysis of the alternatives available to it and would only enter
into an agreement with a third party that did not execute a waiver if management believed that such third party’s engagement
would be significantly more beneficial to us than any alternative. In addition, there is no guarantee that such entities will agree
to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with
us and will not seek recourse against the trust account for any reason.
Oriental Holdings Limited,
our Sponsor, has agreed that, if we liquidate the trust account prior to the consummation of a business combination, it will be
liable to pay debts and obligations to target businesses or vendors or other entities that are owed money by us for services rendered
or contracted for or products sold to us in excess of the net proceeds of the IPO not held in the trust account, but only to the
extent necessary to ensure that such debts or obligations do not reduce the amounts in the trust account and only if such parties
have not executed a waiver agreement. However, we cannot assure you that he will be able to satisfy those obligations if he is
required to do so. Accordingly, the actual per-share distribution could be less than $10.00 due to claims of creditors. Additionally,
if we are forced to file a bankruptcy case or a winding up petition is filed against us which is not dismissed, the proceeds held
in the trust account could be subject to applicable insolvency law, and may be included in our estate and subject to the claims
of third parties with priority over the claims of our shareholders. To the extent any liquidation or insolvency claims deplete
the trust account, we cannot assure you we will be able to return to our public shareholders at least $10.00 per share.
Facilities
We maintain our principal executive offices
at Unit B, 17/F Success Commercial Building, 245-251 Hennessy Road, Wanchai, Hong Kong. The cost for this space is provided to
us by Oriental Holdings Limited, a company wholly owned by our insiders, as part of the $10,000 per month payment we make to it
for office space and related services. We consider our current office space adequate for our current operations.
Employees
We have three
executive officers. These individuals are not obligated to devote any specific number of hours to our matters and intend to devote
only as much time as they deem necessary to our affairs. The amount of time they will devote in any time period will vary based
on whether a target business has been selected for the business combination and the stage of the business combination process the
company is in. Accordingly, once management locates a suitable target business to acquire, they will spend more time investigating
such target business and negotiating and processing the business combination (and consequently spend more time to our affairs)
than they would prior to locating a suitable target business. We presently expect our executive officers to devote such amount
of time as they reasonably believe is necessary to our business (which could range from only a few hours a week while we are trying
to locate a potential target business to a majority of their time as we move into serious negotiations with a target business for
a business combination). We do not intend to have any full time employees prior to the consummation of a business combination.
INDEX
TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Wealthbridge Acquisition Limited
Opinion on the Financial Statements
We have audited
the accompanying balance sheets of Wealthbridge Acquisition Limited (the “Company”) as of December 31, 2019 and 2018,
the related statements of operations, changes in shareholders’ equity (deficit) and cash flows for the year ended December
31, 2019 and for the period from May 2, 2018 (inception) through December 31, 2018, 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
the year ended December 31, 2019 and for the period from May 2, 2018 (inception) through December 31, 2018, in conformity with
accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our
audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits 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/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2018.
New York, NY
March 20, 2020
WEALTHBRIDGE
ACQUISITION LIMITED
BALANCE SHEETS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
11,610
|
|
|
$
|
52,937
|
|
Prepaid expenses
|
|
|
833
|
|
|
|
—
|
|
Total Current Assets
|
|
|
12,443
|
|
|
|
52,937
|
|
|
|
|
|
|
|
|
|
|
Marketable securities held in Trust Account
|
|
|
58,588,138
|
|
|
|
—
|
|
Deferred offering costs
|
|
|
—
|
|
|
|
314,146
|
|
Total Assets
|
|
$
|
58,600,581
|
|
|
$
|
367,083
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
221,909
|
|
|
$
|
—
|
|
Advance from related party
|
|
|
—
|
|
|
|
12,820
|
|
Promissory note – related party
|
|
|
—
|
|
|
|
390,000
|
|
|
|
|
221,909
|
|
|
|
402,820
|
|
|
|
|
|
|
|
|
|
|
Promissory note – related party
|
|
|
465,641
|
|
|
|
—
|
|
Deferred underwriting fees
|
|
|
2,012,500
|
|
|
|
—
|
|
Total Liabilities
|
|
|
2,700,050
|
|
|
|
402,820
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares subject to possible
redemption, 4,995,517 shares at redemption value at December 31, 2019
|
|
|
50,900,529
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
Ordinary shares, no par value; unlimited shares authorized;
2,461,983 and 1,437,500 shares issued and outstanding (excluding 4,995,517 and no shares subject to possible redemption) at
December 31, 2019 and 2018, respectively
|
|
|
4,909,446
|
|
|
|
25,100
|
|
Retained earnings/(Accumulated deficit)
|
|
|
90,556
|
|
|
|
(60,837
|
)
|
Total Shareholders’ Equity (Deficit)
|
|
|
5,000,002
|
|
|
|
(35,737
|
)
|
Total Liabilities and Shareholders’ Equity (Deficit)
|
|
$
|
58,600,581
|
|
|
$
|
367,083
|
|
The
accompanying notes are an integral part of the financial statements.
WEALTHBRIDGE
ACQUISITION LIMITED
STATEMENTS OF OPERATIONS
|
|
Year Ended
December 31,
|
|
|
For the Period from May 2,
2018
(inception) Through
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Operating costs
|
|
$
|
936,745
|
|
|
$
|
60,837
|
|
Loss from operations
|
|
|
(936,745
|
)
|
|
|
(60,837
|
)
|
|
|
|
|
|
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
Interest income on marketable securities held in Trust Account
|
|
|
1,085,110
|
|
|
|
—
|
|
Unrealized gain on marketable securities held in
Trust Account
|
|
|
3,028
|
|
|
|
—
|
|
Net income (loss)
|
|
$
|
151,393
|
|
|
$
|
(60,837
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding, basic and diluted (1)
|
|
|
2,276,509
|
|
|
|
1,250,000
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per ordinary share (2)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.05
|
)
|
|
(1)
|
Excludes
an aggregate of 4,995,517 shares subject to redemption at December 31, 2019. At December
30, 2018, such amount excluded an aggregate of up to 187,500 shares subject to forfeiture
if the over-allotment option was not exercised in full or in part by the underwriters.
|
|
(2)
|
Net
loss per ordinary share – basic and diluted excludes income attributable to ordinary
shares subject to possible redemption of $945,374 for the year ended December 31, 2019.
|
The accompanying notes are an integral
part of the financial statements.
WEALTHBRIDGE
ACQUISITION LIMITED
STATEMENT OF CHANGES IN SHAREHOLDERS’
EQUITY
|
|
Ordinary Shares
|
|
|
Retained Earnings/ (Accumulated
|
|
|
Total
Shareholders’
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit)
|
|
|
(Deficit)
|
|
Balance – May 2, 2018 (inception)
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of ordinary shares to initial
shareholders
|
|
|
1,437,500
|
|
|
|
25,100
|
|
|
|
—
|
|
|
|
25,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
(60,837
|
)
|
|
|
(60,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December 31, 2018
|
|
|
1,437,500
|
|
|
|
25,100
|
|
|
|
(60,837
|
)
|
|
|
(35,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of 5,750,000 Units, net of underwriting
discounts and offering expenses
|
|
|
5,750,000
|
|
|
|
53,084,775
|
|
|
|
—
|
|
|
|
53,084,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of 270,000 Private Units
|
|
|
270,000
|
|
|
|
2,700,000
|
|
|
|
—
|
|
|
|
2,700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of unit purchase option
|
|
|
—
|
|
|
|
100
|
|
|
|
—
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares subject to possible redemption
|
|
|
(4,995,517
|
)
|
|
|
(50,900,529
|
)
|
|
|
—
|
|
|
|
(50,900,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
151,393
|
|
|
|
151,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December
31, 2019
|
|
|
2,461,983
|
|
|
$
|
4,909,446
|
|
|
$
|
90,556
|
|
|
$
|
5,000,002
|
|
The accompanying notes are an integral
part of the financial statements.
WEALTHBRIDGE
ACQUISITION LIMITED
STATEMENTS OF CASH FLOWS
|
|
Year Ended
December 31,
2019
|
|
|
For the
Period from May 2,
2018
(inception)
Through
December 31,
2018
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
151,393
|
|
|
$
|
(60,837
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Interest earned on securities held in Trust Account
|
|
|
(1,085,110
|
)
|
|
|
—
|
|
Unrealized gain on securities held in Trust Account
|
|
|
(3,028
|
)
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(833
|
)
|
|
|
—
|
|
Accounts payable and accrued expenses
|
|
|
221,909
|
|
|
|
—
|
|
Net cash used in operating activities
|
|
|
(715,669
|
)
|
|
|
(60,837
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Investment of cash in Trust Account
|
|
|
(57,500,000
|
)
|
|
|
—
|
|
Net cash used in investing activities
|
|
|
(57,500,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of Units, net of underwriting discount paid
|
|
|
55,775,000
|
|
|
|
—
|
|
Proceeds from sale of Private Units
|
|
|
2,700,000
|
|
|
|
—
|
|
Proceeds from sale of unit purchase option
|
|
|
100
|
|
|
|
—
|
|
Proceeds from issuance of ordinary shares to initial shareholders
|
|
|
—
|
|
|
|
25,100
|
|
Proceeds from promissory note – related party
|
|
|
100,831
|
|
|
|
402,820
|
|
Repayment of promissory note – related party
|
|
|
(50,831
|
)
|
|
|
—
|
|
Advances from related party
|
|
|
12,821
|
|
|
|
—
|
|
Payment of offering costs
|
|
|
(363,579
|
)
|
|
|
(314,416
|
)
|
Net cash provided by financing
activities
|
|
|
58,174,342
|
|
|
|
113,774
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(41,327
|
)
|
|
|
52,937
|
|
Cash at beginning of period
|
|
|
52,937
|
|
|
|
—
|
|
Cash at end of period
|
|
$
|
11,610
|
|
|
$
|
52,937
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Initial classification of ordinary shares subject to possible redemption
|
|
$
|
50,740,740
|
|
|
$
|
—
|
|
Change in value of ordinary shares subject to possible redemption
|
|
$
|
159,789
|
|
|
$
|
—
|
|
Deferred underwriting fee payable
|
|
$
|
2,012,500
|
|
|
$
|
—
|
|
Conversion of advances and short-term promissory notes to long-term promissory
notes
|
|
$
|
415,641
|
|
|
$
|
—
|
|
The
accompanying notes are an integral part of the financial statements.
WEALTHBRIDGE
ACQUISITION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019
AND 2018
NOTE
1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Wealthbridge
Acquisition Limited (the “Company”) is a blank check company incorporated in the British Virgin Islands on May 2,
2018. The Company was formed for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization,
reorganization or similar business combination with one or more businesses or entities (“Business Combination”). Although
the Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination,
the Company intends to focus on businesses in and around the air transportation and aviation industry in China.
All activity through December 31, 2019
relates to the Company’s formation, the Initial Public Offering (as defined below), identifying a target business for a
Business Combination, and activities in connection with the potential acquisition of Scienjoy, Inc. (“Scienjoy”) (see
Note 7). The Company is subject to all of the risks associated with early stage and emerging growth companies.
The
registration statement for the Company’s Initial Public Offering was declared effective on February 5, 2019. On February
8, 2019, the Company consummated the Initial Public Offering of 5,000,000 units (“Units” and, with respect to the
ordinary shares included in the Units sold, the “Public Shares”) at $10.00 per Unit, generating gross proceeds of
$50,000,000, which is described in Note 3.
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of 247,500 units (the “Private Units”)
at a price of $10.00 per Private Unit in a private placement to the Company’s sponsor, Oriental Holdings Limited (the “Sponsor”),
jointly owned by the Company’s director, Jining Li, through Keen Nice Communications Limited and Yongsheng Liu, generating
gross proceeds of $2,475,000, which is described in Note 4.
Following
the closing of the Initial Public Offering on February 8, 2019, an amount of $50,000,000 ($10.00 per Unit) from the net proceeds
of the sale of the Units in the Initial Public Offering and the sale of the Private Units was placed in a trust account (“Trust
Account”) and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment
Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended
investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of
the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination or
(ii) the distribution of the funds in the Trust Account to the Company’s shareholders, as described below.
On
February 20, 2019, the underwriters exercised their over-allotment option in full, resulting in an additional 750,000 Units issued
for $7,500,000, less the underwriters’ discount of $225,000. In connection with the underwriters’ exercise of their
over-allotment option in full, the Company also consummated the sale of an additional 22,500 Private Units at $10.00 per Private
Unit, generating total gross proceeds of $225,000. A total of $7,500,000 was deposited into the Trust Account, bringing the aggregate
proceeds held in the Trust Account to $57,500,000.
Transaction costs amounted to $4,415,225,
consisting of $1,725,000 of underwriting fees, $2,012,500 of deferred underwriting fees and $677,725 of other costs. In addition,
as of December 31, 2019, cash of $11,610 was held outside of the Trust Account and is available for working capital purposes.
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public
Offering and sale of the Private Units, although substantially all of the net proceeds are intended to be applied generally toward
consummating a Business Combination. NASDAQ rules provide that the Business Combination must be with one or more target businesses
that together have a fair market value equal to at least 80% of the balance in the Trust Account (less any deferred underwriting
commissions and interest released to pay taxes payable) at the time of signing a definitive agreement in connection with a Business
Combination. The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50%
or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient
for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment
Company Act”). There is no assurance that the Company will be able to successfully effect a Business Combination.
The
Company will provide its shareholders with the opportunity to redeem all or a portion of their Public Shares upon the completion
of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii)
by means of a tender offer. The decision as to whether the Company will seek shareholder approval of a Business Combination or
conduct a tender offer will be made by the Company, solely in its discretion. The shareholders will be entitled to redeem their
Public Shares for a pro rata portion of the amount then on deposit in the Trust Account (initially $10.00 per share, plus any
pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations).
The per-share amount to be distributed to shareholders who redeem their shares will not be reduced by the deferred underwriting
commissions the Company will pay to the underwriter (as discussed in Note 7). There will be no redemption rights upon the completion
of a Business Combination with respect to the Company’s warrants.
WEALTHBRIDGE
ACQUISITION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019
AND 2018
NOTE
1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS (CONTINUED)
The
Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation
of a Business Combination and, if the Company seeks shareholder approval, a majority of the outstanding shares voted are voted
in favor of the Business Combination. If a shareholder vote is not required and the Company does not decide to hold a shareholder
vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Memorandum and Articles of Association,
offer such redemption pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”), and file
tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior
to completing a Business Combination.
The
Company’s initial shareholders (the “initial shareholders”) have agreed (a) to vote their founder shares, the
ordinary shares included in the Private Units (the “Private Shares”) and any Public Shares purchased during or after
the Initial Public Offering in favor of a Business Combination, (b) not to propose, or vote in favor of, an amendment to the Company’s
Amended and Restated Memorandum and Articles of Association that would stop the public shareholders from converting or selling
their shares to the Company in connection with a Business Combination or affect the substance or timing of the Company’s
obligation to redeem 100% of the Public Shares if the Company does not complete a Business Combination within the Combination
Period (as defined below) unless the Company provides dissenting public shareholders with the opportunity to convert their Public
Shares into the right to receive cash from the Trust Account in connection with any such vote; (c) not to convert any founder
shares and Private Units (including underlying securities) (as well as any Public Shares purchased during or after the Initial
Public Offering) into the right to receive cash from the Trust Account in connection with a shareholder vote to approve a Business
Combination (or sell any shares in a tender offer in connection with a Business Combination) or a vote to amend the provisions
of the Amended and Restated Memorandum and Articles of Association relating to shareholders’ rights of pre-Business Combination
activity and (d) that the founder shares and Private Units (including underlying securities) shall not participate in any liquidating
distributions upon winding up if a Business Combination is not consummated. However, the initial shareholders will be entitled
to liquidating distributions from the Trust Account with respect to any Public Shares purchased during or after the Initial Public
Offering if the Company fails to complete its Business Combination.
The Company initially had until February
8, 2020 to consummate a Business Combination. However, if the Company anticipated that it may not be able to consummate a Business
Combination by February 8, 2020, the Company may, but was not obligated to, extend the period of time to consummate a Business
Combination three times by an additional three months each time (for a total of up to 21 months to complete a Business Combination)
(the “Combination Period”). In order to extend the time available for the Company to consummate a Business Combination,
the initial shareholders or their affiliates or designees must deposit into the Trust Account $575,000 ($0.10 per share), on or
prior to the applicable deadline.
On January 29, 2020, Scienjoy deposited
$575,000 into the Company’s Trust Account in order to extend the amount of time it has available to complete a business
combination from February 8, 2020 to May 8, 2020. The Company issued a promissory note to Scienjoy with a principal amount equal
to the amount deposited (the “Note”). The Note is non-interest bearing and is payable upon the closing of a Business
Combination. In addition, the Note may be converted, at the lender’s discretion, into additional Private Units at a price
of $10.00 per unit.
If
the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations
except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter, redeem
100% of the outstanding Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in
the Trust Account, including interest earned (net of taxes payable), which redemption will completely extinguish public shareholders’
rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law,
and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders
and the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the
Company, subject in each case to its obligations to provide for claims of creditors and the requirements of applicable law. The
underwriter has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event the
Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included
with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such
distribution, it is possible that the per share value of the assets remaining available for distribution will be less than $10.00.
The
Sponsor has agreed that it will be liable to the Company, if and to the extent any claims by a vendor for services rendered or
products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction
agreement, reduce the amounts in the Trust Account to below $10.00 per share, except as to any claims by a third party who executed
a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity
of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act
of 1933, as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against
a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will
seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring
to have all vendors, service providers, prospective target businesses or other entities with which the Company does business,
execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust
Account.
WEALTHBRIDGE
ACQUISITION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019
AND 2018
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
The accompanying financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
and pursuant to the rules and regulations of the SEC.
Emerging
growth company
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart
Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to,
not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of
the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements,
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval
of any golden parachute payments not previously approved.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial
accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared
effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised
financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and
comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The
Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and
it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the
new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s
financial statements with another public company which is neither an emerging growth company nor an emerging growth company which
has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting
standards used.
Use
of estimates
The
preparation of financial statements in conformity with 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 financial
statements and the reported amounts of revenues and expenses during the reporting period.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect
of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered
in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual
results could differ significantly from those estimates.
Cash
and cash equivalents
The Company considers all short-term
investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have
any cash equivalents as of December 31, 2019 and 2018.
WEALTHBRIDGE
ACQUISITION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019
AND 2018
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Marketable
securities held in Trust Account
At December 31, 2019, the assets held
in the Trust Account were substantially held in U.S. Treasury Bills.
Ordinary
shares subject to possible redemption
The
Company accounts for its ordinary share subject to possible redemption in accordance with the guidance in Accounting Standards
Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory
redemption are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including
ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon
the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other
times, ordinary shares are classified as shareholders’ equity. The Company’s ordinary shares feature certain redemption
rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events.
Accordingly, ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of
the shareholders’ equity section of the Company’s balance sheet.
Income
taxes
The
Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an
asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities
are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future
taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected
to be realized.
ASC Topic 740 prescribes a recognition
threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected
to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained
upon examination by taxing authorities. The Company’s management determined that the British Virgin Islands is the Company’s
major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as
income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31,
2019 and 2018. The Company is currently not aware of any issues under review that could result in significant payments, accruals
or material deviation from its position.
The
Company may be subject to potential examination by foreign taxing authorities in the area of income taxes. These potential examinations
may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance
with foreign tax laws.
The
Company’s tax provision is zero because the Company is organized in the British Virgin Islands with no connection to any
other taxable jurisdiction. As such, the Company has no deferred tax assets. The Company is considered to be an exempted British
Virgin Islands Company and is presently not subject to income taxes or income tax filing requirements in the British Virgin Islands
or the United States.
Net
loss per ordinary share
Net loss per share is computed by dividing
net loss by the weighted average number of ordinary shares outstanding during the period, excluding ordinary shares subject to
forfeiture. At December 31, 2018, weighted average shares were reduced for the effect of an aggregate of 187,500 ordinary shares
that were subject to forfeiture if the over-allotment option was not exercised by the underwriters (see Note 5). Ordinary shares
subject to possible redemption at December 31, 2019, which are not currently redeemable and are not redeemable at fair value,
have been excluded from the calculation of basic net loss per ordinary share since such shares, if redeemed, only participate
in their pro rata share of the Trust Account earnings. The Company has not considered the effect of (1) warrants sold in the Initial
Public Offering and the private placement to purchase 3,010,000 ordinary shares, (2) rights sold in the Initial Public Offering
and the private placement that convert into 602,000 ordinary shares, and (3) 431,250 ordinary shares, warrants to purchase 215,625
ordinary shares and rights that convert into 43,125 ordinary shares in the unit purchase option sold to the underwriter, in the
calculation of diluted loss per share, since the exercise of the warrants, the conversion of the rights into ordinary shares and
the exercise of the unit purchase option are contingent upon the occurrence of future events. As a result, diluted net loss per
ordinary share is the same as basic net loss per ordinary share for the periods presented.
WEALTHBRIDGE
ACQUISITION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019
AND 2018
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reconciliation
of net loss per ordinary share
The Company’s net income (loss)
is adjusted for the portion of income that is attributable to ordinary shares subject to possible redemption, as these shares
only participate in the earnings of the Trust Account and not the income or losses of the Company. Accordingly, basic and diluted
loss per ordinary share is calculated as follows:
|
|
Year Ended
December 31,
|
|
|
For the Period from May 2,
2018
(inception) Through
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net income (loss)
|
|
$
|
151,393
|
|
|
$
|
(60,837
|
)
|
Less: Income attributable to ordinary shares subject to possible redemption
|
|
|
(945,374
|
)
|
|
|
—
|
|
Adjusted net loss
|
|
$
|
(793,981
|
)
|
|
$
|
(60,837
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
2,276,509
|
|
|
|
1,250,000
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per ordinary share
|
|
$
|
(0.35
|
)
|
|
$
|
(0.05
|
)
|
Concentration
of credit risk
Financial instruments that potentially
subject the Company to concentration of credit risk consist of a cash account in a financial institution. The Company had not
experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Fair
value of financial instruments
The fair value of the Company’s
assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,”
approximates the carrying amounts represented in the accompanying balance sheets, primarily due to their short-term nature.
Recently
issued accounting standards
Management does not believe that any
recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s
financial statements.
NOTE
3. INITIAL PUBLIC OFFERING
Pursuant
to the Initial Public Offering, the Company sold 5,750,000 Units at a purchase price of $10.00 per Unit, which includes the exercise
by the underwriters of their over-allotment option in full of 750,000 Units at $10.00 per Unit. Each Unit consists of one ordinary
share, one redeemable warrant (“Public Warrant”) and one right (“Public Right”). Each Public Warrant entitles
the holder to purchase one-half of one ordinary share at an exercise price of $11.50 per whole share (see Note 8). However, the
Public Warrants may only be exercised for a whole number of shares, meaning that the Public Warrants must be exercised in multiples
of two. Each Public Right entitles the holder to receive one-tenth of one ordinary share at the closing of a Business Combination
(see Note 8).
NOTE
4. PRIVATE PLACEMENT
Simultaneously
with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 247,500 Private Units at a price of $10.00
per Private Unit, or $2,475,000 in the aggregate. On February 20, 2019, in connection with the underwriters’ exercise of
the over-allotment option in full, the Sponsor purchased an additional 22,500 Private Units for an aggregate purchase price of
$225,000. Each Private Unit consists of one Private Share, one redeemable warrant (each, a “Private Warrant”) and
one right (each, a “Private Right”). Each Private Warrant is exercisable to purchase one-half of one ordinary share
at a price of $11.50 per whole share. However, the Private Warrants may only be exercised for a whole number of shares, meaning
that the Private Warrants must be exercised in multiples of two. Each Private Right entitles the holder to receive one-tenth of
one ordinary share at the closing of a Business Combination. The proceeds from the sale of the Private Units were added to the
net proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination
within the Combination Period, the proceeds from the sale of the Private Units will be used to fund the redemption of the Public
Shares (subject to the requirements of applicable law) and the Private Warrants and Private Rights will expire worthless.
WEALTHBRIDGE
ACQUISITION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019
AND 2018
NOTE
5. RELATED PARTY TRANSACTIONS
Founder
Shares
In
July 2018, the Company issued an aggregate of 1,150,000 founder shares to the initial shareholders for an aggregate purchase price
of $25,100 in cash. On October 15, 2018, the Company effected a 5 for 4 stock split of its ordinary share, resulting in 1,437,500
founder shares outstanding. The founder shares included an aggregate of up to 187,500 shares subject to forfeiture by the initial
shareholders to the extent that the underwriters’ over-allotment was not exercised in full or in part, so that the initial
shareholders would collectively own 20% of the Company’s issued and outstanding shares after the Initial Public Offering
(assuming the initial shareholders did not purchase any Public Shares in the Initial Public Offering and excluding the Private
Units and underlying securities). In connection with the underwriters’ exercise of the over-allotment option in full on
February 20, 2019, 187,500 founder shares are no longer subject to forfeiture.
The
initial shareholders have agreed not to transfer, assign or sell any of the founder shares (except to certain permitted transferees)
until (1) with respect to 50% of the founder shares, the earlier of six months after the completion of a Business Combination
and the date on which the closing price of the ordinary shares equals or exceeds $12.50 per share for any 20 trading days within
any 30-trading day period commencing after a Business Combination and (2) with respect to the remaining 50% of the founder shares,
six months after the completion of a Business Combination, or earlier, in either case, if, subsequent to a Business Combination,
the Company completes a liquidation, merger, share exchange or other similar transaction which results in all of the Company’s
shareholders having the right to exchange their ordinary shares for cash, securities or other property.
Advance
from Related Party
Keen Nice Communications Limited advanced
the Company an aggregate of $12,821 to be used for the payment of costs related to the Initial Public Offering. The advances were
non-interest bearing, unsecured and due on demand. As of December 31, 2019 and 2018, advances amounting to $0 and $12,821, respectively,
were outstanding (see below).
Promissory
Note — Related Party
The Company issued Keen Nice Communications
Limited a promissory note, pursuant to which the Company borrowed an aggregate of $390,000 (the “Promissory Note”).
The Promissory Note was non-interest bearing, unsecured and due on the closing of the Initial Public Offering. As of December
31, 2019 and 2018, $0 and $390,000, respectively, was outstanding under the Promissory Note.
On February 14, 2019, the Company amended
the Promissory Note with Keen Nice Communications Limited pursuant to which outstanding advances in the amount of $25,641 and
the outstanding loans under the Promissory Note in the amount of $390,000 were combined into one note for an aggregate amount
of $415,641. The Promissory Note was further amended on May 10, 2019 (the “Amended Promissory Note”) such that the
Company can borrow up to an aggregate amount of $800,000 under the Amended Promissory Note. The Amended Promissory Note is non-interest
bearing, unsecured and due upon the consummation of a Business Combination. As of December 31, 2019, $465,641 was outstanding
under the Amended Promissory Note.
Administrative
Services Agreement
The Company entered into an agreement,
commencing on February 5, 2019 through the earlier of the consummation of a Business Combination or the Company’s liquidation,
to pay the Sponsor a monthly fee of $10,000 for general and administrative services, including office space, utilities and administrative
services, of which HKD50,000 (or approximately USD$6,369 based on an exchange rate of HKD$7.85 to USD$1.00 on September 30, 2019)
per month will be paid to the Company’s Chief Executive Officer for services to the Company. However, pursuant to the terms
of such agreement, the Company may delay payment of such monthly fee upon a determination by the audit committee that the Company
lacks sufficient funds held outside the Trust Account to pay actual or anticipated expenses in connection with a Business Combination.
Any such unpaid amount will accrue without interest and be due and payable no later than the date of the consummation of a Business
Combination. For the year ended December 31, 2019, the Company incurred $110,000, in fees for these services, of which $45,897
is included in accounts payable and accrued expenses in the accompanying balance sheets.
Services
Arrangement
The Company entered into a services
arrangement with Star Jet Co., Ltd., a company whose founder and Chairman is also a Director of the Company. During the year ended
December 31, 2019 and for the period from May 2, 2018 (inception) through December 31,2018, the Company paid Star Jet Co., Ltd.
$33,180 and $12,821 in fees for services provided, respectively.
WEALTHBRIDGE
ACQUISITION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019
AND 2018
NOTE
5. RELATED PARTY TRANSACTIONS (CONTINUED)
Related Party Loans
In order to finance transaction costs
in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor, or the Company’s
officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”).
Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummation of a Business
Combination, without interest, or, at the lender’s discretion, up to $500,000 of notes may be converted upon consummation
of a Business Combination into additional Private Units at a price of $10.00 per Unit. In the event that a Business Combination
does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but
no proceeds held in the Trust Account would be used to repay the Working Capital Loans.
Related
Party Extension Loans
As
discussed in Note 1, the Company may extend the period of time to consummate a Business Combination three times by an additional
three months each time (for a total of 21 months to complete a Business Combination). In order to extend the time available for
the Company to consummate a Business Combination, the initial shareholders or their affiliates or designees must deposit into
the Trust Account for each three-month extension $575,000 ($0.10 per Unit), on or prior to the date of the applicable deadline.
The initial shareholders will receive a non-interest bearing, unsecured promissory note equal to the amount of any such deposit
that will not be repaid in the event that the Company is unable to complete a Business Combination unless there are funds available
outside the Trust Account to do so. Such notes would either be paid upon consummation of a Business Combination, or, at the lender’s
discretion, converted upon consummation of a Business Combination into additional Private Units at a price of $10.00 per unit.
NOTE 6. PROMISSORY NOTE
On January 28, 2020, the Company issued
the $575,000 Note to Scienjoy, pursuant to which such amount was deposited into the Company’s Trust Account in order to
extend the amount of time the Company has available to complete a Business Combination from February 8, 2020 to May 8, 2020. The
Note is non-interest bearing and is payable upon the closing of a Business Combination. In addition, the Note may be converted,
at the lender’s discretion, into additional Private Units at a price of $10.00 per unit.
NOTE
7. COMMITMENTS
Registration
Rights
Pursuant
to a registration rights agreement entered into on February 5, 2019, the holders of the founder shares, Private Units (and their
underlying securities) and any Units that may be issued upon conversion of the Working Capital Loans (and underlying securities)
are entitled to registration rights. The holders of a majority of these securities are entitled to make up to two demands that
the Company register such securities. The holders of the majority of the founder shares can elect to exercise these registration
rights at any time commencing three months prior to the date on which these ordinary shares are to be released from escrow. The
holders of a majority of the Private Units (and underlying securities) and securities issued in payment of Working Capital Loans
(or underlying securities) or loans to extend our life can elect to exercise these registration rights at any time after the Company
consummates a Business Combination. In addition, the holders have certain “piggy-back” registration rights with respect
to registration statements filed subsequent to the consummation of a Business Combination. The Company will bear the expenses
incurred in connection with the filing of any such registration statements.
Underwriters
Agreement
The
underwriters are entitled to a deferred fee of 3.50% of the gross proceeds of the Initial Public Offering, or $2,012,500. The
deferred fee will be paid in cash upon the closing of a Business Combination from the amounts held in the Trust Account, subject
to the terms of the underwriting agreement.
Right
of First Refusal
Subject
to certain conditions, the Company granted Chardan Capital Markets, LLC (“Chardan”), for a period of 15 months after
the date of the consummation of a Business Combination, a right of first refusal to act as lead underwriters or minimally as a
co-manager, with at least 30% of the economics; or, in the case of a three-handed deal 20% of the economics, for any and all future
public and private equity and debt offerings. In accordance with FINRA Rule 5110(f)(2)(E)(i), such right of first refusal shall
not have a duration of more than three years from the effective date of the registration statement related to the Initial Public
Offering.
Advisory Agreement
The Company entered into an agreement
with Chardan to provide financial advisory services to the Company in connection with the identification of and negotiation with
potential targets, assistance with due diligence, marketing, financial analyses and investor relations. In the event a Business
Combination is consummated, the Company shall pay Chardan an aggregate fee based on the Aggregate Value (as defined in the agreement)
of the Business Combination immediately following the closing of the Business Combination in the form of newly issued Company
shares.
WEALTHBRIDGE
ACQUISITION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019
AND 2018
NOTE
7. COMMITMENTS (CONTINUED)
M&A Advisory Agreement
The Company engaged China Fuhua Hong
Kong Financial Group Limited (“Fuhua”), a financial services company in Hong Kong, China, to introduce Scienjoy to
the Company. Pursuant to the engagement letter entered on April 15, 2019, Fuhua will assist the Company with due diligence, developing
and designing the transaction structure and negotiation of the valuation of Scienjoy as reasonably requested by the Company. In
the event the Scienjoy Business Combination (see below) is consummated, the Company will pay Fuhua equal to 1.8% of the Purchase
Price (as defined in the agreement) of the Scienjoy Business Combination in the form of newly issued Company shares.
Share Exchange Agreement
On October 28, 2019, the Company entered
into a share exchange agreement (as may be amended or supplemented from time to time, the “Share Exchange Agreement”)
with Scienjoy, Lavacano Holdings Limited (“Lavacano”), WBY Entertainment Holdings Ltd. (“WBY,” together
with Lavacano, the “Sellers”, and each “Seller”).
Upon the closing of the transactions
contemplated in the Share Exchange Agreement (the “Scienjoy Business Combination”), the Company will acquire 100%
of the issued and outstanding securities of Scienjoy, in exchange for approximately 16.4 million ordinary shares of the Company,
of which 1.64 million ordinary shares are to be issued and held in escrow to satisfy any indemnification obligations of the Sellers.
Additionally, the Sellers may be entitled to receive earnout shares as follows: (1) if Scienjoy’s net income before tax
for the year ended December 31, 2019 is greater than or equal to either US$20,900,000 or RMB 140,000,000, the Sellers will be
entitled to receive 3,000,000 ordinary shares of the Company; (2) if Scienjoy’s net income before tax for the year ended
December 31, 2020 is greater than or equal to either US$28,300,000 or RMB 190,000,000, the Sellers will be entitled to receive
3,000,000 ordinary shares of the Company; and (3) if Scienjoy’s net income before tax for the year ended December 31, 2021
is greater than or equal to either US$35,000,000 or RMB 235,000,000, the Sellers will be entitled to receive 3,000,000 ordinary
shares of the Company.
Notwithstanding the net income before
tax achieved by the post-transaction company for any period, the Sellers will receive (i) 3,000,000 earnout shares if the share
price of the Company is higher than $15.00 for any sixty days in any period of ninety consecutive trading days during an twelve
month period following the closing; (ii) 3,000,000 earnout shares if the share price of the Company is higher than $20.00 for
any sixty days in any period of ninety consecutive trading days between the 13th month and 24th month following the Closing, and
(iii) 3,000,000 earnout shares if the share price of the Company is higher than $25.00 for any sixty days in any period of ninety
consecutive trading between the 25th month and 36th month following the Closing.
The Business Combination will be consummated
subject to the deliverables and provisions as further described in the Share Exchange Agreement.
NOTE
8. SHAREHOLDERS’ EQUITY
Ordinary Shares —
The Company is authorized to issue an unlimited number of no par value ordinary shares. Holders of the Company’s ordinary
shares are entitled to one vote for each share. At December 31, 2019 and 2018, there were 2,461,983 and 1,437,500 ordinary shares
issued and outstanding, excluding 4,995,517 and no ordinary shares subject to possible redemption, respectively.
Warrants
— The Public Warrants will become exercisable on the later of (a) the consummation of a Business Combination or
(b) February 5, 2020. No Public Warrants will be exercisable for cash unless the Company has an effective and current registration
statement covering the ordinary shares issuable upon exercise of the Public Warrants and a current prospectus relating to such
ordinary shares. The Public Warrants may only be exercised for a whole number of shares, meaning that the Public Warrants must
be exercised in multiples of two. Notwithstanding the foregoing, if a registration statement covering the ordinary shares issuable
upon the exercise of the Public Warrants is not effective within 90 days from the consummation of a Business Combination, the
holders may, until such time as there is an effective registration statement and during any period when the Company shall have
failed to maintain an effective registration statement, exercise the Public Warrants on a cashless basis pursuant to the exemption
from registration provided by Section 3(a)(9) of the Securities Act provided that such exemption is available. If an exemption
from registration is not available, holders will not be able to exercise their Public Warrants on a cashless basis. The Public
Warrants will expire five years from the effective date of the registration statement relating to the Initial Public Offering.
The
Company may call the warrants for redemption (excluding the Private Warrants), in whole and not in part, at a price of $0.01 per
warrant:
|
●
|
at
any time while the Public Warrants are exercisable,
|
|
|
|
|
●
|
upon
not less than 30 days’ prior written notice of redemption to each Public Warrant holder,
|
|
|
|
|
●
|
if,
and only if, the reported last sale price of the ordinary shares equals or exceeds $16.50 per share, for any 20 trading days
within a 30 trading day period ending on the third trading day prior to the notice of redemption to Public Warrant holders,
and
|
|
|
|
|
●
|
if,
and only if, there is a current registration statement in effect with respect to the issuance of the ordinary shares underlying
such warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day
thereafter until the date of redemption.
|
WEALTHBRIDGE
ACQUISITION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019
AND 2018
NOTE
8. SHAREHOLDERS’ EQUITY (CONTINUED)
If the Company calls the Public Warrants
for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a
“cashless basis,” as described in the warrant agreement. The exercise price and number of ordinary shares issuable
upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary
dividend or recapitalization, reorganization, merger or consolidation. The Public Warrants may only be exercised for a whole number
of shares, meaning that the Public Warrants must be exercised in multiples of two. However, the warrants will not be adjusted
for issuances of ordinary shares at a price below its exercise price. Additionally, in no event will the Company be required to
net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the
Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to
their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with
respect to such warrants. Accordingly, the warrants may expire worthless.
The Private Warrants are identical
to the Public Warrants underlying the Units being sold in the Initial Public Offering, except that the Private Warrants and the
ordinary shares issuable upon the exercise of the Private Warrants will not be transferable, assignable or salable until after
the completion of a Business Combination, subject to certain limited exceptions. The Private Warrants may only be exercised for
a whole number of shares, meaning that the Private Warrants must be exercised in multiples of two. Additionally, the Private Warrants
will be exercisable on a cashless basis and will be non-redeemable so long as they are held by the initial purchasers or their
permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees,
the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
Rights — Except
in cases where the Company is not the surviving company in a Business Combination, each holder of a Public Right will automatically
receive one-tenth (1/10) of an ordinary share upon consummation of a Business Combination, even if the holder of a Public Right
converted all ordinary shares held by him, her or it in connection with a Business Combination or an amendment to the Company’s
Amended and Restated Memorandum and Articles of Association with respect to its pre-business combination activities. In the event
that the Company will not be the surviving company upon completion of a Business Combination, each holder of a Public Right will
be required to affirmatively convert his, her or its rights in order to receive the one-tenth (1/10) of a share underlying each
Public Right upon consummation of the Business Combination. No additional consideration will be required to be paid by a holder
of Public Rights in order to receive his, her or its additional ordinary shares upon consummation of a Business Combination. The
shares issuable upon exchange of the rights will be freely tradable (except to the extent held by affiliates of the Company).
If the Company enters into a definitive agreement for a Business Combination in which the Company will not be the surviving entity,
the definitive agreement will provide for the holders of Public Rights to receive the same per share consideration the holders
of ordinary shares will receive in the transaction on an as-converted into ordinary shares basis.
The
Company will not issue fractional shares in connection with an exchange of Public Rights. Fractional shares will either be rounded
down to the nearest whole share or otherwise addressed in accordance with the applicable provisions of the British Virgin Islands
law. As a result, the holders of the Public Rights must hold rights in multiples of 10 in order to receive shares for all of the
holders’ rights upon closing of a Business Combination. If the Company is unable to complete a Business Combination within
the Combination Period and the Company liquidates the funds held in the Trust Account, holders of Public Rights will not receive
any of such funds with respect to their Public Rights, nor will they receive any distribution from the Company’s assets
held outside of the Trust Account with respect to such Public Rights, and the Public Rights will expire worthless. Further, there
are no contractual penalties for failure to deliver securities to the holders of the Public Rights upon consummation of a Business
Combination. Additionally, in no event will the Company be required to net cash settle the rights. Accordingly, the rights may
expire worthless.
Unit
Purchase Option
On
February 8, 2019, the Company sold to Chardan, for $100, an option to purchase up to 375,000 Units exercisable at $11.50 per Unit
(or an aggregate exercise price of $4,312,500) commencing on the later of August 5, 2019 and the consummation of a Business Combination.
On February 20, 2019, in connection with the underwriters’ election to exercise the over-allotment option in full, the Company
issued Chardan an option to purchase up to an additional 56,250 Units exercisable at $11.50 per Unit for no additional consideration.
The unit purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires February
5, 2024. The Units issuable upon exercise of the option are identical to those offered in the Initial Public Offering. The Company
accounted for the unit purchase option, inclusive of the receipt of $100 cash payment, as an expense of the Initial Public Offering
resulting in a charge directly to shareholders’ equity. The Company estimated the fair value of the unit purchase option
is approximately $1,286,000, or $2.98 per Unit, using the Black-Scholes option-pricing model. The fair value of the unit purchase
option granted to the underwriters was estimated as of the date of grant using the following assumptions: (1) expected volatility
of 35%, (2) risk-free interest rate of 2.44% and (3) expected life of five years. The option and such units purchased pursuant
to the option, as well as the ordinary shares underlying such units, the rights included in such units, the ordinary shares that
are issuable for the rights included in such units, the warrants included in such units, and the shares underlying such warrants,
have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA’s
NASDAQ Conduct Rules. Additionally, the option may not be sold, transferred, assigned, pledged or hypothecated for a one-year
period (including the foregoing 180-day period) following the date of Initial Public Offering except to any underwriter and selected
dealer participating in the Initial Public Offering and their bona fide officers or partners. The option grants to holders demand
and “piggy back” rights for periods of five and seven years, respectively, from the effective date of the registration
statement with respect to the registration under the Securities Act of the securities directly and indirectly issuable upon exercise
of the option. The Company will bear all fees and expenses attendant to registering the securities, other than underwriting commissions
which will be paid for by the holders themselves. The exercise price and number of units issuable upon exercise of the option
may be adjusted in certain circumstances including in the event of a stock dividend, or the Company’s recapitalization,
reorganization, merger or consolidation. However, the option will not be adjusted for issuances of ordinary shares at a price
below its exercise price.
WEALTHBRIDGE
ACQUISITION LIMITED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019
AND 2018
NOTE
9. FAIR VALUE MEASUREMENTS
The
Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value
at each reporting period and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The
fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company
would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an
orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets
and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and
to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).
The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable
inputs used in order to value the assets and liabilities:
Level
1:
|
Quoted
prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which
transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing
basis.
|
Level
2:
|
Observable
inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or
liabilities and quoted prices for identical assets or liabilities in markets that are not active.
|
Level
3:
|
Unobservable
inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
|
The following table presents information
about the Company’s assets that are measured at fair value on a recurring basis at December 31, 2019 and indicates the fair
value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description
|
|
Level
|
|
December 31,
2019
|
|
Assets:
|
|
|
|
|
|
Marketable securities held in Trust
Account
|
|
1
|
|
$
|
58,588,138
|
|
NOTE
10. SUBSEQUENT EVENTS
The Company evaluated subsequent events
and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Other than
as described in these financial statements, the Company did not identify any subsequent events that would have required adjustment
or disclosure in the financial statements.
SCIENJOY
INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX
TO COMBINED FINANCIAL STATEMENTS
SCIENJOY
INC.
CONSOLIDATED
FINANCIAL STATEMENTS
For
the yearS ended December 31, 2018 and 2019
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of Scienjoy Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of Scienjoy Inc. and Subsidiaries (collectively, the “Company”) as of December 31, 2019 and 2018, and
the related consolidated statements of income, changes in shareholders’ equity, and cash flows for the two years in the
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 two years in the period ended December 31, 2019,
in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our 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/ Friedman LLP
We have served as the Company’s auditor since 2019.
New York, New York
March 20, 2020
SCIENJOY
INC.
Consolidated
Balance Sheets
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
¥
|
65,294
|
|
|
¥
|
137,351
|
|
|
$
|
19,729
|
|
Accounts receivable, net
|
|
|
221,377
|
|
|
|
120,110
|
|
|
|
17,253
|
|
Prepaid expenses and other current assets
|
|
|
30,130
|
|
|
|
11,557
|
|
|
|
1,660
|
|
Amounts due from related parties
|
|
|
-
|
|
|
|
7
|
|
|
|
1
|
|
Loan receivables - related
parties
|
|
|
31,500
|
|
|
|
500
|
|
|
|
72
|
|
Total
current assets
|
|
|
348,301
|
|
|
|
269,525
|
|
|
|
38,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
951
|
|
|
|
736
|
|
|
|
106
|
|
Intangible assets, net
|
|
|
206
|
|
|
|
195
|
|
|
|
28
|
|
Long term investment
|
|
|
-
|
|
|
|
5,000
|
|
|
|
718
|
|
Long term deposits and other assets
|
|
|
2,504
|
|
|
|
2,761
|
|
|
|
397
|
|
Deferred IPO cost
|
|
|
-
|
|
|
|
1,307
|
|
|
|
188
|
|
Deferred tax assets
|
|
|
283
|
|
|
|
474
|
|
|
|
68
|
|
Total
non-current assets
|
|
|
3,944
|
|
|
|
10,473
|
|
|
|
1,505
|
|
TOTAL
ASSETS
|
|
¥
|
352,245
|
|
|
¥
|
279,998
|
|
|
$
|
40,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
¥
|
81,699
|
|
|
¥
|
27,163
|
|
|
$
|
3,903
|
|
Accrued salary and employee benefits
|
|
|
4,124
|
|
|
|
8,727
|
|
|
|
1,254
|
|
Accrued expenses and other current liabilities
|
|
|
331
|
|
|
|
6,852
|
|
|
|
984
|
|
Income tax payable
|
|
|
8,016
|
|
|
|
8,435
|
|
|
|
1,211
|
|
Loan payables - related parties
|
|
|
32,050
|
|
|
|
5,525
|
|
|
|
794
|
|
Amounts due to related parties
|
|
|
130,687
|
|
|
|
8,482
|
|
|
|
1,218
|
|
Deferred revenue
|
|
|
38,402
|
|
|
|
40,288
|
|
|
|
5,787
|
|
Total
current liabilities
|
|
|
295,309
|
|
|
|
105,472
|
|
|
|
15,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
US$0.0001
par value; 500,000,000 shares authorized, 100,000 shares issued and outstanding as of December 31, 2018 and December 31, 2019*
|
|
¥
|
69
|
|
|
¥
|
69
|
|
|
$
|
10
|
|
Share subscription receivables
|
|
|
(69
|
)
|
|
|
(69
|
)
|
|
|
(10
|
)
|
Additional paid-in capital
|
|
|
41,992
|
|
|
|
9,664
|
|
|
|
1,388
|
|
Statutory reserves
|
|
|
10,323
|
|
|
|
12,059
|
|
|
|
1,732
|
|
Retained earnings
|
|
|
4,621
|
|
|
|
152,803
|
|
|
|
21,949
|
|
Total
shareholder’s equity
|
|
|
56,936
|
|
|
|
174,526
|
|
|
|
25,069
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
¥
|
352,245
|
|
|
¥
|
279,998
|
|
|
$
|
40,220
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
*
Shares and per share data are presented on a retroactive basis to reflect the nominal share issuance on April 18,
2019.
SCIENJOY
INC.
Consolidated
statements of INCOME
(Amounts in thousands of Renminbi
(“RMB”) and US dollars (“US$”), except share and per share data or otherwise stated)
|
|
For the years ended December
31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Live streaming - consumable virtual
items revenue
|
|
¥
|
716,561
|
|
|
¥
|
884,385
|
|
|
$
|
127,034
|
|
Live streaming - time based virtual item revenue
|
|
|
26,432
|
|
|
|
26,812
|
|
|
|
3,851
|
|
Technical services
|
|
|
25
|
|
|
|
3,429
|
|
|
|
493
|
|
Total revenue
|
|
|
743,018
|
|
|
|
914,626
|
|
|
|
131,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
(594,084
|
)
|
|
|
(720,637
|
)
|
|
|
(103,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
148,934
|
|
|
|
193,989
|
|
|
|
27,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
(5,005
|
)
|
|
|
(3,804
|
)
|
|
|
(546
|
)
|
General and administrative expenses
|
|
|
(16,265
|
)
|
|
|
(11,957
|
)
|
|
|
(1,717
|
)
|
Research and development expenses
|
|
|
(10,957
|
)
|
|
|
(21,523
|
)
|
|
|
(3,092
|
)
|
Provision for doubtful
accounts
|
|
|
(6,826
|
)
|
|
|
(854
|
)
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
109,881
|
|
|
|
155,851
|
|
|
|
22,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,444
|
|
|
|
1,005
|
|
|
|
144
|
|
Other income (loss), net
|
|
|
31
|
|
|
|
(310
|
)
|
|
|
(45
|
)
|
Foreign exchange gain
(loss), net
|
|
|
11
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
111,367
|
|
|
|
156,541
|
|
|
|
22,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
(4,627
|
)
|
|
|
(6,623
|
)
|
|
|
(951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
¥
|
106,740
|
|
|
¥
|
149,918
|
|
|
$
|
21,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number
of shares -Basic and diluted*
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share -Basic and diluted
|
|
¥
|
1,067.40
|
|
|
¥
|
1,499.18
|
|
|
$
|
215.34
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
*
Shares and per share data are presented on a retroactive basis to reflect the nominal share issuance on April 18,
2019.
SCIENJOY
INC.
Consolidated
statements of CHANGES IN shareholders’ EQUITY
(Amounts in thousands of Renminbi
(“RMB”) and US dollars (“US$”), except share and per share data or otherwise stated)
|
|
Ordinary
shares
|
|
|
Share
subscription
|
|
|
Additional
paid-in
|
|
|
Statutory
|
|
|
Retained
|
|
|
Total
shareholders’
|
|
|
|
Shares*
|
|
|
Amount
|
|
|
receivable
|
|
|
capital
|
|
|
reserves
|
|
|
earnings
|
|
|
equity
|
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2018
|
|
|
100,000
|
|
|
¥
|
69
|
|
|
¥
|
(69
|
)
|
|
¥
|
43,593
|
|
|
¥
|
8,665
|
|
|
¥
|
232,629
|
|
|
¥
|
284,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
106,740
|
|
|
|
106,740
|
|
Capital
distribution due to reorganization
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,000
|
)
|
Capital
contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,399
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,399
|
|
Appropriation
to statutory reserves
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,658
|
|
|
|
(1,658
|
)
|
|
|
-
|
|
Dividends
distribution to shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(333,090
|
)
|
|
|
(333,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2018
|
|
|
100,000
|
|
|
|
69
|
|
|
|
(69
|
)
|
|
|
41,992
|
|
|
|
10,323
|
|
|
|
4,621
|
|
|
|
56,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
149,918
|
|
|
|
149,918
|
|
Capital
distribution due to reorganization
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(32,328
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(32,328
|
)
|
Appropriation
to statutory reserves
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,736
|
|
|
|
(1,736
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2019
|
|
|
100,000
|
|
|
¥
|
69
|
|
|
¥
|
(69
|
)
|
|
¥
|
9,664
|
|
|
¥
|
12,059
|
|
|
¥
|
152,803
|
|
|
¥
|
174,526
|
|
Balance
as of December 31, 2019 (US$)
|
|
|
100,000
|
|
|
$
|
10
|
|
|
$
|
(10
|
)
|
|
$
|
1,388
|
|
|
$
|
1,732
|
|
|
$
|
21,949
|
|
|
$
|
25,069
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
* Shares
and per share data are presented on a retroactive basis to reflect the nominal share issuance on April 18, 2019.
SCIENJOY
INC.
Consolidated
statements of cash flows
(Amounts in thousands of Renminbi
(“RMB”) and US dollars (“US$”), except share and per share data or otherwise stated)
|
|
For the years ended December 31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥
|
106,740
|
|
|
¥
|
149,918
|
|
|
$
|
21,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
1,167
|
|
|
|
655
|
|
|
|
94
|
|
Amortization of intangible assets
|
|
|
24
|
|
|
|
26
|
|
|
|
4
|
|
Provision for doubtful accounts
|
|
|
6,826
|
|
|
|
854
|
|
|
|
123
|
|
Loss from disposal of property and equipment
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
Deferred tax expenses (benefit)
|
|
|
87
|
|
|
|
(191
|
)
|
|
|
(27
|
)
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
15,297
|
|
|
|
100,432
|
|
|
|
14,426
|
|
Prepaid expense and other current assets
|
|
|
(24,445
|
)
|
|
|
18,553
|
|
|
|
2,665
|
|
Long term deposits and other assets
|
|
|
66
|
|
|
|
(258
|
)
|
|
|
(37
|
)
|
Accounts payable
|
|
|
18,243
|
|
|
|
(54,533
|
)
|
|
|
(7,834
|
)
|
Deferred revenue
|
|
|
(17,913
|
)
|
|
|
1,886
|
|
|
|
271
|
|
Accrued salary and employee benefits
|
|
|
316
|
|
|
|
4,603
|
|
|
|
661
|
|
Accrued expenses and other current liabilities
|
|
|
(161
|
)
|
|
|
6,520
|
|
|
|
937
|
|
Income tax payable
|
|
|
1,039
|
|
|
|
419
|
|
|
|
60
|
|
Net cash provided by
operating activities
|
|
|
107,286
|
|
|
|
228,886
|
|
|
|
32,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment for long term investment
|
|
|
-
|
|
|
|
(5,000
|
)
|
|
|
(718
|
)
|
Purchases of property
and equipment and intangible assets
|
|
|
(553
|
)
|
|
|
(457
|
)
|
|
|
(66
|
)
|
Net cash used in investing
activities
|
|
|
(553
|
)
|
|
|
(5,457
|
)
|
|
|
(784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends distribution to shareholders
|
|
|
(228,500
|
)
|
|
|
(104,590
|
)
|
|
|
(15,023
|
)
|
Capital distribution due to reorganization
|
|
|
(10,000
|
)
|
|
|
(32,328
|
)
|
|
|
(4,644
|
)
|
Capital contribution
|
|
|
8,399
|
|
|
|
-
|
|
|
|
-
|
|
Repayments from related parties
|
|
|
59,215
|
|
|
|
(13,147
|
)
|
|
|
(1,888
|
)
|
Payment of deferred IPO
cost
|
|
|
-
|
|
|
|
(1,307
|
)
|
|
|
(188
|
)
|
Net cash used in financing
activities
|
|
|
(170,886
|
)
|
|
|
(151,372
|
)
|
|
|
(21,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(64,153
|
)
|
|
|
72,057
|
|
|
|
10,350
|
|
Cash and cash equivalents
at beginning of the year
|
|
|
129,447
|
|
|
|
65,294
|
|
|
|
9,379
|
|
Cash and cash equivalents
at end of the year
|
|
¥
|
65,294
|
|
|
¥
|
137,351
|
|
|
$
|
19,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures
of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
¥
|
(3,501
|
)
|
|
¥
|
(6,977
|
)
|
|
$
|
(1,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash investing
and financing information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash dividend distribution
to shareholders
|
|
¥
|
104,590
|
|
|
¥
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES
|
Scienjoy
Inc. (the “Company” or “Scienjoy”) is a holding company incorporated under the laws of the Cayman Islands
on March 2, 2017 with authorized shares of 500,000,000 shares at a par value of $0.0001.
The
Company through its subsidiaries, and variable interest entities(“VIE”) and its subsidiaries noted below are principally
engaged in operating its own live streaming platforms in the People’s Republic of China (the “PRC”), which enable
users to view and interact with broadcasters through online chat, virtual items and playing games. The primary theme of the Company’s
platform is entertainment live streaming.
On
January 1, 2018, Tongfang Investment Fund Series SPC (“TF”) completed the acquisition of a 65% equity interest in
Sixiang Times (Beijing) Technology Co., Ltd (“Sixiang Times”) from NQ Mobile Inc. Through the acquisition of Sixiang
Times, TF acquired a controlling position in Holgus Sixiang Information Technology Co., Ltd (“Holgus”), Kashgar Sixiang
Times Internet Technology Co., Ltd (“Kashgar”), Beijing Sixiang Shiguang Technology Co., Ltd (“SG”), Hai
Xiu (Beijing) Technology Co., Ltd (“HX”) and Beijing Le Hai Technology Co., Ltd (“LH”).
On
May 18, 2017, the Company established its wholly owned subsidiary in Hong Kong, Scienjoy International Limited (“Scienjoy
HK”), as a holding company holding all of the outstanding shares of Sixiang Wuxian (Beijing) Technology Co., Ltd (“WX”
or “WFOE”) which was established in PRC on October 17, 2017 under the laws of the People’s Republic of China
as a holding company holding all of the equity interest of Sixiang Zhihui (Beijing) Technology Co., Ltd. (“ZH”),which
was incorporated on July 5, 2018.
The
Company established ZH (through WX), as a holding company for purpose of holding all of the outstanding equity interest of Holgus
and Kashgar, as follows:
(i)
|
On
July 18, 2018, Sixiang Times and ZH executed an equity transfer agreement. Pursuant to
the agreement, 100% equity interest in Holgus was transferred to ZH.
|
(ii)
|
On
July 24, 2018, Sixiang Times and ZH executed an equity transfer agreement. Pursuant to
the agreement, 100% equity interest in Kashgar was transferred to ZH. In consideration
of the transfer, the Company paid RMB10,000 to the former shareholders of Kashgar.
|
On
November 16, 2018, Sixiang Times and other minority shareholders respectively entered into certain equity transfer agreements
with Sixiang Huizhi (Beijing) Technology Culture Co., Ltd. (“HZ”) and Tianjin Sihui Peiying Technology Co., Ltd. (“SY”),
and transfer 100% equity interest in SG to HZ, and transfer 100% equity interest in HX and LH to HZ and SY accordingly. Both HZ
and SY were ultimately controlled by TF.
On
January 28, 2019, HZ and SY executed equity transfer agreement with Zhihui Qiyuan (Beijing) Technology Co., Ltd. (“QY”).
Pursuant to the agreement, 100% equity interest in SG, HX and LH were transferred to QY which is ultimately controlled by TF.
In consideration of the transfer, the Company paid RMB 32,000 to the former shareholders of SG, HX and LH.
On
January 29, 2019, the Company, through its wholly owned subsidiary WFOE, entered into a series of contractual arrangements (VIE
Agreements) with QY and its respective shareholders, and in substance controlled all equity shares, risk and reward of SG, HX
and LH through QY accordingly. Below please refer to Note 1-c for a description of the VIE agreements pursuant to which the Company
and its subsidiaries were established as a primary beneficiary of QY.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES (CONTINUED)
|
(b)
|
Reorganization
(continued)
|
The Company, through its variable
interest entity (“VIE”), QY, and its wholly owned subsidiaries, including SG, HX and LH, and through WFOE and its
subsidiaries, including Kashgar and Holgus, operates its own live streaming platforms in the People’s Republic of China
(the “PRC”).
These
transactions were between entities under common control, and therefore accounted for in a manner similar to the pooling of interest
method. Under the pooling-of-interests method, combination between two businesses under common control is accounted for at carrying
amounts with retrospective adjustment of prior period financial statements, and the equity accounts of the combining entities
are combined and the difference between the consideration paid and the net assets acquired is reflected as an equity transaction
(i.e., distribution to parent company). As opposed to the purchase method of accounting, no intangible assets are recognized in
the transaction, and no goodwill is recognized as a result of the combination.
Subsidiaries
of the Company and VIE where the Company is the primary beneficiary include the following:
|
|
Date of
incorporation
|
|
Place of
incorporation
|
|
Percentage
of
direct/indirect
ownership
|
|
Principal
activities
|
|
|
|
|
|
|
|
|
|
Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scienjoy International
Limited (“Scienjoy HK”)
|
|
May 18, 2017
|
|
Hong Kong
|
|
100%
|
|
Holding Company
|
|
|
|
|
|
|
|
|
|
Sixiang Wuxian (Beijing) Technology
Co., Ltd. (“WX” or “WFOE”)
|
|
October 17, 2017
|
|
The PRC
|
|
100%
|
|
Holding Company
|
|
|
|
|
|
|
|
|
|
Sixiang Zhihui (Beijing) Technology
Co., Ltd. (“ZH”)
|
|
July 5, 2018
|
|
The PRC
|
|
100%
|
|
Holding Company
|
|
|
|
|
|
|
|
|
|
Holgus Sixiang Information Technology
Co., Ltd. (“Holgus”)
|
|
May 9, 2017
|
|
The PRC
|
|
100%
|
|
Live streaming platform
|
|
|
|
|
|
|
|
|
|
Kashgar Sixiang Times Internet
Technology Co., Ltd. (“Kashgar”)
|
|
March 2, 2016
|
|
The PRC
|
|
100%
|
|
Live streaming platform
|
|
|
|
|
|
|
|
|
|
VIEs
|
|
|
|
|
|
|
|
|
Zhihui Qiyuan (Beijing) Technology
Co., Ltd. (“QY”)
|
|
January 22, 2019
|
|
The PRC
|
|
100%
|
|
Holding Company
|
|
|
|
|
|
|
|
|
|
Beijing Sixiang Shiguang Technology
Co., Ltd. (“SG”)
|
|
October 28, 2011
|
|
The PRC
|
|
100%
|
|
Live streaming platform
|
|
|
|
|
|
|
|
|
|
Hai Xiu (Beijing) Technology
Co., Ltd. (“HX”)
|
|
April 18, 2016
|
|
The PRC
|
|
100%
|
|
Live streaming platform
|
|
|
|
|
|
|
|
|
|
Beijing Le Hai Technology Co.,
Ltd. (“LH”)
|
|
June 16, 2015
|
|
The PRC
|
|
100%
|
|
Live streaming platform
|
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES (CONTINUED)
|
(c)
|
Organization
(continued)
|
On
January 29, 2019, the Company completed its reorganization of entities under the common control of the founders. Scienjoy, Scienjoy
HK, WX (or WFOE) and ZH were established as holding Companies. WFOE holds 100% of equity interests of ZH which holds 100% of equity
interest in Kashgar and Holgus. WFOE is the primary beneficiary of QY which holds 100% equity interest in SG, HX and LH. All of
these entities included in the Company are under common control, which results in the consolidation of QY and ZH which have been
accounted for as a reorganization of entities under common control at carry value. The consolidated financial statements are prepared
on the basis as if the reorganization became effective as of the beginning of the first period presented in the accompanying consolidated
financial statements of the Company.
Foreign
ownership of Internet-based businesses, including distribution of online information (such as game content provider), is subject
to restrictions under current PRC laws, regulations, and other applicable laws and regulations. The Company is a Cayman Island
company and WFOE (its PRC subsidiary) is considered a foreign invested enterprise. To comply with these regulations, the Company
operates the live streaming platforms through SG, HX and LH in PRC (its consolidated VIE). As such, QY is controlled through contractual
arrangements in lieu of direct equity ownership by the Company or any of its subsidiaries. Such contractual arrangements consist
of a series of three agreements and a shareholder power of attorney (collectively the “Contractual Arrangements”,
which were signed on January 29, 2019).
The
following is a summary of the various VIE agreements:
Exclusive
Option Agreements
Pursuant
to the exclusive option agreement (including its amendment or supplementary agreements, if any, the “Exclusive Option Agreement”)
amongst WFOE, QY and the nominee shareholders who collectively owned all of QY, the nominee shareholders irrevocably granted WFOE
or its designated party, an exclusive option to purchase all or part of the equity interests held by the nominee shareholders
in QY, when and to the extent permitted under PRC law, at an amount equal to the lowest permissible purchase price as set by PRC
law. QY cannot declare any profit distributions, or create any encumbrances in any form without the prior written consent of WFOE.
The nominee shareholders must remit in full any funds received from QY to WFOE, in the event any distributions are made by the
VIE pursuant to any written consents of WFOE.
The
Exclusive Option Agreement shall remain effective for twenty (20) years and shall be automatically extended for an additional
period of one (1) year. The additional period automatically enters the renewal extension of one (1) year at the end of each extended
additional period. WFOE has the right to terminate this agreement at any time after giving a thirty (30) days’ prior termination
notice.
Exclusive
Business Cooperation Agreements
Pursuant
to the exclusive business cooperation agreement (including its amendment or supplementary agreements, if any, the “Exclusive
Business Cooperation Agreement”) between WFOE and the VIE, WFOE is to provide exclusive business support, technical and
consulting services related to all technologies needed for its business in return for fees that equals to all of the consolidated
net income after offsetting previous year’s loss (if any) of SG, HX and LH.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES (CONTINUED)
|
(c)
|
Organization
(continued)
|
The service fees may be adjusted by WFOE based
on the following factors:
●
|
complexity
and difficulty of the services pursuant to the business cooperation agreement to the
VIE during the month (the “Monthly Services”)
|
●
|
the
number of WFOE’s employees who provided the Monthly Services and the qualifications
of the employees;
|
●
|
the
number of hours WFOE’s employees spent to provide the Monthly Services;
|
●
|
nature
and value of the Monthly Services;
|
●
|
market
reference price; and
|
●
|
the
VIE’ operating conditions for the month.
|
The
term of the Exclusive Business Cooperation Agreement is twenty (20) years and shall be automatically extended for an additional
period of one (1) year. The additional period automatically enters the renewal extension of one (1) year at the end of each extended
additional period. Besides, WFOE has the right to terminate this agreement at any time after giving a thirty (30) days’
prior termination notice.
Power
of Attorney Agreements
The
nominee shareholders entered into the power of attorney agreement (including its amendment or supplementary agreements, if any,
the “Power of Attorney Agreement”) whereby they granted an irrevocable proxy of the voting rights underlying their
respective equity interests in the VIE to WFOE, which includes, but are not limited to, all the shareholders’ rights and
voting rights empowered to the nominee shareholders by the PRC company law and the VIE’s Article of Association. The power
of attorney remains irrevocable and continuously valid from the date of execution so long as each shareholder remains as a shareholder
of QY.
Share
Pledge Agreements
Pursuant
to the share pledge agreement (including its amendment or supplementary agreements, if any, the “Share Pledge Agreement”)
between WFOE, QY and the nominee shareholders, the nominee shareholders have pledged all their equity interests in the VIE to
guarantee the performance of the VIE’ obligations under the Exclusive Option Agreement, Exclusive Business Cooperation Agreement
and Power of Attorney Agreement.
If
the VIE breaches their respective contractual obligations under those agreements, WFOE, as pledgee, will be entitled to certain
rights, including the right to sell the pledged equity interests. The nominee shareholders agreed not to transfer, sell, pledge,
dispose of or otherwise create any new encumbrance on their equity interests in the VIE without the prior written consent of WFOE.
The Share Pledge Agreement shall be continuously valid until all the its obligations under the VIE Agreements have been fulfilled,
or the VIE Agreements are terminated, or the secured debts has been fully executed.
Based
on the foregoing contractual arrangements, which grant WFOE effective control of QY and its subsidiaries and obligate WFOE to
absorb all of the risk of loss from their activities and enable WFOE to receive all of their expected residual returns, the Company
accounts for QY as a VIE. Accordingly, the Company consolidates the accounts of QY for the periods presented herein, in accordance
with Regulation S-X-3A-02 promulgated by the Securities Exchange Commission (“SEC”) and Accounting Standards
Codification (“ASC”) 810-10, Consolidation.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES (CONTINUED)
|
(c)
|
Organization
(continued)
|
The following tables represent the
financial information of the consolidated VIE and its subsidiaries as of December 31, 2018 and 2019 before eliminating the intercompany
balances and transactions between the VIE and other entities within the Company:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
¥
|
17,702
|
|
|
¥
|
43,907
|
|
|
$
|
6,307
|
|
Accounts receivable, net
|
|
|
84,442
|
|
|
|
65,357
|
|
|
|
9,388
|
|
Prepaid expenses and other current assets
|
|
|
6,282
|
|
|
|
6,104
|
|
|
|
877
|
|
Loan receivables - related parties
|
|
|
31,500
|
|
|
|
500
|
|
|
|
72
|
|
Amounts
due from inter-companies(1)
|
|
|
51,506
|
|
|
|
131,380
|
|
|
|
18,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
191,432
|
|
|
|
247,248
|
|
|
|
35,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
811
|
|
|
|
575
|
|
|
|
83
|
|
Intangible assets, net
|
|
|
206
|
|
|
|
186
|
|
|
|
27
|
|
Deferred tax assets
|
|
|
283
|
|
|
|
474
|
|
|
|
68
|
|
Long term deposits and other assets
|
|
|
2,473
|
|
|
|
1,051
|
|
|
|
151
|
|
Deferred IPO cost
|
|
|
-
|
|
|
|
1,307
|
|
|
|
188
|
|
Long term investments
|
|
|
-
|
|
|
|
5,000
|
|
|
|
718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-current assets
|
|
|
3,773
|
|
|
|
8,593
|
|
|
|
1,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
¥
|
195,205
|
|
|
¥
|
255,841
|
|
|
$
|
36,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
¥
|
26,216
|
|
|
¥
|
22,138
|
|
|
$
|
3,180
|
|
Deferred revenue
|
|
|
28,095
|
|
|
|
22,418
|
|
|
|
3,220
|
|
Accrued salary and employee benefits
|
|
|
3,946
|
|
|
|
7,594
|
|
|
|
1,091
|
|
Accrued expenses and other current liabilities
|
|
|
100
|
|
|
|
1,991
|
|
|
|
286
|
|
Income tax payable
|
|
|
8,016
|
|
|
|
8,435
|
|
|
|
1,211
|
|
Loan payables - related parties
|
|
|
21,550
|
|
|
|
8,482
|
|
|
|
1,218
|
|
Amounts
due to inter-companies(1)
|
|
|
47,775
|
|
|
|
133,600
|
|
|
|
19,190
|
|
Amounts due to related
parties
|
|
|
12,979
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
¥
|
148,677
|
|
|
¥
|
204,658
|
|
|
$
|
29,396
|
|
(1)
|
Amount
due from/to inter-companies consist of intercompany receivables/payables to the other companies within the Company.
|
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES (CONTINUED)
|
(c)
|
Organization
(continued)
|
All
revenue-producing assets recognized by the Company, including trademarks, patents, copyrights and software, that are held by the
VIE, please refer to Note 7. There are no unrecognized revenue-producing assets.
Summarized below is the information
related to the financial performance of the VIE reported in the Company’s consolidated statements of income for the years
ended December 31, 2018 and 2019, respectively:
|
|
For the years ended December
31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
¥
|
410,810
|
|
|
¥
|
700,729
|
|
|
$
|
100,653
|
|
Third party customers
|
|
¥
|
393,207
|
|
|
¥
|
635,855
|
|
|
$
|
91,335
|
|
Inter-companies
|
|
¥
|
17,603
|
|
|
¥
|
64,874
|
|
|
$
|
9,318
|
|
Net (loss) income
|
|
¥
|
(32,108
|
)
|
|
¥
|
36,982
|
|
|
$
|
5,312
|
|
|
|
For the years ended December
31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
¥
|
(4,003
|
)
|
|
¥
|
60,234
|
|
|
$
|
8,652
|
|
Net cash used in investing activities
|
|
¥
|
(357
|
)
|
|
¥
|
(5,347
|
)
|
|
$
|
(768
|
)
|
Net cash used in financing activities
|
|
¥
|
(9,750
|
)
|
|
¥
|
(28,682
|
)
|
|
$
|
(4,120
|
)
|
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
(a)
|
Basis
of presentation and principles of consolidation
|
The
accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles
(“US GAAP”).
The
consolidated financial statements include the financial statements of the Company and its subsidiaries, and its VIE and VIE’s
subsidiaries over which the Company exercises control and, when applicable, entities for which the Company has a controlling financial
interest or is the primary beneficiary. All significant inter-company transactions and balances between the Company, its subsidiaries
and the VIE are eliminated upon consolidation.
The
preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the period. Areas where management
uses subjective judgment include, but are not limited to revenue recognition, estimating the useful lives of long-lived assets
and intangible assets, valuation assumptions in performing asset impairment tests of long-lived assets, allowance for doubtful
accounts, and valuation of deferred taxes and deferred tax assets. Actual results could differ from those estimates, and as such,
differences may be material to the consolidated financial statements.
The Company uses Renminbi (“RMB”)
as its reporting currency. The functional currency of the Company and its subsidiaries incorporated in Hong Kong and Cayman Islands
is Hong Kong dollar (“HK$”) and United States dollar (“US$”), while the functional currency of the Company’s
entities in PRC is Renminbi (“RMB”), which are their respective local currency based on the criteria of ASC 830, “Foreign
Currency Matters”.
In
the consolidated financial statements, the financial information of the Company and other entities located outside of the PRC
has been translated into RMB. Assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts
are translated at historical exchange rates, and revenues, expenses, gains and losses are translated using the average rate for
the year.
(d)
|
Convenience
translation
|
Translations of balances in the consolidated
balance sheets, consolidated statements of income and consolidated statements of cash flows from RMB into USD (or “US$”)
as of and for the year ended December 31, 2019 are solely for the convenience of the reader and were calculated at the rate of
US$1.00 = RMB6.9618, representing the noon buying rate in The City of New York for cable transfers of RMB as certified for customs
purposes by the Federal Reserve Bank of New York on the last trading day of December 28, 2019. No representation is made that
the RMB amounts represent or could have been, or could be, converted, realized or settled into US$ at that rate, or at any other
rate.
(e)
|
Cash
and cash equivalents
|
Cash
and cash equivalents consist of cash on hand and demand deposits placed with banks or other financial institutions which are unrestricted
as to withdrawal and use and have original maturities less than three months.
Cash
and cash equivalents also consist of funds earned from the Company’s operating revenues which were held at the third party
platform fund accounts which are unrestricted as to immediate use or withdraw.
The
Company maintains most of its bank accounts in the PRC. Cash balances in bank accounts in PRC are not insured by the Federal Deposit
Insurance Corporation or other programs.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(f)
|
Accounts
receivable and allowance for doubtful accounts
|
Accounts
receivable are stated at the historical carrying amount net of allowance for doubtful accounts. Accounts are considered overdue
after 180 days.
The
Company maintains an allowance for doubtful accounts which reflects its best estimate of amounts that potentially will not be
collected. The Company determines the allowance for doubtful accounts taking into consideration various factors including but
not limited to historical collection experience and credit-worthiness of the debtors as well as the age of the individual receivables
balance. Additionally, the Company makes specific bad debt provisions based on any specific knowledge the Company has acquired
that might indicate that an account is uncollectible. The facts and circumstances for each account may require the Company to
use substantial judgment in assessing its collectability.
Account
balances are charged off against the allowance after all means of collection have been exhausted and the likelihood of collection
is not probable.
(g)
|
Property
and equipment
|
Property
and equipment are stated at cost, net of accumulated depreciation using the straight-line method over their estimated useful lives,
once the asset is placed in service.
The
estimated useful lives are as follows:
Computer and transmission equipment
|
|
|
3 years
|
|
Furniture, fixtures and office equipment
|
|
|
5 years
|
|
Repair
and maintenance costs are charged to expense when incurred, whereas the cost of betterments that extend the useful life of property
and equipment are capitalized as additions to the related assets. Retirement, sale and disposals of assets are recorded by removing
the cost and related accumulated depreciation with any resulting gain or loss reflected in the consolidated statements of income.
The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised
estimates of useful lives.
Pursuant to ASC 340-10-S99-1, IPO costs
directly attributable to an offering of equity securities are deferred and would be charged against the gross proceeds of the
offering as a reduction of additional paid-in capital. These costs include legal fees related to the registration drafting and
counsel, consulting fees related to the registration preparation, SEC filing and print related costs, exchange listing costs,
and IPO road show related costs. As of December 31, 2019, the Company has not concluded its IPO. Accordingly, the Company recorded
a deferred offering cost of RMB 1,307(US$ 188) as of December 31, 2019.
Intangible
assets are carried at cost less accumulated amortization and any impairment. Intangible assets with a finite useful life are amortized
using the straight-line method over the estimated economic life of the intangible assets as follows:
Trademark
|
|
|
10 years
|
|
Patent
|
|
|
10 years
|
|
Copyright
|
|
|
10 years
|
|
Software
|
|
|
3 to 5 years
|
|
(j)
|
Impairment
of long-lived assets
|
The Company evaluates its long-lived assets
or asset group, including property and equipment and intangible assets with finite lives, for impairment whenever events or changes
in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate
that the carrying amount of an asset or a group of long-lived assets may not be recoverable. When these events occur, the Company
evaluates for impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result
from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the
carrying amount of the assets, the Company would recognize an impairment loss based on the excess of the carrying amount of the
asset group over its fair value. Fair value is generally determined by discounting the cash flows expected to be generated by
the assets, when the market prices are not readily available for the long-lived assets. No impairment of long-lived assets was
recognized for the years ended December 31, 2018 and 2019.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
ASU 2016-01 (“ASU 2016-01”),
Recognition and Measurement of Financial Assets and Financial Liabilities amends certain aspects of recognition, measurement,
presentation and disclosure of financial instruments. The main provisions require equity investments (except those accounted for
under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value through
earnings, unless they qualify for a measurement alternative. The Company adopted the new financial instruments accounting standard
from January 1, 2019. Prior to January 1, 2019, the Company did not have any long term investment.
Equity Investments with Readily
Determinable Fair Values
Equity investments with readily determinable
fair values are measured and recorded at fair value using the market approach based on the quoted prices in active markets at
the reporting date.
Equity Investments without Readily
Determinable Fair Values
After the adoption of this new accounting
standard, the Company elected to record equity investments without readily determinable fair values and not accounted for under
the equity method at cost, less impairment, adjusted for subsequent observable price changes on a nonrecurring basis, and report
changes in the carrying value of the equity investment in current earnings. Changes in the carrying value of the equity investment
are required to be made whenever there are observable price changes in orderly transactions for the identical or similar investment
of the same issuer. Reasonable efforts shall be made to identify price changes that are known or that can reasonably be known.
Equity Investments Accounted for
Using the Equity Method
The Company accounts for its equity
investment over which it has significant influence but does not own a majority equity interest or otherwise control using the
equity method. The Company adjusts the carrying amount of the investment and recognizes investment income or loss for share of
the earnings or loss of the investee after the date of investment. The Company assesses its equity investment for other-than-temporary
impairment by considering factors including, but not limited to, current economic and market conditions, operating performance
of the entities, including current earnings trends and undiscounted cash flows, and other entity-specific information. The fair
value determination, particularly for investment in privately held entity, requires judgment to determine appropriate estimates
and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investment and
determination of whether any identified impairment is other-than-temporary.
Investments held by the Company as
of December 31, 2019 comprised of equity investment in a privately-held entity, in which the Company does not have significant
influence. The Company elected to record equity investments without readily determinable fair values and not accounted for under
the equity method at cost, less impairment.
(l)
|
Fair
value of financial instruments
|
ASC 825-10 requires certain disclosures
regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair
value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable
inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
|
●
|
Level
1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active
markets.
|
|
●
|
Level
2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets,
quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that
are observable and inputs derived from or corroborated by observable market data.
|
|
●
|
Level
3 — inputs to the valuation methodology are unobservable.
|
The carrying amounts of financial assets
and liabilities, such as cash and cash equivalents, accounts receivable, other receivables included in prepaid expenses and other
current assets, accounts payables, balances with related parties and other current liabilities, approximate their fair values
because of the short-term maturity of these instruments.
On January 1, 2019, the Company adopted
ASC 606, “Revenue from Contracts with Customers” using the modified retrospective method applied to those contracts
which were not completed as of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under
Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic
accounting under Topic 605. Based on the Company’s assessment, the adoption of ASC 606 did not result in any adjustment
on the Company’s consolidated financial statements, and there were no material differences between the Company’s adoption
of ASC 606 and its historic accounting under ASC 605.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(m)
|
Revenue
recognition (continued)
|
Revenues are recognized when control
of the promised virtual items or services is transferred to the Company’s customers, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for those virtual items or services. Revenue is recorded, net of sales related
taxes and surcharges. The Company derives their revenue from live streaming service and technical service.
Live
streaming
The
Company is principally engaged in operating its own live streaming platforms, which enable broadcasters and viewers to interact
with each other during live streaming. The Company is responsible for providing a technological infrastructure to enable the broadcasters,
online users and viewers to interact through live streaming platforms. All the platforms can be accessed for free. The Company
mainly derives the revenue from sales of virtual items in the platforms. The Company has a recharge system for users to purchase
the Company’s virtual currency then purchase virtual items for use. Users can recharge via various online third-party payment
platforms, including WeChat Pay, AliPay and other payment platforms. Virtual currency is non-refundable and often consumed
soon after it is purchased.
The Company designs, creates and offers
various virtual items for sales to users with pre-determined stand-alone selling price. Virtual items are categorized as consumable
and time-based items. Consumable items are consumed upon purchase and use while time-based items could be used for a fixed period
of time. Users can purchase and present consumable items to broadcasters to show support for their favorite broadcasters, or purchase
time-based virtual items for one or multiple months for a monthly fee, which provide users with recognized status, such as priority
speaking rights or special symbols over a period of time.
The
Company shares a portion of the sales proceeds of virtual items (“revenue sharing fee”) with broadcasters and talent
agencies in accordance with their revenue sharing arrangements. Broadcasters, who do not have revenue sharing arrangements with
the Company, are not entitled to any revenue sharing fee. The Company also utilizes third-party payment collection channels, which
charges the payment handling cost for users to purchase the virtual currency directly from it. The payment handling costs are
recorded in cost of sales.
The Company evaluates and determines
that it is the principal and views users to be its customers, because the Company controls the virtual items before they are transferred
to users. Its control is evidenced by the Company’s sole ability to monetize the virtual items before they are transferred
to users, and is further supported by the Company being primarily responsible to the users for the delivery of the virtual items
as well as having full discretion in establishing pricing for the virtual items. Accordingly, the Company reports live streaming
revenues on a gross basis with the amounts billed to users recorded as revenues and revenue sharing fee paid to broadcasters and
related agencies recorded as cost of revenues.
Sales proceeds are initially recorded
as deferred revenue and recognized as revenue based on the consumption of the virtual items. The Company has determined that each
individual virtual item represents a distinct performance obligation. Accordingly, live streaming revenue is recognized immediately
when the consumable virtual item is used, or in the case of time-based virtual items, revenue is recognized over the fixed period
on a straight line basis. The Company does not have further obligations to the user after the virtual items are consumed. The
Company’s live streaming virtual items are generally sold without right of return and the Company does not provide any other
credit and incentive to its users. Unconsumed virtual currency is recorded as deferred revenue.
The Company also cooperates with independent
third-party distributors to sell virtual currency through annual distribution agreements with these distributors. Third-party
distributors purchase virtual currency from the Company with no refund provision according to the annual distribution agreements,
and they are responsible for selling the virtual currency to end users. They may engage their own sales representatives, which
are referred to as “sales agents” to directly sell to individual end users. The Company has no control over such “sales
agents”. The Company has discretion to determine the price of the virtual currency sold to its third-party distributors,
but has no discretion as to the price at which virtual currency is sold by its third-party distributors to the sales agents.
Technical
Services
The
Company generated technical revenues from providing technical development and advisory, which accounts for only less than 1% of
revenue. As the amount was immaterial, and short-term in nature which is usually less than six months, the Company recognizes
revenue when service were rendered and accepted by customers.
Practical expedients and exemptions
The Company’s contracts have
an original duration of one year or less. Accordingly, the Company does not disclose the value of unsatisfied performance obligations.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(m)
|
Revenue
recognition (continued)
|
Contract balances
Contract balances include accounts
receivable and deferred revenue. Accounts receivable primarily represent cash due from distributors and are recorded when the
right to consideration is unconditional. The allowance for doubtful accounts reflects the best estimate of probable losses inherent
to the account receivable balance. Deferred revenue primarily includes unconsumed virtual currency and unamortized revenue from
time-based virtual items in the Company’s platforms, where there is still an obligation to be provided by the Company, which
will be recognized as revenue when all of the revenue recognition criteria are met. Due to the generally short-term duration of
the relevant contracts, the majority of the performance obligations are satisfied within one year. The amount of revenue recognized
that was included in the deferred revenue balance at the beginning of the year was RMB38,402 for the year ended December 31, 2019.
Government
subsidies are primarily referred to the amounts received from various levels of local governments from time to time which are
granted for general corporate purposes and to support its ongoing operations in the region. The grants are determined at the discretion
of the relevant government authority and there are no restrictions on their use. The government subsidies are recorded as other
income in the period the cash is received.
Amounts
recorded as cost of revenue relate to direct expenses incurred in order to generate revenue. Such costs are recorded as incurred.
Cost of revenues consists primarily of (i) revenue sharing fees and content costs, including payments to various broadcasters,
and content providers, (ii) bandwidth costs, (iii) salaries and welfare, (iv) depreciation and amortization expense for servers
and other equipment, and intangibles directly related to operating the platform, (v) user acquisition costs (vi) payment handling
costs, and (vii) other costs.
(p)
|
Research
and development expenses
|
Research
and development expenses primarily consist of (1) salaries and benefits expenses incurred for research and development personnel,
and (2) rental, general expenses and depreciation expenses associated with the research and development activities. Expenditures
incurred during the research phase are expensed as incurred and no research and development expenses were capitalized as of December
31, 2018 and 2019.
(q)
|
Sales
and marketing expenses
|
Sales and marketing expenses consist
primarily of advertising and market promotion expenses. The advertising and market promotion expenses amounted to RMB4,224 (US$614)
and RMB3,350 (US$481) for the years ended December 31, 2018 and 2019, respectively.
(r)
|
General
and administrative expenses
|
General
and administrative expenses consist primarily of consulting fee, and salaries and welfare for general and administrative personnel
which are expensed as incurred.
The full-time employees of the Company’s
PRC subsidiaries are entitled to staff welfare benefits including medical care, housing fund, unemployment insurance and pension
benefits, which are government mandated defined contribution plans. These entities are required to accrue for these benefits based
on certain percentages of the employees’ respective salaries, subject to certain ceilings, in accordance with the relevant
PRC regulations, and make cash contributions to the state-sponsored plans out of the amounts accrued. The total amounts for such
employee benefits were RMB5,195 (US$756) and RMB6,951 (US$999) for the years ended December 31, 2018 and 2019, respectively.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Leases
are classified at the inception date as either a capital lease or an operating lease. The Company did not enter into any leases
whereby it is the lessor for any of the periods presented. As the lessee, a lease is a capital lease if any of the following conditions
exists: a) ownership is transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the
lease term is at least 75% of the property’s estimated remaining economic life, or d) the present value of the minimum lease
payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the lessor at the inception
date. A lease involving integral equipment is a capital lease only if condition (a) or (b) exists. A capital lease is accounted
for as if there was an acquisition of an asset and an incurrence of an obligation at the inception of the lease.
All
other leases are accounted for as operating leases wherein rental payments are expensed on a straight-line basis over the periods
of their respective leases. The Company leases office space under operating lease agreements. Certain of the lease agreements
contain rent holidays. Rent holidays are considered in determining the straight-line rent expense to be recorded over the lease
term. The lease term begins on the date of initial possession of the lease property for purposes of recognizing lease expense
on a straight-line basis over the term of the lease. The excess of rent expense and rent paid, as the case may be for respective
leases, is recorded as deferred rental included in the prepaid expenses and other current assets in the consolidated balance sheets.
The
Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. The Company follows the
liability method in accounting for income taxes in accordance to ASC topic 740 (“ASC 740”), Income Taxes. Under this
method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases
of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to
reverse. A valuation allowance would be recorded against deferred tax assets if, based on the weight of available evidence, it
is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.
The guidance on accounting for uncertainties
in income taxes prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. Guidance was also provided on recognition of income tax assets and liabilities,
classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with
tax positions, accounting for income taxes in interim periods, and income tax disclosures. Significant judgment is required in
evaluating the Company’s uncertain tax positions and determining its provision for income taxes. The Company recognizes
interests and penalties, if any, under accrued expenses and other current liabilities on its balance sheet and under other expenses
in its statement of comprehensive loss. The Company did not recognize any interest and penalties associated with uncertain tax
positions for the years ended December 31, 2018 and 2019. As of December 31, 2018 and 2019, the Company did not have any significant
unrecognized uncertain tax positions.
(v)
|
Value
added tax (“VAT”)
|
Revenue
represents the invoiced value of service, net of VAT. The VAT is based on gross sales price and VAT rates range up to 17%, depending
on the type of service provided. 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 tax payable. All of the
VAT returns filed by the Company’s subsidiaries in China, have been and remain subject to examination by the tax authorities
for five years from the date of filing.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
The
Company’s PRC entities are required to make appropriations to certain non-distributable reserve funds.
In
accordance with the laws applicable to China’s Foreign Investment Enterprises, the Company’s subsidiaries registered
as WFOEs have to make appropriations from its after-tax profit (as determined under the Accounting Standards for Business Enterprises
as promulgated by the Ministry of Finance of the People’s Republic of China (“PRC GAAP”) to reserve funds including
general reserve fund and staff bonus and welfare fund. The appropriation to the general reserve fund must be at least 10% of the
after-tax profits calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of
the registered capital of the Company. Appropriation to the staff bonus and welfare fund is at the Company’s discretion.
In
addition, in accordance with the Company Laws of the PRC, the Company’s entities registered as PRC domestic companies must
take appropriations from its after-tax profit as determined under the PRC GAAP to non-distributable reserve funds including a
statutory surplus fund and a discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10%
of after tax profits as determined under the PRC GAAP. Appropriation is not required if the surplus fund has reached 50% of the
registered capital of the Company. Appropriation to the discretionary surplus fund is made at the discretion of the Company.
The
use of the general reserve fund, statutory surplus fund and discretionary surplus fund are restricted to the off-setting of losses
or increasing capital of the respective company. The staff bonus and welfare fund is liability in nature and is restricted to
fund payments of special bonus to staff and for the collective welfare of employees. All these reserves are not allowed to be
transferred to the Company in terms of cash dividends, loans or advances, nor can they be distributed except under liquidation.
The
Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260
requires companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common
share outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential common shares
(e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented,
or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share
or decrease loss per share) are excluded from the calculation of diluted EPS.
The
Company follows ASC 280, “Segment Reporting.” The Company’s Chief Executive Officer or chief operating
decision-maker reviews the consolidated financial results when making decisions about allocating resources and assessing the performance
of the Company as a whole and hence, the Company has only one reportable segment. The Company operates and manages its business
in PRC China as a single segment. As the Company’s long-lived assets are substantially all located in the PRC and substantially
all the Company’s revenues are derived from within the PRC, no geographical segments are presented.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(z)
|
Recent
accounting pronouncements
|
In February 2016, the FASB issued
ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842). ASU 2016-02 specifies the accounting for leases. For
operating leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured
at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single
lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. In
July 2018, ASU 2018-11, the FASB further amended the guidance to provide another transition method in addition to the
existing transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize
an accumulative-effective adjustment to the opening balance of retained earnings in the period of adoption. For non-public
business entities, this aforementioned guidance is effective for fiscal years beginning after December 15, 2019, and interim
periods within those fiscal years beginning after December 15, 2020. In November 2019, the FASB issued ASU No. 2019-10, by
which to defer the effective date for all other entities by an additional year. Early adoption is permitted. As of December
31, 2019, the Company has RMB 2,701 (US$388) of future minimum operating lease commitments that are not currently recognized
on its consolidated balance sheets (Note 14). Therefore, the Company would expect changes to its consolidated balance sheets
for the recognition of these and any additional leases entered into in the future upon adoption.
In June 2016, the FASB issued ASU No.
2016-13 (“ASU 2016-13”), Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments. ASU 2016-13 changes the impairment model for most financial assets and certain other instruments.
The standard will replace “incurred loss” approach with an “expected loss” model for instruments measured
at amortized cost. The standard is effective for non-public business entities for annual periods beginning after December 15,
2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company does
not expect this guidance will have a material impact on its consolidated financial statements.
In July 2018, the FASB issued Update
No. 2018-09, Codification Improvements. This Update includes several amendments to the FASB Accounting Standards Codification
(Codification) intended to clarify, improve, or correct errors in the Codification. Some amendments do not require transition
guidance and are effective upon issuance. The amendments requiring transition guidance was effective for the Company beginning
on January 1, 2020. The adoption of this new standard is not expected to have a material impact on its consolidated financial
statements.
In August 2018, the FASB issued Update
No. 2018-13, Fair Value Measurement (Topic 820)-Disclosure Framework-Changes to the Disclosure Requirements for Fair Value
Measurement. The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820 based on
the concepts in the Concepts Statement including the consideration of costs and benefits. The new standard was effective for the
Company beginning on January 1, 2020. The adoption of this new standard is not expected to have a material impact on its consolidated
financial statements.
In October 2018, the FASB issued ASU No.
2018-17 (“ASU 2018-17”), Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest
Entities. The updated guidance requires entities to consider indirect interests held through related parties under common control
on a proportional basis rather than as the equivalent of a direct interest in its entirety when determining whether a decision-making
fee is a variable interest. The amendments in this update are effective for non-public business entities for fiscal years beginning
after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021, with early adoption permitted.
These amendments should be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of
the earliest period presented. The Company is currently evaluating the impact of adopting this standard on its consolidated financial
statements.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
(z)
|
Recent
accounting pronouncements (continued)
|
In April 2019, the FASB issued Update
No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and
Hedging, and Topic 825, Financial Instruments. This Update includes several amendments to the Codification intended to clarify,
improve, or correct errors in the Codification. Some amendments do not require transition guidance and are effective upon issuance.
The amendments requiring transition guidance have the same effective dates as Update No. 2016-13. The Company is evaluating the
impact of this standard on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes
(Topic 740): Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes. The new guidance eliminates
certain exceptions related to the approach for intra period tax allocation, the methodology for calculating income taxes in an
interim period and the recognition of deferred tax liabilities for outside basis differences. It also simplifies aspects of the
accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result
in a step-up in the tax basis of goodwill. This ASU will become effective for the Company's annual and interim periods beginning
in January 1, 2021, and early adoption is permitted. The Company is evaluating the impact of this standard on its consolidated
financial statements.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable,
other receivables included in prepaid expenses, other current assets, and amounts due from related parties. As of December 31,
2018 and 2019, RMB65,294 (US$9,497) and RMB 134,772 (US$ 19,359), respectively, were deposited with major financial institutions
located in the PRC. Management believes that these financial institutions are of high credit quality and continually monitor the
credit worthiness of these financial institutions. Historically, deposits in Chinese banks are secure due to the state policy
on protecting depositors’ interests.
For
the credit risk related to accounts receivable, the Company performs ongoing credit evaluations of its customers. The Company
establishes an allowance for doubtful accounts based upon estimates, factors surrounding the credit risk of specific customers
and other information. The allowance amounts were immaterial for all periods presented.
(b)
|
Currency
convertibility risk
|
Substantially
all of the Company’s businesses are transacted in RMB, which is not freely convertible into foreign currencies. On January
1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s
Bank of China. However, the unification of the exchange rates does not imply the convertibility of RMB into US$ or other foreign
currencies. All foreign exchange transactions continue to take place either through the People’s Bank of China or other
banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval
of foreign currency payments by the People’s Bank of China or other institutions requires submitting a payment application
form together with suppliers’ invoices, shipping documents and signed contracts.
(c)
|
Significant
customers
|
For the years ended December 31, 2018
and 2019, no customer individually represents greater than 10% of the total revenue.
(d)
|
Significant
suppliers
|
For
the year ended December 31, 2018, two vendors accounted for 26.2% and 17.9% of the Company’s total purchases and three
vendors accounted for 39.4%, 28.7% and 11.7% of the Company’s accounts payable as of December 31, 2018.
For the year ended December 31, 2019,
one vendor accounted for 37.2% of the Company’s total purchases and two vendors accounted for 30.7% and 21.6% of the
Company’s accounts payable as of December 31, 2019.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
4.
|
ACCOUNTS
RECEIVABLE, NET
|
Accounts
receivable and allowance for doubtful accounts consist of the following:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
¥
|
230,809
|
|
|
¥
|
130,376
|
|
|
$
|
18,727
|
|
Less: allowance for doubtful accounts
|
|
|
(9,432
|
)
|
|
|
(10,266
|
)
|
|
|
(1,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
¥
|
221,377
|
|
|
¥
|
120,110
|
|
|
$
|
17,253
|
|
An
analysis of the allowance for doubtful accounts is as follows:
|
|
For the years ended December
31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
¥
|
2,606
|
|
|
¥
|
9,432
|
|
|
$
|
1,354
|
|
Additions
|
|
|
6,826
|
|
|
|
834
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
¥
|
9,432
|
|
|
¥
|
10,266
|
|
|
$
|
1,474
|
|
Four unrelated distributors accounted
for 48.1%, 13.1%, 13.0% and 11.9% of the Company’s accounts receivable as of December 31, 2018. Three unrelated distributors
accounted for 38.7%, 35.9% and 15.3% of the Company’s accounts receivable as of December 31, 2019.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
5.
|
Prepaid
expenses and other current assets
|
Prepaid
expenses and other current assets consist of the following:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
VAT recoverable
|
|
¥
|
3,218
|
|
|
¥
|
3,182
|
|
|
$
|
457
|
|
Investment deposit(i)
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
Prepaid expense
|
|
|
6,908
|
|
|
|
5,021
|
|
|
|
721
|
|
Other receivables
|
|
|
4
|
|
|
|
3,354
|
|
|
|
482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,130
|
|
|
|
11,557
|
|
|
|
1,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets, net
|
|
¥
|
30,130
|
|
|
¥
|
11,557
|
|
|
$
|
1,660
|
|
An
analysis of the allowance for doubtful accounts is as follows:
|
|
For the years ended December
31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
¥
|
-
|
|
|
¥
|
-
|
|
|
$
|
-
|
|
Additions
|
|
|
|
|
|
|
20
|
|
|
|
3
|
|
Write off
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
¥
|
-
|
|
|
¥
|
-
|
|
|
$
|
-
|
|
i)
|
The
Company planned to set up a limited partnership in Xiamen with a third party to engage in private equity investment business.
The limited partnership did not commence business as planned, as a result, the Company’s investment of RMB20,000 was
returned in 2019.
|
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
6.
|
PROPERTY
AND EQUIPMENT, NET
|
Property
and equipment, including those held under capital leases, consists of the following:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
At cost:
|
|
|
|
|
|
|
|
|
|
Computer and transmission equipment
|
|
¥
|
4,982
|
|
|
¥
|
5,246
|
|
|
$
|
753
|
|
Furniture, fixtures and office equipment
|
|
|
138
|
|
|
|
311
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,120
|
|
|
|
5,557
|
|
|
|
798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(4,169
|
)
|
|
|
(4,821
|
)
|
|
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
¥
|
951
|
|
|
¥
|
736
|
|
|
$
|
106
|
|
For the years ended December 31, 2018
and 2019, depreciation expense was RMB1,167 and RMB655 (US$94), respectively.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
The
following table presents the Company’s intangible assets as of the respective balance sheet dates:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
At cost:
|
|
|
|
|
|
|
|
|
|
Trademark
|
|
¥
|
23
|
|
|
¥
|
23
|
|
|
$
|
3
|
|
Patent
|
|
|
33
|
|
|
|
33
|
|
|
|
5
|
|
Copyright
|
|
|
54
|
|
|
|
69
|
|
|
|
10
|
|
Software
|
|
|
142
|
|
|
|
142
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
252
|
|
|
|
267
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated amortization
|
|
|
(46
|
)
|
|
|
(72
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
¥
|
206
|
|
|
¥
|
195
|
|
|
$
|
28
|
|
For the years ended December 31, 2018
and 2019, amortization expense was RMB24 and RMB26 (US$4), respectively.
The
estimated annual amortization expense for each of the five succeeding fiscal years is as follow:
|
|
Amortization
|
|
|
Amortization
|
|
|
|
RMB
|
|
|
US$
|
|
For the twelve months ending December 31,
|
|
|
|
|
|
|
2020
|
|
¥
|
27
|
|
|
$
|
4
|
|
2021
|
|
|
27
|
|
|
|
4
|
|
2022
|
|
|
27
|
|
|
|
4
|
|
2023
|
|
|
27
|
|
|
|
4
|
|
2024
|
|
|
27
|
|
|
|
4
|
|
Thereafter
|
|
|
60
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
¥
|
195
|
|
|
$
|
28
|
|
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
|
|
Cost method investments
without readily determinable fair value
|
|
|
Cost method investments
without readily determinable fair value
|
|
|
|
RMB
|
|
|
US$
|
|
Balance as of January 1, 2019
|
|
¥
|
-
|
|
|
$
|
-
|
|
Additions(i)
|
|
|
5,000
|
|
|
|
718
|
|
Disposal
|
|
|
-
|
|
|
|
-
|
|
Impairment
|
|
|
-
|
|
|
|
-
|
|
Balance as of December 31, 2019
|
|
¥
|
5,000
|
|
|
$
|
718
|
|
(i)
|
In November, 2019, the Company
invested RMB5,000 into Hangzhou Zhengrui Energy Technology LLP.(“Zhengrui”)
in exchange for 18% Zhengrui’s equity interest. The Company considers it does not
has significant influence over Zhengrui due to the level of ownership and its participation
on Zhengrui’s significant business operating and strategic decisions. As of December
31, 2019, Zhengrui was still in startup stage and did not have any significant business
activities, the Company did not consider there was any facts indicating the fair value
of the investment was less than it carrying value.
|
9.
|
Long
term deposits and other Assets
|
Long
term deposits and other assets consist of the following:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Rent deposits
|
|
¥
|
175
|
|
|
¥
|
392
|
|
|
$
|
56
|
|
Advertising deposits
|
|
|
2,329
|
|
|
|
2,369
|
|
|
|
341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term deposits and other assets
|
|
¥
|
2,504
|
|
|
¥
|
2,761
|
|
|
$
|
397
|
|
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
Enterprise
income tax
Cayman
Islands
Under
the current laws of the Cayman Islands, the Company incorporated in the Cayman Islands is not subject to tax on income or capital
gain. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.
Hong
Kong
Under
the current Hong Kong Inland Revenue Ordinance, the subsidiary of the Company in Hong Kong is subject to 16.5% Hong Kong profit
tax on its taxable income generated from operations in Hong Kong. Additionally, payments of dividends by the subsidiary incorporated
in Hong Kong to the Company are not subject to any Hong Kong withholding tax.
The
PRC
The
Company’s subsidiaries and the VIE that are each incorporated in the PRC are subject to Corporate Income Tax (“CIT”)
on the taxable income as reported in their respective statutory financial statements adjusted in accordance with the new PRC Enterprise
Income Tax Laws (“PRC Income Tax Laws”) effective from January 1, 2008. Pursuant to the PRC Income Tax Laws, the Company’s
PRC subsidiaries and the VIE are subject to a CIT statutory rate of 25%.
Under the PRC Income Tax Laws, an enterprise
which qualifies as a High and New Technology Enterprise (“the HNTE”) is entitled to a preferential tax rate of 15%
provided it continues to meet HNTE qualification standards on an annual basis. SG qualifies as an HNTE and is entitled for a preferential
tax rate of 15% from 2015 to 2020. The HNTE certificate of SG is expiring in 2021 and there exists uncertainties with the reapplication
outcome. HX qualifies as an HNTE and is entitled for a preferential tax rate of 15% from 2017 to 2019. The HNTE certificate of
HX is expiring in 2020 and the Company is in the process of renew. There exists uncertainties with the reapplication outcome.
LH qualifies as an HNTE and is entitled for a preferential tax rate of 15% from 2016 to 2021. The HNTE certificate of LH is expiring
in 2022 and there exists uncertainties with the reapplication outcome.
Under
the PRC Income Tax Laws, during the period from January 1, 2010 to December 31, 2020, an enterprise which established in region
of Holgus and Kashgar is entitled to a preferential tax rate of 0% in five consecutive years since the first year income generated
from operations provided it continues to meet the conditions within the required scope.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
10.
|
INCOME
TAXES (CONTINUED)
|
The
PRC (continued)
Holgus qualifies for the conditions and
entitled for tax-exempt from 2017 to 2021. Kashgar qualifies for the conditions and entitled for tax-exempt from 2016 to 2020.
For the years ended December 31, 2018 and
2019, total tax saving for the preferential tax rate were RMB24,475 and RMB33,227 (US$4,773), respectively, the impact on EPS
were RMB 245 and RMB332 (US$48), respectively.
Super
deduction on research and development (“R&D”) expenses
Under the enterprise income tax (“EIT”)
law of the PRC, qualified enterprises can enjoy a 175% super deduction for eligible R&D expenses in 2019. During the year
ended December 31, 2019, nil of R&D expense was eligible for the super deduction, which accounts for a nil decrease in tax
expense.
Uncertain
tax positions
The Company evaluates the level of
authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical
merits, and measures the unrecognized benefits associated with the tax positions. As of December 31, 2018 and 2019, the Company
did not have any significant unrecognized uncertain tax positions.
The Company did not incur any interest
or penalty related to potential underpaid income tax expenses for the years ended December 31, 2018 and 2019, and also does not
anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from December 31, 2019.
The
income tax expenses comprise:
|
|
For the years ended December
31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax expense
|
|
¥
|
4,540
|
|
|
¥
|
6,814
|
|
|
$
|
978
|
|
Deferred income tax expense (benefit)
|
|
|
87
|
|
|
|
(191
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
¥
|
4,627
|
|
|
¥
|
6,623
|
|
|
$
|
951
|
|
A reconciliation of the differences
between the statutory tax rate and the effective tax rate for EIT for the years ended December 31, 2018 and 2019 is as follows:
|
|
For the years ended December 31,
|
|
|
|
2018
|
|
|
2019
|
|
|
|
|
|
|
|
|
Income tax computed at PRC statutory tax rate
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Effect of tax-preferential entities
|
|
|
(21.98
|
)%
|
|
|
(21.23
|
)%
|
Non-deductible expenses
|
|
|
1.13
|
%
|
|
|
0.46
|
%
|
Income tax expense
|
|
|
4.15
|
%
|
|
|
4.23
|
%
|
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
|
10.
|
INCOME
TAXES (CONTINUED)
|
Uncertain
tax positions (continued)
The
components of deferred taxes are as follows:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
¥
|
283
|
|
|
¥
|
474
|
|
|
$
|
68
|
|
Based upon the level of historical
taxable income and projections for future taxable income over the periods in which the deferred tax assets are recoverable, management
believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize
the deferred tax assets for the Company. Thus, there were no valuation allowances as of December 31, 2018 and 2019 for the deferred
tax assets.
11.
|
RELATED
PARTY BALANCES AND TRANSACTIONS
|
In
addition to the information disclosed elsewhere in the financial statements, the principal related parties with which the Company
had transactions during the years presented are as follows:
Name
of Related Parties
|
|
Relationship
with the Company
|
|
|
|
Mr. He Xiaowu
|
|
CEO, CFO and
Chair of Scienjoy Inc.
|
Sixiang Times
(Beijing) Technology Co., Ltd.
|
|
Where
the Company’s executive is one of the major shareholder
|
Sixiang Huizhi
(Beijing) Technology Culture Co., Ltd.
|
|
Where
Mr. He Xiaowu acted as Legal Representative, Manager and President
|
Beijing Junwei Technology Co., Ltd.
|
|
Controlling shareholder
of SG and HX
|
Wangqin wuxian(Beijing)Technology
Co Ltd
|
|
Subsidiary
company of Beijing NQ Mobile Inc., which was holding company of Sixiang Times (Beijing) Technology Co., Ltd
|
Beijing WanPu
century technology Co Ltd
|
|
Subsidiary
company of Beijing NQ Mobile Inc., which was holding company of Sixiang Times (Beijing) Technology Co., Ltd
|
Lavacano Holdings
Limited
|
|
Where
Mr. He Xiaowu acted as director
|
ENMOLI INC
|
|
Where
Mr. He Xiaowu acted as director
|
For
the years ended December 31, 2018 and 2019, significant related party transactions were as follows:
|
|
|
|
For the years ended December
31,
|
|
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
Nature
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing WanPu century technology Co Ltd
|
|
Market promotion expenses
|
|
¥
|
16
|
|
|
¥
|
16
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sixiang Times (Beijing) Technology Co., Ltd.
|
|
Rental and service expenses
|
|
|
8,399
|
|
|
|
986
|
|
|
|
142
|
|
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
11.
|
RELATED
PARTY BALANCES AND TRANSACTIONS (CONTINUED)
|
As
of December 31, 2018 and 2019, the amounts due from/to related parties are as follows:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Loan receivables - related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wangqin
Wuxian (Beijing)Technology Co., Ltd. (1)
|
|
¥
|
500
|
|
|
¥
|
-
|
|
|
$
|
-
|
|
Sixiang Huizhi (Beijing)
Technology Culture Co., Ltd.(2)(3)
|
|
|
31,000
|
|
|
|
-
|
|
|
|
-
|
|
Beijing
Junwei Technology Co., Ltd. (8)
|
|
|
-
|
|
|
|
500
|
|
|
|
72
|
|
Total
|
|
¥
|
31,500
|
|
|
¥
|
500
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due from related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lavacano Holdings Limited
|
|
|
-
|
|
|
|
7
|
|
|
|
1
|
|
Total
|
|
¥
|
-
|
|
|
¥
|
7
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan payables - related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sixiang Times (Beijing)
Technology Co., Ltd.(4)(5)(6)
|
|
|
32,050
|
|
|
|
-
|
|
|
|
-
|
|
ENMOLI INC(9)
|
|
|
|
|
|
|
5,525
|
|
|
|
794
|
|
Total
|
|
¥
|
32,050
|
|
|
¥
|
5,525
|
|
|
$
|
794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due to related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sixiang Times (Beijing)
Technology Co., Ltd.(7)
|
|
|
104,590
|
|
|
|
986
|
|
|
|
142
|
|
Beijing
WanPu Century Technology Co., Ltd. (10)
|
|
|
26,097
|
|
|
|
7,496
|
|
|
|
1,076
|
|
Total
|
|
¥
|
130,687
|
|
|
¥
|
8,482
|
|
|
$
|
1,218
|
|
1)
|
In
December 2018, SG entered into an interest-free loan agreement with Wangqin Wuxian (Beijing) Technology Co., Ltd. at principal
of RMB500. The loan was repaid in June 2019.
|
2)
|
In
November 2018, SG entered into an interest-free loan agreement with Sixiang Huizhi (Beijing) Technology Culture Co., Ltd.
at principal of RMB1,000. The loan was repaid in January 2019.
|
3)
|
In
December 2018, LH entered into an interest-free loan agreement with Sixiang Huizhi (Beijing) Technology Culture Co., Ltd.
at principal of RMB30,000. The loan was repaid in June 2019.
|
4)
|
In
July 2018, LH entered into an interest-free loan agreement with Sixiang Times (Beijing) Technology Co., Ltd. of RMB1,000 as
working capital supplement. The loan was repaid in May 2019.
|
5)
|
In
September 2018, ZH entered into an interest-free loan agreement with Sixiang Times (Beijing) Technology Co., Ltd. of RMB10,500
as working capital supplement. The loan was repaid in January 2019.
|
6)
|
In November 2018,
SG entered into an interest-free loan agreement with Sixiang Times (Beijing) Technology Co., Ltd. of RMB20,550 as working
capital supplement. The loan was repaid in May 2019.
|
|
|
7)
|
The balance as
of December 31, 2018 represented unpaid dividend distribution to shareholders. The balance as of December 31, 2019 represented
unpaid service fee.
|
8)
|
In October 2019,
SG entered into an interest-free loan agreement with Beijing Junwei Technology Co., Ltd. at principal of RMB500. The loan
matures on September 30, 2020.
|
9)
|
In January 2019,
Scienjoy HK entered into an interest-free loan agreement with Enmoli Inc. at principal of $788. The loan matures on December
31, 2020.
|
10)
|
The balance due
to Beijing WanPu Century Technology Co., Ltd. amounted to RMB26,097 and RMB7,496 and as of December 31, 2018 and 2019, respectively.
|
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
The
Company was established under the laws of Cayman Islands on March 2, 2017. The original authorized number of Ordinary Shares was
500,000,000 shares with a par value of $0.0001 per share.
Dividend
The Company declared a dividend of
approximately RMB 333,090 by July 2018, of which approximately RMB228,500 (US$33,200) was paid in 2018 and approximately RMB104,590
(US$15,023) was subsequently paid in 2019, respectively.
Capital
distribution
During the years ended December 31,
2018 and 2019, the Company distributed RMB10,000 and RMB32,329 (US$4,644), respectively to the shareholders as a result of re-organization.
Capital
contribution
During the years ended December 31,
2018 and 2019, the Company received capital contribution of RMB8,399 and nil from a shareholder.
13.
|
STATUTORY
RESERVES AND RESTRICTED NET ASSETS
|
The
Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries.
Relevant PRC statutory laws and regulations permit payments of dividends by the Company’s PRC subsidiaries only out of their
retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations
reflected in the consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory
financial statements of the Company’s subsidiaries.
In accordance with the PRC Regulations
on Enterprises with Foreign Investment and the articles of association of the Company’s PRC subsidiaries, a foreign-invested
enterprise established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise
expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s PRC
statutory accounts. A foreign-invested enterprise is required to allocate at least 10% of its annual after-tax profit to the general
reserve until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory
accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board
of directors for all foreign-invested enterprises. The aforementioned reserves can only be used for specific purposes and are
not distributable as cash dividends. WX was established as a foreign-invested enterprise and, therefore, is subject to the above
mandated restrictions on distributable profits. As of December 31, 2018 and 2019, the Company had appointed RMB10,323 and RMB
12,059 (US$1,732), respectively in its statutory reserves.
Foreign exchange and other regulations
in the PRC may further restrict the Company’s VIE from transferring funds to the Company in the form of dividends, loans
and advances. Amounts restricted include paid-in capital, additional paid-in capital and statutory reserves of the Company’s
PRC Subsidiaries and the equity of VIE, as determined pursuant to PRC generally accepted accounting principles. As of December
31, 2018 and 2019, restricted net assets of the Company’s PRC subsidiaries and VIE were RMB52,315 and RMB 21,722 (US$ 3,120).
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
14.
|
COMMITMENTS
AND CONTINGENCIES
|
(a)
|
Operating
Leases Commitments
|
The Company leases facilities in the
PRC under non-cancelable operating leases expiring on different dates. Total rental expense under all operating leases was RMB2,123
and RMB1,855 (US$266) for the years ended December 31, 2018 and 2019, respectively.
As of December 31, 2019, the Company
had future minimum lease payments under non-cancelable operating leases with initial terms of one-year or more in relation to
office premises consist of the following:
|
|
RMB
|
|
|
US$
|
|
Twelve months ending December 31,
|
|
|
|
|
|
|
2020
|
|
¥
|
1,245
|
|
|
$
|
179
|
|
2021
|
|
|
927
|
|
|
|
133
|
|
2022
|
|
|
529
|
|
|
|
76
|
|
2023
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
¥
|
2,701
|
|
|
$
|
388
|
|
(b)
|
Capital
and Other Commitments
|
The Company did not have significant
capital and other commitments as of December 31, 2018 and 2019.
From
time to time, the Company is party to certain legal proceedings, as well as certain asserted and un-asserted claims. Amounts accrued,
as well as the total amount of reasonably possible losses with respect to such matters, individually and in the aggregate, are
not deemed to be material to the consolidated financial statements.
On January 10, 2020, the Company acquired
100% equity interest of Lixiaozhi (Chongqing) internet technology Co., Ltd (“Lixiaozhi”) from its original shareholder
for a cash consideration of RMB 200 (US$ 29). Lixiaozhi is engaged in operating its own live streaming platform. The Company believes
the acquisition of Lixiaozhi helps to enrich its product line, expand its user base and capitalize on the growth potential in
the lives streaming market. The operating results of Lixiaozhi for the years ended December 31, 2018 and 2019 were not significant
to the Company.
In December 2019, a novel strain of
coronavirus (COVID-19) surfaced. COVID-19 has spread rapidly to many parts of PRC and other parts of the world in the first quarter
of 2020, which has caused significant volatility in PRC and international markets. There is significant uncertainty around the
breadth and duration of business disruptions related to COVID-19, as well as its impact on the PRC and international economies
and, as such, the Company is unable to determine if it will have a material impact to its operations.
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
16.
|
CONDENSED
FINANCIAL INFORMATION OF THE PARENT COMPANY
|
The
Company performed a test on the restricted net assets of consolidated subsidiary in accordance with Securities and Exchange Commission
Regulation S-X Rule 4-08 (3), “General Notes to Financial Statements” and concluded that it was applicable for the
Company to disclose the financial statements for the parent company.
The
subsidiary did not pay any dividend to the Company for the years presented. For the purpose of presenting parent only financial
information, the Company records its investment in its subsidiary under the equity method of accounting. Such investment is presented
on the separate condensed balance sheets of the Company as “Investment in subsidiary” and the income of the subsidiary
is presented as “share of income of subsidiary”. Certain information and footnote disclosures generally included in
financial statements prepared in accordance with U.S. GAAP have been condensed and omitted.
The Company did not have other commitments,
long-term obligations, or guarantees as of December 31, 2018 and 2019.
Parent
company BALANCE sheets
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents
|
|
¥
|
-
|
|
|
¥
|
35
|
|
|
$
|
5
|
|
Total
current assets
|
|
|
-
|
|
|
|
35
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries
and consolidated VIE
|
|
¥
|
56,936
|
|
|
¥
|
174,525
|
|
|
$
|
25,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
¥
|
56,936
|
|
|
¥
|
174,560
|
|
|
$
|
25,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to subsidiaries
|
|
¥
|
-
|
|
|
¥
|
34
|
|
|
$
|
5
|
|
Total
liabilities
|
|
¥
|
-
|
|
|
¥
|
34
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
US$0.0001 par value; 500,000,000 shares authorized,
100,000 shares issued and outstanding as of December 31, 2018 and December 31, 2019
|
|
|
69
|
|
|
|
69
|
|
|
|
10
|
|
Share subscription receivables
|
|
|
(69
|
)
|
|
|
(69
|
)
|
|
|
(10
|
)
|
Additional paid-in capital
|
|
|
41,992
|
|
|
|
9,664
|
|
|
|
1,388
|
|
Statutory reserves
|
|
|
10,323
|
|
|
|
12,059
|
|
|
|
1,732
|
|
Retained earnings
|
|
|
4,621
|
|
|
|
152,803
|
|
|
|
21,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholder’s equity
|
|
|
56,936
|
|
|
|
174,526
|
|
|
|
25,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
¥
|
56,936
|
|
|
¥
|
174,560
|
|
|
$
|
25,074
|
|
SCIENJOY
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”), except share and per share data or otherwise
stated)
16.
|
CONDENSED
FINANCIAL INFORMATION OF THE PARENT COMPANY (CONTINUED)
|
parent
company statement of income
|
|
For the years ended December
31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Equity income of subsidiaries
|
|
¥
|
106,740
|
|
|
¥
|
149,918
|
|
|
$
|
21,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
106,740
|
|
|
|
149,918
|
|
|
|
21,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥
|
106,740
|
|
|
¥
|
149,918
|
|
|
$
|
21,534
|
|
Parent
company statement of cash flows
|
|
For the years ended December
31,
|
|
|
|
2018
|
|
|
2019
|
|
|
2019
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
¥
|
-
|
|
|
¥
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from subsidiaries
|
|
|
238,500
|
|
|
|
136,953
|
|
|
|
19,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
238,500
|
|
|
|
136,953
|
|
|
|
19,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends distribution to shareholders
|
|
|
(228,500
|
)
|
|
|
(104,590
|
)
|
|
|
(15,023
|
)
|
Capital distribution due to reorganization
|
|
|
(10,000
|
)
|
|
|
(32,328
|
)
|
|
|
(4,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(238,500
|
)
|
|
|
(136,918
|
)
|
|
|
(19,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
-
|
|
|
|
35
|
|
|
|
5
|
|
Cash and cash equivalents at beginning of the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cash and cash equivalents at end of the year
|
|
¥
|
-
|
|
|
¥
|
35
|
|
|
$
|
5
|
|
BEIJING SIXIANG SHIGUANG TECHNOLOGY CO.,
LTD.,
HAI XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING LE HAI TECHNOLOGY CO., LTD.,
HOLGUS SIXIANG INFORMATION TECHNOLOGY CO.,
LTD. AND
KASHGAR SIXIANG TIMES INTERNET TECHNOLOGY
CO., LTD.
COMBINED FINANCIAL STATEMENTS
For
the years ended December 31, 2016 and 2017
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD
INDEX
TO COMBINED FINANCIAL STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Beijing Si Xiang Shi Guang Technology Co., Ltd, Haixiu (Beijing) Technology Co., Ltd, Beijing Lehai Science and Technology Co.,
Ltd, Holgus Sixiang Information Technology Co., Ltd and Kashgar Sixiang Times Internet Technology Co., Ltd
Opinion on the Financial Statements
We have audited the accompanying combined
balance sheets of Beijing Si Xiang Shi Guang Technology Co., Ltd, Haixiu (Beijing) Technology Co., Ltd, Beijing Lehai Science and
Technology Co., Ltd, Holgus Sixiang Information Technology Co., Ltd and Kashgar Sixiang Times Internet Technology Co., Ltd (together
and collectively, the “Group”), which comprise the combined balance sheets as of December 31, 2017 and 2016, and the
related combined statements of income, changes in equity, and cash flows for each of the years in the two-year period ended December
31, 2017, and the related notes (collectively referred to as the financial statements). In our opinion, the combined financial
statements present fairly, in all material respects, the financial position of the Group as of December 31, 2017 and 2016, and
the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Group’s management. Our responsibility is to express an opinion on the Group’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 Group 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 Group 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 Group’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/ Friedman LLP
We have served as the Group’s auditor
since 2019.
New York, New York
November 27, 2019
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
Combined
Balance Sheets
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
¥
|
26,507
|
|
|
¥
|
129,447
|
|
|
$
|
19,896
|
|
Accounts receivable, net
|
|
|
366,831
|
|
|
|
243,500
|
|
|
|
37,425
|
|
Prepaid expenses and other current assets, net
|
|
|
9,778
|
|
|
|
5,686
|
|
|
|
874
|
|
Loan receivables - related parties
|
|
|
-
|
|
|
|
58,465
|
|
|
|
8,986
|
|
Amounts due from related parties
|
|
|
-
|
|
|
|
200
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
403,116
|
|
|
|
437,298
|
|
|
|
67,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
2,231
|
|
|
|
1,583
|
|
|
|
243
|
|
Intangible assets, net
|
|
|
168
|
|
|
|
211
|
|
|
|
32
|
|
Deferred tax assets
|
|
|
174
|
|
|
|
370
|
|
|
|
57
|
|
Long term deposits and other assets
|
|
|
1,265
|
|
|
|
2,570
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
3,838
|
|
|
|
4,734
|
|
|
|
727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
¥
|
406,954
|
|
|
¥
|
442,032
|
|
|
$
|
67,939
|
|
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
COMBINED
Balance Sheets (CONTINUED)
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
¥
|
197,631
|
|
|
¥
|
63,455
|
|
|
$
|
9,752
|
|
Deferred revenue
|
|
|
41,253
|
|
|
|
56,315
|
|
|
|
8,655
|
|
Accrued salary and employee benefits
|
|
|
2,425
|
|
|
|
3,808
|
|
|
|
585
|
|
Accrued expenses and other current liabilities
|
|
|
599
|
|
|
|
493
|
|
|
|
76
|
|
Loan payables - related parties
|
|
|
8,000
|
|
|
|
-
|
|
|
|
-
|
|
Amount due to related parties
|
|
|
29,376
|
|
|
|
26,097
|
|
|
|
4,011
|
|
Income tax payable
|
|
|
3,314
|
|
|
|
6,977
|
|
|
|
1,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
282,598
|
|
|
|
157,145
|
|
|
|
24,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital
|
|
|
39,806
|
|
|
|
43,593
|
|
|
|
6,700
|
|
Statutory reserves
|
|
|
5,235
|
|
|
|
8,665
|
|
|
|
1,333
|
|
Retained earnings
|
|
|
79,315
|
|
|
|
232,629
|
|
|
|
35,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
124,356
|
|
|
|
284,887
|
|
|
|
43,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
¥
|
406,954
|
|
|
¥
|
442,032
|
|
|
$
|
67,939
|
|
The
accompanying notes are an integral part of these combined financial statements.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
COMBINED
statements of INCOME
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
|
For the years ended December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
¥
|
717,129
|
|
|
¥
|
836,604
|
|
|
$
|
128,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
(597,315
|
)
|
|
|
(654,332
|
)
|
|
|
(100,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
119,814
|
|
|
|
182,272
|
|
|
|
28,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
(11,497
|
)
|
|
|
(3,240
|
)
|
|
|
(498
|
)
|
General and administrative expenses
|
|
|
(20,078
|
)
|
|
|
(10,869
|
)
|
|
|
(1,671
|
)
|
Research and development expenses
|
|
|
(9,631
|
)
|
|
|
(10,610
|
)
|
|
|
(1,631
|
)
|
Provision (recovery) for doubtful accounts
|
|
|
(3,114
|
)
|
|
|
508
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
75,494
|
|
|
|
158,061
|
|
|
|
24,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
515
|
|
|
|
1,686
|
|
|
|
259
|
|
Other income (loss), net
|
|
|
(194
|
)
|
|
|
3,235
|
|
|
|
498
|
|
Foreign exchange gain (loss), net
|
|
|
5
|
|
|
|
(21
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
75,820
|
|
|
|
162,961
|
|
|
|
25,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
(3,862
|
)
|
|
|
(6,217
|
)
|
|
|
(956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥
|
71,958
|
|
|
¥
|
156,744
|
|
|
$
|
24,091
|
|
The
accompanying notes are an integral part of these combined financial statements.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
COMBINED
statements of CHANGES IN EQUITY
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
|
Paid-in capital
|
|
|
Statutory reserves
|
|
|
Retained earnings
|
|
|
Total equity
|
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2016
|
|
¥
|
22,863
|
|
|
¥
|
-
|
|
|
¥
|
12,592
|
|
|
¥
|
35,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
71,958
|
|
|
|
71,958
|
|
Capital contribution
|
|
|
16,943
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,943
|
|
Appropriation to statutory reserves
|
|
|
-
|
|
|
|
5,235
|
|
|
|
(5,235
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
39,806
|
|
|
|
5,235
|
|
|
|
79,315
|
|
|
|
124,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
156,744
|
|
|
|
156,744
|
|
Capital contribution
|
|
|
3,787
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,787
|
|
Appropriation to statutory reserves
|
|
|
-
|
|
|
|
3,430
|
|
|
|
(3,430
|
)
|
|
|
-
|
|
Balance as of December 31, 2017
|
|
¥
|
43,593
|
|
|
¥
|
8,665
|
|
|
¥
|
232,629
|
|
|
¥
|
284,887
|
|
Balance as of December 31, 2017 (US$)
|
|
$
|
6,700
|
|
|
$
|
1,333
|
|
|
$
|
35,755
|
|
|
$
|
43,788
|
|
The
accompanying notes are an integral part of these combined financial statements.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
COMBINED
statements of cash flows
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
|
|
For the years ended December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥
|
71,958
|
|
|
¥
|
156,744
|
|
|
$
|
24,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
967
|
|
|
|
1,276
|
|
|
|
196
|
|
Amortization of intangible assets
|
|
|
4
|
|
|
|
19
|
|
|
|
3
|
|
Provision (recovery) for doubtful accounts
|
|
|
3,114
|
|
|
|
(508
|
)
|
|
|
(78
|
)
|
Loss from disposal of property and equipment
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
Deferred tax expense (benefit)
|
|
|
269
|
|
|
|
(196
|
)
|
|
|
(30
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(282,212
|
)
|
|
|
123,839
|
|
|
|
19,034
|
|
Prepaid expense and other current assets
|
|
|
(8,121
|
)
|
|
|
4,092
|
|
|
|
629
|
|
Long term deposits and other assets
|
|
|
(927
|
)
|
|
|
(1,305
|
)
|
|
|
(201
|
)
|
Accounts payable
|
|
|
150,615
|
|
|
|
(134,176
|
)
|
|
|
(20,622
|
)
|
Deferred revenue
|
|
|
36,070
|
|
|
|
15,062
|
|
|
|
2,315
|
|
Accrued salary and employee benefits
|
|
|
1,438
|
|
|
|
1,383
|
|
|
|
213
|
|
Accrued expenses and other current liabilities
|
|
|
437
|
|
|
|
(106
|
)
|
|
|
(16
|
)
|
Income tax payable
|
|
|
3,314
|
|
|
|
3,663
|
|
|
|
563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(23,074
|
)
|
|
|
169,788
|
|
|
|
26,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment and intangible assets
|
|
|
(1,663
|
)
|
|
|
(691
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,663
|
)
|
|
|
(691
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution
|
|
|
16,943
|
|
|
|
3,787
|
|
|
|
582
|
|
Payments to related parties
|
|
|
-
|
|
|
|
(69,944
|
)
|
|
|
(10,751
|
)
|
Proceeds from related parties
|
|
|
21,895
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
38,838
|
|
|
|
(66,157
|
)
|
|
|
(10,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
14,101
|
|
|
|
102,940
|
|
|
|
15,822
|
|
Cash and cash equivalents at beginning of the year
|
|
|
12,406
|
|
|
|
26,507
|
|
|
|
4,074
|
|
Cash and cash equivalents at end of the year
|
|
¥
|
26,507
|
|
|
¥
|
129,447
|
|
|
$
|
19,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
¥
|
(280)
|
|
|
¥
|
(2,750)
|
|
|
$
|
(423
|
)
|
The
accompanying notes are an integral part of these combined financial statements.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES
|
Prior
to January 1, 2018, Beijing Sixiang Shiguang Technology Co., Ltd (“SG”), Hai Xiu (Beijing) Technology Co., Ltd (“HX”),
Beijing Le Hai Technology Co., Ltd (“LH”), Holgus Sixiang Information Technology Co., Ltd (“Holgus”) and
Kashgar Sixiang Times Internet Technology Co., Ltd (“Kashgar”) (collectively the “Group”) were originally
controlled by NQ Mobile Inc. (“NQ”) through Sixiang Times (Beijing) Technology Co, Ltd (“Sixiang Times”).
The
Group principally operates live streaming platforms including Showself Live, Le Hai Live and Hai Xiu Live in the People’s Republic
of China (the “PRC”) which enable users to view and interact with broadcasters through online chat, virtual items
and playing games.
On
March 30, 2017, NQ entered into an Acquisition Agreement with Tongfang Investment Fund Series SPC (“TF”) to sell its
65% of equity interest in Sixiang Times to TF. The Acquisition was completed on January 1, 2018. Sixiang Times was then transferred
from NQ to TF at the closing.
The
accompanying combined financial statements of SG, HX, LH, Holgus and Kashgar have been prepared to present the financial position,
results of operations, change in equity and cash flows of the Group as if they operated as on business based on common ownership
and that the combined financial statements present a complete understanding of the overall business managed by common management.
These combined financial statements have been derived from the accounting records of SG, HX, LH, Holgus and Kashgar and should
be read in conjunction with the accompanying notes thereto. All intercompany transactions between the entities have been eliminated.
Information
of the Group included as the following:
|
|
Date of
incorporation
|
|
Place of
Incorporation
|
|
Principal
activities
|
|
|
|
|
|
|
|
Holgus Sixiang Information Technology Co., Ltd. (“Holgus”)
|
|
May 9, 2017
|
|
The PRC
|
|
Live streaming platform
|
|
|
|
|
|
|
|
Kashgar Sixiang Times Internet Technology Co., Ltd. (“Kashgar”)
|
|
March 2, 2016
|
|
The PRC
|
|
Live streaming platform
|
|
|
|
|
|
|
|
Beijing Sixiang Shiguang Technology Co., Ltd. (“SG”)
|
|
October 28, 2011
|
|
The PRC
|
|
Live streaming platform
|
|
|
|
|
|
|
|
Hai Xiu (Beijing) Technology Co., Ltd. (“HX”)
|
|
April 18, 2016
|
|
The PRC
|
|
Live streaming platform
|
|
|
|
|
|
|
|
Beijing Le Hai Technology Co., Ltd. (“LH”)
|
|
June 16, 2015
|
|
The PRC
|
|
Live streaming platform
|
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
|
(a)
|
Basis of presentation
and principles of combination
|
The
accompanying combined financial statements have been prepared in accordance with U.S. generally accepted accounting principles
(“US GAAP”).
These
combined financial statements have been prepared using the accounting records of SG, HX, LH, Holgus and Kashgar. All intercompany
transactions between the entities have been eliminated.
The
preparation of the combined financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of
the combined financial statements and the reported amounts of revenues and expenses during the period. Areas where management
uses subjective judgment include, but are not limited to revenue recognition, estimating the useful lives of long-lived assets
and intangible assets, valuation assumptions in performing asset impairment tests of long-lived assets, allowance for doubtful
accounts, and valuation of deferred taxes and deferred tax assets. Actual results could differ from those estimates, and as such,
differences may be material to the combined financial statements.
The
functional currency of the Group is in Renminbi (“RMB”), as determined based on the criteria of Accounting Standards
Codification (“ASC”) 830 (“ASC 830”) “Foreign Currency Matters”. The reporting currency
of the Group is also the RMB. Transactions denominated in foreign currencies are re-measured into RMB at the exchange rates prevailing
on the transaction dates. Foreign currency denominated financial assets and liabilities are re-measured at the balance sheet date
exchange rate. Exchange gains and losses are included in foreign exchange gains and losses in the combined statements of income.
(d)
|
Convenience
translation
|
Translations
of balances in the combined balance sheets, combined statements of income and combined statements of cash flows from RMB into
USD (or “US$”) as of and for the year ended December 31, 2017 are solely for the convenience of the reader and were
calculated at the rate of US$1.00 = RMB6.5063, representing the noon buying rate in The City of New York for cable transfers of
RMB as certified for customs purposes by the Federal Reserve Bank of New York on the last trading day of December 29, 2017. No
representation is made that the RMB amounts represent or could have been, or could be, converted, realized or settled into US$
at that rate, or at any other rate.
(e)
|
Cash and cash
equivalents
|
Cash
and cash equivalents consist of cash on hand and demand deposits placed with banks or other financial institutions which are unrestricted
as to withdrawal and use and have original maturities less than three months.
Cash
and cash equivalents also consist of funds earned from the Group’s operating revenues which were held at the third party
platform fund accounts which are unrestricted as to immediate use or withdraw.
The
Group maintains most of its bank accounts in the PRC. Cash balances in bank accounts in PRC are not insured by the Federal Deposit
Insurance Corporation or other programs.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
(f)
|
Accounts receivable
and allowance for doubtful accounts
|
Accounts
receivable are stated at the historical carrying amount net of allowance for doubtful accounts. Accounts are considered overdue
after 180 days.
The
Group maintains an allowance for doubtful accounts which reflects its best estimate of amounts that potentially will not be collected.
The Group determines the allowance for doubtful accounts taking into consideration various factors including but not limited to
historical collection experience and credit-worthiness of the debtors as well as the age of the individual receivables balance.
Additionally, the Group makes specific bad debt provisions based on any specific knowledge the Group has acquired that might indicate
that an account is uncollectible. The facts and circumstances for each account may require the Group to use substantial judgment
in assessing its collectability.
Account
balances are charged off against the allowance after all means of collection have been exhausted and the likelihood of collection
is not probable.
(g)
|
Property and
equipment
|
Property
and equipment are stated at cost, net of accumulated depreciation using the straight-line method over their estimated useful lives,
once the asset is placed in service.
The
estimated useful lives are as follows:
Computer
and transmission equipment
|
3 years
|
Furniture, fixtures
and office equipment
|
5 years
|
Repair
and maintenance costs are charged to expense when incurred, whereas the cost of betterments that extend the useful life of property
and equipment are capitalized as additions to the related assets. Retirement, sale and disposals of assets are recorded by removing
the cost and related accumulated depreciation with any resulting gain or loss reflected in the combined statements of income.
The Group also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised
estimates of useful lives.
Intangible
assets are carried at cost less accumulated amortization and any impairment. Intangible assets with a finite useful life are amortized
using the straight-line method over the estimated economic life of the intangible assets as follows:
Trademark
|
10 years
|
Patent
|
10 years
|
Copyright
|
10 years
|
Software
|
3 to 5 years
|
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
(i)
|
Impairment
of long-lived assets
|
The
Group evaluates its long-lived assets or asset group, including property and equipment and intangible assets with finite lives,
for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will
impact the future use of the assets) indicate that the carrying amount of an asset or a group of long-lived assets may not be
recoverable. When these events occur, the Group evaluates for impairment by comparing the carrying amount of the assets to future
undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected
undiscounted cash flow is less than the carrying amount of the assets, the Group would recognize an impairment loss based on the
excess of the carrying amount of the asset group over its fair value. Fair value is generally determined by discounting the cash
flows expected to be generated by the assets, when the market prices are not readily available for the long-lived assets.
No
impairment of long-lived assets was recognized for the years ended December 31, 2016 and 2017.
(j)
|
Fair value
of financial instruments
|
ASC
825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires
entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used
to measure fair value are as follows:
●
|
Level
1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
|
●
|
Level
2 — inputs to the valuation methodology include quoted prices for similar assets
and liabilities in active markets, quoted market prices for identical or similar assets
in markets that are not active, inputs other than quoted prices that are observable and
inputs derived from or corroborated by observable market data.
|
●
|
Level
3 — inputs to the valuation methodology are unobservable.
|
The
carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, other receivables
included in prepaid expenses and other current assets, accounts payables, balances with related parties and other current liabilities,
approximate their fair values because of the short-term maturity of these instruments.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Consistent
with the criteria of ASC 605, “Revenue Recognition,” the Group recognizes revenue when a persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable,
and collectability is reasonably assured. Revenue is recorded, net of sales related taxes and surcharges. The Group principally
derives their revenue from live streaming.
Live
streaming
The
Group is principally engaged in operating its own live streaming platforms, which enable broadcasters and viewers to interact
with each other during live streaming. The Group is responsible for providing a technological infrastructure to enable the broadcasters,
online users and viewers to interact through live streaming platforms. All the platforms can be accessed for free. The Group mainly
derives the revenue from sales of virtual items in the platforms. The Group has a recharge system for users to purchase the Group’s
virtual currency then purchase virtual items for use. Users can recharge via various online third-party payment platforms, including
WeChat Pay, AliPay and other payment platforms.
The
Group also cooperates with independent third-party distributors to sell virtual currency through annual distribution agreements
with these distributors. Third-party distributors purchase virtual currency from the Group with no refund provision according
to the annual distribution agreements, and they are responsible for selling the virtual currency to end users. They may engage
their own sales representatives, which are referred to as “sales agents” to directly sell to individual end users.
The Group has no control over such “sales agents”. The Group has discretion to determine the price of the virtual
currency sold to its third-party distributors, but has no discretion as to the price at which virtual currency is sold by its
third-party distributors to the sales agents.
Virtual
currency is non-refundable and often consumed soon after it is purchased. Unconsumed virtual currency is recorded as deferred
revenue.
The
Group designs, creates and offers various virtual items for sales to users with pre-determined stand-alone selling price. Virtual
items are categorized as consumable and time-based items. Consumable items are consumed upon purchase and use while time-based
items could be used for a fixed period of time. Users can purchase and present consumable items to broadcasters to show support
for their favorite broadcasters, or purchase time-based virtual items for one or multiple months for a monthly fee, which provide
users with recognized status, such as priority speaking rights or special symbols over a period of time. Accordingly, live streaming
revenue is recognized immediately when the consumable virtual item is used, or in the case of time-based virtual items, revenue
is recognized ratably over the fixed period on a straight line basis. The Group does not have further obligations to the user
after the virtual items are consumed immediately or after the stated period of time for time-based items. The Group’s live
streaming virtual items are generally sold without right of return and the Group does not provide any other credit and incentive
to its users
The
Group shares a portion of the sales proceeds of virtual items (“revenue sharing fee”) with broadcasters and talent
agencies in accordance with their revenue sharing arrangements. Broadcasters, who do not have revenue sharing arrangements with
the Group, are not entitled to any revenue sharing fee.
The
Group also utilizes third-party payment collection channels, which charges the payment handling cost for users to purchase the
virtual currency directly from it. The payment handling costs are recorded in cost of sales.
The
Group evaluates and determines that it is the principal and views users to be its customers. The Group reports live streaming
revenues on a gross basis. Accordingly, the amounts billed to users are recorded as revenues and revenue sharing fee paid to broadcasters
and talent agencies and payment handling costs are recorded as costs of revenues. The Group has discretion to determine the price
of the virtual currency sold to its end users. In addition, the Group takes overall responsibility of the content or performance
provided by broadcasters in the platforms and maintains the hosting servers for running the live streaming platforms. Consequently,
the Group recognizes revenue on a gross basis pursuant to ASC 605-45.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
(k)
|
Revenue
recognition (continued)
|
Technical
Services
The
Group generated technical revenues from providing technical development and advisory, which accounts for only less than 1% of
revenue. As the amount was immaterial, and short-term in nature which is usually less than six months, the Group recognizes revenue
when service were rendered and accepted by customers.
Deferred
revenue primarily consists of unconsumed virtual currency and unamortized revenue from virtual items in the Group’s platforms,
where there is still an obligation to be provided by the Group, which will be recognized as revenue when all of the revenue recognition
criteria are met.
Amounts
recorded as cost of revenue relate to direct expenses incurred in order to generate revenue. Such costs are recorded as incurred.
Cost of revenues consists primarily of (i) revenue sharing fees and content costs, including payments to various broadcasters,
and content providers, (ii) bandwidth costs, (iii) salaries and welfare, (iv) depreciation and amortization expense for servers
and other equipment, and intangibles directly related to operating the platform, (v) user acquisition costs (vi) payment handling
costs, and (vii) other costs.
(n)
|
Research and
development expenses
|
Research
and development expenses primarily consist of (1) salaries and benefits expenses incurred for research and development personnel,
and (2) rental, general expenses and depreciation expenses associated with the research and development activities. Expenditures
incurred during the research phase are expensed as incurred and no research and development expenses were capitalized as of December
31, 2016 and 2017.
(o)
|
Sales and
marketing expenses
|
Sales
and marketing expenses consist primarily of advertising and market promotion expenses. The advertising and market promotion expenses
amounted to RMB11,479 and RMB2,648 (US$407) for the years ended December 31, 2016 and 2017, respectively.
(p)
|
General and
administrative expenses
|
General
and administrative expenses consist primarily of consulting fee, and salaries and welfare for general and administrative personnel
which are expensed as incurred.
The
full-time employees of the Group’s PRC subsidiaries are entitled to staff welfare benefits including medical care, housing
fund, unemployment insurance and pension benefits, which are government mandated defined contribution plans. These entities are
required to accrue for these benefits based on certain percentages of the employees’ respective salaries, subject to certain
ceilings, in accordance with the relevant PRC regulations, and make cash contributions to the state-sponsored plans out of the
amounts accrued. The total amounts for such employee benefits were RMB2,607 and RMB4,393 (US$675) for the years ended December
31, 2016 and 2017, respectively.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
Leases
are classified at the inception date as either a capital lease or an operating lease. The Group did not enter into any leases
whereby it is the lessor for any of the periods presented. As the lessee, a lease is a capital lease if any of the following conditions
exists: a) ownership is transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the
lease term is at least 75% of the property’s estimated remaining economic life, or d) the present value of the minimum lease
payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the lessor at the inception
date. A lease involving integral equipment is a capital lease only if condition (a) or (b) exists. A capital lease is accounted
for as if there was an acquisition of an asset and an incurrence of an obligation at the inception of the lease.
All
other leases are accounted for as operating leases wherein rental payments are expensed on a straight-line basis over the periods
of their respective leases. The Group lease office space under operating lease agreements. Certain of the lease agreements contain
rent holidays. Rent holidays are considered in determining the straight-line rent expense to be recorded over the lease term.
The lease term begins on the date of initial possession of the lease property for purposes of recognizing lease expense on a straight-line
basis over the term of the lease. The excess of rent expense and rent paid, as the case may be for respective leases, is recorded
as deferred rental included in the prepaid expenses and other current assets in the combined balance sheets.
The
Group accounts for current income taxes in accordance with the laws of the relevant tax authorities. The Group follow the liability
method in accounting for income taxes in accordance to ASC topic 740 (“ASC 740”), Income Taxes. Under this method,
deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets
and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse.
A valuation allowance would be recorded against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not
that some portion, or all, of the deferred tax assets will not be realized.
The
guidance on accounting for uncertainties in income taxes prescribes a more likely than not threshold for financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. Guidance was also provided on recognition of
income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest
and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. Significant
judgment is required in evaluating the Group’s uncertain tax positions and determining its provision for income taxes. The
Group recognizes interests and penalties, if any, under accrued expenses and other current liabilities on its balance sheet and
under other expenses in its statement of comprehensive loss. The Group did not recognize any interest and penalties associated
with uncertain tax positions for the years ended December 31, 2016 and 2017. As of December 31, 2016 and 2017, the Group did not
have any significant unrecognized uncertain tax positions.
(t)
|
Value added
tax (“VAT”)
|
Revenue
represents the invoiced value of service, net of VAT. The VAT is based on gross sales price and VAT rates range up to 17%, depending
on the type of service provided. 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 tax payable. All of the
VAT returns filed by the entities within the Group in China, have been and remain subject to examination by the tax authorities
for five years from the date of filing.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
The
Group is required to make appropriations to certain non-distributable reserve funds.
In
accordance with the Company Laws of the PRC, the Group’s registered as PRC domestic companies must take appropriations from
its after-tax profit as determined under the PRC GAAP to non-distributable reserve funds including a statutory surplus fund and
a discretionary surplus fund. The appropriation to the statutory surplus fund must be at least 10% of after tax profits as determined
under the PRC GAAP. Appropriation is not required if the surplus fund has reached 50% of the registered capital of the Group.
Appropriation to the discretionary surplus fund is made at the discretion of the Group.
The
use of the general reserve fund, statutory surplus fund and discretionary surplus fund are restricted to the off-setting of losses
or increasing capital of the respective company. The staff bonus and welfare fund is liability in nature and is restricted to
fund payments of special bonus to staff and for the collective welfare of employees. All these reserves are not allowed to be
transferred to the Group in terms of cash dividends, loans or advances, nor can they be distributed except under liquidation.
(v)
|
Recent accounting
pronouncements
|
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09 (“ASU 2014-09”), Revenue
from Contracts with Customers (Topic 606). Under the standard, revenue is recognized when a customer obtains control of promised
goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.
In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising
from contracts with customers. In March 2016, the FASB issued an amendment ASU 2016-08 to the new revenue recognition guidance
clarifying how to determine if an entity is principal or agent in a transaction. In April ASU 2016-10, May ASU 2016-12, and December
ASU 2016-20 of 2016, the FASB further amended the guidance to include performance obligation identification, licensing implementation,
collectability assessment and other presentation and transition clarifications. The amendment will be effective for annual reporting
periods beginning after December 15, 2018 including interim periods within annual reporting periods beginning after December 15,
2019. Early adoption is permitted only for annual and interim periods beginning after December 15, 2016.
The new revenue standards may be applied
retrospectively to each prior period presented (full retrospective method) or retrospectively with the cumulative effect recognized
as of the date of initial application (the modified retrospective method). As an emerging growth company (“EGC”),
the Group has elected to adopt the new revenue standard as of the effective date applicable to non-issuer and will implement the
new revenue standards effective January 1, 2019, using the modified retrospective method for the annual reporting period for the
year ended December 31, 2019. The Company has completed its preliminary assessment and currently does not expect the adoption
of this guidance will have significant effects on the Company’s revenue recognition practices, financial positions, results
of operations or cash flows. The new standard will require the Group to provide more robust disclosures than required by previous
guidance, including disclosures related to disaggregation of revenue into appropriate categories, performance obligations, and
the judgments made in revenue recognition determinations.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
|
(v)
|
Recent accounting
pronouncements (continued)
|
In
February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842). ASU 2016-02 specifies the
accounting for leases. For operating leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability,
initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize
a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis.
In July 2018, ASU 2018-11, the FASB further amended the guidance to provide another transition method in addition to the existing
transition method by allowing entities to initially apply the new leases standard at the adoption date and recognize an accumulative-effective
adjustment to the opening balance of retained earnings in the period of adoption. For non-public business entities, this aforementioned
guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning
after December 15, 2020.In November 2019, the FASB issued ASU No.2019-10, by which to defer the effective date for all other entities
by an additional year. Early adoption is permitted. The Group is currently evaluating the impact of adopting this standard on
its combined financial statements.
In
June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”), Financial Instruments – Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes the impairment model for most financial assets
and certain other instruments. The standard will replace “incurred loss” approach with an “expected loss”
model for instruments measured at amortized cost. The standard is effective for non-public business entities for annual periods
beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is
permitted. The Group is currently evaluating the impact of adopting this standard on its combined financial statements.
In
August 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”), Statement of Cash Flows (Topic 230): Classification
of Certain Cash Receipts and Payments. The primary purpose of the ASU is to reduce the diversity in practice that has resulted
from the lack of consistent principles on this topic. For non-public business entities, the guidance in the ASU is effective for
fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early
adoption is permitted for all entities. Entities must apply the guidance retrospectively to all periods presented but may apply
it prospectively from the earliest date practicable if retrospective application would be impracticable. The Group does not expect
the adoption of this guidance will have a significant impact on its combined financial statements.
In
January 2017, FASB issued ASU No. 2017-01(“ASU 2017-01”), Business Combinations (Topic 805): Clarifying the Definition
of a Business. The ASU affects all companies and other reporting organizations that must determine whether they have acquired
or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill,
and consolidation. For non-public business entities, the ASU is effective for annual periods beginning after December 15, 2018,
and interim periods within annual periods beginning after December 15, 2019. The Group does not expect the adoption of this guidance
will have a significant impact on its combined financial statements.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
Financial
instruments that potentially subject the Group to significant concentrations of credit risk consist primarily of cash and cash
equivalents, accounts receivable, other receivables included in prepaid expenses, other current assets, and amounts due from related
parties. As of December 31, 2016 and 2017, RMB26,507 and RMB129,447 (US$19,896), respectively, were deposited with major financial
institutions located in the PRC. Management believes that these financial institutions are of high credit quality and continually
monitor the credit worthiness of these financial institutions. Historically, deposits in Chinese banks are secure due to the state
policy on protecting depositors’ interests.
(b)
|
Currency convertibility
risk
|
Substantially
all of the Group’s businesses are transacted in RMB, which is not freely convertible into foreign currencies. On January
1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s
Bank of China. However, the unification of the exchange rates does not imply the convertibility of RMB into US$ or other foreign
currencies. All foreign exchange transactions continue to take place either through the People’s Bank of China or other
banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval
of foreign currency payments by the People’s Bank of China or other institutions requires submitting a payment application
form together with suppliers’ invoices, shipping documents and signed contracts.
(c)
|
Significant
customers
|
For
the year ended December 31, 2016, no customer individually represents greater than 10% of the total revenue.
For
the year ended December 31, 2017, no customer individually represents greater than 10% of the total revenue.
(d)
|
Significant
suppliers
|
For
the year ended December 31, 2016, three vendors accounted for 41.1%, 14.5% and 13.7% of the Group’s total purchases and
three vendors accounted for 37.6%, 20.2% and 19.9% of the Group’s accounts payable as of December 31, 2016.
For
the year ended December 31, 2017, three vendors accounted for 25.9%, 16.1% and 10.8% of the Group’s total purchases and
four vendors accounted for 39.5%, 24.1%, 15.3% and 13.9% of the Group’s accounts payable as of December 31, 2017.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
4.
|
ACCOUNTS RECEIVABLE,
NET
|
Accounts
receivable and allowance for doubtful accounts consist of the following:
|
|
As
of December 31,
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
¥
|
369,945
|
|
|
¥
|
246,106
|
|
|
$
|
37,826
|
|
Less: allowance for doubtful accounts
|
|
|
(3,114
|
)
|
|
|
(2,606
|
)
|
|
|
(401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
¥
|
366,831
|
|
|
¥
|
243,500
|
|
|
$
|
37,425
|
|
An
analysis of the allowance for doubtful accounts is as follows:
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
¥
|
-
|
|
|
¥
|
3,114
|
|
|
$
|
479
|
|
Additions for the current year
|
|
|
3,114
|
|
|
|
-
|
|
|
|
-
|
|
Recovery
|
|
|
-
|
|
|
|
(508
|
)
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
¥
|
3,114
|
|
|
¥
|
2,606
|
|
|
$
|
401
|
|
The
following third-party distributors accounted for 10% or more of accounts receivable, net:
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
%
|
|
|
RMB
|
|
|
US$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company A
|
|
¥
|
329,380
|
|
|
|
89
|
%
|
|
¥
|
132,942
|
|
|
$
|
20,433
|
|
|
|
54
|
%
|
Company B
|
|
|
-
|
|
|
|
-
|
|
|
|
30,500
|
|
|
|
4,688
|
|
|
|
12
|
%
|
Company C
|
|
|
-
|
|
|
|
-
|
|
|
|
28,500
|
|
|
|
4,380
|
|
|
|
12
|
%
|
Company D
|
|
|
17,400
|
|
|
|
5
|
%
|
|
|
27,900
|
|
|
|
4,288
|
|
|
|
11
|
%
|
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
5.
|
Prepaid
expenses and other current assets,
NET
|
Prepaid
expenses and other current assets consist of the following:
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
VAT recoverable
|
|
¥
|
5,501
|
|
|
¥
|
1,789
|
|
|
$
|
275
|
|
Prepaid expense
|
|
|
4,232
|
|
|
|
3,897
|
|
|
|
599
|
|
Other receivables
|
|
|
1,547
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,280
|
|
|
|
5,686
|
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: allowance for doubtful accounts
|
|
|
(1,502
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets, net
|
|
¥
|
9,778
|
|
|
¥
|
5,686
|
|
|
$
|
874
|
|
An
analysis of the allowance for doubtful accounts is as follows:
|
|
|
As
of December 31,
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
¥
|
1,502
|
|
|
¥
|
1,502
|
|
|
$
|
231
|
|
Additions for the current year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recovery
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Write off
|
|
|
-
|
|
|
|
(1,502
|
)
|
|
|
(231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Balance, end of year
|
|
¥
|
1,502
|
|
|
¥
|
-
|
|
|
$
|
-
|
|
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
6.
|
PROPERTY AND EQUIPMENT,
NET
|
Property
and equipment, including those held under capital leases, consists of the following:
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
At cost:
|
|
|
|
|
|
|
|
|
|
Computer and transmission equipment
|
|
¥
|
3,916
|
|
|
¥
|
4,516
|
|
|
$
|
694
|
|
Furniture, fixtures and office equipment
|
|
|
42
|
|
|
|
68
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,958
|
|
|
|
4,584
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(1,727
|
)
|
|
|
(3,001
|
)
|
|
|
(461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
¥
|
2,231
|
|
|
¥
|
1,583
|
|
|
$
|
243
|
|
For
the years ended December 31, 2016 and 2017, depreciation expense was RMB967 and RMB1, 276 (US$196), respectively.
7.
|
INTANGIBLE ASSETS,
NET
|
The
following table presents the Group’s intangible assets as of the respective balance sheet dates:
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
At cost:
|
|
|
|
|
|
|
|
|
|
Trademark
|
|
¥
|
23
|
|
|
¥
|
23
|
|
|
$
|
3
|
|
Patent
|
|
|
-
|
|
|
|
31
|
|
|
|
5
|
|
Copyright
|
|
|
23
|
|
|
|
37
|
|
|
|
6
|
|
Software
|
|
|
126
|
|
|
|
143
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172
|
|
|
|
234
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated amortization
|
|
|
(4
|
)
|
|
|
(23
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
¥
|
168
|
|
|
¥
|
211
|
|
|
$
|
32
|
|
For
the years ended December 31, 2016 and 2017, amortization expense was RMB4 and RMB 19(US$3), respectively.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
7.
|
INTANGIBLE
ASSETS, NET (CONTINUED)
|
The
estimated annual amortization expense for each of the five succeeding fiscal years is as follow:
|
|
Amortization
|
|
|
Amortization
|
|
|
|
RMB
|
|
|
US$
|
|
For the years ending December 31,
|
|
|
|
|
|
|
2018
|
|
¥
|
23
|
|
|
$
|
4
|
|
2019
|
|
|
23
|
|
|
|
4
|
|
2020
|
|
|
23
|
|
|
|
4
|
|
2021
|
|
|
23
|
|
|
|
4
|
|
2022
|
|
|
23
|
|
|
|
4
|
|
Thereafter
|
|
|
96
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
¥
|
211
|
|
|
$
|
32
|
|
8.
|
Long
term deposits and other assets
|
Long
term deposits and other assets consist of the following:
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Rent deposits
|
|
¥
|
210
|
|
|
¥
|
176
|
|
|
$
|
27
|
|
Advertising deposits
|
|
|
1,055
|
|
|
|
2,394
|
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term deposits and other assets
|
|
¥
|
1,265
|
|
|
¥
|
2,570
|
|
|
$
|
395
|
|
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
Enterprise
income tax
The
PRC
The
Group that is each incorporated in the PRC are subject to Corporate Income Tax (“CIT”) on the taxable income as reported
in their respective statutory financial statements adjusted in accordance with the new PRC Enterprise Income Tax Laws (“PRC
Income Tax Laws”) effective from January 1, 2008. Pursuant to the PRC Income Tax Laws, the Group is subject to a CIT statutory
rate of 25%.
Under
the PRC Income Tax Laws, an enterprise which qualifies as a High and New Technology Enterprise (“the HNTE”) is entitled
to a preferential tax rate of 15% provided it continues to meet HNTE qualification standards on an annual basis. SG qualifies
as an HNTE and is entitled for a preferential tax rate of 15% from 2015 to 2017 and then from 2018 to 2020 if it continues to
qualify on an annual basis. The HNTE certificate of SG is expiring in 2021 and there exists uncertainties with the reapplication
outcome. HX qualifies as an HNTE and is entitled for a preferential tax rate of 15% from 2017 to 2019 if it continues to qualify
on an annual basis. The HNTE certificate of HX is expiring in 2020 and there exists uncertainties with the reapplication outcome.
LH qualifies as an HNTE and is entitled for a preferential tax rate of 15% from 2016 to 2018 if it continues to qualify on an
annual basis. The HNTE certificate of LH is expiring in 2019 and there exists uncertainties with the reapplication outcome.
Under
the PRC Income Tax Laws, during the period from January 1, 2010 to December 31, 2020, an enterprise which established in region
of Holgus and Kashgar is entitled to a preferential tax rate of 0% in five consecutive years since the first year income generated
from operations provided it continues to meet the conditions within the required scope. Holgus qualifies for the conditions and
entitled for tax-exempt from 2017 to 2021. Kashgar qualifies for the conditions and entitled for tax-exempt from 2016 to 2020.
During
the years ended December 31, 2016 and 2017, total tax saving for the preferential tax rate were RMB20,532 and RMB32,885 (US$5,054),
respectively.
Super
deduction on research and development (“R&D”) expenses
Under
the EIT law of the PRC, qualified enterprises can enjoy a 150% super deduction for eligible R&D expenses in 2016, 150% in
2017 in SG, and 175% in 2017 in HX and LH. During the years ended December 31, 2016 and 2017, RMB5,076 and RMB8,278 (US$1,273)
of R&D expense was eligible for the super deduction, which accounts for an RMB786 and RMB1,242 (US$191) decrease in tax expense,
respectively.
Uncertain
tax positions
The
Group evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties)
based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of December 31, 2016
and 2017, the Group did not have any significant unrecognized uncertain tax positions. The entities within the Group did not incur
any interest and penalty related to potential underpaid income tax expenses for the years ended December 31, 2016 and 2017, and
also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from December
31, 2017.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
9.
|
INCOME TAXES (CONTINUED)
|
The
income tax expenses/(benefits) comprises:
|
|
For the years ended December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax expenses
|
|
¥
|
3,593
|
|
|
¥
|
6,413
|
|
|
$
|
986
|
|
Deferred income tax
|
|
|
269
|
|
|
|
(196
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses for the year
|
|
¥
|
3,862
|
|
|
¥
|
6,217
|
|
|
$
|
956
|
|
A
reconciliation of the differences between the statutory tax rate and the effective tax rate for EIT for the year ended December
31, 2016 and 2017 is as follows:
|
|
For the years ended December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
Income tax computed at PRC statutory tax rate
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Effect of tax-preferential entities
|
|
|
(19.22
|
)%
|
|
|
(21.14
|
)%
|
Additional tax deduction for qualified research and development expenses
|
|
|
(1.04
|
)%
|
|
|
(0.76
|
)%
|
Non-deductible expenses
|
|
|
0.35
|
%
|
|
|
0.71
|
%
|
Income tax expenses
|
|
|
5.09
|
%
|
|
|
3.81
|
%
|
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
9.
|
INCOME TAXES (CONTINUED)
|
The
components of deferred taxes are as follows:
|
|
For the years ended December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
¥
|
23
|
|
|
¥
|
135
|
|
|
$
|
21
|
|
Accrued bonus and social security
|
|
|
151
|
|
|
|
235
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
¥
|
174
|
|
|
¥
|
370
|
|
|
$
|
57
|
|
Based
upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax
assets are recoverable, management believes that it is more likely than not that the results of future operations will generate
sufficient taxable income to realize the deferred tax assets for the entities within the Group. Thus, there were no valuation
allowances of December 31, 2016 and 2017 for the deferred tax assets.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
10.
|
RELATED PARTY BALANCES
AND TRANSACTIONS
|
In
addition to the information disclosed elsewhere in the financial statements, the principal related parties with which the Group
had transactions during the years presented are as follows:
Name
of Related Parties
|
|
Relationship
with the Group
|
|
|
|
Mr. He Xiaowu
|
|
CEO, CFO and Chair
of Scienjoy Inc.
|
Sixiang Times (Beijing)
Technology Co., Ltd.
|
|
Where Mr. He Xiaowu
acted as Legal Representative and Executive Director
|
Beijing WanPu century
Technology Co., Ltd.
|
|
Subsidiary company
of Beijing NQ Mobile Inc. Holding company of Sixiang Times (Beijing) Technology Co., Ltd
|
Holgus WanPu Web
Technology Co., Ltd.
|
|
Subsidiary company
of Beijing NQ Mobile Inc.
|
Beijing NQ Mobile
Inc.
|
|
Holding company
of Sixiang Times (Beijing) Technology Co., Ltd
|
Chuangda Huizhi
(Beijing) Technology Co., Ltd.
|
|
Subsidiary company
of Sixiang Times (Beijing) where Mr. Lu acted as legal representative
|
Beijing Huayidongchen
Technology Co., Ltd.
|
|
Subsidiary company
of Sixiang Times (Beijing) where Mr. Lu acted as legal representative
|
Tianjin Guangjudingfei
Technology Co., Ltd.
|
|
Sixiang Times (Beijing)
Technology Co., Ltd is its major shareholder
|
Sixiang Huizhi (Beijing)
Technology Culture Co., Ltd.
|
|
Subsidiary company
of Sixiang Times (Beijing) Technology Co., Ltd
|
For
the years ended December 31, 2016 and 2017, significant related party transactions were as follows:
|
|
|
|
For the years ended December 31
|
|
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sixiang Huizhi (Beijing) Technology Culture Co., Ltd.
|
|
Sales
|
|
¥
|
4,265
|
|
|
¥
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing WanPu Century Technology Co., Ltd.
|
|
Market promotion expenses
|
|
|
25,731
|
|
|
|
3,680
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holgus WanPu Web Technology Co., Ltd.
|
|
Market promotion expenses
|
|
|
-
|
|
|
|
10,079
|
|
|
|
1,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sixiang Times (Beijing) Technology Co., Ltd.
|
|
Research and Developments
|
|
|
-
|
|
|
|
1,532
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sixiang Times (Beijing)
Technology Co., Ltd.
|
|
Services fees
|
|
|
6,943
|
|
|
|
3,787
|
|
|
|
582
|
|
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
10.
|
RELATED PARTY BALANCES
AND TRANSACTIONS (CONTINUED)
|
As
of December 31, 2016 and 2017, the amounts due from/to related parties are as follows:
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Loan receivables - related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tianjin Guangjudingfei Technology Co., Ltd. (i)
|
|
¥
|
-
|
|
|
¥
|
30,000
|
|
|
$
|
4,611
|
|
Sixiang Times (Beijing) Technology Co., Ltd. (ii)
|
|
|
-
|
|
|
|
28,465
|
|
|
|
4,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
¥
|
-
|
|
|
¥
|
58,465
|
|
|
$
|
8,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due from related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chuangda Huizhi (Beijing)Technology Co., Ltd.
|
|
¥
|
-
|
|
|
¥
|
100
|
|
|
$
|
15
|
|
Beijing Huayidongchen Technology Co., Ltd.
|
|
|
-
|
|
|
|
100
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
¥
|
-
|
|
|
¥
|
200
|
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan payables - related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing NQ Mobile Inc. (iii)
|
|
¥
|
8,000
|
|
|
¥
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
¥
|
8,000
|
|
|
¥
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due to related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing WanPu Century Technology Co., Ltd.
|
|
¥
|
29,376
|
|
|
¥
|
26,097
|
|
|
$
|
4,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
¥
|
29,376
|
|
|
¥
|
26,097
|
|
|
$
|
4,011
|
|
i)
|
In December 2017,
Kashgar entered into an interest-free loan agreement with Tianjin Guangjudingfei Technology Co., Ltd. at principal of RMB30,000
(US$4,611). The loan was fully repaid in June 2018.
|
ii)
|
The loan with Sixiang
Times was repaid in July 2018.
|
iii)
|
In December
2015, SG entered into an interest-free loan agreement with Beijing NQ Mobile Inc. of RMB8,000 as working capital supplement.
The loan was fully repaid in 2017.
|
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
11.
|
COMMITMENTS AND
CONTINGENCIES
|
(a)
|
Operating
Leases Commitments
|
The
Group leases facilities in the PRC under non-cancelable operating leases expiring on different dates. Total rental expense under
all operating leases was RMB1,777 and RMB2,116 (US$325) for the years ended December 31, 2016 and 2017, respectively.
As
of December 31, 2017, the Group had future minimum lease payments under non-cancelable operating leases with initial terms of
one-year or more in relation to office premises consist of the following:
|
|
December 31,
2017
|
|
|
December 31,
2017
|
|
|
|
RMB
|
|
|
US$
|
|
2018
|
|
¥
|
519
|
|
|
$
|
80
|
|
(b)
|
Capital and
Other Commitments
|
The
Group did not have significant capital and other commitments as of December 31, 2016 and 2017.
From
time to time, the Group is party to certain legal proceedings, as well as certain asserted and un-asserted claims. Amounts accrued,
as well as the total amount of reasonably possible losses with respect to such matters, individually and in the aggregate, are
not deemed to be material to the combined financial statements.
BEIJING
SIXIANG SHIGUANG TECHNOLOGY CO., LTD.,
HAI
XIU (BEIJING) TECHNOLOGY CO., LTD.,
BEIJING
LE HAI TECHNOLOGY CO., LTD.,
HOLGUS
SIXIANG INFORMATION TECHNOLOGY CO., LTD. AND
KASHGAR
SIXIANG TIMES INTERNET TECHNOLOGY CO., LTD.
NOTES
TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2016 AND 2017
(Amounts
in thousands of Renminbi (“RMB”) and US dollars (“US$”))
Capital
contributions
During
the years ended December 31, 2016 and 2017, the Group’s shareholders contributed RMB16,943 and RMB3,787, respectively to
the Group.
Statutory
reserve
During
the years ended December 31, 2016 and 2017, the entities within collectively attributed RMB5,329 and RMB3,430 of retained earnings
for their statutory reserves, respectively.
13.
|
SEGMENT INFORMATION
AND REVENUE ANALYSIS
|
|
The
Group follows ASC 280, Segment Reporting, which requires that companies to disclose segment data based on how management makes
decision about allocating resources to each segment and evaluating their performances. The Group has one reporting segment. The
Group’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results
when making decisions about allocating resources and assessing performance of the Group. The Group considers itself to be operating
within one reportable segment. The Group’s revenue and net income are substantially derived from live streaming and technical
services.
Disaggregated
information of revenues by business lines are as follows:
|
|
For the years ended December 31,
|
|
|
|
2016
|
|
|
2017
|
|
|
2017
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
Live streaming
|
|
¥
|
717,129
|
|
|
¥
|
836,521
|
|
|
$
|
128,571
|
|
Technical services
|
|
|
-
|
|
|
|
83
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
¥
|
717,129
|
|
|
¥
|
836,604
|
|
|
$
|
128,584
|
|
On
January 1, 2018, Tongfang Investment Fund Series SPC (“TF”) completed the acquisition of 65% equity interest in Sixiang
Times(Beijing) Technology Co., Ltd (“Sixiang Times”) from NQ Mobile Inc. in order to get a controlling position of
Holgus Sixiang Information Technology Co., Ltd (“Holgus”), Kashgar Sixiang Times Internet Technology Co., Ltd (“Kashgar”),
Beijing Sixiang qi Technology Co., Ltd (“SG”), Hai Xiu (Beijing) Technology Co., Ltd (“HX”) and Beijing
Le Hai Technology Co., Ltd (“LH”).
The
Group was merged into Scienjoy Inc. through a series of re-organization activities under common control and became the subsidiaries
and variable interest entities of Scienjoy Inc. since January 1, 2018.
ANNEX
A
Execute Version
SHARE EXCHANGE AGREEMENT
dated
October 28, 2019
by and among
Scienjoy Inc., a Cayman Islands company
(the “Company”),
WBY Entertainment Holdings
Ltd., a British Virgin Islands company (“WBY”),
Lavacano Holdings Limited,
a Republic of Seychelles company (“Lavacano”),
and
Wealthbridge Acquisition Limited, a British
Virgin Islands company (the “Purchaser”)
TABLE OF CONTENTS
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE
AGREEMENT (the “Agreement”), dated as of October 28, 2019 (the “Signing Date”), by and among
Scienjoy Inc., a Cayman Islands company (the “Company”), WBY Entertainment Holdings Ltd., a British Virgin Islands
company (“WBY”), Lavacano Holdings Limited, a Republic of Seychelles company (“Lavacano”,
together with WBY, each a “Seller” and collectively, the “Sellers”), and Wealthbridge Acquisition
Limited, a British Virgin Islands company(the “Purchaser”).
W I T N E S S E T H:
|
A.
|
The Company, through its wholly owned or Controlled (as defined below) subsidiaries, is engaged in the operation of a live streaming platform in PRC (the “Business”);
|
|
B.
|
The Company is a holding company for Scienjoy International Limited, a Hong Kong registered company (“Scienjoy HK”), which in turn owns 100% of the issued and outstanding equity interests in Sixiang Wuxian (Beijing) Technology Co., Ltd., a wholly foreign-owned enterprise registered in Beijing, China (the “WFOE”) in accordance with the laws of the People’s Republic of China (“PRC”);
|
|
C.
|
The
WFOE, Zhihui Qiyuan (Beijing) Technology Co., Ltd. (智汇
启源( 北京) 科技有限公司, a limited liability
company organized and existing under the laws of the PRC, “Zhihui Qiyuan”) and the registered
shareholders of Zhihui Qiyuan are parties to certain variable interest entity contracts, pursuant to which the profits of
Zhihui Qiyuan, and its subsidiaries, including Hai Xiu (Beijing) Technology Company Co., Ltd., Beijing Le Hai Technology
Co., Ltd. and Beijing Sixiang Shiguang Technology Co., Ltd., each such company formed under PRC Law (each of such
subsidiaries of Zhihui Qiyuan, a “VIE Sub”, and collectively, the “VIE Subs”,
together with Zhihui Qiyuan, the “VIE Entities”, and each a “VIE Entity”), are
directly or indirectly payable to the WFOE, and in connection with such variable interest entity contracts, the VIE
Entities are directly or indirectly controlled by the WFOE;
|
|
D.
|
The Sellers collectively own all of the issued and outstanding shares of the Company Common Stock (as defined in Section 4.5);
|
|
E.
|
The Purchaser is a blank check company formed for the sole purpose of entering into a share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities;
|
|
F.
|
The parties hereto desire that the Purchaser purchases 100% of the issued and outstanding shares of Company Common Stock from the Sellers in exchange for the Closing Payment Shares (the “Share Exchange”); and
|
|
G.
|
The parties intend that the Share Exchange will qualify as a tax-free “reorganization” within the meaning of Section 368(a) of the Code (as defined herein).
|
The parties
hereto accordingly agree as follows:
ARTICLE
I
DEFINITIONS
The following terms,
as used herein, have the following meanings:
1.1 “Action”
means any legal action, suit, claim, investigation, hearing or proceeding, including any audit, claim or assessment for Taxes
or otherwise.
1.2 “Additional
Agreements” mean the Voting Agreement, Registration Rights Agreement, Escrow Agreement, Lock-up Agreements.
1.3 “Affiliate”
means, with respect to any Person, any other Person directly or indirectly Controlling, Controlled by, or under common Control
with such Person.
1.4
“Amended Charter” means the form of Third Amended and restated Purchaser Charter required to be approved
and adopted at the Purchaser Special Meeting.
1.5 “Authority”
means any governmental, regulatory or administrative body, agency or authority, any court or judicial authority, any arbitrator,
or any public, private or industry regulatory authority, whether international, national, Federal, state, or local.
1.6 “Balance
Sheet” has the meaning set forth in Section 4.11.
1.7 “Books
and Records” means all books and records, ledgers, employee records, customer lists, files, correspondence, and other
records of every kind (whether written, electronic, or otherwise embodied) owned or used by a Person or in which a Person’s
assets, the business or its transactions are otherwise reflected, other than stock books and minute books.
1.8 “Break-up
Fee” has the meaning set forth in Section 13.2(c).
1.9 “Business”
has the meaning set forth in the recitals.
1.10 “Business
Combination” has the meaning set forth in the Purchaser Charter.
1.11 “Business
Day” means any day other than a Saturday, Sunday or a legal holiday on which commercial banking institutions in New York
are authorized to close for business.
1.12 “Closing
Indebtedness” means, as of the Reference Time, the aggregate amount of all Indebtedness of the Company and its Subsidiaries,
on a consolidated basis, determined in accordance with the U.S. GAAP.
1.13 “Closing
Payment Shares” means stock certificates representing, in the aggregate, a number of shares of Purchaser Common Stock
equal to $164,000,000, divided by $10.00.
1.14 “Company
Common Stock has the meaning set forth in Section 4.5.
1.15 “Company
Consent” has the meaning set forth in Section 4.10.
1.16 “Company
Disclosure Schedules” has the meaning set forth in Article IV.
1.17 “Company
Indemnitees” has the meaning set forth in Section 11.2.
1.18 “Company
Information” has the meaning set forth in Section 7.5(b).
1.19 “Company
Group” has the meaning set forth in Section 4.1.
1.20 “Company
Material Adverse Effect” or “Company Material Adverse Change” means a material adverse change or
a material adverse effect upon on the assets, liabilities, condition (financial or otherwise), prospects, net worth, management,
earnings, cash flows, business, operations or properties of the Company and the Business, taken as a whole, whether or not arising
from transactions in the ordinary course of business, provided, however, that “Material Adverse Effect” or “Material
Adverse Change” shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out
of or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting the industries in which
the Company operates; (iii) any changes in financial, banking or securities markets in general, including any disruption thereof
and any decline in the price of any security or any market index or any change in prevailing interest rates; (iv) acts of war
(whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action required or
permitted by this Agreement or any action taken (or omitted to be taken) with the written consent of or at the written request
of Purchaser; (vi) any matter of which Purchaser is aware on the date hereof; (vii) any changes in applicable Laws or accounting
rules (including U.S. GAAP) or the enforcement, implementation or interpretation thereof; (viii) the announcement, pendency or
completion of the transactions contemplated by this Agreement; (ix) any natural or man-made disaster or acts of God; or (x) any
failure by the Company to meet any internal or published projections, forecasts or revenue or earnings predictions (provided that
the underlying causes of such failures (subject to the other provisions of this definition) shall not be excluded).
1.21 “Company
Stock Rights” means all options, warrants or other rights (including debt instruments) to purchase, convert or exchange
into Company Common Stock.
1.22 “Contracts”
means the Leases and all contracts, agreements, leases (including equipment leases, car leases and capital leases), licenses,
commitments, client contracts, statements of work (SOWs), sales and purchase orders and similar instruments, oral or written,
to which the Company is a party or by which any of its respective assets are bound, including any entered into by the Company
in compliance with Section 8.1 after the Signing Date and prior to the Closing, and all rights and benefits thereunder, including
all rights and benefits thereunder with respect to all cash and other property of third parties under the Company’s dominion
or control.
1.23 “Control”
of a Person (including the term “Controlled” by a 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,
by contract, or otherwise. “Controlled”, “Controlling” and “under common Control with” have
correlative meanings. Without limiting the foregoing, a Person (the “Controlled Person”) shall be deemed Controlled
by (a) any other Person (the “10% Owner”) (i) owning beneficially, as meant in Rule 13d-3 under the Exchange
Act, securities entitling such Person to cast 10% or more of the votes for election of directors or equivalent governing authority
of the Controlled Person or (ii) entitled to be allocated or receive 10% or more of the profits, losses, or distributions of the
Controlled Person; (b) an officer, director, general partner, partner (other than a limited partner), manager, or member (other
than a member having no management authority that is not a 10% Owner) of the Controlled Person; or (c) a spouse, parent, lineal
descendant, sibling, aunt, uncle, niece, nephew, mother-in-law, father-in-law, sister-in-law, or brother-in-law of an Affiliate
of the Controlled Person or a trust for the benefit of an Affiliate of the Controlled Person or of which an Affiliate of the Controlled
Person is a trustee.
1.24 “Deferred
Underwriting Amount” means the portion of the underwriting discounts and commissions held in the Trust Account, which
the underwriters of the IPO are entitled to receive upon the Closing in accordance with the Trust Agreement.
1.25 “De Minimis
Amount” has the meaning set forth in Section 11.5(a)(i).
1.26 “Earnout
Shares” has the meaning set forth in Section 3.2.
1.27 “Earnout
1 Shares” has the meaning set forth in Section 3.2(a).
1.28 “Earnout
2 Shares” has the meaning set forth in Section 3.2(b).
1.29 “Earnout
3 Shares” has the meaning set forth in Section 3.2(c).
1.30 “Earnout
1 Target” has the meaning set forth in Section 3.2(a).
1.31 “Earnout
2 Target” has the meaning set forth in Section 3.2(b).
1.32 “Earnout
3 Target” has the meaning set forth in Section 3.2(c).
1.33 “Environmental
Laws” shall mean all Laws that prohibit, regulate or control any Hazardous Material or any Hazardous Material Activity,
including, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Resource Recovery and Conservation
Act of 1976, the Federal Water Pollution Control Act, the Clean Air Act, the Hazardous Materials Transportation Act and the Clean
Water Act.
1.34 “Equity
Financing” has the meaning set forth in Section 9.7.
1.35 “Escrow
Agreement” means the agreement in the form attached as Exhibit C hereto between the Sellers and the Purchaser
with respect to the Escrow Shares.
1.36 “Escrow
Fund” has the meaning set forth in Section 11.4.
1.37 “Escrow
Shares” means shares of Purchaser Common Stock representing 10% of the aggregate amount of Closing Payment Shares.
1.38 “Exchange
Act” means the Securities Exchange Act of 1934, as amended.
1.39 “First
Extension” has the meaning set forth in Section 9.9(a).
1.40 “First
extension Funding Note” has the meaning set forth in Section 9.9(a).
1.41 “Foreign
Private Issuer” has the meaning set forth in Section 9.8.
1.42 “Governmental
Approval” has the meaning set forth in Section 4.3.
1.43 “Governmental
Authority” means any federal, state, local, foreign or other governmental, quasi-governmental or administrative body,
instrumentality, department or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, regulatory
body or other similar regulatory or dispute-resolving panel or body.
1.44 “Hazardous
Material” shall mean any material, emission, chemical, substance or waste that has been designated by any Governmental
Authority to be radioactive, toxic, hazardous, a pollutant or a contaminant.
1.45
“Hazardous Material Activity” shall mean the transportation, transfer, recycling, storage, use, treatment,
manufacture, removal, remediation, release, exposure of others to, sale, labeling, or distribution of any Hazardous Material
or any product or waste containing a Hazardous Material, or product manufactured with ozone depleting substances, including,
any required labeling, payment of waste fees or charges (including so-called e-waste fees) and compliance with any recycling,
product take-back or product content requirements.
1.46 “Indebtedness”
means with respect to any Person, (a) all obligations of such Person for borrowed money, or with respect to deposits or advances
of any kind (including amounts by reason of overdrafts and amounts owed by reason of letter of credit reimbursement agreements)
including with respect thereto, all interests, fees and costs, (b) all obligations of such Person evidenced by bonds, debentures,
notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating
to property purchased by such Person, (d) all obligations of such Person issued or assumed as the deferred purchase price of property
or services (other than accounts payable to creditors for goods and services incurred in the ordinary course of business), (e)
all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any lien or security interest on property owned or acquired by such Person, whether or not the obligations secured
thereby have been assumed, (f) all obligations of such Person under leases required to be accounted for as capital leases under
U.S. GAAP, (g) all guarantees by such Person and (h) any agreement to incur any of the same.
1.47
“Intellectual Property Right” means any trademark, service mark, registration thereof or application for
registration therefor, trade name, license, invention, patent, patent application, trade secret, trade dress, know-how,
copyright, copyrightable materials, copyright registration, application for copyright registration, software programs, data
bases, u.r.l.s., and any other type of proprietary intellectual property right, and all embodiments and fixations thereof and
related documentation, registrations and franchises and all additions, improvements and accessions thereto, and with respect
to each of the forgoing items in this definition, which is owned or licensed or filed by the Company, or used or held for use
in the Business, whether registered or unregistered or domestic or foreign.
1.48 “Inventory”
is defined in the UCC.
1.49 “IPO”
means the initial public offering of Purchaser pursuant to a prospectus dated February 5, 2019.
1.50 “Key
Personnel” has the meaning set forth in Section 7.8.
1.51 “Law”
means any domestic or foreign, federal, state, municipality or local law, statute, ordinance, code, rule, or regulation.
1.52 “Leases”
means the leases set forth on Schedule 1.25 attached hereto, together with all fixtures and improvements erected on the premises
leased thereby.
1.53 “Lien”
means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect
of such asset, and any conditional sale or voting agreement or proxy, including any agreement to give any of the foregoing.
1.54 “Lock-Up
Agreements” means the agreement in the form attached as Exhibit D hereto between the Purchaser and certain Sellers
with respect to the Purchaser Common Stock.
1.55 “Losses”
has the meaning set forth in Section 11.1.
1.56 “Material
Contracts” has the meaning set forth in Section 4.16.
1.57 “Net
Income Before Tax” means, with respect to any fiscal year, the surviving corporation’s profit before income tax
for such fiscal year as reflected on the surviving corporation’s audited financial statements prepared in accordance with
U.S. GAAP for such fiscal year; provided, however, that if such audited financial statements are delivered with a qualified opinion,
adverse opinion, or a disclaimer of opinion from the auditors thereof, Net Income Before Tax for such fiscal year shall be finally
determined in good faith by the disinterested members of the board of directors of the surviving corporation.
1.58 “Order”
means any decree, order, judgment, writ, award, injunction, rule or consent of or by an Authority.
1.59 “Organizational
Documents” means, with respect to the Purchaser, the Purchaser Charter, and with respect to any other Party, its memorandum
and articles of association or similar Organizational Documents, in each case, as amended.
1.60 “Permits”
has the meaning set forth in Section 4.17.
1.61 “Permitted
Liens” means (i) all defects, exceptions, restrictions, easements, rights of way and encumbrances disclosed in policies
of title insurance which have been made available to Purchaser; and (ii) mechanics’, carriers’, workers’, repairers’
and similar statutory Liens arising or incurred in the ordinary course of business for amounts (A) that are not delinquent, (B)
that are not material to the business, operations and financial condition of the Company so encumbered, either individually or
in the aggregate, (C) not resulting from a breach, default or violation by the Company of any Contract or Law, (D) the Liens set
forth on Schedule 4.14(c), and (E) the equity interest pledge under the VIE Contracts.
1.62 “Person”
means an individual, corporation, partnership (including a general partnership, limited partnership or limited liability partnership),
limited liability company, association, trust or other entity or organization, including a government, domestic or foreign, or
political subdivision thereof, or an agency or instrumentality thereof.
1.63 “PRC
Establishment Documents” has the meaning set forth in Section 4.9(c).
1.64 “Proxy
Statement” has the meaning set forth in Section 7.5.
1.65 “Purchaser
A Common Stock” means the ordinary shares of the Purchaser with no par value, the holders of which shall have the same
rights as the holders of Purchaser B Common Stock, other than the following: (i) in respect of matters requiring a shareholder
vote, each share of Purchaser A Common Stock will be entitled to one vote, and (ii) other restrictions (if any) as set forth in
the Purchaser’s amended and restated memorandum and articles of association in connection with Reclassification of Capital
Stock of Purchaser.
1.66 “Purchaser
B Common Stock” means the ordinary shares of the Purchaser with no par value, the holders of which shall have the same
rights as the holders of Purchaser A Common Stock, other than the following: (i) in respect of matters requiring a shareholder
vote, each share of the Purchaser B Common Stock will be entitle to ten (10) votes, and (ii) other restrictions (if any) as set
forth in the Purchaser’s amended and restated memorandum and articles of association in connection with Reclassification
of Capital Stock of Purchaser.
1.67 “Purchaser
Charter” means the Amended and Restated Memorandum and Articles of Association of the Purchaser, as in effect on the
date hereof.
1.68 “Purchaser
Common Stock” means: (i) prior to Reclassification of Capital Stock of Purchaser, the ordinary shares of Purchaser with
no par value; and (ii) on and after Reclassification of Capital Stock of Purchaser, collectively, the Purchaser A Common Stock
and the Purchaser B Common Stock.
1.69
“Purchaser Indemnitees” has the meaning set forth in Section 11.1.
1.70 “Purchaser
Material Adverse Effect” means a material adverse change or a material adverse effect that would prevent or materially
delay the ability of the Purchaser to perform its obligations under this Agreement, provided, however, that “Purchaser Material
Adverse Effect” shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of
or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting the industries in which the
Purchaser operates; (iii) any changes in financial, banking or securities markets in general, including any disruption thereof
and any decline in the price of any security or any market index or any change in prevailing interest rates, except for changes
that disproportionately affect the Purchaser; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the
escalation or worsening thereof; (v) any action required or permitted by this Agreement or any action taken (or omitted to be taken)
with the written consent of or at the written request of Company; (vi) any matter of which Company is aware on the date hereof;
(vii) any changes in applicable Laws or accounting rules (including U.S. GAAP) or the enforcement, implementation or interpretation
thereof, except for changes that disproportionately affect the Purchaser; (viii) the announcement, pendency or completion of the
transactions contemplated by this Agreement; or (ix) any natural or man-made disaster or acts of God.
1.71 “Purchaser
Securities” means the Purchaser Common Stock, Purchaser Warrants, Purchaser Rights, Purchaser UPO and Purchaser Units,
collectively.
1.72 “Purchaser
Securities Redemptions” has the meaning set forth in Section 7.7.
1.73 “Purchaser
Special Meeting” has the meaning set forth in Section 7.5(a).
1.74 “Purchaser
Stockholder Approval” has the meaning set forth in Section 7.5(a).
1.75 “Purchaser
Rights” means the right to receive one-tenth (1/10) of a share of Purchaser Common Stock.
1.76 “Purchaser
Unit” means a unit of the Purchaser comprised of one share of Purchaser Common Stock, one warrant to purchase one-half
of one share of Purchaser Common Stock, and one right to receive one-tenth (1/10) of one share of Purchaser Common Stock upon
the consummation of Share Exchange.
1.77 “Purchaser
UPO” means the option issued to Chardan Capital Markets, LLC (and/or its designees), to purchase up to an aggregate of
431,250 Purchaser Units at a price of $11.50 per Purchaser Unit.
1.78 “Purchaser
Warrants” means one whole warrant entitling the holder thereof to purchase one-half of one Purchaser Common Stock at
a price of $11.50 per whole Purchaser Common Stock.
1.79 “Real
Property” means, collectively, all real properties and interests therein (including the right to use), together with
all buildings, fixtures, trade fixtures, plant and other improvements located thereon or attached thereto; all rights arising out
of use thereof (including air, water, oil and mineral rights); and all subleases, franchises, licenses, permits, easements and
rights-of-way which are appurtenant thereto.
1.80 “Reclassification
of Capital Stock of Purchaser” has the meaning set forth in Section 9.8.
1.81 “Reference
Time” means the close of business of the Company on the Closing Date (but without giving effect to the transactions contemplated
by this Agreement, including any payments by the Purchaser hereunder to occur at the Closing, but treating any obligations in respect
of Indebtedness or other liabilities that are contingent upon the consummation of the Closing as currently due and owing without
contingency as of the Reference Time).
1.82 “Registration
Rights Agreement” means the agreement in the form attached as Exhibit B hereto governing the resale of the Closing
Payment Shares.
1.83 “Release
Date” has the meaning set forth in Section 11.4(d).
1.84 “Sarbanes-Oxley
Act” means the Sarbanes-Oxley Act of 2002, as amended.
1.85 “SEC”
means the Securities and Exchange Commission.
1.86 “Second
Extension” has the meaning set forth in Section 9.9(b).
1.87 “Second
Extension Funding Note” has the meaning set forth in Section 9.9(b).
1.88 “Securities
Act” means the Securities Act of 1933, as amended.
1.89 “Seller”
and “Sellers” has the meaning set forth in the Preamble.
1.90 “Sellers
Designee” has the meaning set forth in Section 2.3.
1.91 “Subsidiary”
or “Subsidiaries” means one or more entities of which at least fifty percent (50%) of the capital stock or
other equity or voting securities are Controlled or owned, directly or indirectly, by the respective Person.
1.92 “Survival
Period” has the meaning set forth in Section 11.6.
1.93 “Tangible
Personal Property” means all tangible personal property and interests therein, including machinery, computers and accessories,
furniture, office equipment, communications equipment, automobiles, trucks, forklifts and other vehicles owned or leased by the
Company and other tangible property, including the items listed on Schedule 4.15.
1.94 “Tax(es)”
means any federal, state, local or foreign tax, charge, fee, levy, custom, duty, deficiency, or other assessment of any kind or
nature imposed by any Taxing Authority (including any income (net or gross), gross receipts, profits, windfall profit, sales,
use, goods and services, ad valorem, franchise, license, withholding, employment, social security, workers compensation, unemployment
compensation, employment, payroll, transfer, excise, import, real property, personal property, intangible property, occupancy,
recording, minimum, alternative minimum, environmental or estimated tax), including any liability therefor as a transferee or
successor, as a result of Treasury Regulation Section 1.1502-6 or similar provision of applicable Law or as a result of any Tax
sharing, indemnification or similar agreement, together with any interest, penalty, additions to tax or additional amount imposed
with respect thereto.
1.95 “Taxing
Authority” means the Internal Revenue Service and any other Authority responsible for the collection, assessment or imposition
of any Tax or the administration of any Law relating to any Tax.
1.96 “Tax
Return” means any return, information return, declaration, claim for refund or credit, report or any similar statement,
and any amendment thereto, including any attached schedule and supporting information, whether on a separate, consolidated, combined,
unitary or other basis, that is filed or required to be filed with any Taxing Authority in connection with the determination, assessment,
collection or payment of a Tax or the administration of any Law relating to any Tax.
1.97 “Third
Extension” has the meaning set forth in Section 9.9(c).
1.98 “Third
Extension Funding Note” has the meaning set forth in Section 9.9(c).
1.99 “Third-Party
Claim” has the meaning set forth in Section 11.3(a).
1.100 “UCC”
means the Uniform Commercial Code of the State of New York, or any corresponding or succeeding provisions of Laws of the State
of New York, or any corresponding or succeeding provisions of Laws, in each case as the same may have been and hereafter may be
adopted, supplemented, modified, amended, restated or replaced from time to time.
1.101 “U.S.
GAAP” means U.S. generally accepted accounting principles, consistently applied.
ARTICLE
II
SHARE EXCHANGE
2.1 Share
Exchange. Upon and subject to the terms and conditions set forth in this Agreement, on the Closing Date, the Purchaser shall
issue to the Sellers the Closing Payment Shares less the Escrow Shares.
2.2 Closing;
Closing Date. Unless this Agreement is earlier terminated in accordance with Article XIII, the closing of the Share Exchange
(the “Closing”) shall take place at the offices of Loeb & Loeb LLP, at 10:00 a.m. local time, on or before
September 30, 2020, subject to the satisfaction or waiver (to the extent permitted by applicable law) of the conditions set forth
in Article X. The parties may participate in the Closing via electronic means. The date on which the Closing actually occurs is
hereinafter referred to as the “Closing Date”. At Closing, the Sellers shall take the actions and deliver duly executed
versions of the documents listed in Part I of Schedule 2.2 and the Purchaser shall take the actions and deliver duly executed versions
of the documents listed in Part II of Schedule 2.2.
2.3 Board
of Directors. As of the Closing, the Purchaser’s board of directors will consist of seven (7) directors. The Sellers
shall have the right to designate five (5) directors (the “Sellers Designees”), to serve on the Purchaser’s
board of directors from the Closing Date, three (3) of whom shall qualify as independent directors under Nasdaq rules. Oriental
Holdings Limited (the “Sponsor”) shall have the right, for three (3) years from the Closing Date, to designate
one director to serve on the Purchaser’s board of directors, and the right, for six (6) years from the Closing Date, to designate
one director who shall qualify as an independent director under Nasdaq rules to serve on the Purchaser’s board of directors.
The parties to this Agreement shall enter into a voting agreement (the “Voting Agreement”) in the form attached
hereto as Exhibit A.
2.4 Cancellation
of Treasury Shares. At the Closing Date, any Company Common Stock held in treasury shall be canceled and extinguished without
any conversion thereof or payment therefor.
2.5 Taking
of Necessary Action; Further Action. If, at any time after the Closing, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Purchaser with full right, title and interest in, to and under, and/or possession
of, all assets, property, rights, privileges, powers and franchises of the Company, the officers and directors of the Purchaser
are fully authorized in the name and on behalf of the Company, to take all lawful action necessary or desirable to accomplish such
purpose or acts, so long as such action is not inconsistent with this Agreement.
ARTICLE
III
CONSIDERATION
3.1 Payment
of Closing Payment Shares.
(a) Upon
and subject to the terms and conditions of this Agreement, on the Closing Date, the Purchaser shall (i) issue to each Seller the
number of shares of the Closing Payment Shares opposite such Seller’s name on Schedule A (less the applicable number
of such Seller’s Escrow Shares as set forth in Schedule A) and (ii) issue the Escrow Shares to the Escrow Agent to
be held pursuant to the terms of this Agreement and the Escrow Agreement.
(b) No
certificates or scrip representing fractional shares of Purchaser Common Stock will be issued pursuant to the Share Exchange, and
such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of the Purchaser.
(c) Each
certificate issued pursuant to the Share Exchange to any holder of Company Common Stock shall bear the legend set forth below,
or legend substantially equivalent thereto, together with any other legends that may be required by any securities laws at the
time of the issuance of the Purchaser Common Stock:
THE SHARES OF COMMON STOCK REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL (I) SUCH OFFER, SALE, TRANSFER,
PLEDGE OR HYPOTHECATION HAS BEEN REGISTERED UNDER THE ACT OR (II) THE ISSUER OF THE SHARES OF COMMON STOCK HAS RECEIVED AN OPINION
OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
WITH THE ACT.
3.2 Earn-out
Payment. The Sellers shall be entitled to receive additional shares of Purchaser Common Stock (the “Earnout Shares”)
in accordance with the following:
(a) If
the Purchaser or, in the event the Closing shall not have occurred by the end of 2019 fiscal year, the Company and its subsidiaries
(including the VIE Entities) on a consolidated basis achieves Net Income Before Tax of US$20,900,000 or approximately RMB$140,000,000
based on an exchange rate of RMB$6.70 to US$1.00 (the “Earnout 1 Target”), then, the Purchaser shall issue to
the Sellers a number of shares of Purchaser Common Stock equal to US$30,000,000, divided by US$10.00 (any and all such shares issued,
the “Earnout 1 Shares”), on a date that is the later of (A) ten (10) Business Days following the final determination
of the Net Income Before Tax for the 2019 fiscal year or (B) the Closing; provided, that upon the completion of the Reclassification
of Capital Stock of Purchaser, or if the Reclassification of Capital Stock of Purchaser shall have occurred by then, out of the
Earnout 1 Shares a number of shares of Purchaser A Common Stock issued to Lavacano equal to US$3,000,000, divided by US$10,00,
shall immediately be converted into Purchaser B Common Stock . If the Purchaser (and its subsidiaries on a consolidated basis)
achieves between 90% and 100% of the Earnout 1 Target, the Purchaser shall issue to the Sellers between 90% (inclusive) and 100%
of the Earnout 1 Shares on a proportionate basis. By way of example only, if Purchaser (and its subsidiaries on a consolidated
basis) achieves Net Income Before Tax of US$18,810,000 or approximately RMB 126,000,000 for the 2019 fiscal year, the Sellers shall
be entitled to receive 90% of Earnout 1 Shares. For the avoidance of doubt, the Earnout 1 Target shall be either US$20,900,000
or RMB$140,000,000, whichever is lower.
(b) If
the Purchaser and its subsidiaries (including the VIE Entities) on a consolidated basis) achieves Net Income Before Tax of US$28,300,000
or approximately RMB$190,000,000 based on an exchange rate of RMB$6.71 to US$1.00 (the “Earnout 2 Target”),
then, the Purchaser shall issue to the Sellers a number of shares of Purchaser Common Stock equal to US$30,000,000, divided by
US$10.00 (any and all such shares issued, the “Earnout 2 Shares”), on a date that is no later than ten (10)
Business Days following the final determination of the Net Income Before Tax for the 2020 fiscal year; provided, that upon the
completion of the Reclassification of Capital Stock of Purchaser, or if the Reclassification of Capital Stock of Purchaser shall
have occurred by then, out of the Earnout 2 Shares a number of shares of Purchaser A Common Stock issued to Lavacano equal to US$3,000,000,
divided by US$10,00, shall be immediately converted into Purchaser B Common Stock . If the Purchaser (and its subsidiaries on a
consolidated basis) achieves between 90% and 100% of the Earnout 2 Target, the Purchaser shall issue to the Sellers between 90%
(inclusive) and 100% of the Earnout 2 Shares on a proportionate basis. By way of example only, if Purchaser (and its subsidiaries
on a consolidated basis) achieves Net Income Before Tax of US$25,470,000 or approximately RMB 171,000,000 for the 2020 fiscal year,
the Sellers shall be entitled to receive 90% of Earnout 2 Shares. For the avoidance of doubt, the Earnout 1 Target shall be either
US$28,300,000 or RMB$190,000,000, whichever is lower.
(c) If
the Purchaser and its subsidiaries (including the VIE Entities) on a consolidated basis) achieves Net Income Before Tax of US$35,000,000
or approximately RMB$235,000,000 based on an exchange rate of RMB$6.71 to US$1.00 (the “Earnout 3 Target”),
then, the Purchaser shall issue to the Sellers a number of shares of Purchaser Common Stock equal to US$30,000,000, divided by
US$10.00 (any and all such shares issued, the “Earnout 3 Shares”), on a date that is no later than ten (10)
Business Days following the final determination of the Net Income Before Tax for the 2020 fiscal year; provided, that upon the
completion of the Reclassification of Capital Stock of Purchaser, or if the Reclassification of Capital Stock of Purchaser shall
have occurred by then, out of the Earnout 3 Shares a number of shares of Purchaser A Common Stock issued to Lavacano equal to US$3,000,000,
divided by US$10,00, shall be immediately converted into Purchaser B Common Stock. If the Purchaser (and its subsidiaries on a
consolidated basis) achieves between 90% and 100% of the Earnout 3 Target, the Purchaser shall issue to the Sellers between 90%
(inclusive) and 100% of the Earnout 3 Shares on a proportionate basis. By way of example only, if Purchaser (and its subsidiaries
on a consolidated basis) achieves Net Income Before Tax of US$31,500,000 or approximately RMB 211,500,000 for the 2021 fiscal year,
the Sellers shall be entitled to receive 90% of Earnout 3 Shares. For the avoidance of doubt, the Earnout 1 Target shall be either
US$35,000,000 or RMB$235,000,000, whichever is lower.
(d) Notwithstanding
the foregoing, (i) if the closing sale price of Purchaser Common Stock is above US$15.00 for 60 days out of 90 consecutive trading
days within twelve (12) months following the Closing, then the Sellers shall be entitled to receive the Earnout 1 Shares; (ii)
if the closing sale price of Purchaser Common Stock is above US$20.00 for 60 days out of 90 consecutive trading days between the
13th month and 24th month following the Closing, then the Sellers shall be entitled to receive the Earnout 2 Shares; or (iii) if
the closing sale price of Purchaser Common Stock is above US$25.00 for 60 days out of 90 consecutive trading days between the 25th
month and 36th month following the Closing, then the Sellers shall be entitled to receive the Earnout 3 Shares.
(e) Notwithstanding
anything in this Agreement to the contrary, in no event shall the aggregate Earnout Shares issuable hereunder exceed a number of
shares of Purchaser Common Stock equal to US$90,000,000, divided by US$10.00.
(f) All
share and per share amounts in this Section 3.3 shall be appropriately adjusted to reflect splits, share dividends and similar
events subsequent to the Closing Date.
ARTICLE
IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth
in the disclosure schedules delivered by the Company to the Purchaser simultaneously with the execution of this Agreement (the
“Company Disclosure Schedules”) or the information contained in the Proxy Statement relating to the Company,
the Company hereby represents and warrants to Purchaser that each of the following representations and warranties are true, correct
and complete as of the date of this Agreement:
4.1 Corporate
Existence and Power. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the
Cayman Islands and the Subsidiaries are duly organized, validly existing and in good standing under the laws of the jurisdiction
in which they were formed (the Company and the Subsidiaries, collectively, the “Company Group”). Each member
of the Company Group has all power and authority, corporate and otherwise, and all governmental licenses, franchises, Permits,
authorizations, consents and approvals required to own and operate its properties and assets and to carry on the Business, in each
case, as presently conducted in all material respects. Each member of the Company Group is duly licensed or qualified to do business
and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its Business as
currently conducted makes such licensing or qualification necessary, except where the failure to be so licensed, qualified or in
good standing would not have a Company Material Adverse Effect. The Company Group has offices located only at the addresses set
forth on Schedule 4.1.
4.2 Authorization.
The execution, delivery and performance by the Company of this Agreement and the Additional Agreements and the consummation by
the Company of the transactions contemplated hereby and thereby are within the corporate powers of the Company and have been duly
authorized by all necessary action on the part of the Company. This Agreement constitutes, and, upon their execution and delivery,
each of the Additional Agreements will constitute, a valid and legally binding agreement of the Company enforceable against the
Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity.
4.3 Governmental
Authorization. Neither the execution, delivery nor performance by the Company of this Agreement or any Additional Agreements
requires any consent, approval, license or other action by or in respect of, or registration, declaration or filing with, any Governmental
Authority (each such approval, a “Governmental Approval”) other than (a) the approvals listed on Schedule 4.3,
and (b) where failure to obtain such consent, approval, license or take any such action or, would not reasonably be expected to
have, individual or in the aggregate, a Company Material Adverse Effect.
4.4 Non-Contravention.
Except as set forth on Schedule 4.4, none of the execution, delivery or performance by the Company of this Agreement or any Additional
Agreements does or will (a) contravene or conflict with the organizational or constitutive documents of the Company Group, (b)
contravene or conflict with or constitute a violation of any provision of any Law or Order binding upon or applicable to the Company
Group, (c) except for the Contracts listed on Schedule 4.10 requiring Company Consents (but only as to the need to obtain such
Company Consents), constitute a default under or breach of (with or without the giving of notice or the passage of time or both)
or violate or give rise to any right of termination, cancellation, amendment or acceleration of any right or obligation of the
Company Group or require any payment or reimbursement or to a loss of any material benefit relating to the Business to which the
Company Group are entitled under any provision of any Permit, Contract or other instrument or obligation binding upon the Company
Group or by which any of the Company Capital Stock or any of the Company’s assets is or may be bound or any Permit, (d) result
in the creation or imposition of any Lien on any of the Company Capital Stock or any of the Company Group’s assets, (e) cause
a loss of any material benefit relating to the Business to which the Company Group are entitled under any provision of any Permit
or Contract binding upon the Company Group, or (f) result in the creation or imposition of any Lien (except for Permitted Liens)
on any of the Company Party’s assets.
4.5 Capitalization.
The Company has an authorized capitalization consisting of 500,000,000 ordinary shares, US$0.0001 par value per share (the “Company
Common Stock,” or the “Company Capital Stock”) of which 100,000 shares of Company Common Stock are
issued and outstanding as of the date hereof. No Company Capital Stock is held in its treasury. All of the issued and outstanding
Company Capital Stock has been duly authorized and validly issued and will be fully paid and non-assessable at the Closing and
has not been issued in violation of any preemptive or similar rights of any Person. All of the issued and outstanding Company Capital
Stock is owned (and always has been owned) of record and beneficially by the Sellers. The only shares of Company Common Stock that
will be outstanding immediately after the Closing will be the Company Capital Stock owned by the Purchaser. No other class of capital
stock of the Company is authorized or outstanding. Except as set forth on Schedule 4.5, there are no: (a) outstanding subscriptions,
options, warrants, rights (including “phantom stock rights”), calls, commitments, understandings, conversion
rights, rights of exchange, plans or other agreements of any kind providing for the purchase, issuance or sale of any shares of
the capital stock of the Company, or (b) to the knowledge of the Company, agreements with respect to any of the Company Capital
Stock, including any voting trust, other voting agreement or proxy with respect thereto.
4.6 Charter
Documents. Copies of the Organizational Documents of each member of the Company Group have heretofore been made available to
Purchaser, and such copies are each true and complete copies of such instruments as amended and in effect on the date hereof. No
member of the Company Group has taken any action in violation or derogation of its Organizational Documents such that would reasonably
be expected to, individually or in the aggregate, have a Company Material Adverse Effect.
4.7 Corporate
Records. All proceedings occurring since June 30, 2019 of the board of directors, including committees thereof, and all consents
to actions taken thereby, are accurately reflected in the minutes and records contained in the corporate minute books of the Company
Group. The stock ledgers and stock transfer books of the Company Group are complete and accurate. The stock ledgers and stock transfer
books and minute book records of the Company relating to all issuances and transfers of stock by the Company Group, and all proceedings
of the board of directors, including committees thereof, and stockholders of the Company Group since June 30, 2019, have been made
available to Purchaser, and are the original stock ledgers and stock transfer books and minute book records of the Company Group
or true, correct and complete copies thereof.
4.8 Assumed
Names. Schedule 4.8 is a complete and correct list of all assumed or “doing business as” names currently or, within
five (5) years prior to the date of this Agreement used by the Company Group, including names on any websites. Since June 30, 2019,
none of the Company Group has used any name other than the names listed on Schedule 4.8 to conduct the Business. The Company Group
has filed appropriate “doing business as” certificates in all applicable jurisdictions with respect to itself, except
where such failure has not had and would not reasonably be expected to, individually or in the aggregate, have a Company Material
Adverse Effect.
4.9 Subsidiaries.
(a) Schedule
4.9(a) sets forth the name of each Subsidiary of the Company, and with respect to each Subsidiary, its jurisdiction of organization,
its authorized shares or other equity interests (if applicable), and the number of issued and outstanding shares or other equity
interests and the record holders and beneficial owners thereof. Other than the VIE Entities or as set forth in the VIE Contracts
(as defined below), as the case may be, (i) all of the outstanding equity securities of each Subsidiary of the Company are duly
authorized and validly issued, fully paid and non-assessable (if applicable), were offered, sold and delivered in material compliance
with all applicable securities Laws, and are owned by the Company or one of its Subsidiaries free and clear of all Liens (other
than those, if any, imposed by such Subsidiary’s Organizational Documents); (ii) there are no Contracts to which the Company
or any of its Affiliates is a party or bound with respect to the voting (including voting trusts or proxies) of the shares or other
equity interests of any Subsidiary of the Company other than the Organizational Documents of any such Subsidiary; (iii) there are
no outstanding or authorized options, warrants, rights, agreements, subscriptions, convertible securities or commitments to which
any Subsidiary of the Company is a party or which are binding upon any Subsidiary of the Company providing for the issuance or
redemption of any shares or other equity interests in or of any Subsidiary of the Company; (iv) there are no outstanding equity
appreciation, phantom equity, profit participation or similar rights granted by any Subsidiary of the Company; (v) except as set
forth on Schedule 4.9(a), no Subsidiary of the Company has any limitation on its ability to make any distributions or dividends
to its equity holders, whether by Contract, Order or applicable Law; (vi) except for the equity interests of the Subsidiaries listed
on Schedule 4.9(a), the Company does not own or have any rights to acquire, directly or indirectly, any shares or other equity
interests of, or otherwise Control, any Person; (vii) none of the Company or its Subsidiaries is a participant in any joint venture,
partnership or similar arrangement, and (viii) there are no outstanding contractual obligations of the Company or its Subsidiaries
to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any other Person.
(b) Scienjoy
HK is the legal and beneficial owner of one hundred percent (100%) of the issued and outstanding equity interests of the WFOE.
There are no outstanding options, warrants, rights (including conversion rights, preemptive rights, rights of first refusal or
similar rights) or agreements to purchase or acquire any equity interest, or any securities convertible into or exchangeable for
an equity interest, of the WFOE. The WFOE is a party to certain variable interest entity contracts with Zhihui Qiyuan, and the
registered shareholders of Zhihui Qiyuan (the “VIE Shareholders”), which are set forth on Schedule 4.9(b) (the
“VIE Contracts”), pursuant to which the profits of each VIE Entity are payable to the WFOE directly or indirectly,
and each VIE Entity is contractually controlled directly or indirectly by the WFOE. The WFOE is a wholly foreign-owned enterprise
registered in Beijing, China.
(c) The
capital and organizational structure of each Subsidiary organized or registered in the PRC (each, a “PRC Subsidiary”)
are valid and in full compliance with the applicable PRC Laws, other than as would not reasonably be expected to have a Company
Material Effect. The registered capital of each PRC Subsidiary has been fully paid up in accordance with the schedule of payment
stipulated in its articles of association, approval documents, certificates of approval and legal person business license (collectively,
the “PRC Establishment Documents”) and in compliance with applicable PRC Laws,. The Establishment Documents
of each PRC Subsidiary has been duly approved and filed in accordance with the laws of the PRC and are valid and enforceable. The
business scope specified in the PRC Establishment Documents of the PRC Subsidiary complies in all material respects with the requirements
of all applicable PRC Laws, and the operation and conduct of business by, and the term of operation of the PRC Subsidiary in accordance
with the PRC Establishment Documents is in compliance in all material respects with applicable PRC Laws.
4.10 Consents.
The Contracts listed on Schedule 4.10 are the only Contracts binding upon the Company or by which any of the Company Capital Stock
or any of the Company’s assets are bound, requiring a consent, approval, authorization, order or other action of or filing
with any Person as a result of the execution, delivery and performance of this Agreement or any of the Additional Agreements or
the consummation of the transactions contemplated hereby or thereby (each of the foregoing, a “Company Consent”).
4.11 Financial
Statements.
(a) Schedule
4.11 includes (i) the unaudited consolidated financial statements of the Company as of and for the fiscal years ended December
31, 2018, 2017 and 2016 consisting of the unaudited consolidated balance sheet as of such date, the unaudited consolidated income
statement for the twelve (12) month period ended on such date, and the unaudited consolidated cash flow statement for the twelve
(12) month period ended on such date and (ii) unaudited financial statements from January 1, 2019 through June 30, 2019 (collectively,
the “Financial Statements” and the unaudited consolidated balance sheet as of June 30, 2019 included therein,
the “Balance Sheet”).
(b) The
Financial Statements are complete and accurate and fairly present in all material respects the financial position of the Company
as of the dates thereof and the results of operations of the Company for the periods reflected therein in conformity with U.S.
GAAP. The Financial Statements (i) were prepared from the Books and Records of the Company; (ii) were prepared on an accrual basis
in accordance with U.S. GAAP consistently applied; (iii) contain and reflect all necessary adjustments and accruals for a fair
presentation of the Company’s financial condition as of their dates including for all warranty, maintenance, service and
indemnification obligations; and (iv) contain and reflect adequate provisions for all liabilities for all material Taxes applicable
to the Company with respect to the periods then ended.
(c) Except
as specifically disclosed, reflected or fully reserved against on the Balance Sheet, and for liabilities and obligations of a similar
nature and in similar amounts incurred in the ordinary course of business since the date of the Balance Sheet, there are no material
liabilities, debts or obligations of any nature (whether accrued, fixed or contingent, liquidated or unliquidated, asserted or
unasserted or otherwise) relating to the Company. All debts and liabilities, fixed or contingent, which should be included under
U.S. GAAP on the Balance Sheet are included therein.
(d) The
Balance Sheet included in the Financial Statements accurately reflects the outstanding Indebtedness of the Company as of the date
thereof. Except as set forth on Schedule 4.11, the Company does not have any Indebtedness.
(e) All
financial projections delivered by or on behalf of the Company to Purchaser with respect to the Business were prepared in good
faith using assumptions that the Company believes to be reasonable and the Company is not aware of the existence of any fact or
occurrence of any circumstances that is reasonably likely to have a Company Material Adverse Effect.
4.12 Books
and Records. All Contracts, documents, and other papers or copies thereof delivered to Purchaser by or on behalf of the Company
are accurate, complete, and authentic.
(a) The
Books and Records accurately and fairly, in reasonable detail, reflect the transactions and dispositions of assets of and the providing
of services by the Company. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance
that:
(i) transactions
are executed only in accordance with the respective management’s authorization;
(ii) all
income and expense items are promptly and properly recorded for the relevant periods in accordance with the revenue recognition
and expense policies maintained by the Company, as permitted by U.S. GAAP;
(iii) access
to assets is permitted only in accordance with the respective management’s authorization; and
(iv) recorded
assets are compared with existing assets at reasonable intervals, and appropriate action is taken with respect to any differences.
(b) All
accounts, books and ledgers of the Company have been properly and accurately kept and completed in all material respects, and there
are no material inaccuracies or discrepancies of any kind contained or reflected therein. Except as disclosed on Schedule 4.12(b),
the Company does not have any records, systems controls, data or information recorded, stored, maintained, operated or otherwise
wholly or partly dependent on or held by any means (including any mechanical, electronic or photographic process, whether computerized
or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership (excluding licensed software
programs) and direct control of the Company and which is not located at the relevant office.
4.13 Absence
of Certain Changes. Since the Balance Sheet date, the Company Group has conducted the Business in the ordinary course consistent
with past practices. Without limiting the generality of the foregoing, except as set forth on Schedule 4.13, since the Balance
Sheet date, there has not been:
(a) any
Company Material Adverse Effect;
(b) any
transaction, Contract or other instrument entered into, or commitment made, by the Company Group relating to the Business, or any
of the Company Group’s assets (including the acquisition or disposition of any assets) or any relinquishment by the Company
of any Contract or other right, in either case other than transactions and commitments in the ordinary course of business consistent
in all respects, including kind and amount, with past practices and those contemplated by this Agreement;
(c) (i)
any redemption of, declaration, setting aside or payment of any dividend or other distribution with respect to any capital stock
or other equity interests in the Company Group; (ii) any issuance by the Company of shares of capital stock or other equity interests
in the Company Group, or (iii) any repurchase, redemption or other acquisition, or any amendment of any term, by the Company of
any outstanding shares of capital stock or other equity interests;
(d) (i)
any creation or other incurrence of any Lien (other than Permitted Liens) on the Company Capital Stock or any of the Company Group’s
assets, and (ii) any making of any loan, advance or capital contributions to or investment in any Person by the Company, in each
case, other than in ordinary course of business consistent with past practice;
(e) any
material personal property damage, destruction or casualty loss or personal injury loss (whether or not covered by insurance) affecting
the business or assets of the Company, other than as would not be reasonably expected to, individually or in the aggregate, have
a Company Material Adverse Effect;
(f) any
material labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative
thereof to organize any employees of the Company Group, which employees were not subject to a collective bargaining agreement at
the Balance Sheet date, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to any employees
of the Company Group;
(g) any
sale, transfer, lease to others or otherwise disposition of any of its assets by the Company Group except for inventory, licenses
and services sold in the ordinary course of business consistent with past practices or immaterial amounts of other Tangible Personal
Property not required by its business;
(h) (i)
any amendment to or termination of any Material Contract, (ii) any amendment to any material license or material permit from any
Authority held by the Company Group, (iii) any receipt of any notice of termination of any of the items referenced in (i) and (ii);
and (iv) a material default by the Company Group under any Material Contract, or any material license or material permit from any
Authority held by the Company, other than, in the case of each of the clauses (i) through (iv), as would not reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect;
(i) any
capital expenditure by the Company Group in excess in any fiscal month of an aggregate of $3,000,000 or entering into any lease
of capital equipment or property under which the annual lease charges exceed $3,000,000 in the aggregate by the Company Group
(j) any
institution of litigation, settlement or agreement to settle any litigation, action, proceeding or investigation before any court
or governmental body relating to the Company Group or its property or suffering of any actual or threatened litigation, action,
proceeding or investigation before any court or governmental body relating to the Company or its property, other than as would
not be reasonably expected to, individually or in the aggregate, have a Company Material Adverse Effect;
(k) any
loan of any monies to any Person or guarantee of any obligations of any Person by the Company Group, in excess of $1,000,000, other
than accounts payable and accrued liabilities in the ordinary course of business consistent with past business;
(l) except
as required by U.S. GAAP, any change in the accounting methods or practices (including, any change in depreciation or amortization
policies or rates) of the Company or any revaluation of any of the assets of the Company;
(m) any
amendment to the Company Group’s Organizational Documents, or any engagement by the Company in any merger, consolidation,
reorganization, reclassification, liquidation, dissolution or similar transaction;
(n) any
acquisition of assets (other than acquisitions of inventory in the ordinary course of business consistent with past practice) or
business of any Person, other than as would not reasonably be expected to have, individually or in the aggregate, the Company Adverse
Effect;
(o) any
material Tax election made by the Company Group outside of the ordinary course of business consistent with past practice, or any
material Tax election changed or revoked by the Company Group; any material claim, notice, audit report or assessment in respect
of Taxes settled or compromised by the Company; any annual Tax accounting period changed by the Company Group; any Tax allocation
agreement, Tax sharing agreement, Tax indemnity agreement or closing agreement relating to any Tax entered into by the Company
Group; or any right to claim a material Tax refund surrendered by the Company Group; or
(p) any
commitment or agreement to do any of the foregoing.
Since the
Balance Sheet date through and including the date hereof, the Company has not taken any action nor has any event occurred which
would have violated the covenants of the Company set forth in Section 7.1 herein if such action had been taken or such event had
occurred between the date hereof and the Closing Date.
4.14 Properties;
Title to the Company’s Assets.
(a) Except
as set forth on Schedule 4.14(a) or would not reasonably be expected to, individually or in the aggregate, have a Company Material
Adverse Effect, the items of Tangible Personal Property have no defects, are in good operating condition and repair and function
in accordance with their intended uses (ordinary wear and tear excepted) and have been properly maintained, and are suitable for
their present uses and meet all specifications and warranty requirements with respect thereto.
(b) All
of the Tangible Personal Property is located at the office of the Company.
(c) Except
as would not reasonably be expected to, individually or in the aggregate, have a Company Material Adverse Effect, the Company Group
has good, valid and marketable title in and to, or in the case of the Leases and the assets which are leased or licensed pursuant
to Contracts, a valid leasehold interest or license in or a right to use, all of their assets reflected on the Balance Sheet or
acquired after July 1, 2019. Except as set forth on Schedule 4.14(c), no such asset is subject to any Liens other than Permitted
Liens. Except as would not reasonably be expected to, individually or in the aggregate, have a Company Material Adverse Effect,
the Company Group’s assets constitute all of the assets of any kind or description whatsoever, including goodwill, for the
Company Group to operate the Business immediately after the Closing in the same manner as the Business is currently being conducted.
4.15 Litigation.
Except as set forth on Schedule 4.15, there is no Action (or any basis therefore) pending against, or to the best knowledge of
the Company threatened against or affecting, the Company Group, any of its officers or directors, the Business, or any Company
Capital Stock or any of the Company’s assets or any Contract before any court, Authority or official or which in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions contemplated hereby or by the Additional Agreements. There
are no outstanding judgments against the Company that would, individually or in the aggregate, reasonably to be expected to have
a material adverse effect on the ability of the Company to enter into and perform its obligations under this Agreement. The Company
is not, and has not been in the past five (5) years, subject to any proceeding with any Authority, other than as would not reasonably
be expected to have, individually or in the aggregate, the Company Adverse Effect.
4.16 Contracts.
(a) Schedule
4.16(a) lists all material Contracts, oral or written (collectively, “Material Contracts”) to which the Company
Group is a party, and which are currently in effect and constitute the following:
(i) all
Contracts that require annual payments or expenses by, or annual payments or income to, the Company of $1,000,000 or more (other
than standard purchase and sale orders entered into in the ordinary course of business consistent with past practice);
(ii) all
sales, advertising, agency, lobbying, broker, sales promotion, market research, marketing or similar contracts and agreements,
in each case requiring the payment of any commissions by the Company in excess of $1,000,000 annually;
(iii) all
employment Contracts, employee leasing Contracts, and consultant and sales representatives Contracts with any current or former
officer, director, employee or consultant of the Company or other Person, under which the Company Group (A) has continuing obligations
for payment of annual compensation of at least $1,000,000 (other than oral arrangements for at-will employment), (B) has severance
or post termination obligations to such Person (other than COBRA obligations), or (C) has an obligation to make a payment upon
consummation of the transactions contemplated hereby or as a result of a change of control of the Company;
(iv) all
Contracts creating a joint venture, strategic alliance, limited liability company and partnership agreements to which the Company
Group is a party;
(v) all
Contracts relating to any acquisitions or dispositions of assets by the Company Group;
(vi) all
Contracts for material licensing agreements, including Contracts licensing Intellectual Property Rights, other than “shrink
wrap” licenses;
(vii) all
Contracts relating to secrecy, confidentiality and nondisclosure agreements restricting the conduct of the Company or substantially
limiting the freedom of the Company Group to compete in any line of business or with any Person or in any geographic area;
(viii) all
Contracts relating to patents, trademarks, service marks, trade names, brands, copyrights, trade secrets and other Intellectual
Property Rights of the Company Group;
(ix) all
Contracts providing for guarantees, indemnification arrangements and other hold harmless arrangements made or provided by the Company
Group, including all ongoing agreements for repair, warranty, maintenance, service, indemnification or similar obligations;
(x) all
Contracts with or pertaining to the Company Group to which any 10% stockholder of the Company is a party;
(xi) all
Contracts relating to property or assets (whether real or personal, tangible or intangible) in which the Company Group holds a
leasehold interest (including the Leases) and which involve payments to the lessor thereunder in excess of $100,000 per month;
(xii) all
Contracts relating to outstanding Indebtedness, including financial instruments of indenture or security instruments (typically
interest-bearing) such as notes, mortgages, loans and lines of credit;
(xiii) any
Contract relating to the voting or control of the equity interests of the Company Group or the election of directors of the Company
(other than the Organizational Documents of the Company);
(xiv) any
Contract not cancellable by the Company Group with no more than 60 days’ notice if the effect of such cancellation would
result in monetary penalty to the Company in excess of $3,000,000 per the terms of such contract;
(xv) any
Contract that can be terminated, or the provisions of which are altered, as a result of the consummation of the transactions contemplated
by this Agreement or any of the Additional Agreements to which the Company is a party; and
(xvi) any
Contract for which any of the benefits, compensation or payments (or the vesting thereof) will be increased or accelerated by the
consummation of the transactions contemplated hereby or the amount or value thereof will be calculated on the basis of any of the
transactions contemplated by this Agreement.
(b) Except
as set for the on Schedule 4.16(b), each Material Contract is a valid and binding agreement, and is in full force and effect, and
neither the Company nor, to the Company’s best knowledge, any other party thereto, is in breach or default (whether with
or without the passage of time or the giving of notice or both) under the terms of any such Material Contract. Except as set for
the on Schedule 4.16(b), the Company Group has not assigned, delegated, or otherwise transferred any of its rights or obligations
with respect to any Material Contracts, or granted any power of attorney with respect thereto or to any of the Company Group’s
assets. Except as set forth on Schedule 4.16(b), no Contract (i) requires the Company Group to post a bond or deliver any other
form of security or payment to secure its obligations thereunder or (ii) imposes any non-competition covenants that may be binding
on, or restrict the Business or require any payments by or with respect to Purchaser or any of its Affiliates. The Company Group
previously provided to Purchaser true and correct (A) fully executed copies of each written Material Contract and (B) written summaries
of each oral Material Contract.
(c) Except
as set forth on Schedule 4.16(c), none of the execution, delivery or performance by the Company of this Agreement or Additional
Agreements to which the Company is a party or the consummation by the Company of the transactions contemplated hereby or thereby
constitutes a default under or gives rise to any right of termination, cancellation or acceleration of any obligation of the Company
or to a loss of any material benefit to which the Company is entitled under any provision of any Material Contract.
(d) Except
as set for the on Schedule 4.16(d), the Company Group is in compliance with all covenants, including all financial covenants, in
all notes, indentures, bonds and other instruments or agreements evidencing any Indebtedness.
4.17 Licenses
and Permits. Schedule 4.17 correctly lists each license, franchise, permit, order or approval or other similar authorization
affecting, or relating in any way to, the Business, together with the name of the Authority issuing the same (the “Permits”).
Except as indicated on Schedule 4.17, such Permits are valid and in full force and effect, and none of the Permits will, assuming
the related Third Party Consent has been obtained or waived prior to the Closing Date, be terminated or impaired or become terminable
as a result of the transactions contemplated hereby. The Company Group has all Permits necessary to operate the Business, except
for the failure to have, individually or in the aggregate, any Permits that would not be reasonably expected to have a Company
Material Adverse Effect.
4.18 Compliance
with Laws. Except as set forth on Schedule 4.18(a), the Company Group is not in violation of, has not violated, and to the
Company’s best knowledge, is neither under investigation with respect to nor has been threatened to be charged with or given
notice of any violation or alleged violation of, any Law, or judgment, order or decree entered by any court, arbitrator or Authority,
domestic or foreign, nor is there any basis for any such charge and within the last 24 months the Company has not received any
subpoenas by any Authority.
(a) Without
limiting the foregoing paragraph, the Company Group is not in violation of, has not violated, and to the Company’s best knowledge
is not under investigation with respect to nor has been threatened or charged with or given notice of any violation of any provisions
of:
(i) any
Law applicable due to the specific nature of the Business;
(ii) the
Foreign Corrupt Practices Act of 1977 (§§ 78dd-1 et seq.), as amended (the “Foreign Corrupt Practices Act”);
(iii) any
comparable or similar Law of any jurisdiction; or
(iv) any
Law regulating or covering conduct in, or the nature of, the workplace, including regarding sexual harassment or, on any impermissible
basis, a hostile work environment.
(b) Except
as set forth on Schedule 4.18(a), no permit, license or registration is required by the Company in the conduct of the Business
under any of the Laws described in this Section 4.18.
(c) The
WFOE has complied in all material respects with all applicable PRC Laws in connection with foreign exchange.
4.19 Intellectual
Property.
(a) Schedule
4.19 sets forth a true, correct and complete list of all Intellectual Property Rights, specifying as to each, as applicable: (i)
the nature of such Intellectual Property Right; (ii) the owner of such Intellectual Property Right; (iii) the jurisdictions by
or in which such Intellectual Property Right has been issued or registered or in which an application for such issuance or registration
has been filed; and (iv) all licenses, sublicenses and other agreements pursuant to which any Person is authorized to use such
Intellectual Property Right.
(b) Within
the past five (5) years (or prior thereto if the same is still pending or subject to appeal or reinstatement) the Company has not
been sued or charged in writing with or been a defendant in any Action that involves a claim of infringement of any Intellectual
Property Rights, and the Company has no knowledge of any other claim of infringement by the Company, and no knowledge of any continuing
infringement by any other Person of any Intellectual Property Rights of the Company.
(c) The
current use by the Company Group of the Intellectual Property Rights does not infringe, and the use by the Company Group of the
Intellectual Property Rights after the closing will not infringe, the rights of any other Person. Any Intellectual Property Rights
used by the Company Group in the performance of any services under any Contract is, and upon the performance of such Contract remains,
owned by the Company Group and no client, customer or other third-party has any claim of ownership on the Intellectual Property
Rights.
(d) Except
as disclosed on Schedule 4.19(d), all employees, agents, consultants or contractors who have contributed to or participated in
the creation or development of any copyrightable, patentable or trade secret material on behalf of the Company Group or any predecessor
in interest thereto either: (i) is a party to a “work-for-hire” agreement under which the Company Group is deemed to
be the original owner/author of all property rights therein; or (ii) has executed an assignment or an agreement to assign in favor
of the Company Group (or such predecessor in interest, as applicable) all right, title and interest in such material.
(e) None
of the execution, delivery or performance by the Company of this Agreement or any of the Additional Agreements to which the Company
Group is a party or the consummation by the Company of the transactions contemplated hereby or thereby will cause any material
item of Intellectual Property Rights owned, licensed, used or held for use by the Company Group immediately prior to the Closing
to not be owned, licensed or available for use by the Company Group on substantially the same terms and conditions immediately
following the Closing.
(f) The
Company Group has taken reasonable measures to safeguard and maintain the confidentiality and value of all trade secrets and other
items of Company Intellectual Property that are confidential and all other confidential information, data and materials licensed
by the Company or otherwise used in the operation of the Business.
4.20 Customers
and Suppliers.
(a) Schedule
4.20(a) sets forth a list of the Company Group’s ten (10) largest customers and the ten (10) largest suppliers of goods or
services as measured by the dollar amount of purchases therefrom or thereby, for the Company’s December 31, 2018 fiscal year
and for the first six months of the Company’s December 31, 2019 fiscal year, showing the approximate total sales by the Company
Group to each such customer and the approximate total purchases by the Company Group from each such supplier, during each such
period.
(b) Except
as indicated on Schedule 4.20(b), to the actual knowledge of the Company, no supplier listed on Schedule 4.20(a) has (i) terminated
its relationship with the Company Group, (ii) materially reduced its business with the Company Group or materially and adversely
modified its relationship with the Company Group, (iii) notified the Company Group in writing of its intention to take any such
action, or (iv) to the Knowledge of the Company, become insolvent or subject to bankruptcy proceedings.
4.21 Accounts
Receivable and Payable; Loans.
(a) All
accounts receivable and notes of the Company reflected on the Financial Statements, and all accounts receivable and notes arising
subsequent to the date thereof, represent valid obligations arising from services actually performed or goods actually sold by
the Company in the ordinary course of business consistent with past practice. The accounts payable of the Company reflected on
the Financial Statements, and all accounts payable arising subsequent to the date thereof, arose from bona fide transactions in
the ordinary course consistent with past practice.
(b) To
the best of the Company’s knowledge, there is no contest, claim, or right of setoff in any agreement with any maker of an
account receivable or note relating to the amount or validity of such account, receivables or note that could reasonably result
in a Material Adverse Effect. Except as set forth on Schedule 4.21(b), to the best knowledge of the Company, all accounts, receivables
or notes are good and collectible in the ordinary course of business.
(c) The
Financial Statements have consolidated any and all accounts, receivables or notes of the Company Group which are owed by any Affiliate
of the Company. Except as set forth on Schedule 4.21(c) or in the ordinary course of business conducted by the Company Group, the
Company Group is not indebted to any of its Affiliates and no Affiliates are indebted to the Company.
4.22 Pre-payments.
Except as set forth on Schedule 4.22, the Company Group has not received any payments with respect to any services to be rendered
or goods to be provided after the Closing except in the ordinary course of business.
4.23 Employees.
(a) Schedule
4.23(a) sets forth a true, correct and complete list of the ten (10) highest paid employees and independent contractors of the
Company Group as of September 30, 2019, setting forth the name, title, current salary or compensation rate for each such person
and total compensation (including bonuses) paid to each such person for the fiscal year ended December 31, 2018.
(b) Except
as set forth on Schedule 4.23(b), the Company Group is not a party to or subject to any employment contract, consulting agreement,
collective bargaining agreement, confidentiality agreement restricting the activities of the Company Group, non-competition agreement
restricting the activities of the Company Group, or any similar agreement, and there has been no activity or proceeding by a labor
union or representative thereof to organize any employees of the Company Group.
(c) There
are no pending or, to the knowledge of the Company Group, threatened claims or proceedings against the Company Group under any
worker’s compensation policy or long-term disability policy.
(d) Except
as would not have a Company Material Adverse Effect, the Company Group has properly classified all of its employees as exempt or
non-exempt.
4.24 Employment
Matters.
(a) Schedule
4.24(a) sets forth a true and complete list of every employment agreement, commission agreement, employee group or executive medical,
life, or disability insurance plan, and each incentive, bonus, profit sharing, retirement, deferred compensation, equity, phantom
stock, stock option, stock purchase, stock appreciation right or severance plan of the Company Group now in effect or under which
the Company Group has or might have any obligation, or any understanding between the Company Group and any employee concerning
the terms of such employee’s employment that does not apply to the Company Group’s employees generally (collectively,
“Labor Agreements”). The Company has previously delivered to Purchaser true and complete copies of each such
Labor Agreement, any employee handbook or policy statement of the Company Group, and complete and correct information concerning
the Company Group’s employees.
(b) Except
as disclosed on Schedule 4.24(b):
(i) to
the best knowledge of the Company, no employee of the Company Group, in the ordinary course of his or her duties, has breached
or will breach any obligation to a former employer in respect of any covenant against competition or soliciting clients or employees
or servicing clients or confidentiality or any proprietary right of such former employer; and
(ii) the
Company Group is not a party to any collective bargaining agreement, does not have any material labor relations problems, and there
is no pending representation question or union organizing activity respecting employees of the Company Group.
4.25 Withholding.
Except as disclosed on Schedule 4.25, all obligations of the Company Group applicable to its employees, whether arising by operation
of Law, by contract, by past custom or otherwise, or attributable to payments by the Company Group to trusts or other funds or
to any governmental agency, with respect to unemployment compensation benefits, social security benefits or any other benefits
for its employees with respect to the employment of said employees through the date hereof have been paid or adequate accruals
therefor have been made on the Financial Statements. Except as disclosed on Schedule 4.25, all reasonably anticipated obligations
of the Company Group with respect to such employees (except for those related to wages during the pay period immediately prior
to the Closing Date and arising in the ordinary course of business), whether arising by operation of Law, by contract, by past
custom, or otherwise, for salaries and holiday pay, bonuses and other forms of compensation payable to such employees in respect
of the services rendered by any of them prior to the date hereof have been or will be paid by the Company Group prior to the Closing
Date.
4.26 Employee
Benefits and Compensation. The Company Group does not have any “employee benefit plan”, bonus, deferred compensation,
equity-based or non-equity-based incentive, severance or other plan or written agreement relating to employee or director benefits
or employee or director compensation or fringe benefits, maintained or contributed to by the Company at any time during the 7-calendar
year period immediately preceding the date hereof and/or with respect to which the Company could incur or could have incurred any
direct or indirect, fixed or contingent liability (each a “Plan” and collectively, the “Plans”).
4.27 Real
Property.
(a) Except
as set forth on Schedule 4.27, the Company Group does not own, or otherwise have an interest in, any Real Property, including under
any Real Property lease, sublease, space sharing, license or other occupancy agreement. The Company Group has good, valid and subsisting
title to its respective leasehold estates in the offices described on Schedule 4.27, free and clear of all Liens. The Company Group
has not breached or violated any local zoning ordinance, and no notice from any Person has been received by the Company Group or
served upon the Company Group claiming any violation of any local zoning ordinance.
(b) With
respect to the Lease: (i) it is valid, binding and in full force and effect; (ii) all rents and additional rents and other sums,
expenses and charges due thereunder have been paid; (iii) the lessee has been in peaceable possession since the commencement of
the original term thereof; (iv) no waiver, indulgence or postponement of the lessee’s obligations thereunder has been granted
by the lessor; (v) there exist no default or event of default thereunder by the Company Group or, to the Company’s knowledge,
by any other party thereto; (vi) there exists no occurrence, condition or act which, with the giving of notice, the lapse of time
or the happening of any further event or condition, would become a default or event of default by the Company Group thereunder;
and (vii) there are no outstanding claims of breach or indemnification or notice of default or termination thereunder. The Company
Group holds the leasehold estate on the Lease, free and clear of all Liens except for the Liens of mortgagees of the Real Property
in which such leasehold estate is located. The Real Property leased by the Company Group is in a state of maintenance and repair
in all material respects adequate and suitable for the purposes for which it is presently being used, and there are no material
repair or restoration works likely to be required in connection with any of the leased Real Properties. The Company Group is in
physical possession and actual and exclusive occupation of the whole of the leased property, none of which is subleased or assigned
to another Person. The Lease leases all useable square footage of the premise located at the leased Real Property. The Company
Group does not owe any brokerage commission with respect to any Real Property.
4.28 Accounts.
Schedule 4.28 sets forth a true, complete and correct list of the checking accounts, deposit accounts, safe deposit boxes, and
brokerage, commodity and similar accounts of the Company Group, including the account number and name, the name of each depositary
or financial institution and the address where such account is located and the authorized signatories thereto.
4.29 Tax
Matters.
(a) (i)
The Company has duly and timely filed all Tax Returns which are required to be filed by or with respect to it, and has paid all
Taxes which have become due; (ii) all such Tax Returns are true, correct and complete and accurate and disclose all Taxes required
to be paid; (iii) except as set forth on Schedule 4.29, all such Tax Returns have been examined by the relevant Taxing Authority
or the period for assessment for Taxes in respect of such Tax Returns has expired; (iv) there is no Action, pending or proposed
or, to the best knowledge of the Company, threatened, with respect to Taxes of the Company or for which a Lien may be imposed upon
any of the Company’s assets and, to the best of the Company’s knowledge, no basis exists therefor; (v) no statute of
limitations in respect of the assessment or collection of any Taxes of the Company for which a Lien may be imposed on any of the
Company’s assets has been waived or extended, which waiver or extension is in effect; (vi) the Company has complied in all
material respects with all applicable Laws relating to the reporting, payment, collection and withholding of Taxes and has duly
and timely withheld or collected, paid over to the applicable Taxing Authority and reported all Taxes (including income, social,
security and other payroll Taxes) required to be withheld or collected by the Company; (vii) no stock transfer Tax, sales Tax,
use Tax, real estate transfer Tax or other similar Tax will be imposed on the transfer of the securities to Purchaser pursuant
to this Agreement or otherwise with respect to or as a result of any transaction contemplated by this Agreement; (viii) none of
the assets of the Company is required to be treated as owned by another Person for income Tax purposes; (ix) there is no Lien for
Taxes upon any of the assets of the Company; (x) there is no outstanding request for a ruling from any Taxing Authority, request
for a consent by a Taxing Authority for a change in a method of accounting, subpoena or request for information by any Taxing Authority,
or closing agreement, with respect to the Company Group; (xi) no claim has ever been made by a Taxing Authority in a jurisdiction
where the Company Group has not paid any Tax or filed Tax Returns, asserting that the Company Group is or may be subject to Tax
in such jurisdiction; (xii) the Company has provided to Purchaser true, complete and correct copies of all Tax Returns relating
to, and all audit reports and correspondence relating to each proposed adjustment, if any, made by any Taxing Authority with respect
to, any taxable period ending after December 31, 2018; (xiii) there is no outstanding power of attorney from the Company Group
authorizing anyone to act on behalf of the Company Group in connection with any Tax, Tax Return or Action relating to any Tax or
Tax Return of the Company Group; (xiv) the Company Group is not, and has ever been, a party to any Tax sharing or Tax allocation
Contract; (xv) the Company Group is not currently and has never been included in any consolidated, combined or unitary Tax Return;
(xvi) to the knowledge of the Company, no issue has been raised by a Taxing Authority in any prior Action relating to the Company
Group with respect to any Tax for any period which, by application of the same or similar principles, could reasonably be expected
to result in a proposed Tax deficiency of the Company Group for any other period; (xvii) the Company has not requested any extension
of time within which to file any Tax Return, which Tax Return has since not been filed.
(b) The
unpaid Taxes of the Company Group (i) did not, as of the most recent fiscal month end, exceed the reserve for Tax liability (rather
than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Financial
Statements and (ii) will not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of the Company in filing its Tax Return.
4.30 Environmental
Laws.
(a) Except
as set forth in Schedule 4.30, the Company Group has not (i) received any written notice of any alleged claim, violation of or
Liability under any Environmental Law which has not heretofore been cured or for which there is any remaining liability; (ii) disposed
of, emitted, discharged, handled, stored, transported, used or released any Hazardous Materials, arranged for the disposal, discharge,
storage or release of any Hazardous Materials, or exposed any employee or other individual to any Hazardous Materials so as to
give rise to any Liability or corrective or remedial obligation under any Environmental Laws; or (iii) entered into any agreement
that may require it to guarantee, reimburse, pledge, defend, hold harmless or indemnify any other Person with respect to liabilities
arising out of Environmental Laws or the Hazardous Materials Activities of the Company, except in each case as would not, individually
or in the aggregate, have a Material Adverse Effect.
(b) The
Company has delivered to Purchaser all material records in its possession concerning the Hazardous Materials Activities of the
Company Group and all environmental audits and environmental assessments in the possession or control of the Company Group of any
facility currently owned, leased or used by the Company Group which identifies the potential for any violations of Environmental
Law or the presence of Hazardous Materials on any property currently owned, leased or used by the Company Group.
(c) Except
as set forth on Schedule 4.30(c), there are no Hazardous Materials in, on, or under any properties owned, leased or used at any
time by the Company Group such as could give rise to any material liability or corrective or remedial obligation of the Company
Group under any Environmental Laws.
4.31 Finders’
Fees. Except as set forth on Schedule 4.31, there is no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of the Company Group or any of Affiliates who might be entitled to any fee or commission
from Purchaser or any of its Affiliates (including the Company following the Closing) upon consummation of the transactions contemplated
by this Agreement.
4.32 Powers
of Attorney and Suretyships. Except as set forth on Schedule 4.32, the Company Group does not have any general or special powers
of attorney outstanding (whether as grantor or grantee thereof) or any obligation or liability (whether actual, accrued, accruing,
contingent, or otherwise) as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the obligation
of any Person.
4.33 Directors
and Officers. Schedule 4.33 sets forth a true, correct and complete list of all directors and officers of the Company.
4.34 Certain
Business Practices. Except as would not reasonably be expected to have a Company Material Adverse Effect, neither the Company
Group, nor any director, officer, agent or employee of the Company Group (in their capacities as such) has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees, to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977 or (iii) made any other unlawful payment. Neither the Company Group,
nor any director, officer, agent or employee of the Company Group (nor any Person acting on behalf of any of the foregoing, but
solely in his or her capacity as a director, officer, employee or agent of the Company Group) has, since October 1, 2016, directly
or indirectly, given or agreed to give any gift or similar benefit in any material amount to any customer, supplier, governmental
employee or other Person who is or may be in a position to help or hinder the Company Group or assist the Company Group in connection
with any actual or proposed transaction, which, if not given could reasonably be expected to have had a Company Material Adverse
Effect, or which, if not continued in the future, could reasonably be expected to adversely affect the business or prospects of
the Company that could reasonably be expected to subject the Company to suit or penalty in any private or governmental litigation
or proceeding.
4.35 Money
Laundering Laws. The operations of the Company Group are and have been conducted at all times in compliance with laundering
statutes in all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any governmental authority (collectively, the “Money Laundering Laws”),
and no Action involving the Company Group with respect to the Money Laundering Laws is pending or, to the knowledge of the Company,
threatened.
4.36 Not
an Investment Company. The Company is not an “investment company” within the meaning of the Investment Company
Act of 1940, as amended, and the rules and regulations promulgated thereunder.
4.37 Full
Disclosure. No representation or warranty by the Company in this Agreement and no statement contained in the Company
Disclosure Schedules to this Agreement or any certificate or other document furnished or to be furnished to the Purchaser or its
Affiliates, attorneys, accountants, agents or representatives pursuant hereto or in connection with Purchaser’s due diligence
review contains any untrue statement of a material fact. To the knowledge of the Company, the Company Group has provided Purchaser
with all requested material information regarding the Business.
4.38 No
Other Representations and Warranties. Except as provided in this Article IV and the statement contained in the Company Disclosure
Schedule, neither the Company, the Sellers, or any Affiliates of the Company or the Sellers, nor any of their respective directors,
managers, officers, employees, equity holders, partners, members or representatives has made, or is making, any representation
or warranty whatsoever to the Purchaser or its Affiliates and no such party shall be liable in respect of the accuracy or completeness
of any information provided to the Purchaser.
ARTICLE
V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents
and warrants to the Company that:
5.1 Corporate
Existence and Power. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the
British Virgin Islands.
5.2 Corporate
Authorization. The execution, delivery and performance by Purchaser of this Agreement and the Additional Agreements and the
consummation by Purchaser of the transactions contemplated hereby and thereby are within the corporate powers of Purchaser and
have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and
delivered by Purchaser and it constitutes, and upon its execution and delivery, the Additional Agreements will constitute, a valid
and legally binding agreement of Purchaser, enforceable against them in accordance with its terms. The affirmative vote of holders
of (i) a majority of the outstanding shares of Purchaser Common Stock, to approve the proposals to be set forth in the Proxy Statement
and (ii) a majority of the outstanding shares of Purchaser Common Stock to approve the adoption of the Amended Charter, at the
Purchaser Shareholder Meeting in accordance with applicable Law are required prior to the Closing.
5.3 Governmental
Authorization. Other than as contemplated by the Proxy Statement (as described in Section 7.5 hereof) and any Governmental
Approval required for purpose of Section 7.10 hereof, neither the execution, delivery nor performance by the Company of this Agreement
or any Additional Agreements requires any consent, approval, license or other action by or in respect of, or registration, declaration
or filing with, any Governmental Authority requiring a consent, approval, authorization, order or other action of or filing with
any Governmental Authority as a result of the execution, delivery and performance of this Agreement or any of the Additional Agreements
or the consummation of the transactions contemplated hereby or thereby.
5.4 Non-Contravention.
The execution, delivery and performance by the Purchaser of this Agreement do not and will not (i) provide that holders of fewer
than the number of shares of Purchaser Common Stock specified in the Purchaser’s Organizational Documents exercise its redemption
rights with respect to such transaction, contravene or conflict with the organizational or constitutive documents of Purchaser,
or (ii) contravene or conflict with or constitute a violation of any provision of any Law, judgment, injunction, order, writ, or
decree binding upon Purchaser.
5.5 Finders’
Fees. Except for the Deferred Underwriting Amount and except as set forth on Schedule 5.5, there is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act on behalf of the Purchaser or its Affiliates who
might be entitled to any fee or commission from the Company, or any of its Affiliates upon consummation of the transactions contemplated
by this Agreement or any of the Additional Agreements.
5.6 Issuance
of Shares. The Closing Payment Shares and any Purchaser Common Stock issued pursuant to Section 3.2 or Section 9.9 (if applicable),
when issued in accordance with this Agreement, will be duly authorized and validly issued, and will be fully paid and nonassessable,
free and clear of any Liens and not subject to or issued in violation of any right of any third party pursuant to any contract
to which Purchaser is bound, applicable Law or the Purchaser’s Organizational Documents.
5.7 Capitalization.
(a) Purchaser
is authorized to issue an unlimited number of shares of a single class each with no par value, of which 7,457,500 shares of Purchaser
Common Stock are issued and outstanding as of the date hereof. 431,250 shares of Purchaser Common Stock are reserved for issuance
upon the exercise of the Purchaser Units underlying the Purchaser UPO, 3,612,000 shares of Purchaser Common Stock are reserved
for issuance with respect to the Purchaser Warrants and Purchaser Rights. No other shares of capital stock or other voting securities
of Purchaser are issued, reserved for issuance or outstanding. All issued and outstanding shares of Purchaser Common Stock are
duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option,
right of first refusal, preemptive right, subscription right or any similar right under any provision of British Virgin Islands
Law, the Purchaser’s Organizational Documents or any contract to which Purchaser is a party or by which Purchaser is bound.
Except as set forth in the Purchaser’s Organizational Documents and Purchaser SEC Documents, there are no outstanding contractual
obligations of Purchaser to repurchase, redeem or otherwise acquire any shares of Purchaser Common Stock or any capital equity
of Purchaser. There are no outstanding contractual obligations of Purchaser to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any other Person.
(b) Except
as set forth in the Purchaser SEC Documents and except as otherwise provided in this Agreement or consented to in writing by the
Company, the Purchaser has no convertible securities, exchangeable securities, warrants, options or other rights outstanding that,
pursuant to their terms, as a result of the consummation of the transactions contemplated hereby, will become convertible, exchangeable
or exercisable of any shares, warrants, options or other securities of Purchaser.
5.8 Information
Supplied. None of the information supplied or to be supplied by the Purchaser expressly for inclusion or incorporation by reference
in the filings with the SEC and mailings to Purchaser’s stockholders with respect to the solicitation of proxies to approve
the Transaction will, at the date of filing and/ or mailing, as the case may be, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading (subject to the qualifications and limitations set forth in the
materials provided by Purchaser or that is included in the Purchaser SEC Documents). No material information provided by the Purchaser
to the Company or the Sellers in connection with the negotiation or execution of this Agreement or any agreement contemplated hereby
(including but not limited to the Purchaser public filings, as of the respective dates of their submission to the SEC), contained
or contains (as applicable) any untrue statement of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading.
5.9 Litigation.
There is no Action (or any basis therefore) pending against, or to the knowledge of the Purchaser threatened against or affecting,
the Purchaser, any of its officers or directors, or any Purchaser Common Stock before any court, Authority or official or which
in any manner challenges or seeks to prevent, enjoin, alter or delay the transactions contemplated hereby or by the Additional
Agreements or that, individually or in the aggregate, would be material to the Purchaser. There are no outstanding judgments against
the Purchaser. Purchaser is not, and has not previously been, subject to any legal proceeding with any Authority.
5.10 Trust
Fund. As of the date of this Agreement, Purchaser has at least $57,500,000 in the trust fund established by Purchaser for the
benefit of its public stockholders (the “Trust Fund”) in a trust account at Morgan Stanley in the United States
(the “Trust Account”), and such monies are invested in “government securities” (as such term is
defined in the Investment Company Act of 1940, as amended) and held in trust by Continental Stock Transfer & Trust Company
(the “Trustee”) pursuant to the Investment Management Trust Agreement, dated as of February 5, 2019, between
Purchaser and the Trustee (the “Trust Agreement”). The Purchaser has not amended, waived or otherwise changed
and will not amend, waive or otherwise change the Trust Agreement in any manner adverse to the Purchaser.
5.11 Listing.
The Purchaser Common Stock is listed on the Nasdaq Capital Market, with trading tickets HHHH.
5.12 Reporting
Company. The Purchaser is a publicly-held company subject to reporting obligations pursuant to Section 13 of the Exchange Act,
and the Purchaser Ordinary Shares are registered pursuant to Section 12(b) of the Exchange Act.
5.13 No
Market Manipulation. Neither the Purchaser nor its Affiliates have taken, and will not take, directly or indirectly, any action
designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Purchaser
Common stock to facilitate the sale or resale of the Purchaser Common Stocks or affect the price at which the Purchaser Common
Stocks may be issued or resold; provided, however, that this provision shall not prevent the Purchaser from engaging in investor
relations or public relations activities consistent with past practices.
5.14 Sarbanes-Oxley
Act. The Purchaser is in compliance with applicable requirements of the United States Sarbanes-Oxley Act of 2002 and applicable
rules and regulations promulgated by the SEC thereunder in effect as of the date of this Agreement, except where such noncompliance
could not be reasonably expected to have, individually or in the aggregate, a Purchaser Material Adverse Effect.
5.15 Investment
Company. The Purchaser is not an “investment company” within the meaning of the United States Investment Company
Act of 1940, as amended.
5.16 Board
Approval. The Purchaser Board (including any required committee or subgroup of such board) has, as of the date of this Agreement,
unanimously (i) declared the advisability of the transactions contemplated by this Agreement, (ii) determined that the transactions
contemplated hereby are in the best interests of the stockholders of Purchaser and (iii) determined that the transactions contemplated
hereby constitutes a Business Combination.
5.17 Purchaser
SEC Documents and Financial Statements.
(a) Purchaser
has timely filed all forms, reports, schedules, statements and other documents, including any exhibits thereto, required to be
filed or furnished by Purchaser with the SEC since Purchaser’s formation under the Exchange Act or the Securities Act, together
with any amendments, restatements or supplements thereto, and will timely file all such forms, reports, schedules, statements and
other documents required to be filed subsequent to the date of this Agreement (the “Additional Purchaser SEC Documents”).
Purchaser has made available to the Company copies in the form filed with the SEC of all of the following, except to the extent
available in full without redaction on the SEC’s website through EDGAR for at least two (2) days prior to the date of this
Agreement: (i) Purchaser’s Annual Reports on Form 10-K for each fiscal year of Purchaser beginning with the first year Purchaser
was required to file such a form, (ii) Purchaser’s Quarterly Reports on Form 10-Q for each fiscal quarter of Purchaser beginning
with the first quarter Purchaser was required to file such a form (iii) all proxy statements relating to Purchaser’s meetings
of stockholders (whether annual or special) held, and all information statements relating to stockholder consents, since the beginning
of the first fiscal year referred to in clause (i) above, (iv) its Form 8-Ks filed since the beginning of the first fiscal year
referred to in clause (i) above, and (v) all other forms, reports, registration statements and other documents (other than preliminary
materials if the corresponding definitive materials have been provided to the Company pursuant to this Section 5.17(a) filed by
Purchaser with the SEC since Purchaser’s formation (the forms, reports, registration statements and other documents referred
to in clauses (i), (ii), (iii), and (iv) above, whether or not available through EDGAR, are, collectively, the (“Purchaser
SEC Documents”). The Purchaser SEC Documents were, and the Additional Purchaser SEC Documents will be, prepared in all
material respects in accordance with the requirements of the Securities Act, the Exchange Act, and the Sarbanes-Oxley Act, as the
case may be, and the rules and regulations thereunder. The Purchaser SEC Documents did not, and the Additional Purchaser SEC Documents
will not, at the time they were or are filed, as the case may be, with the SEC (except to the extent that information contained
in any Purchaser SEC Document or Additional Purchaser SEC Document has been or is revised or superseded by a later filed Purchaser
SEC Document or Additional Purchaser SEC Document, then on the date of such filing) contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading. As used in this Section 5.17(a), the term “file”
shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available
to the SEC.
(b) The
audited financial statements of the Purchaser (the “Purchaser Audited Financial Statements”) and unaudited interim
financial statements of the Purchaser (together with the Purchaser Audited Financial Statements, the “Purchaser Financial
Statements”) (including, in each case, the notes and schedules thereto) included in the Purchaser SEC Documents complied
as to form in all material respects with the published rules and regulations of the SEC with respect thereto, were prepared in
accordance with U.S. GAAP applied on a consistent basis during the periods involved (except as may be indicated therein or in the
notes thereto and except with respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly present (subject,
in the case of the unaudited interim financial statements included therein, to normal year-end adjustments and the absence of complete
footnotes) in all material respects the financial position of the Purchaser as of the respective dates thereof and the results
of its operations and cash flows for the respective periods then ended.
(c) Purchaser
has established and maintains disclosure controls and procedures (as defined in Rule 13a-15 under the Exchange Act). Such disclosure
controls and procedures are designed to ensure that material information relating to the Purchaser is made known to the Purchaser’s
principal executive officer and its principal financial officer, particularly during the periods in which the periodic reports
required under the Exchange Act are being prepared. To the Purchaser’s knowledge, such disclosure controls and procedures
are effective in timely alerting the Purchaser’s principal executive officer and principal financial officer to material
information required to be included in the Purchaser’s periodic reports required under the Exchange Act.
(d) Purchaser
has established and maintained a system of internal controls. To the Purchaser’s knowledge, such internal controls are sufficient
to provide reasonable assurance regarding the reliability of the Purchaser’s financial reporting and the preparation of the
Purchaser’s financial statements for external purposes in accordance with U.S. GAAP.
(e) There
are no outstanding loans or other extensions of credit made by the Purchaser to any executive officer (as defined in Rule 3b-7
under the Exchange Act) or director of the Purchaser. The Purchaser has not taken any action prohibited by Section 402 of the Sarbanes-Oxley
Act.
(f) The
books of account, minute books and transfer ledgers and other similar books and records of the Purchaser have been maintained in
accordance with good business practice, are complete and correct in all material respects and there have been no material transactions
that are required to be set forth therein and which have not been so set forth.
(g) Except
as otherwise noted in the Purchaser Financial Statements, the accounts and notes receivable of the Purchaser reflected in the Purchaser
Financial Statements: (i) arose from bona fide transactions in the ordinary course of business and are payable on ordinary trade
terms, (ii) are legal, valid and binding obligations of the respective debtors enforceable in accordance with their terms, except
as such may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting creditors’ rights generally,
and by general equitable principles, (iii) are not subject to any valid set-off or counterclaim to which the Purchaser has been
notified in writing as of the date hereof except to the extent set forth in such balance sheet contained therein, and (iv) are
not the subject of any actions or proceedings brought by or on behalf of the Purchaser or any of its subsidiaries as of the date
hereof.
5.18 No
Undisclosed Liabilities. Purchaser has no liabilities (absolute, accrued, contingent or otherwise) of a nature required to
be disclosed on a balance sheet or in the related notes to Purchaser Financial Statements that are, individually or in the aggregate,
material to the business, results of operations or financial condition of the Purchaser, except: (i) liabilities provided for in
or otherwise disclosed in the balance sheet included in the most recent Purchaser Financial Statements or in the notes to the most
recent Purchaser Financial Statements, and (ii) such liabilities arising in the ordinary course of the Company’s business
since the date of the most recent Purchaser Financial Statement, none of which, individually or in the aggregate, would have a
Purchaser Material Adverse Effect taken as a whole.
5.19 Interested
Party Transactions. No officer, director, employee, shareholder or holder of derivative securities (each an “Insider”)
of the Purchaser or a member of his or her immediate family is indebted to the Purchaser, nor is the Purchaser indebted (or committed
to make loans or extend or guarantee credit) to any of such Persons, other than (i) for payment of salary or fees for services
rendered, (ii) reimbursement for reasonable expenses incurred on behalf of the Purchaser, (iii) for other employee benefits made
generally available to all employees, if any, or (iv) for repayment of promissory notes the Company issued or will issue to the
Insiders as disclosed in the Purchaser SEC Documents or the Additional Purchaser SEC Documents. To the knowledge of the Purchaser,
no Insider of the Purchaser or a member of his or her immediate family is directly or indirectly a party to or has a material interest
in any contract of the Purchaser (other than such contracts as relate to any such Person’s ownership of capital stock or
other securities of the Purchaser or such Person’s employment with, other services rendered to the Purchaser, or the contracts
entered into with such Person for use in the Purchaser’s ordinary course of business).
5.20 Certain
Business Practices. Except as would not reasonably be expected to have a Purchaser Material Adverse Effect, neither the Purchaser,
nor any director, officer, agent or employee of the Purchaser (in their capacities as such) has (i) used any Purchaser group funds
for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees, to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977 or (iii) made any other unlawful payment. Neither the Purchaser, nor,
to the knowledge of the Purchaser, any director, officer, agent or employee of the Purchaser (nor any Person acting on behalf of
any of the foregoing, but solely in his or her capacity as a director, officer, employee or agent of the Purchaser) has, since
its formation, directly or indirectly, in connection with the business of the Purchaser group, given or agreed to give any gift
or similar benefit in any amount to any customer, supplier, governmental employee or other Person who is or may be in a position
to help or hinder the Purchaser or assist the Purchaser in connection with any actual or proposed transaction, which, if not given
or continued in the future, would reasonably be expected to adversely affect the business or prospects of the Purchaser and would
reasonably be expected to subject the Purchaser to suit or penalty in any private or governmental litigation or proceeding.
5.21 Money
Laundering Laws. The operations of the Purchaser are and have been conducted at all times in compliance with the Money Laundering
Laws, and no Action involving the Purchaser with respect to the Money Laundering Laws is pending or, to the knowledge of the Purchaser,
threatened.
5.22 Business
Activities. Since its incorporation, the Purchaser has not conducted any business activities other than activities directed
toward completing a Business Combination. Except as set forth in the Purchaser’s Organizational Documents or discussed in
the Purchaser’s SEC Documents, there is no agreement, commitment, or Order binding upon the Purchaser or to which the Purchaser
is a party that has or would reasonably be expected to have the effect of prohibiting or impairing any business practice of the
Purchaser, any acquisition of property by the Purchaser or the conduct of business by the Purchaser as currently conducted or as
contemplated to be conducted as of the Closing, other than such effects, individually or in the aggregate, which have not had and
would not reasonably be expected to have a material adverse effect on the ability of the Purchaser to enter into and perform their
obligations under this Agreement. The Purchaser does not own directly or indirectly any interest or investment (whether equity
or debt) in any corporation, partnership, joint venture, business, trust or other entity.
5.23 No
Other Representations and Warranties. Except as provided in this Article V, neither the Purchaser or any of its Affiliates
nor any of their respective directors, managers, officers, employees, equity holders, partners, members or representatives has
made, or is making, any representation or warranty whatsoever to the Company or its Affiliates and no such party shall be liable
in respect of the accuracy or completeness of any information provided to the Company.
ARTICLE
VI
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers severally
and not jointly, each hereby represent and warrant to Purchaser that each of the following representations and warranties are true,
correct and complete as of the date of this Agreement and as of the Closing Date:
6.1 Ownership
of Stock; Authority.
(a) The
Seller has good and marketable title to the Company Common Stock, free and clear of any and all Liens.
(b) The
Seller has full legal capacity, power and authority to execute and deliver this Agreement, to perform its obligations hereunder
and to consummate the transactions contemplated hereby. This Agreement has been, or at Closing will be, duly executed and delivered
by the Seller and are, or upon their execution and delivery will be, valid and legally binding obligation of the Seller, enforceable
against the Seller in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, or (ii) rules of law governing specific performance, injunctive relief or other equitable remedies.
(c) Neither
the execution and delivery by the Seller of any or all of the Agreement, nor the consummation by the Seller of the transactions
contemplated thereby, will (i) conflict with, result in a breach of, constitute (with or without due notice or lapse of time or
both) a default under, or require any notice, consent or waiver under, any instrument, contract, agreement or arrangement to which
the Seller is a party or by which the Seller is bound, or (ii) result in the imposition of any Lien upon the Company Common Stock.
6.2 Approvals.
Except as contemplated by this Agreement, no consent, approval, waiver, authorization or novation is required to be obtained by
the Seller from, and no notice or filing is required to be given by the Seller to or made by the Seller with, any Authority or
other Person in connection with the execution, delivery and performance by the Seller of this Agreement and the sale and transfer
of the Company Common Stock.
6.3 Non-Contravention.
The execution, delivery and performance by the Seller of this Agreement, and the consummation of the transactions contemplated
hereby, do not and will not (a) violate any provision of the Organizational Documents of the Seller or (b) violate or result in
a breach of or constitute a default under any Law, judgment, injunction, Order, decree or other restriction of any Authority to
which the Seller or the Company Common Stock, are subject.
6.4 Litigation
and Claims. There is no civil, criminal or administrative action, suit, demand, claim, hearing, proceeding or disclosed investigation
pending or, to the knowledge of the Seller, threatened, against the Seller, and the Seller is not subject to any Order, writ, judgment,
award, injunction or decree of any Authority of competent jurisdiction or any arbitrator that would prevent consummation of the
transactions contemplated hereby or materially impair the ability of the Seller to perform its obligations hereunder.
6.5 Investment
Representations.
(a) The
Seller is an “accredited investor” as such term is defined in Rule 501 of Regulation D (“Reg. D”)
promulgated under the Act. The Seller acknowledges that Purchaser has the right to require evidence of its status as an accredited
investor, if necessary.
(b) The
Seller acknowledges that it has prior investment experience, including investments in non-listed and non-registered securities,
or has employed the services of an investment advisor, attorney or accountant to evaluate the merits and risks of such an investment
on its behalf, and the Seller represents that it understands the highly speculative nature of an investment in Purchaser Common
Stock, which may result in the loss of the total amount of such investment.
(c) The
Seller has adequate means of providing for the Seller’s current needs and possible personal contingencies, and the Seller
has no need, and anticipates no need in the foreseeable future, for liquidity in the Seller’s investment in Purchaser Common
Stock. The Seller is able to bear the economic risks of this investment and, consequently, without limiting the generality of the
foregoing, the Seller is able to hold the Purchaser Common Stock for an indefinite period of time and has a sufficient net worth
to sustain a loss of the entire investment in the event such loss should occur.
(d) The
Seller has not made an overall commitment to investments which are not readily marketable that are disproportionate to the Seller’s
net worth, and the Seller’s investment in the Purchaser Common Stock will not cause such overall commitment to become excessive.
(e) Except
as otherwise set forth in Article V, Purchaser has not and is not making any representations or warranties to the Seller or providing
any advice or information to the Seller. The Seller acknowledges that it has retained its own professional advisors to evaluate
the tax and other consequences of an investment in the Purchaser Common Stock.
(f) The
Seller acknowledges that this offering of Purchaser Common Stock has not been reviewed by the SEC because this is intended to be
a non-public offering pursuant to Section 4(2) of the Act and Rule 506 under Reg. D. The Purchaser Common Stock will be received
by the Seller for investment and not for distribution or resale to others.
(g) The
Seller understands and consents to the placement of a legend on any certificate or other document evidencing Purchaser Common Stock
stating that such shares Purchaser Common Stock have not been registered under the Act and setting forth or referring to the restrictions
on transferability and sale thereof. Each certificate evidencing Purchaser Common Stock shall bear the legends set forth below,
or legends substantially equivalent thereto, together with any other legends that may be required by federal or state securities
laws at the time of the issuance of the Purchaser Common Stock:
THE SHARES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL (I) REGISTERED UNDER THE ACT OR (II) THE ISSUER OF THE
SHARES (THE “ISSUER”) HAS RECEIVED AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT.
ARTICLE
VII
COVENANTS OF THE COMPANY AND PURCHASER PENDING CLOSING
Each of the Company
and the Purchaser covenants and agrees that:
7.1 Conduct
of the Business.
(a)
From the date hereof through the Closing Date, each party shall conduct business only in the ordinary course, (including the payment
of accounts payable and the collection of accounts receivable), consistent with past practices, and shall not enter into any material
transactions without the prior written consent of the other party, and shall use its best efforts to preserve intact its business
relationships with employees, clients, suppliers and other third parties. Without limiting the generality of the foregoing, from
the date hereof until and including the Closing Date, without the other party’s prior written consent (which shall not be
unreasonably withheld), neither party shall:
(i) amend,
modify or supplement its certificate of incorporation and bylaws or other organizational or governing documents;
(ii) amend,
waive any provision of, terminate prior to its scheduled expiration date, or otherwise compromise in any way, any Contract or any
other right or asset of the Company or Purchaser;
(iii) modify,
amend or enter into any contract, agreement, lease, license or commitment, which (A) is with respect to Real Property, (B) extends
for a term of one year or more or (C) obligates the payment of more than $3,000,000 (individually or in the aggregate);
(iv) make
any capital expenditures in excess of $3,000,000 (individually or in the aggregate);
(v) sell,
lease, license or otherwise dispose of any of the Company Group’s or Purchaser’s assets or assets covered by any Contract
except (i) pursuant to existing contracts or commitments disclosed herein and (ii) sales of Inventory in the ordinary course consistent
with past practice;
(vi) accept
returns of products sold from Inventory except in the ordinary course, consistent with past practice;
(vii) pay,
declare or promise to pay any dividends or other distributions with respect to its capital stock, or pay, declare or promise to
pay any other payments to any stockholder (other than, in the case of any stockholder that is an employee, payments of salary accrued
in said period at the current salary rate;
(viii) authorize
any salary increase of more than 20% for any employee making an annual salary equal to or greater than $200,000 or in excess of
$500,000 in the aggregate on an annual basis or change the bonus or profit sharing policies of the Company or the Purchaser;
(ix) obtain
or incur any loan or other Indebtedness, including drawings under the Company’s or the Purchaser’s existing lines of
credit, in excess of $3,000,000, other than accounts payable and accrued liabilities in the ordinary course of business consistent
with past business;
(x) suffer
or incur any Lien, except for Permitted Liens, on the Company’s or the Purchaser’s assets;
(xi) suffer
any damage, destruction or loss of property related to any of the Company’s or the Purchaser’s assets, whether or not
covered by insurance the aggregate value of which, following any available insurance reimbursement, exceed $3,000,000;
(xii) delay,
accelerate or cancel any receivables or Indebtedness owed to the Company or the Purchaser or write off or make further reserves
against the same;
(xiii) merge
or consolidate with or acquire any other Person or be acquired by any other Person;
(xiv) suffer
any insurance policy protecting any of the Company’s or the Purchaser’s assets to lapse;
(xv) amend
any of its employee plans or fail to continue to make timely contributions thereto in accordance with the terms thereof;
(xvi) make
any change in its accounting principles or methods or write down the value of any Inventory or assets;
(xvii) change
the place of business or jurisdiction of organization;
(xviii) extend
any loans other than travel or other expense advances to employees in the ordinary course of business not to exceed $100,000.00
individually or $1,000,000.00 in the aggregate;
(xix) issue,
redeem or repurchase any capital stock, membership interests or other securities, or issue any securities exchangeable for or convertible
into any shares of its capital stock;
(xx) effect
or agree to any change in any practices or terms, including payment terms, with respect to customers or suppliers;
(xxi) make
or change any material Tax election or change any annual Tax accounting periods; or
(xxii) agree
to do any of the foregoing.
(b) From
the date hereof through the Closing Date, the Purchaser shall remain a “blank check company” as defined in Rule 419
under the Securities Act, shall not conduct any business operations other than in connection with this Agreement and ordinary course
operations to maintain its status as a Nasdaq-listed special purpose acquisition company pending the completion of the transactions
contemplated hereby. Without limiting the generality of the foregoing, through the Closing Date, other than in connection with
the transactions contemplated by this Agreement without the other party’s prior written consent (which shall not be unreasonably
withheld), the Purchaser shall not, and shall cause its Subsidiaries to not amend, waive or otherwise change the Trust Agreement
in any manner adverse to the Purchaser.
(c) Neither
party shall (i) take or agree to take any action that might make any representation or warranty of such party inaccurate or misleading
in any respect at, or as of any time prior to, the Closing Date or (ii) omit to take, or agree to omit to take, any action necessary
to prevent any such representation or warranty from being inaccurate or misleading in any respect at any such time.
(d) From
the date hereof through the earlier of (x) termination of this Agreement in accordance with Article XIII and (y) the Closing, other
than in connection with the transactions contemplated hereby, neither the Company Group, on the one hand, nor the Purchaser, on
the other hand, shall, and such Persons shall cause each of their respective officers, directors, Affiliates, managers, consultants,
employees, representatives (including investment bankers, attorneys and accountants) and agents not to, directly or indirectly,
(i) encourage, solicit, initiate, engage or participate in negotiations with any Person concerning, or make any offers or proposals
related to, any Alternative Transaction, (ii) take any other action intended or designed to facilitate the efforts of any Person
relating to a possible Alternative Transaction, (iii) enter into, engage in or continue any discussions or negotiations with respect
to an Alternative Transaction with, or provide any non-public information, data or access to employees to, any Person that has
made, or that is considering making, a proposal with respect to an Alternative Transaction or (iv) approve, recommend or enter
into any Alternative Transaction or any Contract related to any Alternative Transaction. For purposes of this Agreement, the term
“Alternative Transaction” shall mean any of the following transactions involving the Company Group or the Purchaser
(other than the transactions contemplated by this Agreement): (1) any merger, consolidation, share exchange, business combination,
amalgamation, recapitalization, consolidation, liquidation or dissolution or other similar transaction, or (2) any sale, lease,
exchange, transfer or other disposition of a material portion of the assets of such Person or any class or series of the capital
stock or other equity interests of the Company Group or the Purchaser in a single transaction or series of transactions. In the
event that there is an unsolicited proposal for, or an indication of a serious interest in entering into, an Alternative Transaction,
communicated in writing to the Company Group or the Purchaser or any of their respective representatives or agents (each, an “Alternative
Proposal”), such party shall as promptly as practicable (and in any event within one (1) Business Day after receipt)
advise the other parties to this Agreement orally and in writing of such Alternative Proposal and the material terms and conditions
of any such Alternative Proposal (including any changes thereto) and the identity of the person making any such Alternative Proposal.
The Company and the Purchaser shall keep the other parties informed on a reasonably current basis of material developments with
respect to any such Alternative Proposal.
7.2 Access
to Information. From the date hereof until and including the Closing Date, the Company and the Purchaser shall, to the best
of their ability, (a) continue to give the other party, its legal counsel and other representatives full access to the offices,
properties and, Books and Records, (b) furnish to the other party, its legal counsel and other representatives such information
relating to the business of the Company and the Purchaser as such Persons may request and (c) cause the employees, legal counsel,
accountants and representatives to cooperate with the other party in its investigation of the Business; provided that no investigation
pursuant to this Section (or any investigation prior to the date hereof) shall affect any representation or warranty given by the
Company or the Purchaser and, provided further, that any investigation pursuant to this Section shall be conducted in such manner
as not to interfere unreasonably with the conduct of the Business of the Company.
7.3 Notices
of Certain Events. Each party shall promptly notify the other party of:
(a) any
notice or other communication from any Person alleging or raising the possibility that the consent of such Person is or may be
required in connection with the transactions contemplated by this Agreement or that the transactions contemplated by this Agreement
might give rise to any Action or other rights by or on behalf of such Person or result in the loss of any rights or privileges
of the Company (or Purchaser, post-Closing) to any such Person or create any Lien on any Company Capital Stock or capital stock
of the Purchaser or any of the Company’s or the Purchaser’s assets;
(b) any
notice or other communication from any Authority in connection with the transactions contemplated by this Agreement or the Additional
Agreements;
(c) any
Actions commenced or threatened against, relating to or involving or otherwise affecting either party or any of their stockholders
or their equity, assets or business or that relate to the consummation of the transactions contemplated by this Agreement or the
Additional Agreements;
(d) the
occurrence of any fact or circumstance which constitutes or results, or might reasonably be expected to constitute or result, in
a Company Material Adverse Change or a Purchaser Material Adverse Effect; and
(e) the
occurrence of any fact or circumstance which results, or might reasonably be expected to result, in any representation made hereunder
by such party to be false or misleading in any respect or to omit or fail to state a material fact.
7.4 Annual
and Interim Financial Statements. From the date hereof through the Closing Date, within forty (45) calendar days following
the end of each three-month quarterly period, the Company shall deliver to Purchaser an unaudited consolidated summary of its earnings
and an unaudited consolidated balance sheet for the period from the Balance Sheet date through the end of such quarterly period
and the applicable comparative period in the preceding fiscal year. The Company shall also promptly deliver to Purchaser copies
of any audited consolidated financial statements of the Company that the Company’s certified public accountants may issue.
7.5 Proxy
Statement; Purchaser Special Meeting.
(a) Promptly
after the receipt by the Purchaser from the Company of all financial and other information relating to the Company required for
inclusion therein, the Purchaser and the Company shall prepare and the Purchaser shall file with the SEC, and with all other applicable
regulatory bodies, proxy materials for the purpose of soliciting proxies from holders of Purchaser Common Stock to, among other
things, vote in favor of the adoption of this Agreement and the approval of the transactions contemplated hereby (“Purchaser
Stockholder Approval”) at a meeting of holders of Purchaser Common Stock to be called and held for such purpose (the
“Purchaser Special Meeting”). Such proxy materials shall be in the form of a proxy statement to be used for
the purpose of soliciting proxies from holders of Purchaser Common Stock for the matters to be acted upon at the Purchaser Special
Meeting (the “Proxy Statement”), which shall be filed with the SEC on Schedule 14A. The Company and its counsel
and the Purchaser and its counsel shall be given an opportunity to review and comment on the and Proxy Statement prior to its filing
with the SEC. The Purchaser and the Company shall promptly respond to any SEC comments on the Proxy Statement. The Purchaser and
the Company shall also take any and all actions required to satisfy the requirements of the Securities Act and the Exchange Act.
(b) The
Company shall, as promptly as reasonably practicable, provide the Purchaser with all reasonable information concerning the business
of the Company Group and the management, operations and financial condition of the Company Group as is required by the SEC for
inclusion in the Proxy Statement (“Company Information”), including, all financial statements required by relevant
securities laws and regulations (the “Required Financial Statements”), which shall be prepared under such accounting
principles and for such periods as required by the forms, rules and regulations of the SEC or as requested by the SEC in connection
with its review of the Proxy Statement or any Other Filing (as defined below). Subject to the Company’s review and approval
of the Proxy Statement, including the Company Information included therein, the Company acknowledges and agrees that Company Information
(including the Required Financial Statements), or summaries thereof or extracts therefrom, may be included in the Proxy Statement
and any other filings required under the Exchange Act, Securities Act or any other United States federal, foreign or blue sky laws
(“Other Filings”). In connection therewith, the Company shall instruct the employees, counsel, financial advisors,
auditors and other authorized representatives of the Company Group to reasonably cooperate with Purchaser as relevant if required
in connection with the foregoing. The Purchaser agrees to provide the Company with a reasonable opportunity to review the Proxy
Statement and any Other Filing and to not file the Proxy Statement or any Other Filing without the Company’s approval (such
approval not to be unreasonably withheld, conditioned or delayed).
(c) As
soon as practicable following the filing of the definitive Proxy Statement, the Purchaser shall distribute the Proxy Statement
to the holders of Purchaser Common Stock and, pursuant thereto, shall call the Purchaser Special Meeting in accordance with its
Organizational Documents and the laws of the British Virgin Islands and, subject to the other provisions of this Agreement, solicit
proxies from such holders to vote in favor of the adoption of this Agreement and the approval of the transactions contemplated
hereby and the other matters presented to the stockholders of the Purchaser for approval or adoption at the Purchaser Special Meeting,
including, without limitation, the matters described in Section 7.5(a).
(d) The
Purchaser and the Company shall comply with all applicable provisions of and rules under the Securities Act and Exchange Act and
all applicable Laws of the British Virgin Islands and other applicable corporate Law in the preparation, filing and distribution
of the Proxy Statement, the solicitation of proxies thereunder and the calling and holding of the Purchaser Special Meeting. Without
limiting the foregoing, the Company represents and warrants that the information relating to the Company supplied by the Company
for inclusion in the Proxy Statement will not as of the date on which the Proxy Statement (or any amendment or supplement thereto)
is first distributed to holders of Purchaser Common Stock or at the time of the Purchaser Special Meeting contain any statement
which, at such time and in light of the circumstances under which it is made, is false or misleading with respect to any material
fact, or omits to state any material fact required to be stated therein or necessary in order to make the statement therein not
false or misleading. If at any time prior to Closing, a change in the Company Information, Required Financial Statements or other
financial information, which would make the preceding sentence incorrect, should be discovered by the Company, it shall promptly
notify the Purchaser of such change. The Purchaser represents and warrants that the information relating to the Purchaser supplied
by it for inclusion in the Proxy Statement will not as of the date on which the Proxy Statement (or any amendment or supplement
thereto) is first distributed to holders of Purchaser Common Stock or at the time of the Purchaser Special Meeting contain any
statement which, at such time and in light of the circumstances under which it is made, is false or misleading with respect to
any material fact, or omits to state any material fact required to be stated therein or necessary in order to make the statement
therein not false or misleading.
(e) The
Purchaser, acting through its board of directors, shall include in the Proxy Statement the recommendation of its board of directors
that the holders of Purchaser Common Stock vote in favor of the adoption of this Agreement and the approval of the transactions
contemplated hereby, and shall otherwise use its commercially reasonable efforts to obtain the Purchaser Stockholder Approval.
7.6 Financial
Information. The Company will provide additional financial information as required by any Law or Governmental Authority for
inclusion in any filings to be made by the Purchaser with the SEC. If requested by the Company’s auditors, such information
must be reviewed or audited by the Company’s auditors.
7.7 Trust
Account. The Company acknowledges that the Purchaser shall make appropriate arrangements to cause the funds in the Trust Account
to be disbursed in accordance with the Trust Agreement and for the payment of (i) all amounts payable to holders of Purchaser Securities
who shall have validly redeemed their Purchaser Securities upon acceptance by the Purchaser of such Purchaser Securities (the “Purchaser
Securities Redemptions”), (ii) the expenses to the third parties to which they are owed in an amount not to exceed $500,000,
(iii) the Deferred Underwriting Amount to the underwriter in the IPO and (iv) the remaining monies in the Trust Account to Purchaser.
7.8 Employees
of the Company and the Manager. Schedule 7.8 lists those employees designated by the Company as key personnel of the Company
(the “Key Personnel”). The Company shall use commercially reasonable efforts to enter into Labor Agreements
with each of its employees to the extent required by law prior to the Closing Date.
7.9 Form
8-K; Press Releases.
(a) Within
four (4) business days following the execution of this Agreement, Purchaser will prepare and file a Current Report on Form 8-K
pursuant to the Exchange Act to report the execution of this Agreement, which the Company may review and comment upon prior to
filing. Promptly after the execution of this Agreement, Purchaser and the Company shall also issue a joint press release announcing
the execution of this Agreement.
(b) Prior
to the Closing, the Purchaser and the Company shall prepare a mutually agreeable press release announcing the consummation of the
Share Exchange (the “Closing Press Release”). Concurrently with the Closing, the Purchaser shall distribute
the Closing Press Release, and as soon as practicable thereafter, file Form 8-K with the SEC.
7.10 Nasdaq
Matters. The Purchaser shall (a) take all actions necessary to maintain its listing on Nasdaq, and (b) the additional listing
application for the Closing Payment Shares shall be approved by Nasdaq.
7.11 Section
16 of the Exchange Act. Prior to the Closing, the board of directors of the Purchaser, or an appropriate committee thereof,
shall adopt a resolution consistent with the interpretive guidance of the SEC relating to Rule 16b-3(d) under the Exchange Act,
such that the acquisition of Purchaser Common Stock pursuant to this Agreement by any officer or director of the Company who is
expected to become a “covered person” of the Purchaser for purposes of Section 16 of the Exchange Act and the rules
and regulations thereunder (“Section 16”) shall be exempt acquisitions for purposes of Section 16.
ARTICLE
VIII
COVENANTS OF THE COMPANY
The Company agrees that:
8.1 Reporting
and Compliance with Laws. From the date hereof through the Closing Date, the Company Group shall duly and timely file all Tax
Returns required to be filed with the applicable Taxing Authorities, pay any and all Taxes required by any Taxing Authority and
duly observe and conform in all material respects, to all applicable Laws and Orders.
8.2 Reasonably
Best Efforts to Obtain Consents. The Company shall use its reasonably best efforts to obtain each Third Party Consent as promptly
as practicable hereafter.
ARTICLE
IX
COVENANTS OF ALL PARTIES HERETO
The parties hereto covenant
and agree that:
9.1 Reasonably
Best Efforts; Further Assurances. Subject to the terms and conditions of this Agreement, each party shall use its reasonably
best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under
applicable Laws, and in the case of the Company, as reasonably requested by Purchaser, to consummate and implement expeditiously
each of the transactions contemplated by this Agreement. The parties hereto shall execute and deliver such other documents, certificates,
agreements and other writings and take such other actions as may be necessary or desirable in order to consummate or implement
expeditiously each of the transactions contemplated by this Agreement.
9.2 Tax
Matters.
(a) The
Sellers shall prepare (or cause to be prepared) and file (or cause to be filed) on a timely basis (taking into account valid extensions
of time to file) all Tax Returns of the Company required to be filed by the Company after the Closing Date for taxable periods
ending on or before the Closing Date. Such Tax Returns shall be true, correct and complete, shall be prepared on a basis consistent
with the similar Tax Returns for the immediately preceding taxable period, and shall not make, amend, revoke or terminate any Tax
election or change any accounting practice or procedure without the prior written consent of the Purchaser. The cost of preparing
such Tax Returns shall be borne by the Company. The Sellers shall give a copy of each such Tax Return to the Purchaser with sufficient
time prior to filing for its review and comment. The Sellers (prior to the Closing) and the Purchaser (following the Closing) shall
cause the Company to cooperate in connection with the preparation and filing of such Tax Returns, to timely pay the Tax shown to
be due thereon, and to furnish the Purchaser proof of such payment.
(b) Purchaser
shall prepare (or cause to be prepared) and file (or cause to be filed) on a timely basis (taking into account valid extensions
of time to file) all Tax Returns of the Company for taxable periods including the Closing Date but ending after the Closing Date.
Any such Tax Returns for a period that includes the Closing Date shall be true, correct and complete in all material respects,
shall be prepared on a basis consistent with the similar Tax Returns for the immediately preceding taxable period, and shall not
make, amend, revoke or terminate and tax election or change any accounting practice or procedure without the prior consent of the
Manager, which consent shall not unreasonably be withheld, delayed or conditioned.
(c) Following
the Closing, the Sellers may amend any Tax Return of the Company for any taxable period ending on or before the Closing with the
consent of Purchaser, which consent shall not unreasonably be withheld, delayed or conditioned. Purchaser shall cause the Company
to cooperate with the Sellers in connection with the preparation and filing of such amended Tax Returns and any Tax proceeding
in connection therewith. The cost of preparing and filing such amended Tax Returns or participating in any such Tax proceeding
shall be borne by the Company.
(d) Following
the Closing, the Purchaser may amend any Tax Return of the Company for any taxable period ending on or before the Closing to correct
any errors, with the consent of the Sellers, which consent shall not unreasonably be withheld, delayed or conditioned. The cost
of preparing and filing such amended Tax Returns shall be borne by the Company.
(e) Purchaser
shall retain (or cause the Company to retain) all Books and Records with respect to Tax matters of the Company for Pre-Closing
Periods for at least seven (7) years following the Closing Date and to abide by all record retention agreements entered into by
or with respect to the Company with any Taxing Authority.
9.3 Settlement
of Purchaser Liabilities. Concurrently with the Closing, all outstanding liabilities of the Purchaser shall be settled and
paid in full and reimbursement of out-of-pocket expenses reasonably incurred by Purchaser’s officers, directors, or any of
their respective Affiliates, in connection with identifying, investigating and consummating a business combination, subject to
the limitations set forth in Section 7.7.
9.4 Compliance
with SPAC Agreements. The Company and Purchaser shall comply with each of the agreements entered into in connection with the
IPO, including that certain registration rights agreement, dated as of February 5, 2019 by and between Purchaser and the investors
named therein.
9.5 Confidentiality.
Except as necessary to complete the Proxy Statement, the Company, on the one hand, and Purchaser, on the other hand, shall hold
and shall cause their respective representatives to hold in strict confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of Law, all documents and information concerning the other party furnished to it by such other
party or its representatives in connection with the transactions contemplated by this Agreement, including in each case the existence
of the Agreement and the transactions contemplated hereby or any negotiations or discussions with respect thereto (except to the
extent that such information can be shown to have been (a) previously known by the party to which it was furnished, (b) in the
public domain through no fault of such party or (c) later lawfully acquired from other sources, which source is not the agent of
the other party, by the party to which it was furnished), and each party shall not release or disclose such information to any
other person, except its representatives in connection with this Agreement. In the event that any party believes that it is required
to disclose any such confidential information pursuant to applicable Laws, such party shall give timely written notice to the other
party so that such party may have an opportunity to obtain a protective order or other appropriate relief. Each party shall be
deemed to have satisfied its obligations to hold confidential information concerning or supplied by the other party if it exercises
the same care as it takes to preserve confidentiality for its own similar information. The parties acknowledge that some previously
confidential information will be required to be disclosed in the Proxy Statement.
9.6 Directors’
and Officers’ Indemnification and Insurance.
(a) From
and after the Closing Date, Purchaser shall indemnify and hold harmless all current and former directors, officers and employees,
as the case may be, of the Company and its Subsidiaries to the fullest extent permitted by Law for acts or omissions occurring
prior to the Closing Date (including acts or omissions occurring in connection with the approval of this Agreement and the consummation
of the transactions contemplated hereby) in their capacities as such. Purchaser shall fulfill and honor in all respects the obligations
pursuant to any indemnification agreements between Purchaser, the Company or its Subsidiaries, on the one hand, and any current
or former directors, officers and employees, as the case may be, of Purchaser, the Company and its Subsidiaries, on the other hand,
in effect immediately prior to the Closing Date, and any indemnification provisions under the Purchaser Organizational Documents,
Company Organizational Documents or the comparable charter or Organizational Documents of any of its Subsidiaries as in effect
on the date hereof, in each case to the maximum extent permitted by Law, and shall not amend, repeal or otherwise modify any such
provision in any manner that would adversely affect the rights of such indemnitee thereunder for any acts or omissions occurring
prior to the Closing Date.
(b) Prior
to the Closing Date, the Purchaser shall enter into a directors’ and officers’ liability insurance policy covering
the current and former directors, officers and employees, as the case may be, of the Company (the “Insured Parties”)
on customary terms that are no less favorable to the Insured Parties than those of any present directors’ and officers’
liability insurance policy maintained by the Company covering the Insured Parties (such policy, a “Company D&O Policy”),
for a period of seven years after the Closing Date.
(c) Notwithstanding
anything contained in this Agreement to the contrary, this Section 9.6 shall survive the Closing and shall be binding, jointly
and severally, on Purchaser, the Company and its Subsidiaries and all successors and assignees of Purchaser, the Company and its
Subsidiaries. In the event that Purchaser or any of their respective successors or assigns (i) consolidates with or merges into
any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers
or conveys all or substantially all its properties and assets to any Person, Purchaser shall cause proper provisions to be made
so that the successors and assigns of Purchaser assume the obligations set forth in this Section 9.6.
(d) The
obligations of Purchaser under this Section 9.6 shall not be terminated or modified in such a manner as to adversely affect any
indemnitee and/or Insured Party to whom this Section 9.6 applies without the express written consent of such affected indemnitee
and Insured Party. It is expressly agreed that the indemnitees and/or Insured Parties to whom this Section 9.6 applies shall be
third party beneficiaries of this Section 9.6.
(e) Purchaser
shall assume, be jointly and severally liable for, and shall honor, in accordance with their respective terms, each of the covenants
contained herein without limit as to time. Purchaser shall pay all reasonable expenses, including reasonable attorneys’ fees,
that may be incurred by any indemnitee and/or Insured Party in enforcing the indemnity and other obligations provided hereunder
or other applicable indemnification obligation referenced to herein. The rights of each indemnitee and/or Insured Party hereunder
shall be in addition to, and not in limitation of, any other rights such Person may have under the Company Organizational Documents
or the comparable charter or Organizational Documents of any Subsidiary of the Company, or any other indemnification arrangement
or otherwise.
(f) On
the Closing Date, the Purchaser shall enter into customary indemnification agreements reasonably satisfactory to the Company with
the individuals set forth on Schedule 9.6, which indemnification agreements shall continue to be effective following the Closing.
9.7 Equity
Financing. Each of the Company, the Sellers and the Purchaser shall use its reasonably best efforts to cause the immediately
available funds contained in the Trust Account (net of any Purchaser Redemption Amount) available for release to Purchaser immediately
following Closing (“Trust Account Amount”) and shall ensure that the Trust Account Amount is in no event below
Ten Million Dollars ($10,000,000) (“Equity Financing”); provided, however, that the reasonable expenses and
costs incurred by the Purchaser in connection with the Equity Financing shall be borne or reimbursed by the Company.
9.8 Conversion
of Certain Purchaser Common Stock. If the Purchaser qualifies as a “foreign private issuer” as defined in Rule
36-4 promulgated under the Exchange Act (“Foreign Private Issuer”) at any time following the Closing and as
promptly as practicable following the determination of gaining the Foreign Private Issuer status, Purchaser shall use its reasonably
best efforts to (a) reclassify its ordinary shares into Purchaser A Common Stock, and (b) authorize the issuance of Purchaser B
Common Stock (such actions described in these clauses (a) and (b) are collectively referred to herein as the “Reclassification
of Capital Stock of Purchaser”). Upon the completion of the Reclassification of Capital Stock of Purchaser, an amount
of Purchaser A Common Stock held by Lavacano equal to 10% of all issued and outstanding ordinary shares of the Purchaser immediately
after the Closing (after giving effect to the Closing, but excluding any Earnout Shares) shall be converted to Purchaser B Common
Stock on 1:1 ratio.
9.9 Trust
Extension.
(a) If
the Closing is expected not to occur on or prior to February 8, 2020, the Company shall, on behalf of the Sponsor, deposit $575,000
into the Trust Account prior to February 5, 2020 (the “First Extension”). Upon making the deposit of such funds,
the Company will receive a non-interest bearing, unsecured promissory note issued by the Purchaser for a principal amount equal
to such deposit (the “First Extension Funding Note”), which shall contain the following terms and conditions:
(a) if the Closing does not occur, such First Extension Funding Note will not be repaid, and (b) if the Closing does occur, such
First Extension Funding Note shall be converted into additional shares of Purchaser Common Stock issued to the Sellers at a price
of $10.00 per share upon the Closing.
(b) If
after the First Extension has been obtained and thereafter the Closing is expected not to occur on or prior to May 8, 2020, unless
either Purchaser or the Company has exercised its termination rights pursuant to Section 13.1(b), the Company shall, on behalf
of the Sponsor, deposit $575,000 into the Trust Account prior to May 5, 2020 (the “Second Extension”). Upon
making the deposit of such funds, the Company will receive a non-interest bearing, unsecured promissory note issued by the Purchaser
for a principal amount equal to such deposit (the “Second Extension Funding Note”), which shall contain the
following terms and conditions: (a) if the Closing does not occur, such Second Extension Funding Note shall be repaid in full by
the Sponsor on the Outside Closing Date, provided that the Company shall have delivered the Audited Financial Statements and the
reviewed interim financial statements for the six months ended June 30, 2019 by November 30, 2019, and the audited financial statements
for the year ended December 31, 2019 by March 31, 2020, and (b) if the Closing does occur, such Second Extension Funding Note shall
be converted into additional shares of Purchaser Common Stock issued to the Sellers at a price of $10.00 per share upon the Closing.
(c) In
the event that after the Second Extension has been obtained, the Closing is expected not to occur on or prior to August 8, 2020,
unless either Purchaser or the Company has exercised its termination rights pursuant to Section 13.1(c), the Company shall, on
behalf of the Sponsor, deposit $575,000 into the Trust Account prior to August 5, 2020 (the “Third Extension”).
Upon making the deposit of such funds, the Company will receive a non-interest bearing, unsecured promissory note issued by the
Company for a principal amount equal to such deposit (the “Third Extension Funding Note”), and each such note
shall contain the following terms and conditions: (a) if the Closing does not occur, such Third Extension Funding Note will be
repaid in full by the Sponsor on the Outside Closing Date, and (b) if the Closing does occur, such Third Extension Funding Note
shall be converted into additional shares of Purchaser Common Stock issued to the Sellers at a price of $10.00 per share upon the
Closing.
ARTICLE
X
CONDITIONS TO CLOSING
10.1 Condition
to the Obligations of the Parties. The obligations of all of the parties to consummate the Closing are subject to the satisfaction
of all the following conditions:
(a) No
provisions of any applicable Law, and no Order shall prohibit or impose any condition on the consummation of the Closing.
(b) There
shall not be any Action brought by a third-party non-Affiliate to enjoin or otherwise restrict the consummation of the Closing.
(c) The
closing requirements listed in Schedule 2.2 hereto shall have been completed.
(d) The
Purchaser Stockholder Approval shall have been obtained.
(e) All
Consents required to be obtained from or made with any Governmental Authority in order to consummate the transactions contemplated
by this Agreement shall have been obtained or made.
(f) Each
of the Additional Agreements shall have been entered into and the same shall be in full force and effect.
10.2 Conditions
to Obligations of Purchaser. The obligation of Purchaser to consummate the Closing is subject to the satisfaction, or the waiver
at Purchaser’s sole and absolute discretion, of all the following further conditions:
(a) The
Company shall have duly performed in all material respects (unless the applicable obligation has a materiality qualifier in which
case it shall be duly performed in all respects) all of its obligations hereunder required to be performed by it at or prior to
the Closing Date.
(b) All
of the representations and warranties of the Company contained in Article IV of this Agreement, the Additional Agreements and in
any certificate delivered by the Company pursuant hereto, disregarding all qualifications and exceptions contained therein relating
to materiality or Company Material Adverse Effect, regardless of whether it involved a known risk, shall: (i) be true and correct
at and as of the date of this Agreement and (ii) be true and correct as of the Closing Date (except for representation and warranties
that speak as of a specific date prior to the Closing Date, in which case such representations and warranties need only to be true
and correct as of such earlier date), in the case of (i) and (ii), other than as would not in the aggregate reasonably be expected
to have a Company Material Adverse Effect.
(c) There
shall have been no event, change or occurrence which individually or together with any other event, change or occurrence, could
reasonably be expected to have a Company Material Adverse Effect, regardless of whether it involved a known risk.
(d) Purchaser
shall have received a certificate signed by the Chief Executive Officer and Chief Financial Officer of the Company to the effect
set forth in clauses (a) through (c) of this Section 10.2.
(e) No
court, arbitrator or other Authority shall have issued any judgment, injunction, decree or order, or have pending before it a proceeding
for the issuance of any thereof, and there shall not be any provision of any applicable Law restraining or prohibiting the consummation
of the Closing, the ownership by Purchaser of any of the Company Capital Stock or the effective operation of the Business by the
Company after the Closing Date.
(f) Purchaser
shall have received all documents it may reasonably request relating to the existence of the Company and the authority of the Company
to enter into and perform under this Agreement, all in form and substance reasonably satisfactory to Purchaser and its legal counsel,
including (i) a copy of the Organizational Documents of the Company certified as of a recent date by the Secretary of State of
its jurisdictions of organization; (ii) copies of resolutions duly adopted by the board of directors of the Company and by the
unanimous vote or consent of the Company’s stockholders authorizing this Agreement, the Additional Agreements and the transactions
contemplated hereby and thereby, (iii) a certificate of the Secretary of the Company certifying as to (A) copies of the Company’s
Organizational Documents as in effect as of the Closing Date, (B) the resolutions of the Company’s board of directors and
shareholders authorizing and approving the execution, delivery and performance of this Agreement and each of the Additional Documents
to which it is a party or by which it is bound, and the consummation of the transactions contemplated hereby and thereby, and (C)
the incumbency of officers of the Company authorized to execute this Agreement and any Additional Documents to which the Company
is or is required to be a party or otherwise bound, and (iv) a recent good standing certificate regarding the Company from each
jurisdiction in which the Company organized or is qualified to do business.
(g) Purchaser
shall have received copies of all Third Party Consents (including the consents of the landlords under the Leases), if applicable,
in form and substance reasonably satisfactory to Purchaser, and no such Third Party Consent shall have been revoked.
(h) Purchaser
shall have received copies of all Governmental Approvals, if applicable, in form and substance reasonably satisfactory to Purchaser,
and no such Governmental Approval shall have been revoked.
(i) The
Company shall have entered into Labor Agreements with each of its employees to the extent required by law, and satisfied all accrued
obligations of the Company applicable to its employees.
(j) Each
of the Additional Agreements shall have been entered into and the same shall be in full force and effect.
(k) Purchaser
shall have completed and be reasonably satisfied with the results of all business, legal and financial due diligence, and any items
requiring correction identified by the Purchaser shall have been corrected to the Purchaser’s reasonable satisfaction.
(l) Purchaser
shall have received the Company Disclosure Schedules updated as of the Closing Date.
(m) Purchaser
shall have received a duly executed opinion from the Company’s PRC counsel and Cayman Islands counsel respectively, in form
and substance reasonably satisfactory to the Purchaser, addressed to the Purchaser and dated as of the Closing Date.
10.3 Conditions
to Obligations of the Company. The obligations of the Company to consummate the Closing is subject to the satisfaction, or
the waiver at the Company’s discretion, of all of the following further conditions:
(a) The
Purchaser shall have duly performed in all material respects (unless the applicable obligation has a materiality qualifier in which
case it shall be duly performed in all respects) all of its obligations hereunder required to be performed by it at or prior to
the Closing Date.
(b) All
of the representations and warranties of the Purchase contained in Article V of this Agreement, the Additional Agreements and in
any certificate delivered by the Purchaser pursuant hereto, disregarding all qualifications and exceptions contained therein relating
to materiality or material adverse effect, regardless of whether it involved a known risk, shall: (i) be true and correct at and
as of the date of this Agreement and (ii) be true and correct as of the Closing Date (except for representation and warranties
that speak as of a specific date prior to the Closing Date, in which case such representations and warranties need only to be true
and correct as of such earlier date), in the case of (i) and (ii), other than as would not in the aggregate reasonably be expected
to have a Purchaser Material Adverse Effect.
(c) There
shall have been no event, change or occurrence which individually or together with any other event, change or occurrence, could
reasonably be expected to have a Purchaser Material Adverse Effect, regardless of whether it involved a known risk.
(d) Company
shall have received a certificate signed by the Chief Executive Officer and Chief Financial Officer of the Purchaser to the effect
set forth in clauses (a) through (c) of this Section 10.3.
(e) The
Company shall have received a certificate signed by the corporate secretary of the Purchaser attaching and certifying to the accuracy
of the following: (i) a copy of the Amended Charter as effective on the Closing Date; (ii) copies of resolutions duly adopted by
the board of directors of the Purchaser authorizing this Agreement and the transactions contemplated hereby and thereby, (iii)
signatures of the officer(s) executing this Agreement and any certificate or document to be delivered pursuant hereto, together
with evidence of the incumbency of such Secretary, and (v) a recent good standing certificate regarding the Purchaser from each
jurisdiction in which the Purchaser is organized or is qualified to do business.
(f) Purchaser
shall have executed and delivered to the Company each Additional Agreement to which it is a party.
(g) The
Purchaser Securities Redemptions shall have been completed in accordance with the terms hereof and the Proxy Statement.
(h) The
Sellers Designees shall have been appointed to the board of directors of the Purchaser, effective as of the Closing.
(i) From
the date hereof until the Closing, Purchaser shall have been in material compliance with the reporting requirements under the Securities
Act and the Exchange Act applicable to Purchaser.
(j) Purchaser
shall have filed with the BVI Registrar of Corporate Affairs the Amended Charter in the form included in the Proxy Statement and
approved by the Purchaser’s stockholders at the Purchaser Special Meeting.
(k) Purchaser
shall remain its listing on Nasdaq and the additional listing application for the Closing Payment Shares shall have been approved
by Nasdaq.
ARTICLE
XI
INDEMNIFICATION
11.1 Indemnification
of Purchaser. From and after the Closing Date, the Company and the Sellers hereby jointly and severally agree to indemnify
and hold harmless Purchaser, each of its Affiliates and each of its and their respective members, managers, partners, directors,
officers, employees, stockholders, attorneys and agents and permitted assignees (the “Purchaser Indemnitees”),
against and in respect of any and all out-of-pocket loss, cost, payment, demand, penalty, forfeiture, expense, liability, judgment,
deficiency or damage, and diminution in value or claim (including actual costs of investigation and attorneys’ fees and other
costs and expenses) (all of the foregoing collectively, “Losses”) incurred or sustained by any Purchaser Indemnitee
as a result of or in connection with any breach, inaccuracy or nonfulfillment or the alleged breach, inaccuracy or nonfulfillment
of any of the representations, warranties and covenants of the Company and the Sellers contained herein or in any of the Additional
Agreements or any certificate or other writing delivered pursuant hereto. Any liability incurred by the Sellers pursuant to the
terms of this Article XI shall be paid exclusively from the Escrow Shares.
11.2 Indemnification
of Company From and after the Closing Date, the Purchaser shall, and cause its Affiliates (including the Company Group after
the Closing) to, indemnify and hold harmless each Seller and director and officer of the Company and each of its Subsidiaries who
served in such role at any time prior to the Closing (collectively, the “Company Indemnitees”) against any and
all Losses, incurred or sustained by any Company Indemnitee as a result of or in connection with any breach, inaccuracy or nonfulfillment
or the alleged breach, inaccuracy or nonfulfillment of any of the representations, warranties and covenants of the Purchaser contained
herein or in any of the Additional Agreements or any certificate or other writing delivered pursuant hereto.
11.3 Procedure.
The following shall apply with respect to all claims made by any Company Indemnitee or any Purchaser Indemnitee (an “Indemnified
Party”) for indemnification provided for under this Agreement by another party hereto (the “Indemnifying Party”):
(a) An
Indemnified Party shall give the Sellers or Purchaser, as applicable, prompt notice (an “Indemnification Notice”)
of any third-party action with respect to which such Indemnified Party seeks indemnification pursuant to Sections 11.1 or 11.2
(a “Third-Party Claim”), which shall describe in reasonable detail the Loss that has been or may be suffered
by the Indemnified Party. The failure to give the Indemnification Notice shall not impair any of the rights or benefits of such
Indemnified Party under Sections 11.1 or 11.2, except to the extent such failure materially and adversely affects the ability of
the Indemnifying Parties to defend such claim or increases the amount of such liability.
(b) In
the case of any Third-Party Claims as to which indemnification is sought by any Indemnified Party, such Indemnified Party shall
be entitled, at the sole expense and liability of the Indemnifying Parties, to exercise full control of the defense, compromise
or settlement of any Third-Party Claim unless the Indemnifying Parties, within a reasonable time after the giving of an Indemnification
Notice by the Indemnified Party (but in any event within ten (10) days thereafter), shall (i) deliver a written confirmation to
such Indemnified Party that the indemnification provisions of Sections 11.1 or 11.2 are applicable to such action and the Indemnifying
Parties will indemnify such Indemnified Party in respect of such action pursuant to the terms of Sections 11.1 or 11.2 and, notwithstanding
anything to the contrary, shall do so without asserting any challenge, defense, limitation on the Indemnifying Parties liability
for Losses, counterclaim or offset, (ii) notify such Indemnified Party in writing of the intention of the Indemnifying Parties
to assume the defense thereof, and (iii) retain legal counsel reasonably satisfactory to such Indemnified Party to conduct the
defense of such Third-Party Claim.
(c) If
the Indemnifying Parties assume the defense of any such Third-Party Claim pursuant to Section 11.3(b), then the Indemnified Party
shall cooperate with the Indemnifying Parties in any manner reasonably requested in connection with the defense, and the Indemnified
Party shall have the right to be kept fully informed by the Indemnifying Parties and their legal counsel with respect to the status
of any legal proceedings, to the extent not inconsistent with the preservation of attorney-client or work product privilege. If
the Indemnifying Parties so assume the defense of any such Third-Party Claim the Indemnified Party shall have the right to employ
separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, but the fees and expenses
of such counsel employed by the Indemnified Party shall be at the expense of such Indemnified Party unless (i) the Indemnifying
Parties have agreed to pay such fees and expenses, or (ii) the named parties to any such Third-Party Claim (including any impleaded
parties) include an Indemnified Party and an Indemnifying Party and such Indemnified Party shall have been advised by its counsel
that there may be a conflict of interest between such Indemnified Party and the Indemnifying Parties in the conduct of the defense
thereof, and in any such case the reasonable fees and expenses of such separate counsel shall be borne by the Indemnifying Parties.
(d) If
the Indemnifying Parties elect to assume the defense of any Third-Party Claim pursuant to Section 11.3(b), the Indemnified Party
shall not pay, or permit to be paid, any part of any claim or demand arising from such asserted liability unless the Indemnifying
Parties withdraw from or fail to vigorously prosecute the defense of such asserted liability, or unless a judgment is entered against
the Indemnified Party for such liability. If the Indemnifying Parties do not elect to defend, or if, after commencing or undertaking
any such defense, the Indemnifying Parties fail to adequately prosecute or withdraw such defense, the Indemnified Party shall have
the right to undertake the defense or settlement thereof, at the Indemnifying Parties’ expense. Notwithstanding anything
to the contrary, the Indemnifying Parties shall not be entitled to control, but may participate in, and the Indemnified Party (at
the expense of the Indemnifying Parties) shall be entitled to have sole control over, the defense or settlement of (x) that part
of any Third-Party Claim (i) that seeks a temporary restraining order, a preliminary or permanent injunction or specific performance
against the Indemnified Party, or (ii) to the extent such Third-Party Claim involves criminal allegations against the Indemnified
Party or (y) the entire Third-Party Claim if such Third-Party Claim would impose liability on the part of the Indemnified Party
in an amount which is greater than the amount as to which the Indemnified Party is entitled to indemnification under this Agreement.
In the event the Indemnified Party retains control of the Third-Party Claim, the Indemnified Party will not settle the subject
claim without the prior written consent of the Indemnifying Party, which consent will not be unreasonably withheld or delayed.
(e) If
the Indemnified Party undertakes the defense of any such Third-Party Claim pursuant to Sections 11.1 or 11.2 and proposes to settle
the same prior to a final judgment thereon or to forgo appeal with respect thereto, then the Indemnified Party shall give the Indemnifying
Parties prompt written notice thereof and the Indemnifying Parties shall have the right to participate in the settlement, assume
or reassume the defense thereof or prosecute such appeal, in each case at the Indemnifying Parties’ expense. The Indemnifying
Parties shall not, without the prior written consent of such Indemnified Party settle or compromise or consent to entry of any
judgment with respect to any such Third-Party Claim (i) in which any relief other than the payment of money damages is or may be
sought against such Indemnified Party, (ii) in which such Third-Party Claim could be reasonably expected to impose or create a
monetary liability on the part of the Indemnified Party (such as an increase in the Indemnified Party’s income Tax) other
than the monetary claim of the third party in such Third-Party Claim being paid pursuant to such settlement or judgment, or (iii)
which does not include as an unconditional term thereof the giving by the claimant, person conducting such investigation or initiating
such hearing, plaintiff or petitioner to such Indemnified Party of a release from all liability with respect to such Third-Party
Claim and all other actions (known or unknown) arising or which might arise out of the same facts.
11.4 Escrow
of Escrow Shares by Sellers. The Company and the Sellers hereby authorize the Purchaser to deliver the Escrow Shares into escrow
(the “Escrow Fund”) pursuant to the Escrow Agreement. For purposes of this Article XI, the Escrow Shares are
valued at $10.00 per share.
(a) Escrow
Shares. Payment of Dividends; Voting. Any dividends, interest payments, or other distributions of any kind made in respect
of the Escrow Shares will be delivered promptly to the Escrow Agent to be held in escrow. The Sellers shall be entitled to vote
the Escrow Shares on any matters to come before the stockholders of the Purchaser.
(b) Distribution
of Escrow Shares. At the times provided for in Section 11.4(d), the Escrow Shares shall be released to the Sellers for distribution.
The Purchaser will take such action as may be necessary to cause such certificates and notes to be issued in the names of the appropriate
persons. Certificates representing Escrow Shares so issued that are subject to resale restrictions under applicable securities
laws will bear a legend to that effect. No fractional shares shall be released and delivered from the Escrow Fund to the Sellers
and all fractional shares shall be rounded to the nearest whole share.
(c) Assignability.
No Escrow Shares or any beneficial interest therein may be pledged, sold, assigned or transferred, including by operation of law,
by the Sellers or be taken or reached by any legal or equitable process in satisfaction of any debt or other liability of the Sellers,
prior to the delivery to such Sellers of the Escrow Fund by the Escrow Agent as provided herein.
(d) Release
from Escrow Fund. Within five (5) business days following expiration of the Survival Period (the “Release Date”),
the Escrow Shares will be released from escrow to the Sellers less the number or amount of Escrow Shares (at an assumed value of
$10.00 per Escrow Share) equal to the amount of any potential Losses set forth in any Indemnification Notice from the Purchaser
with respect to any pending but unresolved claim for indemnification. Prior to the Release Date, the Sellers shall issue to the
Escrow Agent a certificate executed by it instructing the Escrow Agent to release such number of Escrow Shares determined in accordance
with this Section 11.4(d). Any Escrow Shares retained in escrow as a result of the immediately preceding sentence shall be released
to the Sellers promptly upon resolution of the related claim for indemnification in accordance with the provisions of this Article
XI.
11.5 Limitations
on Indemnification.
(a) Notwithstanding
anything to the contrary in this Agreement:
(i) with
respect to any claims as to which the Purchaser Indemnitees may be entitled to indemnification hereunder, the Company and the Sellers
shall not be liable for any individual or series of related Losses unless such Losses exceed $50,000 (the “De Minimis
Amount”), at which time the Losses in excess of the De Minimis Amount shall be subject to the indemnification hereunder.
(ii) the
aggregate liability of the Company and the Sellers for indemnification pursuant to this Article XI shall not exceed the deemed
value of Escrow Shares as set forth in Section 11.4;
(iii) in
no event shall any loss be recoverable under the terms of this Agreement to the extent it consists of or is based upon punitive,
special or exemplary damages, except to the extent awarded to a third party in connection with a Third-Party Claim; and
(iv) after
the expiration of the Survival Period, neither the Purchaser and its Affiliates, nor the Company or any Seller shall have any liability
for indemnification pursuant to this Article X other than with respect to Claims already made as provided in this Article XI.
(b) Promptly
after a Purchaser Indemnitee becomes aware of any event or circumstance that could reasonably be expected to constitute or give
rise to a Claim pursuant to this Article XI, the Purchaser Indemnitee shall take all commercially reasonable steps to mitigate
and minimize all losses that could result from or relate to such Claim.
(c) Any
indemnification payments hereunder to be made to a Purchaser Indemnitee shall take into account any insurance proceeds or other
third party reimbursement received or reasonably expected to be received by such Purchaser Indemnitee or any of its Affiliates.
In the event that a recovery is made by a Purchaser Indemnitee or any Affiliate of a Purchaser Indemnitee with respect to any Claim
for which such Purchaser Indemnitee has already been indemnified hereunder, then a return of the Escrow Shares with an aggregate
value equal to the aggregate amount of the recovery shall be made promptly to the Sellers.
(d) Any
indemnification payments hereunder to be made to a Company Indemnitee shall take into account any insurance proceeds or other third
party reimbursement received or reasonably expected to be received by such Company Indemnitee or any of its Affiliates. In the
event that a recovery is made by a Company Indemnitee or any Affiliate of a Company Indemnitee with respect to any Claim for which
such Company Indemnitee has already been indemnified hereunder, then a return of the indemnification payments with an aggregate
value equal to the aggregate amount of the recovery shall be made promptly to the Indemnifying Party.
11.6 Survival
of Indemnification Rights. All representations and warranties contained in this Agreement (including all schedules and exhibits
hereto and all certificates, documents, instruments and undertakings furnished pursuant to this Agreement) shall survive until
twelve (12) months following the Closing (the “Survival Period”). The obligations of the Company (but not of
the Sellers) in Articles VII, VIII and IX shall terminate upon the Closing.
11.7 Exclusive
Remedy. Notwithstanding any other provision of this Agreement to the contrary, and except as expressly set forth otherwise,
this Article XI shall be the sole and exclusive remedy of the Indemnified Parties from and after the Closing and shall be in lieu
of any other remedies that may be available to any Indemnified Party under any other agreement or pursuant to any statutory or
common law with respect to any losses directly or indirectly resulting from or arising out of any Losses or the transactions contemplated
by this Agreement; provided, however, that the foregoing sentence shall not be deemed a waiver by any party hereto of any right
to specific performance or injunctive relief.
ARTICLE
XII
DISPUTE RESOLUTION
12.1 Arbitration.
(a) The
parties shall promptly submit any dispute, claim, or controversy arising out of or relating to this Agreement, or any Additional
Agreement (including with respect to the meaning, effect, validity, termination, interpretation, performance, or enforcement of
this Agreement or any Additional Agreement) or any alleged breach thereof (including any action in tort, contract, equity, or otherwise),
to binding arbitration before one arbitrator (the “Arbitrator”). Binding arbitration shall be the sole means
of resolving any dispute, claim, or controversy arising out of or relating to this Agreement or any Additional Agreement (including
with respect to the meaning, effect, validity, termination, interpretation, performance or enforcement of this Agreement or any
Additional Agreement) or any alleged breach thereof (including any claim in tort, contract, equity, or otherwise).
(b) If
the parties cannot agree upon the Arbitrator, the Arbitrator shall be selected by the New York, New York chapter head of the American
Arbitration Association upon the written request of either side. The Arbitrator shall be selected within thirty (30) days of such
written request.
(c) The
laws of the State of New York shall apply to any arbitration hereunder. In any arbitration hereunder, this Agreement and any agreement
contemplated hereby shall be governed by the laws of the State of New York applicable to a contract negotiated, signed, and wholly
to be performed in the State of New York, which laws the Arbitrator shall apply in rendering his decision. The Arbitrator shall
issue a written decision, setting forth findings of fact and conclusions of law, within sixty (60) days after he shall have been
selected. The Arbitrator shall have no authority to award punitive or other exemplary damages.
(d) The
arbitration shall be held in New York, New York in accordance with and under the then-current provisions of the rules of the American
Arbitration Association, except as otherwise provided herein.
(e) On
application to the Arbitrator, any party shall have rights to discovery to the same extent as would be provided under the Federal
Rules of Civil Procedure, and the Federal Rules of Evidence shall apply to any arbitration under this Agreement; provided, however,
that the Arbitrator shall limit any discovery or evidence such that his decision shall be rendered within the period referred to
in Section 12.1(c).
(f) The
Arbitrator may, at his discretion and at the expense of the party who will bear the cost of the arbitration, employ experts to
assist him in his determinations.
(g) The
costs of the arbitration proceeding and any proceeding in court to confirm any arbitration award (including actual attorneys’
fees and costs), shall be borne by the unsuccessful party and shall be awarded as part of the Arbitrator’s decision, unless
the Arbitrator shall otherwise allocate such costs in such decision. The determination of the Arbitrator shall be final and binding
upon the parties and not subject to appeal.
(h) Any
judgment upon any award rendered by the Arbitrator may be entered in and enforced by any court of competent jurisdiction. The parties
expressly consent to the non-exclusive jurisdiction of the courts (Federal and state) in New York, New York to enforce any award
of the Arbitrator or to render any provisional, temporary, or injunctive relief in connection with or in aid of the Arbitration.
The parties expressly consent to the personal and subject matter jurisdiction of the Arbitrator to arbitrate any and all matters
to be submitted to arbitration hereunder. None of the parties hereto shall challenge any arbitration hereunder on the grounds that
any party necessary to such arbitration (including the parties hereto) shall have been absent from such arbitration for any reason,
including that such party shall have been the subject of any bankruptcy, reorganization, or insolvency proceeding.
(i) The
parties shall indemnify the Arbitrator and any experts employed by the Arbitrator and hold them harmless from and against any claim
or demand arising out of any arbitration under this Agreement or any agreement contemplated hereby, unless resulting from the gross
negligence or willful misconduct of the person indemnified.
(j) This
arbitration section shall survive the termination of this Agreement and any agreement contemplated hereby.
12.2 Waiver
of Jury Trial; Exemplary Damages.
(a) THE
PARTIES TO THIS AGREEMENT HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVE ANY RIGHT EACH SUCH PARTY MAY HAVE TO TRIAL BY JURY
IN ANY ACTION OF ANY KIND OR NATURE, IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED, ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY ADDITIONAL AGREEMENT, OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN OR AMONG ANY OF THE PARTIES
TO THIS AGREEMENT OF ANY KIND OR NATURE. NO PARTY SHALL BE AWARDED PUNITIVE OR OTHER EXEMPLARY DAMAGES RESPECTING ANY DISPUTE ARISING
UNDER THIS AGREEMENT OR ANY ADDITIONAL AGREEMENT.
(b) Each
of the parties to this Agreement acknowledge that each has been represented in connection with the signing of this waiver by independent
legal counsel selected by the respective party and that such party has discussed the legal consequences and import of this waiver
with legal counsel. Each of the parties to this Agreement further acknowledge that each has read and understands the meaning of
this waiver and grants this waiver knowingly, voluntarily, without duress and only after consideration of the consequences of this
waiver with legal counsel.
ARTICLE
XIII
TERMINATION
13.1 Termination
Without Default.
(a) In
the event that the audited consolidated financial statements of the Company as of and for the fiscal years ended December 31, 2018,
2017 and 2016, consisting of the audited consolidated balance sheet as of such dates, the audited consolidated income statement
for the twelve (12) month period ended on such dates, and the audited consolidated cash flow statement for the twelve (12) month
period ended on such dates (the “Audited Financial Statements”), have not been delivered by March 15, 2020,
Purchaser shall have the right, at its sole option, to terminate this Agreement without liability to the Company. Such right may
be exercised by Purchaser, as the case may be, with a written notice to the Company at any time after March 15, 2020.
(b) In
the event that after the First Extension has been obtained, the Closing is expected not to occur on or prior to May 8, 2020, Purchaser
or the Company shall have the right, at its sole option, to terminate this Agreement without liability to the other party; provided,
however, that the right to terminate this Agreement under this Section 13.1(b) shall not be available to any party who is in a
material breach of this Agreement and such breach shall have been the cause of, or shall have resulted in, the failure of the Closing
to occur on or prior to May 8, 2020. Such right shall be exercisable by Purchaser or the Company, as the case may be, with a written
notice to the other party at least ten (10) days prior to May 8, 2020.
(c) In
the event that after Second Extension has been obtained, the Closing is expected not to occur on or prior to August 8, 2020, Purchaser
or the Company shall have the right, at its sole option, to terminate this Agreement without liability to the other party; provided,
however, that the right to terminate this Agreement under this Section 13.1(c) shall not be available to any party who is in a
material breach of this Agreement and such breach shall have been the cause of, or shall have resulted in, the failure of the Closing
to occur on or prior to August 8, 2020. Such right shall be exercisable by Purchaser or the Company, as the case may be, with a
written notice to the other party at least ten (10) days prior to August 8, 2020.
(d) In
the event that the Closing has not occurred by September 30, 2020 (the “Outside Closing Date”), Purchaser or
the Company shall have the right, at its sole option, to terminate this Agreement without liability to the other party; provided,
however, that the right to terminate this Agreement under this Section 13.1(d) shall not be available to any party who is in a
material breach of this Agreement and such breach shall have been the cause of, or shall have resulted in, the failure of the Closing
to occur on or prior to the Outside Closing Date. Such right may be exercised by Purchaser or the Company, as the case may be,
with a written notice to the other party at any time after the Outside Closing Date.
(e) In
the event that the Proxy Statement with respect to the transactions hereunder has not been filed with the SEC by March 31, 2020
(the “Outside Filing Date”), Purchaser or the Company shall have the right, at its sole option, to terminate
this Agreement without liability to the other party; provided, however, that the right to terminate this Agreement under this Section
13.1(e) shall not be available to any party who is in a material breach of this Agreement and such breach shall have been the cause
of, or shall have resulted in, the failure of the Proxy Statement to be filed with the SEC by the Outside Filing Date. Such right
may be exercised by Purchaser or the Company, as the case may be, with a written notice to the other party at any time after the
Outside Filing Date.
13.2 Termination
Upon Default.
(a) The
Purchaser may terminate this Agreement by giving notice to the Company on or prior to the Closing Date, without prejudice to any
rights or obligations Purchaser may have, if the Company shall have materially breached any representation, warranty, agreement
or covenant contained herein or in any Additional Agreement to be performed on or prior to the Closing Date such that the condition
to closing set forth in Section 10.2 would not satisfied (treating such time as if it were the Closing Date) and such breach shall
not be cured by the earlier of the Outside Closing Date and fifteen (15) days following receipt by the Company of a notice describing
in reasonable detail the nature of such breach.
(b) The
Company may terminate this Agreement by giving notice to Purchaser, without prejudice to any rights or obligations the Company
may have, if Purchaser shall have materially breached any of its covenants, agreements, representations, and warranties contained
herein to be performed on or prior to the Closing Date such that the condition to closing set forth in Section 10.3 would not satisfied
(treating such time as if it were the Closing Date) and such breach shall not be cured by the earlier of the Outside Closing Date
and fifteen (15) days following receipt by Purchaser of a notice describing in reasonable detail the nature of such breach.
(c) In
the event that this Agreement is terminated pursuant to Section 13.2 hereof, the breaching party shall be obligated to pay the
non-breaching party a break-up fee of $1,000,000 (the “Break-up Fee”), promptly after termination of this Agreement
by the non-breaching party. The Company and the Purchaser acknowledge and agree that (i) the Break-up Fee is a fair and reasonable
estimate of the actual damages suffered by the non-breaching party, which amount would otherwise be impossible to calculate with
precision, (ii) the Break-up Fee constitutes liquidated damages hereunder and is not intended to be a penalty, and (iii) the Break-up
Fee shall be the sole and exclusive remedy available to the non-breaching party against the breaching party; provided, however,
that the limitations set forth in this Section 13.1(c) (iii) shall not apply to the liabilities arising from any criminal activities,
fraud or willful misconduct of the breaching party.
13.3 Survival.
The provisions of Article XI through Article XIV shall survive any termination hereof.
ARTICLE
XIV
MISCELLANEOUS
14.1 Notices.
Any notice hereunder shall be sent in writing, addressed as specified below, and shall be deemed given: (a) if by hand or recognized
courier service, by 4:00PM on a business day, addressee’s day and time, on the date of delivery, and otherwise on the first
business day after such delivery; (b) if by fax or email, on the date that transmission is confirmed electronically, if by 4:00
PM on a business day, addressee’s day and time, and otherwise on the first business day after the date of such confirmation;
or (c) five days after mailing by certified or registered mail, return receipt requested. Notices shall be addressed to the respective
parties as follows (excluding telephone numbers, which are for convenience only), or to such other address as a party shall specify
to the others in accordance with these notice provisions:
if to the Company (following
the Closing), to:
3rd Floor,
JIA No. 34, Shenggu Nanli
Chaoyang District
Beijing, P.R. China 100029
Attn: Xiaowu He
xiaowu.he@scienjoy.com
with a copy to (which shall not
constitute notice):
JunHe Law Offices LLC
45 Rockefeller Plaza, Suite 1919
New York, NY 10111
Attn: Lan Lou
loul@junhe.com
if to Lavacano:
#1101, Unit 1, Building 6
No. 2, Xibahe Dongli
Chaoyang District
Beijing, P.R. China
Attn: Xiaowu He
xiaowu.he@scienjoy.com
If to WBY:
#23E, Building D
Rongzunbao International Club
No.8, Kehui Road, Chaoyang District
Attn: Bo Wan
bo.wan@scienjoy.com
if to the Purchaser:
Wealthbridge
Acquisition Limited
Unit B
17/F Success
Commercial Building
245-251
Hennessy Road
Wanchai, Hong
Kong
Attn: Yongsheng
Liu
with a copy to (which shall not
constitute notice):
Loeb &
Loeb LLP
345 Park Avenue
New York, New
York 10154
Attention:
Giovanni Caruso, Esq.
Email: gcaruso@loeb.com
Fax: (212)
407-4866
14.2 Amendments;
No Waivers; Remedies.
(a) This
Agreement cannot be amended, except by a writing signed by each party, and cannot be terminated orally or by course of conduct.
No provision hereof can be waived, except by a writing signed by the party against whom such waiver is to be enforced, and any
such waiver shall apply only in the particular instance in which such waiver shall have been given.
(b) Neither
any failure or delay in exercising any right or remedy hereunder or in requiring satisfaction of any condition herein nor any course
of dealing shall constitute a waiver of or prevent any party from enforcing any right or remedy or from requiring satisfaction
of any condition. No notice to or demand on a party waives or otherwise affects any obligation of that party or impairs any right
of the party giving such notice or making such demand, including any right to take any action without notice or demand not otherwise
required by this Agreement. No exercise of any right or remedy with respect to a breach of this Agreement shall preclude exercise
of any other right or remedy, as appropriate to make the aggrieved party whole with respect to such breach, or subsequent exercise
of any right or remedy with respect to any other breach.
(c) Except
as otherwise expressly provided herein, no statement herein of any right or remedy shall impair any other right or remedy stated
herein or that otherwise may be available.
(d) Notwithstanding
anything else contained herein, neither shall any party seek, nor shall any party be liable for, punitive or exemplary damages,
under any tort, contract, equity, or other legal theory, with respect to any breach (or alleged breach) of this Agreement or any
provision hereof or any matter otherwise relating hereto or arising in connection herewith.
14.3 Arm’s
length bargaining; no presumption against drafter. This Agreement has been negotiated at arm’s-length by parties of equal
bargaining strength, each represented by counsel or having had but declined the opportunity to be represented by counsel and having
participated in the drafting of this Agreement. This Agreement creates no fiduciary or other special relationship between the parties,
and no such relationship otherwise exists. No presumption in favor of or against any party in the construction or interpretation
of this Agreement or any provision hereof shall be made based upon which Person might have drafted this Agreement or such provision.
14.4 Publicity.
Except as required by law and except with respect to the Purchaser SEC Documents, the parties agree that neither they nor their
agents shall issue any press release or make any other public disclosure concerning the transactions contemplated hereunder without
the prior approval of the other party hereto. If a party is required to make such a disclosure as required by law, the parties
will use their best efforts to cause a mutually agreeable release or public disclosure to be issued.
14.5 Expenses.
Each party shall bear its own costs and expenses in connection with this Agreement and the transactions contemplated hereby, unless
otherwise specified herein.
14.6 No
Assignment or Delegation. No party may assign any right or delegate any obligation hereunder, including by merger, consolidation,
operation of law, or otherwise, without the written consent of the other party. Any purported assignment or delegation without
such consent shall be void, in addition to constituting a material breach of this Agreement.
14.7 Governing
Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York, without giving
effect to the conflict of laws principles thereof.
14.8 Counterparts;
facsimile signatures. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of
which shall constitute one agreement. This Agreement shall become effective upon delivery to each party of an executed counterpart
or the earlier delivery to each party of original, photocopied, or electronically transmitted signature pages that together (but
need not individually) bear the signatures of all other parties.
14.9 Entire
Agreement. This Agreement together with the Additional Agreements, sets forth the entire agreement of the parties with respect
to the subject matter hereof and thereof and supersedes all prior and contemporaneous understandings and agreements related thereto
(whether written or oral), all of which are merged herein. No provision of this Agreement or any Additional Agreement may be explained
or qualified by any agreement, negotiations, understanding, discussion, conduct or course of conduct or by any trade usage. Except
as otherwise expressly stated herein or any Additional Agreement, there is no condition precedent to the effectiveness of any provision
hereof or thereof. No party has relied on any representation from, or warranty or agreement of, any person in entering into this
Agreement, prior hereto or contemporaneous herewith or any Additional Agreement, except those expressly stated herein or therein.
14.10 Severability.
A determination by a court or other legal authority that any provision that is not of the essence of this Agreement is legally
invalid shall not affect the validity or enforceability of any other provision hereof. The parties shall cooperate in good faith
to substitute (or cause such court or other legal authority to substitute) for any provision so held to be invalid a valid provision,
as alike in substance to such invalid provision as is lawful.
14.11 Construction
of certain terms and references; captions. In this Agreement:
(a) References
to particular sections and subsections, schedules, and exhibits not otherwise specified are cross-references to sections and subsections,
schedules, and exhibits of this Agreement.
(b) The
words “herein,” “hereof,” “hereunder,” and words of similar import refer to this Agreement
as a whole and not to any particular provision of this Agreement, and, unless the context requires otherwise, “party”
means a party signatory hereto.
(c) Any
use of the singular or plural, or the masculine, feminine, or neuter gender, includes the others, unless the context otherwise
requires; “including” means “including without limitation;” “or” means “and/or;”
“any” means “any one, more than one, or all;” and, unless otherwise specified, any financial or accounting
term has the meaning of the term under United States generally accepted accounting principles as consistently applied heretofore
by the Company.
(d) Unless
otherwise specified, any reference to any agreement (including this Agreement), instrument, or other document includes all schedules,
exhibits, or other attachments referred to therein, and any reference to a statute or other law includes any rule, regulation,
ordinance, or the like promulgated thereunder, in each case, as amended, restated, supplemented, or otherwise modified from time
to time. Any reference to a numbered schedule means the same-numbered section of the Company Disclosure Schedule.
(e) If
any action is required to be taken or notice is required to be given within a specified number of days following a specific date
or event, the day of such date or event is not counted in determining the last day for such action or notice. If any action is
required to be taken or notice is required to be given on or before a particular day which is not a Business Day, such action or
notice shall be considered timely if it is taken or given on or before the next Business Day.
(f) Captions
are not a part of this Agreement, but are included for convenience, only.
(g) For
the avoidance of any doubt, all references in this Agreement to “the knowledge or best knowledge of the Company” or
similar terms shall mean the actual knowledge of the Key Personnel and what such Key Personnel should have known given his or her
position within the Company following reasonable inquiry or investigation.
14.12 Further
Assurances. Each party shall execute and deliver such documents and take such action, as may reasonably be considered within
the scope of such party’s obligations hereunder, necessary to effectuate the transactions contemplated by this Agreement.
14.13 Third
Party Beneficiaries. Neither this Agreement nor any provision hereof confers any benefit or right upon or may be enforced by
any Person not a signatory hereto.
14.14 Waiver.
Reference is made to the final IPO prospectus of the Purchaser, dated February 5, 2019 (the “Prospectus”). The
Company and the Seller have read the Prospectus and understand that the Purchaser has established the Trust Account for the benefit
of the public stockholders of the Purchaser and the underwriters of the IPO pursuant to the Trust Agreement and that, except for
a portion of the interest earned on the amounts held in the Trust Account, the Purchaser may disburse monies from the Trust Account
only for the purposes set forth in the Trust Agreement. For and in consideration of the Purchaser agreeing to enter into this Agreement,
the Company and the Sellers each hereby agree that he, she or it does not have any right, title, interest or claim of any kind
in or to any monies in the Trust Account and hereby agrees that he, she or it will not seek recourse against the Trust Account
for any claim it may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with the Purchaser;
provided that (x) nothing herein shall serve to limit or prohibit the Company’s right to pursue a claim against Purchaser
for legal relief against monies or other assets held outside the Trust Account, for specific performance or other equitable relief
in connection with the consummation of the transactions contemplated hereby (including a claim for Purchaser to specifically perform
its obligations under this Agreement) so long as such claim would not affect Purchaser’s ability to fulfill its obligation
to effectuate the Purchaser Securities Redemption, and (y) nothing herein shall serve to limit or prohibit any claims that the
Company may have in the future against Purchaser’s assets or funds that are not held in the Trust Account (including any
funds that have been released from the Trust Account upon completion of a Business Combination and any assets that have been purchased
or acquired with any such funds).
[The remainder of this page intentionally
left blank; signature pages to follow]
IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
|
Purchaser:
|
|
|
|
WEALTHBRIDGE ACQUISITION LIMITED
|
|
|
|
|
By:
|
/s/ Yongsheng Liu
|
|
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Name: Yongsheng Liu
|
|
|
Title: Chief Executive Officer
|
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
|
Company:
|
|
|
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SCIENJOY INC.
|
|
|
|
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By:
|
/s/ Xiaowu He
|
|
|
Name: Xiaowu He
|
|
|
Title: Director
|
IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to be duly executed as of the day and year first above written.
|
Lavacano Holdings Limited
|
|
|
|
|
By:
|
/s/ Xiaowu He
|
|
|
Name: Xiaowu He
|
|
|
Title: Director
|
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
|
WBY Entertainment Holdings Ltd.
|
|
|
|
|
By:
|
/s/ Bo
Wan
|
|
|
Name: Bo Wan
|
|
|
Title: Director
|
Schedule A
Closing Payment Shares
Sellers
|
|
Number of Purchaser Common Stock To Be Received At Closing
|
|
|
Number of Purchaser Common Stock To Be Deposited In Escrow (Escrow Shares)
|
|
Lavacano
|
|
|
11,808,000
|
|
|
|
1,312,000
|
|
WBY
|
|
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2,952,000
|
|
|
|
328,000
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ANNEX
B
FORM
OF THIRD AMENDED AND RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION OF WEALTHBRIDGE
BVI COMPANY NUMBER: 1977965
TERRITORY OF THE BRITISH
VIRGIN ISLANDS THE BVI BUSINESS COMPANIES ACT, 2004
MEMORANDUM AND ARTICLES
OF ASSOCIATION
OF
Scienjoy Holding Corporation
A COMPANY LIMITED BY SHARES
Incorporated on the 2nd day
of May 2018
Amended on 17 July 2018 and
filed on 26 July 2018
Amended and Restated on 5
February 2019
Amended and Restated on [
], 2020
INCORPORATED IN THE BRITISH
VIRGIN ISLANDS
TERRITORY OF THE BRITISH
VIRGIN ISLANDS THE BVI BUSINESS COMPANIES ACT, 2004
MEMORANDUM OF ASSOCIATION
OF
Scienjoy Holding
Corporation
A COMPANY LIMITED BY
SHARES
1.
|
DEFINITIONS AND INTERPRETATION
|
1.1.
|
In this Memorandum of Association and the Articles of Association of the Company, if not inconsistent
with the subject or context:
|
“Act”
means the BVI Business Companies Act, 2004 (No. 16 of 2004) and includes the regulations made under the Act;
“Articles”
means the Articles of Association of the Company, as amended or substituted from time to time;
“Audit Committee”
means the audit committee of the Company formed pursuant to Regulation 19, or any successor audit committee;
“Auditor”
means the person for the time being performing the duties of auditor of the Company (if any);
“Business
Combination” means a merger, share exchange, asset acquisition, share purchase, reorganisation or similar business combination,
with one or more businesses or entities (the “target business”), which Business Combination must occur with one or
more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the Company’s
trust account (excluding the deferred underwriting commissions and taxes payable on the income earned on the trust account) at
the time of the agreement to enter into the Business Combination unless the Company is not then listed on the Designated Stock
Exchange at the time of such Business Combination in which case the Company will not be required to comply with the 80% fair market
value requirement;
“Chairman of the Board”
has the meaning specified in Regulation 12;
“Designated
Stock Exchange” means any national securities exchange in the United States of America on which Public Shares of the
Company may be listed for trading, including the NASDAQ Stock Market LLC, the NYSE MKT LLC or The New York Stock Exchange LLC;
“Directors”
means the directors for the time being of the Company;
“Distribution”
in relation to a distribution by the Company to a Shareholder means the direct or indirect transfer of an asset, other than Shares,
to or for the benefit of the Shareholder, or the incurring of a debt to or for the benefit of a Shareholder, in relation to Shares
held by a Shareholder, and whether by means of the purchase of an asset, the purchase, redemption or other acquisition of Shares,
a transfer of indebtedness or otherwise, and includes a dividend;
“FINRA”
means the Financial Industry Regulatory Authority of the United States of America;
“IPO”
means the Company’s initial public offering of securities;
“Memorandum”
means this Memorandum of Association of the Company and all supplementary amended or substituted memorandum of the Company for
the time being in force;
“Person”
includes individuals, corporations, trusts, the estates of deceased individuals, partnerships and unincorporated associations of
persons;
“Registrar” means the Registrar
of Corporate Affairs appointed under section 229 of the Act;
“Registration
Statement” means the Company’s registration statement on Form S-1 filed with the SEC in connection with the IPO
“Resolution of Directors”
means either:
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(a)
|
a resolution approved at a duly convened and constituted meeting of directors
of the Company by the affirmative vote of a majority of the directors present at the meeting who voted except that where a director
is given more than one vote, he shall be counted by the number of votes he casts for the purpose of establishing a majority; or
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|
(b)
|
a resolution consented to in writing or by telex, telegram, cable or other
written electronic communication by a majority of the directors of the Company. A written resolution consented to in such manner
may consist of several documents including written electronic communication, in like form each signed or assented to by one or
more directors.
|
“Resolution of Shareholders”
means either:
|
(a)
|
a resolution approved at a duly convened and constituted meeting of the
Shareholders of the Company by the affirmative vote of a majority of in excess of 50 percent of the votes of the Shares entitled
to vote thereon which were present at the meeting and were voted; or
|
|
(b)
|
a resolution consented to in writing by a majority of in excess of 50 percent of the votes of
Shares entitled to vote thereon;
|
“Seal” means
any seal which has been duly adopted as the common seal of the Company;
“SEC” means
the United States Securities and Exchange Commission;
“Securities”
means Shares and debt obligations of every kind of the Company, and including without limitation options, warrants and rights to
acquire Shares or debt obligations;
“Share or Ordinary Share”
means a share issued or to be issued by the Company;
“Shareholder”
means a Person whose name is entered in the register of members as the holder of one or more Shares or fractional Shares;
“Treasury Share”
means a Share that was previously issued but was repurchased, redeemed or otherwise acquired by the Company and not cancelled;
“Written”
or any term of like import includes information generated, sent, received or stored by electronic, electrical, digital, magnetic,
optical, electromagnetic, biometric or photonic means, including electronic data interchange, electronic mail, telegram, telex
or telecopy, and “in writing” shall be construed accordingly.
1.2.
|
In the Memorandum and the Articles, unless the context otherwise requires a reference to:
|
|
(a)
|
a “Regulation” is a reference to a regulation of the Articles;
|
|
(b)
|
a “Clause” is a reference to a clause of the Memorandum;
|
|
(c)
|
voting by Shareholders is a reference to the casting of the votes attached to the Shares held
by the Shareholder voting;
|
|
(d)
|
the Act, the Memorandum or the Articles is a reference to the Act or those
documents as amended or, in the case of the Act, any re-enactment thereof and any subsidiary legislation made thereunder; and
|
|
(e)
|
the singular includes the plural and vice versa.
|
1.3.
|
Any words or expressions defined in the Act unless the context otherwise requires bear the same
meaning in the Memorandum and the Articles unless otherwise defined herein.
|
1.4.
|
Headings are inserted for convenience only and shall be disregarded in interpreting the Memorandum
and the Articles.
|
The name of the Company is Scienjoy
Holding Corporation.
The Company is a company limited
by Shares.
4.
|
REGISTERED OFFICE AND REGISTERED AGENT
|
4.1.
|
The first registered office of the Company is at Vistra Corporate Services Centre, Wickhams Cay
II, Road Town, Tortola, VG1110, British Virgin Islands, the office of the first registered agent. The current registered office
of the Company is situated at, Clarence Thomas Building, Road Town, Tortola, VG1110, British Virgin Islands.
|
4.2.
|
The first registered agent of the Company was Vistra (BVI) Limited of Vistra Corporate Services
Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. The current registered agent is FH Corporate Services
Ltd. of P.O. Box 4649, Road Town, Tortola, VG1110, British Virgin Islands.
|
4.3.
|
The Company may by Resolution of Shareholders or by Resolution of Directors change the location
of its registered office or change its registered agent.
|
4.4.
|
Any change of registered office or registered agent will take effect on the
registration by the Registrar of a notice of the change filed by the existing registered agent or a legal practitioner in the British
Virgin Islands acting on behalf of the Company.
|
4.5.
|
The registered agent shall:
|
|
(a)
|
act on the instructions of the directors of the Company if those instructions
are contained in a Resolution of Directors and a copy of the Resolution of Directors is made available to the registered agent;
and
|
|
(b)
|
recognize and accept the appointment or removal of a director
or directors by Shareholders.
|
5.1.
|
Subject to the Act and any other British Virgin Islands legislation, the Company has, irrespective
of corporate benefit:
|
|
(a)
|
full capacity to carry on or undertake any business or activity, do any act or enter into any
transaction; and
|
|
(b)
|
for the purposes of paragraph (a), full rights, powers and privileges.
|
5.2.
|
For the purposes of section 9(4) of the Act, there are no limitations on the business that the
Company may carry on.
|
6.
|
NUMBER AND CLASSES OF SHARES
|
6.1.
|
Shares in the company shall be issued in the currency of the United States of America.
|
6.2.
|
The Company is authorized to issue an unlimited number of shares of a single class each with no
par value.
|
6.3.
|
The Company may issue fractional Shares and a fractional Share shall have the corresponding fractional
rights, obligations and liabilities of a whole Share of the same class or series of Shares.
|
6.4.
|
Shares may be issued in one or more series of Shares as the directors may by Resolution of Directors
determine from time to time.
|
7.1.
|
Each Share confers upon the Shareholder:
|
|
(a)
|
the right to one vote at a meeting of the Shareholders or on any Resolution of Shareholders;
|
|
(b)
|
the right to an equal share in any dividend paid by the Company; and
|
|
(c)
|
the right to an equal share in the distribution of the surplus assets of the Company on its liquidation.
|
7.2.
|
The Company may by Resolution of Directors redeem, purchase or otherwise
acquire all or any of the Shares subject to Regulation 3 of the Articles.
|
If
at any time the Shares are divided into different classes, the rights attached to any class may only be varied, whether or not
the Company is in liquidation, with the consent in writing of or by a resolution passed at a meeting by the holders of not less
than 50 percent of the issued Shares in that class.
9.
|
RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU
|
The
rights conferred upon the holders of the Shares of any class shall not, unless otherwise expressly provided by the terms of issue
of the Shares of that class, be deemed to be varied by the creation or issue of further Shares ranking pari passu therewith.
10.1.
|
The Company shall issue Registered Shares only.
|
10.2.
|
The Company is not authorized to issue Bearer Shares, convert Registered
Shares to Bearer Shares or exchange Registered Shares for Bearer Shares.
|
11.1.
|
The Company shall, on receipt of an instrument of transfer complying with
Sub-Regulation 6.1 of the Articles, enter the name of the transferee of a Share in the register of members unless the directors
resolve to refuse or delay the registration of the transfer for reasons that shall be specified in a Resolution of Directors.
|
11.2.
|
The directors may not resolve to refuse or delay the transfer of a Share
unless the Shareholder has failed to pay an amount due in respect of the Share.
|
12.
|
AMENDMENT OF THE MEMORANDUM AND THE ARTICLES
|
12.1.
|
Subject to Clause 8 and Clause 12.2 below, the Company may amend the Memorandum
or the Articles by Resolution of Shareholders or by Resolution of Directors, save that no amendment may be made by Resolution of
Directors:
|
|
(a)
|
to restrict the rights or powers of the Shareholders to amend the Memorandum
or the Articles;
|
|
(b)
|
to change the percentage of Shareholders required to pass a Resolution of Shareholders to amend
the Memorandum or the Articles;
|
|
(c)
|
in circumstances where the Memorandum or the Articles cannot be amended by the Shareholders;
or
|
|
(d)
|
to Clauses 7, 8, 9 or 12 of the Memorandum and Regulation 23 of the Articles.
|
12.2.
|
The provisions of Regulation 23 of the Articles, whether or not the Company
is being wound up, may only be amended with the consent in writing of or by a resolution passed at a meeting by the attending and
voting holders of at least fifty percent (50%) of the issued and outstanding Ordinary Shares, provided that to the extent that
the Memorandum and Articles are in any respect inconsistent with or conflict with the terms of the Registration Statement, the
Memorandum and Articles may be amended by Resolution of Directors or Resolution of Shareholders in any manner necessary to remove
or correct any such conflict or inconsistency.
|
12.3.
|
Any amendment of the Memorandum or the Articles will take effect on the registration
by the Registrar of a notice of amendment, or restated Memorandum and Articles, filed by the registered agent.
|
We, Vistra
(BVI) Limited of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands for the
purpose of incorporating a BVI Business Company under the laws of the British Virgin Islands hereby sign this Memorandum of Association
the 2nd day of May, 2018.
Incorporator
Sd. Rexella D. Hodge
(Sd.) Rexella D. Hodge
Authorized Signatory Vistra
(BVI) Limited
TERRITORY OF THE BRITISH
VIRGIN ISLANDS THE BVI BUSINESS COMPANIES ACT, 2004
ARTICLES OF ASSOCIATION
OF
Scienjoy Holding Corporation
A COMPANY LIMITED BY
SHARES
1.1.
|
Every Shareholder is entitled, on request to a certificate signed by a director
or officer of the Company, or any other person authorized by Resolution of Directors, or under the Seal specifying the number of
Shares held by him and the signature of the director, officer or authorized person and the Seal may be facsimiles.
|
1.2.
|
Any Shareholder receiving a certificate shall indemnify and hold the Company
and its directors and officers harmless from any loss or liability which it or they may incur by reason of any wrongful or fraudulent
use or representation made by any person by virtue of the possession thereof. If a certificate for Shares is worn out or lost it
may be renewed on production of the worn out certificate or on satisfactory proof of its loss together with such indemnity as may
be required by Resolution of Directors.
|
1.3.
|
If several Persons are registered as joint holders of any Shares, any one
of such Persons may give an effectual receipt for any Distribution.
|
2.1.
|
Subject to the provisions, if any, in the Memorandum (and to any direction
that may be given by the Company in general meeting) and, where applicable, the rules of the Designated Stock Exchange and/or any
competent regulatory authority, and without prejudice to any rights attached to any existing Shares, Shares and other Securities
may be issued at such times, to such Persons, for such consideration and on such terms as the directors may by Resolution of Directors
determine.
|
2.2.
|
Section 46 of the Act (Pre-emptive rights) does not apply to the Company.
|
2.3.
|
A Share may be issued for consideration in any form or a combination of forms,
including money, a promissory note, or other written obligation to contribute money or property, real property, personal property
(including goodwill and know-how), services rendered or a contract for future services.
|
2.4.
|
The consideration for a Share with par value shall not be less than the
par value of the Share. If a Share with par value is issued for consideration less than the par value, the person to whom the Share
is issued is liable to pay to the Company an amount equal to the difference between the issue price and the par value.
|
2.5.
|
A bonus share issued by the Company shall be deemed to have been fully paid for on issue.
|
2.6.
|
No Shares may be issued for a consideration, which is in whole or in part,
other than money, unless a Resolution of Directors has been passed stating:
|
|
(a)
|
the amount to be credited for the issue of the Shares; and
|
|
(b)
|
that, in the opinion of the directors, the present cash value of the non-money consideration and
money consideration, if any, is not less than the amount to be credited for the issue of the Shares.
|
2.7.
|
The consideration paid for any Share, whether a par value Share or a no
par value Share, shall not be treated as a liability or debt of the Company for the purposes of:
|
|
(a)
|
the solvency test in Regulations 3 and 18; and
|
|
(b)
|
sections 197 and 209 of the Act.
|
2.8.
|
The Company shall keep a register (the “register of members”) containing:
|
|
(a)
|
the names and addresses of the Persons who hold Shares;
|
|
(b)
|
the number of each class and series of Shares held by each Shareholder;
|
|
(c)
|
the date on which the name of each Shareholder was entered in the register of members; and
|
|
(d)
|
the date on which any Person ceased to be a Shareholder.
|
2.9.
|
The register of members may be in any such form as the directors may approve,
but if it is in magnetic, electronic or other data storage form, the Company must be able to produce legible evidence of its contents.
Until the directors otherwise determine, the magnetic, electronic or other data storage form shall be the original register of
members.
|
2.10.
|
A Share is deemed to be issued when the name of the Shareholder is entered in the register of members.
|
2.11.
|
For the purpose of determining Shareholders entitled to notice of, or to vote at any meeting of
Shareholders or any adjournment thereof, or Shareholders entitled to receive payment of any dividend or other distribution, or
in order to make a determination of Shareholders for any other purpose, the Directors may, after any applicable notice has been
given by advertisement in an appointed newspaper or any other newspaper or by any other means in accordance with the requirements
of the Designated Stock Exchange, provide that the register of members shall be closed for transfers for a stated period which
shall not in any case exceed forty days.
|
2.12.
|
In lieu of, or apart from, closing the register of members, the Directors may fix in advance or
arrears a date as the record date for any such determination of Shareholders entitled to notice of, or to vote at any meeting of
the Shareholders or any adjournment thereof, or for the purpose of determining the members entitled to receive payment of any dividend
or other distribution, or in order to make a determination of members for any other purpose.
|
2.13.
|
If the register of members is not so closed and no record date is fixed for the determination of
Shareholders entitled to notice of, or to vote at, a meeting of shareholders or shareholders entitled to receive payment of a dividend
or other distribution, the date on which notice of the meeting is sent or the date on which the resolution of the directors resolving
to pay such dividend or other distribution is passed, as the case may be, shall be the record date for such determination of members.
When a determination of members entitled to vote at any meeting of shareholders has been made as provided in this Regulation, such
determination shall apply to any adjournment thereof.
|
3.
|
REDEMPTION OF SHARES AND
TREASURY SHARES
|
3.1.
|
Subject to the provisions of the Act, and where applicable, the rules of
the Designated Stock Exchange and Regulation 24 of these Articles, the Company may purchase, redeem or otherwise acquire and hold
its own Shares in such manner and upon such other terms as the directors may agree with the relevant Shareholder(s) save that the
Company may not purchase, redeem or otherwise acquire its own Shares without the consent of Shareholders whose Shares are to be
purchased, redeemed or otherwise acquired unless the Company is permitted by the Act or any other provision in the Memorandum or
Articles to purchase, redeem or otherwise acquire the Shares without their consent.
|
3.2.
|
The Company may acquire its own fully paid Share or Shares for no consideration
by way of surrender of the Share or Shares to the Company by the Shareholder holding the Share or Shares. Any surrender of a Share
or Shares under this Sub-Regulation 3.2 shall be in writing and signed by the Shareholder holding the Share or Shares.
|
3.3.
|
The Company may only offer to purchase, redeem or otherwise acquire Shares
if the Resolution of Directors authorizing the purchase, redemption or other acquisition contains a statement that the directors
are satisfied, on reasonable grounds, that immediately after the acquisition the value of the Company’s assets will exceed
its liabilities and the Company will be able to pay its debts as they fall due.
|
3.4.
|
Sections 60 (Process for acquisition of own Shares), 61 (Offer
to one or more shareholders) and 62 (Shares redeemed otherwise than at the option of company) of the Act shall not apply
to the Company.
|
3.5.
|
Shares that the Company purchases, redeems or otherwise acquires pursuant
to this Regulation may be cancelled or held as Treasury Shares except to the extent that such Shares are in excess of 50 percent
of the issued Shares in which case they shall be cancelled but they shall be available for reissue.
|
3.6.
|
All rights and obligations attaching to a Treasury Share are suspended and
shall not be exercised by the Company while it holds the Share as a Treasury Share.
|
3.7.
|
Treasury Shares may be transferred by the Company on such terms and conditions
(not otherwise inconsistent with the Memorandum and the Articles) as the Company may by Resolution of Directors determine.
|
3.8.
|
Where Shares are held by another body corporate of which the Company holds,
directly or indirectly, Shares having more than 50 percent of the votes in the election of directors of the other body corporate,
all rights and obligations attaching to the Shares held by the other body corporate are suspended and shall not be exercised by
the other body corporate.
|
4.
|
MORTGAGES AND CHARGES OF SHARES
|
4.1.
|
Shareholders may mortgage or charge their Shares.
|
4.2.
|
There shall be entered in the register of members at the written request of the Shareholder:
|
|
(a)
|
a statement that the Shares held by him are mortgaged or charged;
|
|
(b)
|
the name of the mortgagee or chargee; and
|
|
(c)
|
the date on which the particulars specified in subparagraphs (a) and (b) are entered in the register
of members.
|
4.3.
|
Where particulars of a mortgage or charge are entered in the register of
members, such particulars may be cancelled:
|
|
(a)
|
with the written consent of the named mortgagee or chargee or anyone authorized to act on his
behalf; or
|
|
(b)
|
upon evidence satisfactory to the directors of the discharge of the liability
secured by the mortgage or charge and the issue of such indemnities as the directors shall consider necessary or desirable.
|
4.4.
|
Whilst particulars of a mortgage or charge over Shares are entered in the
register of members pursuant to this Regulation:
|
|
(a)
|
no
transfer of any Share the subject of those particulars shall be effected;
|
|
(b)
|
the Company may not purchase, redeem or otherwise acquire any such Share; and
|
|
(c)
|
no
replacement certificate shall be issued in respect of such Shares,
|
without the written consent of the named mortgagee or chargee.
5.1.
|
Shares that are not fully paid on issue are subject to the forfeiture provisions
set forth in this Regulation.
|
5.2.
|
A written notice of call specifying the date for payment to be made shall
be served on the Shareholder who defaults in making payment in respect of the Shares.
|
5.3.
|
The written notice of call referred to in Sub-Regulation 5.2 shall name a further
date not earlier than the expiration of 14 days from the date of service of the notice on or before which the payment required
by the notice is to be made and shall contain a statement that in the event of non-payment at or before the time named in the notice
the Shares, or any of them, in respect of which payment is not made will be liable to be forfeited.
|
5.4.
|
Where a written notice of call has been issued pursuant to Sub-Regulation
5.3 and the requirements of the notice have not been complied with, the directors may, at any time before tender of payment, forfeit
and cancel the Shares to which the notice relates.
|
5.5.
|
The Company is under no obligation to refund any moneys to a Shareholder
whose Shares have been cancelled pursuant to Sub-Regulation 5.4 and that Shareholder shall be discharged from any further obligation
to the Company.
|
6.1.
|
Subject to the Memorandum and these Articles, any Member may transfer all or
any of his Shares by an instrument of transfer provided that such transfer complies with applicable rules of the SEC and federal
and state securities laws of the United States. If the Shares in question were issued in conjunction with rights, options or warrants
on terms that one cannot be transferred without the other, the Directors shall refuse to register the transfer of any such Share
without evidence satisfactory to them of the like transfer of such option or warrant.
|
6.2.
|
The instrument of transfer of any Share shall be in writing in the usual or
common form or in a form prescribed by the Designated Stock Exchange or in any other form approved by the Directors and shall be
executed by or on behalf of the transferor (and if the Directors so require, signed by or on behalf of the transferee) and may
be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature
or by such other manner of execution as the Directors may approve from time to time. The transferor shall be deemed to remain the
holder of a Share until the name of the transferee is entered in the register of members.
|
6.3.
|
The transfer of a Share is effective when the name of the transferee is
entered on the register of members.
|
6.4.
|
If the directors of the Company are satisfied that an instrument of transfer
relating to Shares has been signed but that the instrument has been lost or destroyed, they may resolve by Resolution of Directors:
|
|
(a)
|
to accept such evidence of the transfer of Shares as they consider appropriate; and
|
|
(b)
|
that the transferee’s name should be entered in the register of members notwithstanding
the absence of the instrument of transfer.
|
6.5.
|
Subject to the Memorandum, the personal representative of a deceased Shareholder
may transfer a Share even though the personal representative is not a Shareholder at the time of the transfer.
|
7.
|
MEETINGS AND CONSENTS OF SHAREHOLDERS
|
7.1.
|
Any director of the Company may convene meetings of the Shareholders at such
times and in such manner and places within or outside the British Virgin Islands as the director considers necessary or desirable.
|
7.2.
|
Upon the written request of Shareholders entitled to exercise 30 percent
or more of the voting rights in respect of the matter for which the meeting is requested the directors shall convene a meeting
of Shareholders.
|
7.3.
|
The director convening a meeting shall give not less than 7 days’
notice of a meeting of Shareholders to:
|
|
(a)
|
those Shareholders whose names on the date the notice is given appear as Shareholders in the
register of members and are entitled to vote at the meeting; and
|
7.4.
|
The director convening a meeting of Shareholders may fix as the record date
for determining those Shareholders that are entitled to vote at the meeting the date notice is given of the meeting, or such other
date as may be specified in the notice, being a date not earlier than the date of the notice.
|
7.5.
|
A meeting of Shareholders held in contravention of the requirement to give
notice is valid if Shareholders holding at least 90 percent of the total voting rights on all the matters to be considered at the
meeting have waived notice of the meeting and, for this purpose, the presence of a Shareholder at the meeting shall constitute
waiver in relation to all the Shares which that Shareholder holds.
|
7.6.
|
The inadvertent failure of a director who convenes a meeting to give notice
of a meeting to a Shareholder or another director, or the fact that a Shareholder or another director has not received notice,
does not invalidate the meeting.
|
7.7.
|
A Shareholder may be represented at a meeting of Shareholders by a proxy
who may speak and vote on behalf of the Shareholder.
|
7.8.
|
The instrument appointing a proxy shall be produced at the place designated
for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. The notice
of the meeting may specify an alternative or additional place or time at which the proxy shall be presented.
|
7.9.
|
The instrument appointing a proxy shall be in substantially the following
form or such other form as the chairman of the meeting shall accept as properly evidencing the wishes of the Shareholder appointing
the proxy.
|
[COMPANY NAME]
(the “Company”)
I/We,
……………………………, being a Shareholder of the Company HEREBY
APPOINT ………………………………… of ……………………………
or failing him ………..……………… of ………………………..……
to be my/our proxy to vote for me/us at the meeting of Shareholders to be held on the …… day of …………..…………,
20…… and at any adjournment thereof.
(Any restrictions on voting
to be inserted here.) Signed this …… day of …………..…………, 20……
……………………………
Shareholder
7.10.
|
The following applies where Shares are jointly owned:
|
|
(a)
|
if two or more persons hold Shares jointly each of them may be present in person or by proxy at
a meeting of Shareholders and may speak as a Shareholder;
|
|
(b)
|
if only one of the joint owners is present in person or by proxy he may vote on behalf of all
joint owners; and
|
|
(c)
|
if two or more of the joint owners are present in person or by proxy they must vote as one.
|
7.11.
|
A Shareholder shall be deemed to be present at a meeting of Shareholders
if he participates by telephone or other electronic means and all Shareholders participating in the meeting are able to hear each
other.
|
7.12.
|
A meeting of Shareholders is duly constituted if, at the commencement of
the meeting, there are present in person or by proxy not less than 50 percent of the votes of the Shares entitled to vote on Resolutions
of Shareholders to be considered at the meeting. A quorum may comprise a single Shareholder or proxy and then such person may pass
a Resolution of Shareholders and a certificate signed by such person accompanied where such person be a proxy by a copy of the
proxy instrument shall constitute a valid Resolution of Shareholders.
|
7.13.
|
If within two hours from the time appointed for the meeting a quorum is
not present, the meeting, if convened upon the requisition of Shareholders, shall be dissolved; in any other case it shall stand
adjourned to the next business day in the jurisdiction in which the meeting was to have been held at the same time and place or
to such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour
from the time appointed for the meeting in person or by proxy not less than one third of the votes of the Shares or each class
or series of Shares entitled to vote on the matters to be considered by the meeting, those present shall constitute a quorum but
otherwise the meeting shall be dissolved.
|
7.14.
|
At every meeting of Shareholders, the Chairman of the Board shall preside as chairman
of the meeting. If there
is no Chairman of the Board or if the Chairman of the Board is not present at the meeting, the Shareholders present shall choose
one of their number to be the chairman. If the Shareholders are unable to choose a chairman for any reason, then the person representing
the greatest number of voting Shares present in person or by proxy at the meeting shall preside as chairman failing which the oldest
individual Shareholder or representative of a Shareholder present shall take the chair.
|
7.15.
|
The chairman may, with the consent of the meeting, adjourn any meeting from
time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than the business left
unfinished at the meeting from which the adjournment took place.
|
7.16.
|
At any meeting of the Shareholders the chairman is responsible for deciding
in such manner as he considers appropriate whether any resolution proposed has been carried or not and the result of his decision
shall be announced to the meeting and recorded in the minutes of the meeting. If the chairman has any doubt as to the outcome of
the vote on a proposed resolution, he shall cause a poll to be taken of all votes cast upon such resolution. If the chairman fails
to take a poll then any Shareholder present in person or by proxy who disputes the announcement by the chairman of the result of
any vote may immediately following such announcement demand that a poll be taken and the chairman shall cause a poll to be taken.
If a poll is taken at any meeting, the result shall be announced to the meeting and recorded in the minutes of the meeting.
|
7.17.
|
Subject to the specific provisions contained in this Regulation for the appointment
of representatives of Persons other than individuals the right of any individual to speak for or represent a Shareholder shall
be determined by the law of the jurisdiction where, and by the documents by which, the Person is constituted or derives its existence.
In case of doubt, the directors may in good faith seek legal advice from any qualified person and unless and until a court of competent
jurisdiction shall otherwise rule, the directors may rely and act upon such advice without incurring any liability to any Shareholder
or the Company.
|
7.18.
|
Any Person other than an individual which is a Shareholder may by resolution
of its directors or other governing body authorize such individual as it thinks fit to act as its representative at any meeting
of Shareholders or of any class of Shareholders, and the individual so authorized shall be entitled to exercise the same rights
on behalf of the Shareholder which he represents as that Shareholder could exercise if it were an individual.
|
7.19.
|
The chairman of any meeting at which a vote is cast by proxy or on behalf
of any Person other than an individual may call for a notarially certified copy of such proxy or authority which shall be produced
within 7 days of being so requested or the votes cast by such proxy or on behalf of such Person shall be disregarded.
|
7.20.
|
Directors of the Company may attend and speak at any meeting of Shareholders
and at any separate meeting of the holders of any class or series of Shares.
|
7.21.
|
An action that may be taken by the Shareholders at a meeting may also be
taken by a resolution consented to in writing, without the need for any notice, but if any Resolution of Shareholders is adopted
otherwise than by the unanimous written consent of all Shareholders, a copy of such resolution shall forthwith be sent to all Shareholders
not consenting to such resolution. The consent may be in the form of counterparts, each counterpart being signed by one or more
Shareholders. If the consent is in one or more counterparts, and the counterparts bear different dates, then the resolution shall
take effect on the earliest date upon which Shareholders holding a sufficient number of votes of Shares to constitute a Resolution
of Shareholders have consented to the resolution by signed counterparts.
|
8.1.
|
The first directors of the Company shall be appointed by the first registered
agent within 6 months of the date of incorporation of the Company; and thereafter, the directors shall be elected by Resolution
of Shareholders or, where permitted by these Articles, by Resolution of Directors.
|
8.2.
|
No person shall be appointed as a director, alternate director, or nominated
as a reserve director, of the Company unless he has consented in writing to be a director, alternate director or to be nominated
as a reserve director respectively.
|
8.3.
|
Subject to Sub-Regulation 8.1, the minimum number of directors shall be two
and there shall be no maximum number.
|
8.4.
|
Prior to the Company’s IPO, each director holds office for the term,
if any, fixed by the Resolution of Shareholders or the Resolution of Directors appointing him, or until his earlier death, resignation
or removal. If no term is fixed on the appointment of a director, the director serves indefinitely until his earlier death, resignation
or removal. Following the Company’s IPO, the appointed directors shall be subject to rotational retirement every two years
and the Directors shall be divided into two classes: Class I and Class II. The number of Directors in each class shall be as nearly
equal as possible. Upon the adoption of these Articles, the existing Directors shall by resolution classify themselves as Class
I or Class II Directors. The Class I Directors shall stand elected for a term expiring at the Company’s first annual general
meeting, the Class II Directors shall stand elected for a term expiring at the Company’s second annual general meeting. Commencing
at the Company's first annual general meeting, and at each annual general meeting thereafter, Directors elected to succeed those
Directors whose terms expire shall be elected for a term of office to expire at the second succeeding annual general meeting after
their election. All Directors shall hold office until the expiration of their respective terms of office and until their successors
shall have been elected and qualified.
|
8.5.
|
A director may be removed from office,
|
|
(a)
|
with or without cause, by Resolution of Shareholders passed at a meeting
of Shareholders called for the purposes of removing the director or for purposes including the removal of the director or by a
written resolution passed by at least 75 percent of the votes of the Shareholders of the Company entitled to vote; or
|
|
(b)
|
with cause, by Resolution of Directors passed at a meeting of directors called for the purpose
of removing the director or for purposes including the removal of the director.
|
8.6.
|
A director may resign his office by giving written notice of his resignation
to the Company and the resignation has effect from the date the notice is received by the Company or from such later date as may
be specified in the notice. A director shall resign forthwith as a director if he is, or becomes, disqualified from acting as a
director under the Act.
|
8.7.
|
The directors may at any time appoint any person to be a director to fill
a vacancy. Where the directors appoint a person as director to fill a vacancy, the replacement director will then hold office until
the next annual general meeting of the Company at which the director replaced would have been subject to retirement by rotation.
|
8.8.
|
A vacancy in relation to directors occurs if a director dies or otherwise
ceases to hold office prior to the expiration of his term of office.
|
8.9.
|
Where the Company only has one Shareholder who is an individual and that
Shareholder is also the sole director of the Company, the sole Shareholder/director may, by instrument in writing, nominate a person
who is not disqualified from being a director of the Company as a reserve director of the Company to act in the place of the sole
director in the event of his death.
|
8.10.
|
The nomination of a person as a reserve director of the Company ceases to have effect if:
|
|
(a)
|
before the death of the sole Shareholder/director who nominated him,
|
|
(i)
|
he resigns as reserve director, or
|
|
(ii)
|
the sole Shareholder/director revokes the nomination in writing; or
|
|
(b)
|
the sole Shareholder/director who nominated him ceases to be able to be the sole Shareholder/director
of the Company for any reason other than his death.
|
8.11.
|
The Company shall keep a register of directors (the “register of directors”) containing:
|
|
(a)
|
in the case of an individual director, the particulars stated in section 118A(1)(a) of the Act;
|
|
(b)
|
in the case of a corporate director, the particulars stated in section 118A(1)(b) of the Act; and
|
|
(c)
|
such other information as may be prescribed by the Act.
|
8.12.
|
The register of directors may be kept in any such form as the directors
may approve, but if it is in magnetic, electronic or other data storage form, the Company must be able to produce legible evidence
of its contents. Until a Resolution of Directors determining otherwise is passed, the magnetic, electronic or other data storage
shall be the original register of directors.
|
8.13.
|
The Company shall file for registration with the Registrar a copy of its
register of directors (and any changes to the register of directors) in accordance with the provisions of the Act.
|
8.14.
|
The directors may, by Resolution of Directors, fix the emoluments of directors
with respect to services to be rendered in any capacity to the Company.
|
8.15.
|
A director is not required to hold a Share as a qualification to office.
|
8.16.
|
A director, by written instrument deposited at the registered office of the
Company may from time to time appoint another director or another person who is not disqualified for appointment as a director
under section 111 of the Act to be his alternate to:
|
|
(a)
|
exercise the appointing director's powers; and
|
|
(b)
|
carry out the appointing director's responsibilities,
|
in relation to the taking of decisions
by the directors in the absence of the appointing director.
8.17.
|
No person shall be appointed as an alternate director unless he has consented
in writing to be an alternate director. The appointment of an alternate director does not take effect until written notice of the
appointment has been deposited at the registered office of the Company.
|
8.18.
|
The appointing director may, at any time, terminate or vary the alternate's
appointment. The termination or variation of the appointment of an alternate director does not take effect until written notice
of the termination or variation has been deposited at the registered office of the Company, save that if a director shall die or
cease to hold the office of director, the appointment of his alternate shall thereupon cease and terminate immediately without
the need of notice.
|
8.19.
|
An alternate director has no power to appoint an alternate, whether of the
appointing director or of the alternate director.
|
8.20.
|
An alternate director has the same rights as the appointing director in
relation to any directors' meeting and any written resolution of directors circulated for written consent. Unless stated otherwise
in the notice of the appointment of the alternate, or a notice of variation of the appointment, if undue delay or difficulty would
be occasioned by giving notice to a director of a resolution of which his approval is sought in accordance with these Articles
his alternate (if any) shall be entitled to signify approval of the same on behalf of that director. Any exercise by the alternate
director of the appointing director's powers in relation to the taking of decisions by the directors is as effective as if the
powers were exercised by the appointing director. An alternate director does not act as an agent of or for the appointing director
and is liable for his own acts and omissions as an alternate director.
|
8.21.
|
The remuneration of an alternate director (if any) shall be payable out of
the remuneration payable to the director appointing him (if any), as agreed between such alternate and the director appointing
him.
|
9.1.
|
The business and affairs of the Company shall be managed by, or under the
direction or supervision of, the directors of the Company. The directors of the Company have all the powers necessary for managing,
and for directing and supervising, the business and affairs of the Company. The directors may pay all expenses incurred preliminary
to and in connection with the incorporation of the Company and may exercise all such powers of the Company as are not by the Act
or by the Memorandum or the Articles required to be exercised by the Shareholders.
|
9.2.
|
Each director shall exercise his powers for a proper purpose and shall not
act or agree to the Company acting in a manner that contravenes the Memorandum, the Articles or the Act. Each director, in exercising
his powers or performing his duties, shall act honestly and in good faith in what the director believes to be the best interests
of the Company.
|
9.3.
|
If the Company is the wholly owned subsidiary of a holding company, a director
of the Company may, when exercising powers or performing duties as a director, act in a manner which he believes is in the best
interests of the holding company even though it may not be in the best interests of the Company.
|
9.4.
|
Any director which is a body corporate may appoint any individual as its
duly authorized representative for the purpose of representing it at meetings of the directors, with respect to the signing of
consents or otherwise.
|
9.5.
|
The continuing directors may act notwithstanding any vacancy in their body.
|
9.6.
|
The directors may by Resolution of Directors exercise all the powers of the
Company to incur indebtedness, liabilities or obligations and to secure indebtedness, liabilities or obligations whether of the
Company or of any third party.
|
9.7.
|
All cheques, promissory notes, drafts, bills of exchange and other negotiable
instruments and all receipts for moneys paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as
the case may be, in such manner as shall from time to time be determined by Resolution of Directors.
|
9.8.
|
For the purposes of Section 175 (Disposition of assets) of the Act,
the directors may by Resolution of Directors determine that any sale, transfer, lease, exchange or other disposition is in the
usual or regular course of the business carried on by the Company and such determination is, in the absence of fraud, conclusive.
|
10.
|
PROCEEDINGS OF DIRECTORS
|
10.1.
|
Any one director of the Company may call a meeting of the directors by sending
a written notice to each other director.
|
10.2.
|
The directors of the Company or any committee thereof may meet at such times
and in such manner and places within or outside the British Virgin Islands as the directors may determine to be necessary or desirable.
|
10.3.
|
A director is deemed to be present at a meeting of directors if he participates
by telephone or other electronic means and all directors participating in the meeting are able to hear each other.
|
10.4.
|
A director shall be given not less than 3 days’ notice of meetings
of directors, but a meeting of directors held without 3 days’ notice having been given to all directors shall be valid if
all the directors entitled to vote at the meeting who do not attend waive notice of the meeting, and for this purpose the presence
of a director at a meeting shall constitute waiver by that director. The inadvertent failure to give notice of a meeting to a director,
or the fact that a director has not received the notice, does not invalidate the meeting.
|
10.5.
|
A meeting of directors is duly constituted for all purposes if at the commencement
of the meeting there are present in person or by alternate not less than one-half of the total number of directors, unless there
are only 2 directors in which case the quorum is 2.
|
10.6.
|
If the Company has only one director the provisions herein contained for
meetings of directors do not apply and such sole director has full power to represent and act for the Company in all matters as
are not by the Act, the Memorandum or the Articles required to be exercised by the Shareholders. In lieu of minutes of a meeting
the sole director shall record in writing and sign a note or memorandum of all matters requiring a Resolution of Directors. Such
a note or memorandum constitutes sufficient evidence of such resolution for all purposes.
|
10.7.
|
At meetings of directors at which the Chairman of the Board is present,
he shall preside as chairman of the meeting. If there is no Chairman of the Board or if the Chairman of the Board is not present,
the directors present shall choose one of their number to be chairman of the meeting.
|
10.8.
|
An action that may be taken by the directors or a committee of directors
at a meeting may also be taken by a Resolution of Directors or a resolution of a committee of directors consented to in writing
or by telex, telegram, cable or other written electronic communication by a majority of the directors or by a majority of the members
of the committee, as the case may be, without the need for any notice. A written resolution consented to in such manner may consist
of several documents, including written electronic communication, in like form each signed or assented to by one or more directors.
If the consent is in one or more counterparts, and the counterparts bear different dates, then the resolution shall take effect
on the date upon which the last director has consented to the resolution by signed counterparts.
|
11.1.
|
The directors may, by Resolution of Directors, designate one or more committees,
each consisting of one or more directors, and delegate one or more of their powers, including the power to affix the Seal, to the
committee.
|
11.2.
|
The directors have no power to delegate to a committee of directors any of the following powers:
|
|
(a)
|
to amend the Memorandum or the Articles;
|
|
(b)
|
to designate committees of directors;
|
|
(c)
|
to delegate powers to a committee of directors;
|
|
(d)
|
to appoint or remove directors;
|
|
(e)
|
to appoint or remove an agent;
|
|
(f)
|
to approve a plan of merger, consolidation or arrangement;
|
|
(g)
|
to make a declaration of solvency or to approve a liquidation plan; or
|
|
(h)
|
to make a determination that immediately after a proposed Distribution the
value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due.
|
11.3.
|
Sub-Regulation 11.2(b) and (c) do not prevent a committee of directors,
where authorized by the Resolution of Directors appointing such committee or by a subsequent Resolution of Directors, from appointing
a sub-committee and delegating powers exercisable by the committee to the sub-committee.
|
11.4.
|
The meetings and proceedings of each committee of directors consisting of
2 or more directors shall be governed mutatis mutandis by the provisions of the Articles regulating the proceedings of directors
so far as the same are not superseded by any provisions in the Resolution of Directors establishing the committee.
|
11.5.
|
Where the directors delegate their powers to a committee of directors they
remain responsible for the exercise of that power by the committee, unless they believed on reasonable grounds at all times before
the exercise of the power that the committee would exercise the power in conformity with the duties imposed on directors of the
Company under the Act.
|
12.1.
|
The Company may by Resolution of Directors appoint officers of the Company
at such times as may be considered necessary or expedient. Such officers may consist of a Chairman of the Board of Directors, a
president and one or more vice-presidents, secretaries and treasurers and such other officers as may from time to time be considered
necessary or expedient. Any number of offices may be held by the same person.
|
12.2.
|
The officers shall perform such duties as are prescribed at the time of
their appointment subject to any modification in such duties as may be prescribed thereafter by Resolution of Directors. In the
absence of any specific prescription of duties it shall be the responsibility of the Chairman of the Board to preside at meetings
of directors and Shareholders, the president to manage the day to day affairs of the Company, the vice-presidents to act in order
of seniority in the absence of the president but otherwise to perform such duties as may be delegated to them by the president,
the secretaries to maintain the register of members, minute books and records (other than financial records) of the Company and
to ensure compliance with all procedural requirements imposed on the Company by applicable law, and the treasurer to be responsible
for the financial affairs of the Company.
|
12.3.
|
The emoluments of all officers shall be fixed by Resolution of Directors.
|
12.4.
|
The officers of the Company shall hold office until their successors are
duly appointed, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by Resolution
of Directors. Any vacancy occurring in any office of the Company may be filled by Resolution of Directors.
|
12.5.
|
The directors may, by Resolution of Directors, appoint any person, including
a person who is a director, to be an agent of the Company.
|
12.6.
|
An agent of the Company shall have such powers and authority of the directors,
including the power and authority to affix the Seal, as are set forth in the Articles or in the Resolution of Directors appointing
the agent, except that no agent has any power or authority with respect to the following:
|
|
(a)
|
to amend the Memorandum or the Articles;
|
|
(b)
|
to change the registered office or agent;
|
|
(c)
|
to designate committees of directors;
|
|
(d)
|
to delegate powers to a committee of directors;
|
|
(e)
|
to appoint or remove directors;
|
|
(f)
|
to appoint or remove an agent;
|
|
(g)
|
to fix emoluments of directors;
|
|
(h)
|
to approve a plan of merger, consolidation or arrangement;
|
|
(i)
|
to make a declaration of solvency or to approve a liquidation plan;
|
|
(j)
|
to make a determination that immediately after a proposed Distribution the
value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts as they fall due;
or
|
|
(k)
|
to authorize the Company to continue as a company incorporated under the laws of a jurisdiction
outside the British Virgin Islands.
|
12.7.
|
The Resolution of Directors appointing an agent may authorize the agent to
appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company.
|
12.8.
|
The directors may remove an agent appointed by the Company and may revoke
or vary a power conferred on him.
|
13.
|
CONFLICT OF INTERESTS
|
13.1.
|
A director of the Company shall, forthwith after becoming aware of the fact
that he is interested in a transaction entered into or to be entered into by the Company, disclose the interest to all other directors
of the Company.
|
13.2.
|
For the purposes of Sub-Regulation 13.1, a disclosure to all other directors
to the effect that a director is a member, director or officer of another named entity or has a fiduciary relationship with respect
to the entity or a named individual and is to be regarded as interested in any transaction which may, after the date of the entry
into the transaction or disclosure of the interest, be entered into with that entity or individual, is a sufficient disclosure
of interest in relation to that transaction.
|
13.3.
|
A director of the Company who is interested in a transaction entered into
or to be entered into by the Company may:
|
|
(a)
|
vote on a matter relating to the transaction;
|
|
(b)
|
attend a meeting of directors at which a matter relating to the transaction arises and be included
among the directors present at the meeting for the purposes of a quorum; and
|
|
(c)
|
sign a document on behalf of the Company, or do any other thing in his capacity as a director,
that relates to the transaction,
|
and,
subject to compliance with the Act shall not, by reason of his office be accountable to the Company for any benefit which he derives
from such transaction and no such transaction shall be liable to be avoided on the grounds of any such interest or benefit.
14.1.
|
Subject to the limitations hereinafter provided the Company shall indemnify
against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred
in connection with legal, administrative or investigative proceedings any person who:
|
|
(a)
|
is or was a party or is threatened to be made a party to any threatened,
pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person
is or was a director of the Company; or
|
|
(b)
|
is or was, at the request of the Company, serving as a director of, or in any other capacity is
or was acting for, another body corporate or a partnership, joint venture, trust or other enterprise.
|
14.2.
|
The indemnity in Sub-Regulation 14.1 only applies if the person acted honestly
and in good faith with a view to the best interests of the Company and, in the case of criminal proceedings, the person had no
reasonable cause to believe that their conduct was unlawful.
|
14.3.
|
For the purposes of Sub-Regulation 14.2, a director acts in the best interests
of the Company if he acts in the best interests of
|
|
(a)
|
the Company’s holding company; or
|
|
(b)
|
a Shareholder or Shareholders;
|
in either case, in the circumstances
specified in Sub-Regulation 9.3 or the Act, as the case may be.
14.4.
|
The decision of the directors as to whether the person acted honestly and
in good faith and with a view to the best interests of the Company and as to whether the person had no reasonable cause to believe
that his conduct was unlawful is, in the absence of fraud, sufficient for the purposes of the Articles, unless a question of law
is involved.
|
14.5.
|
The termination of any proceedings by any judgment, order, settlement, conviction
or the entering of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in
good faith and with a view to the best interests of the Company or that the person had reasonable cause to believe that his conduct
was unlawful.
|
14.6.
|
Expenses, including legal fees, incurred by a director in defending any legal,
administrative or investigative proceedings may be paid by the Company in advance of the final disposition of such proceedings
upon receipt of an undertaking by or on behalf of the director to repay the amount if it shall ultimately be determined that the
director is not entitled to be indemnified by the Company in accordance with Sub-Regulation 14.1.
|
14.7.
|
Expenses, including legal fees, incurred by a former director in defending
any legal, administrative or investigative proceedings may be paid by the Company in advance of the final disposition of such proceedings
upon receipt of an undertaking by or on behalf of the former director to repay the amount if it shall ultimately be determined
that the former director is not entitled to be indemnified by the Company in accordance with Sub-Regulation 14.1 and upon such
terms and conditions, if any, as the Company deems appropriate.
|
14.8.
|
The indemnification and advancement of expenses provided by, or granted pursuant
to, this section is not exclusive of any other rights to which the person seeking indemnification or advancement of expenses may
be entitled under any agreement, Resolution of Shareholders, resolution of disinterested directors or otherwise, both as acting
in the person’s official capacity and as to acting in another capacity while serving as a director of the Company.
|
14.9.
|
If a person referred to in Sub-Regulation 14.1 has been successful in defence
of any proceedings referred to in Sub-Regulation 14.1, the person is entitled to be indemnified against all expenses, including
legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the person in connection
with the proceedings.
|
14.10.
|
The Company may purchase and maintain insurance in relation to any person
who is or was a director, officer or liquidator of the Company, or who at the request of the Company is or was serving as a director,
officer or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust
or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or
not the Company has or would have had the power to indemnify the person against the liability as provided in the Articles.
|
15.
|
RECORDS AND UNDERLYING DOCUMENTATION
|
15.1.
|
The Company shall keep the following documents at the office of its registered agent:
|
|
(a)
|
the Memorandum and the Articles;
|
|
(b)
|
the register of members, or a copy of the register of members;
|
|
(c)
|
the register of directors, or a copy of the register of directors; and
|
|
(d)
|
copies of all notices and other documents filed by the Company with the Registrar of Corporate
Affairs in the previous 10 years.
|
15.2.
|
Until the directors determine otherwise by Resolution of Directors the Company
shall keep the original register of members and original register of directors at the office of its registered agent.
|
15.3.
|
If the Company maintains only a copy of the register of members or a copy
of the register of directors at the office of its registered agent, it shall:
|
|
(a)
|
within 15 days of any change in either register, notify the registered agent in writing of the
change; and
|
|
(b)
|
provide the registered agent with a written record of the physical address of the place or places
at which the original register of members or the original register of directors is kept.
|
15.4.
|
Where the original register of members or the original register of directors
is maintained other than at the office of the registered agent, and the place at which the original records is changed, the Company
shall provide the registered agent with the physical address of the new location of the records of the Company within 14 days of
the change of location.
|
15.5.
|
The Company shall keep the following records at the office of its registered
agent or at such other place or places, within or outside the British Virgin Islands, as the directors may determine:
|
|
(a)
|
the records and underlying documentation of the Company;
|
|
(b)
|
minutes of meetings and Resolutions of Shareholders and classes of Shareholders;
|
|
(c)
|
minutes of meetings and Resolutions of Directors and committees of directors; and
|
|
(d)
|
an impression of the Seal.
|
15.6.
|
The records and underlying documentation of the Company shall be in such form as:
|
|
(a)
|
are sufficient to show and explain the Company’s transactions; and
|
|
(b)
|
will, at any time, enable the financial position of the Company to be determined with reasonable
accuracy.
|
15.7.
|
The Company shall retain the records and underlying documentation for a period
of at least five years from the date:
|
|
(a)
|
of completion of the transaction to which the records and underlying documentation relate; or
|
|
(b)
|
the Company terminates the business relationship to which the records and underlying documentation
relate.
|
15.8.
|
Where the records and underlying documentation of the Company are kept at
a place or places other than at the office of its registered agent, the Company shall provide the registered agent with a written:
|
|
(a)
|
record of the physical address of the place at which the records and underlying documentation
are kept; and
|
|
(b)
|
record of the name of the person who maintains and controls the Company’s records and underlying
documentation.
|
15.9.
|
Where the place or places at which the records and underlying documentation
of the Company, or the name of the person who maintains and controls the Company’s records and underlying documentation,
change, the Company shall, within 14 days of the change, provide its registered agent with:
|
|
(a)
|
the physical address of the new location of the records and underlying documentation; or
|
|
(b)
|
the name of the new person who maintains and controls the Company’s records and underlying
documentation.
|
15.10.
|
The Company shall provide its registered agent without delay any records
and underlying documentation in respect of the Company that the registered agent requests pursuant to the Act.
|
15.11.
|
The records and underlying documentation kept by the Company under this
Regulation shall be in written form or either wholly or partly as electronic records complying with the requirements of the Electronic
Transactions Act, 2001 (No. 5 of 2001) as from time to time amended or re-enacted.
|
16.1.
|
The Company shall maintain at the office of its registered agent a register
of charges in which there shall be entered the following particulars regarding each mortgage, charge and other encumbrance created
by the Company:
|
|
(a)
|
the date of creation of the charge;
|
|
(b)
|
a short description of the liability secured by the charge;
|
|
(c)
|
a short description of the property charged;
|
|
(d)
|
the name and address of the trustee for the security or, if there is no such trustee, the name
and address of the chargee;
|
|
(e)
|
unless the charge is a security to bearer, the name and address of the
holder of the charge; and
|
|
(f)
|
details of any prohibition or restriction contained in the instrument creating
the charge on the power of the Company to create any future charge ranking in priority to or equally with the charge.
|
16.2.
|
Where a change occurs in the relevant charges or in the details of the charges
required to be recorded in the Company’s register of charges maintained in accordance with Sub-Regulation 16.1, the Company
shall, within 14 days of the change occurring, transmit details of the change to the registered agent.
|
The
Company shall have a Seal and may have more than one Seal and references herein to the Seal shall be references to every Seal which
shall have been duly adopted by Resolution of Directors. The directors shall provide for the safe custody of the Seal and for an
imprint thereof to be kept at the registered office. Except as otherwise expressly provided herein the Seal when affixed to any
written instrument shall be witnessed and attested to by the signature of any one director or other person so authorized from time
to time by Resolution of Directors. Such authorization may be before or after the Seal is affixed, may be general or specific and
may refer to any number of sealings. The directors may provide for a facsimile of the Seal and of the signature of any director
or authorized person which may be reproduced by printing or other means on any instrument and it shall have the same force and
validity as if the Seal had been affixed to such instrument and the same had been attested to as hereinbefore described.
18.1.
|
The directors of the Company may, by Resolution of Directors, authorize a
Distribution at a time and of an amount they think fit if they are satisfied, on reasonable grounds, that, immediately after the
Distribution, the value of the Company’s assets will exceed its liabilities and the Company will be able to pay its debts
as they fall due.
|
18.2.
|
Distributions may be paid in money, Shares, or other property.
|
18.3.
|
Notice of any Distribution that may have been declared shall be given to
each Shareholder as specified in Sub-Regulation 20.1 and all Distributions unclaimed for 3 years after having been declared may
be forfeited by Resolution of Directors for the benefit of the Company.
|
18.4.
|
No Distributions shall bear interest as against the Company and no Distribution
shall be paid on Treasury Shares.
|
19.1.
|
The Company shall keep records that are sufficient to show and explain the
Company’s transactions and that will, at any time, enable the financial position of the Company to be determined with reasonable
accuracy.
|
19.2.
|
The Company may by Resolution of Shareholders call for the directors to prepare
periodically and make available a profit and loss account and a balance sheet. The profit and loss account and balance sheet shall
be drawn up so as to give respectively a true and fair view of the profit and loss of the Company for a financial period and a
true and fair view of the assets and liabilities of the Company as at the end of a financial period.
|
19.3.
|
The Company may by Resolution of Shareholders call for the accounts to be examined by auditors.
|
19.4.
|
The first auditors shall be appointed by Resolution of Directors; subsequent
auditors shall be appointed by Resolution of Shareholders or by Resolution of Directors.
|
19.5.
|
The auditors may be Shareholders, but no director or other officer shall
be eligible to be an auditor of the Company during their continuance in office.
|
19.6.
|
The remuneration of the auditors of the Company may be fixed by Resolution of Directors.
|
19.7.
|
The auditors shall examine each profit and loss account and balance sheet
required to be laid before a meeting of the Shareholders or otherwise given to Shareholders and shall state in a written report
whether or not:
|
|
(a)
|
in their opinion the profit and loss account and balance sheet give a true
and fair view respectively of the profit and loss for the period covered by the accounts, and of the assets and liabilities of
the Company at the end of that period; and
|
|
(b)
|
all the information and explanations required by the auditors have been obtained.
|
19.8.
|
The report of the auditors shall be annexed to the accounts and shall be
read at the meeting of Shareholders at which the accounts are laid before the Company or shall be otherwise given to the Shareholders.
|
19.9.
|
Every auditor of the Company shall have a right of access at all times to
the books of account and vouchers of the Company, and shall be entitled to require from the directors and officers of the Company
such information and explanations as he thinks necessary for the performance of the duties of the auditors.
|
19.10.
|
The auditors of the Company shall be entitled to receive notice of, and
to attend any meetings of Shareholders at which the Company’s profit and loss account and balance sheet are to be presented.
|
19.11.
|
Without prejudice to the freedom of the Directors to establish any other
committee, if the Shares (or depositary receipts therefor) are listed or quoted on a Designated Stock Exchange, and if required
by the Designated Stock Exchange, the Directors shall establish and maintain an Audit Committee as a committee of the board of
Directors and shall adopt a formal written Audit Committee charter and review and assess the adequacy of the formal written charter
on an annual basis. The composition and responsibilities of the Audit Committee shall comply with the rules and regulations of
the SEC and the Designated Stock Exchange.
|
19.12.
|
If the Shares (or depositary receipts therefor) are listed or quoted on
the Designated Stock Exchange, the Company shall conduct an appropriate review of all related party transactions on an ongoing
basis and shall utilise the Audit Committee, if one exists, and the Directors, if an Audit Committee does not exist, for the review
and approval of potential conflicts of interest.
|
20.1.
|
Any notice, information or written statement to be given by the Company to
Shareholders may be given by personal service or by mail addressed to each Shareholder at the address shown in the register of
members (or where the notice is given by e-mail by sending it to the e-mail address provided by such Shareholder). Notice may also
be served in accordance with the requirements of the Designated Stock Exchange.
|
20.2.
|
Any summons, notice, order, document, process, information or written statement
to be served on the Company may be served by leaving it, or by sending it by registered mail addressed to the Company, at its registered
office, or by leaving it with, or by sending it by registered mail to, the registered agent of the Company.
|
20.3.
|
Service of any summons, notice, order, document, process, information or
written statement to be served on the Company may be proved by showing that the summons, notice, order, document, process, information
or written statement was delivered to the registered office or the registered agent of the Company or that it was mailed in such
time as to admit to its being delivered to the registered office or the registered agent of the Company in the normal course of
delivery within the period prescribed for service and was correctly addressed and the postage was prepaid.
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21.
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VOLUNTARY LIQUIDATION
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The
Company may by Resolution of Shareholders or, subject to section 199(2) of the Act, by Resolution of Directors appoint a voluntary
liquidator.
The
Company may by Resolution of Shareholders or by a Resolution of Directors continue as a company incorporated under the laws of
a jurisdiction outside the British Virgin Islands in the manner provided under those laws.
23.1.
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Notwithstanding any other provision of these Articles, this Regulation 23
shall apply during the period commencing upon the adoption of these Articles and terminating upon the first to occur of the consummation
of any Business Combination and the complete liquidation of the trust account. In the event of a conflict between this Regulation
23 and any other Regulation of these Articles, the provisions of this Regulation 23 shall prevail.
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23.2.
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Prior to the consummation of any Business Combination, the Company shall
either:
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(a)
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seek shareholder approval of such initial business combination at a meeting
called for such purpose at which public shareholders may seek to convert their public shares, regardless of whether they vote for
or against the proposed business combination, into their pro rata share of the aggregate amount then on deposit in the trust account
(net of taxes payable); or
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(b)
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provide the Company’s public shareholders with the opportunity to sell
their public shares to the Company by means of a tender offer (and thereby avoid the need for a shareholder vote) for an amount
equal to their pro rata share of the aggregate amount then on deposit in the trust account (net of taxes payable), in each case
subject to the limitations described in the Registration Statement.
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23.3.
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If the Company determines to engage in a tender offer, such tender offer
will be structured so that each public shareholder may tender any or all of his, her or its public shares rather than some pro
rata portion of his, her or its shares. If enough shareholders tender their shares so that the Company is unable to satisfy any
applicable closing condition (as may be set forth in the definitive agreement related to our initial business combination), or
the Company is unable to maintain net tangible assets of at least US$5,000,001, the Company will not consummate such initial business
combination.
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23.4.
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If the Company chooses and is legally permitted to do so, the Company will
have the flexibility to avoid a shareholder vote and allow its shareholders to sell their shares pursuant to Rule 13e-4 and Regulation
14E of the Securities Exchange Act of 1934, as amended, or Exchange Act, which regulate issuer tender offers. In that case, the
Company will file tender offer documents with the SEC which will contain substantially the same financial and other information
about the initial business combination as is required under the SEC’s proxy rules.
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23.5.
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The Company will consummate an initial business combination only if the Company
has net tangible assets of at least US$5,000,001 upon such consummation and, solely if the Company seeks shareholder approval,
and a majority of the issued and outstanding ordinary shares voted are voted in favor of the business combination.
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23.6.
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In connection with a business combination, public shareholders will have
the right to convert their shares into an amount equal to (1) the number of public shares being converted by such public holder
divided by the total number of public shares multiplied by (2) the amount then in the trust account (initially US$10.00 per share),
which includes the deferred underwriting discounts and commissions plus a pro rata portion of any interest earned on the funds
held in the trust account less any amounts necessary to pay the Company’s taxes. At any meeting called to approve an initial
business combination, public shareholders may elect to convert their shares regardless of whether or not they vote to approve the
business combination.
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23.7.
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In the event that the Company fails to consummate a business combination
within 12 months (or 21 months, if the Company extends the time to complete a business combination as described in the offering
prospectus) from the consummation of its IPO, it will trigger the Company’s automatic winding up, liquidation and subsequent
dissolution pursuant to the terms of these Articles. Accordingly, no vote would be required from our shareholders to commence such
a voluntary winding up, liquidation and subsequent dissolution.
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23.8.
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If the Company anticipates that it may not be able to consummate its initial
business combination within 12 months, the Company may, but is not obligated to, extend the period of time to consummate a business
combination three times by an additional three months each time (for a total of up to 21 months to complete a business combination).
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23.9.
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The amount in the trust account (including the deferred underwriting compensation)
will be available for distribution provided that immediately following the date on which the proposed distribution is to be made,
the Company is able to pay its debts as they fall due in the ordinary course of business, and the value of the Company’s
assets exceed its liabilities. If the Company is forced to liquidate, it is anticipated that the Company would distribute to its
public shareholders the amount in the trust account calculated as of the date that is two days prior to the distribution date (including
any accrued interest).
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23.10.
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The Company may enter into a Business Combination where any of our officers,
directors, initial shareholders or their affiliates acquire a minority interest in the target business alongside our acquisition,
provided in each case we obtain an opinion from an unaffiliated third party indicating that the price we are paying is fair to
the Company’s shareholders from a financial point of view.
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23.11.
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Although the Company does not intend to enter into an initial business combination
with a target business that is affiliated with its sponsor, its directors or officers, the Company is not prohibited from doing
so. In the event the Company were to enter into such a transaction, the Company, or a committee of independent directors, will
obtain an opinion from an independent investment banking firm that is a member of FINRA that such initial business combination
is fair to the Company’s shareholders from a financial point of view.
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24.
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UNTRACEABLE SHAREHOLDERS
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The
Company shall be entitled to sell any shares of a shareholder who is untraceable, as long as: (a) all cheques, not being less than
three in total number, for any sums payable in cash to the holder of such shares have remained uncashed for a period of 12 years;
(b) the Company has not during that time or before the expiry of the three-month period referred to in (c) below received any indication
of the existence of the shareholder or person entitled to such shares by death, bankruptcy or operation of law; and (c) upon expiration
of the 12-year period, the Company has caused an advertisement to be published in newspapers, giving notice of its intention to
sell such shares, and a period of three months or such shorter period has elapsed since the date of such advertisement. The net
proceeds of any such sale shall belong to the Company, and when the Company receives such net proceeds it shall become indebted
to the former shareholder for an amount equal to such net proceeds.
We, Vistra
(BVI) Limited of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands for the
purpose of incorporating a BVI Business Company under the laws of the British Virgin Islands hereby sign these Articles of Association
the 2nd day of May, 2018.
Incorporator
(Sd.) Rexella D. Hodge
(Sd.) Rexella D. Hodge
Authorized
Signatory
Vistra (BVI) Limited
ANNEX
C
ESCROW
AGREEMENT
This
Escrow Agreement (the “Agreement”), dated as of [*], 2019 by and among Loeb & Loeb LLP, as escrow agent
(the “Escrow Agent”), Wealthbridge Acquisition Limited, a British Virgin Islands company (the “Purchaser”)
and the Shareholders (each a “Shareholder” and collectively the “Shareholders”) of Scienjoy
Inc. (the “Company”).
WHEREAS,
the Purchaser, the Shareholders, and the Company entered into a Share Exchange Agreement, dated [*], 2019 (the “Share
Exchange Agreement”), providing for, among other things, the Purchaser acquires 100% of the shares of Company Common
Stock from the Sellers in exchange for the Closing Payment Shares in accordance with the terms set forth in the Share Exchange
Agreement;
WHEREAS, pursuant to Section
11.4 of the Share Exchange Agreement, the Purchaser is required to deposit Purchaser Ordinary Shares, representing 10% of the aggregate
amount of Closing Payment Shares (the “Escrow Shares”), which Escrow Shares would otherwise be issuable to the
Shareholders, with the Escrow Agent on the date hereof in connection with the indemnification obligations of the Shareholders as
contemplated by the Share Exchange Agreement; and
WHEREAS, pursuant to Section
2.3 of the Share Exchange Agreement, the Company and certain persons and entities entered into a Voting Agreement, dated [*], 2019
(the “Voting Agreement”).
NOW, THEREFORE, the parties
agree as follows:
1. Defined
Terms. Capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Share
Exchange Agreement.
2. Appointment
and Acceptance of Escrow Agent. The Purchaser and the Shareholders hereby appoint the Escrow Agent to act, and the Escrow Agent
hereby agrees to act, as escrow agent hereunder.
3. Escrow
Deposit. Concurrently with the execution of this Agreement, the Purchaser shall deposit the Escrow Shares with the Escrow Agent.
The Escrow Shares will be deemed to be beneficially owned by the persons listed on Exhibit A attached hereto and shall be
voted in accordance with the instructions provided by all of the Stockholders if the Stockholders provide conflicting instructions,
the Escrow Agent will not vote the Escrow Shares.
4. Disbursement
of Deposit.
a. In
the event that any Purchaser Indemnitee is entitled to indemnification under the terms of Article XI of the Share Exchange Agreement,
such Purchaser Indemnitee (an “Indemnified Party”) shall give the Escrow Agent and the Shareholders prompt notice
of such claim (a “Claim”) against the Escrow Shares in accordance with Section 15 of this Agreement. Such notice
shall describe, in reasonable detail, the Loss that has been or may be suffered by the Indemnified Party. Unless the Escrow Agent
receives a timely Objection Notice (as defined below) from all of the Shareholders pursuant to Section 4, the Escrow Agent shall
disburse the amount of Escrow Shares specified in the Claim notice as directed therein.
b. In
the event that the Escrow Agent receives an instruction letter signed by the Purchaser and all of the Shareholders, the Escrow
Agent shall promptly distribute all or any portion of the Escrow Shares as directed by such instruction letter.
c. In
the event that any portion of the Escrow Shares (not including any amounts subject to an Objection Notice pursuant to Section 5
of this Agreement, which amounts will remain in escrow pursuant to this Agreement until disbursed in accordance with Section 5)
remains in escrow with the Escrow Agent on the date that is twelve (12) months after the Closing (the “Termination Date”),
the Escrow Agent shall, within five (5) Business Days following the receipt of an instruction letter from the Shareholders at any
time after the Termination Date (the “Release Date”), release the remaining Escrow Shares to the Shareholders
in accordance with the applicable percentage of Escrow Shares for each Shareholder indicated on Exhibit A.
5. Dispute
of Claim. The Shareholders shall have the right to dispute any Claim against the Escrow Shares within the thirty (30) day period
following the Shareholders’ receipt of a copy of a Claim notice by delivering to the Escrow Agent and the Purchaser Indemnitee
written notice (an “Objection Notice”) that the Shareholders disputes the matter(s) set forth in such Claim
notice either with respect to the validity or the amount of the Claim (or both). Such notice shall include the basis, with reasonable
specificity, of the objection. If an Objection Notice is not received within such thirty (30) day period, the Shareholders will
be deemed to have waived their rights to object to the disbursement of all or any portion of the Escrow Shares pursuant to such
Claim. Upon timely receipt of an Objection Notice, Escrow Agent shall take no action with respect to the Claim, except upon receipt
of joint written instructions from all of the Shareholders and such Purchaser Indemnitee or by a final non-appealable order of
a court of competent jurisdiction (“Final Order”). Escrow Agent shall promptly follow such instructions or Final
Order upon receipt thereof. Escrow Agent shall be entitled to receive an opinion of counsel (which will be paid for by the Purchaser)
that such Final Order is final and binding. If the amount necessary to satisfy any disputed Claim, as ultimately determined via
joint written instructions or Final Order, is in excess of the Escrow Shares, then Escrow Agent shall pay over the Escrow Shares
pursuant to the joint written instructions or Final Order, but shall in no way be responsible for any such excess.
6. Liability
of Escrow Agent. Escrow Agent shall be liable only for its bad faith or willful misconduct and not for any act done or omitted
by it hereunder in good faith. The parties hereto agree that Escrow Agent will not be called upon to construe any contract or instrument.
Escrow Agent is authorized to comply with and obey laws, orders, judgments, decrees, and regulations of any governmental authority,
court, tribunal, or arbitrator; provided, however, that Escrow Agent shall, to the extent practicable, give each of the other parties
hereto reasonable notice of its intention to comply with or obey any such law, order, judgment, decree, or regulation and the opportunity
to object to such intention to comply or obey (for which Escrow Agent shall be entitled to indemnification as provided in this
Agreement); provided, further, that Escrow Agent shall not be required to give any such notice if, in its reasonable judgment,
a delay in complying or obeying any such law, order, judgment, decree, or regulation would prejudice any rights of Escrow Agent
or subject it to any liability. If Escrow Agent complies with or obeys any such law, order, judgment, decree, or regulation, Escrow
Agent shall not be liable to any of the parties hereto or to any other person even if such law, order, judgment, decree, or regulation
is subsequently reversed, modified, annulled, set aside, vacated, found to have been entered without jurisdiction, or found to
be in violation of or beyond the scope of a constitution or a law.
7. Actions
Protected. Escrow Agent may rely, and shall be protected in acting or refraining from acting, upon any written notice, waiver,
consent, certificate, receipt, authorization, power of attorney, instruction, request or other paper or document (each a “Notice”),
furnished to it hereunder and believed by it to be genuine. If Escrow Agent receives a Notice under which some action is to be
taken by it, it shall not be required to act thereon until it has had an opportunity, if it so desires and in its sole discretion,
to investigate the authenticity of such Notice.
8. Legal
Counsel. Escrow Agent may consult with and obtain advice from legal counsel of its own choice in the event of any question
as to the provisions hereof or its duties hereunder and shall have full and complete authorization and protection for any action
taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. The Shareholders acknowledge
that Loeb & Loeb LLP acts as counsel to the Purchaser and may continue to serve in that capacity, and neither anything contained
herein, the execution or delivery hereof by Escrow Agent, nor the performance by Escrow Agent of its duties hereunder shall in
any way affect or require termination of such relationship and the Shareholders hereby waive any conflict or potential conflict
resulting from such representation. Escrow Agent shall be fully protected in acting in good faith, including without limitation
acting in accordance with the opinion and instructions of legal counsel, including attorneys at Loeb & Loeb LLP.
9.
No Other Duties. Escrow Agent shall have no duties arising from this Agreement except those expressly set forth herein,
and it shall not be bound by any notice of claim or demand with respect thereto, or any waiver, modification, amendment, termination,
cancellation revision or rescission of this Agreement, unless received by it in writing in conformity with the provisions hereof,
and, if Escrow Agent’s duties hereunder are affected, unless it shall have given its prior written consent thereto. Escrow Agent
shall not be bound by any assignment by the Purchaser or by the Shareholders of any rights hereunder unless Escrow Agent shall
have received written notice thereof from the assignor.
10.
Compensation of Escrow Agent; Indemnification. Except as specifically set forth herein, Escrow Agent shall receive no compensation
for its services under this Agreement. Notwithstanding the foregoing, the Purchaser and the Shareholders, jointly and severally,
agree to indemnify Escrow Agent for, and to hold it harmless against, any loss, liability, damage or expense incurred by Escrow
Agent arising out of, or in connection with, this Agreement, any litigation arising in connection with this Agreement or any transaction
related in any way hereto, including but not limited to attorneys’ fees and other costs and expenses of defending itself against
any claim of liability, except for liability or expense resulting from the bad faith, willful misconduct or gross negligence of
Escrow Agent.
11.
Payment of Expenses. The Purchaser shall be responsible for the reasonable out-of-pocket expenses of Escrow Agent incurred
by it in connection with its acting as escrow agent hereunder.
12.
Termination. Escrow Agent’s responsibilities and liabilities hereunder, except as a result of its own bad faith, willful
misconduct or gross negligence, will terminate upon distribution of all Escrow Shares held by Escrow Agent in accordance with the
provisions of this Agreement.
13.
Successor Escrow Agents. Escrow Agent has the right to, and may, at any time, resign and be discharged from its duties hereunder
by giving notice in writing of such resignation, specifying a date (no earlier than ten (10) business days after the giving of
such notice) when such resignation shall take effect. If the other parties hereto do not appoint a substitute escrow agent prior
to the effective date of Escrow Agent’s resignation, Escrow Agent shall appoint a successor escrow agent, or, if Escrow Agent is
unable to make such an appointment, may deposit the Escrow Shares with a court of appropriate jurisdiction, and thereupon Escrow
Agent shall be fully relieved and discharged of any further duties hereunder.
14.
Amendment. Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by each party hereto, or in the case of a waiver, by the party against whom the waiver
is to be effective.
15.
Notices. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be
in writing and shall be deemed to have been duly given when (a) delivered in person, (b) transmitted by facsimile or e-mail or
(c) mailed by first class, overnight or certified mail, return receipt requested, postage prepaid, addressed to the parties at
the following addresses or to such other address as a party shall hereafter specify by notice to the other parties:
If to the Purchaser, to:
Unit B
17/F Success Commercial Building
245-251 Hennessy Road
Wanchai, Hong Kong
Attn: Yongsheng Liu
Tel: (86) 186-0217-2929
With a copy (which shall not constitute notice) to:
Loeb
& Loeb LLP
345 Park Avenue
New York, New York 10154
Attn: Giovanni Caruso, Esq.
Email: gcaruso@loeb.com
Fax: (212) 407-4866
If to the Shareholders:
If to Lavacano:
#1101, Unit 1, Building 6
No. 2, Xibahe Dongli
Chaoyang District
Beijing, P.R. China
Attn: Xiaowu He
xiaowu.he@scienjoy.com
If to WBY:
#23E,
Building D
Rongzunbao International
Club
No.8, Kehui Road,
Chaoyang District
Attn: Bo Wan
bo.wan@scienjoy.com
If to Escrow Agent:
Loeb
& Loeb LLP
345 Park Avenue
New York, New York 10154
Attn: Giovanni Caruso, Esq.
Email: gcaruso@loeb.com
Fax: (212) 407-4866
All such notices and communications
shall be deemed to be effective and to have been delivered on (i) the date of delivery thereof if delivered in person, (ii) one
day after a facsimile or e-mail is sent, provided that an appropriate electronic confirmation is received, (iii) 24 hours after
being sent by overnight courier, or (iv) on the third business day after the mailing thereof to the last known address of the recipient,
except that notice of change of address shall be effective only upon receipt or upon refusal to accept delivery thereof.
16.
Recovery of Attorneys’ Fees and Court Costs. In the event of a dispute concerning the disbursement or distribution of the
Escrow Shares which dispute is resolved by a court order, the prevailing party shall be entitled to recovery of its reasonable
attorneys’ fees, court costs, and other related expenses incident to such cause of action from the other party.
17.
Entire Agreement. This Agreement, together with the Share Exchange Agreement and the Voting Agreement, as referenced herein,
constitutes the entire agreement among the parties and supersedes all prior agreements, understandings and arrangements, oral or
written, among the parties with respect to the subject matter hereof. Any party hereto may, by an instrument in writing, waive
compliance by another party hereto with any term or provision of this Agreement on the part of such other party hereto to be performed
or complied with. The waiver by any party hereto of a breach of any term or provision of this Agreement shall not be construed
as a waiver of any subsequent breach.
18.
Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding upon the parties and their respective
heirs, successors and assigns. Nothing in this Agreement, expressed or implied, is intended to or shall (a) confer on any person
other than the parties, or their respective successors or assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, or (b) constitute the parties’ partners or participants in a joint venture. Escrow Agent shall not be
obliged to recognize any such succession or assignment until written evidence thereof shall have been received by it.
19.
Severability. In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired
thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefor,
in light of the tenor of this Agreement, and upon so agreeing, shall incorporate such substitute provision in this Agreement. Any
term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall not affect the validity or enforceability
of any of the terms or provisions of this Agreement in any other jurisdiction.
20.
Assignment. This Agreement shall not be assignable by any party without the prior written consent of the other parties hereto.
21.
Choice of Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without
giving effect to conflicts of law principles thereof.
22.
Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original,
and all of which together shall constitute one and the same instrument and any one of which may be introduced in evidence or used
for any other purpose without the production of its duplicate counterparts.
23.
Headings. The headings of the foregoing paragraphs of this Agreement are inserted herein for convenience of reference only
and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.
[Remainder of page intentionally left blank;
signature page follows]
IN WITNESS WHEREOF, the
parties have caused this Agreement to be duly executed as of the date first above written.
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Escrow Agent:
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LOEB & LOEB LLP
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By:
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Name:
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Title:
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Purchaser:
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WEALTHBRIDGE ACQUISITION LIMITED
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By:
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Name:
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Title:
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Shareholders
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Lavacano Holdings Limited
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By:
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Name:
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Title:
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WBY Entertainment Holdings Ltd.
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By:
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Name:
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Title:
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EXHIBIT A
Shareholder
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Percentage
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WBY Entertainment
Holdings Ltd.
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Lavacano Holdings Limited
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ANNEX
D
WEALTHBRIDGE ACQUISITION LIMITED
VOTING AGREEMENT
This Voting Agreement
(this “Agreement”) is made as of [*], 2019 by and among Wealthbridge Acquisition Limited, a British Virgin Islands
company (the “Purchaser”) and each of the individuals and entities set forth on the signature page hereto (each
a “Voting Party” and collectively, the “Voting Parties”). For purposes of this Agreement,
capitalized terms used and not defined herein shall have the respective meanings ascribed to them in the Share Exchange Agreement
(as defined below).
RECITALS
WHEREAS,
the Purchaser, Scienjoy Inc., and the shareholders of Scienjoy Inc. (each, a “Shareholder” and collectively,
the “Shareholders”) entered into a Share Exchange Agreement, dated [*], 2019 (the “Share Exchange Agreement”);
and
WHEREAS,
each of the Voting Parties, currently owns, or on closing of the transactions contemplated by the Share Exchange Agreement, will
own, shares of the Purchaser’s capital stock, and wishes to provide for orderly (a) elections of the Purchaser’s board
of directors and (b) reclassification and conversion of the Purchaser’s capital stock, each as described herein.
NOW
THEREFORE, in consideration of the foregoing and of the promises and covenants contained herein, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1.
Agreement to Vote. During the term of this Agreement, each Voting Party agrees to vote all securities of the
Purchaser (hereinafter referred to as the “Voting Shares”) that such Voting Party owns from time to time and
may vote in (a) the election of the Purchaser’s directors or (b) the reclassification and conversion of the Purchaser’s
capital stock, as the case may be, in accordance with the provisions of this Agreement, whether at a regular or special meeting
of shareholders or any class or series of shareholders or by written consent.
2.
Reclassification and Conversion of Capital Stock.
2.1
Voting. During the term of this Agreement, if the Purchaser qualifies as a “foreign private issuer” as defined
in Rule 36-4 promulgated under the Exchange Act (“Foreign Private Issuer”) at any time following the Closing
and as promptly as practicable following the determination of gaining the Foreign Private Issuer status by the Purchaser, each
Voting Party agrees to vote all Voting Shares in such manner as may be necessary to (a) reclassify the Purchaser’s ordinary
shares into Purchaser A Common Stock, (b) authorize the issuance of Purchaser B Common Stock, and (c) convert certain amount of
Purchaser A Common Stock to Purchaser B Common Stock in accordance with Section 9.8 of the Share Exchange Agreement.
2.2
Obligations. The obligations of the Voting Parties pursuant to this Section 2 shall include any shareholder vote to
amend the Purchaser’s memorandum and articles of association, as amended and restated, as required to effect the intent of
this Agreement. Each of the Voting Parties and the Purchaser agree not to take any actions that would contravene or materially
and adversely affect the provisions of this Agreement and the intention of the parties with respect to the reclassification and
conversion of the Purchaser’s capital stock as herein stated.
3.
Election of Boards of Directors.
3.1
Voting. During the term of this Agreement each Voting Party agrees to vote all Voting Shares in such manner as
may be necessary to elect (and maintain in office) as members of the Purchaser’s Board of Directors the following persons:
(a) Two
(2) persons designated by the Shareholders (each a “Shareholders Designee,” and collectively, the “Shareholders
Designees”) before the third anniversary of the Closing Date, and three (3) Shareholders Designees after the third anniversary
of the Closing Date;
(b)
Three (3) persons (each a “Shareholders Independent Designee,” and collectively the “Shareholders
Independent Designees”) designated by the Shareholders. Each of the Shareholders Independent Designee shall qualify as
an independent director under the Exchange Act and the rules of any applicable stock exchange; and
(c) One
(1) person (the “Oriental Designee”) designated by Oriental Holdings Limited until the third anniversary of
the Closing Date;
(d)
One (1) person (the “Oriental Independent Designee”) designated by Oriental Holdings Limited. The Oriental
Independent Designees shall qualify as an independent director under the Exchange Act and the rules of any applicable stock exchange
until the sixth anniversary of the Closing Date.
3.2
Initial Designees. The initial Shareholders Designees are [*] and [*]. The initial Shareholders Independent Designees
are [*], [*] and [*]. The initial Oriental Designee is Yongsheng Liu. The initial Oriental Independent Designee is [*].
3.3
Size of the Board. The parties hereto agree that they shall vote their Voting Shares to maintain the size of
the Purchaser’s Board of Directors at seven (7) persons for a six (6)-year period following the Closing Date.
3.4
Obligations; Removal of Directors; Vacancies. The obligations of the Voting Parties pursuant to this Section
3 shall include any shareholder vote to amend the Purchaser’s memorandum and articles of association, as amended and restated,
as required to effect the intent of this Agreement. Each of the Voting Parties and the Purchaser agree not to take any actions
that would contravene or materially and adversely affect the provisions of this Agreement and the intention of the parties with
respect to the composition of the Purchaser’s Board of Directors as herein stated. The parties acknowledge that the fiduciary
duties of each member of the Purchaser’s Board of Directors are to the Purchaser’s shareholders as a whole. In the
event any director elected pursuant to the terms hereof ceases to serve as a member of the Purchaser’s Board of Directors,
the Voting Parties agree to take all such action as is reasonable and necessary, including the voting of shares of capital stock
of the Purchaser by the Voting Parties as to which they have beneficial ownership, to cause the election or appointment of such
other person designated by Oriental Holdings Limited or the Shareholders, as the case may be, to the Board of Directors as may
be designated on the terms provided herein.
4.
Successors in Interest of the Voting Parties and the Purchaser. The provisions of this Agreement shall be binding
upon the successors in interest of any Voting Party with respect to any of such Voting Party’s Voting Shares or any voting
rights therein, unless such shares are sold into the public markets. Each Voting Party shall not, and the Purchaser shall not,
permit the transfer of any Voting Party’s Voting Shares (except for sales of Voting Shares into the public markets), unless
and until the person to whom such securities are to be transferred shall have executed a written agreement pursuant to which such
person becomes a party to this Agreement and agrees to be bound by all the provisions hereof as if such person was a Voting Party
hereunder.
5.
Covenants. Each Voting Party agrees to take all actions required to ensure that the rights given to each Voting
Party hereunder are effective and that each Voting Party enjoys the benefits thereof. Such actions include, without limitation,
the use of best efforts to cause the nomination of the designees, as provided herein, for election as directors of the Purchaser.
No Voting Party will, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be performed
hereunder by any such Voting Party, as applicable, but will at all times in good faith assist in the carrying out of all of the
provisions of this Agreement and in the taking of all such actions as may be necessary or appropriate in order to protect the rights
of each Voting Party hereunder against impairment.
6.
Grant of Proxy. The parties agree that this Agreement does not constitute the granting of a proxy to any party
or any other person; provided, however, that should the provisions of this Agreement be construed to constitute the granting of
proxies, such proxies shall be deemed coupled with an interest and are irrevocable for the term of this Agreement.
7.
Restrictive Legend. Until the termination of this Agreement, each certificate representing any of the Voting
Shares shall be marked by the Purchaser with a legend reading as follows:
“THE
SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT (A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER) AND BY ACCEPTING ANY
INTEREST IN SUCH SHARES THE PERSON HOLDING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS
OF SAID VOTING AGREEMENT.”
8.
Specific Enforcement. It is agreed and understood that monetary damages would not adequately compensate an injured
party for the breach of this Agreement by any party hereto, that this Agreement shall be specifically enforceable, and that any
breach of this Agreement shall be the proper subject of a temporary or permanent injunction or restraining order. Further, each
party hereto waives any claim or defense that there is an adequate remedy at law for such breach or threatened breach and agrees
that a party’s rights would be materially and adversely affected if the obligations of the other parties under this Agreement
were not carried out in accordance with the terms and conditions hereof.
9.
Manner of Voting. The voting of shares pursuant to this Agreement may be effected in person, by proxy, by written
consent or in any other manner permitted by applicable law.
10.
Termination. This Agreement shall terminate upon the first to occur of the following:
10.1
the date that is six (6) years from the Closing Date; or
10.2
immediately prior to a transaction pursuant to which a person or group other than current shareholders of the Purchaser
or the Voting Parties, or their respective affiliates, will control greater than 50% of the Purchaser’s voting power with
respect to the election of directors of the Purchaser.
11.
Amendments and Waivers. Except as otherwise provided herein, any provision of this Agreement may be amended or
the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only
with the written consent of (a) the Purchaser, and (b) the holders of a majority of Voting Shares then held by the Voting Parties,
voting separately as a class; provided, however, that the right of Oriental Holdings Limited to nominate the Oriental Designee
and Oriental Independent Designee shall not be amended without the written consent of Oriental Holdings Limited; and provided
further, that the right of the Shareholders to nominate the Shareholders Designees or the Shareholders Independent Designees
shall not be amended without the written consent of the Shareholders.
12.
Stock Splits, Stock Dividends, etc. In the event of any stock split, stock dividend, recapitalization, reorganization
or the like, any securities issued with respect to Voting Shares held by Voting Parties shall become Voting Shares for purposes
of this Agreement.
13.
Severability. In the event that any provision of the Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
14.
Governing Law. This Agreement and the legal relations between the parties arising hereunder shall be governed
by and interpreted in accordance with the laws of the State of New York without reference to its conflicts of laws provisions,
except that all matters relating to the fiduciary duties of the Purchaser’s Board of Directors shall be subject to the laws
of the Republic of the British Virgin Islands.
15.
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original
and all of which together shall constitute one instrument.
16.
Successors and Assigns. Except as otherwise expressly provided in this Agreement, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors and assigns of the parties hereto.
17.
Entire Agreement. This Agreement constitutes the full and entire understanding and agreement among the parties,
and supersedes any prior agreement or understanding among the parties, with regard to the subjects hereof and thereof, and no party
shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically
set forth herein or therein.
[Remainder of page
intentionally left blank; signature page follows]
This Voting Agreement is hereby executed
effective as of the date first set forth above.
Purchaser
WEALTHBRIDGE ACQUISITION LIMITED,
a British Virgin Islands exempted company
Voting Parties
[*]
[*]
[*]
[*]
Signature Page to Wealthbridge Voting
Agreement
ANNEX
E
WEALTHBRIDGE ACQUISITION LIMITED
REGISTRATION RIGHTS AGREEMENT
This Registration Rights
Agreement (this “Agreement”) is entered into as of [*], 2019, by and among Wealthbridge Acquisition Limited,
a British Virgin Islands company (the “Company”) and the undersigned parties listed under Shareholder on the
signature page hereto (each, an “Shareholder” and collectively, the “Shareholders”). Capitalized
terms used and not otherwise defined herein shall have the meanings given such terms in the Share Exchange Agreement (as defined
below).
WHEREAS, pursuant to
a Share Exchange Agreement dated as of [*], 2019 (“Share Exchange Agreement”) by and among the Company, Scienjoy
Inc., and the Shareholders, the Shareholders will receive the Merger Shares (as defined herein) in exchange for the shares of Capital
Stock of Scienjoy Inc., a Cayman Islands company;
WHEREAS, pursuant to
the terms of the Share Exchange Agreement, the Shareholders and the Company desire to enter into this Agreement to provide the
Shareholders with certain rights relating to the registration of the securities held by them as of the date hereof;
NOW, THEREFORE, in
consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS.
The following capitalized terms used herein have the following meanings:
“Agreement”
means this Agreement, as amended, restated, supplemented, or otherwise modified from time to time.
“Business
Combination” means the acquisition of direct or indirect ownership through a merger, share exchange, asset acquisition,
share purchase, recapitalization, reorganization or other similar type of transaction, of one or more businesses or entities.
“Commission”
means the Securities and Exchange Commission, or any other Federal agency then administering the Securities Act or the Exchange
Act.
“Common Stock”
means the authorized capitalization consisting of unlimited ordinary shares, no par value, of the Company.
“Company” is defined
in the preamble to this Agreement.
“Demand Registration”
is defined in Section 2.1.1.
“Demanding Holder” is
defined in Section 2.1.1.
“Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder, all as
the same shall be in effect at the time.
“Form S-3/F-3” is defined
in Section 2.3.
“Indemnified Party” is
defined in Section 4.3.
“Indemnifying Party”
is defined in Section 4.3.
“Shareholder Indemnified Party”
is defined in Section 4.1.
“Maximum Number of Shares”
means the number of shares of Common Stock of the Company in an underwritten offering, if the managing Underwriter or Underwriters
advises the Company in writing that the dollar amount or number of shares of Registrable Securities which the Shareholders desire
to sell, taken together with all other shares of Common stock or other securities which the Company desires to sell and the shares
of Common Stock, if any, as to which registration has been requested pursuant to written contractual registration rights held by
other shareholders of the Company who desire to sell, which exceeds the maximum dollar amount or maximum number of shares that
can be sold in such offering without adversely affecting the proposed offering price, the timing, the distribution method, or the
probability of success of such offering such maximum dollar amount or maximum number of shares.
“Merger Shares” means
the shares of Common Stock of the Company issued or issuable to the Shareholders pursuant to the terms of the Share Exchange Agreement.
“Notices” is defined
in Section 6.2.
“Piggy-Back Registration”
is defined in Section 2.2.1.
“Prior Agreement” is
defined in Section 2.2.2.
“Register,” “Registered”
and “Registration” mean a registration effected by preparing and filing a registration statement or similar
document in compliance with the requirements of the Securities Act, and the applicable rules and regulations promulgated thereunder,
and such registration statement becoming effective.
“Registrable Securities”
means (i) the Merger Shares and (ii) any warrants, shares of capital stock or other securities of the Company issued as a dividend
or other distribution with respect to or in exchange for or in replacement of such Merger Shares. As to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when: (a) a Registration Statement with respect to the sale
of such securities shall have become effective under the Securities Act and such securities shall have been sold, transferred,
disposed of or exchanged in accordance with such Registration Statement; (b) such securities shall have been otherwise transferred,
new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent
public distribution of them shall not require registration under the Securities Act; (c) such securities shall have ceased to be
outstanding, or (d) the Registrable Securities are freely saleable under Rule 144 without volume limitations.
“Registration Statement”
means a registration statement filed by the Company with the Commission in compliance with the Securities Act and the rules and
regulations promulgated thereunder for a public offering and sale of equity securities, or securities or other obligations exercisable
or exchangeable for, or convertible into, equity securities (other than a registration statement on Form S-4/F-4 or Form S-8, or
their successors, or any registration statement covering only securities proposed to be issued in exchange for securities or assets
of another entity).
“SEC” means the Securities
and Exchange Commission.
“Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same
shall be in effect at the time.
“Shareholder” is defined
in the preamble to this Agreement.
“Underwriter” means a
securities broker-dealer who purchases any Registrable Securities as principal in an underwritten offering and not as part of such
broker-dealer’s market-making activities.
2. REGISTRATION
RIGHTS.
2.1 Demand
Registration Rights.
2.1.1 Request
for Registration. At any time and from time to time on or after the date of this Agreement, any Shareholder, may make a written
demand, on no more than two occasions, for registration under the Securities Act of all or part of their Registrable Securities,
as the case may be (a “Demand Registration”). Any demand for a Demand Registration shall specify the number
of shares of Registrable Securities proposed to be sold and the intended method(s) of distribution thereof. The Company will notify
all holders of Registrable Securities of the demand, and each holder of Registrable Securities who wishes to include all or a portion
of such holder’s Registrable Securities in the Demand Registration (each such holder including shares of Registrable Securities
in such registration, a “Demanding Holder”) shall so notify the Company within fifteen (15) days after the receipt
by the holder of the notice from the Company. Upon any such request, the Demanding Holders shall be entitled to have their Registrable
Securities included in the Demand Registration, subject to Section 2.1.4. The Company shall not be obligated to effect more than
an aggregate of two (2) Demand Registrations under this Section 2.1.1 in respect of all Registrable Securities.
2.1.2 Effective
Registration. A registration will not count as a Demand Registration until the Registration Statement filed with the Commission
with respect to such Demand Registration has been declared effective and the Company has complied with all of its obligations under
this Agreement with respect thereto; provided, however, that if, after such Registration Statement has been declared effective,
the offering of Registrable Securities pursuant to a Demand Registration is interfered with by any stop order or injunction of
the Commission or any other governmental agency or court, the Registration Statement with respect to such Demand Registration will
be deemed not to have been declared effective, unless and until, (i) such stop order or injunction is removed, rescinded or otherwise
terminated, and (ii) a majority-in-interest of the Demanding Holders thereafter elect to continue the offering; provided, further,
that the Company shall not be obligated to file a second Registration Statement until a Registration Statement that has been filed
is counted as a Demand Registration or is terminated.
2.1.3 Underwritten
Offering. If a majority-in-interest of the Demanding Holders so elect and such holders so advise the Company as part of their
written demand for a Demand Registration, the offering of such Registrable Securities pursuant to such Demand Registration shall
be in the form of an underwritten offering. In such event, the right of any holder to include its Registrable Securities in such
registration shall be conditioned upon such holder’s participation in such underwriting and the inclusion of such holder’s
Registrable Securities in the underwriting to the extent provided herein. All Demanding Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement in customary form with the Underwriter or Underwriters
selected for such underwriting by a majority-in-interest of the holders initiating the Demand Registration.
2.1.4 Reduction
of Offering. If the managing Underwriter or Underwriters for a Demand Registration that is to be an underwritten offering advises
the Company and the Demanding Holders in writing that the dollar amount or number of shares of Registrable Securities which the
Demanding Holders desire to sell, taken together with all other Common Stock or other securities which the Company desires to sell
and the Common Stock, if any, as to which registration has been requested pursuant to written contractual piggy-back registration
rights held by other shareholders of the Company who desire to sell, exceeds the Maximum Number of Shares, then the Company shall
include in such registration: (i) first, the Registrable Securities as to which Demand Registration has been requested by the Demanding
Holders (pro rata in accordance with the number of shares that each such Person has requested be included in such registration,
regardless of the number of shares held by each such Person (such proportion is referred to herein as “Pro Rata”))
that can be sold without exceeding the Maximum Number of Shares; (ii) second, to the extent that the Maximum Number of Shares has
not been reached under the foregoing clause (i), the Common Stock or other securities that the Company desires to sell that can
be sold without exceeding the Maximum Number of Shares; and (iii) third, to the extent that the Maximum Number of Shares has not
been reached under the foregoing clauses (i) and (ii), the Common Stock or other securities for the account of other persons that
the Company is obligated to register pursuant to written contractual arrangements with such persons and that can be sold without
exceeding the Maximum Number of Shares.
2.1.5 Withdrawal.
If a majority-in-interest of the Demanding Holders disapprove of the terms of any underwriting or are not entitled to include all
of their Registrable Securities in any offering, such majority-in-interest of the Demanding Holders may elect to withdraw from
such offering by giving written notice to the Company and the Underwriter or Underwriters of their request to withdraw prior to
the effectiveness of the Registration Statement filed with the Commission with respect to such Demand Registration. If the majority-in-interest
of the Demanding Holders withdraws from a proposed offering relating to a Demand Registration, then such registration shall not
count as a Demand Registration provided for in Section 2.1.
2.2 Piggy-Back
Registration.
2.2.1 Piggy-Back Rights. If
at any time on or after the date of this Agreement the Company proposes to file a Registration Statement under the Securities Act
with respect to an offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible
into, equity securities, by the Company for its own account or for shareholders of the Company for their account (or by the Company
and by shareholders of the Company), other than a Registration Statement (i) filed in connection with any employee stock option
or other benefit plan, (ii) for an exchange offer or offering of securities solely to the Company’s existing shareholders,
(iii) for an offering of debt that is convertible into equity securities of the Company or (iv) for a dividend reinvestment plan,
then the Company shall (x) give written notice of such proposed filing to the holders of Registrable Securities as soon as practicable
but in no event less than ten (10) days before the anticipated filing date, which notice shall describe the amount and type of
securities to be included in such offering, the intended method(s) of distribution, and the name of the proposed managing Underwriter
or Underwriters, if any, of the offering, and (y) offer to the holders of Registrable Securities in such notice the opportunity
to register the sale of such number of shares of Registrable Securities as such holders may request in writing within five (5)
days following receipt of such notice (a “Piggy-Back Registration”). The Company shall cause such Registrable
Securities to be included in such registration and shall use its reasonably best efforts to cause the managing Underwriter or Underwriters
of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration
on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method(s) of distribution thereof. All holders of Registrable Securities proposing to
distribute their securities through a Piggy-Back Registration that involves an Underwriter or Underwriters shall enter into an
underwriting agreement in customary form with the Underwriter or Underwriters selected for such Piggy-Back Registration.
2.2.2 Reduction
of Offering. If the managing Underwriter or Underwriters for a Piggy-Back Registration under this Agreement or a demand
registration on behalf of other holders of the Company’s securities under that certain Registration Rights Agreement
dated as of February 5, 2019 (“Prior Agreement”) that is to be an underwritten offering advises the
Company and the holders of Registrable Securities hereunder in writing that the dollar amount or number of shares of Common
Stock which the Company desires to sell, taken together with the shares of Common Stock, if any, as to which registration has
been demanded pursuant to the Prior Agreement, the Registrable Securities as to which registration shall otherwise be
required under this Section 2.2, and the shares of Common Stock, if any, as to which registration has been requested pursuant
to the this Agreement and the Prior Agreement, exceeds the Maximum Number of Shares in an underwritten offering, then the
Company shall include in any such registration:
a) If
the registration is undertaken for the Company’s account and the Company has previously complied with a demand registration
made pursuant to the Prior Agreement or the date of the initial filing of the registration statement for such offering is more
than 12 months after the date of this Agreement: (A) first, the shares of Common Stock or other securities that the Company desires
to sell that can be sold without exceeding the Maximum Number of Shares; (B) second, to the extent that the Maximum Number of Shares
has not been reached under the foregoing clause (A), the shares of Common Stock or other securities, if any, comprised of Registrable
Securities, as to which registration has been requested pursuant to the applicable piggy-back registration rights of security holders
party to this Agreement, and the holders of securities under the Prior Agreement, Pro Rata, that can be sold without exceeding
the Maximum Number of Shares; and (C) third, to the extent that the Maximum Number of Shares has not been reached under the foregoing
clauses (A) and (B), the shares of Common Stock or other securities for the account of other persons that the Company is obligated
to register pursuant to written contractual piggy-back registration rights with such persons and that can be sold without exceeding
the Maximum Number of Shares;
(b) If
the registration is undertaken for the Company’s account and the Company has not complied with a demand registration made
pursuant to the Prior Agreement or the date of the initial filing of the registration statement for such offering is within 12
months of the date of this Agreement: (A) first, the shares of Common Stock or other securities that the Company desires to sell
that can be sold without exceeding the Maximum Number of Shares; (B) second, to the extent that the Maximum Number of Shares has
not been reached under the foregoing clause (A), to the holders of securities party to the Prior Agreement, (C) third, to the extent
that the Maximum Number of Shares has not been reached under the foregoing clauses (A) and (B), the shares of Common Stock or other
securities, if any, comprised of Registrable Securities, as to which registration has been requested pursuant to the applicable
piggy-back registration rights of security holders party to this Agreement, and the holders of securities under the Prior Agreement,
Pro Rata, that can be sold without exceeding the Maximum Number of Shares; and (D) fourth, to the extent that the Maximum Number
of Shares has not been reached under the foregoing clauses (A), (B) and (C), the shares of Common Stock or other securities for
the account of other persons that the Company is obligated to register pursuant to written contractual piggy-back registration
rights with such persons and that can be sold without exceeding the Maximum Number of Shares;
c) If
the registration is a “demand” registration undertaken at the demand of persons, (A) first, the shares of Common Stock
or other securities for the account of the demanding persons under the Prior Agreement that can be sold without exceeding the Maximum
Number of Shares; (B) second, to the extent that the Maximum Number of Shares has not been reached under the foregoing clause (A),
the shares of Common Stock or other securities that the Company desires to sell that can be sold without exceeding the Maximum
Number of Shares; (C) third, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A)
and (B), collectively the shares of Common Stock or other securities comprised of Registrable Securities, Pro Rata, as to which
registration has been requested pursuant to the terms hereof, that can be sold without exceeding the Maximum Number of Shares;
and (D) fourth, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A), (B) and (C),
the shares of Common Stock or other securities for the account of other persons that the Company is obligated to register pursuant
to written contractual arrangements with such persons, that can be sold without exceeding the Maximum Number of Shares.
2.2.3 Not a Demand Registration. Registrations effected
pursuant to this Section 2.2 shall not be counted as Demand Registrations effected pursuant to Section 2.1.
2.2.4 Withdrawal.
Any holder of Registrable Securities may elect to withdraw such holder’s request for inclusion of Registrable Securities
in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of
the Registration Statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a
demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness
of such Registration Statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the holders
of Registrable Securities in connection with such Piggy-Back Registration as provided in Section 2.2.
2.3
Registrations on Form S-3/F-3. The holders of Registrable Securities may at any time and from time to time, request in writing
that the Company register the resale of any or all of such Registrable Securities on Form S-3/F-3 or any similar short-form registration
which may be available at such time (“Form S-3/F-3”); provided, however, that the Company shall not be obligated
to effect such request through an underwritten offering. Upon receipt of such written request, the Company will promptly give written
notice of the proposed registration to all other holders of Registrable Securities, and, as soon as practicable thereafter, effect
the registration of all or such portion of such holder’s or holders’ Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities or other securities of the Company, if any, of any other
holder or holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of
such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration
pursuant to this Section 2.3: (i) if Form S-3/F-3 is not available for such offering; or (ii) if the holders of the Registrable
Securities, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) at any aggregate price to the public of less than $500,000. Registrations
effected pursuant to this Section 2.3 shall not be counted as Demand Registrations effected pursuant to Section 2.1.
3. REGISTRATION
PROCEDURES.
3.1 Filings;
Information. Whenever the Company is required to effect the registration of any Registrable Securities pursuant to Section
2, the Company shall use its reasonably best efforts to effect the registration and sale of such Registrable Securities in accordance
with the intended method(s) of distribution thereof as expeditiously as practicable, and in connection with any such request:
3.1.1 Copies. The Company
shall, prior to filing a Registration Statement or prospectus, or any amendment or supplement thereto, furnish without charge to
the holders of Registrable Securities included in such registration, and such holders’ legal counsel, copies of such Registration
Statement as proposed to be filed, each amendment and supplement to such Registration Statement (in each case including all exhibits
thereto and documents incorporated by reference therein), the prospectus included in such Registration Statement (including each
preliminary prospectus), and such other documents as the holders of Registrable Securities included in such registration or legal
counsel for any such holders may request in order to facilitate the disposition of the Registrable Securities owned by such holders.
3.1.2 Amendments and
Supplements. The Company shall prepare and file with the Commission such amendments, including post-effective amendments,
and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep
such Registration Statement effective and in compliance with the provisions of the Securities Act until all Registrable
Securities and other securities covered by such Registration Statement have been disposed of in accordance with the intended
method(s) of distribution set forth in such Registration Statement or such securities have been withdrawn.
3.1.3 Notification. After the
filing of a Registration Statement, the Company shall promptly, and in no event more than two (2) business days after such
filing, notify the holders of Registrable Securities included in such Registration Statement of such filing, and shall
further notify such holders promptly and confirm such advice in writing in all events within two (2) business days of the
occurrence of any of the following: (i) when such Registration Statement becomes effective; (ii) when any post-effective
amendment to such Registration Statement becomes effective; (iii) the issuance or threatened issuance by the Commission of
any stop order (and the Company shall take all actions required to prevent the entry of such stop order or to remove it if
entered); and (iv) any request by the Commission for any amendment or supplement to such Registration Statement or any
prospectus relating thereto or for additional information or of the occurrence of an event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the securities covered by
such Registration Statement, such prospectus will not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements therein not misleading, and promptly make
available to the holders of Registrable Securities included in such Registration Statement any such supplement or amendment;
except that before filing with the Commission a Registration Statement or prospectus or any amendment or supplement thereto,
including documents incorporated by reference, the Company shall furnish to the holders of Registrable Securities included in
such Registration Statement and to the legal counsel for any such holders, copies of all such documents proposed to be filed
sufficiently in advance of filing to provide such holders and legal counsel with a reasonable opportunity to review such
documents and comment thereon, and the Company shall not file any Registration Statement or prospectus or amendment or
supplement thereto, including documents incorporated by reference, to which such holders or their legal counsel shall
object.
3.1.4 State Securities Laws
Compliance. The Company shall use its reasonably best efforts to (i) register or qualify the Registrable Securities
covered by the Registration Statement under such securities or “blue sky” laws of such jurisdictions in the
United States as the holders of Registrable Securities included in such Registration Statement (in light of their intended
plan of distribution) may request and (ii) take such action necessary to cause such Registrable Securities covered by the
Registration Statement to be registered with or approved by such other governmental authorities as may be necessary by virtue
of the business and operations of the Company and do any and all other acts and things that may be necessary or advisable to
enable the holders of Registrable Securities included in such Registration Statement to consummate the disposition of such
Registrable Securities in such jurisdictions; provided, however, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph or subject
itself to taxation in any such jurisdiction.
3.1.5 Agreements for
Disposition. The Company shall enter into customary agreements (including, if applicable, an underwriting agreement in
customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of
such Registrable Securities. The representations, warranties and covenants of the Company in any underwriting agreement which
are made to or for the benefit of any Underwriters, to the extent applicable, shall also be made to and for the benefit of
the holders of Registrable Securities included in such registration statement. No holder of Registrable Securities included
in such registration statement shall be required to make any representations or warranties in the underwriting agreement
except, if applicable, with respect to such holder’s organization, good standing, authority, title to Registrable
Securities, lack of conflict of such sale with such holder’s material agreements and organizational documents, and with
respect to written information relating to such holder that such holder has furnished in writing expressly for inclusion in
such Registration Statement or as otherwise provided herein.
3.1.6 Cooperation.
The principal executive officer of the Company, the principal financial officer of the Company, the principal accounting
officer of the Company and all other officers and members of the management of the Company shall cooperate fully in any
offering of Registrable Securities hereunder, which cooperation shall include, without limitation, the preparation of the
Registration Statement with respect to such offering and all other offering materials and related documents, and
participation in meetings with Underwriters, attorneys, accountants and potential stockholders.
3.1.7 Records.
The Company shall make available for inspection by the holders of Registrable Securities included in such Registration
Statement, any Underwriter participating in any disposition pursuant to such registration statement and any attorney,
accountant or other professional retained by any holder of Registrable Securities included in such Registration Statement or
any Underwriter, all financial and other records, pertinent corporate documents and properties of the Company, as shall be
necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors
and employees to supply all information requested by any of them in connection with such Registration Statement.
3.1.8 Opinions
and Comfort Letters. Upon request, the Company shall furnish to each holder of Registrable Securities included in any
Registration Statement a signed counterpart, addressed to such holder, of (i) any opinion of counsel to the Company delivered
to any Underwriter and (ii) any comfort letter from the Company’s independent public accountants delivered to any
Underwriter. In the event no legal opinion is delivered to any Underwriter, the Company shall furnish to each holder of
Registrable Securities included in such Registration Statement, at any time that such holder elects to use a prospectus, an
opinion of counsel to the Company to the effect that the Registration Statement containing such prospectus has been declared
effective and that no stop order is in effect.
3.1.9 Earnings
Statement. The Company shall comply with all applicable rules and regulations of the Commission and the Securities Act,
and make available to its shareholders, as soon as practicable, an earnings statement covering a period of twelve (12)
months, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
3.1.10 Listing.
The Company shall use its reasonably best efforts to cause all Registrable Securities included in any registration to be listed
on such exchanges or otherwise designated for trading in the same manner as similar securities issued by the Company are then
listed or designated or, if no such similar securities are then listed or designated, in a manner satisfactory to the holders
of a majority of the Registrable Securities included in such registration.
3.1.11 Road Show. If the
registration involves the registration of Registrable Securities involving gross proceeds in excess of $5,000,000, the
Company shall use its reasonable efforts to make available senior executives of the Company to participate in customary
“road show” presentations that may be reasonably requested by the Underwriter in any underwritten offering.
3.2 Obligation
to Suspend Distribution. Upon receipt of any notice from the Company of the happening of any event of the kind described in
Section 3.1.3(iv), or, in the case of a resale registration on Form S-3 pursuant to Section 2.1.2 hereof, upon any suspension by
the Company, pursuant to a written insider trading compliance program adopted by the Company’s Board of Directors, of the
ability of all “insiders” covered by such program to transact in the Company’s securities because of the existence
of material non-public information, each holder of Registrable Securities included in any registration shall immediately discontinue
disposition of such Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such
holder receives the supplemented or amended prospectus contemplated by Section 3.1.3(iv) or the restriction on the ability of “insiders”
to transact in the Company’s securities is removed, as applicable, and, if so directed by the Company, each such holder will
deliver to the Company all copies, other than permanent file copies then in such holder’s possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of such notice.
3.3 Registration
Expenses. The Company shall bear all costs and expenses incurred in connection with any registration pursuant to Section 2.1,
2.2, and 2.3, and all expenses incurred in performing or complying with its other obligations under this Agreement, whether or
not the Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees; (ii) fees
and expenses of compliance with securities or “blue sky” laws (including fees and disbursements of counsel in connection
with blue sky qualifications of the Registrable Securities); (iii) printing expenses; (iv) the Company’s internal expenses
(including, without limitation, all salaries and expenses of its officers and employees); (v) the fees and expenses incurred in
connection with the listing of the Registrable Securities as required by Section 3.1.11; (vi) Financial Industry Regulatory Authority
fees; (vii) fees and disbursements of counsel for the Company and fees and expenses for independent certified public accountants
retained by the Company (including the expenses or costs associated with the delivery of any opinions or comfort letters requested
pursuant to Section 3.1.8); (viii) the reasonable fees and expenses of any special experts retained by the Company in connection
with such registration and (ix) the reasonable fees and expenses of one legal counsel selected by the holders of a majority-in-interest
of the Registrable Securities included in such registration. The Company shall have no obligation to pay any underwriting discounts
or selling commissions attributable to the Registrable Securities being sold by the holders thereof, which underwriting discounts
or selling commissions shall be borne by such holders. Additionally, in an underwritten offering, all selling shareholders and
the Company shall bear the expenses of the Underwriter pro rata in proportion to the respective amount of shares each is selling
in such offering.
3.4 Information.
The holders of Registrable Securities shall provide such information as may reasonably be requested by the Company, or the managing
Underwriter, if any, in connection with the preparation of any Registration Statement, including amendments and supplements thereto,
in order to effect the registration of any Registrable Securities under the Securities Act pursuant to Section 2 and in connection
with the Company’s obligation to comply with federal and applicable state securities laws. In addition, the holders of Registrable
Securities shall comply with all prospectus delivery requirements under the Securities Act and applicable SEC regulations.
4. INDEMNIFICATION
AND CONTRIBUTION.
4.1 Indemnification
by the Company. The Company agrees to indemnify and hold harmless each Shareholder and each other holder of Registrable Securities,
and each of their respective officers, employees, affiliates, directors, partners, members, attorneys and agents, and each person,
if any, who controls an Shareholder and each other holder of Registrable Securities (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) (each, an “Shareholder Indemnified Party”), from and against any expenses,
losses, judgments, claims, damages or liabilities, whether joint or several, (i) arising out of or based upon any untrue statement
(or allegedly untrue statement) of a material fact contained in any Registration Statement under which the sale of such Registrable
Securities was registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained
in the Registration Statement, or any amendment or supplement to such Registration Statement, or (ii) arising out of or based upon
any omission (or alleged omission) to state a material fact required to be stated therein or necessary to make the statements therein
not misleading, or any violation by the Company of the Securities Act, the Exchange Act, any federal or state or foreign securities
or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company
in connection with any such registration; and the Company shall promptly reimburse the Shareholder Indemnified Party for any legal
and any other expenses reasonably incurred by such Shareholder Indemnified Party in connection with investigating and defending
any such expense, loss, judgment, claim, damage, liability or action; provided, however, that the indemnity agreement contained
in this Section 4.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company
be liable in any such case to the extent that any such expense, loss, claim, damage or liability arises out of or is based upon
any untrue statement or allegedly untrue statement or omission or alleged omission made in such Registration Statement, preliminary
prospectus, final prospectus, or summary prospectus, or any such amendment or supplement, in reliance upon and in conformity with
information furnished to the Company, in writing, by such selling holder expressly for use therein. The Company also shall indemnify
any Underwriter of the Registrable Securities, their officers, affiliates, directors, partners, members and agents and each person
who controls such Underwriter on substantially the same basis as that of the indemnification provided above in this Section 4.1.
4.2 Indemnification
by Holders of Registrable Securities. Each selling holder of Registrable Securities will, in the event that any registration
is being effected under the Securities Act pursuant to this Agreement of any Registrable Securities held by such selling holder,
indemnify and hold harmless the Company, each of its directors and officers and each Underwriter (if any), and each other selling
holder and each other person, if any, who controls another selling holder or such Underwriter within the meaning of the Securities
Act, against any losses, claims, judgments, damages or liabilities, whether joint or several, insofar as such losses, claims, judgments,
damages or liabilities (or actions in respect thereof) (i) arise out of or are based upon any untrue statement or allegedly untrue
statement of a material fact contained in any Registration Statement under which the sale of such Registrable Securities was registered
under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement,
or any amendment or supplement to the Registration Statement, or (ii) arise out of or are based upon any omission or the alleged
omission to state a material fact required to be stated therein or necessary to make the statement therein not misleading, in each
case only to the extent that the statement or omission was made in reliance upon and in conformity with information furnished in
writing to the Company by such selling holder expressly for use therein; and such selling holder shall reimburse the Company, its
directors and officers, and each other selling holder or controlling person for any legal or other expenses reasonably incurred
by any of them in connection with investigation or defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 4.2 shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent of such selling Shareholder (which consent shall
not be unreasonably withheld). Each selling holder’s indemnification obligations under this Section 4.2 and Section 4.4 in
the aggregate shall be several and not joint and shall be limited to the amount of any net proceeds actually received by such selling
holder.
4.3 Conduct
of Indemnification Proceedings. Promptly after receipt by any person of any notice of any loss, claim, damage or liability
or any action in respect of which indemnity may be sought pursuant to Section 4.1 or 4.2, such person (the “Indemnified
Party”) shall, if a claim in respect thereof is to be made against any other person for indemnification hereunder, notify
such other person (the “Indemnifying Party”) in writing of the loss, claim, judgment, damage, liability or action;
provided, however, that the failure by the Indemnified Party to notify the Indemnifying Party shall not relieve the Indemnifying
Party from any liability which the Indemnifying Party may have to such Indemnified Party hereunder, except and solely to the extent
the Indemnifying Party is actually prejudiced by such failure. If the Indemnified Party is seeking indemnification with respect
to any claim or action brought against the Indemnified Party, then the Indemnifying Party shall be entitled to participate in such
claim or action, and, to the extent that it wishes, jointly with all other Indemnifying Parties, to assume control of the defense
thereof with counsel satisfactory to the Indemnified Party. After notice from the Indemnifying Party to the Indemnified Party of
its election to assume control of the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified
Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other
than reasonable costs of investigation; provided, however, that in any action in which both the Indemnified Party and the Indemnifying
Party are named as defendants, the Indemnified Party shall have the right to employ separate counsel (but no more than one such
separate counsel) to represent the Indemnified Party and its controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, with the fees and
expenses of such counsel to be paid by such Indemnifying Party if, based upon the written opinion of counsel of such Indemnified
Party, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests
between them. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, consent to entry of judgment
or effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could
have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such judgment or settlement
includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding.
4.4 Contribution.
4.4.1 If the indemnification provided
for in the foregoing Sections 4.1, 4.2 and 4.3 is held by a court of competent jurisdiction to be unavailable to any Indemnified
Party in respect of any loss, claim, damage, liability or action referred to herein, then each such Indemnifying Party, in lieu
of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of
such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the Indemnified
Parties and the Indemnifying Parties in connection with the actions or omissions which resulted in such loss, claim, damage, liability
or action, as well as any other relevant equitable considerations. The relative fault of any Indemnified Party and any Indemnifying
Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to information supplied by such Indemnified Party or such
Indemnifying Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
4.4.2 The
parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 4.4 were determined by
pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred
to in the immediately preceding Section 4.4.1.
4.4.3 The
amount paid or payable by an Indemnified Party as a result of any loss, claim, damage, liability or action referred to in the
immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other
expenses incurred by such Indemnified Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.4, no holder of Registrable Securities shall be required to contribute any
amount in excess of the dollar amount of the net proceeds (after payment of any underwriting fees, discounts, commissions or
taxes) actually received by such holder from the sale of Registrable Securities which gave rise to such contribution
obligation. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
4.4.4 The
obligations of the Company and the holders of Registrable Securities under this Section 4 shall survive the completion of any
offering of Registrable Securities in a Registration Statement under this Agreement, regardless of the expiration of any
statutes of limitation or extensions of such statutes.
5. RULE
144.
5.1 Rule
144. The Company covenants that it shall (i) make and keep public information available, as those terms are understood and
defined in Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times; (ii) file any reports
or other documents required to be filed by it under the Securities Act and the Exchange Act; (iii) furnish to each Shareholder
(A) a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, and of the Exchange
Act (at any time after it has become subject to such reporting requirements), (B) a copy of the most recent annual, interim, quarterly
or other report of the Company, and (C) such other reports and documents as such Shareholder may reasonably request in availing
itself of any rule or regulation of the Commission allowing it to sell any such securities without registration; and (iv) take
such further action as any Shareholder may reasonably request to the extent required from time to time to enable such Shareholder
to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by
Rule 144 under the Securities Act, as such Rules may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
6. MISCELLANEOUS.
6.1 Assignment;
No Third Party Beneficiaries. This Agreement and the rights, duties and obligations of the Company hereunder may not be assigned
or delegated by the Company in whole or in part. This Agreement and the rights, duties and obligations of the holders of Registrable
Securities hereunder may be freely assigned or delegated by such holder of Registrable Securities in conjunction with and to the
extent of any transfer of Registrable Securities by any such holder. This Agreement and the provisions hereof shall be binding
upon and shall inure to the benefit of each of the parties, to the permitted assigns of the Shareholders or holder of Registrable
Securities or of any assignee of the Shareholders or holder of Registrable Securities. This Agreement is not intended to confer
any rights or benefits on any persons that are not party hereto other than as expressly set forth in Article 4 and this Section
6.1.
6.2 Notices.
All notices, demands, requests, consents, approvals or other communications (collectively, “Notices”) required
or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be personally
served, delivered by reputable air courier service with charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile,
addressed as set forth below, or to such other address as such party shall have specified most recently by written notice. Notice
shall be deemed given on the date of service or transmission if personally served or transmitted by telegram, telex or facsimile;
provided, that if such service or transmission is not on a business day or is after normal business hours, then such notice shall
be deemed given on the next business day. Notice otherwise sent as provided herein shall be deemed given on the next business day
following timely delivery of such notice to a reputable air courier service with an order for next-day delivery.
To the Company:
Unit B
17/F Success Commercial Building
245-251 Hennessy Road
Wanchai, Hong Kong
Attn: Yongsheng Liu
Tel: (86) 186-0217-2929
with a copy
to (which shall not constitute notice):
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Attn: Giovanni Caruso, Esq.
Email: gcaruso@loeb.com
Fax: (212) 407-4866
To a Shareholder, to the address set forth below such
Shareholder’s name on Exhibit A hereto.
6.3 Severability.
This Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid
or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision
as similar in terms to such invalid or unenforceable provision as may be possible that is valid and enforceable.
6.4 Counterparts.
This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which taken together
shall constitute one and the same instrument.
6.5 Entire
Agreement. This Agreement (including all agreements entered into pursuant hereto and all certificates and instruments delivered
pursuant hereto and thereto) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede
all prior and contemporaneous agreements, representations, understandings, negotiations and discussions between the parties, whether
oral or written.
6.6 Modifications
and Amendments. No amendment, modification or termination of this Agreement shall be binding upon the Company unless executed
in writing by the Company. No amendment, modification or termination of this Agreement shall be binding upon the holders of the
Registrable Securities unless executed in writing by the holders of the majority Registrable Securities.
6.7 Titles
and Headings. Titles and headings of sections of this Agreement are for convenience only and shall not affect the construction
of any provision of this Agreement.
6.8 Waivers
and Extensions. Any party to this Agreement may waive any right, breach or default which such party has the right to waive,
provided that such waiver will not be effective against the waiving party unless it is in writing, is signed by such party, and
specifically refers to this Agreement. Waivers may be made in advance or after the right waived has arisen or the breach or default
waived has occurred. Any waiver may be conditional. No waiver of any breach of any agreement or provision herein contained shall
be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement or provision herein contained. No waiver
or extension of time for performance of any obligations or acts shall be deemed a waiver or extension of the time for performance
of any other obligations or acts.
6.9 Remedies
Cumulative. In the event that the Company fails to observe or perform any covenant or agreement to be observed or performed
under this Agreement, the Shareholder or any other holder of Registrable Securities may proceed to protect and enforce its rights
by suit in equity or action at law, whether for specific performance of any term contained in this Agreement or for an injunction
against the breach of any such term or in aid of the exercise of any power granted in this Agreement or to enforce any other legal
or equitable right, or to take any one or more of such actions, without being required to post a bond. None of the rights, powers
or remedies conferred under this Agreement shall be mutually exclusive, and each such right, power or remedy shall be cumulative
and in addition to any other right, power or remedy, whether conferred by this Agreement or now or hereafter available at law,
in equity, by statute or otherwise.
6.10 Governing
Law. This Agreement shall be governed by, interpreted under, and construed in accordance with the internal laws of the State
of New York applicable to agreements made and to be performed within the State of New York, without giving effect to any choice-of-law
provisions thereof that would compel the application of the substantive laws of any other jurisdiction.
6.11 Waiver
of Trial by Jury. Each party hereby irrevocably and unconditionally waives the right to a trial by jury in any action, suit,
counterclaim or other proceeding (whether based on contract, tort or otherwise) arising out of, connected with or relating to this
Agreement, the transactions contemplated hereby, or the actions of the Shareholder in the negotiation, administration, performance
or enforcement hereof.
[Remainder of page intentionally left
blank; signature page follows]
IN WITNESS WHEREOF, the parties have caused
this Registration Rights Agreement to be executed and delivered by their duly authorized representatives as of the date first written
above.
COMPANY:
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WEALTHBRIDGE ACQUISITION LIMITED
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Signature Page to Wealthbridge Registration
Rights Agreement
EXHIBIT A
Name and Address of Shareholders
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To all Shareholders:
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ANNEX
F
LOCK-UP
AGREEMENTS
RESALE LOCK-UP AGREEMENT
This Resale Lock-Up Agreement (this
“Agreement”) is dated as of [*], 2019, by and between the stockholder set forth on the signature page to this
Agreement (the “Holder”) and Wealthbridge Acquisition Limited, a British Virgin Islands company (the “Purchaser”).
Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Share Exchange Agreement
(as defined below).
BACKGROUND
A. The Purchaser
has entered into that certain Share Exchange Agreement, dated as of [*], 2019 (the “Share Exchange Agreement”),
by and among the Purchaser, Scienjoy Inc., a Cayman Islands company (the “Company”), the stockholders of the
Company, and certain other persons and entities.
B. The Share Exchange
Agreement provides for, among other things, the Purchaser acquires 100% of the shares of Company Common Stock in exchange for the
Closing Payment Shares (as defined in the Share Exchange Agreement) in accordance with the terms set forth in the Share Exchange
Agreement; and.
C. The Holder
is the record and/or beneficial owner of shares of common stock of the Company and is therefore entitled to receive Purchaser Common
Stock (as defined in the Share Exchange Agreement) pursuant to the Share Exchange Agreement.
D. As a condition
of, and as a material inducement for the Purchaser to enter into and consummate the transactions contemplated by the Share Exchange
Agreement, the Holder has agreed to execute and deliver this Agreement.
NOW, THEREFORE, for and in consideration
of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties, intending to be legally bound, agree as follows:
AGREEMENT
1. Lock-Up.
(a) During
the Lock-up Period (as defined below), the Holder irrevocably agrees that, except for (i) the Escrow Shares to be delivered to
the Escrow Agent pursuant to the Share Exchange Agreement and the Escrow Agreement, (ii) as approved by the Board of the Purchaser,
and (iii) the exceptions provided in Section 1.(c) hereof, it, he or she will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any of the Lock-up Shares (as defined below) (including any securities convertible into, or
exchangeable for, or representing the rights to receive, Lock-up Shares), enter into a transaction that would have the same effect,
or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership
of such Lock-up Shares, whether any of these transactions are to be settled by delivery of any such Lock-up Shares, in cash or
otherwise, publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap,
hedge or other arrangement, or engage in any Short Sales (as defined below) with respect to any security of the Purchaser (each
a “Disposition”).
(b) In
furtherance of the foregoing, the Purchaser will (i) place an irrevocable stop order on all Closing Payment Shares which are Lock-up
Shares, including those which may be covered by a registration statement, and (ii) notify the Purchaser’s transfer agent
in writing of the stop order and the restrictions on such Lock-up Shares under this Agreement and direct the Purchaser’s
transfer agent not to process any attempts by the Holder to resell or transfer any Lock-up Shares, except in compliance with this
Agreement.
(c) Notwithstanding
Section 1.(a) and Section 1.(b) hereof, the restrictions set forth in Section 1.(a) hereof shall not apply
to or restrict a Disposition by the Holder in connection with a transaction in which (i) any person or group shall have acquired
or entered into a binding definitive agreement that has been approved by the board of directors of the Purchaser (or any duly constituted
committee thereof) to acquire (1) more than 50% of the voting securities of the Purchaser or (2) assets of the Purchaser and the
Company Group representing more than 50% of the consolidated earnings power of the Purchaser and the Company Group, taken as a
whole, or (ii) any person shall have commenced a tender or exchange offer which, if consummated, would result in such person’s
acquisition of Beneficial Ownership (as defined below) of more than 50% of the voting securities of the Purchaser, and in connection
therewith, the Purchaser files with the Commission (as defined below) a Schedule 14D-9 with respect to such offer that does not
either (1) recommend that the Purchaser’s shareholders reject such offer or (2) advise the Purchaser’s shareholders
that the board of directors is considering its response to the offer, or (iii) the Holder transfers its Lock-up Shares to an Affiliate
of the Holder or to any direct or indirect shareholder of the Holder, or (iv) the Holders transfers its Lock-up Shares as a bona
fide gift, provided, in the cases of (iii) and (iv) that the transferee executes a lock-up agreement substantially the same as
this Agreement. If the Purchaser commits a material breach of the Share Exchange Agreement prior to the Closing, this Agreement
shall be terminated, and it shall not be binding upon the Holder from such termination date.
(d) For
purposes hereof, “Short Sales” include, without limitation, all “short sales” as defined in Rule
200 promulgated under Regulation SHO under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements
(including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers.
(e) For
purpose of this agreement, “Lock-up Period” means a period of 365 calendar days from the Closing
Date under the Share Exchange Agreement.
(f) For
purpose of this agreement, “Beneficial Ownership” means beneficial ownership as defined under Rule 13d-3 under
the Exchange Act.
(g) For
purpose of this agreement, “Commission” means the United States Securities and Exchange Commission or any other
federal agency at the time administering the Exchange Act, or other governmental agency administering the securities laws in the
jurisdiction in which the Purchaser’s securities are registered or being registered.
2. Representations
and Warranties. Each of the parties hereto, by their respective execution and delivery of this Agreement, hereby represents
and warrants to the others and to all third party beneficiaries of this Agreement that (a) such party has the full right, capacity
and authority to enter into, deliver and perform its respective obligations under this Agreement, (b) this Agreement has been duly
executed and delivered by such party and is the binding and enforceable obligation of such party, enforceable against such party
in accordance with the terms of this Agreement, and (c) the execution, delivery and performance of such party’s obligations
under this Agreement will not conflict with or breach the terms of any other agreement, contract, commitment or understanding to
which such party is a party or to which the assets or securities of such party are bound. The Holder has independently evaluated
the merits of its decision to enter into and deliver this Agreement, and such Holder confirms that it has not relied on the advice
of the Purchaser, the Purchaser’s legal counsel, or any other person.
3. Beneficial
Ownership. The Holder hereby represents and warrants that it does not beneficially own, directly or through its nominees (as
determined in accordance with Section 13(d) of the Exchange Act, and the rules and regulations promulgated thereunder), any shares
of capital stock of the Purchaser, or any economic interest in or derivative of such stock, other than those Purchaser Common
Stock specified on the signature page hereto that the Holder will acquire at the Closing. For purposes of this Agreement, the
Purchaser Common Stock beneficially owned by the Holder as specified on the signature hereto, together with any Purchaser Common
Stock acquired during the Lock-up Period, if any, are collectively referred to as the “Lock-up Shares.”
4. No
Additional Fees/Payment. Other than the consideration specifically referenced herein, the parties hereto agree that no fee,
payment or additional consideration in any form has been or will be paid to the Holder in connection with this Agreement.
5. Notices.
Any notices required or permitted to be sent hereunder shall be delivered personally or by courier service to the following addresses,
or such other address as any party hereto designates by written notice to the other party. Provided, however, a transmission per
telefax or email shall be sufficient and shall be deemed to be properly served when the telefax or email is received if the signed
original notice is received by the recipient within three (3) calendar days thereafter.
(a) If
to the Purchaser:
Unit B
17/F Success Commercial Building
245-251 Hennessy Road
Wanchai, Hong Kong
Attn: Yongsheng
Liu
Tel: (86) 186-0217-2929
With
a copy (which shall not constitute notice) to:
Loeb & Loeb LLP
345 Park Avenue
New York, NY 10154
Attention: Giovanni Caruso, Esq.
Email: gcaruso@loeb.com
Fax: (212) 407-4866
(b) If
to the Holder, to the address set forth on the Holder’s signature page hereto,
or to such other address as any party may
have furnished to the others in writing in accordance herewith.
6. Enumeration
and Headings. The enumeration and headings contained in this Agreement are for convenience of reference only and shall not
control or affect the meaning or construction of any of the provisions of this Agreement.
7. Counterparts.
This Agreement may be executed in facsimile and in any number of counterparts, each of which when so executed and delivered shall
be deemed an original, but all of which shall together constitute one and the same agreement.
8. Successors
and Assigns. This Agreement and the terms, covenants, provisions and conditions hereof shall be binding upon, and shall inure
to the benefit of, the respective heirs, successors and assigns of the parties hereto. The Holder hereby acknowledges and agrees
that this Agreement is entered into for the benefit of and is enforceable by the Purchaser and its successors and assigns.
9. Severability.
If any provision of this Agreement is held to be invalid or unenforceable for any reason, such provision will be conformed to prevailing
law rather than voided, if possible, in order to achieve the intent of the parties and, in any event, the remaining provisions
of this Agreement shall remain in full force and effect and shall be binding upon the parties hereto.
10. Amendment.
This Agreement may be amended or modified by written agreement executed by each of the parties hereto.
11. Further
Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request
in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated
hereby.
12. No
Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against any party.
13. Dispute
Resolution. Article XII of the Share Exchange Agreement regarding arbitration of disputes is incorporated by reference herein
to apply with full force to any disputes arising under this Agreement.
14. Governing
Law. The terms and provisions of this Agreement shall be construed in accordance with the laws of the State of New York.
15. Controlling
Agreement. To the extent the terms of this Agreement (as amended, supplemented, restated or otherwise modified from time to
time) directly conflicts with a provision in the Share Exchange Agreement, the terms of this Agreement shall control.
[Remainder of page intentionally left
blank; signature page follows]
IN WITNESS WHEREOF, the parties hereto
have caused this Resale Lock-Up Agreement to be duly executed by their respective authorized signatories as of the date first indicated
above.
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WEALTHBRIDGE ACQUISITION LIMITED
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By:
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Name:
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Title:
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IN WITNESS WHEREOF, the
parties hereto have caused this Resale Lock-Up Agreement to be duly executed by their respective authorized signatories as of the
date first indicated above.
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HOLDER
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[*]
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By:
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Name:
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Title:
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Address:
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[*]
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NUMBER OF Lock-up Shares:
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[*] shares of Purchaser Common Stock
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RESALE LOCK-UP AGREEMENT
This Resale Lock-Up Agreement
(this “Agreement”) is dated as of [*], 2019, by and between the stockholder set forth on the signature page
to this Agreement (the “Holder”) and Wealthbridge Acquisition Limited, a British Virgin Islands company (the
“Purchaser”). Capitalized terms used and not otherwise defined herein shall have the meanings given such terms
in the Share Exchange Agreement (as defined below).
BACKGROUND
A. The
Purchaser has entered into that certain Share Exchange Agreement, dated as of [*], 2019 (the “Share Exchange Agreement”),
by and among the Purchaser, Scienjoy Inc., a Cayman Islands company (the “Company”), the stockholders of the
Company, and certain other persons and entities.
B. The
Share Exchange Agreement provides for, among other things, the Purchaser acquires 100% of the shares of Company Common Stock in
exchange for the Closing Payment Shares (as defined in the Share Exchange Agreement) in accordance with the terms set forth in
the Share Exchange Agreement; and.
C. The
Holder is the record and/or beneficial owner of shares of common stock of the Company and is therefore entitled to receive Purchaser
Common Stock (as defined in the Share Exchange Agreement) pursuant to the Share Exchange Agreement.
D. As
a condition of, and as a material inducement for the Purchaser to enter into and consummate the transactions contemplated by the
Share Exchange Agreement, the Holder has agreed to execute and deliver this Agreement.
NOW, THEREFORE, for and
in consideration of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, agree as follows:
AGREEMENT
1.
Lock-Up.
(a) During
the Lock-up Period (as defined below), the Holder irrevocably agrees that, except for (i) the Escrow Shares to be delivered to
the Escrow Agent pursuant to the Share Exchange Agreement and the Escrow Agreement, (ii) as approved by the Board of the Purchaser,
and (iii) the exceptions provided in Section 1.(c) hereof, it, he or she will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any of the Lock-up Shares (as defined below) (including any securities convertible into, or
exchangeable for, or representing the rights to receive, Lock-up Shares), enter into a transaction that would have the same effect,
or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership
of such Lock-up Shares, whether any of these transactions are to be settled by delivery of any such Lock-up Shares, in cash or
otherwise, publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap,
hedge or other arrangement, or engage in any Short Sales (as defined below) with respect to any security of the Purchaser (each
a “Disposition”).
(b) In
furtherance of the foregoing, the Purchaser will (i) place an irrevocable stop order on all Closing Payment Shares which are Lock-up
Shares, including those which may be covered by a registration statement, and (ii) notify the Purchaser’s transfer agent
in writing of the stop order and the restrictions on such Lock-up Shares under this Agreement and direct the Purchaser’s
transfer agent not to process any attempts by the Holder to resell or transfer any Lock-up Shares, except in compliance with this
Agreement.
(c) Notwithstanding
Section 1.(a) and Section 1.(b) hereof, the restrictions set forth in Section 1.(a) hereof shall not apply
to or restrict a Disposition by the Holder in connection with a transaction in which (i) any person or group shall have acquired
or entered into a binding definitive agreement that has been approved by the board of directors of the Purchaser (or any duly constituted
committee thereof) to acquire (1) more than 50% of the voting securities of the Purchaser or (2) assets of the Purchaser and the
Company Group representing more than 50% of the consolidated earnings power of the Purchaser and the Company Group, taken as a
whole, or (ii) any person shall have commenced a tender or exchange offer which, if consummated, would result in such person’s
acquisition of Beneficial Ownership (as defined below) of more than 50% of the voting securities of the Purchaser, and in connection
therewith, the Purchaser files with the Commission (as defined below) a Schedule 14D-9 with respect to such offer that does not
either (1) recommend that the Purchaser’s shareholders reject such offer or (2) advise the Purchaser’s shareholders
that the board of directors is considering its response to the offer, or (iii) the Holder transfers its Lock-up Shares to an Affiliate
of the Holder or to any direct or indirect shareholder of the Holder, or (iv) the Holder transfers its Lock-up Shares to another
Person in a private transaction after six (6) months from the Closing Date; or (v) the Holders transfers its Lock-up Shares as
a bona fide gift, provided, in the cases of (iii), (iv) and (v) that the transferee executes a lock-up agreement substantially
the same as this Agreement, and provided further, in the case of (iv) that such Disposition shall be approved the Purchaser’s
board of directors. If the Purchaser commits a material breach of the Share Exchange Agreement prior to the Closing, this Agreement
shall be terminated, and it shall not be binding upon the Holder from such termination date.
(d) For
purposes hereof, “Short Sales” include, without limitation, all “short sales” as defined in Rule
200 promulgated under Regulation SHO under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements
(including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers.
(e) For
purpose of this agreement, “Lock-up Period” means a period of 365 calendar days from the Closing Date under
the Share Exchange Agreement.
(f) For
purpose of this agreement, “Beneficial Ownership” means beneficial ownership as defined under Rule 13d-3 under
the Exchange Act.
(g) For
purpose of this agreement, “Commission” means the United States Securities and Exchange Commission or any other
federal agency at the time administering the Exchange Act, or other governmental agency administering the securities laws in the
jurisdiction in which the Purchaser’s securities are registered or being registered.
2.
Representations and Warranties. Each of the parties hereto, by their respective execution and delivery of this Agreement,
hereby represents and warrants to the others and to all third party beneficiaries of this Agreement that (a) such party has the
full right, capacity and authority to enter into, deliver and perform its respective obligations under this Agreement, (b) this
Agreement has been duly executed and delivered by such party and is the binding and enforceable obligation of such party, enforceable
against such party in accordance with the terms of this Agreement, and (c) the execution, delivery and performance of such party’s
obligations under this Agreement will not conflict with or breach the terms of any other agreement, contract, commitment or understanding
to which such party is a party or to which the assets or securities of such party are bound. The Holder has independently evaluated
the merits of its decision to enter into and deliver this Agreement, and such Holder confirms that it has not relied on the advice
of the Purchaser, the Purchaser’s legal counsel, or any other person.
3.
Beneficial Ownership. The Holder hereby represents and warrants that it does not beneficially own, directly or through
its nominees (as determined in accordance with Section 13(d) of the Exchange Act, and the rules and regulations promulgated thereunder),
any shares of capital stock of the Purchaser, or any economic interest in or derivative of such stock, other than those Purchaser
Common Stock specified on the signature page hereto that the Holder will acquire at the Closing. For purposes of this Agreement,
the Purchaser Common Stock beneficially owned by the Holder as specified on the signature hereto, together with any Purchaser
Common Stock acquired during the Lock-up Period, if any, are collectively referred to as the “Lock-up Shares.”
4.
No Additional Fees/Payment. Other than the consideration specifically referenced herein, the parties hereto agree
that no fee, payment or additional consideration in any form has been or will be paid to the Holder in connection with this Agreement.
5.
Notices. Any notices required or permitted to be sent hereunder shall be delivered personally or by courier service
to the following addresses, or such other address as any party hereto designates by written notice to the other party. Provided,
however, a transmission per telefax or email shall be sufficient and shall be deemed to be properly served when the telefax or
email is received if the signed original notice is received by the recipient within three (3) calendar days thereafter.
Unit B
17/F Success Commercial Building
245-251 Hennessy Road
Wanchai, Hong Kong
Attn: Yongsheng
Liu
Tel: (86) 186-0217-2929
With a copy (which
shall not constitute notice) to:
Loeb & Loeb
LLP
345 Park Avenue
New York, NY 10154
Attention: Giovanni Caruso, Esq.
Email: gcaruso@loeb.com
Fax: (212) 407-4866
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(b)
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If to the Holder, to the address set forth on the Holder’s
signature page hereto,
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or to such other address as any party may have
furnished to the others in writing in accordance herewith.
6.
Enumeration and Headings. The enumeration and headings contained in this Agreement are for convenience of reference
only and shall not control or affect the meaning or construction of any of the provisions of this Agreement.
7.
Counterparts. This Agreement may be executed in facsimile and in any number of counterparts, each of which when
so executed and delivered shall be deemed an original, but all of which shall together constitute one and the same agreement.
8.
Successors and Assigns. This Agreement and the terms, covenants, provisions and conditions hereof shall be binding
upon, and shall inure to the benefit of, the respective heirs, successors and assigns of the parties hereto. The Holder hereby
acknowledges and agrees that this Agreement is entered into for the benefit of and is enforceable by the Purchaser and its successors
and assigns.
9.
Severability. If any provision of this Agreement is held to be invalid or unenforceable for any reason, such provision
will be conformed to prevailing law rather than voided, if possible, in order to achieve the intent of the parties and, in any
event, the remaining provisions of this Agreement shall remain in full force and effect and shall be binding upon the parties
hereto.
10.
Amendment. This Agreement may be amended or modified by written agreement executed by each of the parties hereto.
11.
Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and
things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may
reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
12.
No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties
to express their mutual intent, and no rules of strict construction will be applied against any party.
13.
Dispute Resolution. Article XII of the Share Exchange Agreement regarding arbitration of disputes is incorporated
by reference herein to apply with full force to any disputes arising under this Agreement.
14.
Governing Law. The terms and provisions of this Agreement shall be construed in accordance with the laws of the
State of New York.
15.
Controlling Agreement. To the extent the terms of this Agreement (as amended, supplemented, restated or otherwise
modified from time to time) directly conflicts with a provision in the Share Exchange Agreement, the terms of this Agreement shall
control.
[Remainder of page intentionally left blank;
signature page follows]
IN WITNESS WHEREOF, the
parties hereto have caused this Resale Lock-Up Agreement to be duly executed by their respective authorized signatories as of the
date first indicated above.
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WEALTHBRIDGE ACQUISITION LIMITED
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By:
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Name:
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Title:
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IN WITNESS WHEREOF, the parties
hereto have caused this Resale Lock-Up Agreement to be duly executed by their respective authorized signatories as of the date
first indicated above.
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HOLDER
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[*]
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By:
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Name:
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Title:
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Address:
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[*]
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NUMBER OF Lock-up Shares:
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[*] shares of Purchaser Common Stock
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PROXY
FOR THE EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
OF
WEALTHBRIDGE ACQUISITION LIMITED
TO BE HELD ON MAY 5, 2020